Stock Analysis

ADVM: A Momentum Biotech Stock With Multiple Catalysts, And Short/Long Term Rewards

Authors Note: This article was originally published on Sep 28, 2017. While all figures might not be accurate, the long and short term catalysts are still true.

 

Investment Thesis

Adverum Biotechnologies is an undervalued stock, operating in the niche sectors of serious rare and ocular diseases. Shares are currently trading at $3.50 giving Adverum a market cap of $107.17 million while they have over $197 million in cash and cash equivalents alone. The company has a solid pipeline of product candidates, with three gene therapies nearing the phase 1/2 milestone. The company is also partnered with larger biotech corporations such as Editas (EDIT) and Regeneron (REGN) for up to nine undisclosed targets. While these partnership products are still in the research phase, all three proprietary Adverum drugs are nearing phase 1/2, and if successful could be catalysts that drive major stock growth. In addition to the healthy pipeline, ADVM has a great management team which will allow for this development to happen. All of these factors lead to one thesis; this stock is very undervalued, and overlooked given its potential growth in the available market. This stock has only recently gained momentum and gained a relatively high reward to risk ratio.

Financials & Management

If we look at Adverum from a financial perspective, the company is well positioned to launch into a manufacturing biotech company. Their latest 10-Q filing shows that the company has around $197 million in cash and cash equivalents. Averaging their net income loss in the last 4 quarters, the net income loss per quarter is around $16 million. Now, based off these numbers, Adverum should have more than enough cash to last well into/past 2019. Management agrees with this projection stating that “Adverum’s cash, cash equivalents and marketable securities of $197.4 million as of June 30, 2017 are expected to fund the three lead gene therapy programs through the end of 2019 and through the achievement of meaningful clinical data in patients for at least one of the Company’s lead programs.”

Adverum’s management is world class. The company currently has five major leadership positions. The Chief Executive Officer and president position is currently held by Amber Salzman, who holds a Ph.D. and over 25 years of experience in the biotech industry. Leone Patterson, the CFO holds 20+ years of experience in the industry and has worked in many major companies such as Novartis and Transcept. The SVP and Chief Medical Officer, Athena Countoriotis M.D. has worked at Pfizer and has been a part of many successful drug approvals. The Chief Science Officer Mehdi Gasmi Ph.D. and VP Jennifer Chang Ph.D., J.D. hold over 35 years of combined experience. This is a world class collection of people, and for a company that will not only fill a niche but cure serious diseases, there is no team better than themselves.

A major plus to ADVM is the major amount of insider buying by management occurring recently. In the last 12 months alone, investors have seen 21 purchases and 0 sells by insiders. These transactions added up to a whopping 976,392 shares, at a street value of a cool 3.3 million. Management’s faith in the company speaks volumes, and investors should definitely take note of this activity.

Number Of Insider Shares Traded (Source: NASDAQ)

Company Pipeline

A deep dive into the company pipeline may yield some answers. While the three lead programs of the company are in the preclinical phase of development, each are nearing phase one and two. For a faster process, Adverium is combining phase one and two into one phase, and success with even one of the three programs will act as a catalyst to this already momentum filled stock.

Advancing Gene Therapies for Serious Rare & Ocular Disease (Source: Company Slideshow)

Now, let’s take a look at each of the three product candidates that Adverum leads. The first program (and nearest to beginning Phase 1/2) is ADVM-043 (Rare Disease). This program attempts to cure an A1AT Deficiency by inducing stable, long term A1AT expansion at therapeutic levels. This disease affects lung function in over 100,000 confirmed patients but  many individuals with alpha-1 antitrypsin deficiency are likely undiagnosed, particularly people with a lung condition called chronic obstructive pulmonary disease (COPD). Now, in preclinical trials, this program demonstrated robust ATA1 expression and thus was a success. Adverum is working to up manufacturing capabilities of this treatment (administered via IV), and plans to begin enrolling patients in a Phase 1/2 trial by 4Q17.

Program two, ADVM-053, addresses Hereditary Angioedema (HAE), which is a rare disease. HAE effects around 8,000 US patients, who because of a genetic mutation have low levels of C1-esterase inhibitor. This results in rapid swelling attacks in different parts of the body, and could also affect respiratory function. In rare cases, HAE can be fatal or cause lasting harm. ADVM-053 “has the potential to stop HAE attacks,” stated the company. With a daily treatment, the attack rate drops to near zero (though this is not ideal, or clinically practical). Adverum met with the FDA in 1Q17 to discuss pre-IND and related topics, and plans to file the IND soon, allowing them to ship the experimental treatment across state lines and begin Phase 1/2.

The final in house program (ADVM-022) addresses Wet Age-related Macular Degeneration or wAMD. This is an ocular disease, and affects over 200,000 people in the U.S. per year. There are currently over 3 million patients worldwide so if the company is able to successfully commercialize their solution, ADVM-022 will be the true revenue generator operating in a niche with over 8 Billion annual sales. With wAMD, patients may see a dark spot (or spots) in the center of their vision due to blood or fluid under the macula. However, this is one of the riskier programs. While the gene therapy showed durable anti-VEGF expression in pre clinical trials, if not administered in correct dosages or times could lead to vision deterioration. However the company is confident that this treatment is needed in the market and plans to file an IND.

ADVM is also involved in partnered programs with major companies which adds a lot of integrity to the company. They are collaborating with Editas on up to 5 undisclosed ophthalmic indications and have a tiered royalty agreement for any successful, commercialized product to come of these programs. The company also collaborates with Regeneron, an industry leader on four confirmed targets (up to 8 unconfirmed), focusing on ocular diseases. They can receive up to $640M in payments upon achievement of milestones, and royalties on commercialized treatments.

Adverum’s Partnerships (Source: Company Slideshow)

Risks

Now, despite having an industry leading AAV platform, three inhouse projects and two partnerships with major biotech companies, ADVM does come with some risks. The company is still in its infancy, and depends on its drugs passing the Phase 1/2 trials to survive past 2019. However, this is highly likely for at least two of the three programs. In addition the company is losing money each year, and has a negative EPS. However, investors should expect this until the company either 1), develops a commercialized treatment or 2), makes multiple breakthroughs in either of its partnership programs. Despite the apparent risks though, investors should thoroughly consider this biotech stock, even a small position. There is an asymmetric sway towards the rewards side, and in the past month, its stock value has reflected this.

Conclusion

Investors long in this company should look forwards to both explosive short term growth and large long term growth. With each of its three treatments reaching the Phase 1/2 milestone, and positive news will send this stock spiking. A world class management team is very optimistic on the company’s future and have bought over $3 million of company stock in the past year, not selling once. ADVM is on its way to becoming a blockbuster company and investors should buy now.

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