Bellus had a call this morning (listen here) to discuss their Phase 1 data, released yesterday after market.
As reported yesterday, at their anticipated therapeutic doses (50-100mg), there was only 1/24 patients (4.2%) who reported a taste alteration, which was described as mild-moderate. This 1 patient, at the 100mg dose, reported 2 episodes of taste alteration on day 1 and then none on the other 6 days.
The remaining taste events occurred at supra-therapeutic doses (200mg-1200mg), which the company does not anticipate being the treatment dose.
To compare, Merck’s Phase 3 P2X3 candidate showed 48% of patients had taste alteration (vs Bellus 4.2%). Additionally, Bellus’ two taste events were described as “mild-moderate”, whereas 40% of Merck’s patients reported their taste effect was “very or extremely bothersome”.
Although this is not a direct apples-to-apples comparison (7 day vs 12 week duration), it supports Bellus’ candidate as showing promising early signs of not having taste side effect.
Next Step: Phase 2 in Mid-2019
Bellus will be starting their Phase 2 crossover study in mid-2019. This trial will enroll 50 chronic patients in the US/UK and test 5 dose levels. We believe these will be 25, 50, 100, 200, 400 mg.
The company anticipates that the therapeutic dose will be between 50-100mg. Given that BLU-5937 is more potent than gefapixant, and that Merck’s Phase 3 dosing is 15mg/45mg, we think Bellus’ projection is accurate. This bodes well for taste side effects, which were less than 5% (shown above) in the sub-200mg doses.
The company anticipates the Phase 2 cross over study will cost approximately CAD$7M. They ended September with CAD$18M, so will have sufficient cash until 2020.
Reasons Bellus Down 15% Today
Although reported data was better than expected, Bellus is trading down 15% today. Here’s why we think this is happening and our thoughts:
- One case of increased liver enzyme levels
Bellus reported that 1 patient at the 400mg dose had liver enzyme levels above the upper normal limit. ALT was 4.1x the upper limit normal and AST was 2.2x. This occurred in only 1 patient and at a dose that is not expected to be therapeutic dose. Importantly, this was not significant enough to impair the liver function. Merck’s candidate also showed similar increase in liver enzymes at a dose above the therapeutic (600mg). We don’t think this is a material enough issue to warrant a 20% drop.
- Next catalyst is ways out
The next clear catalyst is in mid-2020 with Phase 2 readout. The company is sufficiently funded until then and we doubt they will do a raise at sub-$100M valuation. Bellus will need to ensure funding for 2021 and onward, but we don’t think that is a near term risk at these valuation levels. We anticipate a Nasdaq uplisting in the near future and more analyst coverage as the company looks to set up funding for Phase2b in 2019 or at higher valuations.
Bottom Line: Bellus data was strong. The Company’s thesis remains solid and it has a potential best in class drug. Merck paid $500M upfront for their candidate prior to Phase 2b data release. Bellus is currently trading at ~$85M. We think the company warrants a $150M valuation (or about $1.25/share). The counter-argument can be made that the next clear catalyst is ~18 months away (mid-2020 Phase 2 readout), so it will be dead money until then. Given the cash buffer and solid data, we are holding.
One or more of PropThink's contributors are LONG BLUSF
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