Axovant Sciences (AXON) Defended at RBC Capital

Axovant Sciences Ltd. (NYSE: AXON) shares opened lower Friday, falling 4%. Weakness was tied to negative comments from analyst Gbola Amusa of Chardan. Amusa said its RVT-101 in Alzheimer’s disease may have an uncertain cardiac profile.

RBC analyst Michael J. Yee said bear questions on safety "try to add fuel, but don't jive with mgmt diligence/data."

Yee explained, "A competitor bear report raises questions around RVT-101's cardiac safety profile, specifically hypothesizing whether the drug has QTc prolongation (a measurement of pot'l cardiac toxicity). Because a separate drug from Roche with a similar mechanism (5HT6) might have stopped years ago due to QTc, bears believe RVT-101 could theoretically too have a QTc signal and/or the FDA will scrutinize the safety profile. We spoke to AXON and also believe the drug doesn't have these issues and doesn't jive with the diligence and data across hundreds of patients through Phase II for RVT-101. Specifically, the big picture is RVT-101 probably has a greater than 50%+ probability of working (bear report actually says 49% probability...) and if it does work it could become a $3-5B drug (current Alz drugs were over $5B+ WW) which consistent with our prior reports suggests a stock that could be $100-150 or 10x upside from here, vs 35%+ chance of failure and down to cash of $3. We agree in theory there aren't many catalysts for RVT-101 and Phase III data is 2017E+ but mgmt has suggested there will be deals announced that could bring in many more new drugs soon that enhance the pipeline and add even more upside optionality on new drugs over the longer-term."

The analyst added, "Based on our understanding, we are not concerned on cardiac tox at this time because 1) Roche's drug may have had some issues but this could be from off-target effects of a small molecule and other next-gens were developed by Roche that were designed and/or don't have this issue, 2) careful diligence by AXON was done on this and suggests Lundbeck and Pfizer 5HT6's also didn't have any issue (published Lundbeck study had no cardiac SAEs either), 3) AXON commentary suggests no issues to date and while we personally don't have all the data on QTc, commentary is this is all clean and consistent with preclinical data and large Phase II which had QTc reads and no signals were seen, 4) no clinically meaningful ECG changes in any clinical study."

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