Regenxbio Is A Leader In Gene Therapies – A Case Where The Platform Is Worth More Than The Pipeline – Seeking Alpha

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Regenxbio (RGNX) is a pioneer in gene therapies with a wide set of licensing agreements and an internal pipeline. The company focuses on adeno-associated virus (AAV) gene therapies for gene replacement and antibody delivery pursuing markets in retinal, neurodegenerative, and liver diseases. With a market cap of ~$1.3B (enterprise value of ~$1B), ~$400M of cash on the balance sheet, and ~$35M in revenue, Regenxbio is well-positioned to complete its milestones around manufacturing and clinical development into 2020.

The core investment thesis for Regenxbio is described below.

Validated technology platform to develop successful AAV gene therapies:

Strong financial position:

Undervalued internal assets:

From its 52-week high, Regenxbio's stock is down over 40%. The stock reached a low point from COVID-19 development. This is likely due to a lack of near term catalysts for the stock. With additional data for their lead asset in wet AMD coming in the first half of 2020, the initiation of phase II trials for the asset, and the sales ramp up for Zolgensma, the stock has a few potential catalysts coming up. As a result, there is an attractive entry point for investors to become an owner in Regenxbio.

Figure 1: RGNX daily chart (Source: Capital IQ)

The opportunity is that Regenexbio's licensing agreement with AveXis (NVS) on a medicine called Zolgensma to cure spinal muscular atrophy can potentially alone earn Regenxbio $3B-$4B in revenue. Zolgensma is an AAV gene therapy that delivers a transgene of SMN1 to cure the disease. About 20K people in the US have the disorder. With the medicine being priced at a little over $2M per patient, the market potential is well over $40B.

In 2014, Regenxbio licensed their AAV technology to AveXis to cure spinal muscular atrophy. The deal included various milestone payments to Regenxbio and importantly a mid-single to low double-digit royalties on net sales.

This one deal alone beyond the 20 similar deals Regenxbio has and its internal pipeline makes the company an attractive business. A simple DCF analysis with various assumptions, with the most important being including a capital expenditure of $400M for the clinical work with their flagship internal product, supports that Regenxbio is undervalued:

Figure 2: DCF model for RGNX (Source: Internal)

All the modeling done doesn't really help anyone figure out why this opportunity exists? Why is Regenxbio undervalued? Doubts around the Zolgensma scale up? Worries that capital from licensing deals will be wasted on an internal drug pipeline?

It's unprecedented that a drug company's platform is worth a lot more than the internal pipeline of drugs. From Regenxbio's latest corporate presentation, the company's main internal program, RGX-314, is focused on wet AMD:

Figure 3: Overview of Regenxbio's main asset (Source: Corporate Presentation)

RGX-314 is an AAV therapy for wet AMD. The slide describes the problem (leaky blood vessels in the eye) and how large it is (~2M patients) along with the vector (AAV8) and delivery cargo (anti-VEGF Fab). However, the company doesn't mention Eylea or other wet AMD medicines that are already approved. Regenxbio alludes to issues around delivery of drugs like Eylea (REGN), but doesn't go too deep on this slide or the presentation in general about how competitive their RGX-314 program will really be amongst clinicians.

An important point for any gene therapy is delivery whether it's a transgene or a CRISPR protein. A major reason why Regenxbio focused on wet AMD and ophthalmology in general is that delivering something to the eye is a lot easier than delivering something to the brain. RGX-314 is undergoing a phase I/II trial focused on establishing safety; the pivotal trial will come later. For the phase I portion, the company met their primary endpoint and showed safety so far. They have also shown how increasing doses of their gene therapy reduces the number of injections. This is going to be an important experiment and data set to argue for clinicians to switch over from something like Eylea.

The real value in Regenxbio is in its AveXis deal and the various licensing partnerships:

Figure 4: Regenxbio licensing partnerships (Source: Corporate Presentation)

Figure 5: Regenxbio licensing partnerships (Source: Corporate Presentation)

Figure 6: Regenxbio licensing partnerships (Source: Corporate Presentation)

This business model is enabled by Regenxbio's core technology focused on AAV7-10 and natural or close-to-natural variants:

Figure 7: Overview of Regenxbio's platform (Source: Corporate Presentation)

Over the next two years, the key milestones are:

The business can continue to strike up more licensing deals and expand current ones. The margin of safety here is that Regenxbio is undervalued just for its deal with AveXis and its various licensing deals that provide periodic payments based on progress and potentially more royalties if the drugs are approved and commercialized.

This seems to be a case where the market is focusing on the company's internal pipeline. Regenxbio's headline drug is interesting but unlikely to be competitive. Whereas, the business has a wonderful platform and licensing business that is being ignored. Simple valuations show these cash flows are not being fully appreciated. As a result, Regenxbio is going to grow revenue without any additional work and still has the potential to strike again through the 20 or so deals it has.

Figure 8: Key upcoming milestones for Regenxbio (Source: Corporate Presentation)

Regenxbio's lead candidate is focused on wet age related macular degeneration (AMD). The disease is a severe form of macular degeneration, a condition in which layers of macula get progressively thinner. The wet form is caused by abnormal blood vessels grown under the macula and retina where leaky blood vessels cause problems with vision, ultimately leading to blindness. The current standard-of-care is an anti-vascular endothelial growth factor (anti-VEGF) therapy. Patients require monthly injection of anti-VEGF to stop the growth of leaky blood vessels. Wet AMD is not a genetic disease, but it is a large and established market for Regenxbio to capture.

To frame the market opportunity of wet AMD, a few facts are helpful:

196 million people worldwide & 288 million by 2040 have AMD

10% have wet AMD, but is the leading cause of blindness

175,000 new patients annually in US

Growing number of patients due to aging population

Current treatments are regular injections of anti-VEGF

Figure 9: Overview of wet AMD (Source: JMS)

For wet AMD, competition comes from Genentech, Regeneron (REGN), and Adverum (ADVM). Genentech sells Lucentis at a price of $1850 per dose. Regeneron sells Eylea at $1150 per dose. Genentech's Avastin is also used off lab and is becoming more popular due to its cheap price of $60 per dose; the medicine is currently used for metastatic colorectal cancer. For gene therapies in wet AMD, the sole competitor is Adverum Biotechnologies. With 20M people with wet AMD, the total market opportunity for these medicines are in the billions of dollars.

Where Genentech's and Regeneron's medicines require multiple doses over the lifetime of a patient, a gene therapy has the potential to be curative and remove the multiple dosing requirement. For wet AMD, over 50% recurrence rate in the first year after treatment has stopped, and over 25% recurrence rate in the second year after treatment has stopped For drugs like Eylea and Lucentis, monthly intravitreal injection creates large burden for patients and create difficulty in dosing for clinicians. These problems allow Regenxbio to potentially capture the market with a gene therapy:

Figure 10: Wet AMD market (Source: Reportlinker)

Regenxbio's lead asset, RGX-314 is pursuing wet AMD. So far the company has shown:

Dose dependent protein expression levels and drug efficacy

Sustained protein expression for over 1.5 years

Long term efficacy demonstrated for Cohort 3 for rescue-free patients

No serious adverse events (SAE), but mild adverse events (AE) such as inflammation

Significant improvement in visual acuity for rescue free patients

Figure 11: Trial design of Regenxbio's lead asset (Source: Corporate Presentation)

RGNX

Cohort 1

Cohort 2

Cohort 3

Cohort 4

Cohort 5

Dose

3 x 109 gc/eye

1 x 1010 gc/eye

6 x 1010vg/eye

1.6 x 1011 gc/eye

2.5 x 1011 gc/eye

Rescue Injection Free

Not Available

Mean 4.7 rescue inj.

Not Available

Mean 3.8 rescue inj.

3 / 6 Patients

Mean 1.3 rescue inj.

5 / 12 Patients

Mean 2.2 rescue inj.

9 / 12 Patients

Mean 0.8 rescue inj.

Duration

52 Weeks

52 Weeks

78 Weeks

52 weeks (2H 2020)

52 weeks (2H 2020)

Best Corrected Visual Acuity (BCVA)

In ETDRS letters

Mean: -2.0

Range: -8/+10

Mean: +7

Range: -4/+15

Mean: +8

Range: 0/+21

Mean: +2

Mean: +4

Central Subfield Thickness (m)

Mean: -14

Range -81/+92

Mean: +26

Range -7/+62

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Regenxbio Is A Leader In Gene Therapies - A Case Where The Platform Is Worth More Than The Pipeline - Seeking Alpha