Kerrisdale Capital is short shares of Altimmune Inc (NASDAQ:ALT), a pharmaceutical company developing a GLP-1 agonist, hoping to field a drug that might grab a slice of the booming weight-loss market.
In December, Altimmune reported that patients on 2.4mg/week of its pemvidutide lost 15.6% of their weight at the end of 48 weeks. Since that release, Altimmune’s stock has more than tripled on the hopes that a big-pharma partnership, or even acquisition, will follow. But investors are in for a rude awakening: a deeper examination of Altimmune’s data reveals a drug with little chance of competing against either the approved incumbents or the other GLP-1 agonists progressing through clinical trials. We don’t think legitimate prospective partners want to spend hundreds of millions of dollars and years of trials pursuing an obvious dead end.
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Even if pemvidutide did result in 15.6% weight-loss, that’s not good enough. Both semaglutide and tirzepatide (Ozempic and Mounjaro) have demonstrated superior weight-loss on a comparable basis, with the added benefit of controlling blood-sugar (which pemvidutide does not). Given the mountain of clinical studies and physician experience with these two drugs, that alone would be enough to dash the pemvidutide hope. But it gets worse: pemvidutide’s tolerability is atrocious. Despite conducting a trial that offered free and unfettered weight-loss medication amidst the Ozempic social frenzy, a third of pemvidutide trial participants – and 42% of patients taking the 2.4mg dose – discontinued treatment. That bodes ill for the drug’s commercial prospects, but it also has dire implications for the drug’s looming phase-3 trial. The FDA requires phase-3 weight-loss results to include patients who discontinue treatment. For semaglutide and tirzepatide, the 15% of patients who stopped the drug in phase-3 impacted the headline weight-loss result by about 2%. If pemvidutide trial participants discontinue at the rate they did in phase-2 – and we see no reason why they won’t – that 15.6% will end up closer to a 10% headline weight-loss number. At that level of effectiveness, the drug is toast.
Meanwhile, the pharmaceutical industry has dramatically geared up its R&D effort. Over two dozen weight-loss drugs are in the pipeline, including oral formulations of the currently approved drugs as well as novel multi-mechanism compounds that have demonstrated unique characteristics such as better tolerability, improved weight-loss durability, and substantially greater weight-loss. The drugs are being developed by large pharmaceuticals with the vision and capital necessary to secure a piece of the highly competitive market. Against them, Altimmune’s inferior compound stands no chance.
The company is headed by CEO Vipin Garg, who spent two decades raising $500 million for two small-cap biotech companies that ran into the ground under his watch before coming to Altimmune and exploiting the COVID pandemic to raise $200 million in equity under the guise of a vaccine program that never made it out of phase-1. Joining him in the C-suite are CFO Rich Eisenstadt, who’s been with Garg at his two prior failures, and CMO Scott Harris, who has an entertainingly checkered past raising capital for drugs that already failed. The odds of this crew getting an edge over Novo Nordisk or Eli Lilly – with an inferior and intolerable drug – are slim.
I. Investment Highlights
Pemvidutide is less effective than current GLP-1 drugs and its headline weight-loss figure is suspect. On the metric that everyone really cares about – weight-loss – pemvidutide is inferior to semaglutide and tirzepatide, the two approved weight-loss drugs known as Wegovy and Zepbound (or Ozempic and Mounjaro when used for diabetes). In the phase-2 data that provoked the recent tripling of Altimmune’s stock price, patients on pemvidutide’s highest dose lost 15.6% of their bodyweight, or 13.4% more than placebo, at the 48-week mark. That’s about the same as semaglutide-2.4mg and much less than the 17-18% weight-loss induced by the 10mg and 15mg doses of tirzepatide, also at 48 weeks. That comparison actually understates the superiority of semaglutide and tirzepatide, which had patients slowly titrate up to the treatment dose over 3-4 months instead of the 4 weeks in the pemvidutide trial. Further, those already-approved drugs also control blood-sugar (which pemvidutide does not) and have massive libraries of clinical studies as well as countless physician experiences that support their everyday use. Pemvidutide has no chance of competing with them if the best it could do is equal their weight-loss result.
We also think that weight-loss result is questionable and won’t hold up in a large phase-3 trial. Over the course of 4 trials and 6 data readouts, the 48-week 15.6% result is the only time that pemvidutide’s 2.4mg dose demonstrated any statistical superiority to its 1.8mg dose, and even in this phase-2 trial, that superiority only crystallized at the 32-week mark. That fact pattern is strange in light of what we know about the dose-response curves of other GLP-1 drugs and how they evolve over time. We believe that the 15.6% result was partly a statistical fluke and that in a large phase-3 trial, the weight-loss effectiveness of pemvidutide-2.4mg will be much closer to the 1.8mg experience and lower than 15.6%.
Pemvidutide’s phase-2 tolerability profile was graded on a curve and it was still awful. Altimmune ran its pemvidutide phase-2 trial from mid-2022 to late-2023. By this time, Ozempic and Mounjaro had become household names, Hollywood stars were rumored to be using the drugs for weight-loss, and social media influencers were flaunting weight-loss results. At the same time, manufacturing issues at Novo Nordisk created a shortage of semaglutide, and neither semaglutide nor tirzepatide – which cost over $1000/month out-of-pocket – were covered by insurers or Medicare for weight loss (coverage is still spotty as of this writing). In that context, the pemvidutide trial was an opportunity for interested patients to get unfettered access to perhaps the hottest pharmaceutical product in history for free. Participants knew that there were likely to be GI side-effects like nausea, diarrhea, and vomiting, because these side-effects were well-known. And yet, across the different pemvidutide dose-arms 36% of trial participants discontinued their use of the drug. In the 2.4mg cohort, the one that resulted in 15.6% weight-loss at 48 weeks, 42% of participants discontinued the drug (which makes that statistical fluke more likely). The equivalent numbers for semaglutide and tirzepatide are in the 15-17% range. It’s hard not to conclude that pemvidutide is uniquely intolerable.
Altimmune’s management has tried to frame this intolerability in as pleasant a light as possible, even claiming that similar levels of trial discontinuation were seen in the semaglutide and tirzepatide phase-2s. We review these claims at great length in this report and completely dismantle them, showing how patient compliance rates in every relevant semaglutide and tirzepatide trial – both those from phase-2 and phase-3 – refute Altimmune’s claims. At best, Altimmune’s management is cherry-picking statistics. Other times, they’re simply making claims that are factually untrue. A drug with the compliance rate that pemvidutide displayed in its phase-2 trial – especially given the insatiable and pervasive demand for weight-loss drugs during the trial period – has zero chance of physician or patient buy-in.
The awful tolerability profile of pemvidutide will make headline weight-loss results of a phase-3 trial look like a disaster. The FDA requires headline phase-3 weight-loss results to be reported in the form of a “treatment effect,” i.e., inclusive of patients who discontinued treatment during the trial. This is how both Novo and Lilly reported their phase-2 and phase-3 results for semaglutide and tirzepatide, respectively. Altimmune…did not do that. Instead, the only result reported for pemvidutide was the “hypothetical effect,” which uses statistical techniques to estimate hypothetical trial results had no patients discontinued treatment. This is allowed for phase-2, but a) it’s aggressive not to report the treatment effect and b) they won’t be able to pull that off for their phase-3 trial, because it goes against the FDA’s guidance.
The FDA does allow for reporting both sets of results – the treatment effect and the hypothetical effect. Both Novo and Lilly did this for the phase-3 results of semaglutide and tirzepatide, and the difference between the two reporting methodologies was about 2% (e.g., semaglutide would have resulted in a hypothetical 16.9% weight loss if all participants remained on the drug the entire trial, but actual headline weight-loss was 14.9% because in reality about 17% of participants discontinued and they didn’t lose as much weight). Why didn’t Altimmune also report both sets of results? Well, a 42% discontinuation rate will result in a massive gap between the real-world treatment effect (which Altimmune will have to report for phase-3) and the hypothetical effect. We estimate that a discontinuation rate of about 40% would result in a gap of 4.5-5.5% between the two results, which means that the “real” headline weight-loss result in Altimmune’s pemvidutide phase-2 was probably in the 10-11% range rather than the 15.6% reported. That kind of result in a phase-3 is likely to completely tank the company.
The GLP-1 space is currently undergoing a Cambrian explosion of new drugs, and pemvidutide has no chance of competing successfully. There are close to two dozen GLP-1 drugs currently being studied by a host of different pharmaceutical companies in various stages of development. Novo and Lilly are advancing oral formulations of semaglutide and tirzepatide. Both Novo and Lilly are also advancing new next-generation injectable compounds – CagriSema and retatrutide, respectively – that further target additional metabolic hormones and that have already been shown to result in more weight loss and better glycemic control than their current offering. There are also new mechanisms from Roche, Amgen, and Boehringer-Ingelheim as well as new takes on basic GLP-1 agonism from Sciwind and Sun Pharma. We discuss many of these molecules in greater detail, but it’s notable that every single one results in more weight loss than pemvidutide, most of them also control blood-sugar well, and the majority of them are ahead of pemvidutide in their development trajectory as pemvidutide hasn’t even begun a phase-3 yet. They’re also all sponsored by serious pharmaceutical companies with the financial capital and clinical talent needed to bring these programs past the finish line. Altimmune? Not so much.
Altimmune’s management team has a long history of raising capital for pharmaceutical train wrecks. Prior to Vipin Garg’s appointment as Altimmune’s CEO, he had two stints as a pharmaceutical CEO. At Tranzyme, Garg successfully took the company public and raised over $200 million in capital over more than a decade, including well-timed offerings that were rapidly followed by trial failures. His tenure there ended with Tranzyme sold into a reverse merger at a valuation of $3 million. Then at Neos, Garg also took the company public and raised over $250 million in capital only to fail at commercializing the drug he was brought in to shepherd. After rejecting a generous unsolicited takeover offer and overseeing a 60% decline in the company’s stock price after its IPO, Garg was forced to resign. Now at Altimmune, Garg is joined by CFO Rich Eisenstadt, who accompanied Garg in both of those previous busts, and CMO Scott Harris, who also oversaw the clinical trials that hit the wall at Tranzyme. Harris also has the notorious distinction of having cheaply acquired the rights to the drug whose clinical trial failure he helped oversee and then raise $20 million for a “stealth” biotech startup that spent 5 years re-studying it before quietly shutting down. Not everyone can claim they pulled one over on Dan Loeb’s venture firm, but Harris can.
The gang has already comported itself disgracefully at Altimmune in an episode that may be forgotten but telling. Garg and company exploited the pandemic and Altimmune’s failed track record in vaccinology to loudly tout the development of a COVID-19 intranasal vaccine that never got past a phase-1 trial. The program was shut down by mid-2021, but not before Altimmune took advantage of the continuous vaccine press releases and raised about $225 million in multiple offerings during the pandemic’s peak period. Altimmune has about $135 million left on a shelf registration from last year that current shareholders should keep in mind. If this management team’s track record is any indication, a successful equity offering and the failure of pemvidutide will look uncomfortably familiar.
Read the full report here by Kerrisdale Capital