Eiger Biopharmaceuticals Offers Opportunity (NASDAQ:EIGR)

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D Illustration Human Digestive System(Liver) Anatomy.

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Eiger Biopharmaceuticals (NASDAQ:EIGR) is developing new therapies for serious rare diseases – primarily hepatitis D.

Eiger’s near-term value proposition is that they are developing first-in-class, and potentially best-in-class, therapeutic regimens for the condition, with initial data suggesting the company’s regimens are superior in efficacy to the firs-to-market drug for hepatitis D. The company has upcoming catalysts in the next 12 months as it heads into the results of Phase III studies that could enable registration of their drug candidates, providing opportunities for significant value inflection.

The company’s lead candidate already has commercial approval for an ultra-orphan rare disease indication progeria and is now revenue-generating, and an additional candidate being developed as a combination therapy for the main indication has recently demonstrated very promising efficacy for COVID-19 and could soon be approved under an emergency use authorization (EUA) by the FDA. These assets, and others in the pipeline, add “multiple shots on goal,” which in my view decrease some of the downside risk heading into the Phase III study readouts later this year.

Eiger’s Pipeline

Eiger Pipeline

Eiger’s Pipeline (Eiger Website)

The company has three candidates in development.

The first is lonafarnib, an orally delivered small molecule targeting the farnesyltransferase inhibitor. It is worth noting that lonafarnib is the only oral therapeutic in development for HDV. It also has approval in the ultra-rare disease Progeria. This note will not focus on the progeria indication in detail, but we will revisit the commercials around this approval later.

The second is peginterferon lambda, a first-in-class injected biologic anti-viral medicine that stimulates the immune response via interferon-lambda – a receptor expressed primarily in the liver. While being developed for HDV in an earlier stage in combination with lonafarnib, the company has also released positive data in COVID-19.

The third is avexitide, a selective GLP-1 antagonist being developed for post-bariatric hypoglycemia and congenital hyperinsulinism. However, meaningful registration enabling data is a way off for the candidate in both indications, and this report will consequently focus on the near-term value drivers presented by the opportunity in HDV and COVID-19 by the aforementioned candidates.

Hepatitis D Virus

The company’s indication of primary focus is hepatitis delta virus (HDV) – a “defective” virus that can be a consequence of hepatitis B virus (HBV), which requires HBV to survive in humans. HDV is thought to be present in around 5% of the global HBV population, and is the most severe form of viral hepatitis, often leading to liver failure, fibrosis, and cancer, and currently approved therapies are lacking.

While HBV is now well addressed, with many therapeutic and vaccine options for patients from the likes of Gilead (GILD), Merck (MRK), and GSK (GSK); global vaccination rates are not high, and HBV therapeutics only suppress HBV DNA and not the specific antigen (HBsAg) on the surface of the HBV that HDV requires for its survival. Therefore, there does remain a high need for therapeutics that can address HDV while a complete cure for HBV is not available.

HDV infection is estimated to affect 62-72 million people worldwide, although Eiger’s projections suggest that the addressable patient population, in reality, is closer to >12 million patients globally. In terms of major territories, HDV is thought to impact >100k people in the US, >200k people in Europe, and >1 million people in China.

The primary aim of therapeutics for HDV is to prevent the replication of HDV and reduce the viral load and prevent inflammation and damage of the liver that can lead to the failure, fibrosis and cancer mentioned previously. The company is developing several regimens for approval in HDV, that have shown promising efficacy in Phase II development, with near-term readouts of registration-enabling data within 12 months.

Lonafarnib + Ritonavir: This is a combination of Eiger’s candidate with an antiretroviral drug approved by AbbVie for HIV/AIDS (the relationship with AbbVie will be revisited below). This is a combination of two orally delivered drugs.

Lonafarnib + ritonavir + peginterferon-alfa 2: This is Eiger’s lead candidate in combination with AbbVie’s drug, and Roche’s interferon product. The interferon drives the antiviral immune response, therefore potentially increasing the efficacy.

In Phase II, both regimens demonstrated meaningful reductions in HDV viral load, with the peginterferon component increasing the viral load decline by two orders of magnitude. This led to 29% of patients in the first regimen, and 63% of patients in the second regimen, meeting the composite primary endpoint of at least 2 log decline in viral load and achieving normalization of ALT (alanine transaminase) – a liver enzyme that is elevated in the presence of viral infection and liver damage – at the end of the treatment regimen.

Outline Phase II results for lonafarnib in HDV

Outline Phase II results for lonafarnib in HDV (Eiger Investor Presentation)

Consequently, both regimens are being studied in global Phase III trials, with the primary endpoint being the composite noted above at 48 weeks. The study is fully enrolled, with top-line data expected for the lonafarnib and ritonavir arm of the study before the end of the year, with the peginterferon arm expected to readout through 2023.

Given the very positive results from the Phase II study and the lack of therapies available, I expect that this study is likely to read out positively and generate data that will enable registration in territories across the globe in a swift fashion, as the company has strong relations with regulators and FDA breakthrough designation for both candidates.

Outline Phase III design for lonafarnib in HDV

Outline Phase III design for lonafarnib in HDV (Eiger Investor Presentation)

It is worth noting that Eiger’s peginterferon Lambda candidate is also being developed as monotherapy for HDV, with KOL interviews conducted by an advisor to the company indicating strong clinician preference for the Lambda agent vs. Roche’s Alfa agent being used in the company’s combination study with lonafarnib, largely due to an improved safety profile. This is potentially due to the previously mentioned localization of interferon lambda receptors in the liver, as opposed to interferon alfa’s expression in a wider range of biological tissues. Peginterferon lambda has demonstrated anti-viral potency as a single agent, inducing durable virologic response as a single agent in 36% of the patients studied in a clinical trial. It is worth noting that the agent is currently in a Phase III study as a monotherapy for HDV, as well as a Phase II study in combination with lonafarnib and ritonavir.

Outline Phase II results for peginterferon Lambda in HDV infection

Outline Phase II results for peginterferon Lambda in HDV infection (Eiger Investor Presentation)

SWOT Analysis

Strengths

The company has approval for lonafarnib (marketed as Zokinvy) in progeria, an ultra-rare orphan disease indication affecting around 600 individuals globally, since November 2020. While progeria is unlikely to drive significant revenues for the company (FY Sales 2021 of $12.1 million, predicted peak sales of less than $100 million), it does demonstrate the company’s ability to develop a product in the clinic effectively, and then interact with regulators effectively to enable commercialization.

Eiger also has a strong existing relationship with a key player in the antiviral space, and a potential acquirer – AbbVie (ABBV). AbbVie purchased the priority review voucher that Eiger obtained alongside the Zokinvy approval in 2020 for $95 million. This relationship could benefit Eiger in a potential sale of the company or commercialization partnership for their HDV assets.

Weaknesses

Eiger’s cash is only likely to last them into early 2023. This means the company is likely to either raise cash by issuing new equity, resulting in dilution of current shareholders or partner assets to receive upfront non-dilutive cash to the detriment of the commercial value of the company downstream.

Opportunities

Following on from the previous point, the commercial opportunity in HDV in China is large, with over 1 million individuals having HDV. The company could strategically partner the asset in China, bringing in significant non-dilutive revenue via a collaboration with a commercial partner. The same could also be achieved for commercialization in Europe. However, I do believe that an acquisition of the company following the achievement of the primary endpoint in the Phase III HDV is more likely.

The company’s other infectious disease asset Peginterferon Lambda has recently readout positive data from a Phase III study in COVID-19, demonstrating a 50% reduction in risk of hospitalization in patients, both vaccinated and unvaccinated. As the world begins to cope with COVID-19 as a new normal, and with high vaccination rates generally high and the virus becoming endemic, there becomes a requirement for therapeutic options in patients that experience severe disease. The company intends to file for emergency use authorization with the FDA shortly. While the commercial opportunity for the candidate is largely dependent on the extent of COVID-19 infection in the future, the immuno-stimulatory mechanism of action of peginterferon Lambda means it could have application in other emerging acute viral infections that could present in the future, with COVID-19 serving as a proof-of-concept of its efficacy.

Risks

In the company’s latest quarterly earnings for FY 2021, Eiger highlighted that there could be a modest risk to the company’s trial sites in Ukraine and Russia for the Phase III HDV study as a result of recent geopolitical events. However, the company believes that there remains adequate statistical powering of the study’s ability to meet its primary endpoint even if the Ukrainian patients were to withdraw from the study and that there has been a minimal interruption to the study in Russia. As with all clinical-stage biopharmaceutical companies, there is the risk that Eiger’s candidates could fail in clinical trials.

The Value Opportunity

The company’s near-term readout in HDV presents an opportunity for approval of a first-in-class oral therapy for a condition that affects >12 million people globally that have minimal therapeutic options.

Taking a look at ballpark success rates for clinical trials, we can see that the probability of success in a Phase III trial for a lead indication in infectious disease is approximately 75%. If we also take as a principle, using a revenue multiple, buyouts of biopharmaceutical companies tend to happen at a price-to-peak-revenue multiple of at least 2, we can risk-adjust the company’s projected peak sales in HDV (while excluding the COVID-19, progeria, and avexitide indications being developed in Phase III) to estimate a very conservative estimate of potential fair-value for Eiger Biopharmaceuticals.

Outline commercial data for HDV opportunity

Outline commercial data for HDV opportunity (Eiger Investor Presentation)

The company’s materials highlight the opportunity in the U.S. (100k) and EU (200k) only and predicts an illustrative market penetration rate of 3% – which given the lack of options for HDV patients, seems incredibly conservative, but this notes valuation will use the company’s conservative figures. The company also provides an illustrative orphan pricing of $150k per year for lonafarnib in HDV.

$150k x ( (3% x 100k) + (3% x 200k)) = $1.35 billion

Risk-adjust 75% for Phase 3 probability of success = ~$1 billion

Current valuation for HDV lonafarnib program = $2 billion

If we were to risk-adjust this value by 75% due to the risk attached to the Phase III study, this gives us a risk-adjusted peak sales value for lonafarnib in HDV of approximately $1 billion. Using a price-to-peak sales multiple of 2, this gives us an approximate fair valuation at present of $2 billion for the company, which given the company’s 34.64 million shares outstanding, is the equivalent of $57.73 – over 6x Eiger’s closing share price of $8.64 at the time of writing.

While this does seem a significant uplift to attain in the share price, it is worth noting this price has validation in a recent comparable transaction. Gilead bought MYR GmbH in December 2020 for €1.45 billion including milestones, which converts to $1.6 billion. MYR GmbH were developing bulevirtide – an intravenously delivered agent that blocks entry of the HDV into liver cells. The agent had conditional approval in Europe, and Gilead has now filed a BLA for approval in the USA. Recent interim data from the Phase III study of bulevirtide in HDV shows that at a high dose, the agent was able to reduce HDV RNA by ≥2-Log10 IU/mL from baseline and achieve normalization in 28% of patients.

While caution should be taken in making cross-trial comparisons in small numbers of patients, using the same measurement, recall that in the Phase II study of lonafarnib noted in the figure previously, this was reduced by 29% in the oral lonafarnib + ritonavir combination, and by 63% in the lonafarnib + ritonavir + peginterferon-alfa combination. This indicates that Eiger’s regimens could be competitive if the Phase III results were to be similar to those observed in the Phase II study.

However, it is worth remembering that lonafarnib is an orally-delivered first-in-class agent offering a differentiated profile to patients and clinicians. As with all diseases, there is more than enough room for multiple drugs to be successful in a disease, and the Gilead acquisition should serve as proof that pharmaceutical companies that are potential acquirers of HDV assets see the commercial opportunity as real. The transaction, therefore, serves as both validation of the opportunity, and a good comparator.

Additionally, while not covered in this note as the value inflection points are further afield, Eiger’s additional pipeline opportunities in COVID-19 and other acute viral infections, post-bariatric hypoglycemia, and congenital hyperinsulinism have potential combined commercial peak sales of in excess of $1 billion, further highlighting the conservative nature of the valuation provided in this note.

Summary

Eiger’s significant near-term opportunity in HDV with lonafarnib, and potentially peginterferon lambda, means it is arguably the key player in novel HDV therapies. While Gilead’s drug buvertide is the first-to-market agent, Eiger’s regimens that are close to registration-enabling data look on par in terms of efficacy, differentiated in their administration and safety profile, and could have more potent efficacy in combination with each other. Based on the previous data, I expect that the Phase III studies of these agents will read out positively. The company’s existing approval for progeria with lonafarnib shows the company can interact with regulators to register a product, and the company has laid out plans demonstrating their strategy to commercialize.

However, multiple key players in the antiviral space (including the previously mentioned AbbVie) do not have active HDV clinical programs and could be potential suitors for Eiger’s HDV pipeline. Furthermore, it is known that Eiger has an existing professional relationship with AbbVie as a result of the company acquiring Eiger’s PRV obtained as part of the approval in progeria.

In what I believe to be the unlikely event of none of Eiger’s opportunities in HDV are realized, the company has alternative options for development outside of HDV that provide significant value later down the line. Therefore, they could potentially support the current share price should an investment being made purely based on the HDV programs not being successful endeavors.

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