So that’s another week done and – yet again – the biotechnology space has given us plenty to go at. Data releases, FDA decisions, and number updates have all hit press across pretty much the entire spectrum of company size and we’ve seen big winners and big losers along the way.
Here’s a look at two end of the week movers, what’s driving each and what we’re looking at as informing our near-term bias for the companies in question.
The two companies we’re looking at today are Reata Pharmaceuticals, Inc. (NASDAQ:RETA) and Savara Inc. (NASDAQ:SVRA).
The company just put out data from a phase II study of one of its lead development assets – a drug called Omaveloxolone. The trial is called MOXIe and it’s investigating the Omaveloxolone asset in a target indication of a condition called Friedreich’s ataxia (FA). For those new to this condition, it affects the heart and parts of the nervous system and is characterized by initial symptoms of poor coordination such as gait disturbance, and beyond this initial manifestation, it can also lead to scoliosis, heart disease, and diabetes. It doesn’t affect the brain, so there are no neurological symptoms, but as a disease, it’s degenerative, debilitating and can become incredibly difficult to live with as it progresses. Right now, there’s no cure, and the drugs available to treat the condition are largely ineffective. Some symptom target type options are available, but the efficacy of these wear off over time, and in some patients, they have no impact at all.
Reata is trying to change this with Omaveloxolon.
The company put out data from the trial, as outlined above, and as per the data released, and across all doses, Omaveloxolone significantly improved (by reducing) what’s called mFARS, which is the industry standard measure of severity in this condition, by 2.5 points from baseline (p<0.001) and by 1.1 points versus placebo (non-significant).
However, with the nonsignificance of the latter piece of data, the placebo figure, and against a primary endpoint of the change of peak workload during exercise testing, the drug failed to achieve a hit.
As per the release:
“Across all patients, omaveloxolone did not improve peak work as measured during the maximal exercise test. The Company received reports from clinical sites that patients with pes cavus were not able to reach peak muscle exhaustion during the maximal exercise test due to pain associated with their foot deformity.”
There aren’t really two ways to look at this. The trial has failed and, while the company has attempted to spin it as positive, there’s nothing particularly good about the data. The removal of the foot deformity to point to efficacy in alternative populations can perhaps be a point on which the company can base an argument for progression, but not a strong one.
Markets have reacted to the news in line with our analysis and are selling off on the company subsequent to the release. The stock was down 8% after hours on Thursday and will likely continue to weaken heading into the weekend.
Moving on, let’s look at Savara.
This one’s another classic style move, but a completely different one from the above Reata situation.
On Thursday, the company announced that it intends to offer and sell shares of its common stock in an underwritten public offering. There aren’t any details of the offering available yet, just that it’s set to take place, but the company is trading down around 8% on the back of the news after (initially) running up around the same amount earlier in the session.
Chances are we will see the real sell off when the details hit press – i.e. how much is set to be raised and how much equity needs to be issued to raise it. The thing with these raises are that the equity issued is added to the base of outstanding shares, which causes dilution to current shareholders. In other words, they hold the same amount of shares, but each share is representative of a smaller portion of the overall company than it was prior to the raise.
With this dilutive impact, the markets revalue to reflect the additional base.
We expect clarity on the volume of shares to be added next week, so keep an eye out for some weakness going forward.