Atara Biotherapeutics Stock: A Speculative Buy After A Difficult Year (NASDAQ:ATRA)

Investment Overview

The share price performance of biotech companies developing cell therapies over the past 12 months – and the past three years – has been generally very poor.

Out of a sample set of 37 companies I recently put together, 29 saw their market cap valuations fall over the past 12 months, with the average decline being >50%. Of those companies that have been listed on the Nasdaq for >3 years, 19 of 24 companies’ share prices have lost value, by an average of -69%.

There have been some notable exceptions: Arcellx (ACLX), Immunocore (IMCR) and Cabaletta Bio have returned 79%, 148%, and >300% over the past year, reflecting the fact that investors prepared to embrace some risk can achieve an exceptionally strong return under the right circumstances.

In a note published by Seeking Alpha yesterday on Adicet Bio (ACET) this week I provided an overview of what cell therapy is and how it works, and shared a table covering the sample set mentioned above. My conclusion was that valuations of biotechs in this space had fallen to such a low level that now may be a good time to consider adding one or two to a balanced pharma / biotech portfolio.

Adicet is one of three companies I’m advising prospective investors to keep a close eye on, alongside Poseida Therapeutics (PSTX), which I also have covered for Seeking Alpha, and Atara Therapeutics (NASDAQ:ATRA) – the subject of this note.

To read my high level summary of the appeal and the pitfalls of investing in cell therapy please refer to my Adicet note, as in the rest of this post, I will be focusing on the investment opportunity I see with Atara.

Atara Overview The Ups and Downs Of 2022 – Tab-Cel Approval A World First

Atara’s 2022 was a year of ups and downs. In December, the company achieved what no other biotech or pharma has, securing approval across the EU for its lead candidate, Tabelecleucel, or tab-cel, to treat Epstein Barr Virus (“EBV”) positive Post-Transplant Lymphoproliferative Disease (PTLD) for those who have received at least one prior therapy.

Tab-cel, which will be marketed and sold as Ebvallo, is the first allogeneic cell therapy ever approved anywhere in the world. There are six approved autologous therapies approved to treat different types of blood-based cancers, but Ebvallo is the first allogeneic therapy to make it to market.

As a reminder, both types of therapy genetically engineer T-cells ex-vivo to given them enhanced powers to fight e.g. cancer cells, before introducing them into the patient, but in the case of autologous the engineered cells are harvested from the patient, whereas allogeneic therapies use cells derived from a donor.

According to Atara’s 2022 10K submission (the company released its FY22 earnings and annual report yesterday):

EBV is widespread in human populations and persists as a lifelong, asymptomatic infection. In healthy individuals, a small percentage of T cells are devoted to keeping EBV in check. In contrast, immunocompromised patients, such as those undergoing hematopoietic cell transplants (“HCT”) or solid organ transplants (“SOT”) have a reduced ability to control EBV.

Left without appropriate immune surveillance, EBV-transformed cells can, in some patients, proliferate and cause an aggressive, life-threatening cancer called EBV+ PTLD.

Although EBV+ PTLD can be treated with rituximab plus chemotherapy, historically Atara says 40% – 60% of patients either do not respond to such treatment or their disease progresses, hence there’s a high unmet for the disease. EBV+ PTLD is a rare disease, with only a few hundred patients failing rituximab or rituximab plus chemo in 2019, Atara reports.

In its pivotal, 43-patient Phase 3 study Ebvallo was able to demonstrate a 50% Overall Response Rate (“ORR”) in HCT patients who had developed EBV+ PTLD after HCT and a 52% ORR in SOT patients who had contracted EBV+ PTLD, with a best overall response of 28% Complete Response (“CR”), one-month media time to response, and 23-month median duration of response.

There were no cases reported of either Cytokine Release Syndrome (“CRS”), Graft vs Host Disease (“GvHD”), or Immune effector cell-associated neurotoxicity syndrome (“ICANS”), which tend to occur when a patient’s immune system reacts against the engineered T-cells, and are considered one of the major safety concerns in cell therapy.

Atara says that the expected median survival of patients with EBV+ PTLD who have failed rituximab plus chemo is typically 1.7 months in HCT patients and 3.3 months in SOT patients, hence it’s understandable why Ebvallo has been approved, given the survival rates shown in the pivotal trial.

Ebvallo’s marketing, distribution and sales in Europe and certain emerging markets will be handled by French pharma Pierre Fabre, with Atara accepting a $30m payment from the company in September last year “in exchange for a reduction in royalties and the supply price mark up on Ebvallo purchased by Pierre Fabre.”

Atara has also sold:

a portion of our right to receive royalties and certain milestones in Ebvallo under the Pierre Fabre Commercialization Agreement to HCRx (HealthCare Royalty) for a total investment amount of $31.0 million, subject to a cap between 185% and 250% of the total investment amount by HCRx

In other words, Atara’s historical achievement in securing a European approval for Ebvallo is not going to be especially financially rewarding for the company. The company has apparently advised that the cost of Ebvallo will fall somewhere between the cost of an autologous cell therapy – somewhere between $300k – $500k – and a gene therapy such as Novartis’ Zolgensma, which costs ~$2m.

With a patient pool of only a few hundred, it seems unlikely that Atara will earn royalties above the triple-digit-million mark, although a US approval – where Atara retains exclusive rights to market and sell the drug – could prove more lucrative.

In its Q422 updates Atara management says that it “recently held a productive meeting with FDA on clinical aspects for a potential biologics license application (“BLA”) submission for tab-cel” and that a further meeting is expected, the results of which will be shared in Q223.

Ultimately, the market has shown little interest in the EU approval of Ebvallo, with the company’s share price sinking to an all-time low in December 2022 of >$3. With that said, shares have risen in value in 2023, up >52% so far, likely in response to news that an approval of Ebvallo in the US is likely.

Additionally, Atara is putting Tab-Cel through a Phase 2 multi-cohort / label expansion study in various EBV+ cancers, and, in partnership with Pharma giant Merck & Co (MRK), through a Phase 1 study in nasopharyngeal carcinoma. Although the development path for the latter is unclear, the former study ought to report data this year – a potentially strong price catalyst for investors to look out for.

2022 in Review – ATA-188 In MS – A Potential Blockbuster Opportunity

In its 2022 10K Atara states:

Scientific and clinical findings support a potential biologic connection between EBV and MS. EBV is present in nearly all patients with MS. The MS disease course has been shown to correlate with measures of EBV activity, and with exhaustion of endogenous EBV-specific T cell populations.

Management additionally states that:

Based on our analysis of industry data and assumed increases in treatment rates and market share for a best-in-class treatment, we estimate that the potential annual U.S. market opportunity in Progressive MS could be at least $3.5 billion by 2025

Articles published in peer-reviewed journals such as Science and Nature have claimed to establish a link between EBV and MS, with an apparently 32x higher risk of developing MS after infection

In March last year Atara presented data from its Phase 1 study of its MS targeting candidate ATA188, showing that 20 of 24 patients had either Expanded Disability Status Scale (“EDSS”) improvement or EDSS stability with up to 42 months follow-up, with 33% of patients in the high-dose cohorts achieved EDSS improvement at the 12-month timepoint. EDSS measures factors such as fatigue, walking ability, and overall impact of the disease. MRI scans also showed less brain atrophy in responders across 42 months.

In July, Atara announced that a planned interim analysis of its Phase 2 EMBOLD study of ATA188, which had enrolled 80 patients, with the data set judged to be insufficient for conclusions to be drawn by an Independent Data and Safety Monitoring Committee (“IDSMC”), who recommended waiting until the final 12-month data set was made available.

This data will become available in October 2023 – another significant date for prospective investors and current shareholders to mark in their diaries. The market did not respond well to the interim analysis, with several investment banks downgrading Atara price targets, causing the company’s share price to fall by ~50%, from ~$8, to ~$4.

ATA-188 already has a Fast Track designation from the FDA and if the Phase 2 data is satisfactory then management’s plan is to initiate a Phase 3 in progressive MS and also use additional Phase 2 studies to explore other MS patients populations.

This isn’t – yet – as concrete an opportunity as Tab-Cel / Ebvallo, in my view, firstly because the data is immature, and secondly because there are already “at least 20 therapies,” Atara advises, approved to treat MS in the US and Europe. Recently approved therapies include TG Therapeutics (TGTX) Briumvi, Johnson & Johnson’s (JNJ) Ponvory, and Novartis’ Kesimpta, all embracing new, potent and safe approaches to treating the disease.

With the likes of Swiss pharma giant Roche (OTCQX:RHHBY) and French pharma giant Sanofi (SNY) running Phase studies of the MS candidate, as large as the addressable market may be – there are nearly 3m MS patients globally today – the likelihood that Atara and its EBV thesis will prove best-in-class is likely very slim. Until the Phase 2 arrives in October, nobody will know for sure.

CAR-T Progress Stalls on Patient Death, Collapse of Bayer Deal

Atara’s CAR-T programs consists of two programs targeting mesothelin which Atara describes as:

… A tumor antigen expressed on a number of solid tumors including mesothelioma, ovarian cancer, pancreatic cancer, non-small cell lung cancer and other tumors

One of these therapies – ATA-2271 – is autologous and is in a Phase 1 study, and the other – ATA3271 – is autologous and preclinical. There are two other preclinical programs, both allogeneic and targeting CD19, and CD19/CD20 – recognised protein targets that are over-expressed in multiple tumor types.

Both mesothelin assets formed part of a co-development agreement between Atara and German pharma giant Bayer, signed in 2020, with Bayer paying Atara $60m upfront and pledging another $610m in development and commercial milestones.

That deal was terminated by Bayer in May last year, however, a few months after Atara reported a patient death in the Phase 1 study of ATA2271, with Bayer stating officially that the decision was made after a “strategic review and asset-level prioritization of its pipeline, including cell and gene therapy.”

The patient’s death occurred in a study of patients with malignant pleural mesothelioma being conducted at Memorial Sloan Kettering Cancer Center (“MSK”), from whom Atara licenses much of its technology and according to Atara:

The single case involved a patient with a history of multiple malignancies and other comorbidities undergoing treatment for advanced recurrent mesothelioma

MSK and Atara voluntarily paused the study and the candidate is not mentioned in Atara’s Q422 and FY22 earnings and company updates press release released yesterday. A statement in the company’s latest investor presentation – also released yesterday – claims that:

ATA2271 (autologous) was associated with less cell exhaustion, improvements in functional persistence, serial cell killing, and enhanced in vivo efficacy when compared with first-generation mesothelin CAR T therapy.

Atara did discuss ATA2271 on its Q422 earnings call however, stating that the Phase 1 study had resumed enrollment, and that a data update would be provided at this year’s ESMO conference, which takes place in October.

Regarding the patient death, Atara’s Head of R&D Jakob Dupont told analysts that they expected to present some safety data at ESMO, and possibly details of what the autopsy revealed, and also that the FDA had signed off on the resumption of the study, with amendments made, the most significant being an assessment of the morbidities of patients and a longer period before patients who had undergone checkpoint inhibitor therapy would be eligible for the study.

Mesothelin directed therapies have not enjoyed much success in the clinic and the difficult progress of the ATA2271 study and lack of progress with ATA-3271 does not inspire much hope that this study will be any different.

In fairness to Atara, the company claims to have treated more patients – >500 – than any other allogeneic T-cell company and MSK enjoys a stellar reputation as a cancer treatment center.

It’s possible that Atara may be on more solid ground with its CD19 and CD20 programs however, and ATA3219, an allogeneic therapy targeting B-Cell malignancies is expected to have an Investigational New Drug (“IND”) application filed next quarter, which, if accepted by the FDA, will allow in-human studies to begin.

Conclusion – A Pivotal Year For Atara Lies Ahead – Atara May Be Somewhat Undervalued Relative To Its Opportunities

With a $228m loss reported in 2022, and only $243m cash remaining, something had to give, and in August Atara announced that it would let go of ~20% of its workforce and slim down its R&D operations, which would extend its cash runway into 2024.

Nevertheless, Atara is in a precarious position financially – likely why it made the deals it did with both Pierre Fabre and Healthcare Royalty. Investing in the company is certainly not for the risk averse given the complexity of Car-T technology and the risk that the success of the biotech’s EBV T-cell targeting approach in PTLD cannot be carried over into other indications.

With that said, the risk of failure and lack of commercial viability is what drove down biotech valuations so severely in 2022, and it’s possible that in the rush to sell early stage biotech the market has not acknowledged the groundbreaking success of a first allogeneic therapy approval.

As mentioned, Ebvallo is not the answer to Atara’s financial problems, although an FDA approval to market and sell the drug in the US could provide the kind of share price spike that would allow Atara to raise funds via a share issuance without dragging the share price down.

$100m of sales from this source may be too high an expectation, and the Merck partnered study in nasopharyngeal carcinoma may have stumbled, but there are further label expansion opportunities in play, and Atara has a unique approach that may be patent protected for a decade or more.

The MS opportunity stands out as by some distance the largest in terms of commercial opportunity, and although it’s difficult to argue that the interim analysis supports much optimism, a 12-month data set will at least be decisive one way or the other.

If the data are positive, investors can expect a substantial rise in the share price, as I suspect ATA-188 would be an attractive target for a large pharma concern given how many are operating in the MS space, and the unique and innovative approach of the therapy.

In terms of CAR-T, Atara is some way behind the curve with its B-cell CD19/CD20 but the fact its programs are allogeneic is important, as allogeneic could replace autologous as the standard of care in blood based cancers if it can show safety and durability. The Q322 IND submission, if met, is therefore a potential price catalyst. The solid tumor opportunity has clearly stumbled – development of ATA3271 has been paused and we await data from ATA2271 in October, and an explanation for the patient death.

The fact is that there are many reasons why an investor would not want to invest their money in a cell therapy focused biotech, and this opportunity will likely not suit most people. The rewards on offer are substantial however because one set of trial data can change the valuation of an asset from $10m, to $1bn overnight.

In Atara’s favor is its unique approach, its success with Ebvallo, its near-term catalysts – from a potential US approval to a new IND approval – and its attractiveness to big pharma. Bayer may have walked away from Atara last year but that does not mean the large pharma industry won’t be monitoring Atara very closely. All of its senior management team have big pharma backgrounds.

With a market cap valuation <$500m – many times less than what it was worth last year or the year before – despite the progress being made whilst also acknowledging the setbacks – I’d make Atara a speculative buy, and with its shares gathering momentum in 2023 already this could be a good time to consider making an investment.