Analyst Says Axovant's Bull Case Is Effectively Over

Following the failure of Axovant Sciences Ltd AXON's late-stage MINDSET study, which evaluated its Alzheimer's treatment candidate intepirdine, Baird said its bull thesis is blown out. However, HC Wainwright said the setback is not the end of the world for the company.

Baird downgraded shares of Axovant from Outperform to Neutral and lowered its price target from $29 to $6. Meanwhile, HC Wainwright reiterated its Buy rating but lowered its price target to $11.

After slumping 74 percent on Tuesday, shares of Axovant were gaining 10.42 percent to $6.99 at last check.

Baird Concedes It Was Clearly Wrong On Intepirdine

Baird analyst Brian Skorney sees the failure of intepirdine as the final blow for the 5-HT6 receptor antagonists, given a string of recent failures. The analyst noted that intepirdine failed on both co-primary endpoints.

The analyst conceded that he was clearly wrong in believing in the mechanism's potential. Also, the analyst noted that the company is now planning to wrap up the study's LTE and does not plan on additional development for intepirdine in Alzheimer's disease.

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Meanwhile, Baird noted that the readout from the ongoing HEADWAY-DLB, or dementia with Lewy bodies, Phase 2b study that evaluated both the 35-mg daily dose and a higher 70-mg daily dose of intepirdine is still on track for the fourth quarter of 2017. The firm views the doses as suggesting the potential for a more substantial improvement in DLB.

"However, we'd emphasize that dementia with Lewy bodies and Alzheimer's disease are very different diseases, and though acetylcholine does play a role in both, read-through isn't clear," the firm said.

Despite the potential the firm sees in DLB, it removed all Alzheimer's sales for intepirdine of up to $3.5 billion at peak from its model, which led to the price target reduction. That said, the firm noted that the company is also developing nelotanserin in Lewy body dementia and RVT-104, which may provide potential for a higher dose of rivastigmine with a more benign safety profile.

Diversification & De-Risking Plan Already In Place

HC Wainwright analysts Andrew Fein and Li Wang Watsek focused on the company's comments on the MINDSET call, wherein it said it is actively looking at both early- and late-stage candidates to replenish its portfolio. The analysts view the comment as suggesting that a diversification and de-risking plan is already in place.

With the spotlight being taken off the frontrunner in the pipeline, namely intepirdine, the analysts said investors should look beyond MINDSET and survey the diverse storefront, which boasts of four compounds in the clinic.

The analysts see the imminent several readouts in DLB and PDD trials as value drivers for the company, going forward. Even as it reiterated its "blank check" value proposition for Axovant, the firm said it believes the core competence of the company resides in its ability to identify and in-license under-appreciated and under-valued assets.

"And with the addition of David Hung at the helm as ship captain (battle-tested from a similar situation), we remain confident that pivoting to the maturing pipeline and potential in-licensing of additional late-stage assets may suffice to steady the ship and steer the company to safe waters," the firm said.

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