evemilla/E+ via Getty Images
evemilla/E+ via Getty Images
SpringWorks Therapeutics (NASDAQ:SWTX) has made a lot of waves in recent days following their first drug approval in non-cancerous desmoid tumors. This is a critical first step, and the company has been propelled to a massive valuation relative to where they sat just a week ago. This raises the risk that a lot of growth is baked in now that they are moving to the execution side of becoming a commercial biotech. This is a highly fraught territory for the company in my view, although they maintain key advantages for their success. Let's have a look.
Nirogacestat
All eyes are on nirogacestat, a gamma-secretase inhibitor that is being studied in various indications. The most notable of these are the so-called desmoid tumors, benign lesions of the soft tissue that, while not necessarily life-threatening in and of themselves, contribute to massive pain and disability for patients through tissue invasion and growth that can impinge nerves and organ systems.
Gamma secretase itself is an enzyme that's important in many cell functions, but notably for the Notch signaling pathway, which appears to be upregulated in desmoid tumors. This has been a cancer target of interest for over a decade now, but many efforts to target it have failed.
After a series of earlier clinical trials, SWTX published the findings in March 2023 from a double-blind, placebo-controlled trial of nirogacestat in adult patients with desmoid tumors, most of whom had some form of prior therapy (eg, surgery, radiation, chemotherapy). Nirogacestat treatment led to substantial improvement in progression-free survival compared with placebo, with a median not reached after 15.9 months median follow up compared with 15.1 months with placebo. The hazard ratio was 0.29, representing a 71% decrease in the hazard for progression with nirogacestat treatment.
Unsurprisingly, nirogacestat was associated with toxicity, most frequently GI adverse events like diarrhea and nausea. In all, 20% of patients had to discontinue therapy due to AEs, which is pretty high. However, overall, patient-reported outcomes were impressive, with significant improvements in symptom burden and overall function reported by patients.
These findings led to approval for nirogacestat on November 27.
This drug is also continuing in development, both as a monotherapy in pediatric patients with desmoid tumors and in patients with ovarian granulosa cell tumors. It is also being assessed in early-stage trials in combination with different BCMA approaches for patients with multiple myeloma, for which the company entered into a partnership with GSK (GSK) back in 2022.
Mirdametinib
SWTX is also developing a MEK inhibitor called mirdametinib, with its most advanced indication being plexiform neurofibromas associated with NF1 aberrations. This is a similar indication and approach taken by AstraZeneca (AZN) with their drug selumetinib, which was approved in children based on positive findings from an open-label, phase 2 trial.
Mirdametinib has demonstrated early signs of clinical activity in adult and adolescent patients with these plexiform neurofibromas, showing a 42% response rate among 19 patients. The phase 2b ReNeu study is ongoing to evaluate mirdametinib in children and adults with inoperable NF1-associated plexiform neufibroma. Topline data confirmed the response rates observed in the earlier study.
The company has guided that it intends to file an NDA for this agent in the first half of 2024.
At the end of Q3 2023, SWTX held $98.9 million in cash and equivalents, with another $323.5 million in marketable securities. Total current assets reached $432.4 million.
Their total operating expenses were $84.0 million for the quarter, up from $71.7 in the same time from 2022. After interest income and other small contributions, the net loss for the quarter was $79.4 million.
Assuming no other sources of income and no growth in their losses, SWTX had on hand approximately 5–6 quarters of cash and securities to fund operations. This is, of course, prior to really gearing up the sales machine, so it takes into account neither the potential revenue nor the added general and administrative expenses incurred.
You can't beat a bird in the hand, which is what SWTX has. Although for a rare disease, this is what all developmental biotechs strive for. And they have further strength in terms of a likely strong data readout coming shortly for pediatric desmoid tumors, and what is likely to be an approval coming for a separate drug altogether.
Of course, there is risk that those positive readouts and approvals do not transpire, and that would take the wind right out of SWTX's sails. And at the time of writing, SWTX sits at a market cap of approximately $2 billion, in line with a company riding a wave of hype following an approval.
To me, that's where the real risk lies: investors are fickle, and right now they're pricing SWTX aggressively. What would it take to make this valuation make sense?
Well, there is some math we can do here. At pricing of $29,000 per month, SWTX would potentially gross $348,000 annually per patient that continues treatment. And taking a cue from other companies with unique small molecules, we can predict that the cost of goods sold will be in the ballpark of 3% (not including costs from the sales team).
To meet their current operating expenses (again, assuming no growth in either R&D or G&A), SWTX would need to net somewhere in the realm of $336 million annually. Even simplifying the math (since we don't know how much of the list price the company will net), that's around 1000 patients who would need to pay list price and receive therapy continuously. We know from the phase 3 study that the dropout rate due to toxicity was around 20%, so that's an adjusted 1250 patients that SWTX would need to treat.
With an estimated incidence (new diagnoses) of 3 to 5 per million people in the US, accounting for around 900 to 1500 new diagnoses in the US per year. That number includes children and adolescents, for whom nirogacestat is not yet approved.
SWTX essentially would need to capture the vast majority of these new diagnoses to make the numbers work, without very many hiccups. Of course, I'm way oversimplifying a lot of this. Incidence is not prevalence, and patients do not die from desmoid tumors, so I expect they could receive treatment for a long time.
I just want to highlight here that SWTX needs to execute on a lot to make a $2 billion market cap be worth it, and I think there is more room to fall than to climb from this point, even if they are ultimately successful in building out the machine. For me, SWTX deserves congratulations and enjoyment of this wave of hype. However, it does not translate into something I'd be confident investing in, as there are too many headwinds for me to feel good about this current valuation. If you've been a holder, I would hope you're taking some profit now, and then I'd be fine with maintaining a position. However, opening a new position now poses too much risk for me, personally, given how many stumbling blocks they'll likely face on execution.