Astria Therapeutics: Tailwinds Building With Novel Treatment Paradigm

Investment Summary

As the year rolls into a close, we continue our deep dive coverage across names within the complex disease universe. There are many selective opportunities within this domain offering meaningful upside down the line.

Here I’ll point investors to Astria Therapeutics, Inc (NASDAQ:ATXS), with its lead product candidate is STAR-0215, a monoclonal antibody inhibitor for the treatment of hereditary angioedema. This is a rare condition that has an unmet need for effective preventative therapy with a lower treatment burden – something ATXS is pushing to resolve. Here I’ll present our findings from the deep dive on the stock and the investment opportunity. Net-net we rate ATXS a buy seeking an initial price objective of $18, ~28% return potential.

Before proceeding, it’s important investors have a good understanding of the following risks that could impact the ATXS share price:

1. The prevailing risk is involved with investing in small-cap equities. There are various risks with investing in this segment of the market, as volatility can be sudden and sharp, with pricing sensitive to a range of factors. Technicals can be widely disconnected from fundamentals, regardless of company performance. This should be well understood.
2. Regulatory risks are also a paramount risk to be aware of. ATXS is still in the early stages of development and is reliant on receiving regulatory approval for its products. Any delays or difficulties in obtaining regulatory approval could adversely affect the company‘s ability to commercialize its products.
3. Competition is also creeping up in the space, leading to potential concentration risk for the company. ATXS faces direct competition from other companies that develop similar products in treating hereditary angioedema. If competitors develop more effective treatments or launch products earlier, the company‘s market share and future profitability could suffer.
4. There is also inherent risks in investing in clinical stage biotech companies. ATXS’ success depends on the successful completion of its clinical trials and converting on its pipeline.

As mentioned, it is essential that investors have a firm grasp over these downside risks before proceeding.

Market opportunity in hereditary angioedema

Hereditary angioedema (“HAE”) is a rare genetic disorder characterized by recurrent episodes of swelling in various parts of the body. It is a rare condition, with an estimated prevalence of 1 in 50,000 to 1 in 1,000,000 people. Nevertheless, the global HAE therapeutic market was valued at $2.7Bn in 2020, and is projected to grow at a CAGR of ~8.7% from 2023-2028.

In terms of the pathogenesis of HAE, is inherited in an autosomal dominant pattern, meaning that an individual only needs to inherit one copy of the mutated gene to develop the condition. Santacroce and colleagues (2021) identified mutations on six different genes as causing: factor XII (“F12”), plasminogen (“PLG”), angiopoietin 1 (“ANGPT1”), Kininogen 1 (“KNG1”), Myoferlin (“MYOF”), and heparan sulfate (“HS”)-glucosamine 3-O-sulfotransferase 6 (“HS3ST6”). Several studies talk of the mutation at the F12 gene, which provides instructions for making coagulation factor XII (FXII). The FXII protein is involved in the blood clotting process and also plays a role in the immune system. The mutations that cause HAE lead to the production of a nonfunctional or insufficient amount of FXII protein. As a result, the immune system and blood clotting process are not regulated properly, leading to the recurrent swelling characteristic of HAE.

Patient Journey with HAE

The swelling is actually a result of a deficient or dysfunctional C1 esterase inhibitor, a protein that regulates the activity of certain immune system cells called bradykinin and the complement system. The most common sites of swelling in HAE are the hands, feet, face, and airway. Swelling in the airway can be life-threatening and requires immediate medical attention.

The severity and frequency of HAE episodes can vary widely among affected individuals. In some cases, episodes may occur several times a month, while in others they may be less frequent. There is no cure for HAE. Hence, there is an unmet clinical need and need for a medical breakthrough in the segment. This is the pathway in which ATXS is embarking on, and to date, it’s made substantial headway in doing so.

Momentum building around STAR-0215

ATXS’s STAR-0215 is a monoclonal antibody inhibitor designed to provide effective, long-acting prevention of HAE attacks. It received investigational new drug (“IND”) clearance from the FDA in July 2022. STAR-0215 has demonstrated promising results in its Phase 1a trial, showcasing its potential as a long-acting inhibitor of plasma kallikrein for the prevention of HAE attacks. This double-blind, placebo-controlled study, conducted at a single U.S. centre, administered single doses of STAR-0215 or a placebo to 25 healthy subjects in three different dosage levels: 100 mg, 300 mg, or 600 mg.

The subjects were monitored for safety, pharmacokinetics, and pharmacodynamics over a period of 224 days. Through 84 days, STAR-0215 was found to be well-tolerated across all dosage levels, with the most common side effect being a mild, self-resolving injection site reaction. No significant changes were observed in liver enzymes, coagulation parameters, serious adverse events, or discontinuations.

The 300mg and 600mg dose groups showed pharmacokinetic and pharmacodynamic results that were consistent with clinical benefit up to three months, with an estimated half-life of up to 110 days. These results support the potential for dosing STAR-0215 once every three months or less frequently, and demonstrate rapid and sustained drug levels in line with clinical benefit. In our estimate, the company may be drawn to the higher dose regime in its next phases of dose-dependency testing. The pharmacodynamic results also displayed rapid and robust target engagement through at least three months, with a 40-60% decrease in FXIIa-activated cleaved high molecular weight kininogen – levels consistent with those shown to prevent HAE attacks in patients.

These findings support the advancement of STAR-0215 to a Phase 1b/2 trial, ALPHA-STAR, scheduled to commence in Q1 2023. The multi-center, open-label study will evaluate the safety and efficacy measures, ranging from tolerability, HAE attack rate, pharmacokinetics and pharmacodynamics, and quality of life of STAR-0215 in patients with HAE. Investors can expect initial results from the single and multiple dose cohorts in mid-2024. Additionally, ATXS plans to investigate the potential for 6-month dosing of STAR-0215 through additional healthy subject cohorts in the Phase 1a trial, starting in Q1 2023 with initial results anticipated in Q4 2023.

It is important to also note that STAR-0215 isn’t the only treatment protocol available in the market for HAE. There are a list of competing regimes from ATXS’ competitors that should be mentioned as well. For instance, Salix Pharmaceuticals’ Ruconest label is a C1 esterase inhibitor, administered via intravenous injection. Meanwhile, Kalbitor, manufactured by Dyax Corp, is a kallikrein inhibitor, provided through a 3-shot subcutaneous injection protocol.

Moreover, Takeda Pharmaceutical (TAK) targets plasma kallikrein via its Takhzyro label in order to prevent the symptomology of HAE. It appears to be gaining market share at an accelerated pace, with $1.1Bn in sales in the company’s fiscal year ending May 2022, an increase of 19% YoY. Noteworthy is that it treats all 3 forms of HAE. Bottom line is there’s actually a few treatments available, and the ATXS’ compound would compete on top of these if successfully commercialized.

Nevertheless, there’s a wave of momentum building around this segment for ATXS. Looking ahead, each of the mentioned date ranges will serve as key inflection points for its share price in our estimation. At the same time, there is inherent risks that, if the company fails to meet its primary objectives in the studies, this will be a heavy downside risk.

ATXS liquidity and financial health

By the end of Q3 the company had an accumulated deficit of $494mm since listing, up from $455.8mm the year prior. On this it had liquid assets of $119mm, comprised of $45.97mm in cash and $70.6mm in marketable securities.

Over the 12-months to Q3 FY22, it burnt $40.5mm of cash to continue operations. However, it had arranged an at the market (“ATM”) facility in June 2021 [through Jefferies] to issue and sell its own shares in order to obtain additional cash on the balance sheet.

By the end of the September this year, it had sold shares funder the ATM facility for net proceeds of ~$24mm. This gave a liquidity injection that, combined with all other available liquidity, will provide a sufficient cash runway for the next 12 months.

Moreover, short-term obligations are covered more than 18x by its liquid assets, whereas its long-term liabilities to assets is at just 5.8%. It’s also worth noting that ATXS has $96.4mm in convertible stock on the balance sheet as well.

ATXS – the technical picture

In the absence of any profitability or earnings, as has been customary this year, we’ve turned to technical studies to guide price visibility looking ahead.

You’ll see in the chart below that investors were quick to price in the good news surrounding STAR-0215’s IND clearance back in July. Since, the stock has broken out from an 8-week consolidation from November. It’s closed higher for the last 5-weeks in a row now.

At the same time, it has just rallied after breaking out from a 37-week long cup and handle, where price distribution ranged from ~$7 to as low as $2 at the bottom of the move. ATXS does trade below the 50DMA but the 250DMA is gathering momentum with the latest rally to the upside. Should it break above the 50MDA, this would be further bullish confirmation.

We’d also point out that weekly volume trends have been tremendously supportive of the recent price action. Prior to each price breakout, we note that volume has dried up before a large volume spike leading into the move.

With last week’s volume spiking well above the 6-week average, this tells us there were large buyers filling order book, whilst the price ladder remained ticking to the upside.

Exhibit 1. ATXS 12-month weekly price evolution [log scale]

Turning to the longer-term trend indicators, we’d advise that shares are trading above cloud support, with the lag line following in hot pursuit [Exhibit 2]. The cloud itself is about to cross to the upside, whilst on balance volume remains in a continuation of its longer-term uptrend. Momentum studies are also bullish. Hence, it tells us there has been long-term accumulation of ATXS shares throughout the entire length of our examination period.

Exhibit 2. Trading above cloud support, with long-term trend indicators equally as supportive

We therefore have technically derived price targets as high as $18 based on point and figure studies, as seen below. Again, this confirms our buy thesis on the stock, and we are searching for an initial price objective to this level.

Exhibit 3. Upside targets to $18

Market positioning

We also examined market positioning in ATXS’s equity by checking the options chain for contracts expiring in January 2023. Distribution is skewed towards call positioning with a strike depth ranging from $2.50–$22.50.

This tells us investors are bullish up until the $22.50 mark, which inspires further confidence in our buy thesis. Note, short interest is just 0.33% in this name, ruling out the possibility the calls volume and open interest is a function of delta hedging on short-exposure.

Exhibit 4. Depth in the strike ladder with distribution skewed to calls

The stock is also rated favourably by Seeking Alpha’s quant factor grades, scoring highly across all segments bar profitability – which is expected. Hence, this adds further bullish weight to the risk/reward asymmetry.

Exhibit 5. ATXS Seeking Alpha factor grading attractive

Conclusion

Based on the culmination of factors raised in this analysis, we rate ATXS a buy. Whilst there are competing treatments for HAE available, the momentum around the company’s pipeline is gathering steam, and this has been recognized by the market. It is important that investors recognize the risks outlined at the beginning of this report before proceeding further. Net-net, we are an initial price objective of $18, and look forward to providing additional coverage a little further down the line.