BUY (AVEO, $0.61)
Expecting 1Q18 TIVO-3 Success; TIVO-1 Confounded by Poor Design & Execution Rather Than Tivozanib: Initiating BUY/$3 TP
May 4, 2017
Jonathan Aschoff, Ph.D.
We are initiating coverage of AVEO Pharmaceuticals, Inc. with a Buy rating and 12 month target price of $3. AVEO’s lead candidate, tivozanib is a VEGFR TKI designed initially to treat renal cell carcinoma (RCC). Our valuation is based entirely upon projected future EU tivozanib royalties and US co-promotion revenue to AVEO, with product launches projected in 2H17 and 2H19, respectively, provided that the EMA approves tivozanib in mid-2017, and the drug succeeds in the Phase 3 TIVO-3 trial in 1Q18 that is required for FDA approval. AVEO shares have been kicked to the curb since the FDA did not approve tivozanib upon TIVO-1 data, and we see unappreciated value in TIVO-3.
The most important investment catalyst for AVEO is the 1Q18 release of Phase 3 TIVO-3 results in third-line RCC. Clinical success in this setting will directly show third-line utility and also support the prior TIVO-1 trial results in the first-line RCC setting such that the FDA would likely approve tivozanib for use in both settings. TIVO-1 primary endpoint success was contradicted by a key secondary endpoint failure that resulted from the trial’s poor execution and design rather than a tivozanib deficiency, and we fully expect TIVO-3 to demonstrate tivozanib’s utility in RCC and resolve this outstanding issue. TIVO-3 should be fully enrolled in June.
Nearer-term investment catalysts for AVEO include data from the Phase 1 portion of a Phase 1/2 trial in June, followed by a roughly mid-2017 EMA decision on tivozanib. The Phase 1/2 trial is testing the combination of tivozanib and nivolumab in advanced RCC, and positive results would support tivozanib use with the fast growing immuno-oncology drug class, which is important given the highly likely trend toward combination therapy in the first-line setting. EMA approval would importantly underscore our view that TIVO-1 results were confounded by trial design and not by any negative issue with tivozanib, and to that end AVEO’s partner EUSA is preparing its oral presentation to the CHMP, which will occur in May and should, in our view, lead to a 2H17 approval in the EU.
Competition is high among VEGF TKIs, but tivozanib has several differentiating features beyond its efficacy. Tivozanib thus far appears to demonstrate best-in-class safety results among the entire VEGFR TKI class, due to its high selectivity and low off-target effects. The most frequent adverse event with tivozanib was hypertension, but that is easily treated and does not require dose limiting or interruption. More importantly, tivozanib caused the lowest incidence of the far more problematic hand-foot syndrome. Favorable safety also greatly facilitates combination therapy, as toxicity from drug combinations often limits the ability to treat.
Cash should last into 2Q18. AVEO had about $39M in current cash as of the end of 1Q17, including its recent capital raise that netted $15.5M, which should be sufficient to support its activities into 2Q18, by our projections.
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