Connect Biopharma's Latest Dermatitis Drug Update Fails to Pump Up Shares

Key takeaways:

• Loss-making Connect Biopharma says Phase 3 clinical trials of its CBP-201 drug for atopic dermatitis will begin in second half of this year
• Connect Biopharma shares, which more than halved after its November release of initial Phase 2 clinical trial data, fell further after latest update

By Mia Shanley

China’s Connect Biopharma Holdings Ltd. CNTB is just itching to bring in its first-ever revenue with a drug for moderate-to-severe atopic dermatitis that’s making steady progress in the clinical testing process. But it’s having a hard time winning over investors, even after releasing extra data last week from recent clinical trials. That included details on its plans to start Phase 3 trials – considered the final phase before seeking regulatory approval – later this year.

The new drug, CBP-201, could be a potential alternative to Regeneron’s REGN and Sanofi’s SNY blockbuster drug Dupixent, which brought in 3.5 billion euros ($4 billion) in 2020 and which the drug makers believe has the potential to reach peak annual sales of 10 billion euros. Other pharmaceutical giants like Eli LillyLLY and Pfizer PFE are also in the race with their own treatments for dermatitis.

Connect Biopharma said in its Jan. 5 announcement that additional analysis from its Phase 2b clinical trials showed that CBP-201 could be safely administered at various dosing schedules. It touted one of its schedules in particular – 300 mg once every four weeks (Q4W) – as being a “more convenient” option to current treatments.

“We are very encouraged by the findings from the additional analyses and remain confident on the potential for a highly competitive efficacy and safety profile for CBP-201 coupled with a more convenient and differentiated Q4W dosing schedule,” said Zheng Wei, co-founder and CEO of Connect Biopharma, in the statement.

Despite that upbeat tone, investors were less impressed. The company’s stock fell 7% the day of the announcement last Wednesday, though it later clawed back most of those losses. Still, the shares have lost more than two-thirds of their value over the last 52 weeks as investors remain unimpressed about the new drug’s prospects.

Atopic dermatitis has an estimated lifetime prevalence of up to 20%, is on the rise internationally and is the most commonly diagnosed chronic inflammatory skin disorder. Beyond that market, Connect Biopharma also hopes its product can be used to treat asthma and chronic rhinosinusitis.

But the 10-year old company, which has a pipeline of four drug candidates but no revenues yet, must prove that CBP-201 – its lead product candidate – is at least as good as, or has an edge over, products already on the market. That appears to be the big sticking point for skeptical investors.

Sanofi is moving fast to maintain its dominant position. It has already secured green lights for Dupixent in new markets like China for adolescents suffering from atopic dermatitis and for use as an add-on treatment for patients with asthma by the U.S. Food and Drug Administration.

Connect Biopharma said on a call with analysts after the latest findings that discussions with Chinese authorities were ongoing and so far “positive” and “productive”.

Meanwhile, quarterly sales of Dupixent have nearly tripled in the last two years. Sanofi posted 1.4 billion euros in revenues from the drug in last year’s third quarter, a 55% increase on the same period a year ago, thanks to growth not just in the U.S. where it is dominant, but also in its home European market and also in Japan.

Crowded market

It’s looking increasingly difficult for Connect Biopharma, whose current market capitalization stands at a modest $283 million, to stand out in a sea of pharmaceutical giants. Perhaps reflecting that reality, the company’s shares lost more than half their value after it released initial data about its Phase 2 clinical trial for CBP-201 in November.

The updated findings this month have done little to support the shares, which closed Tuesday at $4.93, not far off an all-time low of $4.06 and just a fraction of the $17 IPO price when the company listed on the Nasdaq last March. Potentially adding to ongoing concerns, Connect Biopharma said it plans to begin phase 3 trials of the drug in the “second half of 2022”, which sounds like a potential slight delay over the expectation for “mid-2022” commencement used in its November statement.

But the bigger concern for investors appears to be the simpler issue of big competition. In December, Pfizer won approval from the European Commission for its abrocitinib drug to treat adults with moderate-to-severe atopic dermatitis. Eli Lilly also said last month its lebrikizumab demonstrated significant skin improvement and itch relief when combined with topical corticosteroids in people with atopic dermatitis in a third Phase 3 study.

Conducting clinical trials during the Covid-19 pandemic has also posed its own challenges, and Connect Biopharma noted that it had a higher patient discontinuation rate during trials. Indeed, the company said on the analyst call that as many as one in five patients had dropped out of parts of its global study as restrictions on movement were implemented.

The company said it expects its retention rate to improve as it pushes into Phase 3 trials and as the pandemic eases.

With investors still on the fence about the prospects for Connect Biopharma’s lead product, the company’s shares are likely to remain under pressure. It has three other drugs in the pipeline – one also in phase 2 trials that targets ulcerative colitis and Crohn’s Disease, and two others that are in earlier stages.

Meanwhile, the bleeding of money will continue. Connect Biopharma, with headquarters in China and operations in the U.S. and Australia, posted an operating loss of 268.4 million yuan ($42.1 million) in the first half of 2021, up sharply from a 62.5 million yuan loss in the same period the previous year, on rising R&D costs related to clinical trials, personnel and lab expenses.

But after raising $204.5 million in its 2021 IPO the company had 2 billion yuan in cash and cash equivalents at the end of the first half of 2021, meaning it has plenty of cash remaining before it would need to raise more.

That may buy the company just enough time until it can start generating its first revenues, which are unlikely to arrive for at least a year or more. Until then, investors will want to see that Phase 3 clinical trials are firmly on track, hopefully showing its dermatitis drug is as good as or more of a standout than what is already on the market.

The company currently trades at a lowly price-to-book (P/B) ratio of just 0.76. That’s less than the P/B of 1.25 for the similarly revenue-less cancer treatment specialist JW Therapeutics (2126.HK), and far less than a P/B of 4.85 for another cancer specialist I-Mab IMAB, which has begun to receive revenue through partnerships but has yet to get any from actual drug sales.