Investment Thesis
CymaBay (NASDAQ:CBAY) stock jumped nearly 10% yesterday as Phase 3 data from lead asset seladelpar, indicated for Primary Biliary Cholangitis, delivered the confirmatory Phase 3 data the market had been waiting for.
It’s great news for the company, but after an incredible bull run across 2023 to date, the share price may have already reached its ceiling. The market opportunity – based on my research – does not support peak sales of >$300m, and with CymaBay’s market cap valuation already close to $1.5bn, it’s hard to see where additional upside will come from.
I see recent share price gains correcting slightly going forward, unless or until management discusses label expansion opportunities, and realistically, that may be years away.
CymaBay Overview 2014 – 2021 A Rollercoaster Ride As Seladelpar Fails In NASH, Succeeds in PBC
Newark, California-based CymaBay Therapeutics (CBAY) was approved for uplisting to the Nasdaq in June 2014, with stock initially trading at a value of $19.
Across the next 9 years they have been on a rollercoaster ride, culminating in a surge across 2023 to date, thanks to the promise of lead drug candidate seladelpar, in the indication of Primary Biliary Cholangitis (“PBC”). According to the company’s 2022 10-K submission / annual report:
PBC is a rare, chronic, progressive, autoimmune liver disease that predominantly affects middle-aged women. A T-cell mediated immune response is thought to damage, and ultimately destroy, the interlobular and septal bile ducts. The loss of bile duct function leads to decreased bile secretion and retention of toxic substances, including bile acids, within the liver parenchyma. This retention may ultimately cause liver cirrhosis and liver failure in PBC patients.
PBC primarily affects an estimated one in 1,000 women over the age of 40. Due to its low prevalence, PBC has been recognized as an orphan disease in the U.S. and E.U., meeting their respective FDA and EMA orphan designation criteria. Diagnosis of PBC is confirmed by elevated serum ALP presence and/or the magnitude of antimitochondrial antibody (AMA presence) and liver biopsies, although biopsies are not required for diagnosis in most patients.
Back in 2014, after switching its name from Metabolex to CymaBay, the company consisted of a handful of employees and a lead drug candidate, arhalofenate, an anti-inflammatory uricosuric therapy developed to treat painful gout flareups.
The company also had 2 other assets in its pipeline. The first was MBX-2982, which “targets G protein-coupled receptor 119 (“GPR119″), a receptor that interacts with bioactive lipids known to stimulate glucose-dependent insulin secretion”, which is still in development today in the indication for Type 1 Diabetes (“T1D”).
The second, and most important, was MBX-8025 – now known as seladelpar – “a selective agonist for the peroxisome proliferator-activated receptor delta (“PPARd”)” (description from 10-K) which was, at the time, in development for treatment of mixed dyslipidemia.
In 2017, CymaBay out-licensed arhalofenate to Kowa Pharmaceuticals America in exchange for a $15m upfront payment and up to $190m in future milestone payments (Kowa ended development of the drug a couple of years later) and switched its focus primarily to seladelpar. Prior to the deal, CymaBay stock had slipped to a value of <$2, but the sale, and the switch of candidate focus prompted a bull run that saw shares reach a value of $18 by February 2018.
By this time seladelpar was showing genuine promise – in an interim analysis of a Phase 2 study of 24 patients with PBC at high risk of disease progression, at 12 weeks, those given a 5mg dose saw a 39% reduction in the liver enzyme alkaline phosphatase (“AP”) – a surrogate for disease progression – and those receiving a 10mg dose experienced an average 45% reduction. Additionally, according to a press release:
On seladelpar, 45% of patients in the 5 mg and 82% of patients in the 10 mg dose groups had AP values < 1.67 times the upper limit of normal (ULN). AP is an established surrogate marker of disease progression in PBC, and reaching a level of < 1.67 x ULN is a key component in the composite endpoint used for regulatory approval.
52-week analysis – released in October 2018 – from the same Phase 2 trial brought more impressive results:
At 52 weeks, the mean decreases in AP were -47% and -46% in the 5/10 and 10 mg groups, respectively. A key secondary outcome was the composite responder rate measured at week 52 where a responder was defined as a patient with AP <1.67 x ULN, ≥15% decrease in AP, and total bilirubin ≤ULN. At 52 weeks, 59% and 71% of patients met the composite endpoint in the 5/10 and 10 mg groups, respectively.
CymaBay announced the initiation of a Phase 3 study – ENHANCE – at around the same time, which management hoped would be a pivotal study, i.e. generating data strong enough to support a New Drug Application (“NDA”) filing with the FDA, request the right to commercialise Seladelpar.
Seladelpar was awarded “breakthrough therapy” status by the FDA in February 2019, but in June that year, shares tanked as the company reported a failure to outperform placebo in a 181 patient, Phase 2b study of the drug in nonalcoholic steatohepatitis (“NASH”).
With NASH being a far larger indication than PBC, offering a market opportunity estimated to be >$35bn, it was not necessarily surprising to see shares fall from ~$13, back to <$2 by November 2019 – but there was worse news from a safety perspective – signs that the drug was linked to liver injury saw the FDA place a clinical hold on all of CymaBay’s studies, including in PBC.
In response to the study failure and the safety setback, CymaBay halted development of seladelpar in NASH, and terminated 60% of its workforce, but in May 2020, an independent expert panel unanimously agreed that the initial safety findings were erroneous and the drug was safe. All clinical holds were lifted and in August 2020, CymaBay announced that the ENHANCE study had met its primary endpoint, with 78% of patients in the 10mg arm, and 57% in the 5mg arm demonstrating a statistically significant responder rate compared to placebo.
2021 To Present Day – Open Label, Phase 3 Successes Trigger Stunning Bull Run
Ultimately CymaBay required a second Phase 3 study to collect the data needed to support an approval push. This RESPONSE study was initially slow to enroll, but full enrollment was achieved by Aug 2022, and meanwhile, a Phase 2 open label study showed that “seladelpar treatment throughout 2 years resulted in a decrease in PBC GLOBE score and predicted improved transplant-free survival”, the GLOBE score being a validated risk assessment tool providing an estimate of transplant-free survival for patients with PBC.
As company insiders began buying shares, and analysts began talking up the chances of a successful RESPONSE readout, CymaBay stock began to skyrocket, rising from a value of <$3 in November last year, to its current all-time high price of $15, which values the company at~$1.5bn.
CymaBay signed an agreement to allow Kaken Pharmaceutical to develop and commercialise seladelpar in Japan in January of this year, which brought in an upfront payment of $34m, with further milestones payments of up to $128m on the table, plus royalties on net sales >20%, if commercialised.
The company raised $85m of funding vis the sale of stock priced at $7 per share in January also, and yesterday, the full RESPONSE data was finally released – with the positive data the market had been expecting confirmed. According to a press release:
- Primary composite endpoint at 12 months of serum alkaline phosphatase and bilirubin was met by 61.7% of patients treated with seladelpar 10 mg vs. 20.0% of placebo treated patients (p<0.0001).
- Normalization of alkaline phosphatase at 12 months was achieved by 25.0% of patients treated with seladelpar vs. 0% on placebo (p<0.0001).
- In patients having moderate-to-severe itch at baseline, the seladelpar treated group improved their pruritus at 6 months compared to those in the placebo group (p<0.005).
- Safety and tolerability were comparable between placebo and seladelpar groups and consistent with previous studies.
Management – and long-term shareholders – were understandably delighted with the results, with 6 out of 10 patients achieving the primary endpoint, decreases in ALP ~10x greater in the seladelpar arm than the placebo arm, 1 in 4 patients normalising their ALP, and perhaps most significantly, given that one of the worst side-effects of PBC is pruritis (severe itching), patients with moderate to severe pruritis saw a 3.2 point reduction in the peak pruritis numerical rating scale.
Looking Ahead – Market & Competition
It’s interesting to note that CymaBay stock trades higher today than it did when approval in the much larger NASH indication seemed a viable target, but perhaps not so surprising when analysts have been referring to seladelpar as “one of the most de-risked late-stage assets in the biopharmaceutical space”.
Armed with data from 2 Phase 3 studies, a Phase 2 Open Label, and having fought off concerns around safety, the chances of an FDA approval, once an NDA is submitted, seem extremely good. But what does the market opportunity look like? According to CymaBay’s 2022 10-K:
Currently, the only FDA-approved treatments for PBC are ursodeoxycholic acid (UCDA), also known as ursodiol, an isomer of chenodeoxycholic acid and the synthetic bile acid analog obeticholic acid (Ocaliva®, Intercept Pharmaceuticals, Inc.). Ursodiol decreases serum levels of ALP, bilirubin, alanine aminotransferase, aspartate aminotransferase, cholesterol, and immunoglobulin M, all of which are elevated in patients with PBC and can serve as biochemical markers of the disease.
According to CymaBay, ursodiol is less effective in advanced disease, and “up to 50% of PBC patients fail to respond adequately to ursodiol therapy”. Because ursodiol is available as a generic drug (i.e., it is no longer patent protected) it is available at a substantial discount to approved drugs.
Likely to be approved as a second-line therapy in PBC, the main rival to seladelpar at present is Intercept Pharmaceuticals’ (ICPT) Ocaliva, which Intercept management is forecasting it will earn ~$330m of revenues in 2023.
That figure may be a little disappointing to CymaBay bulls – if we consider that Ocaliva, a second-line PBC therapy with no competition, falls short of $350m revenues per annum (list price is ~$80k per annum), then even if seladelpar takes the vast majority of that Ocaliva’s market share, and earns peak sales of $300m per annum, the company is already trading at 5x peak sales potential.
That doesn’t make an especially strong case that CymaBay shares are on track to explore further upside as commercialisation nears. Another issue is the progress of another drug with a similar mechanism of action to seladelpar, elafibranor, developed by the pharmas Ipsen (OTCPK:IPSEY) and Genfit (GNFT). Elafibranor has also met its primary composite endpoint in a Phase 3 study in PBC in June this year, with “51% of patients on elafibranor 80mg achieving a cholestasis response compared with 4% on placebo (p<0.0001)”, according to a press release.
Elafibranor has been forecast to achieve 2026 revenue of $137m, which can only be interpreted as a worrying sign for CymaBay. Not only is seladelpar competing against established Ocaliva, but it will likely also take on elafibranor, with the entire market not offering much more than a peak $500m opportunity.
Balanced against that is CymaBay management’s estimation that there are ~130k PBC patients in the US. If we divide that by half, given 50% of patients benefit from UDCA, and then by half again, awarding seladelpar a 50% share of the second line market, and use a list price of $80k per annum there is arguably a ~$2.6bn peak sales opportunity in play.
Concluding Thoughts – An Against The Odds Comeback, But Limited Market Opportunity Does Not Warrant A “Buy” Recommendation
Yesterday’s ~9% share price gain for CymaBay was arguably deserved as it served as the final confirmation that seladelpar is odds-on for an approval in PBC, but most of the “heavy share price lifting” was completed in the first half of 2023 – CymaBay stock is up 68% across the past 6 months, and nearly 350% year-on-year.
The company has done well to recover from its major NASH and safety setbacks, and to prove that seladelpar is an effective and safe therapy for PBC, with a potential competitive advantage thanks to its additional efficacy against pruritis. The company also reported a cash position of >$200m, and typically makes a net loss of ~$(25m) – $(30m) per quarter, although that figure may increase substantially in order to fund a commercial launch and marketing push, and more funding will almost certainly need to be raised.
Compared to Intercept – which has a market cap valuation of just $444m, and Genfit, whose market cap is ~$185m, CymaBay arguably looks a little over-valued relative to its market opportunity – at least in the short term.
The company is still developing MBX-2982, although it has been doing so since 2014, with little genuinely meaningful progress to date, and there are label expansion opportunities in play for seladelpar, although given it has taken the best part of a decade to get to the commercialisation in this indication, and NASH is already ruled out, these do not strike me as especially valuable aspects of the business.
As such, it is challenging to make a bull case for CymaBay, in my view, at this time, and it may even be worth considering if the market’s perception that seladelpar is a certainly for approval has led to the price becoming artificially high. The market liked the fact the drug was derisked so much, perhaps it neglected to look hard at the commercial opportunity.
When I consider the 2 peak sales opportunities discussed above – the ~$350m of revenues generated by Ocaliva today, versus management’s suggesting there is a 130k patient population in play, I am inclined to pay more attention to the former than the latter. Time will tell, but if I were a CymaBay shareholder, I’d consider selling my position, and if I were a prospective buyer of the stock based on likely approval, I’d be keeping my powder dry for now.
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