2023-07-20 13:11:48 ET
Summary
- TERN's TERN-701 is being developed for Chronic Myeloid Leukemia (CML), but NVS' Scemblix is similar and already approved.
- TERN-701 may offer benefits to Scemblix, some of which could become apparent as early as this year with some data from a partner's phase 1 trial.
- TERN's TERN-501 is set to produce data in Q3'23 from a phase 2a trial in nonalcoholic steatohepatitis (NASH).
- As with TERN-701, TERN-501 has competition that is further ahead, but showing differentiation would be a step in the right direction.
Terns Pharmaceuticals ( TERN ) is a biotech with a few drugs in the clinic including; TERN-701 for chronic myeloid leukemia ((CML)) and TERN-501 for nonalcoholic steatohepatitis ((NASH)). A recent press release notes TERN is hosting a virtual event with key opinion leaders to discuss TERN-701, and the CML landscape, on July 25. Further TERN-501 has a readout from a phase 2a study in NASH due this quarter. As such, now is a good time for a review of the prospects for these drugs.
The CML Drug: TERN-701
TERN's TERN-701, an allosteric inhibitor of the fusion protein BCR-ABL, is currently under development for Philadelphia Chromosome positive (Ph+) CML. Targeting BCR-ABL, albeit not at the allosteric site, first saw success with Novartis' ( NVS ) imatinib (Gleevec), which was the first tyrosine kinase inhibitor (TKI) approved, in 2001. Since that time, several other BCR-ABL inhibitors have been developed and approved, to deal with issues such as intolerance and resistance.
Figure 1: TERN's TERN-701 targets the allosteric site of the BCR-ABL fusion protein (left panel). TERN lays out the case and upcoming milestones for TERN-701 (right panel). (TERN Corporate Presentation, June 2023.)
A Competitor is Already Approved
Even if TERN is successful with its allosteric BCR-ABL inhibitor, it won't be the first such compound to market. NVS' Scemblix (asciminib), an allosteric BCR-ABL inhibitor, was approved in late 2021 by the FDA for chronic phase Ph+ CML patients who have failed two tyrosine kinase inhibitors, or chronic phase Ph+ CML patients who are positive for the T315I mutation (a mutation that confers resistance to many other BCR-ABL inhibitors).
Given it has the same mechanism of action, TERN-701 doesn't offer the most obvious advantages over Scemblix right now, but as clinical data is collected, we might find out there is some differentiation. Both TERN-701 and Scemblix are oral therapies but the Prescribing Information for Scemblix notes that the recommended dose in Ph+ CML is 80 mg once daily, or 40 mg twice daily, except in those with the T315I mutation, where 200 mg twice daily is recommended. TERN-701 could offer simplified dosing regimes if once daily dosing is found to be suitable in trials of the drug.
The Prescribing Information for NVS' Scemblix also notes potential for certain drug to drug interactions, notably, interactions with drugs metabolized by CYP2C9, as Scemblix is a CYP2C9 inhibitor.
Figure 2: Screenshot from the Prescribing Information for Scemblix. (Scemblix Website.)
Due to CYP2C9 inhibition, the combination of Scemblix with various non-steroidal anti-inflammatory drugs (NSAIDs), certain blood pressure drugs, certain diabetic medications, the anticoagulant S-warfarin and the antidepressant fluoxetine, among others, should be avoided. Beyond drug to drug interactions, even side effect profiles for Scemblix and TERN-701 could differ, despite sharing the same mechanism of action. For example, Scemblix has a note regarding its potential to cause hypertension in the warnings and precautions section of the Prescribing Information.
Beyond simplified dosing, side effects and drug interactions, TERN's corporate presentation contains results from preclinical work suggesting there could be some efficacy advantage of TERN-701 over Scemblix. We'll have to see if that plays out clinically, it isn't a guarantee, and showing a differentiated side effect profile for TERN-701 over Scemblix could probably be done before showing any efficacy advantage.
TERN-701 is Already in the Clinic
A phase 1 trial of TERN-701 is already underway in China being run by TERN's partner, Hansoh Pharma , that has an estimated enrollment of 108 patients, with a dose escalation and dose expansion portion. While the estimated primary completion date of that trial is December 30, 2024, a recently presented a Trial in Progress poster at the American Society of Clinical Oncology Annual Meeting in June 2023 shows a trial doesn't represent a black box from which investors will get no information until it is over. Indeed in a press release prior to the update at ASCO, TERN noted the ASCO poster highlighted that the fifth cohort in the dose escalation portion of the trial had completed enrollment of the study as of April. Further, TERN's CEO also seemed hopeful of seeing some data presented from the trial later this year.
We are encouraged by the speed at which our partner Hansoh has progressed the dose escalation part of the Phase 1 trial in China. This reaffirms our hope that we could potentially see data accepted for presentation later this year.
Sen Sundaram, TERN CEO, May 25, 2023, press release.
Figure 3: Trial design of Hansoh's phase 1 trial of TERN-701. Note the once daily dosing. (TERN Corporate Presentation, June 2023.)
TERN plans to initiate its own phase 1 study of TERN-701 at sites in its own territories in H2'23. Still, some signs of differentiation could come sooner, depending on what Hansoh reports from its phase 1 trial later this year (assuming that timeline is met).
The NASH drug: TERN-501
TERN has a near-term readout (Q3'23) from a phase 2a study of TERN-501, the company's thyroid hormone receptor-beta (THR-beta) agonist for NASH. The placebo-controlled Duet study of TERN-501, with or without TERN-101 (a farnesoid X receptor agonist), has already completed enrollment and so I don't expect a shift in the timeline for reporting of those results.
Figure 4: Design of TERN's phase 2a trial of TERN-501, a THR-beta agonist, with or without TERN-101, a FXR agonist. (TERN Corporate Presentation, June 2023.)
MDGL's Resmetirom: Years Ahead, but a Key Competitor
TERN likes to take on competition so of course TERN-501 isn't the only THR-beta agonist out there. For example, Madrigal's ( MDGL ) resmetirom is years ahead, having produced phase 3 data and looking close to accelerated approval in NASH with liver fibrosis, with submission of a New Drug Application to the FDA already complete .
TERN notes a potential advantage of greater selectivity of TERN-501, for THR-beta over THR-alpha, than resmetirom. Targeting beta receptors allows a beneficial action on NASH, whereas alpha receptors can mediate off target effects, leading to problems such as cardiovascular side effects. A 23-fold difference in selectivity for TERN-501, relative to a 15-fold difference with resmetirom, seems marginal however, so whether that would actually translate into noticeably less side effects for a given benefit on NASH isn't certain.
Further, TERN notes that TERN-501 appears to produce greater increases in sex hormone binding globulin (SHBG) than resmetirom was capable of in its clinical trials. SHBG is a pharmacodynamic biomarker for activation of THR-beta.
Figure 5: Changes in Sex Hormone Binding Globulin following dosing with TERN-501 in one case or resmetiron in another. (TERN Corporate Presentation, June 2023.)
The biomarker SHBG is significant, as MDGL's trials have provided some support for the idea that SHBG is a predictor for the magnitude of disease improvement, not just a tool to confirm activation of THR-beta. That is, those who saw a greater change in SHBG also saw a greater reduction in liver fat as measured by a type of magnetic resonance imagine (MRI), and greater improvement in disease scores.
Figure 6: Changes in SHBG versus responses in MDGL's phase 2 and phase 3 NASH trials of resmetirom. (TERN Corporate Presentation, June 2023.)
However, the theory that a separate THR-beta agonist (TERN-501) that produces even more of an SHBG increase than resmetirom, will thus produce even better reductions in liver fat and disease activity scores, is still just a theory.
On top of the greater selectivity for THR-beta however, TERN-501 also offers reduced pharmacokinetic variability which will mean more similar blood levels of TERN-501 for a given dose across patients. Putting together greater selectivity with reduced pharmacokinetic variability and potentially greater activity based on the biomarker SHBG, I can see why there is some excitement about TERN-501.
Regarding the potential to add in TERN-101 and have a second mechanism of action, activation of farnesoid X receptors, I'm less excited. As Avisol Capital Partners noted in December, 2022, TERN-101 shares a mechanism with "the well-known but not so well-regarded obeticholic acid," from Intercept Pharmaceuticals ( ICPT ). Obeticholic acid has actually had success in primary biliary cholangitis, where it is approved. In the NASH indication however, ICPT reported in June 2023 it was halting investment following feedback from the FDA regarding the drug in the NASH indication.
Financial Overview
TERN had cash, cash equivalents and marketable securities of $297.5M at the end of Q1'23, which it believes will take the company through to 2026. R&D expenses were $17.1M in Q1'23 and G&A expenses were $7.1M in the same quarter. Net loss was $21.5M in Q1'23. Net cash used in operating activities was $14.4M in Q1'23 and so TERN's estimate of cash lasting until 2026 certainly seems feasible, but of course clinical plans could change based on the data the company produces with its pipeline members and R&D expenses could pick up. In any case, there isn't any near-term concern about cash, which will bring the focus back onto the company's data.
There were 56,680,148 shares of TERN's common stock outstanding as of May 5, 2023, corresponding to a market cap of $468.2M ($8.26 per share). TERN then is trading with an enterprise value of $170.7M, the market has already assigned some value to its pipeline members, at a time when there are plenty of small biotechs trading at or below cash.
Conclusions and Risks
Rating TERN a buy
I think the opportunity to differentiate TERN-701 from the competition could come as early as late 2023, if we see some data from Hansoh's phase 1 trial. A simple observation of no issues with hypertension, in addition to efficacy in terms of molecular responses, could excite the market about TERN-701 and show that despite being behind Scemblix by years, it could take some market share from the drug. Notably, Scemblix is en route to being a blockbuster drug and already produced $76M in sales in Q1'23 despite only launching in the US in late 2021 (the drug is now approved throughout much of Europe and Japan).
With TERN-501, the reasoning is similar, the competition is years ahead in some cases, as with MDGL's resmetirom, but at this stage TERN just has to show this drug might have some point of difference that makes it worth developing further.
I stop short of rating TERN a strong buy because it has no revenues, so has no underlying business to fall back on and the company has no control over competitor readouts, of which there are going to be plenty over the years due to the competitive indications TERN is targeting.
Risks
Firstly, with TERN's pipeline being targeted to such competitive spaces of the market, there is always the risk of the company's drugs performing to the extent of hitting a primary endpoint, but underwhelming relative to competitors nonetheless. For example, if TERN-701 produces responses in CML patients but doesn't offer any apparent differentiation to Scemblix, the stock could actually sell off. Indeed Scemblix is under development in first-line Chronic Phase Ph+ CML, meaning it could replace generic imatinib for newly diagnosed patients. If Scemblix seems to be moving further ahead while TERN-701 languishes with no differentiation to offer, TERN could trade down.
Further, if the company experiences delays in enrollment or delays in initiating its trials, catalysts such as data readouts can move further into the future. In the case of TERN-701, delays in getting underway or enrolling will move key readouts where TERN has an opportunity to show differentiation of TERN-701 into the future. Delays to move forward with TERN-501 following a readout from the phase 2a study could also occur and probably wouldn't be well received.
For further details see:
Terns Pharmaceuticals: Facing Impressive Competition, But Not Completely Out Of Its Depth