I often refer to Sesen Bio (SESN) as the little bird soaring on the big sky. True to that analogy, Sesen has appreciated significantly since my initial recommendation. That is to say, Sesen has added 110.4% to its $1.19 back in April 2018. I'm not bragging about profits here. I'm simply showing you that, despite the gains, there are further upsides. After all, there is a powerful upcoming regulatory binary event. In just a few weeks, you can expect an FDA approval of Vicineum for the treatment of deadly bladder cancer. In this research, I'll feature a fundamental analysis of Sesen and provide my expectation of this growth equity.
Figure 1: Sesen chart (Source: StockCharts)
About The Company
As usual, I'll present a brief corporate overview for new investors. If you are familiar with the firm, I suggest that you skip to the subsequent section. Based in the heart of medical innovation (Cambridge Massachusetts), Sesen is focused on the innovation and commercialization of stellar cancer treatments. The company leverages the therapeutic prowess of a technology dubbed targeted protein therapeutic, which is essentially an antibody-drug conjugate. I noted in the prior article,
Viewing the pipeline below, you can see that the lead medicine (Vicineum) already cleared its Phase 3 VISTA trial. The next stop for Vicineum is to be crowned as the new standard of care for Bacillus Calmette-Guérin (“BCG”) vaccine refractory high-grade non-muscle invasive bladder cancer (“NMIBC”). To boost long-term growth prospects, Sesen is expanding Vicineum's indication for squamous cell carcinoma of the head and neck (SCCHN) through a Phase 2 clinical investigation. Interestingly, there are combination studies of Vicineum with other immune checkpoint inhibitors like durvalumab (Imfinzi) of AstraZeneca (AZN).
Figure 2: Therapeutic pipeline (Source: Sesen)
Upcoming Regulatory Milestone
As you can see, Sesen is poised to gain US FDA approval of Vicineum as a treatment for NMIBC soon. The Prescription Drug User Fee Act (PDUFA) date is scheduled for August 18. Nonetheless, I would not be surprised if there is an early approval. With approval, I believe that Vicineum will bring added value to investors and hopes to patients worldwide.
In addition, Sesen filed the Marketing Authorization Application with the EMA back on March 25 this year. As such, you can expect Vicineum to gain European approval in early 2022. Notably, the brand for Europe would be Vysyneum. Despite the variation, Vicineum and Vysyneum are essentially the same, which fosters brand recognition.
Subsequent to the US and EU approvals, there would be another approval in the new golden biotech market, i.e., China. In collaboration with its Partner Qilu Pharmaceuticals, Sesen already received China approval for its Investigational New Drug (i.e., IND) application for Vicineum ahead of the April 2021 schedule. As a ramification, Qilu is now conducting research on Vicineum overseas. At this pace, a marketing authorization filing should be on schedule for 2022 with a likely approval in 2023.
The Vicineum Advantage
In the previous article, I forecast 70% (i.e., more than favorable) chances of success for the US approval. Though I'm wrong from time to time, I have an above-average rate of accurate forecasts over the years. As you know, I missed the event on Biogen (BIIB)'s approval of Adacunumab for Alzheimer's disease. Again, I illustrated my record for you to know what to expect from this forecast.
With approval forthcoming, let us focus on Vicineum's advantages that'll shed more light on upcoming launch progress. On this note, I usually pay attention to the drug's mechanism of action. That's because it gives subtle clues about the molecule's chances of clinical and marketing success. If you're perceptive, you can get tremendous information here.
On this front, Vicineum leverages a highly differentiated mechanism of action. As follows, Vicineum is like a smart missile. It has an antibody fused with a therapeutic warhead (i.e., EpCAM). The antibody zones in on the cancer targets with high specificity while the EpCAM decimates the tumors. What is intriguing is an overlooked secondary mode of killing.
In other words, the decimated tumor fragments activate the immune system for higher-level cancer-fighting. Here's how it works. The antigen-presenting cells (i.e., APC) pick up the destroyed fragments, process them internally, and then bring them to the T cells (i.e., the General of the immune system). As the General T-cell gains intelligence on the tumor, it'll launch aggressive and effective campaigns against these rogue cells.
Ultimately, the aforesaid highly coordinated and multi-targeted approach renders deadly cancers obsolete. That's why you saw the robust 40% complete response (i.e., CR) rates and the remarkable 3-year delay in a cystectomy for the VISTA trial.
Figure 3: Vicineum mechanism of action (Source: Sesen)
It's also worthwhile to note that the aforesaid mechanism of action has delivered strong pre-clinical study outcomes for other cancer treatments. From the figure below, the neck tumor completely shrunk with Vicineum treatment. Perhaps, Vicineum will also enjoy success for other tumors in the coming years.
Figure 4: Vicineum strong efficacy (Source: Sesen)
Filling A High Demand
Shifting gears, I'd like to cue you in on a strong industry tailwind supporting a potential Vicineum launch success. As you can see, patients with NMIBC are first managed with the BCG vaccine. After the vaccine becomes obsolete (which is usually the case), the patient is next given another therapeutic round with medicines like Valstar.
As you know, Vicineum trumped both Valstar and Keytruda. For instance, Valstar only had an 8% to 10% complete response rate (i.e., CRR) at 12-months; whereas Vicineum delivered the outstanding 17% rate. Moreover, Vicineum delivered the 15% CRR which is 2 percentage points higher than Keytruda at 18-months follow-up.
Despite the efficacy, most cancer drugs will ultimately fail and thus subject the patients to a bladder removal (i.e., cystectomy). That's just the nature of the beast, cancer. Therefore, the longer you can delay a cystectomy, the better. And it's remarkable that Vicineum can delay a bladder removal by three years.
Figure 5: Cystectomy analytics (Source: Sesen)
Interestingly, there have been huge manufacturing issues with BCG vaccines. In the figure below, you can see several BCG vaccine shortages from 2012 to 2020. Consequently, Vicineum will deliver hopes for patients, as it is positioned to fill the heightened demand. As it has already secured partnerships with Cardinal Health, Fujifilm, and Baxter, Sesen will foster a consistent and reliable Vicineum supply for patients. It's also likely that oncologists will use Vicineum in the first line, as there is no other best alternative.
Figure 6: BCG vaccine shortages (Source: Sesen)
Management
If you've been following my research, you know that I place emphasis on management. That's especially critical when a company is launching a drug alone. If you recall a company coined Orexigen Therapeutics (OREX), Dr. Thomas Cannel was its CEO. I don't want to bring up its checkered past. Nonetheless, I mentioned Orexigen for you to know what to expect from the Vicineum launch.
Accordingly, Dr. Cannel has a knack for bringing novel drugs to the market. He did that for Qsymia, a weight-loss drug of Orexigen. Interestingly, Qsymia flopped due to low efficacy, questionable safety profile, and the lack of a robust sales/marketing partner. Interestingly, Orexigen stock enjoyed a huge rally toward approval as it surpassed the $1B mark before filing for Chapter 11 as I forecast back in 2013.
Using comparative market analysis, I believe that the upcoming launch of Vicineum is similar due to the lack of a sales/marketing partner. Likewise, Sesen stock is likely to surpass the $1B hurdle. Nonetheless, the key difference is that Vicineum posted extremely robust efficacy. Therefore, you can anticipate the Vicineum launch to enjoy more success than Qsymia. Despite the key Vicineum advantages, my optimism is tempered because a blockbuster nearly always needs a launch partner.
Figure 7: Sesen management (Source: Sesen)
Financial Assessment
Just as you would get an annual physical for your well-being, it's important to check the financial health of your stock. For instance, your health is affected by "blood flow" as your stock's viability is dependent on the "cash flow." With that in mind, I'll analyze the 1Q2021 earnings report for the period that ended on March 31.
As follows, Sesen procured the $4.3M in license revenue compared to none for the same period a year prior. That aside, the research and development (R&D) for the respective periods registered at $6.0M and $8.8M. I view the 46.6% R&D increase positively because the money invested today can turn into blockbuster results tomorrow. After all, you have to plant a tree to enjoy its fruits.
Additionally, there were $55.5M ($0.35 per share) net loss compared to $34.4M ($0.21 per share) net decline for the same comparison. On a per-share basis, the bottom line depreciated by 52.3%. That makes sense because Sesen increased its R&D investment.
Figure 8: Key financial metrics (Source: Sesen)
About the balance sheet, there were $110M in cash and equivalents. Against the $59.5M quarterly OpEx, there should be available capital to fund operations into 3Q2021 before the need for financing. Here, you can see a likely cash flow constraint for a small company trying to commercialize a drug.
Potential Risks
Since investment research is an imperfect science, there are always risks associated with your stock regardless of its fundamental strengths. More importantly, the risks are "growth-cycle dependent." At this point in its lifecycle, the main concern for Sesen is the regulatory binary (i.e., approval) of Vicineum by August 18.
Regardless of the high chances of approval, there are still 30% odds of either a non-approval or delayed approval. In that case, you can expect Sesen shares to tumble by 50% and vice versa. Moreover, the other risk is the excess dilution that can render your investment from being profitable in the long run. The risks of a subpar launch are also high without a robust sales/marketing partner.
Concluding Remarks
In all, I recommend Sesen Bio a buy with a 4.5 out of five stars rating. Flying on the wings of its smart medicine (Vicineum), Sesen Bio is making big waves in the life science sector. In the next two months, I believe that Vicineum will gain FDA approval as a treatment for NMIBC. The company already secured its partnership for a robust and reliable supply of Viceneum. Though going alone in the North America launch, the preparation and stellar quality of Viceneum (amid the shortage supply of BCG vaccines) should bolster commercialization success.
After conquest on American soil, Sesen will fly to Europe for what is likely approval in 2022. The Far East (i.e., China) is next in line for the 2023 approval. The Hikma Pharmaceuticals for commercialization in North Africa and the Middle East is also on the radar. In China, Qilu will unlock value for Vicineum. As you know, I tend to be conservative in my estimate. As such, Sesen can deliver a surprise blockbuster in two years. And I hope that is the case for shareholders.