Fulcrum Therapeutics: Value Loss On SCD Data Is Telling (NASDAQ:FULC)

Fulcrum Therapeutics, Inc. (NASDAQ:FULC) is a developer of genetically defined diseases. Their lead candidate is losmapimod, a small molecule p38 inhibitor which was once rejected by Roche (OTCQX:RHHBY) (OTCQX:RHHBF) after it failed interim review in a phase 3 cardio study. In this large study in 3,503 patients presenting with acute coronary syndrome (specifically, a heart attack), losmapimod failed to demonstrate efficacy against the primary endpoint of a “composite measure of adjudicated major adverse cardiovascular events, comprising the time to first occurrence of cardiovascular death, myocardial infarction, or severe recurrent ischemia requiring urgent coronary artery revascularization.”

Fulcrum, luckily, did not first buy the drug and then search for a disease. The company was exploring how to stop the DUX4 gene from triggering facioscapulohumeral muscular dystrophy (“FSHD”), a muscle degenerative disease, and then zeroed in on a selective p38α/β MAPK inhibitor, which GSK happened to have on a backburner. Fulcrum went straight into a phase 2b trial in FSHD, finding time in the middle to dwell on a now-failed approach to Covid-19 therapy.

FSHD is one of the most common forms of muscular dystrophy, and it has no approved therapies. There are 16,000 to 38,000 U.S. patients; the drug has orphan designation in both the U.S. and EU.

Last year, when I covered the company, losmapimod had just completed this phase 2 trial, whose primary endpoint it did not meet, after previously showing unsatisfactory interim data as well. However, the molecule met a number of secondary clinical endpoints with strong statistical significance. There are antisense-based therapies for FSHD being developed by Arrowhead (ARWR) and others. However, these are expensive therapies and a market for a small molecule oral pill should exist. While Stifel analysts last year – who are generally bullish on the stock – assured us they may not need a phase 3 trial, the company announced plans to start a phase 3 trial called REACH in Q2 2022. The trial is expected to enroll ~230 adults, who will receive either losmapimod, administered orally as a 15 mg tablet twice a day, or a placebo over 48 weeks.

Fulcrum has been less lucky with its earlier stage sickle cell disease program. FTX-6058 is a small molecule oral HbF inducer designed to upregulate fetal hemoglobin in SCD and ß-thalassemia patients by inducing the expression of a specific gene. Last year, interim data from a phase 1 study in SCD was positive and boosted the stock up. Early evidence indicated that FTX-6058 may be able to achieve or exceed two to three-fold HbF induction in SCD patients, which is superior to hydroxyurea, the current standard of care.

However, this month, on June 10, the stock crashed 48% after announcing updated data from this trial. The problem wasn’t so much the data itself; rather, it was that in all these months, the company was able to only enroll 6 of the 10 targeted patients, out of which 3 were not evaluable due to non-adherence or protocol deviation. This showed poor conduction of the trial on the part of the company. There was no major data update. The drug showed a 6% improvement in HbF. The company said in their latest earnings call as follows:

…based on the strong data that exists from people with hereditary persistence of fetal hemoglobin, and the consistent feedback that we get from KOLs, that we think that 5% to 10% absolute increases in HbF would lead to a transformative therapy, and one that would be utilized as standard of care.

However, they had earlier talked about “two to three-fold induction,” which was the basis of an interesting question from Stifel, whose response was the quoted text above:

So when we think about the data upcoming, I guess, in your prepared remarks, you talked about the 5% to 10% absolute improvement from baseline being transformative. But you also talked about two to three-fold induction seen pre-clinically. So can you maybe help us sort of set expectations going into EHA? Is it 5% to 10% or is it two to three-fold induction recognizing baseline levels could be somewhat variable?

The analyst ended this with an interesting comment:

…there was a translational gap right going from preclinical two to three-fold induction into what they’re seeing in the clinic today, which is gap right, going from preclinical two to three-fold induction into what they’re seeing in the clinic today, which is pretty phenomenal.

In response, the company concluded by saying:

…while we’re focused on the two to three-fold induction and the possibility for us to translate to greater levels in the clinic. What we’re hearing from the KOL, is what we’re seeing from emerging gene therapy data and from our FLR data suggest that a 5% to 10% increase over baseline levels would be transformative.

Financials

FULC has a market cap of $209mn and a cash balance of $195mn. That shows how poorly the market is valuing their pipeline right now – just around $30mn in enterprise value, given their $15mn debt figure per Seeking Alpha. Research and development expenses were $17.8 million for the first quarter of 2022, while general and administrative expenses were $10.8 million. At that rate, they do have cash for 4-5 quarters, but expenses will increase with phase 3 trials, and anyway, the low market interest is not attractive.

Bottom Line

I have no great expectations from Fulcrum. How the market values the company says it clearly. I will avoid for now.

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