Today seems like a reversal day. The sector has been down
for 11 straight trading sessions and is at a support level. I would have thought that $74 on the XBI would have been stronger support but it busted right through even after the brutal selling. I am not huge into short term trading but this is looking like good levels to either have a short term trade or add to positions. There is certainly risk in that sectors do not sell off like this when they are healthy
but a lot of stocks have been taking up in this mess and so there is likely some good longer term value.
ASMB is a good candidate to add or initiate a position. It has a market cap of $240M with cash of about $150M, so it is getting pretty close to trading at cash levels. Of course, micro caps can and do trade below cash levels but the risk/reward at these levels is getting quite interesting. We should be getting updated 28-week data from the phase 2a trial in this quarter. So that is going to be the make or
break. If you remember the original data showed impressive viral DNA and RNA suppression but it did not quite translate into antigen suppression. I think people are going to be looking for antigen decreases but I am not convinced we will see that in the 48 week data.
ASMB presented at the IASL congress in June and looking back over the presentation they noted that “high level expression of HBsAg from integrated sequences limits ability of Core Inhibitors to decrease HBsAg levels from this source.” That seems to be hedging whether antigen decline is a good measure of success. I suspect the market wants to see antigen decline and/or cccDNA declines from the 48 week data and that would certainly revalue this stock higher. So what are the potential outcomes and how will the stock react?
We can easily book end the best and worst case. A lack of antigen or cccDNA declines plus a rebound in DNA and RNA would push this stock below cash. I think that is an unlikely outcome. At the other end
of the spectrum, declines in the antigens and cccDNA would revalue this stock higher. What happens in the middle? Continued suppression of DNA and RNA but no significant impact on antigens or cccDNA.
I think this is what the market is pricing into the stock but even in
that scenario I think there is more downside. That being said, suppression of RNA and DNA are approvable endpoints in HBV so they would likely have an approvable drug.
Would it be a commercial success? Absolutely. The HBV market is
selling billions without cures. Clearly the big upside for ASMB is to offer a cure and have HCV like success but even an improved non-cure is likely a $300M (plus or minus) drug. Given the current valuation that would offer nice long term upside for ASMB. So in the scenario that we get a sell-off on the decent data (but not indicative of a
potential cure), I would strongly lean towards adding (contingent on companies plans and whether or not I think it still looks approvable).
I will end it here as we are starting to get the reversal that I talked about at the beginning of this note and hopefully it gathers some steam.
Disclosure: Long
ASMB
