From Germophobe to Germophile

Using the microbiome to treat atopic dermatitis ($FBRX $PHGE $EVLO $ASLN)

Welcome to our first monthly thematic write up. This is also the first in a series about the potential of microbiomes applied across a variety of indications. This essay begins with some context on 1. the microbiome market and 2. atopic dermatitis, before a very scientific look at 3. current AD drugs in development. For those who want to get to our picks and justification, you can directly jump to 4. our shortlist far below.

1. The Microbiome Market

In 2015 there were less than 50 biotech companies focused on microbiome-informed therapies to treat disease. Today there are over 200.¹ The total microbiome market will have nearly doubled by 2023 in just five years, after building on 2010-2017’s microbiome investments that amounted to $840M across 45 equity deals.

The rise of microbiome science can be largely attributed to the U.S. National Institute of Health’s (NIH) initiation of the Human Microbiome Project in 2007, which allocated $170M over 10 years towards the mission of advancing the understanding of the human microbiome and its role in diseases. As a result, microbiome related academic publications skyrocketed, growing 9x from only 2600 PubMed citations in 2007 to over 22,000 in 2018.² This translates to a massive gain in scientific understanding of the microbiome in just a decade, while still remaining a very nascent field for science and medicine. As a few of our college biology professors fondly stated it a while back, “the microbiome is the next frontier of biology.”

Big pharma is taking notice, too. Since 2014 to 2019, 13 partnerships were inked between pharmaceutical companies and microbiome firms. Many of these deals provided upfront investments in addition to milestone payments and royalties on future sales, a testament to the potential of microbiome in treatment pipelines across a variety of diseases. As of 2018, there were only three microbiome-based products in Phase 3 trials. However, a backlog of drug candidates in Preclinical (32) and Research phases (32) means that many potential microbiome treatments are either in or set to enter Phase 2 and Phase 3 trials, demanding the attention of small and large investors.

For example, according to an SVB market analysis, today’s value of microbiome-based products for diagnostics and disease therapy is estimated to be between $275- $400 million, with estimated growth between $750 million and 1.9 billion by 2024.³ At Parallax, we believe that if there are just one or two blockbuster successes that originate from the microbiome space in major indications such as eczema, which we will cover today, growth headroom would be much higher than SVB’s estimate.

With numerous emerging scientific theories about the microbiome’s role in auto-immune, gastrointestinal, anti-microbial, cardiac, and even central nervous system or cancer indications,⁴ ⁵  biotechnology firms that have expertise in understanding and treating disease by correcting imbalances or deficiencies of the microbiome have massive growth potential, with over $700B in global pharmaceutical market cap based in the treatment of these indications.⁶ We believe that microbiomes will become a major pharmaceutical segment in the future as these approaches are often well suited for diseases that are hard to treat today (such as eczema, inflammatory bowel disease, migraines, antibiotic-resistant bacteria, and others), and where current, minimally effective therapies still demand a premium price.

So, what is a microbiome?

To obtain a harmonious existence, all living things participate in ecosystems as one part of a larger life cycle shaped by evolution. The human body itself is such an ecosystem, home to a massive but invisible population of bacteria, fungi, protozoa, bacteriophages, and even viruses that have unique abilities that the human body itself does not possess. Humans have instead harnessed the power of these organisms that we co-exist with, often called the microbiome, to perform critical functions such as digesting certain foods, giving us immunity to communicable disease, producing essential vitamins, or preventing allergies and auto-immune disease. When the human microbiome is disrupted, for example after using antibiotics to treat an infection, diseases may occur, such as worsened digestion or a weakened immune system.

Microbiome science & therapy is in its infancy

Microbiomes are active throughout the human body, and our scientific understanding of how they work is still nascent, which is why the area represents a huge growth opportunity in the coming decades. However, this also means that there are only a handful of organ systems and disease states where the role of the microbiome is understood well enough to attempt a microbiome-based therapeutic intervention.

Generally, microbiome therapies seek to either add or remove members of the human microbiome. Additive therapies include the incorporation of specific strains of bacteria into the patient’s microbiome. Healthy, ideal microbiome populations take a longer time to gain a hold, and therefore may reach the peak of their efficacy over the long term, even outside of the measurement range of standardized clinical trials. The same can be true in reductive therapies, which focus on the removal of hazardous pathogens or components of the microbiome to cure disease. However, if reductive therapies do not empower healthy microbiota to take over in the location of the infection, they may lack longer term efficacy. Therefore, reductive strategies that only kill infection targets or those paired with additive approaches are being explored to achieve the most optimal effect.

For example, probiotics for the digestive system have been used for decades to add useful microbiota to boost gut health and address diseases like nutritional deficiencies or irritable bowel syndrome, with only mild success largely attributed to a lack of understanding about how the gut microbiome is maintained and regulated. The most successful approach for repopulating the gut microbiome to-date has been so-called “poop pills”, officially termed fecal microbiota transplantation (FMT), where donor stool is put in a capsule and taken orally by the patient. However, biotech firms have struggled to adapt this personalized approach into a scalable pharmaceutical solution since there are concerns about the potential safety profiles and screening processes in FMT, as poor screening processes have resulted in unexpected infections and even deaths in a small subset of patients. After several decades, biotech firms are only now learning how to develop prescription FMT formulations that are effective and well tolerated in broad patient populations, highlighting the challenge of translating our current understanding of microbiomes into meaningful therapy.

However, since the body’s largest organ, skin, is easily accessible and easily monitored and treated, microbiome treatments that aim to solve for skin disorders like acne, eczema, and psoriasis represent the highest-likelihood first wave of viable microbiome treatments. The companies we are profiling today address a wide range of skin diseases with several different scientific approaches. We will focus on a skin indication where clinical trials are furthest along – atopic dermatitis, or eczema.

2. Atopic Dermatitis (Eczema) and The Therapeutic Frontier

Eczema is a way to describe symptoms of skin inflammation and irritation. Atopic dermatitis is a specific disease which is the underlying cause of an eczema, has some hallmark common locations, and lack of clear environmental causes. Since AD is quite common and poorly understood (vs. allergic dermatitis), the terms AD and eczema have become interchangeable, especially as AD is also the most common type of Eczema.

One of us here at Parallax, and a few of our siblings, have had lifelong eczema, and we have all seen upfront the magnitude of the pain and frequency of flare-ups that puts a damper on overall well-being. If you still don’t know how bad eczema can get, then you only need to read what one Redditor /u/1gencdn writes:

“No matter how well you describe it, they will never understand how much it affects you physically and mentally. When my skin is good, but I'm just itchy I tell them its like wearing the thickest, itchiest wool sweater you could ever imagine, but no matter how much you try to scratch through the sweater, you never really are able to itch your itch.”

Eczema sucks. And it affects 10% of the population,⁷ responsible today for nearly $20B in pharmaceutical spending and is projected to reach $34B by 2026.⁸ AD is more common in children, affecting 20% of pediatric patients and ~3% of adults. As these statistics suggest, AD could be seen as the equivalent of diabetes in dermatology. Is there anyone you don’t know with it?

New research suggests that AD may likely be caused by an imbalance of just a few specific bacterial species in the extremely complex skin microbiome.⁹ Peer-reviewed research indicates that when one bacterium in particular, Staphylococcus aureus, is present on the skin at higher than normal levels, a patient is more likely to suffer from AD. In addition to AD patients showing high levels of S. aureus on affected skin, mice studied in the lab setting also develop AD-like lesions when S. aureus was allowed to grow on their skin.¹⁰ Since several other species of Staphylococcus are also present on skin with no harmful effects, drug developers theorize that management of persistent S. aureus infections could successfully treat the underlying cause of AD.

Current Standard of Care

Currently, treatment for this disease is limited by an incomplete understanding of the underlying cause, and as a result focuses predominantly on alleviating its symptoms of itching, dry skin, and flaky red rash (and all the bingo squares above). This treatment involves use of topical corticosteroids (TCS) as a first-line prescription for AD and they function by acting on immune cells (such as T lymphocytes, monocytes, macrophages, etc.) to suppress the actions of pro-inflammatory cytokines. However, steroids and other topical auto-immune treatments, while effective at relieving symptoms, cause long term side effects that may lead to new morbidity or changes in the biology of the skin that feed a vicious cycle, making susceptibility to eczema worse over time.

Current patients with moderate-severe AD symptoms may also be prescribed a topical calcineurin inhibitor (TCI) which inhibit calcineurin-dependent T-cell activation, or prescribed topical antibiotics, but this has been a source of controversy and many of these treatments are no longer recommended by current guidelines.

The newest systemic treatment is Dupilumab (i.e. Dupixent, manufactured by Sanofi/Regeneron), a monoclonal antibody targeting IL-4 receptor alpha, which taken in combination with topical glucocorticoids resulted in 100% of patients responding, compared to only 50% in the control (topical glucocorticoid with placebo injection). Annually, patients pay an estimated $30K USD, leading to prescriptions only for severe patients as a therapy of last resort. Despite this hefty price tag, Dupixient has captured 6% of the eligible market which translates to 2.2M patients, amounting to ~$4B+ in annual revenue!¹¹ This figure shows just how large the available eczema market is, and how desperate patients with moderate-severe disease are for symptom relief.

3. Novel Atopic Dermatitis Treatments Under Clinical Investigation

Atopic Dermatitis Drugs & Pipeline (Blue cells covered today by Parallax) ¹²

As always, the differentiators between all these treatments will be the method of administration, frequency, cost, individual responsiveness, potential side effects, and ultimately efficacy. In some clinical indications, scientists observe a statistically significant improvement in patient outcomes specifically in the placebo group. It is well known that strong placebo responses are observed in psychotropic trials, and more recent work has shown clinical trials for both psoriasis and atopic dermatitis show a significant improvement in the placebo group.¹³ ¹⁴ There are many factors that may cause these changes ranging from more regular bathing and treatment of AD with topical treatments to even decreased stress and improved psychological outcomes because of trial enrollment. This, along with the propensity for AD to subside and flare up, can present a challenge to companies attempting to obtain FDA approval in this indication.

That being said, there are three main classes of AD drugs currently in-clinic:

1. Commensal Bacteria

Commensal bacteria are bacteria that benefit from living on our skin without ever noticing they are there. This is the case for many types of bacteria – you have trillions of live bacteria living and thriving on your skin at this very moment. The bacteria of a healthy skin microbiome, like Roseomonas mucosa, are not harmful. In fact, they produce different chemicals that help protect your skin from infections with harmful bacteria. One example of chemicals produced are acids, which is why your skin has a pH-value of approximately 5. Some harmful bacteria will not thrive in this slightly acidic environment, and your skin is kept safe and in balance. But sometimes, the balance of the skin microbiome is disrupted, making it possible for infectious bacteria such as Staphylococcus aureus to take over and cause inflammation of the skin, leaving it dry, swollen, hurtful and itchy, as we discussed earlier regarding AD.

In contrast, there are several bacteria that have been shown to improve patient’s skin health such as Staphylococcus hominis, and commensal bacteria that have been shown to have positive outcomes in the gut such as Bifidobacterium animalis ssp. lactis. These bacteria secrete various metabolites such as lipids, antimicrobial peptides, and other molecules that interact with both other bacteria and directly with the human body, which attenuates the immune response.

There are a few predominant types of formulations for this treatment:

1. An oral pill designed to allow bacteria to populate the patient’s gut

2. Topical ointments applied directly to the skin, each of which contain a live, pharmaceutical preparation of bacteria

3. Potentially bacteria lysate¹⁵ or administration of gut bacteria by an enema, but these are not considered favorable modes of treatment administration, due to issues of sample stability and patient willingness

Some microbiome companies in this space focus on developing a single strain, differentiated based on the specific region of the microbiome they are targeting. Often, these companies tout potential benefit in multiple disease areas. However, it remains to be seen whether a single specific bacterial strain can be broadly efficacious in multiple diseases and patient types or whether specific bacteria must be tailored to treat specific diseases or patient microbiota signatures.

2. Bacteriophage

An alternative to utilizing commensal bacteria to treat AD has been employing bacteriophage, a type of virus that infects and replicates exclusively within bacteria. Phage are naturally occurring predators of bacteria, having evolved to infect and kill bacteria. Bacteriophages are highly specific, killing only a few strains of bacterial species. This represents a significant benefit as phage treatments cannot target healthy microbes, unlike traditional antibiotics. A significant concern, however, is that phage may be too limited in their targeting of microbes, so bacteriophage therapies are typically designed as “cocktails” that combine several different bacteriophage variants to target either a single strain of bacteria or multiple strains that are all implicated in disease. These more generalized cocktail formulations can be useful if a patient’s infection has not been fully identified but treatment is required immediately.

• Bacteriophage have unique challenges as they have limited stability in solution. Moreover, there are several instances where reduction of viable phage concentration has been shown to result in therapy failure. Dosage represents a significant challenge as well, especially in instances where phage may be cleared from the therapeutic environment quickly or have interactions with host antibodies.¹⁶ Due to these concerns, phage treatment may require repeat dosing or a sustained release approach.

• Although bacteriophages are not inherently toxic to humans, they have the potential to release toxic components found in bacteria after lysis, though clinical trials haven’t shown any severe adverse reactions as of yet.¹⁷ There remains concern around FDA approval of phage cocktails that include multiple bacteriophages. One benefit is that bacteriophage therapies are currently approved for usage in a couple Eastern European countries (Russia, Georgia, Poland), contributing to a growing body of evidence demonstrating efficacy and a favorable safety profile.

3. Antibody-directed immunotherapy

Researchers are investigating different pathways to alleviate immune cascades that lead to AD symptoms, such as blocking signaling of various inflammation response proteins, interleukins, such as IL-4, IL-13, and, IL-31, all of which are key signaling proteins contributing to AD.¹⁸ ¹⁹ In patients with atopic dermatitis, higher levels of serum IL-4, IL-13, and IL-31 have been observed in patient-derived samples, highlighting IL-31 as a key driver of skin inflammation in AD patients.²⁰ Using monoclonal antibodies designed to selectively bind to the receptor targets of each of these interleukins, scientists aim to disrupt the interleukin inflammation cascade and alleviate the symptoms of AD.

• Galderma recently published positive results from its phase 2B trial on nemolizumab blocking IL-31 and improving biomarkers of AD. JAK inhibitors are also at the forefront of research to turn down eczema symptoms.

• Other pharma giants have been quick to research their own IL-4/13 inhibitors in an attempt to grab a piece of the pie. The paradigm for interleukin-based therapies seems to be transitioning away from a receptor-focus towards targeting particular parts of the downstream immune activation pathway such as JAK inhibitors.²¹

4. Our Shortlist of Microbiome x AD Biotechs

Microbiome-focused companies must articulate the following attributes to constitute a reasonable investment opportunity:

1. Leadership with deep scientific expertise in the biology of microbiomes

2. A focused, well supported thesis for addressing a disease using the microbiome with prior clinical results

3. A microbiome intervention strategy (e.g. therapy design) that is demonstrably targeted and highly effective in pre-clinical lab studies

Conversely, a microbiome start-up that is too narrowly focused on a single intervention in a single indication may present an outsized risk to investors, as failure in a single clinical trial invalidates all value. Ideally, a biotech company will be working on more than one feasible intervention strategy for the microbiome (e.g. a bacterial-strain-replacement formulation for eczema and another distinct population designed for acne) or more than one feasible application of a single microbiome intervention strategy (e.g. bacteriophages that target strains of bacteria implicated in multiple diseases).

---

Our Top Pick: Forte Biosciences ($FBRX), the skin’s microbiome booster

While FBRX only has one in-clinic drug, we believe that Forte’s FB-401 has the highest potential to become the new standard of care for non-severe atopic dermatitis for the main reasons outlined below.

1. There is a large unmet need in a significant global population that FB-401 could seriously disrupt. The global eczema market will soon surpass $20B, but currently there is no silver bullet treatment for mild/moderate AD, inclusive of children. Dupixent, the main competitor, has a projected $9B sales by 2025, but only half patients report optimal responses, and it is not easily affordable. AD patients also tend to dislike steroid solutions.

2. FB-401 has an extremely strong and favorable safety profile sustained in earlier trials both in adults and kids, which we believe suggests the phase 2b trial is relatively de-risked, especially as FB-401 does not penetrate the skin.

3. We are impressed by both the management’s statements and comments by KOLs in the mild/moderate AD space, which gives us high conviction in the Q3 phase 2 readout, where we believe positive results could lead to a 300%+ upside, and -90% downside on negative data.

4. There is a 6.96M share float out of 13.5M shares outstanding, of which 61% are held by institutions and 28% are held by insiders. With a higher short interest of roughly ~1M shares (14% of float as of June), we believe that a positive trial readout could boost $FBRX’s price 4x to $140+ (roughly a $2B market cap valuation for a potential best-in-class candidate in FB-401).

5. Bonus – updated July 2021 –  Forte announced a new study at the end of June, an open-label continuation of their current trial up to 48 weeks with n=25. We believe this derisks FB-401 further, as the trial is indicative of a continued study to ensure FB-401’s stellar safety profile and to examine the extent of bacterial colonization over a longer time period.

Save the Date

Phase 2 data anticipated sometime Q3 for age 2 and older patients (n=124 but oversubscribed at 154, for 16 weeks)

Things to note

• There is only one drug in the pipeline for a make-or-break readout

• Chardan equity analyst Gbola Amusa set a $100+ PT, with a $800+ blue-skies scenario target, given the lack of good-enough AD solution on the current market that FB-401 could seriously disrupt

  • In Amusa’s call with Dr. Eric Simpson, a renown Professor of Dermatology at the Oregon Health & Science University, he attributed a 70%-80% probability of success for FB-401. Amusa consequently increased his probability rate for FB-401 to 45%.

  • In Dr. Eric Simpson’s response to the question, “What are some areas/therapies that offer patients with eczema/AD the most promise?”, he replies “There is much promise in modifying early life skin barrier exposures via emollients or microbes to reduce the risk of AD. For established disease, novel nonsteroidal and targeted therapies are emerging. Hopefully the days of systemic steroids for a chronic disease are over”

• The young age of enrolled trial patients (as young as 2) suggests the FDA is highly supportive of FB-401’s safety profile, especially with the lack of steroids, as most AD patients do not desire steroid solutions (80%+)

• Phase 1 was not placebo-controlled, but Phase 2 is placebo-controlled

• Phase 2 trials were over-subscribed and has FDA Fast Track Designation

Science Review

Forte Bioscience’s FB-401 targets mild/moderate AD, with an emphasis on pediatric patients. It is a water-based spray with a single strain of bacteria. FB-401 (a Roseomonas mucosa formulation) improves atopic dermatitis disease parameters by driving tissue repair and anti-inflammation as well as suppressing potentially harmful bacteria like S. aureus.

The key idea behind using commensal bacteria as a potential treatment for eczema is to apply a topical live biotherapeutic, containing R. mucosa, which will then compete with the harmful bacteria for space, oxygen, and nutrients. The commensal bacteria will also release metabolites such as lipids/fatty acids and antimicrobial peptides to inhibit S. aureus growth and allow for the commensal bacteria to colonize the space and possibly remain as a defense mechanism. Published research has indicated that R. mucosa treatment improves microbiota diversity, decreases S. aureus colonization, and decreases serum levels of IL-13, an inflammatory cytokine observed in AD.²² The added commensal bacteria colonized the patient’s skin and their effects persisted for up to 8 months after treatment cessation, treating the cause of the inflammation or eczema rather than just the symptoms. This is the biggest single reason that we love FB-401.

Phase 1/2 results:

• Endpoint measured is the improvement in the Eczema Area and Severity Index scored by a dermatologist. The mean EASI was 77%.

• Primary trial endpoint of EASI 50% or greater was met by 90% of trial sample (18/20). 100% of moderate-severe group (9/9) met EASI 50. 79% met EASI 75 & 36% met EASI 90, which suggests efficacy in mild-to-moderate eczema.

• See real patient improvements here (pages 29-34)

Strategy & Management Review

This company could not be more clear about their vision and what they will do: “After obtaining FDA approval for FB-401, our focus will be on bringing FB-401 to market in order to address the significant unmet need for safe and effective AD therapy for pediatric as well as adult patients.” We also believe that other potential AD solutions such as monoclonal antibodies are simply not as scalable and cost-effective to produce and distribute. Should FB-401 be clinically validated and approved, then we foresee much lower costs and pricing compared to current drugs given the much easier scalability of bacteria and distribution – which would also have profound implications for the non-US market and the developing world that too needs affordable products (10% of the world).

We also think the CEO is the real deal, who has held onto his 2M+ shares, has a PhD from Caltech, was a VP at Lehman, was a portfolio manager at Allianz, was head of licensing at a biopharma, and on top of it all, is an ex-CFO. He has rotated through all the necessary roles possible (academia, finance, corporate BP, biotech) and done what he can to maximize Forte’s value.

The CFO is from $KRYS which has run nicely the past two years. The CMO is former lead of development for lebrikizumab in AD at the now-acquired Dermira. There are also two solid leaders dedicated to both up/down-stream manufacturing, which suggests a focus on quality control and readiness-to-market should Forte look to scale by itself.

The company also has 2+ years of cash runway with minimal liabilities, and 3M warrants and options outstanding. Our estimates suggest that executing all of these would drop the stock prices by ~$5.

Regarding intellectual property, there is patent coverage in 7 total & 10 ex-US jurisdictions, through 2037.

Who’s with us?

• Largest ownership by percentage: Arrowmark 10%, BVF, 10%, Franklin 6%, Point 72 5%, Perceptive 5% (added much in Q1)... and Orbimed 1%

• Price targets: B. Riley $73, Citi $75 , Chardan $105, Truist $70, Avg $80.75

Ways to invest:

Accumulate in the $25-34 range and hold through the Q3 event based on risk appetite. Of course, only hold onto what you can afford to lose given the binary event, and consider Sept/Nov and 2H calls for more leverage. Trim positions sizeably during the potential run-up to reduce risk.

---

BiomX ($PHGE): A bacteriophage approach to AD in the Skin Microbiome

What to know
The company is admittedly still in early innings and finding its footing in AD, as its leading trials are currently in acne, IBD, and cystic fibrosis – some of the more promising areas. Acne, for example, has been clearly proven to be caused by harmful bacteria living on the skin.

Science Review

BiomX believes that rather than increasing the population of healthy bacteria, like Forte, it may be simpler and easier to reduce the population of harmful bacteria (S. Aureus) present on AD-affected skin. To kill this strain specifically, they are utilizing bacteriophages, whose only biological function is to kill bacteria. Bacteriophages are efficient killers of bacteria, and have advantages such as being genetically inert to humans and human cells while being extremely targeted towards a specific strain of bacteria.

$PHGE’s treatment is also topical, and they are taking the approach of studying a bacteriophage cocktail that is customized to the microbiomes of individual patients while developing a generalized cocktail that would work for nearly all patients as a go-to-market product. For AD, the bacteriophage cocktail is being optimized to eliminate S. Aureus, the same bacterium that FBRX’s strategy targets.

To date, they have shown this cocktail to be effective and dose-dependent at reducing S. Aureus populations, meaning that they can attempt to treat a theorized cause of eczema without totally wiping out S. Aureus, which would have beneficial effects at lower populations.

Save the date

BX005 - Phase 2 results in 1H 2022

Phase 1 results

• Only 8 weeks for the endpoint time

• Still in-vitro per “Development of Bacteriophage Cocktail Targeting Staphylococcus aureus to Treat Atopic Dermatitis”

• Our take: interim results indicate that while S. Aureus are killed efficiently within the dosing period, the subsequent increase in populations of other commensal bacteria may occur outside of the timeline of trial endpoints measurement, emphasizing the need for follow-ups and careful interpretation of official trial endpoints which may occur before peak efficacy²³

Who’s with us?

• Ownership by shares: Chardan 2.9M, Takeda 2.5M, Orbimed 2.3M, J&J 2.1M (% ownership data unavailable)

• Avg. price target: $25

Ways to invest:

Patiently buy in small amounts close to the 52W low, as this is a much more long-term hold (2022 and well beyond) given the nascent pipeline

---

Evelo Bio ($EVLO): Treating AD systemically leveraging the small intestine-microbiome axis

What to know
Evelo Bio takes a different approach to addressing skin disease via the microbiome, believing that microbes found in the small intestine modulate immune system responses throughout the body, including in the skin. Evelo calls this the small intestinal axis, and recent research does implicate the small intestine’s interaction with gut microbes in regulating multiple organ systems. Responses will vary depending on the strains delivered, with differentiated effects in targeted organ systems, theoretically giving them a more diverse plate of possible first and second wave expansions into different indications, such as asthma/allergies and neuroinflammation stemming from the AD concept trials. However, the company has not yet reported significant nor substantial enough results indicating success in their AD treatment, and we believe that its Q1 interim data readout in phase 2 trials will be essential in getting a true gauge of their science potential.

Science Review

Evelo has two therapies under investigation that target atopic dermatitis, EDP1815 and EDP1867, and are enrolling for phase 1b trials right now. Termed “monocloncal microbials,” these catchy drugs deliver a single species of bacteria to the small intestine. Detection of these bacteria by dendritic cells in the lining of the small intestine is believed to lead to a cascade of anti-inflammatory immune response systemically. This makes the approach unique as the therapies are not designed to establish a living colony of these bacteria in the small intestine, but rather to be temporarily present in order to re-program immune cells in the body via these signaling cascades initiated in the small intestine.

The bacterial strains Evelo has selected for treating atopic dermatitis are believed to reduce inflammatory immune response throughout the body, including in the skin. One reason this novel mechanism via the small intestine may be valuable in the market is if it can be used in combination with topical or other systemic therapies, similar to Dupixent. These mechanisms may not be entirely specific to AD, as EDP1815 is currently being studied for its effect on other diseases like Psoriasis and to modulate inflammatory reactions to COVID-19 infection. EDP1815’s data readout for psoriasis in Q3 2021 could provide a good indication of potential success in AD.

Similarly, EDP1867 is also being investigated pre-clinically for other indications, and Evelo is investigating other monoclonal strains as well as non-competent (e.g. non-replicating) or bacteria-mimicking strategies for treating these diseases and neurological, cancer, and metabolic disease indications.

Save the date

• EDP1815: Q1 ‘22 phase 2 interim data readout (initiating Q3 ‘21)

• EDP1867: Q4 ‘21 phase 1b data

EDP1815 Phase 1 results

• EASI: 10/16 dosed patients on EDP1815 Improved at Day 5, however 6/16 worsened, and EASI50 was met by <50% of treated group.

• Our take: showing clinical improvement as a result of systemic therapy is a difficult road, and while the results of the phase 1 trial indicate that the therapy is more effective than placebo, the efficacy rate may not be high enough to outcompete the next generation of eczema treatment. One interesting artifact from the trial publication was that the EASI50 rate continued to increase after cessation of treatment when patients were re-evaluated at day 70 (after final QD dosing at day 56), indicating that max effects of immune “re-programming” may occur far after dosing ends, and by extension that therapeutic effect may be durable after treatment.

Who’s with us?

• Ownership by percentages: Flagship Pioneering 43%, FMR 15%, Harbourvest 5.7%, Credit Suisse 5.6%

• Avg. price target: $24.4

Ways to invest:

Set small limit buys for big biotech pullbacks (sub-$9), as there is ample time for price drops until more imminent and meaningful readouts through 2022

---

ASLAN Pharma ($ASLN): Microbiome’s competition from systemic immunotherapy

What to know
We believe that $RAPT’s recent doubling in valuation, at 4x the market capitalization of $ASLN on comparably weaker data warrants an initial entry position running up to its Q3 readout. However, there is substantial risk given the low n-count and longer estimated time of completion of phase 2b (by year-end 2022 with a target of n=120).

Science Review

ASLAN Pharma, based in Singapore, has a novel, first-in-class monoclonal antibody (mAb) that targets the IL-13 receptor α1 subunit (IL-13Rα1), which inhibits signaling through IL-4 and IL-13, the key drivers of inflammation and symptoms of atopic dermatitis. While it is not biome-based, we wanted to cite ASLN given its comparable results to Dupixent and upcoming Q3 phase 1b expansion cohort read-out that could pave the way for success in Phase 2b.

Save the date

• Phase 1b top line data from the expansion cohort in Q3 2021 (600mg expansion)

• ASLAN to initiate a Phase 2b dose-range finding trial in 2H 2021

Phase 1 results:

• Warning: note the low n-count

• At week 8, the average reduction in EASI from baseline at therapeutic doses (400mg and 600mg cohorts) was 74% (n=9) compared to 42% (n=5) for patients on placebo.

• 89% of patients achieved 50% improvement in EASI scores (EASI-50) versus 40% on placebo

  • 67% achieved EASI-75 versus 0% on placebo;·

  • 56% achieved EASI-90 versus 0% on placebo.

Who’s with us?

• Largest ownership percentages: RTW 8.5%, Vivo 7.5%, Orbimed 6.6%

• Avg. price target: $8

Ways to invest:

Like $FBRX, invest what you can afford to lose. Buy on dips closer to $3 between now and the Q3 catalyst event.

---

The Parallax View:

The microbiome market is already a diverse and rapidly growing medical field, with high-growth biotechs to match. Professors during our college days last decade were already claiming that biomes would hold the key to many of our outstanding medical questions, making now the golden age of microbiome exploration. For example, recent studies show that 90% of serotonin, our happiness hormone, is produced in the gut²⁴ – which could have profound implications for treating depression and anxiety, as well as weight regulation and even Parkinson’s in the hopeful future. All these connections are now unfurling thanks to academic and industry research in the microbiome.

In this long-read, Parallax has only scratched the surface, focusing in on the skin microbiome, and more specifically eczema, where microbiome-targeting therapies are headed for key catalysts in the next month and year. However, we will profile more biome-focused firms that show strong growth potential in other areas of high clinical needs such as treating antibiotic-resistant bacteria, skin disorders like psoriasis, and even cancer.

Be sure to track microbiome developments in the news on your own as well – for instance, endogenous (naturally present within humans) viruses could be responsible for preventing brain diseases like dementia or motor neuron disease. We are truly at the beginning of an explosion in business and medicine that builds on our still nascent understanding in microbiomes, which makes these exciting times for both learning and investing.

Next month: targeted protein degradation / PROTAC - $CCCC $KYMR $NRIX $ARVN

---

Disclaimer: Biotech investing is inherently risky. Our post is for informational purposes only, published to the best of our knowledge and understanding, and should not be used as the basis of any investment decision. This post is not financial nor investment advice, and we accept no liability for any potential direct or indirect losses as a result of our research and views. The reader bears full responsibility for their investment decisions. We reserve every right to adjust our positions without notice. We are not registered as securities broker-dealers or investment advisers. No information here is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. We do not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source.

Enjoyed this? Subscribe for company-specific deep dives. Or give it a share.

1. https://www.microbiometimes.com/the-microbiome-biotech-landscape-an-analysis-of-the-pharmaceutical-pipeline

2. https://doi.org/10.1371/journal.pone.0249835 // AbbVie (Holobiome, Synlogic), Allergan (Assembly), AstraZeneca (Seres), BMS (Enterome), Ferring (Rebiotix), J&J Holobiome, Vedanta), Nestle (Holobiome, Seres), Takeda (Enterome, Finch, Nubiyota).

3. SVB Microbiome Investment Trends

4. Sivan, A., … Gajewski, T. F. (2015). Commensal Bifidobacterium promotes antitumor immunity and facilitates anti-PD-L1 efficacy. Science, 350(6264), 1084–1089.

5. Mangalam, A., … Murray, J. (2017). Human gut-derived commensal bacteria suppress cns inflammatory and demyelinating disease. Cell Reports, 20(6), 1269–1277.

6. Parallax Analysis

7. https://nationaleczema.org/research/eczema-facts/

8. https://www.globenewswire.com/en/news-release/2021/04/07/2205772/0/en/Global-Atopic-Eczema-Treatment-Market-Will-Reach-USD-34-089-3-Million-by-2026-Facts-Factors.html

9. Chen, Y. E., … Belkaid, Y. (2018).  Skin microbiota–host interactions. Nature, 555(7697), 543–543.

10. Nakatsuji, T., … Gallo, R. L. (2017). Antimicrobials from human skin commensal bacteria protect against Staphylococcus aureus and are deficient in atopic dermatitis. Science Translational Medicine, 9(378).

11. https://www.ncbi.nlm.nih.gov/books/NBK539195/table/pe.app1.tab1/

12. Parallax Analysis, Company Investor Presentations

13. Andreasen, T. H., Christensen, M. O., Halling, A. S., Egeberg, A., & Thyssen, J. P. (2020). Placebo response in phase 2 and 3 trials of systemic and biological therapies for atopic dermatitis—A systematic review and meta‐analysis. Journal of the European Academy of Dermatology and Venereology, 34(6), 1143–1150.

14. Hick J, Feldman SR. Eligibility creep: a cause for placebo group improvement in controlled trials of psoriasis treatments. J Am Acad Dermatol 2007; 57: 972–976.

15. Hendricks, A. J., Mills, B. W., & Shi, V. Y. (2019). Skin bacterial transplant in atopic dermatitis: Knowns, unknowns and emerging trends. Journal of Dermatological Science, 95(2), 56–61.

16. Malik, D. J., … Kirpichnikova, A. (2017). Formulation, stabilisation and encapsulation of bacteriophage for phage therapy. Advances in Colloid and Interface Science, 249, 100–133.

17. Loc-Carrillo, C.,  Abedon, S. T. (2011). Pros and cons of phage therapy. Bacteriophage, 1(2), 111–114.

18. Dillon, S. R., … Gross, J. A. (2004) Interleukin 31, a cytokine produced by activated T cells, induces dermatitis in mice. Nat. Immunol.5, 752– 760.

19. Raap U, …  Werfel, T. Correlation of IL-31 serum levels with severity of atopic dermatitis. J Allergy Clin Immunol 2008: 122: 421–3.

20. Bodoor K., … Obeidat, M.A. IL-33/13 axis and IL-4/31 axis play distinct roles in inflammatory process and itch in psoriasis and atopic dermatitis. Clin Cosmet Investig Dermatol. (2020) 13:419–24.

21. Renert-Yuval, Y.,  Guttman-Yassky, E. (2020). New treatments for atopic dermatitis targeting beyond IL-4/IL-13 cytokines. Annals of Allergy, Asthma & Immunology, 124(1), 28–35.

22. Myles, I. A., … Datta, S. K. (2020). Therapeutic responses to Roseomonas mucosa in atopic dermatitis may involve lipid-mediated TNF-related epithelial repair. Science Translational Medicine, 12(560).

23. https://mattbiotech.substack.com/p/13-interview-with-jonathan-solomon

24. https://cen.acs.org/biological-chemistry/microbiome/Serotonin-helps-gut-microbes-thrive/97/i35#:~:text=Up%20to%2090%25%20of%20the,outcompete%20other%20species%2C%20she%20say