Versartis Inc (NASDAQ:VSAR) just announced the failure of one of its lead development assets and the company has taken a sharp hit on the back of the news. At the close of play on Thursday, Versartis was down by just a couple of percentage points.
After hours, however, and in line with the data release, the company will open the session on Friday at an 84% discount to yesterday’s close, falling from $21.60 a share to $3.50 a piece. There aren’t any two ways to look at this development – the news is very negative for Versartis and its shareholders and the failure sets the company back substantially.
As usual, however, here at Insider Financial, we are all about spotting opportunity in this sort of situation and – again, as usual – we think we found one.
Before we get into that, let’s quickly outline what happened.
Versartis was developing a drug called somavaratan in a target indication of growth hormone deficiency and, specifically, with the latest trial, the company was trying to demonstrate safety and efficacy in a pediatric population with this condition.
The drug itself is a recombinant human growth hormone, which is in line with standard of care treatment in this space, but it was designed as a long-acting drug in the sense that patients would be able to take one or two doses of it and not have to worry about dosing for a while, which compares favorably to the almost daily growth hormone injections necessary with current standard of care options.
Unfortunately, however, the latest trial data shows that the drug doesn’t seem to work.
And it wasn’t as if the company needed to demonstrate that its asset could be more effective than current standard of care therapy (for purposes of this trial, Genotropin was used); Versartis only needed to demonstrate noninferiority or, in other words, show that its drug could have the same effect as Genotropin in these patients but, as mentioned, with a less stringent dosing schedule.
As per the data, over a 12-month period, patients treated with somavaratan grew 9.44 centimeters in height vs. 10.7 centimeters for patients who received Genotropin as a control.
Management has made a statement associated with the release and it’s the usual spiel – we are surprised by the results, disappointed and will be evaluating the forward path for the asset, all that sort of thing – but the bottom line is this is probably the end for somavaratan in this indication.
So how can that possibly be an opportunity in this situation?
Well, Versartis isn’t the only one trying to develop a long acting growth hormone treatment for patients with GHD. Ascendis Pharma A/S (NASDAQ:ASND) is developing a drug called TransCon Growth Hormone, which is currently being investigated as part of a phase 3 study in boys and girls ages up to 12 and 11 respectively. The trial is basically the same set up as was that investigating somavaratan, comparing TransCon Growth Hormone to Genotropin (once weekly and once daily injections respectively) with a primary endpoint of noninferiority.
If the company can hit on this endpoint, it will have the entire market to itself, whereas previously (i.e. before Versartis dropped out of the race) it would’ve had to share it with somavaratan.
The opportunity, therefore, is in taking a position ahead of the TransCon data release in anticipation of success where somavaratan failed. The trial is scheduled for primary completion in November 2018, with study completion slated for a month later in December 2018. This means we should see data hit press before the end of next year.
Of course, there is a chance that Ascendis’ drug will also fail to demonstrate noninferiority, and that’s where the risk lies in this position. With the failure of somavaratan, however, the reward on offer is far more substantial now than it was just last week.
We will be updating our subscribers as soon as we know more. For the latest updates on VSAR, sign up below!
Image courtesy of Libertas Academica via Flickr
Disclosure: We have no position in VSAR and have not been compensated for this article.