Depending on how the next few weeks unfold, Selecta Biosciences could emphatically alter its development roadmap – or continue frustrating investors with a lack of funding and leisurely progress.

The precommercial drug developer is expected to announce results for its first-ever phase 3 clinical trial during the first quarter. A positive outcome would not only validate its novel technology platform, but could greatly ease the company's perpetual need for funding. Assuming partner Sobi proceeds with a registrational filing and SEL-212 earns regulatory approval in chronic refractory gout, Selecta Biosciences would collect royalties on commercial sales beginning in the second half of 2024. A closer look at the regulatory timeline and cash runway suggests the company might be tempted to sell the royalty stream for a significant upfront cash payment.

A negative outcome wouldn't have a durable impact on the medium- to long-term potential, but it would subject shareholders to more uncertainty regarding funding and the pace of development for the core immune tolerance technology platform.

Why The DISSOLVE Studies Are Designed for Success

The lead drug candidate from Selecta Biosciences, SEL-212, is a combination therapy comprising the enzyme pegadricase and the immune tolerance tool ImmTOR. The experimental treatment is being developed to help individuals with severe gout control serum uric acid (serum = "circulating in the blood").

Gout is a metabolic disorder caused by the body's inability to break down uric acid, which forms urate crystals in an individual's joints leading to painful gout attacks. These crystalline deposits are called tophi. The overproduction of uric acid and accumulation of urate crystals can also lead to high blood pressure, diabetes, and chronic kidney disease.

Pegadricase is an enzyme that can supplement the body's ability to break down uric acid. The prefix "peg-" refers to polyethylene glycol (PEG), which helps to increase the duration of the drug in the body. The suffix "-ase" usually denotes an enzyme. In other words, pegadricase is a long-acting enzymatic therapy capable of breaking down uric acid.

However, pegadricase is highly immunogenic. Although close to 100% of treated individuals achieve control of serum uric acid levels within the first week of treatment, only 15% of individuals maintain control after four weeks. That’s because the immune system creates neutralizing antibodies (NAbs) to the enzyme, which reduces its effectiveness over time.

Selecta Biosciences combines pegadricase with an immune tolerance tool called ImmTOR that reduces the formation of NAbs. Previous clinical trials have demonstrated that roughly 60% of individuals are able to maintain control of serum uric acid levels with continuous treatment of the combination treatment.

The nuances of the competitive landscape have bolstered the company's confidence in its approach. Selecta Biosciences designed the phase 2 clinical trial to compare SEL-212 against Krystexxa (pegloticase) from Horizon Therapeutics rather than placebo. The primary endpoint was the number of patients who achieved a response, defined as serum uric acid levels below 6 mg / dL at least 80% of the time during months 3 and 6 combined.

The study missed statistically significant superiority on combined response rates to Krystexxa by a single patient (p-value of 0.056). It's important to acknowledge the study was initiated before the coronavirus pandemic started and completed during the initial stages of the pandemic, which led to inconsistencies in patient completion and data reporting. This especially impacted the month 6 data and endpoints, but had less of an impact on the month 3 data and endpoints. In fact, the U.S. Food and Drug Administration (FDA) made the unusual decision to allow the company to change its data analysis protocols after the study had started. The company reported two datasets for all endpoints as a result:

• Intention-to-treat (ITT) captured all patients, including those that dropped out for any reason such as logistical challenges during pandemic lockdowns.
• Per-protocol (PP) captured only patients that completed the study as intended, which adjusts for patients that dropped out due to logistical challenges during the pandemic lockdowns.

Despite missing statistically significant superiority to Krystexxa, the trends favored SEL-212 on a PP basis. Statistical significance for this study was defined as a p-value of 0.05 or lower.

Data Source: Press release.

The results are more impressive considering the dosing convenience of SEL-212, which was dosed once monthly compared to Krystexxa's twice monthly dosing.

The phase 3 studies of SEL-212, DISSOLVE I and DISSOLVE II, are evaluating similar dose ranges of the enzymatic therapy at month 6 compared to placebo. The lack of an active comparator suggests a successful outcome is likely.

In other words, the phase 3 studies have a very similar design to the phase 2 study -- similar doses, evaluating patients at month 6, and measuring the same endpoints -- except instead of comparing to another treatment for gout, they're comparing SEL-212 to placebo. The asset outperformed Krystexxa, so it should be able to outperform placebo.

However, current events could once again inject uncertainty. The initially enrolled patients were from Eastern European countries, mainly Ukraine and Russia (what are the chances?). After Russia's invasion of my ancestral homeland, Selecta Biosciences responded by quickly activating enrollment sites in the United States and enrolling more patients than required, which delayed the clinical trial's completion but should avoid the severe impact observed from the phase 2 study.

A successful outcome would validate Selecta Bioscience's technology platform in immune tolerance and, more importantly, create the opportunity to shore up the company's financial position.

Krystexxa generated $500 million in revenue during the first nine months of 2022, an increase of 27% from the year-ago period. A safer, more effective, and more convenient treatment option could be commercially competitive, but Horizon Therapeutics is developing tweaked formulations to reduce dosing frequency and increase response rates. That, combined with the robust commercial infrastructure in place and pending acquisition by Amgen, means Krystexxa will be difficult to dislodge in the market.

Nonetheless, Sobi acquired the rights to SEL-212 for $100 million prior to the phase 2 data readout and is responsible for commercializing the drug candidate should it earn FDA approval. Although Selecta Biosciences could receive milestone payments for near-term clinical and regulatory events, the business and shareholders would be better off monetizing the royalty stream for >$100 million in cash. Such a transaction could extend the cash runway through 2026 or 2027 and refocus Wall Street's attention on the core immune tolerance pipeline.

Forecast & Modeling Insights

Solt DB Invest's best-case scenario includes successful topline data for SEL-212 in the next few weeks and the monetization of the asset's royalty stream for a significant upfront cash payment. The focus would then shift to the core pipeline spanning enzymatic therapies, gene therapies, and autoimmune diseases.

The most immediate challenge for investors is the immaturity of remaining assets, which will significantly crimp news flow and increase volatility near the end of 2023.

Selecta Biosciences has only three known wholly-owned assets. Only one has a name and has advanced to clinical trials.

• (Gene Therapy): SEL-302 is an adeno-associated virus (AAV) gene therapy candidate being evaluated to treat methylmalonic acidemia (MMA). The asset began a phase 1/2 clinical trial in late 2022. However, the regulatory reality of AAV gene therapy means it will take nearly two years to treat the first six patients. Investors will see preliminary data for the first two to three patients by the first half of 2024, including all-important data from the first one or two patients ever treated with AAV gene therapy and immune tolerance. The data could determine if the FDA allows the first ever redosing of an AAV gene therapy. Wall Street could send shares sharply higher or lower pending the preliminary data readout.
• (Enzymatic Therapy): An unnamed asset is being developed to treat IgA nephropathy (IgAN), a type of kidney disease. Selecta Biosciences tapped both IGAN Biosciences and Ginkgo Bioworks to develop an enzyme that would be paired with immune tolerance, choosing the former in December. Preclinical studies are underway.
• (Autoimmune Disorders): An unnamed asset is being developed to treat primary biliary cholangitis (PBC), a type of liver disease. Preclinical studies are underway.

One reason for the slow pace of progress and lack of names for assets is the transition from ImmTOR to ImmTOR-IL. The latter is a next-generation immune tolerance tool that combines ImmTOR with an engineered interleukin-2 (IL-2). Early studies suggest it could drive up to 3x higher antigen-specific regulatory T cell (Tregs) levels than ImmTOR alone, while reducing the dose of ImmTOR used. That could enable less frequent dosing and fewer side effects, which are crucial considerations for chronically managed conditions spanning metabolic disorders (enzymatic therapy pipeline) and autoimmune disorders. The advantages could also generate greater value when outlicensing the tool to gene therapy collaborators.

As we did with Krystal Biotech and the upcoming approval decision for Vyjuvek, Solt DB Invest will provide modeling scenarios for the preliminary SEL-302 data readout in late 2023 or early 2024. The margin of safety range could significantly increase or decrease pending the initial clinical results of the gene therapy asset.

Of course, investors must focus on the near-term data readout for SEL-212 first. Solt DB Invest will provide an update following the announcement.

Margin of Safety Range & Allocation

(No change.)

Selecta Biosciences is considered a Growth (Speculative) position. The current Margin of Safety for the company is below:

• Current Price (market close January 13):  $1.69 per share
• Modeled Fair Valuation:   $2.03 per share
• Allocation Range:              Up to 5%

Selecta Biosciences reported 153.031 million shares outstanding as of October 28, 2022. The margin of safety range above assumes 172.3 million shares outstanding to account for dilution from outstanding warrants.

Further Reading

• January 2023 research note introducing immune tolerance
• January 2023 press release providing a business update and early outlook for the calendar year
• January 2023 investor presentation
• September 2020 press release from Sobi and Selecta Biosciences announcing phase 2 results for SEL-212

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