Description

INTRO: Gossamer Bio is a clinical development stage biopharma company focusing on development and commercialization of seralutinib (GB002) as a treatment for pulmonary arterial hypertension (PAH).  Seralutinib is an inhaled, small molecule, platelet-derived growth factor receptor, or PDGFR, colony-stimulating factor 1 receptor and c-KIT inhibitor, which is in Phase 3 clinical trial for the treatment of PAH. It has license agreements with Chiesi to develop and commercialize GB002 and related backup compounds.

THESIS:  Gossamer is a “semi-busted” biopharma with ample cash on its balance sheet.  There are multiple near term catalysts, recent C-suite employment changes, significant insider stock purchases, and recent large pharma partnerships all signaling high upside, multi-bag potential.

BACKGROUND:

Section I: Pathology of Pulmonary Hypertension

Pulmonary arterial hypertension (PAH) is a “hemodynamic disorder that affects small and medium-size pulmonary arteries (arteries in the lungs) through cellular proliferation and luminal narrowing.  This leads to increased blood pressure in the lungs (“pulmonary hypertension” (PH)) which ultimately leads to heart failure (the mechanical pump portion of the heart is overloaded by the pressure against which it has to pump and it fails (i.e. stops pumping out adequate blood).  Cleveland Clinic Journal of Medicine has a good primer if you are interested in reading more about the background. 

Pulmonary Hypertension (PH) is actually an end product of many different disease processes.  These are typically classified in Groups 1-5 via the WHO (World Health Organization) which is an universally accepted grouping process.

• Group 1—PAH, due to narrowed pulmonary arteries
• Group 2—due to left heart disease
• Group 3—due to lung disease or hypoxia, or both
• Group 4—due to chronic thromboembo-lism or other pulmonary artery obstruction
• Group 5—due to uncertain or multifactorial causes.

With a few exceptions, the end result of most of these Groups is the same pathologic pathway: remodeling of the layers of the pulmonary artery - the intima (inner layer that lines the inside of the vessel), media (middle layer), and adventitia (outer layer).  While the exact pathophysiology is extremely complex and beyond the scope of this article, the end result is proliferation and “enlargement” of these layers, resulting in narrowing of the pulmonary artery - the end result being increased blood pressure in those pulmonary arteries (pulmonary hypertension).

Gossamer’s Seralutinib is directed, for now, at Group 1 disease (Pulmonary Arterial Hypertension - PAH) with plans to study it in a large subset of Group 3 (Pulmonary Hypertension with Interstitial Lung Disease - “PH-ILD”).  More on this later.

Seralutinib works through three major distinct mechanisms, again the detailed physiology beyond the scope of this article, but the end result is to reduce the activity of certain types of cells that play a role in the remodeling shown in the image above.  For those that are interested and inclined, you can read more here.  Essentially the targets are are platelet-derived growth factor on fibroblasts and pulmonary smooth muscle cells, colony-stimulating factor receptor present on macrophages, and mast or stem cell growth factor receptor on endothelial and mast cells, all of which play a major role in increasing pulmonary hypertension.  The end result of this drug’s action is to stop, and ideally reverse, the proliferation of those cells playing a role in pulmonary hypertension in PAH patients. 

Section II: Clinical Data & Competitors: There are a few drugs on the market for PAH and PH-ILD already: inhaled and injectable treprostinil, oral PDE inhibitors (talafil, sildenafil; yes those), and Merk’s Sotatercept, which is the main competitor given the same mechanism of action.

To understand and digest the clinical trial data, one needs to understand a little bit about how severity of PH is measured.  The typical symptom of PAH is shortness of breath (“dyspnea”) with exertion (“DOE”) which, as the disease progresses, will eventually lead to shortness of breath at rest amongst other clinical signs.  The severity of PAH can be measured, amongst numerous other ways, via directly measuring the pulmonary vascular resistance (PVR) and by a functional test called the “6 minute walk distance” (6MWD, exactly what it sounds like - how far can one walk in 6 minutes).  PAH severity is graded based on WHO Functional Class (WHO-FC) I-IV).   Group I is the mildest and Group IV is the most severe.  These are important distinctions because they generally predict, with high fidelity, survival over subsequent 5 years:

In 2022, Phase II data (TORREY Trial) was published.  This study randomized FC Class II-III patients to placebo or Seralutinib and then evaluated them in regards to PVR and 6MWD, amongst other non-functional measurements.  These results were not received well: the stock fell from $9.30/share to $2.30/share within 1-2 trading days.  However, if one looks at the data more closely, they will see that there was likely an uneven distribution of patient severity within the two arms of the clinical trial.

In the Seralutinib arm, the 6MWD improved by ~6.5 meters as compared to the placebo arm - this is compared to ~34 meter improvement for Merck’s drug, Sotatercept, hence the disappointment when results were published.  Remember that the patients in both arms were Functional Class II-III.  However, in the control  arm, there were a significantly higher portion of patients who were FC III as compared to the control arm.

The effect of this is that in the control group receiving Seralutinib, there was less significant functional impairment to begin with because more (as compared to the placebo group) were FC II, i.e. had less severe disease/functional status to begin with.  In fact, when further analyzed on just FC III, there was fairly remarkable 37 meter improvement in 6MWD, a massive difference as compared to the FC II + III groups combined (image below)

Merck’s drug, Sotatercept, on the other hand, was very evenly split between FC II-III:

Further, Gossamer completed an open label extension which showed continued and sustained improvement in PVR, as compared to Sotatercept, which had a modest, if any, continued improvement in PVR after initial 24 weeks.

Sotatercept is an injection vs Seralutinib, which is in inhalation form, which likely explains the better safety profile of Seralutinib.  In fact, safety concerns are enough for Merck’s Sotatercept that the EMA (EU’s FDA) recently reverted to standard timelines/ rescinded accelerated approval pathway for Sotatercept, though my base case is still that it will attain full approval.*  There is an outside chance that it will come with black box warning based on safety concerns, though again, that is not my base case.   Keros Therapeutics is another competitor who is currently in development of KER-012 which is targeting the same mechanism of action as well, and could be an eventual commercial competitor, though they are behind Gossamer in development.

Other competitors in the therapeutic area, Tyvaso, Tyvaso DPI (inhaler), injectable treprostinil, oral PDE inhibitors, and, eventually, Yutrepia will also be approved for PAH, however given the severity of the disease, it will most likely be treated with multiple agents at once instead of being direct competitors. 

THESIS & CATALYSTS:

Section I: Data and Presentations:  Phase 3 trial data from Gossamer (PROSERA Trial) is expected in mid-2025 (I expect these earlier than the company’s stated plan of late 2025).  Further, they are also planning Phase 3 trials for PH-ILD (subtype of Group III PH) which is an even larger market, expected to start in mid 2025. 

There are upcoming medical meetings where data is being presented and could be a positive catalyst for Gossamer as well: ESC (August 30- September 2, 2024) and ERS (September 7-11, 2024).

Section II: C-Suite Changes & Insider Purchases

In December 2023, Gossamer was able to hire Bob Smith as Chief Commercialization Officer from Merck.  Remember that Merck’s Sotatercept is Gossamer’s main competitor.  Bob’s comments when hired indicated his bullishness on Seralutinib: “I believe that seralutinib has the potential to be a treatment paradigm-altering therapeutic in PAH. The mechanism of action, convenience, safety profile seen to date, and the possibility of reverse remodeling are all potential differentiators in a life-threatening disease with high unmet need. I look forward to getting this important and needed treatment to patients.”  Bob has decades of experience in rare disease and, specifically, PAH.  He also lead drug launches for two former PAH drugs which ultimately led to the purchase of Actelion by J&J in 2017 for $30B.

Section III: Big Pharma Collaboration

In May, Gossamer signed a partnership agreement with Chiesi, whereby Gossamer received a large cash upfront payment and then up to $146M in regulatory milestones, $180M in sales milestones.  There is a mid-high teens royalty for ex-US rights.  The agreement also allowed Gossamer to keep US rights which potential sets up a buyout by big pharma.  Further to this point, in the 8-K, there is an equity option clause that allows Chiesi to buy up to 9.9% of Gossamer stock for no less than $1.63/share and must occur prior to the last patient being dosed in PROSERA trial.

Section IV: Insider Transactions

Since March, there have been significant insider purchases from the CEO, CFO and Bob Smith (see Section II above) at prices both higher and lower than current share price.  There was a significant pop in the share price following the June purchases (which coincided with failure of a potential competitor drug in Phase 3 trials from Aerovate Therapeutics).

VALUATION:

Ironically, this is going to be the shortest section because, in my opinion, the potential margin of safety is so wide that the valuation is multiples (i.e. 10x) of current price.  Valuing a pre-commercialization biopharma company is very difficult.  If you were to project peak sales of a novel therapeutic mechanism for PAH and then add in PAH-ILD, it is mid to high-single digit billions per year.  Gossamer has a strong cash position ($370M) with manageable debt ($291M), most of which is 5% (fixed) convertible notes ($197M) not due until 2027.  These are out of the money at $16 and change, so unlikely to be exercised.

Gossamer’s Phase 3 readout will be crucial and, if they show positive results even close to Sotatercept’s, then this will likely jump 100+% from where it is currently trading (if not already at that price by then).  Ultimately, I believe that Gossamer will be acquired for several billion dollars (~10-20x from current prices), at minimum, within the next 2-5 years, potentially at the high end of that range with positive data from PH-ILD.

*Update: literally as I complete this writeup, Merck has obtained EMA approval for Sotatercept for FC II-III PAH.

Catalyst

1. Phase 3 PROSERA Trial readout mid-2025

2. Phase 3 initiation for PH-ILD

3. Potential buyout by big pharma; exercise of options by Chiesi