Genfit: Pivotal Phase IIb Data On NASH Offers High Risk/Reward Trade
Mar. 6, 2015 7:37 AM ET | 4 comments | About: Genfit (GNFTF), Includes: GILD, ICPT, SAN, SNY
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Disclosure: The author is long GNFTF. (More...)
Summary
This ICPT competitor is developing a potential best-in-class drug for treatment of NASH.
Key Phase II results due by end of March could cause the stock to double.
GNFTF could become leader in growing, unserved NASH market.
(Editor's Note: Investors should be mindful of the risks of transacting in securities with limited liquidity, such as GNFTF. Genfit S.A. trades with more liquidity on the Paris exchange as GNFT.PA.)
Useful links:
Company website
Company presentation (all pictures, except when specified otherwise, come from this presentation and belong solely to Genfit S.A)
Deutsche Bank Small/Midcap Biotech Report
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INTRODUCTION
Genfit (OTCPK:GNFTF) is a French biopharmaceutical company focused on the development of therapeutic and diagnostic solutions for unmet patient needs in metabolic and inflammatory diseases such as Non-Alcoholic Steato-Hepatitis . The company is "focused on contributing to bringing new medicines to market for patients with serious diseases whose treatment options are limited or non-existent." (Genfit.com).
In order to achieve this goal, the company has developed a pipeline of several drug candidates, which it believes could become leaders in major markets that currently have no viable treatment options. The most advanced of these candidates, GFT505, is positioning itself as a potential best-in-class treatment for NASH, a growing, unmet condition that affects approximately 12 percent of American adults.
GFT505 just completed a pivotal Phase IIb study on 275 patients worldwide, and the company will receive the statistical analysis of the results on March 10th. The results will then be made public by the end of the month, or in the first weeks of April at the latest. These results are critical because if they meet or exceed expectations, GFT505 would become the most clinically advanced NASH treatment and could quickly move into Phase III with Subpart-H designation for accelerated commercialization.
These results offer the potential for a very high risk/reward trade, which could lead to a double or a halving of the share value. Per comparison, when Intercept Pharmaceuticals (NASDAQ:ICPT) announced fairly good Phase IIb results for its NASH drug candidate OCA, its share price skyrocketed from $72 to $445 over two days.
In this article, I will try to demonstrate the superior profile of GFT505 against competing drug candidates, and why I think Genfit's Phase IIb results will exceed expectations. The imminent release of those results offers risk-tolerant investors the potential for a phenomenal trade, and could be played with a reasonable amount of one's portfolio. Beyond this event-driven trade, I am strongly convinced Genfit of the potential that lies in GFT505, and I believe the company will experience stupendous growth in the coming years. I am personally long the stock in anticipation of the results, as well as for the longer-term, with a twelve-month price target of €146.
COMPANY OVERVIEW
MM. Jean-François Mouney (CEO) and Bart Staels founded Genfit in 1999 in Lille, France. It is located at the heart of the Eurasanté Bio Business Park, an innovation center home to 134 companies and their 17,000 employees, as well as over 12,000 students. The company also has a subsidiary in Cambridge, MA in order to be close to the FDA and the American NASH market.
Genfit is currently running six development programs for metabolic and inflammatory diseases. In this article, I will focus on GFT505, which is the main driver of the stock's value and offers the biggest catalyst in the coming weeks, and only cover the other programs briefly.
The company was introduced to the Alternext market in December 2006, and more recently to the Euronext market, and has experienced a sizeable appreciation in 2014 after vegetating for a few years. In 2014, the stock rose from €9 to €37.68 (+318.6%). The year-to-date return so far has also been astonishing, with a 59 percent increase to €60 after hitting a high over €70 in February. This performance shows investors' appetite for companies developing NASH treatments, and gives an idea of the stock's upside and downside potential when the pivotal results become known in a few weeks.
I believe the stock should trade between €70-€80 before the results are published, and depending on their quality, could be good for a 100%+ increase or a 50%+ decrease. This compares with a closing price of €60 as of February 27th. I am personally long the stock, and I will lay my bull case for Genfit after a quick explanation of what NASH is.
NON-ALCOHOLIC STEATO-HEPATITIS
Non-Alcoholic Steato-Hepatitis (NASH) is a fairly common disease with fast-growing prevalence around the world. Because it is a "silent" disease, many people who are in the disease's early stage are not aware that they are ill and are not diagnosed soon enough. It currently affects about 12 percent of the American adult population, and this number is bound to increase in the future as the disease is linked with obesity and diabetes.
The only viable means of diagnosing NASH is via a liver biopsy, which is a very unpleasant procedure in which a doctor uses a needle to sample a small part of the liver and analyze it. This means that the market for NASH not only needs a viable treatment; it could also use easier diagnosis techniques that don't require a biopsy.
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NASH causes accumulation of fat in the liver, liver inflammation, degeneration of hepatocytes, and fibrosis. According to the National Institute of Diabetes and Digestive and Kidney Diseases (NIDDK) "The progression of NASH can take years, even decades. The process can stop and, in some cases, reverse on its own without specific therapy. Or NASH can slowly worsen, causing scarring or "fibrosis" to appear and accumulate in the liver. As fibrosis worsens, cirrhosis develops; the liver becomes seriously scarred, hardened, and unable to function normally." (niddk.nih.gov)
This makes NASH a very preoccupying condition, and explains why the FDA has given GFT505 fast-track designation. This will make clinical development faster and easier, and when Genfit manages to bring to market a safe, effective treatment for this pathology, selling it should not be the hardest part. I will now examine the clinical profile of GFT505 and explain why I think it is superior to ICPT's Obethicolic Acid (OCA) on both effectiveness and safety.
GFT505
GFT505 is a PPARa/d agonist, a drug that acts on the Peroxisome Proliferator-Activated Receptors (PPARs). PPARs "are a group of nuclear receptor proteins that function as transcription factors regulating the expression of genes." (Wikipedia.org). By controlling gene expression, PPAR agonists can be used for the treatment of metabolic diseases such as NASH.
According to the company's annual report, "GFT505 is the most advanced component of a group of proprietary drug candidates historically developed by GENFIT so as to take charge of cardiovascular and metabolic diseases in groups of people suffering from a metabolic syndrome, among them, obese people, pre-diabetics and diabetics." The product, patented until 2035, should be ready to enter Phase III in the third quarter of this year if the results of the pivotal Phase IIb meet or exceed expectations.