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Like death and taxes, ageing is inevitable, but some biotechnology companies are looking to change that. Unity Biotechnology (NASDAQ:UBX), from San Francisco, US, is developing treatments for diseases of ageing, targeting ophthalmic and neurologic diseases to leverage partnerships in areas of high unmet need.
The anti-ageing market is a relatively new but rapidly growing area that is quickly becoming a multibillion industry. Funding to the U.S. National Institute of Ageing has grown to $3.9 billion, and requested to increase to over $4 billion in 2023. This interest is the result of shifting demographics: particularly in the West, the overall population is ageing. By 2040, it is estimated that there may be 81 million Americans aged over 65 years, up from around 57.8 million today. And with an aging population comes a rise in diseases such as heart disease, osteoporosis, ophthalmic disorders, and diabetes. Several new companies have appeared that are aiming to treat or even reverse conditions of ageing and have received the backing of high-profile billionaires; businesses such as Altos Labs, formed in part with Russian billionaire Yuri Milner, and Calico Labs from Google’s Larry Page. Jeff Bezos is another high-profile investor in these industries, including in Unity Biotechnology.
Unity has faced some challenges over the last few years. In 2020, they cut 30% of their workforce after a major phase II trial failure, for a compound designed to treat osteoporosis. Sold as a streamlining process, the restructure highlights the risks faced by start-ups. While they have Silicon Valley backing and are surrounded by bold claims, they must still manage to pass unforgiving clinical trials that can quickly dash hopes for success.
Seeing value in the pipeline
Unity Biotechnology have several products in development, but the most developed are focused on ophthalmology for conditions including diabetic macular oedema, diabetic retinopathy, and age-related macular degeneration. Diabetic retinopathy affects up to 40% of patients with type 2 diabetes in the USA, of which up to 8% of cases may be vision threatening and include diabetic macular oedema. The market for related conditions such as diabetic macular oedema is estimated to reach $11.1 billion by 2031. Most current treatments are small molecules targeting well established molecular pathways, such as VEGF inhibitors which are some of the more common treatments and are the main drivers behind the market size.
Unity Biotechnology aim to follow a different strategy of targeting a process called senescence, or the deterioration of cells with age. Senescence has been linked to many diseases of ageing, including ophthalmic conditions. Ageing senescent cells are thought to interfere with functioning of surrounding cells and can lead to disease progression; targeted treatment of these senescent cells is a growing area of interest to slow, or even reverse, signs of ageing.
Unity Biotechnology’s lead compound is UBX1325, which targets a protein required by senescent cells for survival. Results of the phase II proof-of-concept BEHOLD trial, investigating UBX1325 for diabetic macular oedema showed an improvement in visual acuity at 12 and 18 weeks compared to the sham treatment. Unity Biotechnology also recently announced completion of enrolment of the ENVISION trial. Investigating UBX1325 in the treatment of wet age-related macular degeneration, ENVISION has a scheduled completion date for January 2023; results should become available in Q1 and Q2 in 2023. Success in these trials would be a good step towards getting a product approved for these important conditions. However, should these trials fail, Unity Biotechnology will be left in a difficult position with their other compounds being several years away from bringing in revenue.
Financials
The latest quarterly results reported revenues through licensing of $236,000 in the three months to June 2022, from none in the three months to June 2021. This was alongside decreases in operating expenses ($17 million versus $12.4 million) and a smaller net loss ($17.8 million versus $13.1 million) over the same period. These improvements have resulted in an improved net loss per share, decreasing from $0.32 to $0.19 between the three months to June 2021 and the three months to June 2022.
Their long-term debt commitments stand at $12.6 million as of June 2022, down from $18.4 in December 2021. This suggests they are managing their debt well and have not been taking on excessive additional loans. Their debt ratio stands at 0.59x, suggesting they are not overly funded by debt. Furthermore, the debt-to-equity ratio is currently at 1.44x, while their long-term debt to equity ratio is 0.32x. All these suggest a relatively healthy debt level for the company, which is refreshing for a biotech company of this stage.
Cash, cash equivalents and marketable securities totalled $64.5 million as of June 2022, compared with $79.2 million as of March 2022. Their quarterly results state they are confident that this is enough to see them through the first quarter of 2023; their gross and net burn rate stand at 1.56 and 1.59 quarters, respectively, aligning with their predictions.
Unity announced in August plans of a $25 million public offering of common stock shares in order to fund further clinical development of UBX1325. The success of this approach will depend on the success of later clinical trials, but so far Unity Biotechnology seem relative prudent with their approach to debt.
Most recently, Unity Biotechnology announced confirmation of a 10-to-1 reverse stock split that went into effect on 19th October. This was to ensure they remain above the minimum required price for continued listing on the NADAQ Global Select Market and brought their price to around $3 at the time of writing.
Data from their latest quarterly results showed 69 million shares outstanding; the 10-to-1 split means they should be left with around 6.9 million remaining. The split, while increasing the individual share price, should not affect their overall market cap, which stands at approximately $45 million.
Reverse stock splits are not generally seen as a good sign, particularly for companies who have shown consistent loses and may be struggling to keep their price up. However, Unity Biotechnology are a start-up still hoping to get an approved product, and overall seem on the way to growing revenues. This does not necessarily have to be a complete turn-off, but it is something to be considered.
Seeking Alpha quant ratings give the company a hold rating of 2.81, while Wall Street rates it a strong buy at 4.66. They also recently received a Strong Buy recommendation from Zacks, and Citigroup also recently upgraded their predicted target to $8 (rated pre-reverse stock split) with a buy rating.
Success for biotech companies depends on getting a product approved. However, the positive results from clinical data and further results expected next year are welcome news. During a time of overall market depression, investing in a small biotech without an approved product may be too risky for some, particularly one that has undergone a reverse stock split. However, Unity Biotechnology is an interesting company that seems well placed to capitalize on a growing market. Its financials look healthy, and their products are progressing through clinical development.
This company does represents a speculative, some would say risky, investment. However, for those looking for an alternative opportunity, it could be one to be cautiously considered.
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