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Catabasis Pharmaceuticals Is A Buy For Its Novel Hypercholesterolemia And DMD Drug Candidates

Initiating coverage on Catabasis Pharmaceuticals with a Buy rating and common share price target of $6.90 to $14.09.

We expect CAT-2054 in hypercholesterolemia to be the key value driver for the company with potential application in NASH.

In addition, Edasalonexent might find use in Duchenne muscular dystrophy (DMD) though its future is uncertain if gene editing therapies are successful in DMD.

We are initiating coverage on Catabasis Pharmaceuticals (NASDAQ: CATB) with a Buy rating and common stock price target of $6.90 to $14.09 based on our discounted cash flow model. In our valuation model, we included the future estimated revenue from CAT-2054, the SREBP inhibitor which we consider the key future revenue driver for the company. We only modeled future estimated revenue from CAT-2054 in patients with hypercholesterolemia whose LDL cholesterol goal is not achieved on statins.

We did not model the future application of CAT-2054 in non-alcoholic-steatohepatitis (NASH) in our model. Though the company's key R&D program is Edasalonexent (formerly CAT-1004) in Duchenne muscular dystrophy (DMD), we anticipate the use of this product to decline significantly after about 10 years since we expect CRISPR and other gene editing therapies to be the mainstay of DMD therapy in future (based on the promise shown in preclinical studies). Due to this, we could not assign a terminal value to the future revenue from Edasalonexent. In addition, we did not model future estimated revenues from the company's programs in Friedriech's Ataxia and Amyotropic Lateral Sclerosis since these programs are still in the preclinical stage.

Figure 1: Catabasis Pharmaceuticals, Investment highlights.

Figure 2: Catabasis Pharmaceuticals, common stock price chart.

Investment Thesis: Catabasis Pharmaceuticals is a Cambridge, Massachusetts based company. The company has proprietary SMART linked technology that is being used to combine different molecules in a single compound that simultaneously modulates multiple targets in a disease.

Edasalonexent in DMD: The company's key R&D program is Edasalonexent (formerly CAT-1004), a SMART-linked conjugate of salicylate and DHA (omega-3 fatty acids). Both of these compounds have anti-inflammatory action individually, but using the SMART-linked technology, the individual molecules are released inside the cell and inhibit the NF-kappa B pathway with greater efficacy than when administered separately.

DMD is the most common genetic disorder in the Western population and affects about 1 in 3500 male births. The estimated number of boys with DMD is about 15,000 in the U.S. and 19,000 in Europe. DMD is caused by a mutation in the gene encoding for a protein dystrophin that provides structural stability to the cell membrane in the muscle tissue. Muscle weakness begins by age 2-3 years and most boys are wheel-chair bound by age 12 years. Death occurs due to weakness of respiratory or cardiac muscles. Various companies like Sarepta (NASDAQ: SRPT) and PTC Therapeutics (NASDAQ:PTCT) are working on various targets in DMD (exon 51 slipping and non-sense mutation respectively).

Inflammation plays a key role in the pathogenesis of muscle damage in DMD. In the absence of stabilizing action of dystrophin, the NF-Kappa B pathway in the muscles is activated whenever muscles are subjected to stress or stretching. The result is increase in inflammation in the muscles which causes muscle damage by replacement of muscle fibers by fat and later, fibrosis. Corticosteroids are used to treat...


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