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Research: Healthcare
CASI announced that it has in licensed the Greater Chinese rights to BI-1206 from BioInvent, which is being investigated in Phase I trials for the treatment of non-Hodgkin lymphoma (NHL) and solid tumors. The drug has a novel target FcγRIIB, an antibody receptor on leukocytes with checkpoint-like properties. The drug is currently in two dose escalation studies for NHL and solid tumors in combination with rituximab and Keytruda, respectively.
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CASI Pharmaceuticals |
New drug licensed targeting antibody checkpoints |
Business update |
Pharma & biotech |
28 October 2020 |
Share price performance
Business description
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CASI Pharmaceuticals is a research client of Edison Investment Research Limited |
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CASI announced that it has in licensed the Greater Chinese rights to BI-1206 from BioInvent, which is being investigated in Phase I trials for the treatment of non-Hodgkin lymphoma (NHL) and solid tumors. The drug has a novel target FcγRIIB, an antibody receptor on leukocytes with checkpoint-like properties. The drug is currently in two dose escalation studies for NHL and solid tumors in combination with rituximab and Keytruda, respectively.
Year end |
Revenue ($m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/18 |
0.0 |
(20.0) |
(0.24) |
0.00 |
N/A |
N/A |
12/19 |
4.1 |
(36.5) |
(0.39) |
0.00 |
N/A |
N/A |
12/20e |
11.5 |
(28.0) |
(0.25) |
0.00 |
N/A |
N/A |
12/21e |
20.2 |
(30.0) |
(0.23) |
0.00 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortization of acquired intangibles, exceptional items and share-based payments.
Deal includes $5m upfront, $7m investment
In exchange for the rights to the drug, CASI is providing a $5m upfront payment and up to $83m in development and commercial milestone payments, as well as high-single to mid-double-digit royalties. Additionally, CASI will make a $7m equity investment in BioInvent (pending shareholder approval). The companies will share development responsibility (precise split not disclosed) and CASI will commercialize the product in China for all future indications.
A new checkpoint to target
BI-1206 is a monoclonal antibody targeting the FcγRIIB protein, a member of the class of antibody receptors present on leukocytes. Unlike other members of this class, FcγRIIB is primarily inhibitory in nature and has ‘checkpoint’ properties, regulating the ability of the immune system to target endogenous tissue. The hope is that by inhibiting this protein, BI-1206 can increase the effectiveness of immunotherapies and other monoclonal antibodies designed to treat cancer, by ‘taking the foot off the break pedal’ for the patient’s immune response.
Potential in solid and hematologic tumors
BI-1206 is currently in two ongoing studies. The first is a Phase I/IIa study, initiated in 2018, studying the drug in combination with rituximab for the treatment of B-cell NHL. The drug is still in the Phase I dosing portion of the study, which reported that a patient had a complete response (CR) in April. The second is another Phase I/IIa study done in collaboration with Merck, in which the drug is paired with Keytruda (pembrolizumab) for the treatment of solid tumors. This study enrolled its first patients in June 2020.
Valuation: Increased to $380.2m or $3.07 per share
We have increased our valuation to $380.2m or $3.07 per share, from $377.1m or $3.04 per share, on account of the new deal. We model BI-1206 for NHL and non-small cell lung cancer (NSCLC) with a valuation of $15.1m.
A different type of checkpoint inhibitor: Targeting antibodies
BI-1206 is an inhibitor of the FcγRIIB receptor found on white blood cells (leukocytes). It is a member of the class of Fc receptors, which are the primary receptors for antibodies in the body. The protein mediates many of the cellular responses to antibody binding, such as the phagocytosis of material bound to these antibodies, and therefore is a key component of a functioning immune system. FcγRIIB specifically binds to IgG antibodies, and unlike other members of this class, appears to be primarily inhibitory in nature.1 Congenital defects in the gene for the receptor are associated with autoimmune diseases such a systemic lupus erythematosus, suggesting that the function of the protein is to lessen or dampen the body’s immune response to its own tissue. This is not unlike other so-called checkpoint proteins such as PD-1 or CTLA-4. However, unlike these other checkpoint proteins, which primarily influence the T-cell axis of immunity, FcγRIIB serves as a checkpoint for antibody and B-cell based immunity. It is responsible for regulating the production of antibodies by B-cells, as well as controlling the cellular immune response to antibody binding. Inhibition of this protein therefore has the potential to both enhance the patient’s endogenous immune response against cancer as well as improve the patient’s response to other monoclonal antibody drugs designed to treat cancer.
Smith GCK and Clatworthy MR (2010) FcγRIIB in autoimmunity and infection: evolutionary and therapeutic implications. Nat Rev Immunol 10, 328-343.
Ongoing studies
BioInvent is currently studying the drug in two Phase I/IIa studies, one for NHL and one for solid tumors. Both are in the Phase I dose escalation portion of the studies. The NHL study is examining BI-1206 in combination with rituximab (aka Rituxan) with relapsed and refractory disease, and it reported results in April from the 70mg dosing cohort, which included a CR in a patient. The company stated that it expects more data from the dosing study to be available in H220.
The solid tumor study will be investigating the drug in combination with Keytruda and will be investigating solid tumor patients who are relapsed or refractory to PD-1 or PD-L1 inhibitors. The goal is that FcγRIIB inhibition can help reverse some of this resistance and allow for susceptibility to Keytruda. The first patients were included in the study in June 2020.
Deal details and plans for China
In exchange for the rights to market the drug in Greater China, CASI will provide a $5m upfront payment and a $7m equity investment in BioInvent (subject to shareholder approval) as well as $83m in future development and commercial milestones and high-single to mid-double-digit royalties. The equity financing included 29,395,311 shares at SEK2.09 per share (130% of the volume weighted average price (VWAP) for the 10 trading days prior to 27 October) and 14,697,655 warrants exercisable at SEK3.14 for up to five years. CASI will own 3.0% of BioInvent if the offering is approved (4.4% if all warrants are exercised). Little else regarding the agreement was announced, such as development obligations for the two parties, but we assume that BioInvent will continue to develop the drug in its two ongoing trials, and that a Chinese bridging study may be needed at a later point, with a small number of patients (eg 30) to demonstrate efficacy in a Chinese population, if the drug has demonstrated efficacy elsewhere. We expect the cost of such a study to be small, in the event that CASI is expected to support it, and for it to occur at the end of clinical development.
Valuation
We have increased our valuation to $380.2m or $3.07 per share, from $377.1m or $3.04 per share, due to the inclusion of BI-1206 in our valuation. We have modelled BI-1206 for relapsed and refractory NHL ($6.5m valuation before COVID-19 adjustment) and NSCLC after failure of a PD-1 inhibitor ($10.3m before COVID-19 adjustment). The latter is used in lieu of any specific indications being studied in the ongoing Phase I solid tumor study, as we see NSCLC as the most attractive potential target, although this may change if the drug shows stronger efficacy in other indications. Additionally, we assume that only 10% of the target market will have been treated and relapsed on PD-1 inhibitors at the time of launch, although this may change as we get better data on the usage of these drugs in China. In both cases we assume pricing in China roughly on par with Keytruda, which is $2,600 per 100mg vial. We assume a median duration of treatment for both indications of six months as a holding value until we have better response data from clinical studies. We expect initial approval in 2028 for NHL and subsequent approval for NSCLC in 2029. Our other assumptions are in line with the details released on the licensing agreement, including royalty rates topping out at 14%, $83m in milestones ($33m as clinical and regulatory milestones and the remainder as commercial). Other costs are expected to be very low, with only R&D costs associated with a 30-person bridging study for each indication as presented above (at $20,000 per patient). Our probability of success for both indications in 10%, which is our standard starting probability for drugs in Phase I. Our pro-forma cash estimate has been adjusted for the cost of the upfront payment and equity investment ($5m and $7m, respectively) associated with the deal, as well as multiple other transactions as previously described. Otherwise our forecasts remain unchanged.
Exhibit 1: Valuation of CASI
Portfolio |
Asset |
Region |
Peak sales ($m) |
Margins |
Clinical risk adjustment |
COVID-19 risk |
Value |
|||||||
Hematology |
Evomela |
China |
35.4 |
49% |
100% |
90% |
66.77 |
|||||||
Marqibo |
China |
9.2 |
56% |
90% |
90% |
6.90 |
||||||||
Zevalin |
China |
25.5 |
64% |
90% |
90% |
38.40 |
||||||||
Thiotepa |
China |
8.8 |
39% |
90% |
90% |
4.07 |
||||||||
CID-103 |
China & US & Europe |
766.6 |
59% |
5% |
90% |
12.66 |
||||||||
CNCT19 |
China |
306.2 |
up to 50% profit share |
10% |
90% |
22.67 |
||||||||
BI-1206 |
China |
249.9 |
59% |
10% |
90% |
15.07 |
||||||||
Other products |
ANDA portfolio |
China & US |
142.0 |
47% |
100% |
90% |
153.49 |
|||||||
Octreotide LAI |
China |
15.7 |
41% |
80% |
90% |
10.81 |
||||||||
Total |
330.85 |
|||||||||||||
Net cash and equivalents (Q220 + subsequent transactions) ($m) |
70.37 |
|||||||||||||
Noncontrolling interest |
(21.07) |
|||||||||||||
Total firm value ($m) |
380.15 |
|||||||||||||
Total shares (m) |
123.94 |
|||||||||||||
Value per basic share ($) |
3.07 |
|||||||||||||
Dilutive warrants and options (m) |
15.91 |
|||||||||||||
Value per diluted share ($) |
3.03 |
|||||||||||||
Source: CASI reports, Edison Investment Research
Financials
BI-1206 has been integrated into our financial forecasts, and we have included the transaction in our financials (including the equity investment pending approval by BioInvent shareholders). We also include the first of the milestones payable in for the drug as $3m at the completion of the Phase I portion of the NHL study in 2021, which we record as an R&D cost and has increased our expected reported operating loss for 2021 to $38.9m from $35.9m. This milestone is purely speculative, and subject to change if more information is released from the company. We expect the company to need an additional $65m to reach profitability (recorded as illustrative debt in 2022), which is an increase from $50m previously on account of the transaction.
Exhibit 2: Financial summary
$'k |
2018 |
2019 |
2020e |
2021e |
||
Year end 31 December |
US GAAP |
US GAAP |
US GAAP |
US GAAP |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
0.0 |
4,131.0 |
11,487.0 |
20,153.5 |
Cost of Sales |
0.0 |
(3,935.0) |
(7,209.4) |
(5,021.4) |
||
Gross Profit |
0.0 |
196.0 |
4,277.6 |
15,132.1 |
||
EBITDA |
|
|
(19,402.4) |
(37,495.0) |
(27,525.3) |
(29,311.9) |
Normalised operating profit |
|
|
(19,767.9) |
(38,098.0) |
(28,061.3) |
(30,095.6) |
Amortization of acquired intangibles |
(1,305.4) |
(1,550.0) |
(3,054.0) |
(1,508.0) |
||
Exceptionals |
0.0 |
0.0 |
(1,087.0) |
0.0 |
||
Share-based payments |
(6,118.1) |
(7,310.0) |
(7,310.0) |
(7,310.0) |
||
Reported operating profit |
(27,191.4) |
(46,958.0) |
(39,512.3) |
(38,913.6) |
||
Net Interest |
(280.1) |
1,062.0 |
48.6 |
48.6 |
||
Joint ventures & associates (post tax) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
0.0 |
534.0 |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
(20,048.1) |
(36,502.0) |
(28,012.8) |
(30,047.0) |
Profit Before Tax (reported) |
|
|
(27,471.6) |
(45,362.0) |
(39,463.8) |
(38,865.0) |
Reported tax |
0.0 |
0.0 |
0.0 |
7,773.0 |
||
Profit After Tax (norm) |
(20,048.1) |
(36,502.0) |
(28,012.8) |
(30,047.0) |
||
Profit After Tax (reported) |
(27,471.6) |
(45,362.0) |
(39,463.8) |
(31,092.0) |
||
Minority interests |
0.0 |
(670.0) |
0.0 |
0.0 |
||
Discontinued operations |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
(20,048.1) |
(37,172.0) |
(28,012.8) |
(30,047.0) |
||
Net income (reported) |
(27,471.6) |
(46,032.0) |
(39,463.8) |
(31,092.0) |
||
Basic average number of shares outstanding (m) |
85 |
96 |
112 |
130 |
||
EPS - basic normalised (c) |
|
|
(23.65) |
(38.74) |
(25.03) |
(23.08) |
EPS - diluted normalised (c) |
|
|
(23.65) |
(38.74) |
(25.03) |
(23.08) |
EPS - basic reported (c) |
|
|
(32.41) |
(47.98) |
(35.26) |
(23.88) |
Dividend (c) |
0.00 |
0.00 |
0.00 |
0.00 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
20,845.4 |
41,130.0 |
70,491.8 |
68,583.9 |
Intangible Assets |
18,784.7 |
16,895.0 |
18,222.0 |
16,714.0 |
||
Tangible Assets |
1,750.6 |
985.0 |
11,755.8 |
11,355.9 |
||
Investments & other |
310.0 |
23,250.0 |
40,513.9 |
40,513.9 |
||
Current Assets |
|
|
92,564.6 |
61,501.0 |
46,836.0 |
26,680.2 |
Stocks |
0.0 |
4,542.0 |
2,370.2 |
1,650.9 |
||
Debtors |
0.0 |
1,293.0 |
1,888.3 |
3,312.9 |
||
Cash & cash equivalents |
85,117.0 |
54,246.0 |
29,863.5 |
19,059.4 |
||
Other |
7,447.6 |
1,420.0 |
12,714.0 |
2,657.0 |
||
Current Liabilities |
|
|
(3,873.9) |
(7,947.0) |
(9,247.0) |
(10,965.3) |
Creditors |
(968.0) |
(5,113.0) |
(6,413.0) |
(8,131.3) |
||
Tax and social security |
0.0 |
0.0 |
0.0 |
0.0 |
||
Short term borrowings |
(1,499.5) |
0.0 |
0.0 |
0.0 |
||
Other |
(1,406.4) |
(2,834.0) |
(2,834.0) |
(2,834.0) |
||
Long Term Liabilities |
|
|
(73.6) |
(1,019.0) |
(781.0) |
(781.0) |
Long term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other long term liabilities |
(73.6) |
(1,019.0) |
(781.0) |
(781.0) |
||
Net Assets |
|
|
109,462.5 |
93,665.0 |
107,299.8 |
83,517.8 |
Minority interests |
0.0 |
20,670.0 |
20,670.0 |
20,670.0 |
||
Shareholders' equity |
|
|
109,462.5 |
72,995.0 |
86,629.8 |
62,847.8 |
CASH FLOW |
||||||
Op Cash Flow before WC and tax |
(19,402.4) |
(37,495.0) |
(27,525.3) |
(29,311.9) |
||
Working capital |
(9,780.4) |
4,452.0 |
(626.5) |
1,013.0 |
||
Exceptional & other |
598.9 |
9,800.0 |
(1,310.0) |
7,773.0 |
||
Tax |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net operating cash flow |
|
|
(28,583.9) |
(23,243.0) |
(29,461.8) |
(20,525.9) |
Capex |
(1,131.1) |
(7,053.0) |
(11,306.8) |
(383.8) |
||
Acquisitions/disposals |
(20,642.4) |
(21,005.0) |
(21,644.9) |
0.0 |
||
Net interest |
0.0 |
0.0 |
(275.4) |
48.6 |
||
Equity financing |
92,269.8 |
3,545.0 |
46,277.7 |
0.0 |
||
Dividends |
912.0 |
0.0 |
0.0 |
0.0 |
||
Other |
0.0 |
20,000.0 |
(7,791.0) |
10,057.0 |
||
Net Cash Flow |
42,824.4 |
(27,756.0) |
(24,202.3) |
(10,804.1) |
||
Opening net debt/(cash) |
|
|
(41,991.7) |
(83,617.5) |
(54,245.5) |
(29,863.3) |
FX |
(1,197.5) |
(1,328.0) |
(489.0) |
0.0 |
||
Other non-cash movements |
(1.0) |
(288.0) |
309.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
(83,617.5) |
(54,245.5) |
(29,863.3) |
(19,059.2) |
Source: CASI reports, Edison Investment Research
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