The Take On Tenaya Therapeutics (NASDAQ:TNYA)

Truth is like the sun. You can shut it out for a time, but it ain’t going away.”― Elvis Presley

Today, we take a deeper look at a small developmental firm that came public during the IPO frenzy of 2021. The stock has destroyed a lot of shareholder value since that time, as most from that ‘vintage‘ have as well. Oversold or a falling knife? An analysis follows below.

Company Overview:

Tenaya Therapeutics, Inc. (NASDAQ:TNYA) is a South San Francisco based early clinical-stage biopharmaceutical concern focused on the development of therapies for the treatment of heart disease. It has three product platforms but only one clinical program and two others that should enter the clinic in 2023. The company was founded in 2016 and went public in July 2021, raising net proceeds of $188.5 million at $15 per share. Tenaya’s stock trades right at two bucks a share, translating to a market cap of approximately $130 million.

Heart Disease Overview

Heart disease is the leading cause of death on the planet and (since 1950) in the U.S., where 659,041 died from this malady in 2019 (according to the CDC). There are essentially four categories of heart disease: 1. heart failure, which occurs when the heart weakens to the point that it cannot pump enough oxygenated blood required by the rest of the body. This condition can be triggered by heart attack, persistent high blood pressure, congenital heart disease [CHD] – which are defects present a birth – or cardiomyopathies; 2. arrhythmia, which are abnormalities in the heart’s electrical impulses that disturb normal pumping function; 3. heart valve disease, which is a malfunction of one of the four valves of the heart, resulting in irregular blood pumping. 4. coronary artery disease [CAD] is a build-up of plaque inside coronary artery walls that limits the blood flow to the heart muscle, which, if untreated, typically manifests in a heart attack.

That said, progress has been made by (primarily) treating the symptoms of heart disease (e.g., statins for CAD, beta blockers for heart failure, etc.), with 161.5 American deaths per 100,000 in 2019 versus 182.6 deaths per 100,000 in 2009. However, there are more than 250 genetically defined disorders involving the heart – few of which have approved therapies – which are much closer to the root cause of the problem.

Platforms & Candidates

With multiple paths to heart disease and heart failure, the team at Tenaya has developed three approaches for the treatment of these conditions: gene therapy, precision medicine, and cellular regeneration.

Gene Therapy. The company’s gene therapy platform employs adeno-vector viruses (AAVs) to target cells within the heart to correct or compensate for functional defects. The AAVs deliver healthy copies of genes or other constructs to specific cells to effectuate treatment. Tenaya’s lead candidate from this platform is TN-201, a gene therapy designed to deliver a functional myosin binding protein C3 (MYBPC3) gene to patients with genetic hypertrophic cardiomyopathy (gHCM) due to MYBPC3 gene mutations, a condition that afflicts 115,000 patients in the U.S., accounting for ~19% of all HCMs. These mutations usually present as thickened heart walls, which actuate fibrosis, abnormal heart rhythms, cardiac dysfunction, heart failure, and sudden cardiac death in both adults and children. After success with murine models in the preclinic, TN-201 received orphan drug designation from the FDA and the European Commission. Tenaya expects to file an IND for TN-201 before YE22 and enter the clinic in 2023.

From this platform, the company has also developed TN-401, which is designed to deliver a functional PKP2 gene in adults with genetic arrhythmogenic right ventricular cardiomyopathy (gARVC) due to PKP2 mutation, a disease that vexes ~70,000 Americans. Alterations to the PKP2 gene typically result in right ventricle enlargement, fibrosis of the heart muscle, and severe arrhythmia. Management anticipates filing an IND for TN-401 in 2023. Like TN-201, it has received orphan drug designation from the FDA.

Although there are no approved treatments that address the genetics behind these disorders, myosin inhibitor mavacamten is prescribed for obstructive HCM due to MYBPC3 gene mutations, with beta blockers, diuretics, and antiarrhythmics approved to treat gARVC (before invasive implantation of a cardioverter defibrillator or ventricular tachycardia ablation). That said, there is a plethora of companies with clinical-stage gene therapy programs attempting to address diseases of the heart, including BioMarin (BMRN)-DiNAQOR (Phase 1 HCM), Lexeo Therapeutics (Phase 1/2 cardiac Friedreich’s ataxia), Precigen (PGEN) (Phase 2 recurrent respiratory papillomatosis), Renova Therapeutics (Phase 2 heart failure), Rocket Pharmaceuticals (RCKT) (Phase 1 Danon disease), and 4D Molecular Therapeutics (Phase 1/2 Fabry disease), amongst others.

Precision Medicine. Tenaya’s precision medicine platform employs human induced pluripotent stem cell-derived cardiomyocytes as disease models (instead of animals), which when combined with machine learning and genetic analysis form the basis for disease target identification. This modality-agnostic platform has spawned TN-301, a highly specific inhibitor of histone deacetylase 6 (HDAC6i), which is believed to contribute to both heart failure with preserved ejection fraction (HFpEF) and genetic dilated cardiomyopathy. The former affects approximately three million Americans – comprising half of all heart failures – is characterized by filling of the left ventricle (diastolic dysfunction) and has a 75% mortality rate within five years of first hospitalization; the latter afflicts ~300,000. TN-301 is the company’s lead and only clinical program, currently undergoing safety and tolerability evaluation in a healthy-participant, dose finding Phase 1 study with results anticipated sometime in 2023.

From the perspective of drug discovery through disease models, TN-301 has no clinical competition, although HFpEF is currently treated with beta blockers, calcium channel blockers, angiotensin-converting enzyme blockers, angiotensin receptor blockers, and most recently with sodium-glucose cotransporter-2 inhibitors (e.g., empagliflozin), which typically treat type-2 diabetes.

Cellular Regeneration. Similar to the company’s gene therapy platform, its in vivo cellular regeneration approach employs viral vectors to deliver specific combinations of genes to heart cells to either induce conversion of cardiac fibroblasts into cardiomyocytes or provoke cardiomyocytes into cell division. Tenaya believes these processes can be applied to a broad range of heart conditions where cardiomyocyte loss contributes. That said, therapies leveraging this approach are still in the discovery phase.

Share Price Performance

While the company’s strategy of covering the board through its these three platforms appears sound, its stock is down 85% from its upsized IPO pricing as investors (somewhat illogically) purchased shares knowing that the company would have zero actionable clinical data from its endeavors for two full years. With nothing to hang its hat on except a few IND-enabling studies, the market forgot about the thinly traded Tenaya, and with nothing positive – except the FDA clearance of TN-301 to enter the clinic in September 2022 – to stem the chronic low-volume selloff, the stock traded down to a closing price of $2.04 a share on November 10, 2022.

On that date, the company provided a corporate and financial update, which was more or less a regurgitation of its prior press releases with the only new potential market-moving information being an update of its cash position: $149.5 million as of September 30, 2022 with a runway through mid-2024. A market cap (at that time) of $84.4 million meant that Tenaya was trading at a rather astonishing 44% discount to cash. A few market participants awoke to this revelation and drove shares of TNYA 56% higher to $3.19 over the subsequent five trading sessions, meaning it was still trading at a 12% discount to cash (of $3.61 a share) and the market was still valuing its clinical endeavors at negative $18 million.

Balance Sheet & Analyst Commentary:

At that point, management (somewhat illogically) elected to raise net proceeds of $70.5 million at $2.60 a share (or a 28% discount to its prior cash position) in a secondary offering, providing it with a total cash of ~$202 million (assuming two months of burn – ~$18 million – in the quarter to date) and a runway into FY25, diluting its previous shareholders by ~70% in the process.

All seven Street analysts who cover Tenaya are positive, featuring three buy and four outperform ratings. Keep in mind that five of the firms following Tenaya were bankers on its IPO and recent secondary transactions. Price targets proffered range from $21 to $40 a share. Here is H.C. Wainwright’s take earlier this week when they reissued their Buy rating and $25 price target:

Our valuation is based on our clinical net present value model, which allows us to flex multiple assumptions affecting a drug’s profile. We value the contribution of the three more advanced preclinical programs including TN-201 and TN-301 which have entered the clinic, and TN-401 which is prepping for IND submission. For TN-201 we estimate launch in 2027 and 2028 in U.S. and E.U., respectively, and peak sales of $1.5B on very conservative penetration estimates (0.5 to 6-7%) in these geographies.”

Board member Eli Casdin used the secondary as an opportunity to bump up his ownership interest in Tenaya. He purchased 2.49 million shares and 1.35 million pre-funded warrants, keeping his official ownership interest under 13D/G status at 9.5%, but 10.6% when giving effect to the warrants.

Verdict:

The secondary did nothing for Tenaya’s stock price, which has continued its downward trend, closing at $2.29 a share on November 8, 2022, down 12% from its secondary pricing. The stock has continued to head lower. The shares are now trading at a significant discount to cash. With only undefined pharmacokinetic and pharmacodynamic parameters forthcoming from CN-301’s Phase 1 safety and tolerability study in healthy participants, shares of TNYA could grind lower as it burns through ~$110 million in FY23. The best investment approach to Tenaya is through a covered call strategy but the spreads are extremely wide, owing to the thinly traded nature of the underlying stock. As such, the recommendation is to stay on the sidelines until events warrant otherwise outside of long term patient investors who might want to take a small ‘watch item’ position given how much potential analyst firms seems to believe Tenaya has far off in the future.

The truth is messy. It’s raw and uncomfortable. You can’t blame people for preferring lies.”― Holly Black, Red Glove