BST Trade Alert: May 29, 2014
May 29, 2014
Recommendation:
Buy Xencor (NASDAQ: XNCR) up to $9.40
About the Company:
Xencor is a clinical stage biotech developing engineered monoclonal antibodies for the treatment of autoimmune diseases, asthma and allergic diseases, and cancer. The company currently has six product candidates in clinical development internally and with large drug company partners.
Each of these product candidates has been developed with the company’s proprietary XmAb technology.
This technology is a platform of antibody components. Xencor uses these components to create new antibodies that have novel interactions with the human immune system.
Let me explain…
The conventional approach to antibody design focuses on the portion of the antibody that interacts with target antigens. In contrast, Xencor’s approach focuses on the portion that interacts with multiple segments of the immune system.
This portion, the Fc domain, is constant and interchangeable among antibodies.
Using proprietary algorithms and computer models, Xencor identifies small structural changes to the Fc domain that may produce improvements in antibody function. It then creates an XmAb Fc domain by taking a naturally occurring Fc domain and making a small number of amino acid changes to it.
These changes are critical for modulating the XmAb Fc domain’s interactions with the desired Fc receptors.
Thanks to this design, the company’s engineered Fc domains are usually more than 99.5% identical to natural antibodies. The close similarity allows Xencor’s Fc domains to be readily substituted for natural Fc domains.
But here’s the best part…
Based on research conducted to date, Xencor believes its Fc domains enhance antibody performance. More specifically, it believes XmAb Fc domains can increase immune inhibitory activity, improve cytotoxicity, or extend circulating half-life.
If true, the company’s engineered antibodies offer innovative approaches to treating disease and potential clinical advantages over other treatments.
And Xencor isn’t the only company that believes in its XmAb technology…
Amgen, one of the largest and most successful biotechs on the planet, is working with Xencor to develop one of Xencor’s leading drug candidates. In fact, Amgen has already purchased an option to acquire the drug’s worldwide development and commercialization rights.
Under the agreement, Xencor has an opportunity to earn up to $439 million in fees and milestone payments. And it would be entitled to royalties on any future sales as well.
What’s’ more, several other drug and biotech companies have licensed Xencor’s technology. These include such names as Boehringer Ingelheim, CSL, Janssen, Merck, and Alexion.
All together, these licensees have three phase 1 and four pre-clinical development-stage programs currently in place. And according to Xencor’s most recent annual report, the company has the potential to receive approximately $861 million in milestones plus royalties from these programs.
No question about it, Xencor has a good sized pipeline of drugs in development with a potential value of well over $1 billion.
In addition, the company’s current financial situation is rock solid.
Xencor raked in $70 million from its IPO last December. And after generating revenue of $2.1 million in the first quarter, the company’s cash position has improved to $72.5 million.
Management says this is more than sufficient to fund operations and clinical development programs through 2016. In fact, they expect to finish 2014 with a healthy cash position of $54.5 million.
Let’s now take a closer look at one of the company’s leading drug candidates…
About the Drug:
Xencor is developing XmAb5871 for the treatment of autoimmune diseases, including rheumatoid arthritis and lupus. It’s a monoclonal antibody that targets key receptors on B-cells.
Without getting too deep into the science, XmAb5871 is designed to inhibit B-cell function without destroying these important immune cells.
B-cell inhibition has proven to be an effective strategy for rheumatoid arthritis and lupus. However, safety issues from other B-cell targeting therapies that attack and destroy B-cells, such as rituximab, have limited market uptake.
The ability of XmAb5871 to induce a broad blockade of B-cell activation without depleting B-cells is a key differentiator.
Xencor is developing this drug candidate in partnership with Amgen.
Under the partnership agreement, Amgen has an option to acquire an exclusive worldwide license for XmAb5871. The option is exercisable following a pre-defined proof-of-concept phase 2 clinical trial.
How’s XmAb5871 performing in clinical testing?
The drug has already completed a phase 1a dose escalation study that involved 48 healthy male subjects. Results showed the drug was well tolerated and potentially inhibited multiple biomarkers of immune function.
Currently, Xencor is conducting a phase 1b/2a clinical trial of XmAb5871 in patients with moderate-to-severe rheumatoid arthritis.
The phase 1b trial will evaluate bi-weekly doses of XmAb5871 and then roll into a phase 2a placebo controlled study. Endpoints include improvements in disease activity scales, serum inflammation markers, and mechanism biomarkers.
About the Market for This Drug:
Rheumatoid arthritis is a chronic inflammatory disorder that affects the small joints in your hands and feet. It affects the lining of your joints, causing a painful swelling that can eventually result in bone erosion and joint deformity.
As an autoimmune disorder, rheumatoid arthritis occurs when your immune system mistakenly attacks your own body’s tissues.
According to Decision Resources, the rheumatoid arthritis drug market will increase from $12.3 billion in 2012 to $15.8 billion in 2022. These figures are based on reported and projected sales in the US, France, Germany, Italy, Spain, the UK, and Japan.
Humira, the leading antibody therapy for autoimmune diseases, generated sales of approximately $9.3 billion worldwide in 2012.
About the Potential Catalyst:
Results from the phase 2a trial of XmAb5871 in moderate-to-severe rheumatoid arthritis are expected in the second half of 2014.
About the Shares:
Thanks to the recent correction in biotech stocks, we have a golden opportunity to pick up shares of XNCR at a nice discount.
Since hitting a high of $14.41 in mid-March, the stock has declined to a recent price of around $8.56 per share. That’s a 40% drop in just over two month’s time.
However, our window of opportunity may not remain open much longer. It appears XNCR has hit bottom and could be starting a new uptrend.
If you look at the chart below, you’ll see the stock found strong support around the $8.00 level over the past couple of weeks. And it has now strung together four consecutive higher daily closes.
Let’s grab these shares now before they go any higher.
The median price target of the two analysts covering the stock is $15.50. That gives us upside potential of 81% from today’s closing price.
Key Facts:
| Company: | Xencor |
| Ticker: | XNCR |
| Recent Price: | $8.56 |
| Market Cap: | $268 million |
| Avg. Daily Volume: | 155,518 shares |
Chart:
Category: BST Trade Alert
