We last covered Synageva BioPharma (GEVA) in early January, arguing that the company faced fundamental risks that made its valuation a concern moving forward. But in the months since our last report, a number of changes to the Synageva story have improved our outlook on the orphan drug developer. Synageva settled a key patent dispute in April, removing a critical risk overhang, and new data for Synageva’s lead candidate in May demonstrated continued improvement in a difficult patient population. The company’s balance sheet remains strong, allowing for a robust effort to increase physician awareness of debilitating and rare lysosomal storage disorders. With an unassuming enterprise value for a progressing orphan disease company, Synageva is a compelling holding for investors with an eye on the horizon.
A Recap of Synageva
Synageva is a clinical-stage company specializing in ultra-orphan diseases, similar to both Alexion Pharmaceuticals (ALXN) and BioMarin Pharmaceutical (BMRN). The company’s pipeline is split between its most advanced asset, sebelipase alfa (formerly known as SBC-102; in Phase III trials), and a group of four pre-clinical compounds. Sebelipase alfa is designed to treat LAL deficiency, a rare lysosomal storage disorder in which a patient does not produce enough lysosomal acid lipase. LAL deficiency can cause a plethora of health issues, most notably a build up of fatty tissues in both the liver and spleen. Sebelipase alfa is designed to treat both late-onset (usually diagnosed by age 12) and early-onset (diagnosed in infancy) LAL deficiency, which are also known as Cholesteryl Ester Storage Disease and Wolman Disease, respectively.
According to Synageva, LAL deficiency carries an overall prevalence rate of 1 in 40,000 to 1 in 300,000. Research published in the American Heart Association’s Journal of Arteriosclerosis, Thrombosis, and Vascular Biology indicates that late-onset LAL deficiency carries a prevalence rate of 25 per million based on studies done in Germany. And research published in the Journal of the American Medical Association concluded that the prevalence of Wolman Disease is 1.4 cases per 1 million births based on long-term studies conducted in Australia, which identified 6 cases of Wolman Disease across 4.2 million births.
SBC-103 is designed to treat MPS IIIB. Like sebelipase alfa, -103 has received orphan drug status in both the United States and European Union (sebelipase alfa has also been granted a breakthrough therapy designation for the treatment of Wolman Disease, set to begin clinical trials in the first half of 2014. Notably, Synageva has over the past 12 months, raised hundreds of millions in new capital despite a lack of a pressing reason to do so. As we noted in our January report, between January 2012 and 2013, Synageva had raised $280 million in new capital, even though its burn rate for 2012 was less than $31 million. Synageva ended Q1 2013 with almost $309 million in cash & investments and no debt — equivalent to $11.32 per share in cash — over 26% of the company’s current market capitalization. Even if Synageva’s annual burn were to double to $60 million, the company would still have around 5 years of capital.
Cleaning up Patent Issues & Moving Sebelipase Alfa Forward
In our January report, we noted that one of the concerns related to Synageva revolved around sebelipase alfa’s patent rights, specifically whether or not it infringes on certain LAL-related patents of Shire’s (SHPG) and the Cincinnati Children’s’ Hospital. A trial was set for May of this year, but in April, Synageva resolved these issues on favorable terms.
Under the terms of the settlement with Shire, Synageva struck a sublicensing agreement to gain exclusive worldwide rights to a host of patents (both issued and pending) owned by Cincinnati Children’s Hospital that were previously exclusive to Shire. Synageva made an upfront payment of $2.5 million to Shire and committed to making two additional sales-based milestone payments, defined by the company as being “low-single digit million dollar payment[s].” In addition, Synageva committed to paying Shire a “low-single digit royalty” on future sales of sebelipase alfa in the United States and several countries in Europe, with all royalty payments ceasing after 2021. With this IP overhang removed, we believe that investors will again focus on the fundamental story at Synageva — execution on development.
Synageva initiated its Phase III ARISE (Acid Lipase Replacement Investigating Safety and Efficacy) trial of sebelipase alfa in late-onset LAL in February. The company will enroll 50 patients in the double-blind study, who will be placed into one of two trial arms: infusions of placebo or sebelipase alfa every other week for 20 weeks. These patients will also be qualified to enter Synageva’s long-term, open-label extension study. ARISE’s primary endpoint will be the proportion of patients that see normalized alanine aminotransferase levels (a sign of liver damage), and secondary endpoints include reductions in LDL-C, non-HDL-C, as well as increases in HDL-C. To assure integrity, LabCorp (LH) will perform the assay that confirms LAL enzyme deficiency via a dried blood spot test. Per ClinicalTrials.gov, the ARISE trial has a primary completion date of October 2014, and as of June 26, 20 out of the 48 trial sites are open.
Sebelipase Alfa Efficacy & Safety
Existing clinical data for sebelipase alfa has been encouraging and suggest that the drug is both safe and effective in treating late onset LAL deficiency as well as Wolman Disease. In late-onset LAL, patients showed marked reductions in transaminases levels after one year of treatment in Synageva’s extension study, as well as normalized liver function and improved dyslipidemia. Furthermore, sebelipase alfa’s safety profile was acceptable, with the most common drug-related adverse events being headache, diarrhea, increased cholesterol levels, and abdominal pain. The majority of IRR’s (infusion related reactions) were GI-related, and of the 6 patients for whom one-year extension data was available, 3 IRR’s were of Grade 2 severity, and one patient was required to pause treatment temporarily. There were no SAE’s related to sebelipase alfa witnessed in Phase II trials, and although one patient experience two SAE’s, subsequent analysis determined that they were unrelated to sebelipase alfa. This patient was treated with cholecystectomy and is continuing to take sebelipase alfa without changes in either administration or dosing. Synageva’s 12-month data for sebelipase alfa was released in May 2013, and notably, the patients for whom data was available (6 out of 9 initial Phase I/II patients) showed continued improvements over 12-week data across both transaminase levels (ALT and AST), as well as cholesterol levels [determined by levels of LDL (low-density lipoprotein, known as “bad” cholesterol), triglycerides, and HDL (high-density lipoprotein, known as “good” cholesterol)], as determined by percentage changes from baseline measurements. These results were statistically significant across all 5 measures, with a p-value of 0.031 for each measure.
Sebelipase alfa 12-Week vs. 52-Week Data (Change from Baseline)
|12 Weeks||52 Weeks|
The data released by Synageva in May continues to show that patients taking sebelipase alfa to treat late onset LAL deficiency are seeing meaningful improvements across several key benchmarks, and investors will not have to wait long for new data. Synageva will release new 16-month extension data by the end of 2013, and we believe that the data will once again show continued improvements in all key metrics.
Existing clinical data for sebelipase alfa in Wolman Disease is less robust than the data for late-onset LAL deficiency, due in part to both the rarity of Wolman’s Disease and the challenge of identifying patients — the median age of death in Wolman Disease patients is just 3.4 months. Published Phase I/II data for sebelipase alfa in Wolman Disease shows that the drug is effective in spurring weight gain in patients, a key issue in Wolman Disease.
Currently available data for sebelipase alfa in Wolman Disease covers only 1 patient but is encouraging, and given the ultra-rare and fatal nature of Wolman Disease, we expect that the FDA will be accommodative in its stance regarding the clinical and regulatory pathway for sebelipase alfa in this indication. The mere fact that this patient has survived this long for there to even be data to release is a sign of sebelipase alfa’s potential success in Wolman Disease. There are currently no approved drug-based treatments for Wolman Disease, and although patients can be treated with hematopoietic stem cell transplants (HSCT), these transplants come with very high mortality and morbidity rates. A study published in March 2013 (conducted by Hadassah University Hospital in Jerusalem) noted that two siblings, both of whom were diagnosed with Wolman Disease, died as a result of complications arising from HSCT treatment, and that as of March 2013, there have only been 3 reported cases of successful HSCT’s in Wolman Disease patients. The dangers associated with current attempts to treat Wolman Disease highlight the need for new approaches, and the curative potential inherent in sebelipase alfa. Phase II/III trials of sebelipase alfa in Wolman Disease are ongoing, with an estimated primary completion date of October 2014. The trial’s primary endpoint will be overall survival at 12 months (understandable, given the lethality of Wolman Disease), with long-term safety and survival serving as secondary endpoints. Synageva is set to enroll a total of 10 patients in the trial, and as of May 30 (the last trial update), 7 of 12 sites are open.
Tackling the Orphan Market Dilemma
Synageva, like all orphan-focused companies, faces certain challenges not faced by biotechnology companies with a broader focus. Participation in the orphan drug market is not free, and the benefits of exclusivity, pricing power, and limited or no competition do not come without costs. Orphan drug companies must constantly work to identify every single potential patient and constantly keep the medical community aware of new developments so that they can effectively and properly diagnose their patients. And Synageva’s challenges go beyond those of companies such as Alexion or BioMarin, making it imperative that the company identify every single patient it can.
Synageva’s challenges stem from the rarity of the diseases that sebelipase alfa is designed to treat, especially Wolman Disease, truly one of the rarest diseases in the world. Assuming that current estimates of 1.4 cases per million births are accurate, this means that with just under 4 million births in the United States in 2012, there were less than 6 cases of Wolman Disease in the entire country. With 5.2 million births in the European Union (data from October 2012), this equates to 7.28 cases of Wolman Disease per year, and effectively means that across the 2 largest drug markets, there are less than 13 patients for Synageva to treat each year.
The challenge of Wolman Disease is further complicated by the dynamics of the enzyme replacement therapy market. On the surface, given the rarity of Wolman Disease, it would seem that pricing would not present a challenge for Synageva; the company could even challenge Alexion’s Soliris for the title of the world’s most expensive drug. However, the dose of enzyme replacement therapy a patient receives is typically based on weight, therefore Wolman Disease patients may not receive the same dosing as sebelipase alfa in late-onset LAL deficiency, countering potential pricing power that Synageva can extract from the rarity of Wolman Disease.
What is Synageva doing to counter this? The company is moving on several fronts to ensure that it can identify and treat as many Wolman Disease patients as it can. Synageva is currently creating an international LAL deficiency registry (for both indications) in an effort to help both the company and physicians better identify and diagnose LAL-deficient patients. Furthermore, the company has partnered with Yorkhill Hospital (located in Glasgow) to create a dried blood diagnostic test that is now available for use in LAL diagnosis, as per LAL Solace, the leading LAL-deficiency advocacy group. That, combined with increased awareness within the medical community, will likely help identify an increasing number of patients that can be treated effectively with sebelipase alfa. The company is also conducting a multi-pronged outreach and advocacy program, partnering with LAL Solace to identify patients and educate physicians. Synageva has said that it will be targeting geneticists, hematologists, lipidologists, and academic centers, as well as multiple medical conferences. In addition, the company will utilize investigator sponsored funnel projects to further identify LAL-deficient patients. Furthermore, Synageva’s efforts to discover and diagnose LAL-deficient patients may increase the company’s addressable market in an indirect but meaningful way: higher prevalence of Wolman Disease and late-onset LAL deficiency. Conversations with physicians conducted by Canaccord Genuity suggest that there is a consensus within the medical community that these two diseases are under diagnosed due to both mortality rate (Wolman Disease) and a lack of clearly defined diagnostic criteria (late-onset LAL deficiency). In part, Synageva’s ongoing natural history study and patient registry will go a long way in expanding the sebelipase alfa market. In particular, late-onset LAL deficiency is characterized by multiple gradations of severity, with differing levels of mutation leading to differing symptoms. As physicians are able to access more and more comprehensive data regarding disease progression, prognosis, and symptoms, they will be able to more accurately diagnose their patients and determine whether or not sebelipase alfa is an appropriate treatment.
Sebelipase alfa is projected to reach $650 million in peak sales, but these estimates take into account only the United States and European Union. Marketing the product globally, most likely in developed countries, brings additional upside potential for sebelipase alfa. As a reminder, with the exception of royalties owed to Shire, Synageva owns full global rights to sebelipase alfa (as well as the rest of its pipeline), leaving the company with the option to partner with a larger pharmaceutical company in the event that global commercialization proves too daunting. Furthermore, as Synageva’s earlier-stage pipeline (led by SBC-103) moves into the clinic, investors will be better able to quantify these assets’ market potential. As with LAL deficiency, there are no approved treatments for MPS IIIB, and the market potential likely sits somewhere between that of Wolman Disease and late-onset LAL deficiency; the same study that identified the prevalence of Wolman Disease in Australia detected 20 cases of MPS IIIB across 4.2 million births, which equates to a rate of 4.76 cases per 1 million births. We look forward to the first half of 2014, when SBC-103 will enter clinical trials, to hear more about how Synageva plans to address the orphan market issues related to MPS IIIB.
Since January, there have been several improvements in the story surrounding Synageva BioPharma. The company has resolved the patent issues surrounding sebelipase alfa in a positive way, and Phase III trials with sebelipase alfa have moved forward. Meanwhile, the company is making a meaningful effort to tackle commercialization of this orphan drug. Perhaps most importantly for this development-stage company, an uncharacteristically strong balance sheet means that Synageva is unlikely to raise capital for some time. Investors have been willing to attribute rich earnings and revenue multiples to fellow orphan drug developer Alexion — a forward P/E of 32 and forward Sales/EV of 11.5. Considering this and that analysts project peak sales for sebilipase alfa of $650M, Synageva’s $850M enterprise value leaves considerable room for upside. As Phase III data continues to materialize and the company is further de-risked, we expect investors to begin lowering discount rates on this biotech. Investors might consider adding Synageva to their long-term portfolios as this orphan drug developer makes continued progress in a much-needed indication.