Stealth Biotherapeutics

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Stealth Biotherapeutics Corp, a clinical-stage biotechnology company, which focuses on the development of therapies for diseases involving mitochondrial dysfunction. Its lead product candidate, Elamipretide, has the potential to treat rare genetic and common age-related mitochondrial diseases. The company was first founded in 2006 and since then Morningside Ventures have been their lead investor until the company IPO’d in February of 2019, which netted $76.9 Million. The company has been burning through significant amounts of cash as they enter late stage development, with a cash balance of only $37.2m in Q3. They have burned nearly $50 million in just two quarters, which means they may need to reenter the capital markets in 2020.  This burn has come in anticipation of results from the FDA before the end of the year into their primary mitochondrial myopathy treatment, which is in stage III testing. This treatment has been fast tracked by the FDA to treat a number of different orphan diseases such as Primary Mitochondrial Myopathy and Barth Syndrome. To date, no therapies have been approved in the United States for either disease and there is a growing number of potential applications for their Mitochondrial Medicine. The company is also currently in Phase 2b testing of using the Elamipretide to treat Leber’s hereditary optic neuropathy, a disease which causes blindness in approximately 10,000 in the United States. The company is currently waiting on guidance from the FDA as to how to proceed with the clinical trials. All three procedures have been Fast Tracked by the FDA for development as well as receiving Orphan Drug status. The company from their discovery platform has identified over 100 different compounds that could potentially be used to treat Mitochondrial disruption, but these four have been identified as the strongest current candidates for approval.

In an announcement on October 10th, Stealth announced an agreement with Alexion Pharmaceuticals to co-develop and commercialize Stealth’s signature Elamipretide for mitochondrial diseases. This deal gives Alexion the option to exercise the agreement pending the FDA’s announcement of Phase III results in the coming weeks. If the drug is approved, Alexion and Stealth will co-promote the product in the U.S. on equal basis, while outside the U.S., Alexion will have exclusive rights for development and commercialization. Stealth will receive $30M upfront, which includes an option fee, equity investment and development funding. Alexion will make additional payments, including an option exercise fee, an additional equity investment, development funding and milestones if it exercises its option. Such an investment from Alexion would be critical to the firm as they continue to burn through large amounts of cash, and would help to developing more products down the portfolio.

Shares have traded significantly lower for Stealth since they IPO’d in February at a price of $12 dollars, closing today at $7.80. The shares initially moved higher to above $28, but as the company has hemorrhaged cash over the last two quarters, investors have feared dilution of their shares if the firm is forced to file a secondary filing in 2020. Analyst opinions have remained relatively bullish for the firm as Nomura has a Buy rating on the Stock and a $28 price target, which would representing nearly a 300% gain from current prices following the latest release of data from the FDA trials. Evercore ISI and Jeffries also maintain price targets well above the current price of $35 and $16, respectively. The company’s future is heavily dependent in the short term on the results of their Elamipretide treatment, as an approval from the FDA would undoubtedly send shares of MITO flying, but if not, could mean the company must seek new funding to help develop additional treatments.

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