As a micro-cap company, Axovant Sciences Ltd (NASDAQ:AXON) is naturally fraught with risks. The company is losing money and debt levels are elevated at 0.49 times equity. But with the stock trading at around five times book value, what expectations should investors have for this biotechnology company from the United Kingdom?
Axovant develops CNS therapies. It has a leading gene therapy-based potential product. AXO-Lenti-PD is a gene therapy for treating Parkinson’s disease. It works by delivering three genes that encode enzymes involved in endogenous dopamine synthesis in the brain.
The company is in the planning stages for starting the Phase 1 and 2 studies. If the study is successful, Oxford BioMedica will take the product to market by leading in its development and manufacturing.
AXON Stock Jumps Three-fold
Earlier this month, AXON stock soared nearly 150% in a week and is up about three-fold in the month.
Markets are reacting positively to Roivant’s strategic investment of $25 million in the company.
Three new additions to the leadership teams are also critical to the company’s success for the gene therapy product. The decades of experience from the newly hired CTO, Fraser Wright, complements Axovant’s business. The company also hired Michael Hayden as the Senior Scientific Advisor. And the Executive Vice President of R&D, Gavin Corcoran, brings in a former CMO (chief medical officer) from Allergan Plc (NYSE:AGN).
Addressable Market
Since Parkinson’s Disease (PD) may affect around 1% of adults over the age of 60, or 7 million – 10 million patients worldwide, Axovant is addressing an unmet need for treating the disease.
Currently, oral L-dopa is the stand of care. The company’s AXO-Lenti-PD targets three enzymes: Tyrosine hydroxylase (TH), Cyclohydrolase 1 (CH1), and Aromatic L-amino acid decarboxylase (AADC). The therapy uses a lentiviral vector system, which allows for packing a large amount of gene. This mode of delivery is ideal because it may insert multiple genes at the same time.
The efficient delivery should lead to higher success rates after treatment.
The lentiviral vector also integrates into the host genome, which should result in the long-term stable transgene expression. Early studies of the lentiviral vector show promise: those treated have limited side effects.
When the PD patient is treated, the theoretical benefits are higher basal dopamine production and less dopamine variability.
ProSavin Study Results
In the ProSavin study, a predecessor to AXO-Lenti-PD, patients showed a significant improvement at the six-month and 12-month mark. This improvement continued through the four years of follow-up.
Most importantly, the subjects (15 in total) did not show any serious adverse events. So, if the L-dopa equivalent daily dose (or LEDD) fell by 19% on average, upcoming results for the current product should be similarly positive. In fact, AXO-Lenti-PD demonstrates a 10-fold increase in dopamine + L-dopa production compared to ProSavin.
The markets already priced in these strong numbers last week. With buyers buying AXON stock first and asking questions later, conservative investors should review quarterly results first. So long as the company has enough cash to cover its R&D costs, existing shareholders will not face any dilution in the near-term.
Valuation
Of the three fair value models on finbox.io, the average price target is over 40% below the recent $4.80 share price. Wall Street’s view is more positive. The average price target on Axovant Sciences is $7.50, implying a 56% upside.
Per Tipranks, the price target ranges from $4-$11 and Oppenheimer is the most recent firm to rate the stock as a “hold.”
Source: tipranks
Source: Tipranks
Axovant Sciences paid off for investors who bought the stock for pennies. Now that it ran up sharply, chasing the rally when the momentum fades could prove dangerous. For now, biotech investors should wait for the stock to settle before considering this investment.
As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.
