Centessa Pharmaceuticals holds the record for the fastest biotech IPO. The company was created in early 2021, armed with gobs of venture capital, acquired 10 startups with unique pipelines and technology platforms, and then became a publicly traded company only 10 months later. No drug developer has done it faster.

Speed isn't everything, as investors have found out the hard way.

The company's hub-and-spoke model has been mostly a dud so far. Centessa Pharmaceuticals has culled half of the 16 pipeline programs it boasted in late 2021. These "go/no-go" decisions are a routine part of drug development. It's frustrating in the short term, but in the long run investors would rather have management stop development of a drug with a low probability of success (POS) than waste resources on an asset that's likely to fail.

Still, investors would be justified having less trust in management following the lixivaptan debacle. Management hyped up phase 2 clinical data for the asset, which was being developed as a treatment for a rare form of kidney disease with supposedly lower liver toxicity compared to an approved blockbuster drug. The phase 3 clinical trial for lixivaptan was discontinued shortly after starting due to… liver toxicity.

It's not all bad news. The upside of nixing half your pipeline programs is it extends the cash runway. Centessa Pharmaceuticals held $445 million in cash at the end of September 2022, which it estimates can fund operations into 2026. That's plenty of runway for crossing multiple de-risking events for the remaining assets, including the lead drug candidate, SerpinPC, in hemophilia.

New data delivered at the American Society of Hematology (ASH) Annual Meeting on December 10, 2022 were promising, but a closer look at the nuances suggests SerpinPC isn't a slam dunk asset heading into a pivotal phase 3 clinical trial.

The Hemophilia Treatment Landscape, Explained

Hemophilia is a group of rare blood disorders characterized by the body's inability to produce clotting factor proteins. These clotting or coagulation proteins are simply referred to as factor VIII (8) or factor IX (9), where insufficient factor VIII drives hemophilia A and insufficient factor IX drives hemophilia B. Lower levels of clotting factors result in more severe cases of hemophilia, which is characterized by spontaneous internal bleeding in joints, organs, or the brain and external bleeding from minor cuts and injuries. Both types of bleeding can be fatal.

Of course, biology is complex. Metabolic pathways can be thought of as nature's Rube Goldberg machines.

• These clotting factors play an important role in maintaining levels of an enzyme called thrombin.
• Thrombin maintains proper levels of an inactivated enzyme called protein C.
• Low levels of clotting factors result in low levels of thrombin. Without these checks and balances, inactivated protein C becomes activated protein C (APC). High levels of APC drive bleeding events common in hemophilia and other clotting disorders.

Current treatments aim to provide clotting proteins via intravenous infusion, but aren't entirely effective at reducing bleeding events and are very expensive to administer. Patients often develop neutralizing antibodies (NAbs), referred to as inhibitors in hemophilia treatment settings, when receiving intravenous protein replacement therapies.

Hemgenix, a recently approved gene therapy from CSL Behring, aims to provide cells with the ability to produce factor IX proteins for many years. The one-time treatment is the most expensive drug product in the world, priced at $3.5 million, but could still save the U.S. healthcare system $5 million per patient treated due to the high cost of factor IX replacement therapy. However, the high cost and special manufacturing requirements make the gene therapy off limits for individuals in developing nations, where most humans with hemophilia B live.

Hemlibra, an antibody treatment from Genentech (Roche), provides long-term relief for individuals with hemophilia A (meaning the treatment is dependent on factor VIII deficiency). Studies conducted in individuals with and without inhibitors (NAbs) demonstrated the ability to significantly reduce the number of bleeding events by at least 96% over 24 weeks. Roughly 56% of treated patients experienced no bleeding events whether dosed weekly, biweekly, or monthly.

Hemlibra disappointed with third-quarter 2022 revenue of "only" $1.03 billion. It's one of the best-selling drugs in the world.

Centessa Pharmaceuticals is zigging where everyone else in the competitive landscape is zagging. Rather than target factor VIII or factor IX, SerpinPC neutralizes APC independent of clotting protein or thrombin levels, which provides unique flexibility to treat both hemophilia A and hemophilia B with the same treatment.

If you thought the explanation above was complicated, then just know I didn't even mention extrinsic and intrinsic tenase enzymes! This graphic leaves off a few other molecules, but the thrombin-APC axis is most important. Image Source: Centessa Pharmaceuticals.

Long-Term Data Readout: The Good and The Bad

The phase 2 clinical trial data for SerpinPC weren't necessarily bad, but they're awkwardly positioned in the competitive landscape.

Investors previously had phase 2a clinical data demonstrating the safety and efficacy of three dose levels of SerpinPC administered every four weeks for 6 months of total treatment.

• The annualized bleeding rate (ABR) measures the number of bleeds expected in a 12-month period, extrapolated from shorter periods.
• The spontaneous joint bleeds ABR measures the same metric specifically within joints, a key source of bleeding in hemophilia patients.
• It's important to note that phase 3 clinical trials might require a different endpoint measuring the number of individuals with zero bleeding events – a much higher bar.

The phase 2a clinical trial demonstrated that individuals receiving the highest dose (1.2 mg/kg once monthly) achieved a 94% reduction in ABR compared to baseline. Lower doses delivered less impressive results (ABR reductions of 76% for the low dose and 69% for the medium dose), but the goal of the phase 1/2 study was to determine appropriate dose levels for the phase 3 clinical trials.

Centessa Pharmaceuticals presented long-term follow-up data from the open-label extension (OLE) portion of the phase 2a study at American Society of Hematology (ASH) Annual Meeting in December 2022. These data demonstrated that patients maintained responses after 18-months of treatment, which is markedly more impressive than the previously announced 6-month data described above.

Individuals received either a fixed 60 mg dose once monthly (equivalent to 0.8 mg/kg) or 1.2 mg/kg twice monthly. The median ABR reduction from baseline was 83% and 93%, respectively. SerpinPC was well tolerated with no significant signs of NAb formation in this larger group of individuals treated for a longer duration.

Although the results swipe away uncertainty regarding the duration of responses and formation of NAbs, investors cannot be completely satisfied. The results from the OLE of the phase 2a study of SerpinPC were primarily driven by individuals with hemophilia A. However, Centessa Pharmaceuticals has chosen to design its phase 3 study around individuals with hemophilia B to navigate around the strong competitive positioning of Hemlibra, at least for the initial market launch.

Of the 21 individuals in the 1.2 mg/kg dose cohort of the phase 2a study, only four (4) had hemophilia B. Therefore, the development path is pretty risky, as it isn't building upon foundational learnings from previous stages of development.

Note: Open in a new tab for a larger and higher quality image. Image Source: Centessa Pharmaceuticals.

I've spoken with CEO Dr. Saurabh Saha. I would describe him as one of the best CEOs in the precommercial drug development landscape. Nonetheless, the development path for SerpinPC seems a little forced and perhaps borne of necessity.

As in, after culling most programs in development, SerpinPC is the most advanced and best-positioned to deliver short-term shareholder value. The value is that it strings Wall Street along rather than pointing them to preclinical assets. My view is this asset will likely serve as a bridge to the more important LockBody portfolio.

If and when SerpinPC is approved, then it's likely to be a relatively small player in the hemophilia landscape. If the LockBody portfolio disappoints, too, then Solt DB Invest will likely wind down coverage of Centessa Pharmaceuticals.

However…

Forecast & Modeling

I'll dig into the LockBody portfolio in a dedicated article, but there's a thick layer of irony for SerpinPC. That's because Hemlibra is the most successful bispecific antibody globally as of this writing. The LockBody platform is a twist on bispecific antibodies that could enable important advances over currently available technologies.

• A monoclonal antibody such as Humira or SerpinPC can attach to a single target.
• A bispecific antibody such as Hemlibra or LB-101 (Centessa Pharmaceuticals) can attach to multiple targets. This allows for dual engagement of molecular targets, sometimes on different cells altogether.

Although the industry is spending significant resources developing and hyping cell therapies (whether CAR-T or NK), bispecific antibodies will always have a significant advantage in cost and treatment setting. Nearly 80% of cancers are treated in the community setting, which is off limits to cell therapies. Bispecific antibodies are also lower cost and come with significantly lower safety risks compared to cell therapies.

The first drug candidate from Centessa Pharmaceuticals' LockBody platform is LB-101, which is a dual inhibitor of PD-L1 and CD47. Animal studies suggest LB-101 may significantly outperform atezolizumab in shrinking tumors. The irony strikes again – as atezolizumab is commercially known as Tecentriq from Roche, part of the company's one-two punch alongside Hemlibra.

Note: Open in a new tab for a larger and higher quality image. Image Source: Centessa Pharmaceuticals.

Animal studies aren't very meaningful and don't drive shareholder value, but bispecific antibodies aren't an exploratory therapeutic modality in 2023. We know they can work if properly designed. If the early phase 1 results for LB-101 are impressive, then they may be reproducible across the platform. Considering bispecific antibody products generate billions of dollars in commercial revenue, and recently up to $5 billion in licensing milestone potential, Centessa Pharmaceuticals may not be burdened by its failed hub-and-spoke model for too long.

Margin of Safety & Allocation

(No change.)

Centessa Pharmaceuticals is considered a Growth (Speculative) position. The current margin of safety range is based on our models for the pipeline, primarily reflecting the value of LB-101 in oncology:

• Current Price (market close February 7): $3.72 per share
• Likely Undervalued:         <$3.17 per share
• Midpoint:                           $4.23 per share
• Likely Overvalued:           >$5.29 per share
• Allocation Range:              Up to 2.5%

Centessa Pharmaceuticals reported 94.60 million shares outstanding as of October 31, 2022. The margin of safety range above doesn't include dilution due to a strong cash position.

Further Reading

• September 2021 press release from Centessa Pharmaceuticals announcing phase 2a clinical trial results for SerpinPC
• December 2022 press release from Centessa Pharmaceuticals announcing phase 2a OLE results for SerpinPC
• December 2022 press release from Summit Therapeutics announcing $5 billion licensing deal for a single bispecific antibody asset, including a $500 million upfront cash payment
• Hemlibra results for patients with hemophilia A and with factor VIII inhibitors (NAbs)
• Hemlibra results for patients with hemophilia A and without factor VIII inhibitors (NAbs)

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