A Brief $LQDA Update
I’ve gotten a number of questions in the last couple of days about price action, so figured I’d send a quick update.
Following January’s 30% run up on the “dash for trash” and February’s jump on the Jefferies PT upgrade, we’re now down almost 18% from the February peak. A little bit of that has been general market action in small and microcap stocks. However, the majority of that move is likely attributable to news out of Merck earlier in the week. Sotatercept, Merck’s solution to PAH, posted impressive 6MWD results in its phase III trials.
The "six minute walking distance” or “6MWD” test is a standard cardiopulmonary exercise that simply measures the distance a person can cover on flat, hard ground in six minutes. It’s a seemingly rudimentary test which turns out to be a pretty good indicator for cardiological or pulmonary performance. For baseline reference, the average person walks around 400-875m in six minutes, while PAH patients typically score in the mid-300’s or worse.
Tyvaso—United Therapeutic’s inhaled treprostinil—significantly improves PAH patients’ 6MWD results. In the late 2000s, studies showed inhaled treprostinil improved 6MWD by about 20m. In 2021, a study showed further improvement of 11.5m for patients switching from inhaled treprostinil to the new dry powder (DPI) inhaled treprostinil.
While these distances may not seem incredible, for patients with PAH, these changes can constitute life-altering benefits. So when Merck announced earlier this week that its Sotatercept trials had shown an improvement of nearly 41m—markedly better than treprostinil—in the 6MWD, investors took note. Both and were down on the news.
What does that mean for the Liquidia investment? Is it time to sell LQDA? Not for me. This is probably where it’s worth noting once again that I’m not a pulmonologist. I’m not a medical doctor. According to some very passionate scholars, I’m not any kind of doctor, actually.
Disclaimers aside, I think the stock price reaction is a buying opportunity, and I’ve taken advantage in small part. We’re still safely above my cost basis, so I continue to nibble here and there, though I think anything under $7 is a pretty good deal.
Why am I not so worried? Two main reasons:
Sotatercept looks to be a candidate for combination therapies, and
Even if Sotatercept supplants some of the PAH market, PH-ILD patients may not benefit from Sotatercept to nearly the same degree as PAH patients (if it is approved for PH-ILD at all)
#1. First, let’s talk about the combination therapies.
Merck’s Sotatercept study was conducted on top of a stable background therapy. In other words, patients were receiving treatment for PAH prior to—and throughout—the Merck trial. It is highly likely that, in light of the aggressive nature of PAH, Sotatercept will be used in conjunction with other therapies if and when it enters the market. Given the different mechanisms by which Sotatercept and treprostinil act (which we’ll get to in just a minute), it appears that the drugs could be used together with treprostinil, or at different stages of PAH treatment.
Additionally, the Sotatercept delivery is a once per three week subcutaneous injection. While that may not seem like a huge hurdle for patient compliance, there’s a non-zero chance that patients will need to get that injection in a doctor’s office due to the likely substantial cost of the drug, which could make an at-home DPI inhaler a more appealing option for patients.
#2. Now for the Sotatercept vs. Treprostinil mechanism of action.
I’m not going to get into the nitty-gritty details, mostly because I’m not qualified, but also because broad strokes will probably do. I cannot possibly emphasize enough that the comments I’m about to make have not been vetted by a pulmonologist, and are only my somewhat-educated—albeit earnestly-researched—insights.
Sotatercept is an “activin receptor type IIA-Fc (ActRIIA-Fc) fusion protein.” Activins are a type of growth factor found, among other places, in human testicles. They regulate many forms of biological functions, but the important thing they do in the lungs is to reduce inflammation. That is particularly useful for people with pulmonary arterial hypertension (PAH WHO Group 1), because people with PAH have trouble breathing due to inflammation in the arteries in the lungs.
By contrast, Tyvaso and Yutrepia (or more generally, treprostinil) are prostacyclin vasodilators. Treprostinil works by relaxing and opening up the arteries, which is also useful when you have constricted blood vessels. It also reduces platelet aggregation and prevents circulation of fibrocytes. All of these effects are helpful in WHO Group 1 PAH and WHO Group 3 PH-ILD. The latter is interesting because treprostinil has a therapeutic effect even in patients who may not have substantial inflammation.
If you recall from a prior post of mine, I talked about something called “V/Q mismatch”—basically a treatment problem of trying to direct blood flow to damaged or dead lung tissue. If a PH-ILD patient has dead lung tissue but no substantial inflammation, treprostinil would open up the “good” lung tissue, leading to more blood flow, while Sotatercept would seemingly have no effect.
If you want to do some back of the envelope math on what competition might mean for PAH but not PH-ILD revenue numbers, I discussed market sizing with Andrew Walker in Andrew’s Yet Another Value Podcast.
So there you have it. I haven’t sold any shares in this draw down. I haven’t seen a reason to. But as they say, you’re your own person.