Most investors know what they're getting into when buying a stake in an early-stage pharmaceutical company. Anyone needing a reminder only has to look at the stock chart of Gossamer Bio (GOSS +11.11%).
The company raised $291 million from an initial public offering (IPO) in February, but the stock has been volatile in the nine months since. Today, shares trade hands at prices slightly above where they closed on their first day of trading.
Volatility isn't unusual for a pre-revenue pharma, but investors recently had to contend with a new source of uncertainty. The leading drug in the class of compounds shared by its lead drug candidate flopped in a clinical trial run by a competitor. Does that predict a similar fate for Gossamer Bio's workhorse, or provide a clear path to the top of a lucrative market?
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A promising approach nearing the finish line
The lead drug candidate of Gossamer Bio is GB001, an antagonist of prostaglandin D2 receptor 2 (DP2) proteins. That's a lot of science words. To put it more simply, DP2 proteins play a central role in rallying special immune cells against foreign substances, resulting in an allergic response. GB001 interferes with DP2 proteins to make allergic reactions less severe.
Pharmaceutical companies are intrigued by the immunology potential of DP2 antagonists because they work further upstream than, say, simply trying to mop up allergens or treat the symptoms of an allergic response. But investors were shaken by late-stage clinical results from the industry's leading DP2 antagonist, Novartis' (NVS +1.52%) fevipiprant.
When reporting third-quarter 2019 operating results, Novartis announced that fevipiprant failed to improve forced expiratory volume in one second (FEV1) in individuals with moderate eosinophilic asthma, the primary endpoint used in the drugmaker's ZEAL1 and ZEAL2 studies. That was the same endpoint that destined vidupiprant from Amgen and AZD1981 from AstraZeneca to the dustbin of history.
The initial reaction to the news sent shares of Gossamer Bio plunging. The company is using FEV1 and other endpoints to evaluate GB001 in treating moderate to severe eosinophilic asthma patients, the same population treated by Novartis in its ZEAL (moderate) and LUSTER (severe) studies. But there was a twist.
On the third-quarter 2019 earnings conference call, Novartis management explained that the failure in moderate asthma patients wasn't surprising. Chief Medical Officer John Tsai expressed optimism that fevipiprant could still yield success in the LUSTER1 and LUSTER2 studies involving severe asthma patients, especially considering DP2 activity increases with severity. He added a kicker: Novartis management had already seen initial results from one of the LUSTER clinical trials.
That statement caused investors to have renewed faith in the DP2 antagonist approach and sent shares of Gossamer Bio soaring back into positive territory -- all in the span of less than two hours. Is the newfound -- er, reestablished --optimism justified?
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Is Gossamer Bio too far behind Novartis?
It's still too early to know if DP2 antagonists will live up to the hype in moderate to severe eosinophilic asthma, but let's assume Novartis receives positive results from its LUSTER studies and files a new drug application (NDA) for fevipiprant in 2020 (the company's stated timeline).
That puts Gossamer Bio in a tricky situation. The phase 2b study of GB001 won't be completed until the second half of 2020. In other words, GB001 likely won't be the first drug in its class to earn marketing approval from the U.S. Food and Drug Administration (FDA) in eosinophilic asthma. That means it will have to demonstrate superiority to fevipiprant in order to capture significant market share in eosinophilic asthma, especially if the competitor has a head start measured in years.
Such a scenario could make investors think twice about Gossamer Bio's current $1.2 billion market valuation, although some might find comfort in a relatively diverse pipeline. The pre-revenue company now has five clinical trials underway involving four unique drug candidates, including GB002 in pulmonary arterial hypertension, GB004 in inflammatory bowel disease, and GB1275 in solid tumor cancers.
All four drug candidates are expected to have data readouts in 2020. Successful outcomes from the early-stage studies could help to take the pressure -- and the laser-focused attention of investors -- off of GB001, although that may require data from more advanced studies that are years away.
A risky, early-stage pharma stock
There's no getting around the fact that Gossamer Bio is a risky pharmaceutical stock. The company's lead drug candidate may not be the first drug in its class to earn marketing approval for eosinophilic asthma (if it does at all). A relatively diverse pipeline with four data readouts in 2020 could help to spread the risk, but investors may not get too excited until midstage results are in -- and those are years away. Simply put, this stock is likely to remain volatile for the foreseeable future.
