Expert Financial Analysis and Reporting

An FDA advisory committee will consider the BLA for Novartis’s CAR-T product tisagenlecleucel tomorrow, July 12^th for the treatment of relapsed/ refractory acute lymphocytic leukemia. This will be the first FDA review of the new CAR-T products. I have spent some of today reading the FDA briefing documents for the members of the committee.

There doesn’t seem to be much concern over the efficacy of the product. Most of the FDA’s questions refer to manufacturing and side effects. This is one of the most complex biological agents ever developed by the biopharm industry as the end product is a living cell that uses the honing characteristics of antibodies combined with the killing power of T-cells. There are many factors in the process for which the effect of variations is only vaguely understood and there are many manual steps in the process. In addition, there are complicated logistics which require removing live T-cells (mixed with a variety of other immune cells) from the body, transporting them to a remote manufacturing site, engineering the T-cells, and then transporting them back to the clinical site for infusion into the patient. There are just an awful lot of moving parts.

The side effect issues are also important. The safety analysis was based on 68 subjects which highlight the serious adverse events associated with CAR-T therapy. These include life-threatening cytokine release syndrome (CRS) and hemophagocytic lymphohistiocytosis (HLH), neurological events that occurred with CRS or delayed after the resolution of the CRS, coagulopathies with CRS, and life-threatening infections. Grades 3 or 4 CRS side effects occurred in 32 subjects (47%) of the subjects, but there were no deaths from CRS. Neurological toxicities included encephalopathy, delirium, hallucinations, somnolence, cognitive disorder, seizure, depressed level of consciousness, mental status changes, dysphagia, mental status changes, muscular weakness, and dysarthria in 30 (44%) subjects treated with tisagenlecleucel. CRS generally occurs within 1to 14 days after Tisagenlecleucel therapy is initiated. This does not take into account other serious grade 3 and 4 side effects that occur with the chemotherapy pre-conditioning program.

There are also some hypothetical questions on the potential for toxicities that could occur over time. These include the potential for generation of replication-competent retrovirus (RCR); the viral vector used to introduce the genes required to create the CAR-T cells is based on an inactivated HIV virus. There is also the potential to insert the genes in a location that cause mutations that result in secondary cancers. These are theoretical concerns about which there could be some discussions but no answers.

In the end, the efficacy of the CAR-T cells in r/r ALL will overwhelm the manufacturing and side effect issues and I expect tisagenlecleucel to be approved. The overall response rate in r/r ALL was a rather stunning 82%. I would look for marketing to begin in 4Q, 2017. As you know, my interest in the CAR-T space is centered on Cryoport that provided logistics services to the CAR-T drug developers. See my initiation report.

This is an important event for CYRX. The Company has roughly guided that CAR-T approvals could provide $5 to $10 million of annual revenues within 18 months of commercial launch. I would place the potential for the r/r ALL indication at the bottom of this range. I expect additional approvals later his year of tisagenlecleucel and Kite’s Axi-Cel (axicabtagene ciloleucel) for relapsed/ refractory diffuse large B cell lymphoma. I see these opportunities as creating revenues in the upper end of the $5 to $10 million range. These three expected approvals are important drivers of my estimate of revenues for Cryoport. Without much contribution from these three CAR-T opportunities in 2017, I am looking for revenues stemming primarily from clinical trials to increase from $7.7 million in 2016 to $11.6 million in 2017. As CAR-T revenues kick in I am estimating revenues of $18.8 million in 2018 and $25.6 million in 2019.

I intend to listen to some of the meeting tomorrow. As I said, I give a high probability for approval. There could be some troublesome issues raised tomorrow that might give investors some pause (this always seems to happen) but I don’t see anything that will block approval. Hopefully, this could be a major catalyst for the stock, but I am never very good at predicting how stocks will respond to events like this that are highly anticipated. Cryoport continues to be one of my top stock picks. In my initiation report I drew comparisons with another of my top picks, Repligen. I love the business models of each company. For those who would like some kind or price target, I note that Repligen is selling at about 9.4 times estimated 2017 sales. If we were to apply this ratio to projected 2020 sales of Cryoport, it would result in a market capitalization of $350 million and target stock price of $14.50.