Theratechnologies Inc T.TH

RE:NASH deals are being done

[Wino115]

I ran the opportunity by someone who runs a healthcare VC firm to hear his thoughts (small, finds orphan drugs and repurposes them, a few listed and over $bil mkts caps, MD background, 20+ years).  His key points were:

1. If you had this opportunity 3-4 years ago it would be worth a large upfront ($100mil+) and generous royalties.  The changing landscape will have impacted that but since the therapeutic opportunity is still there and large, he thought it would impact the upfront terms far more than the back end terms.  He said back ends can be pretty standard and fall within a range given they are done so often. It's about the partners reach and cost to commercialize. So if drug works, it would still be a home run for both via the backend. But don't expect large upfront if someone is carrying the majority of trial costs. Still, will show the monetization value of the successful drug, especially if top itch partner. But trial risks remain for THTX and a partner. The ability to see data midtrial is valuable and would have been negotiated anyway in his view given no gen pop Phase 2 data.

2. He said it was extremely rare to find Phase 3 partnership opportunities "...packaged and tied with a pretty bow..." like this. In his view most companies would have had the chance for Phase 2 data to signal the probability of success and you would typically raise the Phase 3 on that.  He thinks the roundabout way and expansion from small HIV to GenPop precluded that typical path; thus creating this fairly unique situation.  His view was a packaged on-the-shelf Phase 3 should provide an ability to negotiate from a bit of strength, but that $$ is the sole means to negotiate from strength. He's a VC guy with that bias.  He said money dictates the front end and science the backend.  But sometimes he's seen the reverse when the selling comlany just wants immediate cash to cover costs to that point.  He saw the fact they have revenues and a public listing as reasons why they don't necessarily have to have loads upfront (unlike private companies). 

4. He felt the possibility of seeing fast track oncology move into accellerated and priority, if it happened during any negotiations, would strengthen THTX position quite a bit.  That may speed up any negotiations if the partner also foresees possible success in a large cancer therapy on the horizon.  But he cautioned they won't know as much as THTX on that score, so it may have no bearing except giving THTX flexibility. 

5. Having those KOLs on board, the EMA and the FDA is a major source of value and confidence in the trial in his opinion. "That's not an easy thing to do for any Trial."  "But still all the same trial risks"

6. Mentioned that deal flow never really stops in the pharma industry.  "Not cyclical, but secular".  It's an everyday occurrence and some firms have larger deal departments than Research depts now. Would see a hiccup if there was a huge compression in drug prices forced upon industry but he didn't see that happening in the medium term. 

7. Said it is typical with smaller companies that they end up needing to focus and they should be constantly weighing the risk/reward of each pipeline drug.  Would not be surprised if this was influenced by the overall pipeline development, meaning oncology being a far better and clearer market opportunity in their view.  Also thought lack of in-house expertise could have also influenced this route.  "CMOs like their science"

8.  on NASH specifically, his points were that there will be many different drugs ultimately, so room for  different approaches (we've heard that).  Combos will likely be next wave and this could fit in with someone's approach. Pricing still fluid (impacts valuation heavily). NASH is still an area of high interest for industry, they will just now be more aware of the risks and costs to meet endpoints; so impacts valuation but maybe not ultimate reward levels for anyone who owns a piece of a therapy that gets commercialized.  

Those were the key points.  

Wino115 wrote: Like I said earlier, I've not been focusing on the NASH asset much at all over the last year as SORT1 to me is a vastly superior asset and value generator for us investors. Nonetheless, I think we could be surprised that the NASH project is valuable for numerous industry players.  It's a very low cost, high potential opportunity with a bailout clause early on (the interim readout on 400).  That can be very attractive in big pharma land where they desperately look for growth and homeruns to have an impact.  This is one -- it's not a high risk drug in a wildly obscure disease.  It's a solid drug, with lots of evidence, in the fat-buster area which has been far better, and could open up a huge opportunity for someone in a relatively short amount of time and with a small amount of money.  That's actually quite attractive. 

Let's look at the potential for a partner.  First off, there can be a wide range of valuations and structures. The IP position for anything liver-related is pretty good and genericizing biologics isn't easy not top of list at this point for the generics. So the IP and cost of getting here is not much of a benchmark given the route taken.  I think their banker is most likely looking at comps, risks and timelines to get a value.  There's loads of ways to make both parties happy in sharing risks and hitting milestones --that's what I would think you may see. 

Let's not forget the industry they are dealing with.  Far riskier, less safe and less further along assets HAVE been partnered.  The reason is what initially excited us -- the market for the therapy is huge, growing, and worth billions.  There just aren't that many open playing fields in big pharma these days like that. Yes, it's a hard nut to crack, but the industry is actually close and most of the lead candidates are in that "fat-buster" category.  Most of the failures are around the safety of the anti-fibrotics or lack of efficacy in those and FXRs.  

Biotech/Pharma is an industry with way more cash than they need, less R&D than in the past, and a willingness to structure deals to protect themselves but move science along just in case they hit the jackpot.  This is still a 100% wide open field and, as JFM just stated, the science has not changed and there is still that "totality" of data that points to reasons why GHRH is a valid path, with confirmatory genetic traits measured, to explore for a therapy.  Drug companies are built to finance and explore potential therapies. There is only partial data, but there were 2 cases in their data of >N4 and F4 patients moving down the scales, so somethings working in there.  I'm sure Grinspoon will be front and center talking through the science with whomever is let in to the "data room" and will talk through his years of research and ongoing studies around MOA. According to them, it is still the only drug that has done a full transcriptomic analysis of the biopsy group data. 

So big pharm and even mid-size pharma (which is still huge), are in the business of taking educated risks for wide-open playing fields.  While the landscape is less inviting given some failures, you could say that makes it more appealing to be in Phase 3 now with a drug that has passed all safety issues. It's a trial really only for efficacy and you are being asked to help pay for the 400 patient interim biopsy reading point.  So for the amount of money it would take you to get there and the potential that is shows the degree of efficacy needed to go with the next 400 patients is not an enormous sum for what the potentiallity could be.  So I think there is a very high likelihood they can find partners willing to join the program. It may be one of the large Japanese, Europeans, Scandi or American ones.  There's still a fairly large appetite to find new avenues of growth for small amounts of upfront investment.  That is exactly what this is. And I think it will fit in with some pharmaceutical firms strategies and plans.  Perhaps even for a combo trial with someones antifibrotic as a side-by-side program (although that sounds complex).

Here's some recent deals; some could be comps, some are not.  They are all complex and would need to be understood, but it shows the level of appetite just in NASH. Realistically, these are some of the first and second wave of deals in the 2018-2020 time frame.  It's a different market. We know that. 

April 2019, this was a spinoff from an oncology focused company:  Novartis is to buy US biotech IFM Tre in a deal worth up to $1.575 billion, adding a potential drug for the fatty liver disease known as NASH to its pipeline.

Nov 2018:Roche’s Genentech unit has bought California biotech Jecure Therapeutics, which is researching drugs that could be used in inflammatory diseases including the fatty liver disease NASH.

Aug 2020, Merck entered into an exclusive licensing deal with Hanmi Pharmaceutical for the development, manufacture and commercialization of efinopegdutide for nonalcoholic steatohepatitis (NASH).

Oct 2019, Novartis has added another non-alcoholic steatohepatitis (NASH) drug candidate to its pipeline via an $80 million licensing deal with US biotech Pliant Therapeutics.

Jul 2019, Boehringer Ingelheim is bolstering its liver disease pipeline with yet another NASH-focused deal. This time, it is licensing a biologic from South Korea’s Yuhan for $40 million upfront and promising up to $830 million in milestone payments. 


Looking at a table on many of the NASH deals they tend to have upfront payments in the $10-50mil range and full values in a wide range of $400-$2/3bil range. There's a number of players in the GLP-1 area and glucogen that may have a symbiotic scientific approach to the liver and see some value in understanding how and why the drug is doing what it is.  So I think they will get plenty of interest even if there have been failures in the therapy race.  That doesn't stop pharma from investing and trying as drug trial failures are happening for them far often than not.  That doesn't scare them. Look at the positives of the safety issue is out of the way, the Phase 3 is drawn and ready, it hit the magic >30% fat reduction and has a few industry leaders involved in it with Grinspoon and Loomba.  That can be a very attractive proposition for companies with loads of money and the need to find possibilities.  They know trials are risky and they don't shy from that.

I would think an upfront in the $20-40mil range would be a huge win and an ultimate deal size would depend on percent of costs covered and distrubution costs sunk by the partner.  But if the trial succeeds in the future, you'd think it would still be worth $1-2bil more for THTX looking at other structures. The quality and committment of the partner would make a big difference on the credibility of it going forward. 

Anyway, some idle thoughts and a quick look.  I'm still a bigger believer in SORT1 and think that what they are finding out is a large reason for them needing to focus and move quickly and all in with oncology.