2023-08-17 16:41:26 ET
Summary
- INBX is researching a breakthrough for Alpha-1 Antitrypsin deficiency and has received regulatory support for its INBRX-101 pipeline.
- The AATD treatment market is expected to experience robust growth in the coming years.
- INBRX-101 has received Fast Track designation from the FDA for the treatment of emphysema.
- Despite these constructive points, market-generated data implies difficulty in the stock trading beyond former highs.
Investment summary
Since my last publication on Inhibrx ( INBX ) there have been numerous updates in the investment facts that need discussion. My investment cortex is most interested in INBX's research into Alpha-1 Antitrypsin deficiency, where it has received regulatory support in 2023 to expedite its INBRX-101 pipeline.
Whilst these developments are constructive, the market-generated data is not so constructive in my opinion. This report will run through all of the relevant factors forming this view. Chiefly, the stock has broke a key line of support in the last month after riding a downtrend of resistance since late 2022 [Figure 1]. Net-net, reiterate hold.
Figure 1.
Critical investment facts
As a reminder, INBX is a clinical-stage biopharmaceutical company, aiming to provide medical breakthroughs in complex disease segments. It does this via its proprietary modular protein engineering platforms.
The company is exploring several clinical programs across 4 disease segments, 3 of which are focalized on various forms of malignancy. The remaining segment—the one I am most interested in for INBX—is its candidate for treating Alpha-1 Antitrypsin deficiency ("AATD"), INBRX–101 . I'll discuss the compound a little later. The company's full pipeline is observed below. Figure 2.
Overview of AA TD + AATD market economics
1. AATD Pathophysiology
AATD is characterized by impaired synthesis and secretion of alpha-1 antitrypsin ("AAT") protein. It is an autosomal, co-dominant genetic disorder, that stems from mutations in the SERPINA1 gene , primarily affecting Caucasians of European descent.
As mentioned, the disease's hallmark is decreased serum levels of AAT. AAT is synthesized in the liver. It performs two critical functions in the body:
- It prevents the over-activity of various enzymes that destroy pathogens in the body. Left 'unchecked', these enzymes can turn on the body's own cells.
- It protects the liver from over-expression of neutrophil elastase. Basically, this enzyme is part of the body's immune system. If left unregulated, too much neutrophil elastase can result in the enzyme damaging the body's own cells, rather than the pathogens it seeks to destroy.
- It also safeguards the lung parenchyma (where gaseous exchange occurs) by neutralizing excessive neutrophil elastase activity. In a nutshell, AATD patients have reduced AAT levels in the lung, rendering them vulnerable to tissue damage caused by neutrophil elastase .
AATD c an eventually lead to destruction of the lung parenchyma, airway obstruction, and irreversible airflow limitation. This same damage is seen in conditions such as chronic obstructive pulmonary disease ("COPD") and emphysema—conditions typically seen in those who are long-term smokers of cigarettes. Furthermore, the intra-hepatic accumulation (in the liver) of the mutated AAT leads to hepatic injury, paving the way for liver fibrosis, cirrhosis, and hepatic carcinomas (liver cancer).
2. AATD treatment market
As you can see from the above analysis, there is a strong basis for companies to provide a meaningful breakthrough in this condition. As it stands, the only licensed treatment is a weekly IV infusion of plasma-derived AAT obtained from blood donors. But many players are investing heavily at providing a more meaningful treatment.
By the same token, the AATD treatment market has witnessed steady growth over the past decade, with the introduction of various therapies and heightened emphasis on early detection and intervention. In terms of the economic drivers, because AATD produces both pulmonary and hepatic illness, the scope of potential treatments spans both segments of these markets.
Current estimates value the market at ~$1.36Bn, with contrary sources valuing it at $1Bn –$1.4Bn, and forecast at a geometric growth rate of 6-12% into 2031, depending on the source. Hence, there are selective opportunities for the players involved, should they get it right. INBX is one of these in my view.
INBRX–101 overview
For reference, INBRX-101 is an optimized recombinant AAT augmentation therapy. The FDA granted orphan drug designation to INBRX-101 in March 2022.
In May last year, top-line readouts from its phase 1 INBRX-101 trial illustrated 1) its efficacy in restoring normative AAT levels, and 2) at a lower dosing frequency than the current standard of care. Safety data also held up well, with no severe or adverse events observed at doses ranging up to 120 mg/kg, delivered intravenously.
Recent INBRX-101 developments
As of April 2023, INBX initiated the ElevAATe trial to assess the efficacy of INBRX-101 in treating patients with emphysema attributed to AATD. This will be compared to plasma-derived AAT—the current standard of care, as mentioned earlier.
The study will measure the change in mean average functional AAT concentration as its primary endpoint. INBX will measure this via anti-neutrophil elastase capacity. We can expect the initial data from the study in H2 FY'24, so this is a potential catalyst to look forward to over the next 12 months.
The emphysema route seems to be the most promising for INBRX–101 in my view, at least in the early stages of the story. In May this year, the FDA granted Fast Track designation ("FTD") for the compound as a treatment for emphysema. If it can prove safety and efficacy, INBX could benefit from an expedited review from the FDA, potentially speeding up its approval and commercialization. That the FDA granted the FTD is positive in my opinion. It suggests it has reviewed the preliminary data and liked what it saw, thus wanting to get more data for review. INBRX–101's mechanism of action is summarized in Figure 3.
Figure 3.
INBX financials
The company is still in the clinical stage, meaning it is not booking meaningful revenues at the time of writing. Instead, investors are financing the company's research and investigation efforts by providing external financing. The capital is then put at risk into INBX's R&D efforts in developing its clinical programs. The risk for investors is that any or all of these programs fail at the various stages of pathway development (this is either phase 1, 2 or 3 studies in the U.S.).
Uses of cash
The firm allocated $34mm toward R&D expenditures in Q2 FY'23, up ~$5mm YoY. A bulk of the expenditures were put towards INBRX–101's Phase 2 trial in emphysema, in addition to its Phase 2 trial of its INBRX–109 compound for chondrosarcoma. Additional uses and sources of cash from Q4 FY'20–Q2 FY'23 are observed below.
Figure 4.
Critically, it issued $130mm of equity stock in Q4 last year and $30mm of debt to fund its clinical programs this year. It spent $8.5mm last quarter to accounts paid, CapEx and cash interest ($6.7mm).
Liquidity and cash runway
It ended the quarter with $192.5mm in cash on hand in Q2, working through $81.5mm over the last 12 months or so. As a going concern, this rate of cash burn isn't alarming in my view given the fact INBX seems to have a large capital pool behind it, and that its short-term liabilities are covered 6.5x from liquid assets [Figure 5].
Figure 5.
The runway on its cash balance appears well-serviced over the coming 12 months as well, supporting management's comments in the 10-Q from Q2 FY'23. My estimates have the $192.5mm to cover the next 4.5 quarters (around 14 months) of cash outflows at the current burn rate [Figure 6]. In the same breath, this also suggests the company will need to raise additional capital (debt, equity) after this period is up.
Figure 7.
Sources: BIG Insights, Company filings
Technical considerations to guide price visibility
In the absence of robust fundamentals market-generated data is integral in guiding price visibility for INBX.
Starting with what's seen in the technicals of its equity stock—the cloud charts and point and figure studies in Figures 8—10 are telling (I'll refer these to (8), (9) and (10) for simplicity here). Chart (8) illustrates the breakdown in price structure that's ensued over the last 3 months. I'd note that healthcare/biotech has undergone a large correction in the past 2 months, with only the strongest names avoiding the selloff. INBX now sells near 52-week lows and both the price and lagging lines are positioned below the cloud. This is certainly not bullish. This looks to the coming weeks, so I'd be neutral over this time frame at least.
Figure 8.
In (9), showing the weekly cloud chart, and looking out to the coming months, the pictures isn't much different. The lagging line (in blue) currently tests the cloud base, and a bounce from here is critical in order for INBX to regain support. I'd be looking to a move toward $23.00 by October in order to get interested from a technical perspective. Until then, this chart is neutral in my view.
Figure 9.
It is unsurprising to see downside targets forming based on the latest price action, and we have targets as low as $6.20 from the point and figure studies below. This comes after a number of down thrusts from previous highs, where $21–$23 was the range. I'd need to see it pushing to this level before turning constructive. Again, this is neutral in my view.
Offsetting these downside targets, is the options-generated data that shows extensive demand for call options priced at a strike depth of $22.50, both for August and September expiry. This is actual capital at risk that shows where investors are tactically positioned.
Figure 10.
Data: Updata
Critical takeaways
For those speculating on clinical-stage assets, INBX presents as an interesting name via its pipeline of novel therapies. I'm most interested in its INBRX-101 segment, looking for a breakthrough in AATD. It has a ways to go yet, but so far, the following points are worth summarizing:
- The AATD treatment market is poised for extensive growth over the coming decade. It is estimated ~100,000 adults have the condition in the U.S. alone.
- INBRX–101 has received regulatory support by the FDA granting fast-track designation for its use in emphysema.
- It has begun Phase 2 trials for the compound, avia the ElevAAte study to observe its safety and efficacy in treating the condition.
- The firm is reasonably well capitalized with what seems a strong capital pool that is providing ongoing research funding.
- Market-generated and options-generated data illustrates breadth in potential outcomes on future price action (both to the upside and downside), thereby supporting a neutral view.
Net-net, whilst the company has potential to catch a bid with its INBRX-101 and other readouts into FY'24, the lack of fundamentals and robust clinical data has me neutral here. Reiterate hold.
For further details see:
Inhibrx: INBRX-101 Developments Constructive, Market-Generated Data Not So Much