“The only sure rule in golf is he who has the fastest cart never has to play the bad lie.” – Mickey Mantle
Today, we take an in-depth look at a Busted IPO that recently retrenched and raised additional capital after abandoning a mid-stage trial. A full investment analysis follows below.
Magenta Therapeutics, Inc. (MGTA) is a Cambridge, Massachusetts, based early clinical-stage biotechnology concern focused on the development of compounds that upgrade the current immune reset process in patients with blood cancers, as well as genetic and autoimmune diseases. It has recently reprioritized its assets, leaving it with only one ongoing trial, a Phase 2 study involving a de-prioritized candidate with upcoming multiple Phase 2 trials for its mobilization agent. Magenta was founded in 2015 and went public in 2018, raising net proceeds of $89.9 million at $15 a share. The stock has an approximate market cap of $325 million and trades for just under $7.00 a share currently.
Resetting the immune system involves the removal of disease-causing cells and the transplantation of healthy ones to rebuild the immune system. Even though stem cell transplants – the largest immune reset market – have demonstrated curative power, only a fraction of eligible patients for these procedures undergo them, owing to the risk of adverse events, such as infection, infertility, secondary cancers and death. For example, nearly two-thirds of eligible acute myeloid leukemia patients do not receive a transplant despite it being the standard of care.
The immune reset process involves three steps. The first step involves the collection of stem cells from the patient or from healthy donors (known as mobilization); the second step is the removal of disease-causing cells (conditioning); followed by the infusion of the healthy stem cells into the patient (transplantation or cell therapy).
Each stage of immune reset is riddled with shortcomings. Mobilization usually requires multiple invasive bone marrow harvests requiring several days of drug injections that chase the stem cells from the bone barrow into the bloodstream, where they are then collected through a process called apheresis. The current standard of care therapy is granulocyte colony-stimulating factor (G-CSF), which requires at least five days of injections and is associated with significant side effects, including bone pain that often requires painkillers. Furthermore, patients with autoimmune diseases or sickle cell disease can have severe side effects with G-CSF, while mobilization failure rates for autologous transplants (harvested from the patient) can run as high as 40%.
The conditioning phase involves the use of systemic, toxic chemotherapy and/or radiation, which is akin to carpet bombing the patient, killing not only targeted stem cells, immune cells, and diseased cells but also healthy cells while damaging DNA. Since much chemotherapy is a derivative of mustard gas, nearly all transplant patients experience complications, including severe infections, organ failure, and death. Conditioning toxicity is responsible for ~35% of mortality following allogenic (donor) transplants.
An ideal transplantation procedure involves healthy stem cells infused into the patient through the bloodstream that travel to the bone marrow where they start producing healthy blood and immune cells. However, there are many instances where the stem cells are either rejected by the patients’ remaining immune system or fail to engraft in the bone marrow, resulting in the need for additional transplants, the outcomes of which are extremely poor.
Magenta’s development platform is designed to produce more precise remedies that reduce the threat inherent in current immune reset measures, making them more accessible to eligible patient populations. The company is developing three classes of medicine: a conditioner that removes the disease-causing cells before transplant, a mobilizing medicine that collects stem cells, and a cell therapy with a high stem-cell dose to rebuild the patient’s immune system. Magenta’s assets are being developed for use either individually or in combination with each other, allowing for bespoke patient programs.
MGTA-145. The company’s most advanced stem cell mobilization candidate is MGTA-145, a CXCR2 agonist being accessed in combination with a CXCR4 antagonist (plerixafor) as a first-line agent. In a Phase 1 study involving healthy subjects, MGTA-145 was safe and well-tolerated individually and in combination with plerixafor. Additionally, the combination demonstrated rapid, single-day mobilization, collecting (what was deemed) a sufficient number of stem cells. Magenta intends to initiate multiple Phase 2 trials in both allogenic and autologous transplant settings with the hope of producing data in 2020. One of those studies is being conducted in concert with the National Marrow Donor Program/Be The Match to evaluate MGTA-145 for single-day mobilization of healthy donor stem cells for patients undergoing allogeneic transplant. MGTA-145 received orphan drug designation from the FDA in May 2020.
If successful, the market for MGTA-145 is significant with ~55,000 transplants performed in the U.S. and EU annually using mobilized peripheral blood from either the allogenic or autologous setting. The compound will enter Phase 2 development by year-end.
MGTA-117. Magenta’s most advanced conditioning agent is MGTA-117, an antibody-drug conjugate which is designed to selectively remove disease-causing cells and, as such, is expected to be far less toxic than chemotherapy and/or radiation. MGTA-117 is still in the pre-clinic, undergoing IND-enabling studies. A single dose of a CD117-ADC selectively depleted hematopoietic stem cells in nonhuman primates with a therapeutic index of 30 – two to six is typical for approved ADCs at that stage of development. Magenta expects MGTA-117 to produce clinical data in 2021.
On May 6, 2020, Magenta announced a research and clinical collaboration with AVROBIO, Inc. (AVRO) to evaluate MGTA-117 for conditioning patients before they receive AVROBIO’s lentiviral gene therapy candidates. That news was followed by an alliance with Beam Therapeutics Inc. (BEAM) to study MGTA-117’s utility conditioning patients with sickle cell disease and beta-thalassemia receiving Beam’s base editing therapies on June 15th.
CD45-ADC. Magenta’s other program in its conditioning portfolio is CD45-ADC, which has demonstrated the ability in the preclinic to remove disease-causing reactive T cells in three models of autoimmune disease: multiple sclerosis, systemic sclerosis and inflammatory arthritis. Magenta has identified a lead antibody for this program, and IND-enabling work continues.
MGTA-456. The company’s most advanced candidate in any class was MGTA-456, an allogenic cell therapy designed to provide a high dose of stem cells that are well matched to the patient to safely rebuild the immune and blood system. However, the program received a setback when Magenta announced it was discontinuing enrollment in a Phase 2 trial for patients with inherited metabolic diseases due to enrollment challenges amplified by the COVID-19 pandemic as well as “a growing understanding in the transplant field of the current challenges of allogenic stem cell transplant in patients with… inherited metabolic diseases; and feedback from the FDA…” This negative development came after the FDA had granted MGTA-456 Regenerative Medicine Advanced Therapy designation in September 2019 and is part of a reprioritization of resources away from cell therapy and toward Magenta’s stem cell mobilization and conditioning programs. The company has completed enrollment in a Phase 2 trial evaluating MGTA-456 in patients with blood cancers. No timeline for data has been put forth.
Balance Sheet & Analyst Commentary:
With expenses expected to increase substantially in connection with its preclinical and clinical activities, Magenta executed a secondary offering in late June 2020, raising net proceeds of $64.9 million at $8 per share. The company ended the second quarter with just over $175 million in cash and marketable securities on its balance sheet, providing a cash runway through 2022.
The potential of its therapies has developed a small yet supportive following on the Street, with all four analysts rating shares of MGTA a buy. Their median twelve-month price target is north of $17.00 a share. Wedbush was the last analyst firm to ‘chime in’ on Magenta. It reiterated a buy rating and $22 price target on MGTA on August 7th.
Also loyal to the cause is board member Bruce Booth, who represents the interests of Atlas Venture Funds. He purchased 1.25 million shares on the June secondary, upping Atlas’ position to north of 4.1 million shares.
Magenta, at this early stage, is basically a seven-dollar option. With the curative promise of stem cell transplantation, it is a very sexy line of therapy and significant upgrades to current mobilization and conditioning approaches could result in blockbuster therapies. However, with the discontinuation of the MGTA-456 Phase 2 study for inherited metabolic diseases, the only Magenta ongoing clinical study is the deprioritized Phase 2 MGTA-456 trial for blood cancers with no scheduled data release. The key data will come from the yet-to-be-started multiple Phase 2 studies for MGTA-145 – data from which is expected this year. MGTA-117, although auspicious to date, has yet to enter the clinic.
However, with half its market cap in cash, and the potential to be multi-bagger; this names set up well for a covered call strategy which I have used to establish a watch item holding in this name.
“Golf… is the infallible test. The man who can go into a patch of rough alone, with the knowledge that only God is watching him, and play his ball where it lies, is the man who will serve you faithfully and well.” – P.G. Wodehouse