Portfolio Update Q2 2023

An overall eventful second quarter for our portfolio resulted in a small gain in USD. Positive outliers include Black Diamond Therapeutics (+167%) rallying post early clinical results for BDTX-1535, Revolution Medicines (+24%) following an update on its pan RAS inhibitor RMC-6236, Agios Pharmaceuticals (+23% in USD) with a positive Phase II trial in sickle cell patients for mitapivat, Intra-Cellular Therapies (+17%) on positive Q1 23 results with strong Caplyta revenues, and Ionis (+15%) on an accelerated approval for Qalsody. Negative contributors in the same quarter have been Macrogenics (–25%) giving up previous gains post the royalty deal, Relay Therapeutics (–24%) following its PI3k alpha inhibitor update, Moderna (–21%) on its first quarter results and spending guidance, Mersana Therapeutics (–20%) on the partial clinical hold for UpRi, and Incyte (–14%) following underwhelming Q1 23 results that were mostly related to the recently launched Opzelura.

Clinical trial results continue to have the most substantial impact on valuation, mostly in perspective of less mature pipeline companies. For the second quarter, some key trial results included:

• Agios announced positive results of achieving significant hemoglobin responses by treating patients with sickle cell disease with mitapivat. Around half of the patients achieved equal or more than 1g/dl increase in hemoglobin, versus less than 5% for placebo patients. Of interest, trends in sickle cell pain crisis reduction were observed despite the small sample size of the trial. Agios has decided to start the Phase III part of the trial in late 2023, with the Phase III data expected in 2025. Mitapivat is approved for treating patients with PK deficiency and expected to report Phase III results in Thalassemia patients in 2024.
• Moderna and its development partner Merck presented positive and intriguing proof of concept data for the individualized cancer vaccine MRNA-4157. Patients with high-risk melanoma following a complete resection were randomized to receive either Keytruda alone or Keytruda in combination with MRNA-4157. A significant risk reduction of 65% for development of distant metastasis and survival was reported. Both companies have announced to start multiple adjuvant Phase III clinical trials including melanoma and lung cancer in 2023 for different solid tumors, for which Keytruda and the PD1/PDL1 antibody class are today’s standard of care.
• Black Diamond Therapeutics updated investors on its dose escalation study for BDTX-1535, demonstrating anti-tumor activity in non small cell lung cancer (NSCLC) patients across multiple EGFR mutation families. Five confirmed and one unconfirmed partial response out of 12 NSCLC patients were reported. These early but very promising update triggered a share price rally for Black Diamond, with the company able to raise USD 75 mn in a capital increase supported by BB Biotech. These proceeds will strengthen the company and allow to enroll further patients in expansion cohorts in NSCLC patients with EGFR-acquired resistance and intrinsic driver mutations after progression on a third-generation EGFR inhibitor.
• Relay Therapeutics presented an early update for RLY-2608, an inhibitor targeting multiple PI3K alpha mutations. Albeit that the drug profile for RLY-2608 achieved goals such as substantial inhibition of PI3K alpha, ctDNA reduction and a good tolerability profile avoiding more severe hyperglycemia, rash and diarrhea, investors were underwhelmed by the efficacy in terms of response rate so far presented, resulting in a sell-off in the shares of Relay. Following the initial dose finding, the company will enroll more patients at higher doses and longer exposure with proof of clinical efficacy expected in 2024.
• Vertex presented positive early proof of concept for its stem cell program VX-880 for type I diabetes patients. VX-880 is an allogenic stem-cell derived, insulin producing islet cell therapy. Glucose sensing insulin production was shown for all six patients treated with VX-880, showing improved glycemic control while reducing or eliminating insulin use. With VX-880 generally well tolerated, the company is now allowed to enroll more patients at the highest planned dose of VX-880. For broader future adoption, Vertex is working on further generation of stem cell therapies and novel delivery/encapsulation technology to avoid concomitant use of immunosuppressants required when dosing VX-880.

Following clinical trial results, regulatory filing and actions are yet another important milestone for drug development companies. We recorded the following regulatory updates in the second quarter for our portfolio companies:

• Ionis, in collaboration with its partner Biogen, announced the US FDA's approval of Qalsody for the treatment of ALS patients who are SOD1 carriers. This accelerated approval was achieved due to the drug's observed reduction of neurofilament, a biomarker associated with neuronal damage in ALS. Despite the small patient population, the urgency remains high due to the underserved nature of the condition. Consequently, the neuro division continues to adopt a more aggressive approach, with more drugs reaching patients through the accelerated approval pathway.
• Argenx has announced the US FDA's approval of Vyvgart Hytrulo injection for subcutaneous use in patients suffering from generalized myasthenia gravis. This novel formulation presents an alternative delivery method and additional choice for patients. In another significant development, Argenx's Chinese partner, Zai Lab, announced the approval of Vyvgart in China. Moving forward, Argenx is expected to expand its Vyvgart franchise globally. This expansion will be facilitated by launching the product in new countries, leveraging the new formulation's convenience, and securing approvals for additional indications.

On the commercial side, the more advanced and established biotech companies such as Vertex, Neurocrine Biosciences, Argenx and Intra-Cellular reported strong Q1 2023 results. Incyte on the other hand disappointed with Opzelura missing Wall Street’s estimates.

On the commercial side, the more advanced and established biotech companies such as Vertex, Neurocrine Biosciences, Argenx and Intra-Cellular reported strong Q1 2023 results.

None of our portfolio holdings were part of the take-over transactions announced in the second quarter, however two of our smaller oncology companies announced relevant corporate updates. Black Diamond refinanced with a USD 75 mn capital increase following the positive Phase I update. The company has extended its cash reach allowing for multiple clinical assets to be developed and go through critical development steps. Molecular Templates informed investors that the debt was restructured, the company to reduce its cost base but further action will be required. In an unexpected move, Ionis issued a new convertible debt, despite the company’s strong balance sheet bolstered by a comprehensive royalty deal carried out early in 2023. The company announced plans to sustain high cash levels by utilizing the proceeds from the newly issued convertible debt to repurchase most of an older convertible debt that matures in 2024.