On July 9th, Altimmune (ALT), announced they will acquire the privately held Spitfire Pharma, Inc. in a deal that could be worth up to $93M. As a result, Altimmune adds Spitfire’s SP-1373 to the company’s growing pipeline. SP-1373 is a “novel GLP-1/glucagon dual agonist that addresses obesity and metabolic dysfunction, primary causes of NASH” and will now be titled ALT-801 under the Altimmune banner. Although Altimmune has been publicizing their intent to acquire product candidates, I was taken by surprise that they decided to acquire a pre-clinical NASH product candidate before an oncology agent.
I intend to review the deal and discuss why this is an important event for ALT investors. In addition, I offer some downside risks generated by this deal and how I plan to manage my ALT position.
Spitfire Deal Details
Altimmune’s acquisition of Spitfire appears to be beneficial for all parties involved. Spitfire shareholders will collect an upfront payment of $5M in ALT stock and will be entitled to collect another $8M in milestones payments in cash or common stock. In addition, Spitfire shareholders are entitled to collect up to $80M in sales-based milestones. The big take-home is that Spitfire is choosing to take most of their payments in ALT stock, rather than an all-cash payment. This is not only critical to preserving Altimmune’s cash position but it shows that Spitfire believes that ALT’s value will rise in the future.
Figure 1: Spitfire Deal Overview (Source ALT)
ALT-801 is a powerful, “peptide-based therapeutic candidate with balanced agonist activity on the GLP-1 and glucagon receptors.” ALT-801 is intended to address the metabolic dysfunction that eventually causes NASH, which is described by an anomalous buildup of fat in the liver, which can eventually lead to cirrhosis and cancer. ALT-801 focuses on upstream targets to inhibit disease development unlike the majority of NASH candidates that concentrate on treating the liver damage caused by NASH. This novel approach could position ALT-801 as a leading NASH product candidate because it could prevent, impede, and reduce the progress of NASH by facilitating fat loss from the body and liver.
Figure 2: ALT-801 Overview (Source ALT)
How does it work? ALT-801 triggers both the GLP-1 and the glucagon receptors, causing appetite suppression, reduced insulin insensitivity, amplified caloric expenditure, and significant reductions in both liver and body fat. What is more, ALT-801 is intended to attain glycemic control as good as or superior than some approved GLP-1 agonists, however, with greater weight loss with a once a weekly subcutaneous injection.
Figure 3: ALT-801 Fat Reduction (Source ALT)
In pre-clinical studies, ALT-801 established superior results when matched to Novo Nordisk’s (NVO) GLP-1 receptor agonist, Ozempic (semaglutide) and Genfit’s (GNFT) PPAR alpha/delta agonist, elafibranor (Figure 4). A pre-clinical mouse study revealed ALT-801 quickly reverted body weight to the range and discovered “a near complete absence of liver steatosis, lobular inflammation and ballooning, as well as a significant reduction of fibrosis.”
Figure 4: ALT-801 Liver Fat Reduction Vs. Competition (Source ALT)
Indeed, these results are from pre-clinical animal studies but one cannot deny the data is impressive and could lead to a potential blockbuster drug. The global NASH market is estimated to be $18.3B by 2026, if ALT-801 can make it through the regulatory pathway, it could take a large share of that market. In addition, ALT-801 could have a label expansion into diabetes and obesity. If the Phase I study reports humans experiencing a 25% reduction (Figure 3) in weight loss over one month, we can expect a drastic increase in attention from the market and street analysts. Yes, Altimmune is initially targeting NASH, but it appears ALT-801’s best attribute is the potential to be implemented into multiple chronic indications.
Why is this Deal Important?
To me, the Spitfire transaction seems to be a great value acquisition by Altimmune considering the financials and the fact that Altimmune now has the rights to a product that has a greater impact on liver fat, inflammation, and fibrosis matched to leading NASH candidates in recognized pre-clinical models. The data reveals the potential of ALT-801 to become an essential treatment for NASH and Altimmune has the resources and capability to get ALT-801 through clinical development.
The Spitfire acquisition could have cost Altimmune a large upfront payment and royalties, but CEO Vipin Garg was able to negotiate for the majority of the payment to be paid in common stock. Again, this preserves the $45M (Q1) cash-position, which can help fund ALT-801’s development through Phase 1 (Figure 5).
Figure 5: ALT-801’s Development Plan (Source ALT)
With $10M put aside for ALT-801, the remaining cash can put towards OpEx and progressing the current pipeline through the clinic. In addition, it allows the company to make supplementary acquisitions if needed.
Figure 6: Spitfire Deal Takeaways (Source ALT)
Now, Altimmune has several pipeline segments that comprise of vaccine, liver therapeutics, and oncology agents. Which one takes the lead? I invested in ALT due to NasoVAX and its potential to be a premier flu vaccine, however, I have to admit the ALT-801 acquisition does provide me a reason to stay beyond a NasoVAX partnership. I would say Altimmune is now more of a liver disease company than a vaccine company. ALT-801 builds onto Altimmune’s HepTcell program for handling chronic hepatitis B and leverages Altimmunes understanding peptide-based therapeutics (Figure 7).
Figure 7: Liver Disease Programs (Source ALT)
Despite my endorsement of the Spitfire acquisition, the deal does raise some concerns that investors should consider when managing their ALT position. My biggest concern is the company’s decision to start a new endeavor without securing a partner for NasoVAX. This has two notable downsides…One, the company’s leading product candidate is sitting on the sidelines, and meanwhile, unproven candidates are moving forward. Two, management has changed course and moved the destination years away. As a result, the company is going to need more cash, which could lead to further dilution. In addition, it provides a reason for the management to stay relevant and employed for many more years due to the number of programs in the pipeline.
If the company had secured a reputable NasoVAX partner before making this deal, I would feel a bit more confident in taking on Spitfire. Now, we move forward with pre-clinical program with moving closer to generating revenue.
NASH has no approved treatments on the market today, and the prevalence is rising globally as a product of an escalating obesity epidemic. Convincing pre-clinical data produced by Spitfire proposes that ALT-801 might impact obesity, which is a principal cause of NASH. By decreasing superfluous liver fat, swelling, and fibrosis linked with NASH, ALT-801 could be the only product candidate that takes aim the cause and not the outcomes of the disease. Adding ALT-801 to the company’s pipeline is a transformative business deal for Altimmune, which now joins an elite list of names that are attempting to conquer NASH.
Is ALT a Buy? Altimmune is rapidly expanding their pipeline and exploring their options with their current platform technology. The company now has vaccines, liver therapeutics, and oncology product candidates that show promising results in pre-clinical and clinical studies (Figure 8).
Figure 8: ALT Pipeline Programs (Source ALT)
Consequently, the company has to figure out the “who? what? when? and where?” for these programs and the anticipated additional acquisitions. The amount of programs is becoming a concern for me, which is preventing me from adding to my position. However, this could be a great time for a prospective investor to start a position in a $35M market cap biotech that has strong cash-position and a robust pipeline. Therefore, I see ALT as buy at these current prices.
What is my plan? Looking at the daily chart (Figure 9), we can see the market’s reaction to the Spitfire acquisition did not endure and the share price has reversed back inside the Bollinger bands.
Figure 9: ALT Daily (Source Trendspider)
I am going to stick with my plan from my previous ALT article,
“Regardless of my bullish sentiment, I’m not planning on adding to my ALT position before these potential catalysts occur. I have a large enough position for a speculative stock and I am happy with my average price. Without a NasoVAX partnership, I expect the share price to remain range-bound or slowly bleed until the company is able to close the deal. Even if the company floods the wires with press releases and updates on other dealings, I am convinced the market wants to see NasoVAX partnered with a brand name vaccine company. Therefore, I will wait for confirmation that the deal is finalized before I click the buy button.”
I am not willing to lockup more of my funds in a stock that is stuck in the mud regardless of the long-term prospects.
Disclosure: I am/we are long ALT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.