Last week, Acceleron Pharma (XLRN +0.00%) announced positive clinical trial results for its drug to treat a type of high blood pressure, causing its stock to skyrocket over 75%. After a jump that big, investors need to determine if the stock still has room to grow.
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What happened?
Acceleron reported that its drug sotatercept successfully met the primary and secondary endpoints in a phase 2 clinical trial treating patients with pulmonary arterial hypertension (PAH). According to the American Lung Association, PAH occurs when small blood vessels in the lungs narrow in diameter, impeding blood flow through the lungs. It can lead to heart damage. Acceleron believes approximately 80,000 patients in the United States and Europe live with PAH. This program remains the most advanced of Acceleron's internal R&D efforts.
A little history
To understand Acceleron, an investor needs to look back into its history, particularly its longstanding relationship with Celgene, now part of Bristol-Myers Squibb. Sotatercept, the drug with the recent positive PAH results, was the focus of a pact between the two companies forged in February 2008. Celgene paid Acceleron $45 million initially and bought $5 million of Acceleron's stock. Celgene also gained options on additional molecules being developed.
The companies subsequently amended the agreement in 2011 and again in 2017, the latest version giving Acceleron the rights to sotatercept for pulmonary hypertension, including PAH, while Celgene maintained rights to all other disease indications. Over the years, Celgene paid $44.6 million in R&D expenses related to the program. Initially, the companies sought to develop the drug for cancer-related bone loss.
Celgene expanded its relationship with Acceleron by acquiring the rights to a second drug called luspatercept. This drug rapidly took center stage for Celgene. The company quickly advanced the drug through clinical trials and, last November, gained approval from the Food and Drug Administration (FDA) for the treatment of anemia in patients with the disease beta thalassemia. It marked the first-ever FDA-approved treatment for those patients. According to the federal Centers for Disease Control and Prevention, more than 1,000 Americans have beta thalassemia, a genetic blood disease which hinders the blood's ability to produce the oxygen-carrying protein hemoglobin.
In addition, Celgene applied for approval for the drug as a treatment for myelodysplastic syndromes (MDS), a group of closely related blood cancers. The American Cancer Society estimates MDS may affect 10,000 or more people in the United States. The FDA informed Bristol-Myers that it would not require the drug to be reviewed by the Oncologic Drugs Advisory Committee. The FDA's deadline to make its decision under the Prescription Drug User Fee Act, or PDUFA, is April 4. A second approval may provide upside in the stock.
The FDA's approval of luspatercept for anemia in beta thalassemia triggered a $35 million payment to Acceleron. An approval in the next few months for MDS could prompt another sizable milestone payment from Bristol-Myers Squibb. Furthermore, BMS continues to invest in the program running additional clinical trials for other blood diseases.
What next?
While the latest phase 2 clinical trial data in PAH demonstrate that sotatercept can outperform placebo, it still needs to be evaluated in a larger phase 3 clinical trial. Of note, the patients in the phase 2 trial continued to receive other available PAH treatments. This means sotatercept can be added on top of existing treatment regimens to improve benefit for patients. Why is this important? It may eliminate the need to run a head-to-head clinical trial between sotatercept and existing drugs. Instead, a pivotal trial may compare sotatercept to placebo, a less risky endeavor, in patients already receiving existing medications.
Acceleron expects to present the data at a major medical meeting later this year. Until then, we only know that clinical trial endpoints were achieved. Seeing more granular data should shine light on the degree of benefit and safety.
With more than 90% of the stock in the hands of institutional investors, Acceleron could see some profit-taking in the near-term. I am inclined to think that many of these investors will hold the stock to see the FDA's approval decision in early April. Even at $93, some analysts see the price going higher; Citibank, for instance, raised its price target to $138.
Biotech investors should consider buying this stock to participate in any moves due to the pending approval and the detailed release of the PAH trial results. Acceleron's partner Bristol-Myers Squibb also provides a formidable force to commercialize luspatercept.
