2seventy Bio: Maximizing ABECMA’s Potential To Fuel A Turnaround (NASDAQ:TSVT)

2seventy bio (NASDAQ:TSVT) has taken a new strategic route, narrowing its focus squarely on ABECMA, their CAR-T cell therapy developed in collaboration with Bristol Myers Squibb (BMY). The company’s Q4 earnings report and corporate update covered how they were committed to unlocking the full potential of ABECMA relapsed or refractory multiple myeloma (RRMM). At that time, the company was looking ahead to a pivotal moment for ABECMA as the FDA’s Oncologic Drugs Advisory Committee (ODAC) was booked on March 15th, to analyze data backing the therapy’s supplemental Biologics License Application ((sBLA)) for the triple-class exposed RRMM setting. A favorable vote would bode well for the possibility that the FDA would approve ABECMA’s expanded label into the larger third-line setting and improve the therapy’s commercial prospects. The ODAC endorsed ABECMA by an 8 to 3 vote in favor of the CAR-T therapy’s profile. As a result, the market provided TSVT with a noticeable increase in trading volume, pushing the share price from around $4.50 a share to around $5.50 per share in the subsequent trading sessions. However, I still think the market’s reaction is still a bit underwhelming considering ABECMA’s potential label expansion should put the company back on a growth trajectory. Consequently, I am looking to take advantage of the favorable risk-reward the market is offering for TSVT at this time.

I intend to provide a brief background on 2seventy bio and their recent performance. Then, I will go over the ODAC vote and will discuss the implication of a potential approval in the triple-class exposed RRMM setting. Furthermore, I will point out some downside risks that investors should consider when managing their TSVT position. Finally, I highlight TSVT’s risk-reward and how I plan on taking advantage of the ticker’s current valuation.

Background on 2seventy bio

2seventy bio is a cell therapy biotech pushing the edge of T cell therapies pioneering technology and strategic partnerships. With a concentration on bespoke therapies for both heme and solid tumors, 2seventy’s next-gen engineering techniques can be employed across a broad spectrum of cancers and diseases. Furthermore, 2seventy has the ability to swiftly design, manufacture, and test cell therapies, thus, allowing them to improve their treatments, and develop best-in-class products.

2seventy has already had clinical and commercial success with ABECMA (idecabtagene vicleucel)(ide-cel), a CAR T cell immunotherapy that works on the B-cell maturation antigen (BCMA) located on the surface of MM cells, triggering a torrent immune response resulting the eradication of malicious cells. ABECMA became the first CAR T therapy approved for MM and has projected peak sales of $2B-$3B with an equal split in the US rights with Bristol Myers Squibb. Therefore, 2seventy bio and Bristol Myers Squibb share equally in all profits and losses connected to Abecma’s development, manufacturing, and commercialization.

Thus far, the company has reported that ABECMA has posted positive real-world evidence supporting its efficacy and safety, consistent with clinical trials, with a high percentage of patients being hard to treat and ineligible for trials.

In addition to ABECMA, 2seventy partnered pipeline targeting oncology and autoimmune diseases. Collaborations with industry leaders such as Regeneron (REGN) and JW in China. With next-gen clinical programs such as bbT369 for B-NHL and SC-DARIC33 for AML, 2seventy’s pipeline contains cell therapy candidates that can push the boundaries of treatment paradigms.

However, in January, 2seventy bio publicized a strategic realignment that will make them into an ABECMA-centered business. This tactical shift is projected to optimize ABECMA’s value and maximize the market potential. In an effort to narrow their focus, 2sevenity has executed an Asset Sale of its R&D pipeline to Regeneron. Accordingly, 2seventy presumes the realignment to yield annual savings of roughly $150M this year and $200M next year. Furthermore, this decision has moved the company’s projected cash runway past 2027.

Performance and Financials

In 2022, ABECMA pulled in $297M in topline revenue, but new cell therapy competition for MM really hurt ABECMA over the past year. In fact, ABECMA only pulled in $10.68M in Q4 for the company, which was around an 80% decrease year-over-year. The primary culprit was Carvykti another CAR-T therapy from Johnson & Johnson (JNJ) and Legend Biotech (LEGN), which targets BCMA and is approved for patients who have experienced a minimum of four lines of therapy.

Thankfully, the company’s financial position is still strong and they ended the 4^th quarter with $221.8M in cash, cash equivalents, and securities, which puts their cash runway past 2027.

Assessing The Implications of AdCom Vote

As I mentioned in the introduction, the FDA’s Oncologic Drugs Advisory Committee (ODAC) was endorsed by an 8 to 3 vote in favor of ABECMA’s benefit-risk profile. It’s important to note that while the ODAC’s vote holds considerable weight, the FDA is not bound by their decisions. Nevertheless, the FDA typically considers the commendations of its advisory committees in finalizing drug approvals, underscoring the significance of their endorsement in the regulatory process. So, one could say that ABECMA’s sBLA might be approved, signaling a potential inflection point for the therapy’s market opportunity.

How? Why?

ABECMA has already been approved in the U.S. for adults with MM who have undergone four or more prior lines of therapy. The sBLA would expand that label to add the triple-class exposed RRMM setting, which should more than double the therapy’s target population. Moreover, MM is an incurable disease, so it is likely that a large percentage of these patient will get to the 3^rd, 4^th, and even potentially a 5^th line of therapy for MM. Therefore, this label’s potential expansion in combination with ABECMA’s mechanism of action, and demonstrated efficacy in refractory disease situations, will make it a valuable tool in the armamentarium against MM.

Likelihood of Approval

In addition to the ODAC vote, the company’s KarMMa-3 trial achieved its primary objective, establishing a statistically significant enhancement in progression-free survival (PFS) when matched to standard treatments in triple-class exposed RRMM patients. However, statistical analysis revealed a minimal difference in the risk of death between the group treated with ABECMA and the control group. The data suggests that patients on ABECMA had a higher rate of earlier deaths. Still, the median overall survival (OS) for patients treated with ABECMA appears to be superior. Patients survived a median of 41.4 months on ABECMA compared to 37.9 months for those in the control group. This suggests that, on average, patients who received Abecma lived longer than those who did not. In addition, Ide-cel established significantly higher ORR over the standard regimens (42% versus 13%), and a superior complete response (CR) rate was remarkably higher with ide-cel (44% compared to 5%), along with minimal residual disease (MRD)-negative CR rate (35% matched to 2%).

In the AdCom’s materials, the FDA did point out that ABECMA was linked to earlier deaths in patients from their KarMMa-3. Notably, the lead topics of the AdCom were related to the benefit-risk of the therapy.

Furthermore, the FDA believes that Bristol-Myers Squibb’s and 2seventy’s analysis did not provide compelling evidence to support a favorable OS, which is an important endpoint for oncology treatments. According to 2seventy, there was a trend towards improved OS with ide-cel, but because 56% of the subjects in the standard regimen arm received ide-cel upon confirmed progression, the OS analysis was confounded. A pre-specified crossover-adjusted analysis presented a prospective OS benefit with ide-cel, however, the analysis was impacted by patients who never received ide-cel, thus, leading to early OS events.

However, Bristol-Myers Squibb and 2seventy have years of real-world data in sicker lines of therapy MM, which could bolster their case and encourage the FDA to give them the green light for a label expansion.

ABECMA’s data persuaded me to match it to standard therapies. It would appear the decision to include standard care arm patients who have progressed might have hurt the OS analysis, but the real-world data points to an effective treatment once put into the hands of providers. Still, the higher rate of early deaths in the ide-cel arm along with unconvincing OS analysis does not bode well for approval. The FDA has projected that the timeline for the final OS analysis for November of 2024, so, it is possible that the regulatory agency is going to require a fully-mature OS before approval.

So, at the moment, I am leaning towards approval, but I think it would be easy for the FDA to ask for cleaner OS data before giving them approval. Or… Perhaps a black box warning and confirmatory data will suffice.

A Potential Return To Growth

If the sBLA is approved, the company believes that they will resume their growth. I believe that the company’s outlook is believable for several reasons. First, the KarMMa-3 data should encourage providers to consider ABECMA in earlier lines of therapy. The data from the ASH presented exhibited a 51% drop in the possibility of disease progression or death, with dependable benefits detected in the subgroups. Furthermore, ABECMA’s safety profile continued, without new safety warning signs reported. So, I don’t think it will be hard to convince the providers who have used and/or are using ABECMA to move it into earlier lines of therapy.

Second, if the KarMMa-9 data is positive, we could see another expansion of ABECMA’s addressable market to roughly 22K patients.

Third, the company boasts that their manufacturing success rates and turnaround times have been favorable, so they should be able to handle the potential bump in demand that could come with additional label expansions.

Another interesting facet to consider is sequencing T-cell therapies, which might allow ABECMA to be used more than once, or even after another T-cell therapy. Historically, there are some concerns targeting BCMA with different therapies could lead to antigen loss, where myeloma cells would remove the BCMA antigen from their surface, making them resistant to additional BCMA-targeted therapies. However, recent evidence suggests that T-cell exhaustion rather than antigen loss may be the primary mechanism of resistance. Therefore, it could be possible that BCMA-targeted therapies could be administered sequentially without the risk of antigen loss. So, patients who have experienced one BCMA-targeted therapy might potentially see improvements from another BCMA-targeted therapy as a subsequent treatment. In fact, some research has shown that patients who have had CAR T therapy are showing positive responses to their previous lines of therapy. Thus, forming a case for moving CAR T into earlier lines of therapy and possibly being used more than once to bolster the T-cell population.

If 2seventy can gain approval in new indications such as newly diagnosed multiple myeloma (NDMM), it may accelerate towards the projected peak sales figure of $2B-$3B.

The Opportunity

I believe the market has taken the selling pressure too far, and has provided investors with an enticing risk-reward. At the moment, TSVT is trading at around 3x forward price-to-sales for their estimated 2024 revenue, which is a discount compared to the industry’s average of 4x-5x.

Admittedly, 3x is not a huge discount, however, any revenue growth in the coming years should improve that metric. In fact, analysts expect 2seventy to more than double their revenue by the end of the decade and hit roughly 1.5x forward price-to-sales. Surely, the analysts’ revenue estimates are not shocking (not sure they are adjusted for the potential label expansion), but the growth is respectable enough and should improve the firm’s intrinsic value.

Into the bargain, the revenue growth should ultimately yield a move towards a positive EPS as the company has reduced their expenses with the Asset Sale to Regeneron.

At the moment, Street analysts still have the company reporting a positive EPS in 2027, so the company should have enough cash to make it to profitability.

Surely, these are just analyst estimates, but they do illustrate TSVT’s current opportunity.

Risks To Remember

2seventy has many hallmark biotech risks to consider including the possibility that the FDA rejects the label expansion, or that they delay the decision. In addition, the company is still burning cash despite the asset sale.

However, the company has a number of larger risks that could wreck the bull thesis. Primarily… competition. The timing of the advisory committee’s vote on ABECMA coincides with Johnson & Johnson and Legend Biotech securing unanimous backing from ODAC for a label expansion of Carvykti in earlier lines of therapy. So, it is possible that ABECMA is not leading the race in MM despite being on the market longer. Yes, ABECMA is in Phase III for front-line, but the move might only provide a transitory sales boost before Carvykti yet again claims a chunk of their market share, driving another drop in ABECMA sales.

Furthermore, ABECMA still has to deal with other MM drug classes like IMiDs, proteasome inhibitors, monoclonal antibodies, stem-cell treatments, steroids, chemo, HDAC inhibitors, targeted therapies, radiopharmaceuticals, and bisphosphonates. Indeed, the MM drug toolbox needs to be loaded with options due to the incurable nature of the disease. However, the number of selections will most likely prevent ABECMA from dominating the market or holding a steady percentage of the market. Moreover, there is always the threat of next-gen CAR T therapies as well as other T-cell therapies that could make ABECMA obsolete.

Therefore, even if 2seventy and Bristol-Myers Squibb were to get the label expansion, I believe they would have to record growth for at least a year to change the market’s opinion on the ticker. Consequently, I am maintaining my TSVT conviction level at 2 out of 5 at this point.

The Plan

Looking at the TSVT Daily Chart, we can the ticker has broken out of some of the long-term downtrends for the share price, as well as the RSI. In addition, the ticker has climbed above the anchored VWAP from the proximal high.

My initial plan is to add to my dormant TSVT position if the ticker can close above the 200-day EMA. If so, I will make a small addition and will look to make a larger addition upon a retest of support/resistance around $6 per share. Subsequently, I will place sell orders around designated sell targets to move position into “house money” status.

Long-term, I intend to trade the ticker for at least five more years in anticipation that the company will resume a growth trajectory, or will be acquired.