Stoke Therapeutics Looks Unfairly Valued (NASDAQ:STOK)

Two years ago, when I covered Stoke Therapeutics (NASDAQ:STOK), I said it was working in cutting-edge science but that the valuation was too high. Now that the stock has been sized down to one-sixth of its 2020 value, and there’s data from some of its programs, it is time for a closer look at Stoke.

I discussed then how STOK’s cutting-edge platform works, and why choosing a small market indication like Dravet Syndrome makes sense for a R&D-heavy company with a solid platform looking for a quick and easy proof of concept. DS is a $300mn market, and GW Pharma’s (GWPH) epidiolex is the only approved drug. Thus, revenue-wise, this makes no sense, however, like I said before, for a proper proof of concept, such a rare, low competition indication is ideal. Moreover, the haploinsufficiency seen in DS makes it an ideal candidate for Stoke’s platform. As noted at Endpoints:

Patients with Dravet syndrome have one functional gene copy and one mutated copy – what’s called a haploinsufficiency – resulting in half as much protein as needed to maintain normal health. Stoke’s Targeted Augmentation of Nuclear Gene Output (TANGO) platform is designed to address haploinsufficiencies by increasing – or stoking – protein output from healthy genes, thus compensating for the mutant copy of the gene.

Recently, STOK came out with early data from its Dravet Syndrome program. The stock fell 27% owing to some problematic safety signals seen in the trial. According to BTIG analyst Thomas Shrader:

A safety signal of increased protein in the [cerebrospinal fluid] that may correlate with the monthly CSF dosing and with epilepsy in general” will “likely slow development modestly and the company has agreed to limit dosing in two of the extension trials.

27% (15/55) of patients experienced mild to moderate drug-related treatment-emergent adverse events (TEAE), however, none of these patients withdrew from the trial.

Other key data points:

Based on 27 patients, efficacy data indicate that the median reduction in convulsive seizure frequency from baseline stood at 55% in those who received three doses of STK-001 at 45mg.

The plasma levels of STK-001 were found to be dose-dependent, with 30mg and 45mg demonstrating a bigger increase compared to 20mg and 30mg.

The company says that this shows they have reached therapeutic levels of dosage, and more confirmatory trials will follow. A comparison with epidiolex will be useful at this point, although the mechanisms of action are entirely different. This is an untapped market because 90% of these patients do not respond to standard seizure medications.

If we look at epidiolex, here’s the data:

In patients with Dravet syndrome, a significant decrease in the median convulsive seizure (tonic, clonic, tonic-clonic, or atonic) frequency was seen in patients treated with Epidiolex when compared with placebo within the first month of the maintenance period (P = 0.002) 23. The primary outcome endpoint was significant and showed a median reduction of 38.9% for CBD versus 13.3% for placebo (P = 0.01) 23. The number of patients with a 50% decrease in convulsive seizures was also higher with treatment (43% versus 27% placebo), although significance was not reached (P = 0.08), and three patients achieved seizure freedom with Epidiolex versus zero in the placebo group. For total seizures (that is, all seizure types), the adjusted reduction in seizure frequency was also significantly higher in the Epidiolex (28.6%) versus the placebo (9%) group (P = 0.03) 23. Based on a Caregiver Global Impression of Change (CGIC) scale, 62% of patients in the treatment group also reported a significantly improved overall condition as compared with only 34% in the placebo group (P = 0.02) 23.

So if you cut to the chase and take just the “median reduction in convulsive seizure frequency from baseline” data, you get 55% for STK-001 versus 39% for epidiolex. That’s a 16 percentage point difference between two trials of very different design; if the difference was much, much stronger, maybe some vague comment could be made about the comparative difference between the two molecules. However, apart from noting that STK-001 surely “works,” nothing much can be said at this point. Safety has also been cited as an issue needing further investigation.

What is most important for Stoke is that this data proves its TANGO platform to a good extent. It shows that the type of antisense technology Stoke’s founder Adrian R. Krainer, Ph.D., of Cold Spring Harbor Laboratory, has developed, works. I discussed the technology in detail in my previous coverage.

Financials

STOK today has a market cap of $364mn and a cash reserve of $252mn. Research and development expenses for the three months ended September 30, 2022 were $20.1 million, while general and administrative expenses were $9.9 million. At that rate, the company has a cash runway of about 7-8 quarters.

Bottom Line

STOK stock seems like it has been unfairly punished for early promising data. This trial was only intended to show early signs of efficacy. The safety signals seen could be addressed in multitudes of ways. I think at current lows, STOK deserves a closer look.

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