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Nightstar Therapeutics deserves a spot on your watchlist if you are an aggressive biotech investor

Nightstar is making significant progress with its treatment for Choroideremia, and the company’s efforts have not gone unnoticed by regulators
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Choroideremia is caused by a genetic defect in a single gene located on the X-chromosome

The past two months have been brutal for investors, especially for those focused on small- and micro-cap stocks. And the pain is even more pronounced for investors focused on biotech stocks.

Now, biotech stocks aren’t for everyone. While the potential upside can be spectacular, biotech investors must be prepared for frequent bouts of extreme volatility, and if the drug compound a company is working on fails to meet expectations, bankruptcy can be a real possibility.

However, there are steps we can take to minimize our risks and de-risk potential investments. Sticking with companies that are well funded, for example, is one of the easiest ways to ensure the company we’re invested in won’t run out of money mid-way through their FDA trials.

Another way we can reduce our risk is by identifying investment prospects and getting involved during periods of weakness. Like right now, when many stocks are trading significantly beneath their 52-week highs.

An Opportunity in Gene Therapy

UK-based Nightstar Therapeutics (NASDAQ:NITE) is a $500 million clinical-stage gene therapy company focused on developing and commercializing a pipeline of new and potentially curative, one-time treatments for patients suffering from rare inherited retinal diseases.

The company is currently working to develop RSR-REPI for the treatment of Choroideremia, NSR-RPGR for the treatment of X-linked Retinitis Pigmentosa, NSR-ABCA4 for the treatment of Stargardt Disease, NSR-BEST1 for the treatment of Best Disease, and NSR-CNTF, NSR-OPN4, and NSR-RHO for the treatment of Retinitis Pigmentosa.

Now, rather than give you a brief overview of Nightstar’s various programs, I want to focus on the company’s lead product candidate for the treatment of Choroideremia.

NSR-REP1 for the Treatment of Choroideremia

The company’s lead product candidate is NSR-REP1 for the treatment of Choroideremia (CHM). And while you may be unfamiliar with Choroideremia, I assure you it’s a tortuous nightmare for the one in 50,000 individuals afflicted with the disease.

CHM is caused by a genetic defect in a single gene located on the X-chromosome, so while females can carry the defective gene, most CHM sufferers are males. And women who do experience CHM symptoms tend to develop only patchy vision loss or night blindness.

Without getting too deep into the weeds, Choroideremia affects the retina and is caused by mutations in the CHM gene which, when operating correctly, produces the protein REP1 that removes waste from retinal cells.

Failure to remove waste from the retinal cells results in the retina deteriorating, and over time, all vision is lost. You become blind.

Now, what makes Choroideremia so devastating is that there are no currently approved or effective treatments, and the effects of the disease manifest at an early age.

Boys as young as five or six begin to experience night blindness, and by the time these boys reach their early 20s, they’ve likely lost their peripheral field of vision.

But night blindness and a loss of peripheral vision are only the beginning.

As CHM sufferers reach their mid to late 20s, peripheral vision is a thing of the past, and all that remains is a tiny area of “tunnel” vision. To put this into perspective, make a fist with your hand, but leave a small opening so you can look through as though it were a pirate telescope. What you see when you’re peering through your fist is what CHM sufferers live with day-in and day-out as they approach their thirties.

Now, while the rate of vision loss generally slows after CHM sufferers develop tunnel vision, the disease is still slowly stealing one’s ability to see. And by the time a patient reaches his 50s or 60s, complete blindness has likely set in.

Relief on the Horizon

On March 5, 2018, Nightstar entered into Phase 3 clinical development (the STAR trial) to study the safety and efficacy of NSR-REP1 in patients with CHM. By the end of Q2 2019, Nightstar’s goal is to enroll 140 patients across 18 clinical sites in the U.S., Europe, Canada, and South America. One-year follow-up data is expected during 2020.

A final point that’s worth noting regarding NSR-REP1 is that both the FDA and European Medicines Agency have granted Nightstar the orphan drug designation. Additionally, the FDA granted Regenerative Medicine Advanced Therapy (RMAT) designation for NSR-REP1 in mid-June 2018.

The bottom line is Nightstar is making significant progress with its treatment for Choroideremia, and the company’s efforts have not gone unnoticed by regulators. And while we can all get behind a company that is actively developing drugs to for illnesses that currently have no treatment options, as investors, we also appreciate the profit potential associated with being first to market with a new drug.

Well-Funded and Investing in the Future

Like most clinical-stage biotechnology companies, Nightstar’s expenses are on the rise while no meaningful revenue is being generated. But this is to be expected and should not necessarily be viewed as a red flag.

When Nightstar reported its Q3 2018 financial results on November 13, the company reported a near-doubling of its research and development expenses on a year-on-year basis. But this was to be expected as the company is actively pressing forward with the development of NSR-REP1 and NSR-RPGR for the treatment of X-linked retinitis pigmentosa.

Now, given Nightstar’s increased pace of investment into their two primary drug candidates, it goes without saying that investors should have one eye on the company’s cash balance.

At the end of Q3 2018, the company reported a cash balance of $100.8 million, down $28.6 million from Q3 2017. However, on October 2, 2018, just two days into Q4, the company completed an underwritten public offering of 4.6 million shares and took in approximately $77.1 million.

So, while $100 million in cash is great for a clinical-stage biotechnology company and easily could have supported the company’s programs well beyond 2019, the additional cash infusion provides Nightstar with ample reserves to finish their research and further de-risks the stock for current and potential investors.

A Bumpy but Promising Future

Investors dream of buying a stock and watching it tick higher month after month. But that’s rarely the way things play out ... especially when it comes to small-cap clinical-stage biotech stocks.

Nightstar got off to a slow start following its September 28, 2017, IPO, but that’s likely because the company is based in the UK and wasn’t well known among US-based biotech investors. However, once the company received RMAT designation for NSR-REP1 in mid-June 2018, investors woke up and started paying attention.

The stock nearly doubled between mid-June and late-September, but that bullish momentum faded in late-September and thanks to market-wide de-risking, especially when it comes to more volatile small-cap stocks, the stock currently trades more than 45% beneath its September 20 high.

Like every industry, investor interest in biotech stocks ebbs and flows. However, if you’re an aggressive biotech investor that appreciates the promise that gene therapy holds, Nightstar Therapeutics deserves a spot on your watchlist. Especially while it’s trading so far beneath its 52-week high.

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