Voyager: Alzheimer’s Clinical Trial Start (VY-TAU01) Strengthens Investment Thesis (VYGR)

Thesis

Voyager Therapeutics, Inc. (NASDAQ:VYGR) is a biotechnology company in the clinical stage, which is focused on developing novel therapies, mostly gene-based therapies, for the treatment of conditions that alter the nervous system such as Alzheimer’s disease (AD), amyotrophic lateral sclerosis (ALS), Friedreich’s Ataxia, Huntington’s disease (HD), Parkinson’s disease (PD), among others.

A few months ago, I took an in-depth look into Voyager’s technology, its pipeline and financials based on their FY 2023 10K report. Back then, the share price was standing around $9. Since then, the stock has continued to show high volatility, sliding to around $7.50 and bouncing back to its current $8.51. In my previous article, I rated the stock as a “Buy” based on the strong partnerships with companies such as Novartis AG (NVS), Neurocrine Biosciences, Inc. (NBIX) and AstraZeneca PLC (AZN), the great potential of VYGR’s TRACER capsids, which can deliver therapeutic molecules to the brain via an intravenous injection, and its strong balance sheet.

Recently, the company released its Q1 2024 financial report, which depicts the financial stability of the company, holding similar amounts of cash than its current market cap. More importantly, VYGR has been providing updates in its different pipeline programs, which include the start of its first clinical trial associated with VY-TAU01. Interestingly, last month the company participated in the American Society of Cell & Gene Therapy (ASCGT), where they delivered an oral presentation showcasing the development of the next generation of TRACER capsids, which have proven to have a higher capacity to target brain cells than the first generation.

Thus, considering all the positive advances, in my opinion, Voyager Therapeutics is now a “Strong Buy”.

Overview

In my previous article, I described the reliance on the TRACER patents as a potential risk, despite the seemingly strong TRACER IP. The main rationale was that most of Voyager’s pipeline and multi-million partnerships are dependent on this technology. However, the TRACER capsids haven’t been tested in humans, which brings two layers of risks.

The first one is that despite the outstanding preclinical results, testing the technology in humans is the only way to definitely demonstrate if the TRACER capsids are efficient in crossing the blood-brain-barrier (BBB), delivering the therapeutic molecules to brain cells and spare damage to other tissues such as the liver. This is still pending to be tested.

The second layer of concern is related to the possibility that the technology is deemed unsafe or obsolete. The longer that Voyager takes on obtaining regulatory approval for their product candidates, the higher the chance that some other biotechnology company develops something with the potential to affect the value of the TRACER technology. With this in mind, finding out that Voyager is already working on the next-generation capsids, is another important sign of forward-looking progress. In my opinion, the fact that the company is already developing a safer and more efficient version of the TRACER capsids will enable VYGR to tackle potentially disappointing data from the clinical trials.

Furthermore, the start of the Phase 1a clinical trial which aims to test the safety and pharmacological dynamics of VY-TAU01, the only product candidate that does not use the TRACER capsids, in healthy participants ahead of schedule is an excellent sign of progress. In my opinion, if VY-TAU01 shows promise in clinical trials, it might become Voyager’s first commercial product before its cash runway ends (2027).

Taking these two major positive signs of progress, together with a few more updates that I will be describing in this article, I give a rate upgrade to Voyager Therapeutics, considering them as “Strong Buy” for long-term investors due to its high-risk/high-reward potential.

Pipeline Q1 2024 Updates

VY-TAU01

VY-TAU-01 is one of the wholly-owned Voyager’s product candidates and the only product candidate that doesn’t rely on the TRACER capsids. The therapeutic molecule is an antibody developed by Voyager which binds to the C-terminal of pathological TAU (see image below), which is a protein associated with Alzheimer’s disease progress. Therefore, VY-TAU01 is expected to slow down the progress of AD by reducing the spread of pathological TAU in the brain.

Voyager’s management, as described in its FY 2023 10K, was aiming to submit the investigational new drug (IND) application for VY-TAU01 in H1 2024. However, they decided to go ahead of schedule, and not only have they submitted the IND application to the U.S. FDA in Q1 2024, but also they have received the FDA clearance and started dosing the first participants in April 2024, which was originally expected by H2 2024.

The start of the VY-TAU01 single-dose clinical trial, well ahead of schedule, is a major achievement for Voyager and for people suffering from Alzheimer’s disease, which in my opinion the market has not factored in yet. Given the time alignment, I suspect the new Chief Medical Officer (CMO) Toby Ferguson M.D., Ph.D., who was appointed by mid-March could be held accountable for the IND submission success. Hence, it should be a good sign for future submissions to regulatory agencies.

This single ascending dose (SAD) Phase 1a clinical trial is a randomized, double-blind SAD trial where 48 healthy volunteers will be dosed with VY-TAU01 or a placebo, which is taking place in the United States. The objective of this study is to assess the safety and the pharmacological interactions of VY-TAU01 in humans. In other words, the idea is to assess for the first time in humans if the VY-TAU01 causes no damage to the brain or other organs while also assessing the biological distribution of VY-TAU01, and participants’ responses to the ascending doses. Results from this trial will inform the dose selection of the upcoming Phase 1b multiple-ascending dose (MAD) trial in people with early AD, which is expected to start in H1 2025 and provide conclusive results by H2 2026.

One of the FDA-approved antibody-based treatments that have been proven to slow down the progress of AD is Leqembi, which is licensed by Biogen Inc. (BIIB) and Eisai Co., Ltd. (OTCPK:ESAIY) reported sales revenue amounting to JPY 4.3 billion for Q1 2024, as reported in Eisai’s 10-Q report. Leqembi obtained FDA approval in 2023, and it is forecasted to reach sales of approximately $3.5 billion by 2030.

If Leqembi’s sales and estimations are to be relatively applicable to VY-TAU01, once it obtains regulatory approval, the revenue opportunity would be very transformative to Voyager Therapeutics. Thus, investors should keep an eye on the development of this product candidate as it goes through clinical trials.

Neurocrine’s collaborations

Voyager has two collaborative programs with Neurocrine. The first program is aimed at the treatment of Friedreich’s ataxia, which is a neurodegenerative condition affecting the coordination of legs and arms. The therapeutic approach is aimed to be a gene therapy solution that delivers a healthy version of the FXN gene, which is usually altered in people with FA.

NBIX and VYGR have announced, in its Q1 10-Q, that they have selected the payload of their TRACER capsids in February, and are expecting to submit the IND and start the first clinical trials in humans in 2025. The selection of the product candidate for this program already yielded a $5 million milestone payment to VYGR, which was realized in the Q1 2024 report.

The second collaborative program is the GBA1 gene replacement, which is aimed at the treatment of Parkinson’s Disease. In this occasion, the companies are aiming to utilize the TRACER capsids to deliver a healthy version of GBA1, which is usually altered in people with PD. In this sense, within the Q1 2024 report, VYGR announced that together with NBIX they have selected the therapeutic candidate associated with this program, and expect to file the IND by 2025. It is to highlight that the product candidate selection is a milestone, which involves a partnership payment from NBIX to VYGR of $3 million, that is expected to be reflected in Q2 2024 financial report.

Next-generation TRACER capsids

Voyager Therapeutics participated at the ASCGT 2024 conference, where it showcased the discovery of the second-generation of TRACER capsids with an enhanced capacity to cross the BBB and deliver genetic cargoes to neurons and astrocytes (i.e., brain cells), while having an even lower tendency to target other organs, such as the liver, than the first generation (see image below).

The company has extensive preclinical data, in different animal models, showing the outstanding results of the second-generation TRACER capsids, showing the possibility to customize the cell targeting (i.e., a direct target of neurone or glial cells), enabling the recognition of specific cell markers, while showing negligible targeting of liver or heart.

In summary, I believe that the new generation of TRACER capsids with an even higher potential to deliver therapeutic genetic cargoes in a safe and specific manner increases Voyager’s possibilities of success in the development of neurogenetic therapeutic products.

Financials

The Q1 2024 financial results are relatively strong considering that Voyager doesn’t have any commercial products yet (see table below).

In terms of Q1 2024 revenue, which comes from partnerships, a total of $18 million is coming from the Neurocrine programs. In comparison with Q1 2023, Q1 2024’s revenues are $130 million lower. The decrease is due to the realization of large milestone payments from NVS ($79 million) and NBIX ($71.5 million) in Q1 2023.

On the other hand, due to the ramp-up towards clinical trials associated with the leading product candidates, the operating expenses have increased by $8 million when comparing Q1 2024 vs. Q1 2023. This is not only expected, but in my opinion, a welcomed increase given the necessary progress of the leading candidates into clinical trials.

Furthermore, given Voyager’s strong cash position totaling nearly $400 million, and relatively low accumulated deficit of $272.5 million, as reported in the Q1 10-Q, I think Voyager is in a very stable position in terms of its balance sheet. In this sense, Voyager’s management stated in their Q1 report the following:

As of March 31, 2024, we had cash, cash equivalents, and marketable securities of $400.5 million. Based upon our current operating plans, we expect that our existing cash, cash equivalents, and marketable securities on March 31, 2024, along with amounts expected to be received as reimbursement for development costs under our collaboration and licence agreements with Neurocrine and Novartis, certain near-term milestones, and interest income, to be sufficient to meet our planned operating expenses and capital expenditure requirements into 2027.

In this sense, to calculate the cash runway of Voyager, I have considered the company’s cash on hand ($400 million), and estimated the quarterly cash burn to increase further from the $35.7 million reported in Q1 2024 to approximately $40 million, given the expected start of more clinical trials. Therefore, the company has enough cash on hand to cover their current operating expenses and the development of the expected clinical trials for up to 3 years from now. In addition, it is important to highlight that the company might be able to receive milestone payments that might extend even further the cash runway.

Valuation

Voyager’s shares are trading at $8.51, with a market cap of $462.89 million, which is only marginally higher than the cash, cash equivalents, and marketable securities held by the company by the end of Q1 2024. In the last three months, the stock has continued to face high volatility, as it can be appreciated from the candle chart below, and the MACD lines crossing multiple times (see image below). However, the analysis of the EMA and MACD indicators supports a bullish case for VYGR.

In addition, the company is holding multi-billion dollar revenue potential based on collaboration partnerships (see image below), which are generating milestone payments in favor of Voyager as well as covering the cost of the research & development associated with those programs.

In terms of the Novartis partnership, it is important to highlight that NVS has already exercised the buy-out of $25 million in VYGR shares, which can be expanded up to $86 million. On the other hand, considering that larger pharmaceutical companies such as NVS and NBIX agreed with VYGR milestones payments that can total up to $6.7 billion plus royalties, I would believe the current $462.89 million market cap is very far from Voyager’s worth. In this sense, I wonder if NVS is considering an M&A transaction, which at this point would be much cheaper than the milestone payment associated with their partnership programs.

Another evidence of revenue potential is the start of clinical trials ahead of schedule, which may accelerate the progress of VY-TAU01 into a commercial product, with multibillion dollar potential if/when regulatory approval is achieved.

Considering the discussion before and the intrinsic value calculated in my previous article, a $10.96 target share price, I consider that Voyager Therapeutics is a “Strong Buy” at the current share price.

Risks

The largest risk that investors have to consider is that Voyager’s product candidates lack conclusive efficacy and safety data in humans. In this sense, the company has, finally, started its first clinical trial associated with VY-TAU01, and it is expected to start clinical trials associated with 3 other programs (FA, GAB1, and ALS) in 2025. Thus, in my opinion, investors should be mindful that despite the strong preclinical data and the support of large pharmaceutical companies, there is a possibility of failure when the therapeutic candidates are tested in humans. Nonetheless, if the clinical trials yield positive results, I would expect the share price and the milestones-driven revenue to react positively.

Additionally, given that the clinical trials will start yielding preliminary results by H2 2025 and early 2026, I would expect the share price to continue experiencing high volatility in the near term.

Conclusion

In summary, I believe, Voyager Therapeutics, Inc. has provided enough progress in their pipeline to justify the rating upgrade. Not only have they submitted the VY-TAU01’s IND ahead of schedule, but also the FDA has granted clearance rapidly, which I consider an excellent sign. The start of the clinical trials is a stage that investors, including me, have been waiting for. So, I am very pleased to see that it took less than one month from receiving FDA clearance to the start of the trial.

Likewise, the announcement of the next-generation TRACER capsids with a larger capacity to specifically target nervous system cells and a lower tendency to target undesired organs (e.g., liver) after being injected intravenously is also a major milestone for Voyager. In my opinion, this demonstrates Voyager’s forward-looking thinking, and it shows its valuable know-how on the development of genetic carriers with the capacity to cross the BBB.

Finally, the strong partnership agreements, together with Voyager’s advances in their wholly-owned programs and the strong cash position, suggest that the enterprise value of Voyager is much higher than the current $462.98 million market cap. However, the stock is likely to observe high volatility in the short term, given the lack of conclusive data in humans.