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Summary
PureTech Health (NASDAQ:PRTC) was founded in 2005. Co-founders include MIT Professor Robert Langer and current CEO Daphne Zohar. PureTech develops therapeutics and creates Founded Entities such as Vedanta Biosciences, Karuna Therapeutics (KRTX) and Seaport Therapeutics. They retain equity ownership in these entities. In addition, PureTech has a wholly owned pipeline. This article will cover the development history and product profile of Karuna’s KarXT as well as PureTech’s lead asset, LYT-100. KarXT is an elegantly designed, much needed, differentiated medicine which ultimately proved to be a highly valued asset. BMY announced in December that it would acquire Karuna Therapeutics for $14 Bn. LYT-100, the lead asset in PureTech’s wholly owned pipeline, is also an elegantly designed, differentiated medicine in an indication where there is a true need for a better medicine. LYT-100 presents an opportunity for PureTech Health to repeat what worked by developing another medicine with an optimized profile where both patients and investors can benefit.
Karuna’s KarXT
One facet of PureTech’s approach to developing new therapeutics involves identifying areas of unmet medical need where there are therapeutics with validated efficacy but for which negative aspects impede use or compliance. One key advantage to this approach is that this reduces risk for investors because the mechanism has proven to have activity in the target indication.
Existing standard of care drugs for schizophrenia psychosis have well known and very significant side effects including weight gain, sedation, dry mouth and involuntary movements. These side effects can impede a patient’s ability to continuously take their medication. In fact, as many as half of all schizophrenia patients have difficulties adhering to medication regimens. In addition, a significant proportion of patients have an inadequate response to treatment. Karuna Therapeutic’s KarXT was invented at PureTech to overcome the troubling side effects while delivering the needed efficacy.
Some side effects are believed to occur due to stimulation of muscarinic receptors in peripheral tissues. KarXT, combines a drug which stimulates muscarinic receptors (xanomeline) with a muscarinic antagonist (trospium) to reduce the side effects. Xanomeline was licensed from Eli Lilly (LLY) who had tested it in a small study but had chosen to cease development due to a poor tolerability profile. Karuna tested it in combination with a potent muscarinic antagonist (trospium chloride) in a phase 2 study to assess whether the profile could be improved upon.
Karuna then ran phase three trials which met the primary endpoint. Importantly, KarXT was well tolerated and the common problematic side effects which can result in the discontinuation of medicine were not widely observed. The FDA has accepted an NDA for KarXT in schizophrenia psychosis and set a PDUFA date in September of 2024.
BMY appears to have recognized the optimized profile of KarXT. Karuna was acquired by BMY for $14B which values the company’s assets at $12.7 billion (net of cash on hand). PureTech’s initial investment of $18.5m has generated over $800m for PureTech thus far and they still retain KRXT equity which is valued at approximately $295 m in addition to royalties and milestones. The development of this asset was outstanding from concept through clinical validation and investors were rewarded with a lucrative exit.
LYT-100
The lead asset in PureTech’s wholly owned pipeline is LYT-100 for the treatment of idiopathic pulmonary fibrosis (IPF). IPF is a type of interstitial lung disease that results in fibrosis of the lungs. As the disease progresses the scarring of the lungs leads to a decrease in lung function and reduced oxygen in the blood. Difficulty breathing and coughing are symptoms and some patients require lung transplantation. Without treatment survival is approximately 3-5 years.
The disease is currently incurable and progressive but there are standard of care medicines which slow the decline in lung function. Pirfenidone and Nintedanib are anti-fibrotic medicines that are used to treat IPF and were approved between 2012 and 2014 in the US and EU. The use of anti-fibrotic drugs has increased the median survival to 6 to 8 years according to Dr. Steven Nathan, a pulmonologist and Professor of Medicine at the University of Virginia.
For patients taking pirfenidone, the side effects can be significant. According to the PI, nausea (36%), rash (30%) abdominal pain (24%), upper respiratory tract infection (27%) and diarrhea and fatigue (26%) are reported by patients. 75% of diagnosed IPF patients are NOT taking a standard of care medicine. Similarly to medicines for schizophrenia, the efficacy of pirfenidone is well validated but the side effect profile is quite troublesome.
PureTech’s approach was to develop a deuterated molecule, deupirfenidone. Deuterated medicines are small molecules where a normal hydrogen is replaced by a heavier isotope of hydrogen called deuterium. This small change can potentially improve the side effect profile as the therapeutic dose required may be lower than for an “un-deuterated” molecule.
Indeed, the early data supports that this tweak may have yielded a medicine for IPF that may have a better tolerability profile. A phase 2 study showed that LYT-100 showed approximately a 50% reduction in the GI related adverse events compared to pirfenidone. A better tolerability profile is one way LYT-100 may be an improvement over the standard of care.
In addition, higher doses of pirfenidone may result in improved efficacy. The 824 mg TID dosing schedule allows a 43% higher drug exposure than the standard of care dose given to patients. Thus, PureTech’s ongoing current trial will also test whether 824 mg TID will confer enhanced efficacy.
The current phase 2B study has a primary endpoint of slope of decline of FVC for LYT-100 during a six month treatment period compared to placebo. Patients were dosed into 4 cohorts:
1. Placebo
2. Pirfenidone 801 mg TID (standard of care)
3. LYT-100 550 mg TID (dose which showed a 50% reduction in GI AE’s)
4. LYT-100 824 mg TID (high dose which may confer better efficacy)
Results are due in Q4 2024.
Competitive Landscape
Amgen’s AMG 670 (acquired from Horizon and previously named HZN 825) is being evaluated in a phase 2 clinical trials with a data readout in H2 2024.
Boehringer Ingelheim’s BI 1015550 is a PDE4 inhibitor, which has antifibrotic and anti-inflammatory effects. Results showed it prevented lung function decline in a 12 week study. It was tested with nintedanib or prifenidone treatment given as a background therapy. There may be synergistic effects when used in combination.
BMS-986278 showed efficacy in IPF in a phase 2 trial. The trial allowed use of background antifibrotics so BMS-986278 may be considered as an add on therapy to standard of care medicines such as pirfenidone.
Gilead and Galapagos discontinued development of Ziritaxestat for IPF. Development of Fibrogen’s Pamrevlumab was discontinued due to a failure to meet the primary endpoint in a phase 3 study.
Current estimates suggest there are approximately 100-150,000 US patients living with IPF and an additional 100,000 in the EU. The two standard of care medicines generated approximately $4B in sales in 2022.
Risks
Despite the clinical hypothesis being well reasoned, any clinical trial has the potential to produce unfavorable results. In particular, a marginal reduction rather than a 50% reduction in GI symptoms is one potential poor outcome. In addition, the deuterated molecule may be less efficacious than pirfenidone when tested over a longer time frame.
Pirfenidone became generically available in 2022. If LFT-100 is approved, to justify formulary inclusion and branded pricing, insurers may require step editing and a trial of generic drugs before covering LFT-100. PureTech may need to collect long term data to show a reduction in hospitalizations, lung transplants and/or a survival benefit. Other medicines in development from Amgen, BI, BMY or other companies may prove to have superior profiles and be preferred treatments.
More broadly, PureTech is a company with multiple programs. Some appear more promising that others and investors rely on management to allocate capital well. The downside risk on any biotech stock is a total loss of capital.
Finances
PureTech reported $320m of cash on hand and can fund operations through 2027. Operating expenses for the prior 6 months were $79.3m. The company has not raised capital in the prior six years. The year end report noted that, “Our Founded Entities are a significant source of value to us, and we have generated over $800 million in non-dilutive proceeds to advance our pipeline and growth since 2020.” After the Karuna deal closed, PureTech announced a proposed $100 m capital return. PureTech’s market cap is approximately $700m, which is roughly equivalent to the cash on hand ($320m) and their equity stake in Karuna, ($294m). The company may also be entitled to future royalties and milestones on KarXT. The current valuation does not attribute significant value to their wholly owned pipeline or equity stakes in early stage companies such as Vedanta, Vor Biopharma and Seaport Therapeutics.
Conclusions
Charlie Munger said, “We’ve had enough good sense when something is working very well to keep doing it. I’d say we’re demonstrating what might be called the fundamental algorithm of life—repeat what works.” KarXT clearly worked out really well for patients and investors. PureTech has a path to potentially repeat that success with their wholly owned asset, LYT-100.
The key elements that led to past success are present. Both medicines are tweaked versions of medicines whose mechanisms are known to be effective. In both cases, modifications sought to improve the side effect profiles and or the efficacy profile. Both indications, IPF and schizophrenia, are serious disease where physicians would be very receptive to the availability of better medicines. Lastly, both drugs are being developed for indications which have sizable commercial opportunities.
Ultimately, companies which can improve the outcome for patients with a dire diagnosis tend to be great investment opportunities. If LYT-100 performs well in the clinic, PureTech may have the opportunity to repeat a play book that worked well. In Q4 of 2024, investors will be better able to assess whether LYT-100 may have the optimized profile that patients, physicians and investors hope for.
