Replimmune: Continuing To Justify The Bear Thesis (For Now) (NASDAQ:REPL)

Before we begin, I just want to remind you that I have prepared an article on ASCO and the various biotechnology companies that are showing up, you can read that here. There are over 50 companies being represented in the oral sessions, so click here to read more on what will be featured!

Topline Summary and Update

Replimune Group, Inc. (NASDAQ:REPL) is a biotech focused on developing immunotherapy treatments for cancer, and 2024 has been a rough year for the equity, falling 35% since the beginning of the year. I was originally bearish on the stock as well, since back in January, it had notched yet another loss in the use of virus therapy for treating cancer. Today, I want to update the thesis now that the stock has continued to decline. When can we expect an inflection point? Unfortunately, in my view, we’re probably not there yet. Read on for more.

Pipeline Updates

RP1

REPL continues to work on RP1, an HSV-derived oncolytic virus designed to both kill tumor cells and induce an adaptive immune response. This was the start of the bad run for REPL back in December, when they failed to demonstrate much evidence that adding RP1 to anti-PD-1 therapy could improve disease outcomes in patients with cutaneous squamous cell carcinoma in the CERPASS study. There was some initial evidence that RP1 could improve response rates in patients with locally advanced disease, rather than metastatic disease.

Since then, REPL has shared results of their ARTACUS trial, using RP1 alone in patients with skin cancer who had previously undergone an organ transplant. In total, 8 of 23 evaluable patients achieved a response while receiving RP1, with most of these patients having cutaneous squamous cell carcinoma. One patient who had a new case of basal cell carcinoma after starting in the study had a complete response. No evidence was shown to suggest that RP1 treatment would lead to rejection of donated organs or bone marrow as well.

REPL has guided a number of important catalysts for RP1. First among these are a few presentations at ASCO 2023, including an oral abstract presentation focused on the IGNYTE study (RP1 plus nivolumab in patients with melanoma after failure on a prior anti-PD1 therapy). We previously saw an interim report showing that 31.4% of patients responded to this combination in IGNYTE. They are expected to release the 12-month primary analysis in Q2, 2024, although it’s not clear whether this will be the subject of the ASCO presentation.

Based on the melanoma readout, REPL is currently guiding that they’ll submit a BLA to get RP1 approved for melanoma after failure of other immune checkpoint inhibitors. Supporting this, they are planning to launch the phase 3 confirmatory IGNYTE-3 study comparing RP-1 plus nivolumab against physician’s choice treatment.

RP2

RP2 is a more advanced oncolytic virus therapy, one that also encodes an anti-CTLA-4 antibody to additionally bring the checkpoint inhibitor into the equation. And they have their sights set on cancers that tend to affect the liver first. In the last article, I discussed some encouraging early signals they saw with using RP2 with uveal melanoma that had metastasized to the liver.

RP2 will also be the subject of REPL’s second ASCO abstract, providing a more in-depth look at the safety and efficacy of RP2 in this uveal melanoma setting. REPL has guided that they are near a final study design for a pivotal trial combining RP2 and nivolumab for patients with advanced uveal melanoma. They also intend to start a phase 2 trial of RP2 plus atezolizumab/bevacizumab for patients with hepatocellular carcinoma that has progressed on an immune checkpoint inhibitor.

Financial Overview

As of the latest financial filing for fiscal Q4 2024, REPL held $433.7 million in current assets, $74.5 million and $346.2 million were cash and short-term investments, respectively. REPL also held $44.8 million in debt. The quarterly operating expenses reached $58.8 million, which yielded a net loss of $55.1 million after considering R&D incentives and other income.

Given this cash burn rate, REPL has approximately 7 to 8 quarters of cash runway to fund their operations. This is consistent with their guidance that they can continue to operate into the second half of 2026.

Strengths and Risks

Strength – Stable cash pool to find their landing spot

Upwards of 2 years of funds in the tank should give REPL plenty of room to pivot should it be necessary, as they look to lock in their first drug approval. It is worth noting that the cash burn rate has accelerated year over year as they’ve initiated more advanced clinical trials. But their current cash and investments should see them through the guided submission of their BLA.

Strength – On track (?) for a BLA submission

REPL is guiding a pretty aggressive timeline for seeking approval of RP1 in melanoma. At its face, this bodes well for the fortunes of the treatment, particularly in an area of unmet need like checkpoint-refractory melanoma. I put a question mark on this because companies, particularly these small ones, slip on their guided timelines all the time. A submission (and acceptance) of a BLA could be an important catalyst for REPL. But whether they’re actually able to wrap it up this year is a big question.

Risk – Virus therapy has experienced many, many setbacks

It’s difficult to stress enough that oncolytic viruses have been a promising strategy tested many times over the past several decades, without very much progress to show for it. We have one intratumoral therapy approved in melanoma, T-VEC, but this has failed to continue to carve out a niche so far. And that fails to account for the companies in the graveyard of the market who have tried their hand at this.

Based on this history, I am pessimistic about pretty much any tumor virus program, and so far, REPL has not proven themselves on this front. I look forward to the ASCO presentations as a proving time, and I hope to change my mind soon.

Bottom-Line Summary

REPL is moving decisively toward what they hope will be a drug approval. In their view, RP1 is showing “clear” activity in the specific setting of melanoma that they’re targeting, and hopefully the FDA will see it with the same optimism. I, for one, am not certain that the timelines they communicate will be met, and I am not quite sanguine about how these data look altogether and whether they’ll eventually justify approval.

Meanwhile, while there are potential needle-moving catalysts on deck, I feel REPL is currently priced just about right for where they are and how sturdy their clinical castle is looking. To me, that says, “Sit and wait,” rather than “jump in.” If you’re particularly risk tolerant, there is an opportunity, as the share price has fallen to near all-time lows. But for me, I don’t feel confident we’ve really reached that inflection point just yet. And the prospects of possible approval haven’t changed my mind.