Description

Gamida Cell (GMDA) disappointed investors for so long that once it finally got its unique product FDA approved, it seems like no one cares anymore.  Before multiple regulatory delays/snafus (and in a frothier biotech market) in early 2021, GMDA commanded an almost $750 million market cap vs. approximately $150 million today.  (Shares outstanding have roughly doubled since early 2021).  Now GMDA has the only product on the market for the tragic subset of bone marrow transplant patients who cannot find a match and it is clear that reimbursement will not be an issue.  With no alternatives, GMDA’s product can be a lifesaver.  No story is perfect and the company will need to raise more cash next year to get to profitability (possibly/preferably through a partnership) but I believe that even with highly punitive assumptions (that I will detail below) that this will turn out to be a multi-bagger over several years with no further scientific/binary clinical trial readout risk.  Again, for a subset of patients there is no better alternative that GMDA’s product and this is an enormous tailwind. 

Business Description / Recent History

GMDA’s Omisirge was approved in the US by the FDA April 2023. Its package insert indication is:

“For use in adults and pediatric patients 12 years and older with hematologic malignancies who are planned for umbilical cord blood transplantation following myeloablative conditioning to reduce the time to neutrophil recovery and the incidence of infection.”

Blood cancer patients often need to destroy their existing malignant bone marrow to clear their cancer (dangerous because the marrow produces immune cells) by a process called conditioning and then replace it with new stem cells from a matched donor that will migrate to the bone marrow and re-establish that patients’ immune system.  The best matches are from relatives but finding a compatible donor grows harder if a related match does not exist. If there is not a match then the patient either cannot get a transplant or is at high risk of rejection/graft vs. host disease and must take immunosuppressants that can create the conditions for very serious infections. More detail on the science (including the Phase III trials results that were submitted for the approval) is available in the 10-K.  There was also an analyst day in June and the presentation is available at the company’s website. 

Omisirge is a cell therapy made from cord blood that is enhanced via a proprietary process to improve its function while scaling its ability to expand.  It is allogeneic / off-the-shelf (as opposed to autologous / personalized) and therefore can be manufactured quicker / held in inventory.  Patients who take it have a shorter time to immune reconsitiution and less risk of severe infection. This should help the approximately 9,000 patients in the US who are eligible for a transplant but do not receive one. 

Most recently, the company experienced two major delays in the approval process which introduced financing concerns and necessitated a leadership change and a restructuring.  First in 2021 the FDA requested more information about the product’s manufacturing which introduced a delay that nearly cut the stock in half.    In 2022 funds were tight so when the FDA extended the deadline for approval by three months into 2023, the company had to take action to preserve cash.     It cut headcount, R&D and slowed preparations for the commercial launch. It then raised capital after the product approval in April.  This capital will support the early launch and will last into 2024.  In the meantime the company has hired Moelis to help them find a partnership that would provide further funding.  We will hopefully be hearing on this relatively soon (perhaps this quarter).  A parternship could take the form of non-US rights or global rights with a royalty that might reduce the upside somewhat but increase the certainty around execution.    

Although it is has discontinued all of its preclinical R&D, the company also still has a natural killer-based immunotherapy in Phase 1 for blood cancer.  I am not including any value for this program here.     

Investment Positives

Omisirge is FDA approved after long delays and missed deadlines = fatigue.  The $1.30 price is a far cry from the 2018 IPO price of $18.00 

Product has no current competition

Immediate cash problems solved with April 2023 capital raise and use of ATM

Telegraphing a partnership – working with an investment bank (Moelis)

New CEO (Sept 22) and brand new CFO (2023) will drive pivot to execution

Had a cash issue so cut a lot of early R&D prior to FDA approval of lead product – bad for patients long term but extends runway and dramatically lowers burn rate

Highly concentrated prescriber base via transplant centers so an easier launch: 8 centers already onboarded and another 40 in process.  Top 70 cover 80% of volume

Payers accepting $338,000 price as there is confirmed coverage of 70% of potential covered lives

Thought leaders highly support – see June 2023 analyst day

(Amazingly) stock trading above warrant exercise price / low short interest (less than 4%)

Market has digested limited cash runway and still places value on the company

Non-US upside, likely via a partner

Investment Concerns

Business plan still not fully funded

Brand new product: no revenue yet

Single manufacturing facility

Longer term: potential competition (see Garuda that raised $72m in 2021 + $62m in 2023 and plans Phase 1 in 2024 and ExCellThera’s UM171 in Phase 2)

Grafts vs host disease is still a risk as evidenced by the boxed warning on the product

IP to 2038 but not all of it is issued yet

Company has convertible debt that is currently out of the money.  Most of it will likely need to be repaid as its conversion price is very high. 

Niche market opportunity relative to some other indications

Only trades a few million dollars per day 

Valuation

Excluding out of the money options and at the money warrants, with 105.6m shares outstanding as of May 10 (reflects post 1Q offering, ATM use and $6m debt for equity exchange), GMDA’s market cap is $143 million.  Net debt is $18 million which is primarily comprised of $75m of convertible notes @$17.76 due February 2026 (far out of the money).  There is also $19m of different convertible debt @$1.91 due December 12, 2024 and $1m of accrued interest.  On the asset side after post quarter capital raise the adjusted cash balance becomes $70.8 million.  Thus the enterprise value is $161 million.    

GMDA is targeting ~20%+ market share of unmatched transplant patients by 2028 (2,000 to 2,500 patients).  At a posted therapy price of $338,000 this is an approximately $750 million annually achievable revenue opportunity.  We can make some assumptions on the revenue ramp over 5 years as well as the gross margins and operating cost structure to determine how much incremental cash will be needed to fund the company and retire the $87.5 million convertible debt + interest with a cushion.  We can then apply a low 10x multiple to the fully-taxed 2028 operating income to see what the return would be if all the capital was raised in a brutal one-shot funding. 

I assume 30 transplants in the rest of 2023 but as cash is project to fund into 2024 I start with that year.  I assume 130 transplants that year going to 250 in 25, 500 in 26, 1,000 in 27 and 2,250 (midpoint of target) in 2028.  To all of this I apply a 50% gross margin and assume $10 million of R&D per year and $25 million of G&A.  I also assume $20 million of sales & marketing expenses in 2024 going to $40m annually thereafter.  I also assume a 25% tax rate.  Under these assumptions, the company will become breakeven in 2026 and will burn $33m in 2024 and $32.75m in 2025 (the increase gross profit roughly increases the increased sales & marketing).  Taking these two years of burn, adding in another $33m for cushion and $75m  + $12.5m of debt repayment (and $13 m of cash interest) equates to $201.25m of cash needed!  Yikes!  Now let’s assume that cash is raised today at a 50% discount to the current stock price ($0.675 per share).  The pro forma share count would be 403.7 million and the new shares would own 74% of the company.  Obviously the company will try not to do that. 

Returning to the 2028 income statement the net income with achievement of the 20% market share would be $228.9 million or $0.595 per share.  A 10x multiple on that is $5.95 per share which would be a 4.2x return / 33.2% 5 year annualized IRR.  Anything better than that would improve this.  This could include an international or global pharma partnership currently being pursued with Moelis, Option and warrant proceeds @ wtd. avg. prices of $4.62 and $1.30 respectively as well as $12.5m converted at $1.91.  There is also an ATM facility which can raise around $40 million into the market at current prices (volume permitting).  Margins could also be higher and ramp up could be quicker given lack of alternatives and the relatively small number of transplant centers that would need to be onboarded to reach the vast majority of patients with the FDA approved product.

Disclosure 

We make no claims, promises or guarantees about the accuracy, completeness or adequacy of the contents of this document and expressly disclaim liability for errors and omissions in the document.  We have no obligation to update this document.  We may change our position at any time without posting an update.  The views expressed here are merely the opinion of the author.  Readers should do their own research.

Catalyst

Partnership or Other Further Funding Event; Management Execution + Revenue Growth