Bellus Health keeps “Hold” rating at Mackie Research Capital

Mackie Research analyst André Uddin reviewed the state of affairs for drug developer Bellus Health (Bellus Health Stock Quote, Chart, News TSX:BLU) in an update to clients on Tuesday, where the analyst stuck with his “Hold” rating and $3.90 target price.

Laval, Quebec’s Bellus Health is a clinical-stage drug developer focused on chronic cough candidate BLU-5937, which is targeting a multi-billion dollar market opportunity.

The company released in June negative top-line results from its Phase 2 clinical study which showed that BLU-5937 missed the primary endpoint of awake cough frequency, testing at four doses, with BLU-5937 not achieving statistical significance of reduction in placebo-adjusted cough frequency at any tested dose.

At the same time, Bellus conducted a subgroup analysis which indicated that BLU-5937’s efficacy was positively associated with patients’ baseline cough frequency. Subjects with more than 20 coughs per hour at baseline had significant placebo-adjusted reductions across the four doses – -20 per cent, -18 per cent, -19 per cent and -27 per cent, respectively, while subjects with more than 32 coughs per hour at baseline had more significant reductions – -28 per cent, -28 per cent, -30 per cent and -32 per cent,
respectively.

Then, Bellus on Tuesday announced the design of a Phase 2b trial for BLU-5937 in refractory chronic cough (RCC), a planned four-week trial with 240 patients with cough frequency of more than 25 coughs per hour.

“Building on the results from our RELIEF trial where there was a significant and clinically meaningful improvement observed in patients with baseline cough frequencies ≥20 coughs per hour when treated with BLU-5937, we believe our plan to recruit patients with baseline cough frequencies >25 coughs per hour for the SOOTHE trial provides the best strategy for success in this patient population,” said Cathy Bonuccelli, Chief Medical Officer at Bellus, in a press release. “Additional exploratory arms of patients with baseline cough frequencies <25 coughs per hour will allow us to collect additional data to
better inform the design of our Phase 3 program.”

The company has said it will meet with the US FDA over the fourth quarter to finalize the trial design, with the first patient expected to be dosed in the same quarter and interim results anticipated in mid-2021 and top line results in the second half of 2021.

“Following the mixed RELIEF Phase 2 results, we have revised our licensing assumptions for BLU-5937,” wrote Uddin. “We are currently assuming Bellus would out-license BLU-5937 in 2022 for US$75M ($100 million) upfront and US$336 million ($450 million) in milestones, as well as a royalty rate of 20 per cent. In June 2016, Merck acquired Afferent for US$1.25 billion (US$500 million upfront plus US$750 million in milestones) to obtain gefapixant (MK-7264, formerly known as AF-219). Investors should note that our financial assumptions are conservative compared to the terms in Merck’s acquisition of Afferent.” (All figures in Canadian dollars except where noted otherwise.)

At press time, Uddin’s $3.90 target represented a projected return of 20 per cent.