Thesis
Caribou Biosciences, Inc. (NASDAQ:CRBU) recently presented results associated with its product candidate leader, CB-010, Phase 1 clinical trial at the ASCO 2024. Since then, CRBU’s share price has fallen 45%, observing a justified 30% sell-off on the first day after the news release.
Despite essentially delivering disappointing results, at the presentation, the company did a good job at highlighting the potential of their CB-010 in the treatment of relapsed/refractory non-Hodgkin’s lymphoma (r/r NHL). However, in my opinion, the results were not impressive. Indeed, CRBU reported that CB-010, which is aimed as an allogeneic CAR-T cell therapy, was more effective when the donor cells have at least 4 markers matching with the patient. Thus, putting in doubt the therapeutic and off-the-shelf capacity of the allogeneic CAR-T cells as a whole.
Moreover, when ignoring the marker matching, CB-010 Phase 1 results underperform when compared against other allogeneic CAR-T cell product candidates, such as Cema-Cel, which has been developed by Allogene Therapeutics, Inc. (ALLO).
On the other hand, when CB-010 cells match with the patient, the performance is only marginally better than autologous CAR-Ts. Moreover, as Prof Dr Hamandi commented in the call, one of the major concerns of this marker matching is that it is likely to limit the options for patients with ethnic backgrounds different from Caucasians. This is a limitation that the company claims can be solved by having 13 batches of CB-010. However, during the call an analyst asked the following:
You said that 90% of the patients can be addressed by 13 batches. If we scale that up to the whole U.S. for example and the EU5, what is the pool of donors you need to address that entire addressable population said in the U.S. for r/r LBCL?
To which Caribou responded the following:
13, right, the maths we are doing is thinking about the potential patient population that would be eligible for the pivotal phase 3, thinking about the kind of geographies that you highlighted Hadmani (referring to Prof Dr. Hadmani). And 13 is the number to give us a diverse enough set of HLA types that we expect to deliver that minimum of 4 HLA matches to about 90% of the patients.
In my opinion, CRBU phrased the response very well in order to refer to the patients eligible for the clinical trial instead of the whole addressable LBCL or NHL global market.
In this sense, based on CB-010’s therapeutic limitation, I fail to find the advantage of CB-010 against other allogeneic CAR-T treatments. Thus, I agree with Evercore’s downgrade of the stock, given the doubts about CB-010’s potential to generate significant revenue if it achieves regulatory approval for r/r NHL. Hence, supporting my “strong sell” rating for the stock.
Scientific Overview
Caribou is a biotechnology company at clinical-stage that utilizes a proprietary CRISPR-based technology for the development of allogeneic chimeric antigen receptor (CAR) T and natural killer (NK) cells for the treatment of certain types of cancer and immune therapies.
The technology, on paper, is very promising. Caribou’s CRISPR-based gene editing, known as chRDNA, allows them to edit the DNA in a highly specific manner. The company is using this technology in order to modify the expression of certain markers (see image below), which enables them to manufacture allogeneic CAR-Ts for the treatment of various types of cancer.
T-cell receptor (TCR) knockout, is a gene edit present in all Caribou’s product candidates. TCR is associated with self immunity, in particular, T-cells with high TCR affinity present a high risk to attack the cells of their own body, leading to self-immunity. Therefore, blocking the expression of TCR in CAR-T should reduce the probability of causing graft vs. host disease ((GvHD)), which is a common complication associated with the transplant of allogeneic cells, where the donor cells recognize the patient’s cells as foreign and vice versa.
Programmed cell death protein 1 ((PD-1)) knockout is an edit only present in CB-010. PD-1 is a gene found in T-cells with a critical function in the induction and maintenance of self-tolerance as well as programmed cell death. In other words, when PD-1 is activated, T-cells have a reduced killing activity and have a shorter lifespan than cells where PD-1 is blocked. Therefore, explaining the rationale behind the removal or blockage of PD-1 as a therapeutic strategy against cancer.
Beta 2 microglobulin (B2M) knockout, is one of the edits found in CB-011 and CB-012 but not in CB-010. The protein encoded by B2M is associated with the activation of the major histocompatibility complex (MHC), thus enabling the allogeneic CAR-Ts to avoid the patient’s immune system. Interestingly, this editing approach is also used by other companies, such as Cellectis S.A. (CLLS), who are also developing allogeneic CAR-Ts for cancer treatments.
Autologous vs. Allogeneic
The development of gene editing techniques with high specificity allowed researchers to develop CAR-Ts, which are modified immune cells (in this case T-cells) capable of recognizing a particular marker, targeting the cells expressing those markers as foreign bodies, and ultimately leading to the elimination of those cells. Given the difficulties arising when implanting foreign cells into a patient, such as GvHD, to date, the only CAR-T based cancer treatments with regulatory approval are manufactured with autologous cells, which means that the CAR-Ts are produced with immune cells from the patient. The first CAR-T to obtain approval in the U.S. was Kymriah, which was commercialized by Novartis AG (NVS). Meanwhile, Yescarta, which is commercialized by Gilead Sciences, Inc. (GILD), has been estimated to be the highest CAR-T revenue driver in 2024, while the company reported a 6% sales revenue increase in its Q1 2024 financial report.
Despite the proven therapeutic advantage of autologous CAR-Ts on lymphomas, the production of this therapy has several caveats when compared against an allogeneic approach. For instance, autologous CAR-Ts require the isolation of large numbers of immune cells from the patient in order to then be transformed into personalized CAR-Ts in a laboratory. This process has three immediate caveats, the first one is the availability of suitable immune cells from the patient, as people suffering with lymphomas usually exhibit immune system deficiency. Another caveat is that the fabrication of these personalized CAR-Ts is a time-consuming process, in this sense, Yescarta has recently obtained regulatory approval in the U.S. for a protocol optimization that allows them to reduce the manufacturing time to a median of 14 days, but in certain cases, it can take even months. In addition, as a consequence of the necessity of manufacturing personalized batches, the production of autologous CAR-Ts also carries a high manufacturing cost, which by 2020 was estimated to be around $80K per batch.
Unlike autologous CAR-Ts, allogeneic CAR-Ts are manufactured from healthy donors. Hence, allogeneic CAR-Ts are aimed to be off-the-shelf products, that can be mass-produced, lowering manufacturing cost and reducing the time from diagnostic to infusion to a couple of days. More importantly, once sorted out the incompatibility issue that may cause GvHD, allogeneic CAR-Ts hold the promise of becoming a universal treatment for all patients suffering with a particular type of cancer. However, CB-010’s most recent results underlined the necessity to have at least a partial human leukocyte antigen (HLA) match between the donor cells and the patient in order to achieve good levels of therapeutic efficacy in r/r NHL patients. Thus, I believe Caribou’s CB-010 will have an inherent limitation that is likely to hamper its revenue potential if/when they obtain regulatory approval, thus supporting Evercore’s doubts and the justified CRBU’s share price crash observed in the last month.
CB-010’s Antler Phase 1 trial results
In early June, the company held a meeting at ASCO 2024, where they explained in detail the results associated with the Antler Phase 1 trial testing the safety and efficacy of CB-010 in r/r NHLs. The data presented were representative of the 46 patients with aggressive r/r NHLs enrolled in the study (see image below).
In this sense, when all the enrolled patients were taken into account, CB-010 showed good tolerability with no cases of GvHD, and a lower percentage of cytokine release symptoms (CRS) and immune effector cell-associated neurotoxicity (ICANS) than Yescarta. However, the efficacy results were not particularly impressive, showing an overall response rate (ORR) of 75%, which includes partial and complete responses to the treatment. A complete response of 46%, lasting for a median of 7 months, and a 6-month progression-free survival (PFS) rate of only 35% (see image below).
In order to put these results into context, according to an Allogene Therapeutics’ presentation at the ASCO 2023, Allo-501 also known as Cema-Cel in its Phase 1 ALPHA and ALPHA 2 clinical trials showed no cases of GvHD, nor ICANS, and 33% cases of CRS. In terms of efficacy, the ORR was 67% (lower than CB-010), the CR was 58%, and the 6-month CR was 42%, with a median duration of response of 23.1 months, at the time of the presentation. Thus, although the ORR percentage of Cema-Cel is lower than CB-010’s, the CR rate, the 6-month CR rate, and the duration of the response are all superior for Cema-Cel.
Given that the results of Cema-Cel have been publicly available for a year, I would presume Caribou’s management is well aware of the comparison. Then, leading them to reanalyze the data in order to find a positive angle from the study that helps them to move forward. Thus, finding out that the group of participants in the Antler study that had the best response had 4 or more HLA matches with the batch of CB-010 that was used in the study. So, when evaluating the response of the patients with > 4 HLA matches the ORR increased to 92%, however, the CR was only 46% and the 6-month CR 67%, and the median duration of the CR was 14.4 months (see image below). Thus, barely matching with Cema-Cel’s values.
Taking together the comparison of CB-010 all patients’ responses as well as the HLA matched patients against the response observed in the ALPHA and ALPHA 2 clinical trials, I think Cema-Cel not only is an allogeneic product candidate universal for all patients but also presents a better CR rate and duration than CB-010. Therefore, in my opinion, Allogene’s product candidate has more revenue potential than CB-010, and thus investors interested in ALLO or CRBU should keep an eye on the ALPHA 3 pivotal study that Allogene has recently started, which is expected to start yielding preliminary results in H2 2024 and pending on positive results should support the regulatory approval application by 2027.
Moreover, as commented in my previous analysis on Allogene, this ALPHA 3 study aims to demonstrate the efficacy of Cema-Cel as the first line of treatment at the end of the chemotherapy in patients with minimal residual disease (MRD), thus increasing even more the revenue potential for Cema-Cel when compared against CB-010 and in my opinion justifying Evercore’s downgrade of Caribou.
Financials
Caribou released their latest financial results last May. The company reported revenues slightly lower in Q1 2024 when compared against Q1 2023 (see image below), which were attributed to payments from collaborators such as Pfizer Inc. (PFE).
In terms of operating expenses, the company reported an increase of $13.81 million when comparing Q1 2024 over Q1 2023, which it attributed to the progress of multiple pipeline products through the clinical trials. Indeed, the R&D costs increased by 31.4% and the general and administrative expenses by 64.4% year-over-year. Thus, increasing the net loss of the company by $13.2 million when comparing Q1 2024 vs. Q1 2023.
In addition, CRBU’s reported cash, cash equivalent and short-term investments of $293.98 million in Q1 2024, which was short of $32.4 million when compared against Q1 2023. In contrast, the loss per share and the total debt presented no major changes year-over-year.
Considering that CRBU has its three product candidates in relatively early stages of clinical trials, I would not expect them to drastically decrease its operating expenses, thus I will estimate its quarterly cash burn rate to be similar to the Q1 2024 total operating expenses ($48 million), then considering that the company held $293.9 million in cash, cash equivalents and short-term investments their estimated cash runway is 18 months, which allows them to cover the cost of its operations and clinical trials up to Q3 2025.
However, the company in its Q1 report estimates that their cash, cash equivalents, and short-term and long-term investments, account for $349.5 million, which provides them with a cash runway up to Q1 2026. Thus, providing enough time to obtain the preliminary data from CB-010’s HLA matching Phase 1 clinical trial expansion, which is expected by H1 2025.
Valuation & Technical Analysis
Currently, CRBU’s market cap is $144.51 million, with $1.60 per share. In terms of performance, the share price has seen a year-to-date decline of 72% of which a 44% decrease has been observed in the last month. Based on the comparison against other allogeneic products in development mentioned earlier in this article and CB-010’s results reported by the company I strongly believe that the sell-off of the shares and Evercore’s downgrade, decreasing the share price target from $13 to $3, are completely justified. In terms of trading indicators, the exponential moving average and the moving average convergence/divergence are currently signalling for “sell” and “strong sell” ratings, although the shares seem to be reaching its bottom (see image below).
Additionally, CRBU’s price-to-sales forward is estimated to be 12.31, which is much higher than the 3.45 observed for the sector median. Furthermore, Caribou’s 5-year price to sales is even higher at 25.66, suggesting the current overvaluation of the stock.
In this sense, taking into account that CB-010 is CRBU’s most advanced product candidate, I believe that the company is unlikely to have a commercial product before 2027, which is the year when ALLO is expecting to be filing for Cema-Cel regulatory approvals. Indeed, the consensus for Caribou is to have a negative P/E ratio for 2024, 2025 and 2027, which in my opinion is based on the lack of expected product-driven revenues for the next 3 years.
In this sense, if Allogene’s product candidate continues to show universal patient efficacy in the first line of treatment in its ALPHA3 pivotal clinical trial, I would expect Cema-Cel to be a large revenue driver for Allogene. In addition, given that Allogene has been trading at a discount, I would rate ALLO with a moderate buy given its potential high-risk/high-reward profile and strong pipeline. While I rate CRBU with a “strong sell” given CB-010’s poor efficacy performance.
Risks
My analysis has been mostly focused on the poor performance of CB-010 in the treatment of r/r NHL. However, Caribou stated in the Q1 financial report the following:
We are expanding our clinical development of CB-010 to include autoimmune diseases, and we recently received clearance for our investigational new drug (“IND”) application from the FDA for CB-010 to be evaluated in adult patients with lupus nephritis (“LN”) and extrarenal lupus (“ERL”) in our multicenter, open-label, GALLOP phase 1 clinical trial, which we expect to initiate by year-end 2024.
Although Caribou will be facing competition from several companies developing allogeneic CAR-T therapies, including but not limited to Allogene Therapeutics, there is a possibility that CB-010 will outperform its competitors in this area despite failing in r/r NHL. On the other hand, it could be possible that CB-010 reports better results when increasing the number of participants in the extended Phase 1 trial with HLA matching, then potentially becoming an attractive therapeutic option for certain patients with r/r NHL, and recovering part of its revenue potential.
In addition to CB-010, CRBU has CB-011 and CB-012 as product candidates for r/r multiple myeloma and r/r acute myeloid leukemia. Despite being in earlier stages of development than CB-010, CB-011 and CB-012 have gene edits that, in theory, will enable the CAR-Ts to avoid the patient’s immune system. Thus, CB-011 and CB-012 might still hold the capacity to be universal allogeneic treatments, which if efficient in the treatment of the targeted cancers, may become large revenue drivers for Caribou. Nonetheless, the development of those products still requires a few years.
Conclusions
Based on the results of CB-010 in the Antler trial, CB-010’s performance in terms of efficacy is below other allogeneic CAR-T product candidates in development by other companies. CRBU needed to reanalyze its results in order to extract value from CB-010 preliminary poor results when considering the full cohort. Nonetheless, even when re-grouping the best-responding patients, which the company discovered a posteriori that shared at least 4 HLA matches with the CB-010 cells, the complete response ratio and the duration of the complete response underperform when compared against Allogene’s Cema-Cel. Thus, in my opinion, failing to add value to the increased cost of manufacturing is likely to be associated with keeping at least 13 batches of CB-010.
Moreover, the HLA matching approach not only is likely to increase COGS, but also is likely to require more than 13 batches of CB-010 when patients from more ethnic groups are included, thus limiting further the revenue potential of CB-010.
Therefore, considering the arguments provided in this analysis, my rating for Caribou Biosciences is a “strong sell”, while I would update my rating for Allogene to a moderate “Buy” based on the positive development of Cema-Cel and the current undervaluation of ALLO shares.
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