Biotech portfolio updates – Endocyte and AVROBIO

Endocyte – Surprise acquisition driven by scarcity value

Last week’s acquisition of Endocyte (ECYT) by Novartis (NVS) came as a surprise as Lu-PSMA-617 just started P3 and results are not expected until 2020. This is Novartis’ second radiopharmaceutical acquisition within a year, following the AAA acquisition, making Novartis the undisputed leader in targeted radiotherapy.

The decision to buy Endocyte was likely driven by the commercial performance of Lutahtera (originally developed by AAA), which generated Q3 sales of $56M compared to $24M in Q2. This trajectory in the first year of launch (approved January 2018) proves that radiopharmaceuticals can become meaningful products despite the logistic hurdles.

The resemblance between Lutathera and Lu-PSMA-617 are clear. Both agents target solid tumors and demonstrated a significant anti-tumor effect. Importantly, both are based on small targeting moieties (peptides) and 177Lu as a payload, which translate to a favorable safety profile in contrast to antibody-based products which suffer from a narrow therapeutic window.

Lutathera and  Lu-PSMA-617 could mark the beginning of a new innovation cycle in targeted radiotherapy but from an investment perspective, there are very few publicly traded companies that develop radiopharmaceuticals, let alone companies with the desirable, clinically validated profile (small targeting moiety, beta emitters, solid tumors). Looks like the experience with this class of drugs has been so disastrous that investors will have to wait until more targeted radiotherapy companies emerge. This scarcity value probably played an important role in Novartis’ decision to buy Endocyte so early.

AVROBIO – Another gene therapy cautionary tale

So far, 2018 has been mixed for gene therapy. The only clear positive news came from Sarepta’s (SRPT) DMD program which demonstrated impressive biomarker data in 4 patients but clinical improvement and durability are  still an open question. Most other companies, many of which I hold, published mixed to encouraging data (Spark, Audentes, Nightstar, Ultragenyx). Some, like Krystal (KRYS) presented positive data but sample size is too small to rely on.

The most disappointing readout was from AVROBIO’s (AVRO) Fabry program. As followers of this blog know, I was initially very excited about AVRO’s platform based on the premise of treating rare genetic metabolic diseases with a single ex vivo treatment. AVRO utilizes lentiviruses which integrate into the genome so the vector is not diluted over time as cells divide (as opposed to AAV-based therapies). Blood progenitor cells are collected from the patient, genetically modified to express the missing protein and then re-injected and populate the bone marrow. The concept is similar to that of Bluebird Bio (BLUE) but AVRO’s claim to fame is its mild conditioning regimen which is safer and results in less complications, making it relevant for broader patient populations.

AVRO went public with data from two Fabry patients (see below), demonstrating clinically meaningful levels of AGA, the missing enzyme in Fabry disease, after 12 and 3 months respectively. This data set was enough to support an IPO at a valuation of $450M, which climbed to $1.2B last month.

AVRO - #1Earlier this month, the company provided an update which included additional follow up on the two initial patients as well as preliminary results from a third patient (the first to enroll in a company-sponsored study). As can be inferred from the figure below, both patients experienced significant drops in AGA levels with a troubling trajectory.

AVRO - #2

The trend was also seen with vector copy number (VCN) which is a way to quantify the number of transduced cells in the blood.  As can be seen in the figure below, VCN number tend to fluctuate but are directionally correlated to the AGA levels. The company did not report AGA levels for patient 3 but his VCN value 1 month following treatment was very low. In retrospect, a declining VCN trend had already been seen at the time of the IPO with patient #1 but this was overlooked by investors (myself included).


While the trend is very troubling there is still a theoretical possibility that AGA levels for the first two patients will stabilize and stay within the clinically relevant range (above 1). Personally, I view it as unlikely based on experience with Bluebird’s Lentiglobin. Lentiglobin has had its share of setbacks but a quick look at some of the early data in beta thalassemia provides a clear example of how a good engraftment looks like. Expression reaches a plateau after 6-9 months and stays relatively stable (especially in non β0/ β0).

BLUE - HbA- T87Q

Source : Bluebird Bio , Dec 2015

This is definitely not the end of the road for AVRO, which is already working on improving its core technology. Nevertheless unless the curves for patients 1 and 2 miraculously stabilize, it’s back to the drawing board with a long waiting period. AVRO can still be a good investment long-term but even after the drop it has a market cap of $717M, which I find unrealistic for a company that doesn’t have a viable product. This is another testament for the dysfunctional nature of today’s public biotech market, where valuations are so out of touch with reality. When I look at companies like AVRO and some of its peers like Rubius (RUBY) (Market cap of $1.35B without treating a single patient) the problem is not with the companies but the unsustainable valuations the market ascribes to them.

Biotech portfolio updates

I am adding another portion of the ProShares UltraShort Nasdaq Biotech (BIS) as I think that the last volatile weeks are a beginning of a broad correction. I intend to keep a significant cash position which I hope to deploy next year.

Portfolio holdings – Oct 28, 2018

biotech portfolio - Oct 28 2018- after changesBiotech etfs - Oct 28 2018 - after changes

192 thoughts on “Biotech portfolio updates – Endocyte and AVROBIO

  1. Ohad

    If CAR-T hardly works. Why so Much hype. It’s so expensive and I don’t see how will
    They make any money.

    What is your favorite targeted therapy that is in pre clinical stage. I remember you did great write ups on TAT Conference. Anything excited you as a modality that has promise? Also any hope for MYC Or KRAS targeting?


  2. How do you feel about the “offering curse”? There have been dozens and dozens and dozens of secondary offerings done in the past 2 years. After offering, the price has never ever recovered (yes I know there are exceptions, but few). It seems like an offering is a double negative to stock price: 1. Offering happens, PR news out, stock drops and 2. The tutes that got in during offering sell out their position, stock drops again. It’s a lose lose. Is this not borderline a scam? We are not talking about thousands (like me and you), but tens and even hundreds of millions basically a guaranteed loss

    To name a few out of many many…
    MDGL – $300M raised at 305, now under 100
    VKTX – $175M raised at 18.50, now under 8
    BOLD – $150M raised at 29, now under 21
    PIRS – $44M raised at 8, now under 3
    APLS – 140M raised at 25.50, now under 13
    GLYC – 119M raised at 17, now under 9
    I could go on and on and on…


  3. Kay Lee,

    my 2 cents on your topic: the harsh correction is mostly not related to the capital raise of these companies. In contrast, these companies can be lucky that they have raised at the high prices, before the current correction. Some of these companies would probably be considerably lower in case of low cash level given burn rates and worsening financing possiblities.

    PIRS specifically had also fundamental setbacks which justify a correction (although it is now approx. at EV = 0 which is not justified imo).


  4. RAM – Agree that there was a biotech correction in 2H:15 but I think valuations of smidcap biotechs need to go down significantly.

    dave (XENE) – No, I don’t think anything has changed. Today the company have more data which are directionally positive, next step is efficacy data in late 2019 or 2020.

    samuk (ABEO/RGNX/ONCE) – I am still waiting for a better entry point before adding, it can be a lower price or more clinical data.

    Anna (SRRK) – There is a lot of activity around TGFb and SRRK seem to havea valid approach going selectively after TGFb1. My main issue here is the high vluation in the absence of clinical poc. VKTX has strong clinical data, approach is different, going after the metabolic features of NASH which eventually translate to fibrosis. TGFb is more of a pure fibrosis angle that needs to be validated.

    KURA – Not familiar with these programs but I don’t view them as a direct threat as they target different mechanisms and populations. My issue with KURA is the decrease in response rate….

    andre – Most of the companies I know are private. FATE has a couple of preclinical programs.
    APTX – Don’t kno them well but the fibromyalgia dat aset looks quite small and preliminary.

    Richard Baker (ADVM) – Their cash position is a big advantage but recent setbacks took away most of the upside potential imo. Not optimistic about their AMD program.

    Christian (AMRN) – Agree about Vascepa’s potential, the effect looks real. The open question is what portion of pts are relevant for the drug (high TG, LDL well controlled).

    Christian (ARNA) – Not following the story closely, will take a look.

    BioTrader – They don’t work outside of B cell malignancies, still waiting for the breakthrough in solid tumors.
    Yeah, I used to go to TAT when I had more free time, good meetings…
    Cannot think about a preclinical oncology asset in particular, I am cautiously optimistic about ZYME’s new ADC vintage, will write about it on my next update. RAS and MYC have been out there with a lot of failed attempts, looking forward to seeing data from AMGN and MRTX.

    Kay Lee – Overall I think it’s understandable that biotech companies raise money when markets are good and stock enjoys a positive sentiment after data readout or a deal. These offerings took place when valuations in general are quite high and following the recent drops prices of many biotechs fell sharply. Let’s see what happens in the long run.

    Richard Baker (MGEN) – Yes,wasn’t aware they are now at 3, they have clear efficacy in CTCL which isn’t a huge market but still, low EV and the fibrosis program looks very interesting…

    Thanks everybody for the kind wishes, wishing you a happy and prosperous new year!


  5. I feel like when someone asks you for your thoughts on a stock, a very common reply is that you are “waiting for data” “waiting for more data” “waiting for clinical proof” etc etc.

    1. What are the exceptions to the rule? Are there any? Or do you always wait for some type of validation?
    2. Do you not fear that by the time good data comes out, you missed your entry/missed the big pop? I mean, biotech for the most part, is a data gamble, so getting in before data is key, no?
    3. Do you purposely tend to shy away from early companies for reasons above? like early P1?


  6. What do you think about best in class drugs developed by ARNA:
    1.) Ralinepag outlicensed to UTHR for 800m$ upfront payment and potential of further 400m$ and low double-digit tiered royalties on annual net sales
    2.) Etrasimod as the most specific S1P receptor modulator (subtypes 1,4 and 5) with much better PK properties than Ozanimod (bought by CELG for 7.2b$) or Fingolimod (NVS brand Gilenya) to treat different immune and inflammatory-mediated diseases (eg Ulcerative C., Crohn, PBC, atopic dermatitis, MS etc.)
    3.) Olorinab with positive 2a results in patients with abdominal pain (Crohn Disease)
    4.) APD418 in development for treatment of DHF (Decompensated Heart Failure)
    and 1.3b$ cash!


  7. Hi Ohad,

    Would love to hear your thoughts on BLRX and specifically their CXCR4 antagonist BL-8040. Despite their extremely slim pipeline this particular compound seems to have a lot of utility across indications. Target is validated and it’s clearly superior to Mozobil for stem cell mobilization. Price seems attractive. Still too early?


  8. The purchase of celg by bmy may be a tailwind for highly profitable midcaps like Exelixis and/or have a positive impact on IBB. You believe that BIS is a hedge but today’s megadeal could hurt BIS. You focus mostly on micro to smallcap but do like any midcaps?


  9. RGNX

    Whats your take on this stock? Do you like the update and Data up to date? Big pipeline and IP.

    Where do you See the Stock in 5 years?

    Thank you.


  10. Hello Ohad!

    Happy new year to you and everybody on this blog!

    I am curious to know your take on the ESPR deal–it seems the market did not like it because it favored a M&A – however the CEO had long pointed to a deal for EU rights. This to me seems like a sensible deal, and if all the milestones are hit the $900M is close to 80% of the current market cap. Of course people might be nervous about execution and the costs/cash flows of marketing and sales… what is your reading?

    MGEN all of a sudden it spiked, but it is still very low market cap. I was able to pick up 2000 shares at around $3.40 and I am hopeful that the company will execute and even attract commercial partners. It seems that mRNAs are becoming a hot area.

    Regarding NASH, it seems that the race is heating up. Merck just secured its partnership with NGM (they invested close to $500M in NGM over the past 5 years). Maybe this can be an indicator for NASH M&As in ’19 – any sense of what might happen to VKTX/MDGL? Do you have a blue sky scenario? It seems that both are going it alone and expecting high multiples. I have initiated a MDGL position on the expectation that they have a ph3 ready compound with solid data. I am also tempted to add VKTX at these levels but I am already heavily invested in that ticker.

    Finally, AUPH is getting close to results for DYS and rare indication, and LN results will roll in soon. It;s one of those stocks that has not taken a beating of late but remained steady at $500M valuation. Any expectations? Any hope DYS might be perform better than Restasis, AGNs cash cow?

    Thanks for your insight and help with biotech investing!



  11. Ohad
    do you follow MRKR?
    Early but interesting results with their multi-antigen targeted T cells – high CRs and durability in Lymphoma, Multiple Myeloma and ALL.
    What do you think about their LAPP & MAPP technology – looks cheaper and easier to produce compared to CAR-T. Also the safety profile looks fairly clean so far.


  12. ZYME 2019 goals:
    Initiating multiple ZW25 Ph2s
    ZW25 combo data (chemo & others)
    ZW49 Ph1 data
    Add collaborations on new platfotms

    Ohad, is it enough to justify the current valuation?


  13. Hey Ohad,

    Loxo goes to LLY for $8B!
    What a story. Any idea who will be next – I know this may sound a little euphoric – KURA? BPMC? QURE?


  14. Hey Ohad,

    Any opinions on ph2 Lysin Exebacase results for CFRX?
    What catches my eye is the 74.1% (exebacase) response rate compared to 31.3% (antibiotic alone) response rate in MRSA.


  15. And one more!
    Have you looked at the NMDA antagonist results for AXSM – shot up 130% but market cal still $200M a very small fraction of SAGE.


  16. hey Ohad,

    AXSM, currently with $250M market cap, has just released comparable results to SAGE 217 in PPD, perhaps with a better safety profile. This seems to be a very compelling story. They are also going after various indications, already in Ph3. SAGE valuation $6B – almost 30 times larger.

    What’s your take?

    I am looking at VTGN and RLMD too which will release MDD ph2 study results in the next 3-6months and have valuations under $50M.



  17. Dan the AXSM data look really interesting, and I also bought today in the low 8s. they have other important readouts still in this Q – let’s wait and see…


  18. Ohad, just building on your prior ECYT post, have you looked at Nordic Nanovector in the radiopharmaceutical space? Their lead drug is Betalutin, which consists of an antibody targeting CD37 on NHL cells conjugated to the beta-emitting isotope lutetium-177 via the chemical linker p-SCN-Bn-DOTA. Not sure if worth a deeper look as haven’t delved into the existing clinical NHL data yet but just curious if you have. Thanks!


  19. Hey Christian, Ohad,

    I started a position in AXsM, too, given results, upcoming catalyst, low market cap considering huge addressable market they are pursuing.
    Also, given $6B SAGE market cap I have started a small position in MRNS. Any thoughts on MRNA, Ohad?!



  20. Ruhu – Thanks, Happy New Year!

    Kay Lee – As biotech is very “data driven” I try to base my decisions on clinical data that ideally generate a conclusive signal, that is the basis for everything IMO. This is why I try to avoid preclinical companies, no matter how hot they are and how beautiful the science is. I guess every rule has an exception, perhaps in cases where the target is validated by someone else etc. Because most readouts are negative (or mixed), I prefer to wait until the data are out and pay a higher price for a company with a high likeihood of technical success.

    Rüdi (ARNA) – I don’t know them well but on the face of it, they look interesting with this amount of cash and clinical programs. The S1P program may be differentiated and it makes sense to go after IBD with Gilenya and Tecfidera going off patent soon.

    Attell (BLRX) – Don’t havea strong opinion there.

    Sam (BIS) – Yes, you are right about BIS being very dependent on large cap biotechs. There is also LABD which focuses on smaller biotech but not on small caps.

    karlos (ESPR) – Mixed feelings. On teh one hand they need someone who can sell the drug in Europe quickly but economics aren’t that great imo.

    Banusa (RGNX) – I view it as a core long term holding given its broad AAV exposure but I would still like to see a wholly owned program with a clear efficacy signal (which they still don’t have).

    Dan (ESPR) – As written above, I have mixed feelings about the deal, was hoping for a richer deal or a simple acquisition with a nice premium.

    MGEN – Yes mRNA are becoming hot but still without clinical poc. Note that MGEN are developing miRNA, which are related but a different class.

    VKTX/MDGL – So far I plan to keep both as their MOA is the most validated and potent one in NASH in my opinion. Hard to factor all the other drugs but I don’t think NASH is a winner takes all market, like diabetes and other metabolic disease, there will probably be combination regimes tailored per patient.

    AUPH – Haven’t been following them recently. I guess the fact the LN study wasn’t stopped due to mortality imbalance is a good sign.

    andre (MRKR) – Sorry, don’t know them well.

    ZYME – I really like their ADC, preclinical package is phenomenal, but I agree that ZW25 can’t justify current valuation. The partnered pipeline is quite impressive as well.

    Dan (LOXO) – An amazing deal for LOXO bearing in mind Bayer has most the Trk upside. Don’t know if LLY are going to see those 8B back if they rely on LOXO’s RET program….

    Josch (SAGE) – Thanks, nice data indeed, important readacross to MDD, hard to assess opportunity in PPD due to lack of precedence.

    Dan (CFRX) – From what I see their ITT analysis did not demonstrate a stat sig benefit.
    AXSM – It also caught my eye, don’t know the compounds they are using, I asume they don’t have COM patent protection but data looked very positive.

    Aviv (SNSS) – Not aware of anything specific.

    Dan (AXSM) – Their data is in MDD, agree it’s intriguing. Yes, a lot of MDD activity, hope one of them works….

    mcbio316 (Nordic Nanovector) – I am skeptic about Betalutin, it is based on a murine IgG so cannot be dosed repeatedly, they target NHL which might work with IgG but historically Bexxar and Zevalin did not perform well in this market given other Tx alternatives.

    Dan (MRNS) – Haven’t been following them but I prefer to wait until more data.



  21. Hi Ohad

    I think you missed an earlier question from me regarding Arvinas and targeted protein degradation in general – Its only preclinical so probably not that interesting to you?



  22. Jens Bjørn Jensen (ARVN) – It’s extremely interesting to me, very cool science but as you said still no data in humans so I prefer to stay on the sidelines.

    Hazardeur – Next Sunday!



  23. “Richard Baker (ADVM) – Their cash position is a big advantage but recent setbacks took away most of the upside potential imo. Not optimistic about their AMD program. ”

    Ohad, why are not optimistic about the AMD program? What’s left, if not the AMD program? Will the stock remain in your model portfolio?


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