On July 7, biotech ChemoCentryx (CCXI +0.00%) will be undergoing an event that could make or break its stock price. Its flagship drug candidate, avacopan, an oral molecule under investigation for the treatment of antineutrophil cytoplasmic autoantibody (ANCA)-associated vasculitis, is awaiting a decision from the U.S. Food and Drug Administration (FDA) on whether it can enter the market. ANCA vasculitis is a group of autoimmune diseases that cause inflammation and damage to small blood vessels.
There is no cure for the condition. Treatments, or potential ones like avacopan, can only keep the disease under control. It is a pretty rare condition, with an estimated prevalence of 3.2 per million newborns.
Investors hoping for a quick path to approval were disappointed when a panel of FDA experts who met in May was divided on the drug's supposed benefits. As a result, the stock is down nearly 80% from its all-time highs -- and back to levels not seen since late 2019, when the phase 3 results were first announced. So what are the odds that avacopan can clear the regulatory hurdle?
Image source: Getty Images.
Just randomness?
Avacopan's pivotal trial was pretty complicated. The primary endpoint for the phase 3 study was how many patients treated with avacopan experienced disease remission at weeks 26 and 52 compared to those who took prednisone, a glucocorticoid medication that suppresses the immune system. Glucocorticoids are steroid hormones that help reduce inflammation. In addition, patients in both cohorts received cyclophosphamide, rituximab, and azathioprine as concurrent treatments.
Results show that the avacopan arm had similar efficacy to the prednisone arm at both week 26 and week 52, but was only superior to the latter at week 52. Remission rates for avacopan were 3.4% higher than prednisone at week 26 and 12.5% higher at week 52. (That's three successes, one failure.)
The FDA panelists saw a lot of uncertainties in the data. First of all, there was the issue of the drug failing the superiority endpoint at week 26. Secondly, the investigator had full discretion to use glucocorticoids other than prednisone to control patients' disease activity in both arms. The dosage was not controlled. In addition, avacopan's interactions with glucocorticoids were not accounted for. Studies seem to suggest that avacopan increases the exposure/absorption of glucocorticoids when given together. This potential synergistic effect was not accounted for in the clinical trial.
Thirdly, some analysis showed that patients in the avacopan cohort were undertreated with rituximab or cyclophosphamides beyond week 26. Lastly, there were slightly higher rates (13.3% vs. 11.6%) of liver abnormalities in patients enrolled in the avacopan arm than in the prednisone arm. All of the above makes avacopan's risk-reward profile look rather questionable.
The bizarre element
What's peculiar about all this is that the stock is trading as if the phase 3 trial had failed, or its results had never even arrived. To me, this indicates that investors are expecting an all-or-nothing kind of event -- either a clean path to approval, or rejection. I don't think those are the only choices.
The question here isn't whether avacopan is similar in efficacy to prednisone, but whether one can replace the other as a standard-of-care therapy. There is evidence that avacopan could do so at week 52 -- but that remains obfuscated. The FDA could first conditionally approve the drug, and then require ChemoCentryx to run a concurrent clinical study to verify its superiority.
The verdict
Right now, ChemoCentryx stock isn't very expensive. The company only has a market cap of $973 million. Its enterprise value is even less if we account for the $424.2 million in cash on its balance sheet. Meanwhile, this isn't ChemoCentryx's only clinical program: Avacopan is under investigation to treat several other orphan diseases, like hidradenitis suppurativa, an auto-inflammatory illnesses causing painful lesions due to obstruction of hair follicles. So there's something to cushion the loss if all doesn't go well on the FDA decision date.
Overall, given the lethality of ANCA vasculitis and the unmet medical need, I think avacopan is on track to land conditional approval due to its solid Week 52 efficacy data. But nothing is a given. Since ChemoCentryx has a relatively small market cap, investors should consider watching for the biotech's FDA results on July 7 before opening a stake.
