Nicox — Continuing to move towards data inflection points

Nicox provided a mid-year business update on 16 July and reported details on the progress of its key programmes. Overall progress was generally consistent with our prior expectations as the company’s lead internal programmes, NCX-470 and NCX-4251, continue to advance in their respective clinical trials.

NCX-470 is based on the company’s proprietary nitric oxide (NO) donating platform, which combines an NO-donating molecule with an analogue of established prostaglandin F2α (PGA) drug bimatoprost, thereby providing an additional mechanism for the drug to reduce IOP. Top-line data from Mont Blanc, the first of two Phase III studies, continues to be guided for Q222. More than 443 out of the 670 patients planned to be included in the Mont Blanc study have been randomized into the study, and 318 patients have completed the three-month efficacy evaluation. Results from the second Phase III study, Denali, previously guided for Q422, have been pushed back to 2023. We have pushed back our forecast NCX-470 launch timeline from H124 to H224.

The primary endpoint of both studies is the mean IOP reduction from a time-matched baseline at 8am and 4pm time points at weeks two and six and month three visits. IOP reduction is the most widely accepted measure of a glaucoma treatment’s efficacy in decelerating disease progression. As discussed in our initiation report, PGA drugs are the most commonly used first-line glaucoma treatment, and bimatoprost (marketed as Lumigan 0.01% by AbbVie) is currently the best-selling branded glaucoma drug in the United States in terms of revenue. In Nicox’s Phase II study (Dolomites), NCX-470 (at 0.065% concentration) demonstrated both statistical non-inferiority and superiority in IOP lowering than PGA drug latanoprost at day 28, being up to 1.4mmHg superior (in IOP lowering efficacy) to it at day 28 (p<0.025). The chosen NCX-470 concentration (0.1%) in Mont Blanc and Denali is higher than the 0.065% used in the Dolomites study and hence it is possible that these trials could show a higher incremental IOP reduction to latanoprost. If such efficacy is confirmed in these trials, NCX-470 could potentially become the first non-combination glaucoma drug product in pivotal studies with statistical superiority to a standalone PGA drug, which we believe should support its market adoption and competitiveness.

NCX-4251 is a proprietary ophthalmic suspension of fluticasone propionate nanocrystals being developed for acute exacerbations of blepharitis. On 2 July, Nicox announced that the last patient in the NCX-4251 Mississippi Phase IIb study had completed the two-week treatment phase as well as the required two-week follow-up period. The study enrolled over 200 patients and top-line results are expected in September 2021. If the results are positive, an end-of-Phase II meeting with the FDA is planned for early 2022, which will help inform the next development steps.

Nicox obtains recurring revenue from two out-licensed, commercial-stage assets, Vyzulta (latanoprostene bunod) and Zerviate (topical cetirizine). Vyzulta, the first NO-donating PGA drug approved for the treatment of glaucoma, is commercialised by Bausch + Lomb (B+L), Nicox’s exclusive commercial partner for the product, entitling Nicox to net royalties of c 6–12% of global sales. Nicox reported that the number of US prescriptions for Vyzulta rose by 21% y-o-y in Q221 (compared to an 18% y-o-y increase in Q121 as reported by B+L). In addition to the US, B+L is also commercializing Vyzulta in Canada, Argentina, Mexico, Hong Kong and Taiwan, and the drug is also approved in Brazil, Colombia, Qatar, South Korea, United Arab Emirates and Ukraine.

Zerviate is an antihistamine drug approved by the FDA for the treatment of ocular itching associated with allergic conjunctivitis. Zerviate is licensed by Nicox in the United States to Eyevance (acquired by Santen in September 2020) and was launched in the United States in Q120. Nicox’s effective royalty from Eyevance is c 5% until certain manufacturing costs under their licensing agreement are covered, after which the royalty rate rises to 8–15%. Nicox reported that the total number of US Zerviate prescriptions increased by 712% y-o-y in Q221 (which we estimate corresponds to c 11,300 in Q221), showing a healthy increase from the period following the launch, although Santen/Eyevance sales have not been disclosed yet. Nicox also licensed Zerviate to Ocumension in the Chinese market, to Samil in South Korea, and in Q221 the company out-licensed it to Laboratorios Grin (a wholly owned subsidiary of Lupin), for Mexico. Zerviate has not yet been commercialised in these regions yet.

While prescriptions for both Vyzulta and Zerviate have risen y-o-y, net royalties (consisting of total royalty payments received by Nicox after its own royalty payment obligations1 to Pfizer are paid) were flat y-o-y and q-o-q in Q221, at €0.6m. Nicox indicates that for Vyzulta, the Q221 revenue growth trend was lower than anticipated due to pricing considerations in reimbursement. This could be due to a decrease in the net selling price per bottle as new insurer(s) negotiated lower reimbursement prices, or re-negotiations of existing coverage plans resulting in pricing adjustments, or that the ‘coverage mix’ of prescriptions reflected a lower net pricing mix (from all the plans covering Vyzulta), or a combination of these factors. Altogether, as Vyzulta’s market presence matures (the product was launched in the United States in late 2017), these factors or fluctuations should diminish and there should be less fluctuation in the net realized average price, so we would anticipate that net sales growth should match net prescriptions growth more closely going forward.

Nicox reported that at 30 June 2021 it had €36.5m in cash and equivalents versus €42.0m at 31 March 2021. It also reported €18.0m in gross H121 debt consisting of €16.0m in the form of a bond financing agreement with Kreos Capital and a €2m credit agreement with Société Générale and LCL, guaranteed by the French State and granted in August 2020. Nicox expects the cash at mid-2021 to be sufficient for it to meet its current requirements for the next 12 months. This is consistent with our maintained estimate that Nicox has sufficient funds on hand to operate into H222.

Nicox also reported in July that it will receive $2m from Ocumension after amending its March 2019 agreement with Ocumension covering the latter’s exclusive rights to develop and commercialise Zerviate in the Chinese and majority of South-East Asian markets. Nicox received $2m as a full advance payment of the future development and regulatory milestones for the product, but will remain eligible to receive the same sales milestones of up to $17.2m, together with tiered royalties of between 5% and 9% of net Zerviate sales by Ocumension. Zerviate is currently being assessed in a confirmatory Phase III trial in China by Ocumension, to support a Chinese new drug application for the treatment of ocular itching associated with allergic conjunctivitis. We view this revision of their agreement as a positive as it confirms the value that Ocumension sees in Zerviate for the Chinese market, and also helps provide non-dilutive capital to Nicox.

While we have revised our working capital and stock-based compensation forecasts and revised deferred revenue timing assumptions relating to the company’s agreement with Ocumension, we have not adjusted our near- to medium-term operating expense forecasts. We may review our assumptions once the company reports full H121 financial results in September. We have pushed back our estimate for the potential launch of NCX-470 from H124 to H224, to account for the new timeline for Denali clinical data.

We continue to model a €10m fund-raise in 2022, followed by an additional €10m in 2023 and €20m in 2024 (all fund-raisings modelled as illustrative debt). Following the anticipated NCX-470 launch in H224, we do not expect Nicox to require additional capital as its royalty streams plus NCX-470 sales should enable it to start achieving consistent positive operating income starting in FY25.

We have rolled forward our estimates and, as stated above, pushed back our NCX-470 launch timeline to H224. We have also adjusted our US$/€ forex assumption to 1.18, from 1.19 previously. Following these changes, we now obtain an rNPV of €325m, up from €322.4m previously. After adding €18.5m in net H121 cash, we obtain an equity value of €343.5m, or €9.26 per share.