Investment Thesis

Autolus share price performance since IPO. Source: TradingView.

Autolus (AUTL), a developer of next-generation programmed T cell therapies, has taken some time to come to the boil but its treatments are now showing significant signs of promise.

The company has endured a number of frustrating setbacks (which I will discuss below) which led to its share price retreating to a price of $4, and although it has now recovered to trade at $14.9 at time of writing, that is some way below the highs of $48 achieved in late 2018.

With its recent issues resolved and a pivotal trial now in progress of a candidate that has delivered best-in-class data, and another candidate also outperforming on efficacy and targeting the large DLBCL market, I am forecasting potentially strong share price growth for Autolus over the next 12-18 months. Further positive news flow can push the company's shares back into the $30-50 range, in my view.

Chimeric Antigen Receptor ("CAR") T-cell therapy is a hugely promising field of treatment for certain types of cancers which involves extracting immune cells from patients (autologous CAR-T), or from a healthy donor (allogeneic CAR-T), and re-engineering them, adding receptors which allow the T-cells to locate previously undetectable cancerous cells and destroy them, once they are infused back into the patient's body.

The complex nature of the treatment, however, has seen development limited by high toxicities, such as cytokine release syndrome ("CRS") which can cause patient mortality, prohibitive manufacturing costs, length of time taken to extract, re-engineer and return T-cells to the patients' body, and the fact that currently, CAR-T therapy is restricted to hematological cancers only.

To date, only 2 CAR-T therapies - Gilead's (GILD) Yescarta and Novartis' Kymriah - have been approved, both for relapsed/refractory Diffuse Large B-Cell Lymphoma ("DLBCL"). Sales of both have largely disappointed, with Kymriah earning $278m of revenues in 2019, and Yescarta earning $456m. A third treatment, Bristol-Myers Squibb's (NYSE:BMY) Liso-cel, also looks set for approval in DLBCL by the FDA in November.

Autolus is attempting to address the limitations and risks that are restricting the advancement of CAR-T therapies with its proprietary cell programming technologies, including pattern recognition for enhanced selectivity (of unhealthy cells over healthy ones), controlled activity (modulating T-cell activity in the event of dangerous side-effects), enhanced activity (delivery of cytokine signals without administration of actual cytokines), and the targeting of more than one type of B-cell antigen at once, thereby minimising the possibility of relapse due to single antigen loss.

The company has now progressed its AUTO1 candidate into a pivotal trial for acute lymphoblastic lymphoma ("ALL"), after a small data sample from a phase 1 trial suggested that AUTO-1 had a potentially stronger efficacy profile, and comparable safety profile to current-standard-of-care Blinatumomab (brand name Blincyto, marketed by Amgen (NASDAQ:AMGN), 2019 sales of $312m).

Meanwhile, Autolus is targeting the much larger DLBCL market with AUTO3, which again, early small data samples have suggested may present a better safety and efficacy profile to both Kymriah and Yescarta. Additionally, Autolus intends to explore the possibility of treating patients in an outpatient setting, which is inaccessible to Kymriah and Yescarta but represents 80% of a $4bn market, the company says.

This is a bold strategy, but with cash and cash equivalents at the end of Q120 totalling $243.3 million, Autolus anticipates its runway will last until 2022, which sets the company up to fully enrol and complete its AUTO1 pivotal trial by H121, potentially securing approval before FY21, and to potentially progress AUTO3 into a pivotal trial, should results from its phase 1 study, due to complete before the end of FY20, impress.

As such, this could be a good time for investors to be opening a position in Autolus, with no further dilution expected in the near term, and plenty of catalysts to look forward to, not just from AUTO1 and 3, but from a pre-clinical portfolio of (at the present time) 4 further promising treatments.

In the rest of this article I will provide more detail on the company and its candidates, and explore the pros and cons of an investment in Autolus.

Autolus is based in the United Kingdom and was spun out of University College London ("UCL") in 2014 (according to its Q120 10Q), with whom it has an ongoing exclusive licensing arrangement to certain technology rights in the field of cancer therapy and diagnosis. UCL has been responsible for conducting the company's phase 1 trials of candidate AUTO1, has received a series of upfront payments and share issuances in exchange for use of its technologies, and will receive further milestone payments of up to ~$100m, as well as royalty payments from sales of any of Autolus' candidates that use its in-licensed patent rights.

The company is led by CEO and Chairman Dr. Christian Itin, who has served as Chairman and CEO of numerous biotech companies, notably Micromet Inc., a T-cell pioneer acquired by Amgen in 2012 for $1.2bn in cash. Autolus' Chief Medical Officer is Vijay Reddy Peddareddigari, who has held leadership roles at Janssen Oncology and GlaxoSmithKline (NYSE:GSK), specialising in early to mid-stage clinical development.

Autolus IPOd in June 2018, raising $156.5m via the sale of 10,147,059 American Depositary Shares ("ADS") representing the same number of ordinary shares, at a price of $17. In April 2019, the company raised a further $108.8m selling 4,830,000 ADS at a price of $24.

Autolus subsequently ran into issues as delays to a planned new manufacturing site in the UK, licensed from a taxpayer-funded Cell and Gene Therapy Catapult, put a 5-month hold on clinical development, and the company decided to halt trials of candidate AUTO2, targeting multiple myeloma, citing under-performance relative to competing candidates being developed by bluebird bio (BLUE), Celgene, and Johnson & Johnson (JNJ). This resulted in Autolus's share price declining 91% from a November 2018 high of $48, to just $4. The company completed its final fundraising at a price of $11 in Jan 2020, raising $74m.

I would not necessarily lay too much blame at Autolus' door for this unfortunate sequence of events, which was further complicated by a large stake in the company held by the collapsed investment firm Woodford Investment Mgmt - a previously strong supporter of UK biotech firms - which has now been offloaded. Some 64 institutional firms now hold stakes in Autolus, totalling ~33% of all of the company's shares.

Whilst it is disappointing that the company withdrew AUTO2 from development, it is also unsurprising - large Pharma concern Gilead also withdrew a CAR-T candidate from this over-crowded field - and speaks to the significant end-value of developing a successful therapy.

Autolus was ultimately right, in my view, to divert its efforts and funding to more promising candidates. Regarding manufacturing, in addition to its UK manufacturing facility, Autolus plans to lease a fully-scaled commercial site for cell process in Rockville, Maryland, US, with a capacity of 5,000 patients per annum.

The pivotal trial of candidate AUTO1 will also partially take place in the US, which I view as a positive sign, since it will give the company more credibility within what will become its most important market, and give the company the opportunity to restore its reputation in full public view.

The ongoing development of AUTO1 appears to be favourable for the company. There are no approved CAR T therapies for ALL, which is a relatively rare disease, with 8,400 cases diagnosed worldwide each year according to estimates.

The FDA has awarded Autolus an orphan drug designation for AUTO1, which targets the antigen CD19, and has been engineered to have a fast target binding off-rate, which essentially means that it does not over-activate the programmed T-cells, thereby reducing toxicity whilst increasing persistence, theoretically resulting in the destruction of more of the target cancer cells.

So far, the data has borne out the theory. Autolus' ALLCAR Phase 1 study dosed 19 patients, with none so far experiencing higher than grade 3 CRS. 3 patients with a high leukemia burden experienced grade 3 neurotoxicity, but this was resolved swiftly with the application of steroids.

AUTO1 phase 1 preliminary data vs. standard of care. Source: company presentation.

In terms of clinical activity, as we can see above AUTO1's 87% complete response and event-free survival rates are double that of Blincyto, albeit from a far smaller sample of patients.

The pivotal study, AUTO1-AL1, in adult ALL will enrol 100 relapsed or refractory patients, with the primary endpoint being overall complete response rate, and is on track to complete by the end of 2021.

Although this would not necessarily be a lucrative market for Autolus, much more importantly, a trial win and approval would represent a coup for the company given the paucity of approved CAR-T therapies, mark it out as an acquisition target, and generate more excitement around its other candidates, which would likely have a profound effect on the share price.

DLBCL is the most common form of Non Hodgkin Lymphoma, with ~24,000 patients diagnosed with the disease every year. The third line setting is around 4x larger than ALL - approximately 10,000 patients.

Although Kymriah and Yescarta are approved treatments in this space, achieving relatively high overall response rates of between 70-80%, only around 35% of these patients achieve durable complete response rates, whilst the toxicity of the treatments, which includes high rates of CRS (13-22% of patients) and severe neurotoxicity (12-28%), means that patients must be intensively managed, limiting the use of CAR-T outside of the in-patient setting.

AUTO3 has been designed with a dual target approach, simultaneously targeting antigen receptors CD19 and CD22, which Autolus believes may reduce the probability of relapse due to antigen loss, whilst the addition of pembrolizumab to the treatment regime mediates the probability of PD1/PDL1 related CAR-T cell exhaustion.

AUTO3 comparison with Yescarta, Kymriah / liso-cel. Source. company presentation.

As we can see above AUTO3 - in its phase 1/2 ALEXANDER study - involving 23 patients to date - has shown a complete response rate which compares favourably with Yescarta, Kymriah, and liso-cel, whilst its safety profile shows clear out-performance at the recommended phase 2 dose level. All 9 of the complete responses observed were ongoing at the median follow-up period of 3 months.

The positive safety data opens up the possibility of AUTO-3 being used as an outpatient therapy in non-academic hospitals and community oncology clinics - where 80% of third-line and second-line DLBCL patients are currently treated - Autolus believes, opening up the market opportunity for the company to an estimated size of $4bn.

Autolus expects to make a decision in Q320 as to whether to progress AUTO3 into a pivotal trial, providing a short-term price catalyst for investors that ought to be positive, based on the strong safety and efficacy data shown during the ALEXANDER study. There is undoubtedly evidence that AUTO3 can progress CAR-T therapy treatment to a new level of convenience for patients, and Autolus has added a 20 person outpatient cohort to the ALEXANDER trial as an additional feasibility test.

A failure to make further progress with AUTO3 (into a pivotal trial) would be costly for Autolus, both financially and reputationally, but the evidence to date suggests that progress into a pivotal trial in a key market is the most likely next step.

Even if AUTO3 were to face further setbacks, it would not necessarily be a disastrous outcome for Autolus in the long term, since the company's technology platforms have delivered numerous other candidates and ought to continue to do so given the promise of the candidates developed to date.

Autolus current pipeline. Source: company website.

The breadth of the indications that Autolus is developing therapies for is impressive, and importantly, the company is developing not only autologous therapies, like AUTO1 and AUTO3, but also allogeneic candidates, which use cells from donor patients - often referred to as "off-the-shelf" CAR-T therapies, due to the added convenience and shorter turnaround times associated with allogeneic techniques.

Autolus "toolkit" and candidates. Source: company presentation.

AUTO4 is a treatment for peripheral T cell lymphoma that has differentiated targets and is currently progressing through a clinical trial in the UK, which has been impacted by COVID-19, management revealed on its Q120 earnings call, but has shown signs of strong efficacy, achieving a complete metabolic response in a 57-year-old patient. Auto 6 targets the solid tumor environment with a potentially enhanced safety profile and has demonstrated in both in vivo and in vitro environments.

What stands out about Autolus for me is its innovative and differentiated technologies, which have allowed the company to reach the point where it stands a good chance of being able to progress CAR-T therapy beyond its current limitations.

Already, there are signs that the first approved CAR-T therapies - Yescarta and Kymriah - look set to be challenged by new and improved therapies that can overcome the safety and toxicity issues that require patients to be intensively managed throughout their treatment programme, ensuring that CAR-T is currently not viewed as a potential first or even second-line therapy, but as a last resort treatment.

As described above, the early signs are that Autolus can potentially secure approval - albeit in the small ALL market - as a treatment for relapsed or refractory patients, and that this could be achievable before the end of 2021.

AUTO3 targets an area of higher unmet need and an approval in this market - which is some way off and can be considered only a 50/50 likelihood at best - would be a significant coup for the company and mark Autolus out as one of the most prominent CAR-T companies outside of big Pharma, bringing the prospect of acquisition into play. When we think about Gilead's recent $4.7bn acquisition of Forty Seven and its anti-CD47 technology, or Novartis acquisition of The Medicines Company for $9.7bn, that is certainly an enticing prospect for Autolus investors.

Where I have doubts about Autolus is in the company's logistical management. Its well-documented manufacturing issues that caused significant delays to its clinical development programmes were unwelcome, and the fact that its operations span 2 different continents suggests that the company has not quite established a satisfactory modus operandi, which may create problems managing larger scale clinical trials or even in selecting which of its promising candidates to progress, and how.

Targeting the outpatient setting with AUTO3 is an interesting approach that could open the floodgates for CAR-T as a more flexible and reliable treatment. But at the same time, I believe the company's core focus needs to be on generating satisfactory trial results - if its candidates generate results sufficient to be considered for an outpatients regime, so much the better, but the efficacy and safety results are of more importance at this stage.

Although the share price nosedived in 2020, Autolus has raised the funds it needs to guide at least 2 of its candidates through pivotal trials. At $31m in Q120, $22.5m in Q119, and $146m in FY19, the company's cash burn is very high, and if its current later stage trials are not successful, I can see the management having trouble raising further funds in the future.

Autolus upcoming clinical data points, Source: company presentation.

Much rests on the news flow in the remainder of 2020 and during 2021. The most important of these, in my view, will be the decision on whether to progress AUTO3 into a pivotal trial - slated to be made in Q3, which will signify a major progressive milestone for the company, put it in the spotlight, and generate significant excitement which will lead to boost in the share price. The caveat here is the company's withdrawal of AUTO2, targeting multiple myeloma from a competitive field.

Overall, however, Autolus scores highly amongst CAR-T developers on the strength of its data and its progressive, differentiated approach which has been proven to work, albeit in a limited patient sample size. With its share price woes seemingly behind it, and provided it can handle the logistical side of its operations, even fair-to-middling progress, i.e. an ALL trail win, or another pivotal trial initiation most likely for AUTO3, ought to continue the upward share trend and secure a return to at least the early post-IPO price of $26, with a multitude of impactful price catalysts due in 2020 and 2021.

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Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in AUTL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Autolus: Progress Developing Next Generation Car-T Therapies Ought To Lift Share Price - Seeking Alpha