Yay Or Nay On This New Gene Therapy Play?

We look at a small gene therapy concern that recently IPO’d. Is it a Buy?

Today we look at a small biotech concern that is headquarted across the pond in England. This emerging gene therapy concern just hit the public markets late last summer. Given that, this name is currently an ‘off the radar’ name we provide a ‘deep dive’ on in the paragraphs below.

Company Overview

NightstarTherapeutics (NITE) is a United Kingdom based clinical-stage biopharmaceutical company that was founded in 2013 and IPO’d four years later. Nightstar is focused on developing and commercializing a pipeline of new and perhaps curative, one-time retinal gene therapies for patients who suffer from rare inherited retinal diseases that would otherwise progress to blindness, and for which there are currently no approved treatments. The stock has a current market cap of approximately $400 million. The stock trades at right around $14.00 a share and the shares have a range of ~$10 to ~$25 since coming public.

Pipeline

Nightstar Therapeutics (NITE)Source: Company Presentation

The company’s lead product candidate is called NSR-REP1 and is being designed to treat choroideremia. Choroideremia is a rare, degenerative, X-linked genetic retinal disorder that predominantly affects males and is caused by a mutation in the CHM gene. NSR-REP1 is in Phase 3 of development but the company also has an early stage asset that they are developing. The company is pursuing a product candidate they call NSR-RPGR, which is in Phase 1/2. The drug is designed for the treatment of X-linked retinitis pigmentosa. The disease is an inherited x-linked recessive retinal disease characterized by mutations in the RPGR gene. 2017 was a productive year for the company as they accomplished a few key goals like initiating the first ever Phase 3 study in choroideremia and initiating their Phase 1/2 gene therapy for X-linked retinitis pigmentosa. Furthermore, the company was also able to in-license their program for Stargardt disease.

Nightstar Therapeutics (NITE)Source: Company Presentation

NSR-REP1

NSR-REP1 is a gene therapy for Choroideremia. NSR-REP1 has been granted orphan drug designation for the treatment of CHM from both the U.S. Food and Drug Administration and the European Medicines Agency. As mentioned before, Choroideremia is a rare, degenerative, X-linked genetic retinal disorder that primarily affects males. Choroideremia is an inherited retinal disease caused by mutations in the CHM gene on the X chromosome that interferes with the production of Rab escort protein-1, REP-1. The protein plays a role in intracellular protein trafficking and the elimination of waste products from retinal cells. NSR-REP1 is comprised of an AAV2 vector containing recombinant human complementary DNA, or cDNA, which is designed to produce REP1 inside the eye. Essentially, the introduction of the functional CHM gene enhances the expression of the REP1 protein, which in turn reduces the accumulation of waste products in retinal cells, slowing or stopping the decline in vision. As far as administration goes, after a vitrectomy, the drug is administered by injection into the sub-retinal space, which is between the outer layers of the retina. This process endures that the drug is administered directly to the target site.

Nightstar Therapeutics (NITE)Source: Company Presentation

NSR-REP1 has recently been initiated in a Phase 3 trial called the STAR trial. The trial is expected to enroll 140 patients across 18 clinical sites in the United States, Canada, and South America. The primary endpoint of the STAR trial is the proportion of patients with an improvement of at least 15 ETDRS letters from baseline in visual acuity at 12 months post-treatment, comparing the high-dose treatment arm to the control arm. The company expects the trial to be fully enrolled by the first half of 2019 and expects the results to be available in 2020.

NSR-RPGR

NSR-RPGR is a gene therapy that consists of a standard AAV vector, including the codon-optimized human RPGR DNA for the treatment of X-linked retinitis pigmentosa.

X-linked retinitis pigmentosa occurs at a rate of 1 in 40,000 people. There is roughly 17,000 RPGR patients in the United States and EU5. Furthermore, only 10% to 20% of retinitis pigmentosa is x-linked. The disease progression typically goes from night blindness to peripheral vision loss to complete vision loss.

NSR-RPGR is designed to produce RPGR-ORF15, the form of RPGR that is preferentially expressed in the retina. Based on pre-clinical findings, the company thinks that NSR-RPGR has the ability to slow or stop retinal degeneration of photoreceptors and to restore or maintain vision in patients affected by these mutations.

NSR-RPGR is currently being tested in a dose-ranging Phase 1/2 trial for the treatment of X-linked retinitis pigmentosa in patients with the RPGR mutation. The trial referred to as the XIRUS trial. The company has already completed dosing of the first few cohorts of three patients each. The company expect the initial data on safety and tolerability from the dose escalation cohorts of this trial to be available towards the end of 2018, which will be used to determine the dose for study in the expansion cohort. The cohort will likely include 30 patients. Also, the company has also initiated a prospective, natural history observational study across multiple clinical sites called the XOLARIS study. The trial is being done to better understand the progression of untreated XLRP.

Nightstar Therapeutics (NITE)Source: Company Presentation

Analyst Commentary and Balance Sheet

Nightstar Therapeutics ended 2017 with cash and cash equivalents of $129 million. R&D expenses were $20 million for the 12 months ended December 31, 2017, compared to $10.2 million for the comparable period in 2016. General and administrative expenses were $7 million for the 12 months ended December 31st ,2017., Overall, the company had a net loss of $25.6 million for 2017.

The company has little coverage on Wall Street but has received several analyst ratings of 2018 over the past month. On April 27th, Mizuho reiterated their buy rating, and their price target of $20 a share. Part of the reasoning behind the analyst’s bullishness stems from the current capitalization of the company, “We see the company’s current cash position as sufficient to take the company into 2020”. Furthermore, Wedbush came out on April 5th and reiterated their Outperform rating and price target of $31 a share. The analyst at Wedbush views the stock as undervalued given the promise of the lead asset and how far along in development the lead asset is. Finally, Chardan Capital assigned a new Buy rating and $40 price target on NITE on May 3rd.

Verdict

Nightstar Therapeutics is an intriguing new name in the gene therapy. It is well funded for the time being and has multiple ‘shots on goal’. That said, the earliest it will file for a New Drug Application is in 2020, with the earliest possible rollout sometime in 2021. At least one capital raise will need to be done between now and then.

In addition, I rarely invest in a stock until it has been public at least 18 months in the biotech sector. That provides time for insider stock lock ups to expire and for the initial analyst hyperbole to die. Many times, you can pick up the same stock at 30 to 50 cents on the dollar from its debut price even though the company is further down its development path.

Finally, there are not options available against the stock. Therefore, mitigating some risk via a Buy-Write order is not an available strategy at this moment. Given all this, we are going to pass on any Buy recommendation on this stock at the current time. Nightstar does seem to merit revisiting sometime in 2019 when it is hopefully closer to commercialization.

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