Bellus Health is a double from here, says Mackie Research

Mackie Research analyst André Uddin is holding steady with Bellus Health (Bellus Health Stock Quote, Chart, News TSX:BLU) after clinical trial news from rival drug company Merck hit the shelves this week.

In an update to clients on Tuesday, Uddin told investors to watch for a key catalyst for BLU coming in a few months.

Laval, Quebec-based Bellus is a clinical-stage drug maker focused on developing a potential best-in-class chronic cough drug candidate based on its BLU-5937 molecule.

Bellus is currently conducting a placebo-controlled dose-escalating Phase 2 trial with BLU-5937 in 65 patients with chronic cough.

Pharma giant Merck, on the other hand, is working on its own refractory or unexplained chronic cough candidate, gefapixant, which targets the same P2X3 purinoceptor antagonism as BLU-5937. On Tuesday, Merck announced top-line results from two Phase 3 trials evaluating gefapixant for chronic cough. The two trials enrolled 732 and 1,317 subjects, respectively, with patients in both trials randomized to one of three groups: gefapixant 45 mg, 15 mg or placebo.

Merck reported that gefapixant at 45 mg met the primary endpoint in both trials while at 15 mg missed it. No hard data has yet been released.

“The burden for patients faced with this disease underscores the need for effective therapeutic options for refractory and unexplained chronic cough,” said Dr. Roy Baynes, senior vice president and head of global clinical development, chief medical officer, Merck Research Laboratories, in a press release. “We are pleased gefapixant at the 45 mg dose met the primary efficacy endpoints in both Phase 3 studies and we look forward to sharing the detailed findings at an upcoming medical meeting.”

Merck also reported gefapixant demonstrating in the two trials a similar safety profile as in Phase 2 studies, which, Uddin explained, indicates a similar issue with taste sensation changes as was found with gefapixant in the Phase 2 studies. Uddin said safety, especially adverse effects on the taste sensation, will be a key factor to watch in the P2X3 field.

On Bellus’ own Phase 2 trial, Uddin noted that the company plans to report top-line results in mid-2020, which should, in the analyst’s words, “provide some insight into the candidate’s potential of being the best P2X3 antagonist.”

If Bellus is successful with its Phase 2 trial, Uddin’s assessment is as follows: “We have conservatively assumed Bellus would out-license BLU-5937 for C$150 million upfront and C$450 million in milestones, as well as a royalty rate of 20 per cent, in 2021 after successfully completing the Phase 2 trial. However, we would not be surprised if the company forged a deal earlier and/or larger than our assumptions given BLU-5937’s decent pre-clinical and Phase I data.”

“In June 2016, Merck acquired Afferent for US$1.25 billion (US$500 million upfront plus US$750 million in milestones) to obtain gefapixant. Investors should note that our financial assumptions are conservative compared to the terms in Merck’s acquisition of Afferent,” Uddin wrote.

With his update, Uddin maintained his “Speculative Buy” rating and $16.40 price target, which at press time represented a projected one-year return of 102 per cent.