jarun011Shattuck Labs, Inc. (NASDAQ:STTK) developed a proprietary Agonist Redirected Checkpoint [ARC] platform to create bi-functional fusion proteins to treat cancer and autoimmune diseases. STTK’s flagship candidate is SL-172154 in Phase 1 clinical trials for aggressive cancers. These trials leverage the drug’s dual functionality that blocks cancerous cell evasion mechanisms and activates anti-tumor immune responses. This combo is a theoretically promising cancer treatment. The company recently signed an agreement with Ono Pharmaceutical, securing up to $227 million in potential milestone payments, and covers some R&D expenses in bifunctional fusion proteins. In my opinion, new collaborations could provide additional upside, and STTK’s valuation seems slightly cheap relative to peers. However, its cash burn and relatively early stages IP tempers my optimism on the stock. Hence, I rate STTK a “hold” for now, but it is a good addition to your watchlist. Intriguing Platform: Business Overview Shattuck Labs was founded in 2016 and is based in Austin, Texas, and Durham, North Carolina. It’s a clinical-stage biotechnology company that develops fusion proteins from two or more domains, such as antibodies, enzymes, or cytotoxics. Each component retains its functionality when proteins are combined (i.e., fusion proteins), enabling it to target immune checkpoints or specific cancer cells. These fusion proteins use ARC’s proprietary platform’s advanced biotechnology techniques to activate the tumor necrosis factor receptor [TNFr] superfamily while blocking an immune checkpoint. Such TNFr regulates immune responses, cell multiplication, survival, and death. Source: Shattuck Labs Feature Presentation. June 2024.STTK’s robust pipeline includes over 400 preclinical bifunctional fusion proteins, showcasing its platform’s versatility. The company’s flagship drug candidate, SL-172154 [SIRPα-Fc-CD40L], is undergoing two separate phase 1 trials. These trials would corroborate the fusion protein’s bifunctional potential for targeting specific cancers. Their dual functionality to block immune checkpoints and activate an anti-tumor immune reaction is a promising solution for aggressive cancers. Thus, STTK explores SL-172154’s potential in combination therapies with chemo agents. Specifically, the fusion protein SL-172154 incorporates multiple domains contributing to its function. The signal regulatory protein alpha [SIRPα] domain binds to CD47 on the surface of cancer cells, blocking the evasion signal and making it possible for the immune system to detect and destroy them. The domain fragment crystallizable region [FC] helps to stabilize the fusion protein and engage FC receptors on immune cells for a stronger immune reaction. CD40L is the domain that activates CD40 on immune cells, promoting the response against the tumor. Combining SIRPα with CD40L removes the cancerous cell’s evasion mechanism and activates immune cells. Source: Shattuck Labs Feature Presentation. June 2024.Furthermore, STTK’s Platinum-Resistant Ovarian Cancer [PROC] trial has two cohorts. The first evaluates SL-172154 in combination with pegylated liposomal doxorubicin, a chemotherapy medicine. The second cohort assessed SL-172154 with mirvetuximab soravtansine, an antibody-drug conjugate targeting folate receptor alpha, an antigen linked with ovarian cancer. As for the second trial, SL-172154 is tested for hematologic malignancies and higher-risk myelodysplastic syndrome [HR-MDS] in combination with azacitidine for acute myeloid leukemia [AML]. Promising Trial Results and Updates In February 2024, STTK announced a drug discovery collaboration and option agreement with Ono Pharmaceutical, a Japanese company. The partnership aims to generate bifunctional fusion proteins for therapies indicated for autoimmune and inflammatory disorders. The agreement states that STTK will develop fusion proteins and provide Ono with drug candidates for clinical development. Contingent on global net sales, STTK could receive up-front and milestone fees of up to $227 million and royalties. In exchange, Ono will pay the research and development expenses. More importantly, I think this partnership validates STTK’s ARC platform to some extent, which should undoubtedly be one of STTK’s main value drivers aside from SL-172154 itself. It also strengthens STTK’s financial position, helping with R&D expenses. Source: Shattuck Labs Feature Presentation. June 2024.Furthermore, STTK has made promising progress with its flagship SL-172154 drug candidate. The company obtained an FDA orphan drug designation for AML, and phase 1B trials presented positive results for previously untreated patients with HR-MDS and AML. SL-172154 with azacitidine applied to TP53 mutant AML generated a 43% objective response rate [ORR] and 33% complete remission with incomplete recovery on the blood cell counts [CRi]. These are impressive results, as these cancer types are inherently tricky. Additionally, the 33% ORR measures the proportion of patients who showed tumor reduction due to therapy. CRi measures the number of patients without cancer symptoms but with ongoing recovery. Therefore, such high ORR and CRi values suggest a considerable proportion of patients have benefited from tumor reduction and remission. So, STTK seems to have a viable IP for this type of AML, although it’s important to contextualize that phase 1 trials are not as robust as phase 3 trials. It remains to be seen if such promising results hold up in later trials with larger patient populations and more precise clinical endpoints. Short Runway But Moderately Cheap: Valuation Analysis From a valuation perspective, the company trades at a $236.8 million market cap, which makes it a microcap biotech. Its balance sheet holds $76.0 million in cash and $38.6 million in short-term investments. This means its total short-term available liquidity is approximately $114.6 million against no financial debt other than operating lease liabilities. I also estimate its latest quarterly cash burn was roughly $16.2 million by adding its CFOs and Net CAPEX. This suggests a yearly cash burn of $64.8 million, implying a cash runway of 1.8 years. Source: Seeking Alpha.This is a moderately concerning cash runway because it means stock dilution is likely within two years. After all, STTK’s pipeline is mostly in phase 1 trials, so it’s probably several years away from any FDA approvals. The company has no product revenue and only generates negligible quarterly collaboration revenues. According to Seeking Alpha’s dashboard on STTK, the company is projected to do $1.3 million in revenues, likely all from its collaboration agreements. Source: Company’s website.Therefore, since STTK lacks significant revenues, using its book value of $128.8 million is reasonable for reference. This means STTK’s P/B ratio is 1.8, which is sensible. For context, STTK’s sector median P/B multiple is 2.3, implying a slight undervaluation relative to peers. However, since the company’s value is mostly in its IP and cash balances, it’s key to remember that STTK is burning through 56.5% of its cash yearly, and its pipeline is still in very early stages overall. Consequently, further stock dilution is likely in the long run, and its IP remains somewhat speculative, so I think giving STTK a “hold” rating at this juncture is prudent. Caveats: Risk Analysis An upside potential mostly relies on STTK announcing further collaboration agreements that bolster its prospects. Undeniably, its ARC platform is promising and potentially useful to other biotech firms so that new collaborations could act as positive catalysts for the stock. On the other hand, the company is burning through a significant amount of cash, and while it has enough runway for now, it’ll likely tap into the capital markets within the next few years. Overall, the upside and downside risks are somewhat balanced, so I feel a neutral stance is granted for now. However, STTK’s promising dual-action approach to cancer treatments is theoretically exciting and could deliver tangible results in the future. So, I believe it’s a fine addition to your watchlist as its research progresses, but not your portfolio. Source: TradingView.Watchlist For Now: Conclusion I believe STTK has potential, particularly with its ARC platform and dual-action approach to cancer. However, it’s too early to tell at this stage, and its cash burn does signal likely stock dilution in the future. While I recognize that new collaborations could provide additional upside, and STTK’s valuation seems slightly cheap relative to peers, the pros and cons are in balance. Hence, I rate STTK a “hold” for now, but it is a good addition to your watchlist.
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