Fulcrum Therapeutics (FULC) has the ability to capture a $2B market opportunity

Updated: Jul 25, 2020

We recently highlighted Fulcrum Therapeutics (FULC, ~$270M market cap) as a biotech we've taken a small position in. Fulcrum's main pipeline product is losmapimod, a treatment for facioscapulohumeraldystrophy (FSHD), a hereditary disease in which muscle progressively degenerates in the face, shoulders, and upper arms. Beyond losmapimod, Fulcrum also has an early preclinical pipeline targeting other rare blood and neurodegenerative diseases, but these are extremely early stage, and the stock largely trades based on losmapimod's prospects.

We like FULC for several reasons:

  1. High unmet need and market potential in FSHD. There are no approved therapies for FSHD. The disease progresses at a different rate in every patient, but most patients have noticeable muscle weakness by age 20, and 25% of patients will eventually require a wheelchair. FSHD is a also rare disease, with an estimated ~30,000 patients in the US. These two factors combined mean that losmapimod, if approved, will be the only therapy available for FSHD (no competition) and will be able to command a high price- the drug has the potential to generate ~$2B in peak revenue.

  2. Understood mechanism of action. FSHD is caused by the expression of a transcription factor called DUX4 in the skeletal muscle. Normally, DUX4 expression is silenced after embryonic development, but FSHD patients have a genetic mutation that causes the DUX4 gene to be unsilenced. The result of this is death of muscle and its replacement by fat, causing skeletal muscle weakness and progressive disability. It is believed that inhibiting 50% of DUX4 expression is sufficient to have a therapeutic effect, which losmapimod has demonstrated in animal models.

  3. Relatively derisked molecule. Losmapimod is a molecule originally developed by GlaxoSmithKline for which Fulcrum acquired development rights. The molecule has already been tested in ~3,500 patients and has demonstrated no safety issues. Safety issues are a key reason why many early-stage drugs fail, so the large body of evidence already generated by losmapimod is very encouraging.

  4. Near-term make-or-break catalyst. Fulcrum is currently running a Phase 2 proof-of-concept trial that aims to show losmapimod can inhibit DUX4 expression in humans, and that this level of inhibition translates into clinical efficacy. This trial is expected to readout in 3Q20 and is a make-or-break moment for the company. If successful, and depending on the strength of the data, Fulcrum could file for accelerated approval and have losmapimod on the market as soon as 2021. We would also expect Fulcrum to raise dilutive capital off the back of a successful trial.

Overall, we view Fulcrum as a high-risk/high-reward biotech and have weighted it accordingly in the portfolio (initiated at <3% of total assets, probably should have been lower). Since we bought, you may have noticed that the stock has been prone to some large intraday swings. This is not surprising (and is likely par for the course) for a small cap biotech developing a single pipeline drug- trading is often not driven by fundamentals but rather by technical/momentum-related thinking. If you are thinking of buying Fulcrum, please consider this volatility when looking for an entry point into the stock, as you can possibly get a better price by being patient (this goes for buying in general, honestly). Above all, we want to stress that Fulcrum is headed into a critical clinical readout in 3Q20 that will have a binary effect on the stock. This means that, should you choose to invest in Fulcrum, you should be prepared for the possibility of losing >90% of your original investment in the event of a negative result (and conversely, for very large upside with a positive readout). Thus, if you are interested in Fulcrum, be aware of the risks that balance out the significant upside potential.

#smallcap #fulcrum #therapeutics #FULC

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