J.P. Morgan Healthcare Conference Day 1 Quickie

Bottom-Up Insights
  • Quick updates for Coherus BioSciences, Exact Sciences, Krystal Biotech, and Selecta Biosciences.
MVP Article Disclosure: Please note this article was from our MVP platform and was written prior to September 2023. We've made numerous refinements, which means article structure, image and data visualization formats, and terms may have changed.

One of my mentors once described the J.P. Morgan Healthcare Conference as "Brownian motion with people." It remains one of the biggest weeks of the year for announcements nonetheless. In fact, companies not in attendance usually issue updates during the week to piggyback on the media coverage.

Let's quickly review some of the announcements made this morning in alphabetical order.

Coherus BioSciences Grabs New Biosimilar

What's old is new again. Coherus BioSciences announced it inlicensed an Eylea biosimilar from Klinge Biopharma for €30 million upfront, to be paid in cash and common stock. Eylea is one of the bestselling drugs in the world with estimated full-year 2022 U.S. revenue of over $6 billion. It's used to treat age-related macular degeneration (AMD), diabetic retinopathy, and other ophthalmology indications (eye diseases).

This licensing deal is interesting for two reasons. First, the company terminated development of its own Eylea biosimilar candidate in February 2021 to refocus resources on the month-old partnership with Junshi Biosciences and development of toripalimab.

Second, Coherus BioSciences partly explained the termination of its own asset by pointing investors to a Lucentis biosimilar, now known as Cimerli. The older-generation ophthalmology asset treats many of the same indications, but has less convenient dosing and a market opportunity of only $1 billion or so. Both Lucentis and Eylea are anti-VEGF drugs.

Management thought the Lucentis biosimilar could elbow its way into the much-larger Eylea market. That may have been true in certain niche corners of the market, but Solt DB Invest forecast and modeling largely excluded any impact from crossover. The acquisition of a dedicated Eylea biosimilar supports that bottom-up insight and supports a broader ophthalmology portfolio together with Cimerli.

Coherus BioSciences expects to launch the Eylea biosimilar in 2025, which is about one year behind the first biosimilar launch in the market. It will split profits with Klinge Biopharma. This could add at least another $100 million in 2026 revenue, but it's still very early.

Exact Sciences Underpromises and Overdelivers

Exact Sciences announced preliminary fourth-quarter and full-year 2022 operating results over the weekend that significantly outpaced the most recent guidance ranges. To be fair, the company appeared to be lowballing expectations throughout the last year.

  • The business previously expected Screening revenue of roughly $357.3 million for Q4, but reported preliminary revenue of $402.3 million. The Screening segment primarily includes Cologuard and hereditary genetic testing.
  • The business previously expected Precision Oncology revenue of roughly $139.4 million for Q4, but reported preliminary revenue of $143.4 million. The Precision Oncology segment primarily includes the portfolio of Oncotype diagnostic tools that guide therapy optimization decisions for individuals with confirmed cancer diagnoses.

Investors have a relatively high degree of confidence in the company's growth trajectory for the years ahead as Cologuard continues to steal market share in the colon cancer screening space from colonoscopies and FIT tests. Generating $50 million in full-year 2022 revenue above expectations both solidifies that confidence and provides a higher base for compounding growth in 2023 and beyond.

The next major announcement from the company is expected to be the BLUE-C study results for the next-generation Cologuard test, or Cologuard 2.0, and could come any day now. A case-control study (using samples with known outcomes to gauge results) delivered a sensitivity of 95%, specificity of 92%, and precancerous lesion detection of 57%. Real-world studies such as BLUE-C tend to achieve slightly lower performance across those metrics compared to their case control studies, but staying in the ballpark could lead to another leap higher in shares.

  • Press release announcing preliminary 2022 revenue
  • December 2022 company update discussing the colon cancer screening market, in the context of Guardant Health's disappointing liquid biopsy results

Krystal Biotech Gets a Three-Month Delay

The U.S. Food and Drug Administration (FDA) requested another three months to review the biologics license application (BLA) for Vyjuvek from Krystal Biotech. The company replaced a hardware unit used in a downstream purification step for manufacturing the gene therapy product. It provided regulators the information and comparability data to the replaced hardware unit on December 20, 2022. However, the FDA considered this a major amendment and needs more time to review the change.

A BLA filing for a gene therapy candidate is tens of thousands of pages long. Over half of the data submitted aren't from clinical trials, but for chemistry, manufacturing, and controls (CMC). Biology is complex and the FDA doesn't mess around.

I figured a delay like this might be possible, which is why I provided a "what if?" modeling scenario without changing the margin of safety range ahead of FDA approval. Taken from the introduction of that article:

The manufacturing facility being used for initial production volumes of Vyjuvek supplied product during clinical trials, which reduces regulatory risk for manufacturing data and inspections.

But hey, this is gene therapy. The FDA sets a very high bar. Investors can never be too sure approval will occur on time – or at all.

Therefore, although I expect Vyjuvek to earn FDA approval, I'm keeping the existing margin of safety range in place. The uncertainty of the upcoming approval decision for Vyjuvek and steady stream of delays across all other programs creates just enough doubt to subdue the definition of "attractive valuation."

I kept the margin of safety ranges in place because I didn't want subscribers to gobble up shares in anticipation of a pop, only to have something like this happen.

To be clear, this three-month delay doesn't impact the market potential of Vyjuvek or the revenue modeling. But further delays would negatively impact revenue modeling by shifting the timing of revenue recognition in 2023 and beyond. Investors can sleep a little easier knowing Vyjuvek is the best option in the competitive landscape, but this is a development to keep an eye on.

The new FDA approval decision date has been set for May 19, 2023. It was previously expected in mid February.

Selecta Biosciences Snags First Licensing Deal for Xork

Selecta Biosciences announced a licensing deal with Astellas Gene Therapy for Xork (pronounced "zork", rhymes with "dork"), one of the newest parts of its technology stack. The partner will use the tool as a pretreatment regimen for its gene therapy candidate AT845 in Pompe disease.

The company will receive $10 million upfront and is eligible to receive up to $340 million in development and commercial milestones, plus royalties on commercial sales. I believe this is the largest upfront milestone payment the company has ever generated.

Astellas is now the fifth different company to license immune tolerance tools from Selecta Biosciences -- all since 2019.

Xork was in-licensed from Genovis in 2021. It's an enzyme that temporarily chops up neutralizing antibodies (NAbs) and may allow individuals to become eligible for gene therapy treatment.

Many gene therapies are based on adeno-associated virus (AAV) vectors. However, adenoviruses circulate during cold and flu season. As a result, as much as 40% of the U.S. population -- including some of you reading this -- is ineligible for AAV gene therapy. These individuals already have NAbs to the AAV vector used in some gene therapy treatments, which means providing even a single dose could drive a life-threatening immune response or simply prove ineffective.

A tool such as Xork could be used as a pretreatment to make all individuals eligible for life-saving gene therapy treatments.

The company provided several more updates, such as confirming it initiated a phase 1/2 clinical trial for its wholly-owned gene therapy candidate in methylmalonic acidemia (MMA). But I wrote a deep dive into the technology platform over the weekend that will publish today or tomorrow that will touch on the timelines.