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While there’s life, there’s hope.”― Marcus Tullius Cicero
Today we take a look at a spin out from a company that made me some money when it was purchased by Pfizer (PFE) for a healthy buyout premium. Its ‘offspring’ seems to have some potential attractive assets. An analysis follows below.
Company Overview
Biohaven Ltd. (NYSE:BHVN) is a British Virgin Islands domiciled and New Haven, Connecticut based clinical-stage biopharmaceutical concern focused on the development of therapies that leverages its expertise in neuropharmacology. The company currently has four clinical programs pursuing five indications. Biohaven Ltd. was spun out of legacy Biohaven just prior to Pfizer’s October 3, 2022 acquisition of the latter. For a consideration of $11.6 billion, Pfizer received Biohaven’s calcitonin gene-related peptide (CGRP) receptor agonist franchise, including migraine therapies Nurtec ODT (rimegepant) and NDA-filed zavegepant, as well as a portfolio of preclinical assets. Post-transaction, the ‘new’ Biohaven had a reset value of $6.39 a share (based on its opening transaction) but has quickly moved higher. The stock currently trades just over $15.50 a share, translating to a market cap of just north of $1 billion.
Platforms
With its CGRP platform now in the hands of Pfizer, the company’s retained programs are spawned from four distinct mechanistic development platforms: glutamate; myostatin; Kv7; and antibody recruiting molecule (ARM). Glutamate is an excitatory transmitter in the brain, the modulation of which is being studied as a treatment for spinocerebellar ataxia [SCA] and obsessive-compulsive disorder (OCD). Myostatin is a natural protein that limits skeletal muscle growth, an important process in healthy muscular development. However, in patients with neuromuscular diseases, active myostatin can retard growth, resulting in underdevelopment and dysfunction. The Kv7 ion-channel modulation platform was acquired from Knopp Biosciences in April 2022 and just received approval to enter the clinic in Canada to tackle several indications, with the first one focal epilepsy. Unlike the other three neuro-focused approaches, Biohaven’s ARM platform is the output of a collaboration with Japanese firm PeptiDream (OTCPK:PPTDF) and was developed to produce compounds that induce antibody-mediated immune responses while circumventing antibody administration.
Pipeline
Troriluzole. Biohaven’s glutamate modulation platform has developed troriluzole, a tripeptide prodrug of an active metabolite (riluzole) that has been assessed or is undergoing evaluation as a remedy for general anxiety disorder, Alzheimer’s, SCA, and OCD. It can be described as a longshot for any approval for multiple reasons.
After failing to separate from placebo in the treatment of general anxiety disorder in a Phase 2/3 study in 2020, troriluzole flunked a Phase 2/3 study evaluating it in the treatment of mild-to-moderate Alzheimer’s patients in early 2021. Then in May 2022, Biohaven announced that troriluzole failed to successfully treat all types of SCA (n=213; p=0.053), with only one subgroup (with the SCA3 genotype) achieving statistical significance (n=89; p=0.031). Management expects to huddle with the FDA to discuss a possible path forward targeting the SCA3 genotype.
On the OCD front, Biohaven is forging ahead with troriluzole in two identical 600 moderate-to-severe OCD-patient Phase 3 trials (U.S. and global), after demonstrating improvement but not statistical significance over placebo on the Yale-Brown Obsessive-Compulsive Scale (Y-BOCS) (p=0.22 at week 12) in a Phase 2 study. Given its known safety profile to date, the company is upping its dosage 40% and combining it with current standard of care (SOC), which will be measured against placebo plus SOC. Enrollment is not expected to complete until FY23.
Taldefgrobep alfa. Biohaven’s other later-stage program is taldefgrobep alfa [TA], an anti-myostatin adnectin (antigen binding moiety) acquired from Bristol-Myers Squibb (BMY) in February 2022. It is undergoing a 180-patient Phase 3 study to evaluate its effectiveness and safety in the treatment of spinal muscle atrophy [SMA], a rare (1 in 11,000), progressively debilitating motor neuron disease that hinders muscle mass development, resulting in weakness, muscle atrophy, reduced motor function, and often death. TA is being evaluated in combination with nusinersen or risdiplam or in patients who have received onasemnogene abeparvovec-xioi – all versus placebo. Initiated in July 2022, there is no timeline for data yet.
The reason TA became available to Biohaven is due to its failure in the treatment of Duchenne muscular dystrophy. Biohaven paid no upfront money to Bristol but could owe up to $200 million in milestones and royalties from the high teens to the low twenties.
BHV-7000. When Biohaven acquired its Kv7 platform, the lead asset was BVH-7000, a potassium channel activator that exhibited a preclinical profile suggestive of broad efficacy, high selectivity, and significantly reduced GABA-ergic activity, all suggestive of a marked improvement over current (and past) Kv7-targeting therapies.
Backing up a bit, Kv7 is a family of ion channels comprising five subtypes that are preferentially expressed in tissues and organs. Kv7 protein forms a channel that modulates the flow of charged potassium ions across cell membranes, repolarizing nerve cells and resetting them for potential firing. Biohaven is initially targeting the two Kv7 subtypes (Kv7.2/7.3) found in the cortex and hippocampus. Dysfunction of these channels increases the risk of seizure.
There are two Kv7 therapies that are/were on the market and another in the clinic. Potiga (ezogabine) was approved for the treatment of refractory epilepsy in 2011 but was voluntarily withdrawn in 2017 due to poor tolerability and an adverse event profile that included dizziness and somnolence, largely the result of off-target activity at the GABA brain ion channel. The other Kv7-targeted therapy is flupirtine, which is approved in Europe for acute pain but is riddled by liver toxicity issues. Xenon Pharmaceuticals’ XEN1101 is undergoing assessment for the treatment of several seizure indications in clinical trials but appears to possess a narrower therapeutic index than BHV-7000 and is menaced by off-target GABA activity.
Like XEN1101, Biohaven believes BHV-7000 will target a broad range of indications – the first being focal epilepsy, a disease afflicting ~3.5 million Americans and 50 million globally, for which a Phase 1 study was initiated in 2H22 with data expected in 1H23. If successful, management expects to initiate at least one pivotal epilepsy trial in 2H23.
For the Kv7 platform, the company paid Knopp a total upfront consideration of $93.8 million, consisting of cash and legacy Biohaven stock. Knopp is also eligible to receive milestones of $887 million on BHV-7000 and mid-single digit to low teens royalties.
BHV-1100. In addition to Biohaven’s neurological programs, it owns BHV-1100, an antibody recruiting molecule that is being studied in combination with autologous cytokine induced memory-like natural killer cells and immune globulin to target and kill multiple myeloma [MM] cells expressing the cell surface protein CD38. A Phase 1a/1b study initiated in 4Q21 and is expected to enroll 30 newly diagnosed MM patients.
In addition to these active programs, Biohaven recently had its irreversible blood-brain-barrier-crossing myeloperoxidase enzyme inhibitor verdiperstat flunk a Phase 2/3 amyotrophic lateral sclerosis study in early September 2022.
Balance Sheet & Analyst Commentary:
Despite the setbacks and lukewarm results with its current pipeline to date, the market has taken a shine to new Biohaven, bidding its stock up over 100% since its debut in early October. And that is in the face of an October 20th secondary offering that raised net proceeds of $283.8 million at $10.50 per share that diluted shareholders by 73%. Biohaven now holds cash of ~$541.6 million, or $7.95 per share. It should also be noted that the company owns a royalty right on the two drugs it sold to Pfizer if the combined sales exceed $5.25 billion annually. That is a pipe dream currently with zavegepant still awaiting approval with a PDUFA date in 1Q23 and Nurtec ODT selling at a run rate slightly under $1 billion. However, if both assets blow up, Biohaven stands to make up to a $400 million annuity if their per annum combined sales reach ~$8 billion. That potential bounty notwithstanding, the company has a cash runway into mid-to-late 2024.
Since the spinoff, four analyst firms including Piper Sandler and BTIG have initiated or reiterated Buy/Outperform ratings on the stock. Price targets proffered range from $21 to $27 a share.
CEO Vlad Coric, CFO Matthew Buten, and director Gregory Bailey all purchased meaningful quantities of stock (853,850, 142,857, and 200,000 shares, respectively) on the secondary. Coric has remained bullish despite the higher prices, acquiring 167,730 shares in the final days of October at an average price of $15.01.
Verdict:
With middling hope for troriluzole and a once-failed TA compound only recently entering a SMA Phase 3 study with no data timeline, Biohaven’s later-stage candidates could be best termed speculative. The market is clearly buying into the BVH-7000 story. The company’s Kv7 activator is potentially best-in-class, and with an addressable market up to 1.1 million patients, there is blockbuster potential. However, with only preclinical data to make the case to date, the market is clearly giving the current management team credit for its CGRP victory. Since the next needle moving event will be BVH-7000 Phase 1 data in 1H23, the recommendation is a covered call approach.
To plant a garden is to believe in tomorrow.”― Audrey Hepburn
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