The FDA's Adcom panel voted on Friday to approve the use of Aimmune Therapeutics (AIMT)'s peanut desensitization therapy (AR101, proposed trade name Palforzia) in children and teens with peanut allergy. The stock was up 16% after hours on Friday and I expect it to continue the upward momentum over the next 2-3 months till the PDUFA date in January.
I have covered the stock extensively in the past and have been following it for past 3-4 years since it popped to $40+ after rival DBV Technologies (DBVT)'s patch technology trial failure in the same indication. Aimmune’s stock fell to below $20 over the past year after some concerns were raised about whether the therapy has advantages over just avoidance of peanuts (treatment arm in Phase 3 had various degrees of anaphylaxis reactions, higher than the placebo arm). The stock also built up a high short interest of 31%, and the investor community was largely leaning towards a negative vote for the AdCom, especially for the safety vote. I have been long the stock since it was below $20 and always had confidence in a positive outcome in the Adcom.
Peanut allergy is the most serious of food allergies and affects approx. 1.2 million children and adolescents in the U.S. It is the most common food allergy in children. Approx. 100-200 deaths are seen annually in the U.S. due to anaphylactic reactions due to peanut allergy (mostly accidental exposures, for example, bakery products containing peanuts). Peanut allergy has a significant effect on the quality of life of the affected children as well as their families. Approx. 84% of families reported changing their family traditions due to the allergy, 21% of children had to change schools. In addition, children report missing childhood activities like camps, school trips, and are bullied in school. Peanuts can be surprisingly found due to cross-contamination even when not mentioned, for example, in Asian food restaurants, pancakes, sunflower seeds, ice creams, specialty pizzas, sweets, etc. Accidental exposure to these products in a child/adolescent with severe peanut allergy can trigger a life-threatening anaphylactic reaction.
While allergists usually suggest avoidance after diagnosing peanut allergy, it is clear that avoidance is not a solution and accidental exposure is common. Food allergy desensitization by exposing the affected child to small amounts of peanut flour (usually sourced from local grocery stores) has been practiced by some large allergy centers, however in the absence of a standardized dosing regimen for desensitization and the risk of a severe anaphylactic reaction, most community allergists prefer to avoid using this off-label, unstandardized method of peanut allergy desensitization and suggest allergen avoidance. Most clinical practice guidelines recommend against using unapproved oral immunotherapy. No FDA approved treatments currently exist for this food allergy. In the absence of an FDA approved therapy, families of the affected children in constant fear of accidental exposure, have to change their lifestyle (for example, avoiding cruises, carrying Epipens all the time and avoiding certain restaurants. There is a clear unmet need for an FDA approved oral immunotherapy for peanut allergy.
In a Phase 3 PALISADES trial (results later published in the prestigious New England Journal of Medicine) of Aimmune Therapeutics’ standardized oral immunotherapy, now named as Palforzia, 67% (95% confidence interval = 53%-73%) of the study participants (age 4-17 years, with baseline allergy to 100 mg peanut protein, equivalent to 1/3rd of a peanut kernel) were able to tolerate 600 mg of peanut protein (equivalent to 2 peanut kernels) after 6 months vs. 4% in the placebo arm (p<0.001).
Participants Who Tolerated at Least the Single Dose in the Double-Blind, Placebo-Controlled Food Challenge at Trial Exit (Intention-to-Treat Population). (Source)
(Adverse Events Affecting More Than 5% of Participants 4 to 17 Years of Age in Either Group, According to Trial Phase)
Investor concerns with the safety data were related to a higher incidence of serious adverse events and higher incidence of withdrawal in the treatment arm vs. placebo. Also, the incidence of anaphylactic reactions was higher in the treatment arm compared to the placebo.
To understand the safety data in proper clinician point of view, it is expected that the side effects like gastrointestinal, GI side effects or anaphylaxis will be higher in the treatment arm. The goal of the treatment arm is desensitization and so these participants are being given small amounts of peanut flour in escalating doses, so that their immune system is able to tolerate higher amounts of peanut protein on any accidental exposure, usually with a less severe grade of anaphylaxis due to desensitization. These participants were given peanut, which their bodies have a baseline allergy to, so it is expected that their bodies will show some intolerance to peanut protein which manifested as GI side effects or in some cases, anaphylaxis reactions which were then promptly treated since the desensitization was done under monitored setting with treatment like Eipen at the standby. The placebo arm was fed bland powder, so it is obvious that this arm will less of the intolerance symptoms seen in the treatment arm.
The goal of food allergy desensitization is to prevent serious (and potentially fatal) anaphylaxis due to accidental exposure (especially when the treatment of anaphylaxis like Epipen is not immediately available or the first responders like parents or school teachers are not properly trained to administer EpiPen). A severe anaphylaxis reaction can cause immediate upper airway obstruction due to laryngeal edema and cause a respiratory arrest. If the treatment like Epipen is delayed even for a few minutes, the brain tissue starts dying in the absence of oxygen and irreversible brain damage (called hypoxic encephalopathy) can result, with the affected person ending up ventilator-dependent like a vegetable for the rest of his life. The anaphylaxis reactions seen during the desensitization process for AR-101 were seen in a monitored setting (inside a hospital where the therapy was administered), with immediate treatment like Epipen available as a standby. Moreover, with desensitization, the severity of anaphylaxis is expected to decrease (theoretically, the desensitization process is depleting the body’s allergen-specific IgE, which causes the allergic reaction to manifest). Real-life experiences shared at the AdCom by multiple parents whose children participated in the Phase 3 PALISADES trial prove this. Parents shared their stories on how their children were so sensitive to peanuts that they could get a severe anaphylactic reaction even on touching peanut butter, etc. and during the trial, any anaphylaxis reactions even if manifested were mild to moderate, for example, hives on the chest, mild eye edema, etc. in which case just administering an oral antihistamine drug like Benadryl (+/- prednisone) is enough to resolve the symptoms. Even if the participant needed Epipen, the help was immediately available and the rescue treatment could be readily administered. I have also seen aspirin desensitization being done in my clinical practice years (where I ran an 18-bed ICU). The patients undergoing aspirin desensitization were admitted to an ICU where aspirin was given in increasing doses under the monitored setting. The goal was to allow the patients to tolerate at least 75-81 mg of aspirin which is a standard of care for secondary prophylaxis in coronary artery disease patients. The AdCom panel was also convinced with the safety profile after the FDA presenter made a case that the therapy will be administered in a controlled, monitored setting like a hospital (not at home by a parent) and voted 8-1 in favor of the safety of the therapy.
It is important to mention here that Aimmune is also conducting a longer-term, open-label extension study of Palforzia in these participants. The goal of the study is to collect long-term safety data, for example, to study if the adverse reactions decrease with time and how long the therapy is needed (the Phase 3 study studies the participants for 6 months only). The company believes that with time, it could be possible to decrease the frequency of administration.
So what is next, now that the FDA Advisory Committee has voted in favor of approving Palforzia? The stock opened up approx. 16%. Looking at the options data, there is a high open interest at $30 strike, Sept. 20 expiration calls which could act as a roof for the stock price till this date. After the Sept. options expiration, I expect the stock price to break above $30 level and move towards $40 by the end of October. The stock’s all-time high is around $40, which is where the market was pricing it after DBV technologies’ Phase 3 trial failure. Now, with the positive AdCom and the probability of approval having increased further (from an average of 65% to around 90%), I expect the stock price to at the minimum reach all-time high level (I am adjusting for the REMS label at present), but once the longer-term safety data is available in 1-2 years and the use of Palforzia expands to smaller community hospitals as well, the stock could go even higher. As regarding the target market size, using an input of $5000/year/patient (same as other oral immunotherapies like pollen, etc.) and target U.S. market of 1.2 million, this could be a $6 billion/year revenue opportunity in the U.S. alone. Even at just 50% market share, it could translate into $3 billion/year revenue opportunity for Aimmune. The current market cap is $1.6 billion (with $243M in cash reserves at Q2 end).
Risks in the investment include FDA unexpectedly giving a CRL (though I assign it a low probability after positive AdCom and strong public support in favor of approval), a capital raise before PDUFA which could put downward pressure on the stock price, slow uptake of the therapy after FDA approval due to REMS, etc. Investors need to properly diversify their portfolio when investing in a pharmaceutical company which does not have revenue yet.
This article represents my own opinion and is not a substitute for professional investment advice. It does not represent a solicitation to buy or sell any security. Investors should do their own research and consult their financial advisor before making any investment. Investing in equities, especially biotech stocks has the risk of significant losses and may not be suitable for all investors. While the sources of information and data in this article have been checked, their accuracy cannot be completely guaranteed.
I/we are long AIMT.