Arcellx: The Gilead Deal Derisks And Proves Their Technology (NASDAQ:ACLX)

Arcellx, Inc. (NASDAQ:ACLX) is up 83% since my bullish coverage from August. Goes to show how biotech is recovering from the slump that was 2022, because this is not a sentence I could write about most stocks last year. Sadly, I was then still in the 2022 mindset, and I didn’t buy this one.

Arcellx is a developer of cancer immunotherapies. Its technology has two aspects. One is called D-Domain, a small molecule (?) binder that works better than traditional biologic CAR-T binders. D-Domains make traditional CAR-T more efficient and safer, a thesis that the company proved at ASCO last year. The other technology is SparX, which addresses relapse in CAR-T therapy by binding to cancer cells and drawing T cells to them as and when needed. Thus, these SparX molecules can be infused into patients who had previously been treated with CAR-T but relapsed, and the existing T cells will again be able to kill cancer cells. At least that is the idea, although it has not been field tested yet. Both technologies are designed to improve current CAR-T therapies, which are life-changing therapies that need a few tweaks to make them mass viable.

D-Domain is the foundational technology that is behind both ddCAR and ARC-SparX technologies developed by Arcellx. A ddCAR is an engineered T cell with a d-domain. ddCAR is designed to be single infusion, and it works just like traditional CAR-Ts, except that using the d-domain results in “higher transduction efficiency, high cell surface expression, and low tonic signaling.” In every other aspect, it works just like a CAR-T cell. SparX, the company says, is “dosable, controllable, and adaptable,” and combines a proprietary CAR-T cell construct and the SparX protein to bind to cancer cells. The binding uses a tag which is recognized by these T cells. The idea is that in case of relapse after CAR-T therapy, patients may be injected with just these SparX proteins and the T cells will again become active against cancer cells that they tag.

Here’s some material from the company that explains the situation:

The company has a phase 1 study running for the SparX asset, and a phase 1, converted, it seems, to phase 2 study called iMMagine for ddBCMA, a BCMA construct of ddCAR. In my previous coverage, I noted about this second trial:

[it] is being evaluated in a Phase 1 proof-of-concept study “iMMagine” for relapsed or refractory (r/r) multiple myeloma (MM) in patients with either minimal response or disease progression within 60 days of last treatment. The study “demonstrated 100% overall response rate and deep durability.” The company plans to jump directly to a pivotal study next year. Prelim data has shown good safety, with only one grade 3 CR and a decent toxicity profile. The data compares very favorably to two other CAR-T programs, LEGEND-2, and CERTITUDE-1 from JNJ.

Latest data from this still-ongoing trial was presented at ASCO 2022.

Data showed 100% ORR (all patients saw treatment response) and durable responses, with multiple patients showing treatment effect for over 2 years. 71% patients had a CR or an sCR, or stringent complete response – read about sCR here. The trial studied 2 dose levels -100 and 300 million CAR+ T-cells – and MTD was not reached. Of the 16 patients with 12-month follow up data before ACSO, 13 had a CR, which is an outstanding number. Class leader Janssen’s BCMA-targeted cilta-cel (Carvykti) had a 67% CR at 12-month. The AE profile was consistent with other CAR-T products, and better in certain ways. For example:

• No tissue-targeted toxicities observed

• No cases grade 3 (or greater) CRS, 1 case (4%) Grade 3 ICANS event at RP2D (n=25)

• No delayed neurotoxicity or parkinsonian-like events observed in entire population (n=31).

The SparX trial is called ACLX-001, and it, too, targets r/r MM using a two-component therapy: ARC-T Cell + bivalent SparX, together targeting BCMA. Only preclinical data is available, but what is important to understand is that SparX is what makes ACLX different. Their ddBCMA material is good and competitive, but strictly speaking, it is not better than an approved therapy from big pharma. SparX may, potentially, create the differentiating factor for the company, with its tagged ddBCMA method that would then have the same sort of response as Carvykti, but only redosable. As of last October, J&J’s Tecvayli, a T-cell engaging MAb, is also approved in the indication, making the space highly competitive. So SparX is important, even more so in the light of the following from ddBCMA:

However, many of the remissions are not proving durable. Close inspection of the swimmers plot shows that 12 patients initially responding to CART-ddBCMA have relapsed, most by around 12 months

The ddBCMA data was good enough that Gilead/Kite (GILD) signed a $225mn deal with ACLX for rights to the product, and also put in a $100mn equity. Gilead, through Kite, has tried its hand at an anti-BCMA therapy before, but the program was shelved. This is Gilead’s effort to go against JNJ using Arcellx’ splendid data, something that would have been difficult for Arcellx alone. The two partners have a 50-50 cost/profit sharing deal in the U.S., while ex-US, Kite will take the lead and Arcellx will get royalties.

Financials

ACLX has a market cap of $1.47bn and a cash balance of $280mn, which the company says will fund operations for 12 more months. Research and development expenses were $83.5 million, while general and administrative expenses were $10.4 million for the quarter. That gives them a 4 quarter runway, like the company says. They will need to start looking for fresh funds as soon as possible. It seems this amount does not include the Gilead payout, because in the previous quarter, they showed a cash balance of $307mn. So the difference does not account for the Gilead fund, which makes me guess that they have now a longer runway.

Bottom Line

I like Arcellx, Inc. This is a small company that could. However, JNJ/Legend has set a very high benchmark with carvykti, and Arcellx, Inc. will need to do all it can to go up against such a bar. The Gilead deal is a step in the right direction. If SparX data is any good, I think Arcellx, Inc. will have an edge.