Athenex stock is overvalued (ATNX)
By: Research Alert
Athenex (Quote: ATNX) is a global biopharmaceutical company and their main business drivers are the Orascovery and src kinase programs. We noticed that their NCE pipeline is considered extremely weak and it is merely a "formulation-
For reasons stated below, our one year forecast stock price target is around USD3.60 per share (vs current price of USD12.25).
Their leading candidate Oraxol, an oral formulation of paclitaxel, is currently in Ph 3 clinical trial for metastatic breast cancer. However, we have a number of concerns below.
• Is it practical to adopt one existing injectable product into an oral formulation?
Oral administration appears to be a preferred route of drug administration over injections however, chemotherapy is usually given in combinations. For example, doxorubicin, cyclosphosphamide and paclitaxel are given as a combination for breast cancer. Although paclitaxel is given orally, doxorubicin is still an injectable product. We have serious doubts regarding demand for such oral form when the accompanied drug combinations are already in injection form.
• Does it show "superior" efficacy and safety profiles over existing paclitaxel products?
Chemotherapy is normally for short-term use due to life-or-death situation. We do not believe that purely adding "convenience"
Oraxol may also need to face stiff competition against the below products (see end of the article) which have been approved for breast cancer.
Athenex announced that its global Phase 1b clinical trial of Oraxol (oral paclitaxel plus HM30181A) plus ramucirumab (monoclonal antibody to VEGF-R2) in gastric cancer patients who failed previous chemotherapies has completed the study of the second cohort of patients. The results indicated strong signals of efficacy and the treatment was well tolerated but going back to the point elucidated above: ramucirumab + Oraxol = 1 injection + 1 oral pill. In other words, the therapy is still not completely oral-based and the edge is very marginal. In fact, Eli Lilly funded a similar indication on applying ramucirumab plus paclitaxel versus placebo plus paclitaxel in patients with previously treated advanced gastric or gastro-oesophageal junction adenocarcinoma (RAINBOW): a double-blind, randomised phase 3 trial (Lancet Oncol. 2014 Oct;15(11):1224–
As Oraxol is just another existing drug with a new oral formulation, and such, the premium pricing is difficult to justify. In comparison the existing available paclitaxel has been out in the market for a long time.
Similar to Oraxol, KX2–391, a drug candidate which will enter Ph 3 clinical trial for actinic keratosis, may face a similar situation in terms of competition. Actinic keratosis affects about 55 million people in US and may eventually lead to skin cancer. The patient population in US appears to be sizable but interestingly, Athenex has out-licensed it to Almirall and given up their rights in US and EU (they still have the right to co-promote in the US). Also, the following products have been approved for the conditions:
Fluorouracil cream (Carac, Fluoroplex, Efudex)
Imiquimod cream (Aldara, Zyclara)
Ingenol mebutate gel (Picato)
Diclofenac gel (Voltaren, Solaraze)
For a non life-threatening condition with plenty of drug and non-drug therapy, who wants to pay a premium price for a first-in-class drug? It is extremely unclear to us whether there is such a market.
• Valuation and Conclusion
Looking at Q3 2018 results of Athenex, net cash loss from operating activities for 9 months is USD75m with long term debt around USD50m, versus available cash and short term investments of USD141m. We expect another cash raise in the form of further stock offering or debt in 2019. That could keep a downward pressure on the stock price in the short term.
Given the fundamental uncertainty of the market size, pricing and ability to show "superior" efficacy, we can only place value on the remaining portfolio of Athenex with a one year forecast price target is USD3.60 per share, in agreement with Walletinvestor.com (https://walletinvestor.com/
Drugs Approved to Treat Breast Cancer
Abraxane (Paclitaxel Albumin-stabilized Nanoparticle Formulation)
Halaven (Eribulin Mesylate)
Kadcyla (Ado-Trastuzumab Emtansine)
Tykerb (Lapatinib Ditosylate)
Zoladex (Goserelin Acetate)