Investment Overview
Fulcrum Therapeutics, Inc. (NASDAQ:FULC) stock has been in free-fall today. It declined by >60%, as management reported that its most advanced clinical-stage product candidate, losmapimod, being developed for the potential treatment of facioscapulohumeral muscular dystrophy (“FSHD”), missed its primary endpoint in a pivotal Phase 3 study.
Specifically, according to a press release issued by Fulcrum today:
The Phase 3 REACH trial evaluating losmapimod in patients with FSHD, did not achieve its primary endpoint of change from baseline in RSA with losmapimod compared to placebo.
In addition, secondary endpoints did not achieve nominal statistical significance. The safety and tolerability profile of losmapimod was consistent with previously reported studies.
There is apparently no way back for losmapimod, as Fulcrum’s CEO Alex C. Sapir commented:
We are deeply disappointed that the REACH trial did not replicate the clinical results observed in the Phase 2 ReDUX4 trial. In light of these results, we plan to suspend the losmapimod program in FSHD.
Analysis – Fulcrum History – Brief Overview
Fulcrum completed its IPO back in July 2019, raising $72m via the issuance of 4.5m shares at a value of $16 per share. Shares reached highs of >$30 in October 2021, but CEO Bryan Stuart left the business in January 2023, replaced by former President and founding CEO Robert J Gould. Chief Medical Officer Christopher Morabito also left Fulcrum in July 2022. He was replaced by Jeff Jacobs later that year. Current CEO Alex Sapir was appointed in May 2023.
Fulcrum has a second clinical stage product, pociredir, which is being developed for the potential treatment of sickle cell disease (“SCD”). However, this asset was subject to a clinical hold placed by the FDA based on “previously reported preclinical data.”
That clinical hold was lifted in August 2023, but by this time, shares had reached a low of <$4, and Morabito’s replacement as CMO, Santiago Arroyo, had already resigned, as had Chief Financial Officer (“CFO”), Esther Rajavelu.
Fulcrum stock had begun to rise, however, and the company appointed a new CEO, Patrick Horn, in March, while hopes for losmapimod remained high. This was given that:
Results reported from the Phase 2b ReDUX4 trial demonstrated slower disease progression and improved function, including positive impacts on upper extremity strength and functional measures supporting losmapimod’s potential to be a transformative therapy for the treatment of FSHD.
In May, Fulcrum made a deal with French Pharma giant Sanofi (SNY). The terms specified that Sanofi would assume ex-US rights for the development and commercialization of losmapimod, in exchange for an upfront payment to Fulcrum of $80m, and up to $975m in potential milestones, plus royalties on ex-US sales.
Nothing suggests a pivotal stage clinical study will be successful more than a Big Pharma making a substantial upfront payment for a piece of the pie. In May this year, further validation came from analysts at The Goldman Sachs Group, Inc. (GS), who upgraded Fulcrum stock to a “buy,” stating it was positive about the upcoming data readout from the pivotal Phase 3 study of losmapimod – the REACH study.
Goldman speculated that peak revenues from losmapimod could reach $1.8bn, which certainly made a strong buy case for Fulcrum stock trading ~$7 at the time, implying a market cap valuation of just over $1bn. Analysts at Bank of America Corporation (BAC) also raised their price target, from $5 to $10, anticipating a successful Phase 3 readout for losmapimod.
Today’s Fallout – Where Did It All Go Wrong?
Announcing Q2 2024 earnings – a net income of $55m, thanks to the Sanofi deal, operating expenses of $27.5m, and a cash position of $273m, Fulcrum also reported:
- As of June 30, 2024, 234 patients had completed the Part A 48-week treatment phase of the clinical trial, of which 232 chose to enroll in the Part B Open Label Extension phase.
- Fulcrum is on track to complete the activities agreed upon with the U.S. Food and Drug Administration (FDA) to define the clinical meaningfulness of RWS, the primary endpoint of the REACH trial, at the time of reporting topline data.
In mid-August, Fulcrum also announced the appointments of Isabel Kalofonos as chief commercial officer and Heather Faulds as chief regulatory affairs & quality assurance officer, presumably to assist with a potential full commercial launch of losmapimod.
Immediately before today’s results, Fulcrum’s share price traded at nearly $9 per share, and it seemed as though a positive readout from the REACH study was more likely than not. However, in its press release today, management broke down the results as follows:
- Reachable Workspace (“RWS”): Participants receiving losmapimod demonstrated a 0.013 (±0.007) improvement in RSA at week 48 compared to placebo patients who showed a 0.010 (±0.007) improvement in RWS (p-value = 0.75).
- Muscle Fat Infiltration (MFI) as measured by Magnetic Resonance Imaging (MRI): Participants receiving losmapimod demonstrated an increase of 0.42% in MFI at week 48 compared to participants receiving placebo who showed an increase of 0.576% in MFI (p-value = 0.16).
- Shoulder Abductor Strength as measured by Hand-Held Dynamometry: Participants receiving losmapimod demonstrated a 9.63% improvement in abductor strength at week 48 compared to a 2.24% improvement in abductor strength seen in the placebo arm of the study (p-value = 0.51).
- Patient Reported Outcomes (PRO): Across the two PRO secondary endpoints in the REACH study, Patient Global Impression of Change (PGIC) and the Neuro QoL Upper Extremity, there were no statistically significant differences observed.
- Safety and Tolerability: The rate of treatment-related adverse events was similar in the two treatment arms, and there were no treatment-related serious adverse events in participants receiving losmapimod.
Chief Medical Officer Horn was quoted in the press release as follows:
These results in patients receiving losmapimod when compared to baseline were similar to those observed in our Phase 2 study. However, in contrast to what was seen in the ReDUX4 study as well as what has been reported in other FSHD studies, the patients receiving placebo in REACH did not show a decline in functional status as measured by RWS and shoulder dynamometry over the 48 weeks of the study.
It seems the CMO may have been suggesting that an unexpectedly strong performance in the placebo arm ultimately derailed the success of the study. However, if that were the case, with nearly $300m in cash available, why was Fulcrum not determined to persevere with its lead candidate, rather than opting to discontinue the program?
Looking Ahead – Is There A Contrarian Trade Opportunity In Play?
There are no currently approved therapies for FSHD, one of the most common forms of muscular dystrophy, with an estimated patient population of ~30k in the US alone.
According to Fulcrum’s 2023 annual report/10-K submission:
Roche Holding AG (OTCQX:RHHBY) is evaluating RO7204239, a myostatin inhibitor, in a Phase 2 study in adults with FSHD. Avidity Biosciences, Inc. (RNA) is evaluating AOC 1020, a siRNA antibody-oligonucleotide complex, in a Phase 1/2 clinical trial in adults with FSHD. Arrowhead Pharmaceutical is evaluating ARO-DUX4, an antibody-oligonucleotide conjugate, in adults with FSHD in a Phase 1/2a trial.
Despite the competition, Fulcrum seems to have substantially further down the clinical study process than its rivals, but perhaps the misses on secondary endpoints, as well as the primary, made the prospects of turning results too unpalatable.
Fulcrum acquired losmapimod from Pharma giant GSK plc (GS), who were prepared to let the drug go after failed late-stage studies in acute coronary syndrome and chronic obstructive pulmonary disease (“COPD”).
Fulcrum will presumably now switch its attention back to its other clinical-stage candidate, pociredir. The last update given on this candidate was in the Q2 earnings release, in which management stated it:
Continues to make progress in the Phase 1b trial evaluating pociredir in patients with sickle cell disease (SCD). Cohort 3 of the Phase 1b trial will evaluate pociredir at the 12 mg once daily dose, followed by Cohort 4 at the 20 mg once daily dose. Each cohort is expected to enroll approximately 10 patients.
SCD is becoming a crowded market. There have been approvals of gene therapies Casgevy and Lyfgenia, developed by Vertex Pharmaceuticals Incorporated (VRTX) and CRISPR Therapeutics AG (CRSP), and bluebird bio, Inc. (BLUE). A bit of more concern to Fulcrum is likely Pfizer Inc. (PFE), who paid nearly $6bn to acquire Global Blood Therapeutics in 2023, giving it access not only to approved oral therapy Oxbryta, but also:
2 other investigational assets focused in SCD including GBT021601 (GBT601) and inclaclumab, both of which have received Orphan Drug and Rare Pediatric Disease designations from the U.S. Food and Drug Administration.
Additionally, it is theoretically possible (so far as I am aware) that Sanofi could continue to push for approval of losmapimod in Europe, perhaps running its own late-stage study – after all, the Phase 3 wipeout will not sit well with Sanofi’s “Play to Win” strategy.
Concluding Thoughts – A Devastating Blow For Fulcrum – I Don’t See A “Dead Cat Bounce” Here
At the time of writing, Fulcrum’s market cap valuation is a healthy $550m, which is less than $300m more than the current cash position. However, is there ~$300m of value in the SCD program – currently at the Phase 1b stage – plus whatever value can be extracted from losmapimod?
For my money, it’s difficult to make the case that there is a contrarian trade opportunity in play here, with management expressing no plans to try to re-evaluate the REACH study data. Likely, Sanofi is ready to write off an $80m outlay on a failed drug – fairly cheap, by drug development standards.
The only lingering question for me is what persuaded so many Wall Street analysts to express their faith in a positive study data readout when losmapimod had a history of failure. The drug actually failed a Phase 2 study during its time in Fulcrum’s stable.
At the end of the day, in biotech, you either win or you learn. Fulcrum, its management team, and its shareholders will have done some learning today. However, it is seemingly unlikely to be applied to an attempted revival of the company’s lead drug, even if the placebo arm in REACH outperformed expectations.
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