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SELB


Selecta Biosciences, Inc. (SELB) - Five-Combo Data in Q3 Will Be Huge

If Selecta stock comes back down to $9 per share (it's $9.60 right now), that would be a nice entry to play the potential run-up to the "five combo dose" cohort data in the Q3. That's not necessarily because I like the company or expect the data to be great, it's just that I think it could be a good trade.

As a reminder, data at PANLAR 2018 was mixed (see my Note → LINK). Updated data from the Phase 3 study of SEL-212 in severe gout showed that approximately 75% of evaluable patients maintained serum uric acid level control below 6 mg/dl during the initial three months of therapy with concurrent mitigation of anti-drug antibodies (ADAs) against the pegsiticase enzyme. The ~75% was 14 of 19 patients (actually, 73.7%). That number looks incredible compared to Horizon's Krystexxa®, which Phase 3 data suggest helps only ~42% (47% for Study-1 [range: 32-63%] & 38% for Study-2 [range: 23-53%]) control their gout.

However, the more I look at that ~74% number, the more I think it's a lot of BS. That's because the 74% number is based on 19 evaluable patients, 14 of which achieved control below 6 mg/dl. Management said the 19 patients are those evaluable at 12 weeks who received a full first dose and completed treatment cycle 1. That's a very aggressive "per protocol" number. The problem is that 40 patients are in the trial at doses ranging between 0.125 and 0.15 mg/kg SVP-Rapamycin and 0.2 and 0.4 mg/kg pegsiticase. That's the "intent to treat" number. Here are the real numbers based on far a more conservative ITT analysis:

So now, instead of ~74%, I think the number is more like ~52%. You can't just throw out patients because they had a serious adverse event related to your drug, and you seriously cannot throw out patients you kicked out of your trial because they violated protocol. If I'm taking a pain drug and it does not work, so I pop some ibuprofen at home to violate your protocol, I did so because your drug does not work! I should be counted as a failure, not a protocol violator and ignored! Also, if you look closely at the 14 patients that did make it to week 12, six have clearly failed after week 12 when dosing for SVP-Rapamycin stopped. So, if we want to compare SEL-212 to Krystexxa's 42% number at "month 3 to 6", the 52% (14/27) is probably more like 30% (8 of 27). Ouch!

That's why the "five combo dose" cohort enrolling patients right now is so important. Selecta not only needs to show that it can get control above 50% (that's my hurdle for success) at week 12, but then also maintain that > 50% number beyond week 16 or else the entire "conferring immune tolerance" concept of SVP-Rapamycin goes out the window. According to the data presented at PANLAR, 91% of patients dosed with pegsiticase alone in month four after the initial three monthly doses of SEL-212 maintained serum uric acid control. That number sounds really great, but again, it's based off management's aggressive PP analysis. The real number looks like it is only around 60%.

Bio5C Update

Charisma is good because of the concept of anti-drug antibodies limiting the potential for blockbuster biologics and gene therapy products is real. Selecta's deal with Spark is validating because it shows that this is a problem and that other biopharma companies are looking for a solution to the problem. That said, Horizon is also looking at dosing Krystexxa with immunomodulators like azathioprine. So while Selecta has a patent on the SVP-Rapamycin platform, they clearly do not have a monopoly on the concept of dosing immunomodulator drugs to reduce ADAs. Plus, if you look at the straight-up clinical and preclinical data of Krystexxa (pegloticase) vs. pegsiticase (without SVP-Rapamycin), Krystexxa looks like a better drug.

Credibility continues to be low because right now SVP-Rapamycin is all bark and very little bite. Every time Selecta releases data from the Phase 2 trial, the stock tanks because investors are disappointed in the results. Waiting for the next update is getting tedious. I also think that there is no way in hell management's aggressive use of per protocol analysis is going to sit well with the U.S. FDA if SEL-212 ever makes it to an NDA review. The SEL-212 Phase 3 statistical analysis must be a lot more rigorous than the BS management presented at PANLAR.

Cash is another major concern for me right now. The balance of $85 million as of March 31, 2018 may be enough to fund operations into mid-2019 (per the CFO on the Q1 Call), but that's clearly not enough to fund the Phase 3 or make Selecta a credible threat in the gout market to major players like Horizon and J&J. There's a big financing coming at some point. At the current market value of $230 million, it could be massively dilutive.

The hype around this stock and the expected "five dose" cohort update in the Q3 presents a tradeable Catalyst opportunity. Based on the chart below, I love this thing at $9.00 for a trade into the data.

I'm not sure I'd stick around much beyond that because I'm fairly skeptical of Selecta challenging Horizon in the gout market. Remember, management has yet to even talk to the U.S. FDA about the Phase 3 design. SEL-212 is still several years away from the market. Horizon will not be sitting idly by and waiting for Selecta to catch up. My biggest fear with Selecta is that by the time they file an NDA on SEL-212, assuming they even get that far, Horizon et al., will come up with an alternative.

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Bio5C has no position in SELB

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