Description

Y-mAbs (YMAB) Long Equity

Priced at 1.3x 2023 conservative revenue guidance Y-mAbs (YMAB) is too cheap to ignore.  YMAB’s Danyelza, approved in November 2020, is likely to grow >6x expected 2023 revenue.  Currently YMAB is only approved in late line Neuroblastoma and has additional label expansion opportunities which are currently in development.  

In addition to Danyelza, YMAB will begin dosing patients in its SADA radiopharmaceutical trial shortly and is seeking partnership opportunities to bring in non-dilutive capital and validate the SADA platform.  

At $4.30 YMAB has a $188M market cap, with $106M in net cash and an $82M enterprise value as of 4Q 22.  Danyelza revenue came in at $47.5M in FY 2022 including$15M in 4Q 22 and is now projecting between $60 and $65M for FY 2023, which we think is conservative.  YMAB is down 95% from its high trade following the FDA approval of Danyelza and is down 70% in the last 3 months.  While such moves have become commonplace in biotech over the last few years, they are unique to commercial stage pharma companies with over 3 years of cash runway.  While a few things went wrong to warrant a lower stock price, we believe YMAB is an attractive turnaround story and great investment at the current valuation.

Danyelza (naxitimab)

Danyelza, named for founder Thomas Gad’s daughter Daniella, is a GD2 targeted monoclonal antibody (mAb) which was approved in November 2020 for relapsed or refractory (R/R) neuroblastoma. The market is currently dominated by another GD2 targeted mAb, Unituxin (dinutuximab) and is marketed by United Therapeutics (UTHR).  Unituxin generated $203M of high margin revenue in 2021. Since Danyelza provides many benefits and is priced twice as high as Unituxin, we believe the nueroblastoma Danyelza TAM maybe >$400M.  

Danyelza offers substantial benefits over Unituxin:

• Danyelza (naxitimab) is a 45-minute infusion in an outpatient setting versus Unituxin’s 10–20 hour continuous infusion requiring multi-day hospitalization. 

• Unituxin also incorporates an autologous stem cell transplant (ASCT) in its consolidation protocol where Danyelza does not, ASCT is a significant differentiator as an ASCT is difficult to tolerate.  

• Most importantly is Danyelza has superior efficacy with a 59% complete response rate in R/R HR NB.  

  • In front-line HR NB Danyelza has shown early data of 74% EFS at 3 years without ASCT vs. 55% for Unituxin with an ASCT.  For now, Unituxin has the front-line (post consolidation therapy) label where Danyelza is 2nd line (R/R). 

Total Addressable Market (TAM)

High risk Neuroblastoma is a rare pediatric indication with about 700 children diagnosed annually in the US and an additional 1,050 in Europe.  The addressable US R/R NB market of 350 children at pricing of $1M for Danyelza corresponds to the over $400M current label TAM.  Front-line standard of care includes a variety of chemotherapies and surgical resection, if possible, followed by a GD2 mAb. There is some variability in the practical usage of Unituxin and Danyelza where we think Danyelza is getting some early usage instead of Unituxin reflecting market share gains by Danyelza. The table below shows Danyelza’s revenue since launch, current consensus guidance, and Unituxin’s corresponding revenue. Since Unituxin is non-core to United Therapeutic’s pulmonary arterial hypertension franchise and represents less than 10% of revenue, sell side analysts do not offer much in the way of forecasts. 

Below we present the potential label expansion opportunity of Danyelza.  The Front-line High Risk NB trial has been enrolling patients since September 2022 across 50 sites in North America.  This trial uses Danyelza in conjunction with the induction phase of chemo/resection potentially leapfrogging Unituxin’s label of post-induction usage.  The trial’s first interim look is anticipated in 2026 with label expansion possible based on the outcome. Memorial Sloan Kettering (MSK) has an additional fully enrolled, single site, front line study reading out sooner. We have high conviction in the success of these studies.

An Osteosarcoma trial will begin this year.   Larger indications like Melanoma and TNBC will be run with investigator sponsored trials to generate proof of concept data with the hopes of attracting a large pharma partner. 

Danyelza Geographic expansion

YMAB licensed the Chinese Danyelza rights to SciClone in December 2020 for $20M upfront. Danyelza was approved in China on December 8, 2022, triggering a $15M milestone paid to YMAB in December 2022. There are additional regulatory milestones, as well as up to $60M of sales-based milestones, and undisclosed royalties on net sales.  We are not including Chinese milestones or royalty revenue from SciClone but this could provide upside to our estimates. Additional ex-US status:

• YMAB filed a BLA for Danyelza in Brazil which could be approved in late 2023

• Danyelza has a distribution agreement in Israel with Takeda and Swixx BioPharma in Eastern Europe

• Europe (Western) has yet to be licensed and company has historically mentioned it would launch on its own

SADA radiotherapeutic platform

YMAB is also advancing a novel pre-targeted radioimmunotherapy platform called SADA, which stands for Self Assembly and DisAssembly bispecific engaging antibody system. Radiotherapy use in oncology is a growing field and has the potential to become a category as important as ADCs (Anti Body Drug Conjugates) in drug development.  The March 2022 approval of Novartis’s Lutetium payload radiopharmaceutical, Pluvicto, in mCRPC may accelerate the trend (FiercePharma Article).  

In 3Q 22, the first full quarter of launch, Novartis’s Pluvicto achieved $80M in revenue and the street estimates peak sales of over $2Billion. SADA addresses one of the primary safety concerns around radiotherapies, the potential off target toxicity of radioactive payloads. SADA accomplishes this with a two-step process where a tumor targeting protein-only infusion is administered to a patient without a radioactive payload. Antibodies that do not bind to the target tumor disassemble into monomers and are cleared from the body in the kidneys in 24 to 48 hours. In step two, the radioactive payload is IV administered and binds specifically to the targeting antibodies already bound to the tumor.  The result will hopefully allow a higher dose of radioactive, tumor-destroying payload only targeting the cancers cell in the body.  (SADA animation).  Between steps 1 and 2, a low dose of payload is administered and followed by SPECT/CT imaging that verifies the radiation is going where it is intended. For a deeper dive into the scientific rational and technical aspects, YMAB provides a detailed overview at their recent December R&D day (YMAB R&D Day).  

There are several radiopharmaceutical companies in the market today (LNTH, FUSN, PSTV, PNT, ATNM) but none are in the clinic with a similarly targeted approach.  The feedback we have received from competitors in the field is that SADA is theoretically a great idea, however the practical execution of a trial will be complicated.  Dose escalating both the targeting antibody and radioactive payload will increase the degree of difficulty, but the reward is potentially very large by getting large doses of payload to exactly the right place with no off-target effect.  Because of the ability to use imaging in making sure radio active material is delivered to the appropriate place, it is our belief that the phase 1 GD2 study will be a major de-risking event if successful.

For its isotype, YMAB’s SADA construct uses Lutetium, which is a beta particle also used in NVS’s Pluvicto, as opposed to Actinium, where supply constraints are a source of risk. 

After years of preclinical work, YMAB’s first SADA IND was cleared and its GD2 targeted SADA is about to have the first patient in the clinic.  As of January 13 there are 6 sites open for enrollment for patients with solid tumors including SCLC, Sarcomas and malignant melanomas.  The company anticipates providing initial human data later in 2023.  Validating the mechanism could provide a material change in value for YMAB.  A second SADA targeting CD38 will have an IND submitted in the first half of 2023 targeting hematological malignancies.  YMABs has several other targets in various stages of preclinical development for partnering to larger pharma.  

Why the stock so cheap

Omburtamab CRL 

Omburtamab was attempting to serve a tiny market of 80 patients annually as a subset of NB patients that develop CNS leptomeningeal metastases.  The bulk of the program’s value was in the receipt of a Priority Review Voucher (PRV) that would come with approval along with   potential label expansion over time. YMAB was only entitled to 66% of the approximate $100M that would have come from the PRV.  Yet the failure of Omburtamab took the stock down over 80%, erasing half a billion dollars of market cap.  The reaction to Omburtamab’s FDA denial is irrational, and thus is one of the reasons we have a great opportunity today.

For background, YMAB received a complete response letter (CRL) from the FDA for Omburtamab in December 2022.  The CRL came more than 2 years after YMAB had initially received a Refusal to File (RTF) letter from the FDA on its prior submission.  Given the earlier RTF, YMAB management credibility was already low.  The recent CRL further diminished Wall Street’s opinion.  By the time the actual CRL was delivered in December, it was a foregone conclusion as the FDA’s Oncological Drug Advisory Committee (ODAC) was clear on need for further studies.  The briefing documents made it clear the FDA had no intention of allowing an approval.  The ODAC meeting ended with a unanimous “no” vote. While moot, we do not think the ODAC was fair to YMAB. 

Omburtmab is a monotherapy and had solid efficacy.  Ultimately, the FDA objected to the time frame of the natural history control patients (1990-2015) vs. the timeframe of the omburtamab trial (2005-2020). Ironically, the FDA had encouraged YMAB to use the historical control group they ultimately objected to.  Natural history comparator arms instead of randomized control trials are fraught with risk, though in rare indications they are frequently the only option.  The program is now dead and should be removed from all NPV models

Management transition

In April 2022, long time CEO Claus Moller was terminated by the board and YMAB founder Thomas Gad stepped in as interim CEO.  Claus had been at the helm since the company’s founding in 2015 and oversaw the approval of Danyelza and the initial launch. The transition came as a surprise to us but Gad’s role as interim CEO may indicate a possible future sale of the company.

Unprecedented management margin calls

The fall of the YMAB from $50 to $17 in 2021 created a vicious cycle for YMAB shareholders as chairman Thomas Gad  

had pledged a significant portion of his YMAB stock as collateral for a margin loan.  To say this was ill advised is an understatement, and it should be prohibited for management to engage in such behavior.  The period of January through February of 2022 was marred by continuous margin calls on Gad’s stock to satisfy collateral. Almost 1M shares of stock were sold by his lenders over 5 Form 4 transactions at continuously lower prices driving the stock from $17 to $6.60 over a month and a half.  On the 2021 Q4 earnings call in February, Gad disclosed that the margin loan had been satisfied and the company’s insider trading rules would prohibit employees from pledging their stock as collateral going forward. 

Recent restructuring 

The upshot of the recent Omburtamab CRL along with the state of the biotech market has led management to sharpen its focus and announce a restructuring on January 4, 2023.  Omburtumab is deprioritized along with some earlier stage pipeline therapeutics including its GD2-GD3 vaccine and CD33 bispecific.  YMAB instituted a 35% reduction in workforce and will solely focus on Danyelza execution and advancing its SADA platform.  Consequently, it now has a very long cash runway into Q1 2026.  Management also provided preliminary 4th quarter revenue and 2023 revenue guidance for Danyelza that we view as conservative as it implies nothing more than 4Q annualized.  We now have a very low bar for 2023 and an overly compressed stock price. 

Conclusion

YMAB is driving a successful commercial oncology drug launch with Danyelza and has an extremely low valuation at 1.3x this year’s revenue.  The SADA radiotherapeutic platform provides additional upside and this area of the market is just hitting its stride with NVS’s Pluvicto strong launch shining a bright spotlight on the potential success of radiotherapeutics.  

YMAB is in the sweet spot as an acquisition target as the vast majority of recent biotech M&A in the space has been commercial/near commercial stage and often oncology/rare disease.  YMAB is in the right place, at the right time, at the right valuation. 

Catalyst

• Continued execution of the commercial launch of Danyelza
• Validation of the SADA platform