Drug development is time-consuming, expensive, and full of failure. It requires many years and hundreds of millions of dollars (or more) to bring a new drug to market. Most never get to have a launch party. From 2011 to 2020, only 7.9% of drug candidates that began a phase 1 clinical trial earned approval from the U.S. Food and Drug Administration (FDA).
Centessa Pharmaceuticals (CNTA) was founded to attack the inefficiency of drug development head on. The business launched in early 2021 by acquiring 10 private biotech subsidiaries with unique platforms. It held an initial public offering (IPO) less than four months later, which was the fastest public debut in the history of the biotech sector.
The all-star management team promised to swiftly bring new drugs to market by ruthlessly culling programs with low probabilities of success, strategically partnering assets, and developing drug candidates with unique advantages for patients. Unfortunately, living up to those promises is proving costly for investors. Shares of Centessa Pharmaceuticals sank over 25% after the company announced it was terminating its lead program.
Is the surprising announcement the sign of a failed strategy or one that's working as planned?
A Blow to Centessa's Near-Term Aspirations
Centessa Pharmaceuticals made the strategic decision to discontinue development of its lead drug candidate after scientists observed signs of potential liver toxicity in an ongoing study. That's problematic considering the asset, lixivaptan, was being developed to steal market share from Jynarque, the only treatment for a rare disease called autosomal dominant polycystic kidney disease (ADPKD), primarily by avoiding worrisome liver toxicity. Jynarque is expected to soon generate over $1 billion in annual revenue, which appears more likely now that its only challenger has been yanked. The events are surprising because early results shared by the company suggested lixivaptan successfully avoided stressing the liver in the first handful of patients enrolled in a key study.
Discontinuing the development of lixivaptan is problematic from a messaging standpoint, too. Management had recently been focusing investors on its "4 x 24" strategy, which meant it planned to have four clinical programs in late-stage trials in 2024. The culling of the lead drug candidate requires a bit of rebranding with respect to that strategy. Unfortunately, "3 x 24" doesn't quite have the same ring to it.
It's important to acknowledge this was the correct decision for both the company and shareholders in the long run. Besides, "3 x 24" is still impressive.
All drug developers make "go" or "no-go" decisions at various points of an asset's development. Scientists saw the potential for safety issues to increase development costs and derail the commercial potential of lixivaptan. The difficult but prudent decision to stop development will avoid a significant investment in multiple phase 3 clinical trials, launch preparation activities, and more. In fact, the company's cash runway is now expected to fund operations into 2026, compared to a prior expectation of exhausting in mid-2024. That's a huge advantage in the current macroenvironment.
The decision is also true to the founding promise of Centessa Pharmaceuticals. I actually spoke with CEO Dr. Saurabh Saha and CFO Dr. Greg Weinhoff weeks ago. In my opinion, Dr. Saha is easily one of the best CEOs in drug development today. The management team understands drug development, how long-term shareholder is created, and isn't afraid to make decisions Wall Street might hate initially. For full disclosure, I started a small position after our conversation.
Drug development is difficult and expensive, but sometimes emerging companies incorrectly push troubled assets through development instead of making data-driven decisions in the best interests of shareholders. Lixivaptan marks the fifth program that has been discontinued, although it's the latest-stage program to get the axe. Investors could interpret that as troublesome or efficient. However, considering less than one-in-12 drug candidates earns regulatory approval, this number may not be as worrisome as it seems. It helps that the remaining pipeline appears to have significant potential – with one big caveat.
What's Next for Centessa Investors?
The share price of a drug developer is driven by de-risking events – development, regulatory, and commercial milestones. Centessa Pharmaceuticals is well positioned with its current pipeline.
- SerpinPC in hemophilia B is now the lead program. It may have an advantage over emerging gene therapy tools, especially after recent BioMarin (BMRN) data suggest the clinical benefit of AAV gene therapy may wane over time. Somewhat counterintuitively, many patients prefer taking a continuous treatment, which could give SerpinPC a commercial edge.
- ZF874 is being developed to correct misfolded proteins that cause alpha-1 antitrypsin deficiency (A1AT). Early results from a small number of patients were promising and, if replicated in larger studies over longer periods of time, could offer patients more convenience than existing or emerging treatments.
- LB101 and LB201 are bispecific antibodies being developed for immuno-oncology indications. Preclinical data for the former will be presented at the American Society of Clinical Oncology (ASCO) meeting in the coming days – and it may demonstrate industry-first accomplishments. My hunch is that the company will seek to monetize these programs through partnerships.
- Numerous other programs are in earlier development for lung diseases, nervous system disorders, inflammation, autoimmune diseases, and more.
So, what's the caveat? Centessa Pharmaceuticals was created by cobbling together 10 biotech start-ups. The decision to discontinue five programs could be a sign the quality of assets is subpar, or it could be a sober reminder of the difficulties of drug development. Unfortunately for investors, the answer will only become clear with time. A number of data readouts and de-risking events in the next 24 months promises to keep things interesting.
