Rounding out a productive year of R&D

Oncology Venture 28 March 2019 Update
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Oncology Venture

Rounding out a productive year of R&D

Financial update

Pharma & biotech

28 March 2019

Price

SEK4.55

Market cap

SEK229m

US$0.16/DKK; US$0.11/SEK

Net debt (SEKm) at 31 December 2018

24.6

Shares in issue

50.3m

Free float

70%

Code

MPI

Primary exchange

NASDAQ First North Stockholm

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(28.4)

(36.6)

(55.9)

Rel (local)

(27.9)

(43.6)

(58.9)

52-week high/low

SEK15.0

SEK4.5

Business description

Oncology Venture is a Denmark-based biopharmaceutical company focused on oncology. Its patent-protected mRNA-based drug response predictor platform enables the identification of patients with gene expression highly likely to respond to treatment. To date, the company has in-licensed six drug candidates with the intent to conduct focused Phase II clinical trials and then out-license the revamped drugs.

Next events

Initiate 2X-121 Phase II in ovarian cancer

H119

LiPlaCis IND/IDE application approval

H119

Phase II LiPlaCis trial top-line data

H119

Analysts

Nathaniel Calloway

+1 646 653 7036

Briana Warschun

+1 646 653 7031

Oncology Venture is a research client of Edison Investment Research Limited

Oncology Venture (OV) has ramped-up R&D with multiple trials moving forward. Its Phase II study of LiPlaCis in metastatic breast cancer (mBC) remains ongoing as it awaits FDA approval of the IDE/IND application, which it expects in H119. In March, OV included the first patient in its expanded LiPlaCis Phase II study investigating prostate cancer. Additionally, its 2X-121 Phase II study in mBC is ongoing and OV plans to initiate its second 2X-121 Phase II trial in ovarian cancer in the near future.

Year end

Revenue (DKKm)

PBT*
(DKKm)

EPS*
(DKK)

DPS
(DKK)

P/E
(x)

Yield
(%)

12/17

5.1

(31.0)

(1.27)

0.0

N/A

N/A

12/18

2.1

(22.5)

(0.44)

0.0

N/A

N/A

12/19e

3.6

(192.6)

(3.58)

0.0

N/A

N/A

12/20e

3.6

(89.3)

(1.58)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

LiPlaCis for mBC awaiting feedback from FDA

According to OV, data from the LiPlaCis Phase II trial in mBC may support obtaining ‘breakthrough therapy’ designation, which could expedite the development and review of the LiPlaCis programme if it demonstrates considerable improvement over existing therapies on clinically significant endpoints. OV plans to update recruitment timelines for the trial following FDA approval of the IDE/IND application, which the company expects in H119.

LiPlaCis trial expands to metastatic prostate cancer

In March 2019, OV announced the first patient has been included in a Phase II study investigating LiPlaCis in prostate cancer. OV previously received approval from the Danish Medicines Agency (DKMA) to expand the LiPlaCis Phase II trial to include metastatic prostate cancer patients. OV plans to increase patient enrolment to 50 (from 30) to include patients with mBC and metastatic prostate cancer, which we expect to strengthen statistics around the drug response predictor (DRP).

Irofulven and two 2X-121 trials underway

In October, OV announced the first patient was included in its Phase II irofulven trial, which is expected to enrol 13–27 patients. OV hopes to see a response rate of ~20% in these patients; according to the company this should enable a marketing approval pathway. Moreover, OV’s 2X-121 Phase II trial in mBC remains ongoing and OV expects to initiate a second trial in ovarian cancer in the near future.

Valuation: SEK1,117.7m or SEK22.22 per share

We have increased our valuation of OV to SEK1,117.7m or SEK22.22 per share (SEK20.84 per diluted share) from SEK1,100.5m or SEK21.87 (SEK20.52) primarily attributed to rolling forward our NPVs and partially offset by lower net cash. We expect to make further adjustments to our valuation of OV following feedback from the company’s six clinical programmes.

Multiple programmes progressing nicely

In mid-December, OV announced the FDA responded positively to its pre-IDE/IND dossier detailing a potential application for LiPlaCis in mBC in the US. According to the company, the FDA agreed the 505(b)(2) pathway is an acceptable course for LiPlaCis and additional toxicology studies are not needed. The primary endpoint of the upcoming trial is overall response rate (ORR; ie partial responses plus complete responses). Although the FDA accepted ORR as the primary endpoint, it is contingent on OV’s ability to provide additional characterisation of the patient sub-populations selected by the DRP to be treated with the drug. Several advantages to using ORR as a primary endpoint include assessment in single-arm studies1 and the opportunity to evaluate potential efficacy and safety earlier and in smaller studies in comparison to overall survival studies.

FDA Clinical Trial Endpoints for the Approval of Cancer Drugs and Biologics Guidance for Industry; Source: https://www.fda.gov/downloads/Drugs/Guidances/ucm071590.pdf

In February 2019, OV provided an update on its ongoing single-arm, open-label Phase II trial investigating LiPlaCis for the treatment of heavily pre-treated mBC patients. Patients are administered 40mg/m2 LiPlaCis intravenously (IV) in three-week cycles on days one and eight with efficacy evaluation every six weeks. The response rate was 33% (or four out of 12 patients) in the top one-third of DRP-selected patients. These patients achieved partial response (PR) or better, which is defined as a 30% or greater reduction in tumour size measured in one dimension in a CT scan when treated with LiPlaCis. Moreover, the top one-third of patients also reached a median time to progression of 18 weeks versus seven weeks in the remaining enrolled patients (who had DRP scores between 33% and 67%, as those below 33% were excluded from the study). Interestingly, these response data are slightly lower than previously reported in the November 2018 clinical update, where five out of 10 patients (50%) in the top one-third of DRP-selected patients and six out of 25 patients (24%) in the upper two-thirds of DRP selected patients achieved PR or better. However, the data are still evolving.

Additionally, 40% of patients in the upper 20% of DRP-selected patients who have not previously received cisplatin also achieved PR or better. This marks the first time that OV has presented data using a 20% DRP threshold, highlighting that thresholding is under active investigation. The company may shift the DRP threshold up or down to optimise patient response to LiPlaCis.

OV is seeking approval for LiPlaCis, a liposomal version of cisplatin chemotherapy, via an upcoming single-arm pivotal study in ~100–200 patients with mBC using the ongoing Phase II trial as a bridge. This strategy likely depends on obtaining ‘breakthrough therapy’ designation from the US FDA, which could expedite the development and review of the LiPlaCis programme if it demonstrates considerable improvement over existing therapies on clinically significant endpoints. According to the company, these data may in fact support ‘breakthrough therapy’ designation. OV plans to update recruitment timelines for the trial following FDA approval of the IDE/IND application, which the company expects in H119.

First prostate cancer patient included in LiPlaCis Phase II trial

In October 2018, OV received clearance from the DKMA to expand the ongoing Phase II study of LiPlaCis to include metastatic prostate cancer patients and the first patient with prostate cancer was included on 11 March 2019. The company expanded enrolment to 50 (from 30) to include patients with mBC and prostate cancer. We expect this increase in patient enrolment to strengthen statistics around the DRP.

Platinum-based chemotherapy has previously been investigated for this patient population; however, its application has not endured clinical practice. In one study, 34 men with castrate-resistant prostate cancer with progression after monotherapy docetaxel were treated with a combination of docetaxel (60mg/m2) and carboplatin every three weeks. The ORR to this combination therapy was relatively low at 14%.2 Moreover, a comprehensive review article detailed response rates to a number of cisplatin regimens in metastatic prostate cancer. In three publications, the response rate of cisplatin monotherapy, defined as a greater than a 50% prostate-specific antigen decline, was 20%.3 In total, 17 publications investigating cisplatin in combination with other chemotherapies reported response rates between 23% and 29%.3 These studies also reported substantial cytotoxicity including neutropenia and thrombocytopenia, which is expected with platinum-based chemotherapy.

Hauke, R., & Teply, B. (2016). Chemotherapy options in castration-resistant prostate cancer. Indian Journal of Urology,32(4), 262.

Hager, S., et al. (2016). Anti-tumour activity of platinum compounds in advanced prostate cancer—a systematic literature review. Annals of Oncology,27(6), 975-984.

Although response rates to platinum-based chemotherapy have previously been suboptimal, the use of OV’s LiPlaCis DRP may reveal improved outcomes in patients assessed by the DRP as being more likely to respond to the drug. According to the company, more than 80 patients with metastatic castration-resistant prostate cancer have consented to have their tumour tissue analysed by the LiPlaCis DRP.

Irofulven for prostate cancer

In October, the first prostate cancer patient was included in its Phase II irofulven trial. OV is developing irofulven, a cytotoxic DNA binding agent for the treatment of prostate cancer, using its DRP to select patients most likely to respond to treatment. OV’s unique irofulven DRP is first being used to screen ~300 patients with metastatic castration- and docetaxel-resistant prostate cancer to identify those most likely to respond to treatment. According to the company, interim data obtained from the first eight patients enrolled in the study (ie selected by the DRP algorithm to be sensitive to irofulven) will determine whether the company continues to develop this asset. If these select patients experience a particular response, the entirety of the Phase II trial will include 13-27 patients with the highest likelihood to respond to irofulven. OV expects to see a 20% or higher response rate to irofulven in these patients, which is approximately on par with the standard of care. For example, current treatment options (ie hormonal therapy, chemotherapy, typically taxanes or CYP-17 inhibitors, the combination of chemotherapy and hormonal therapy, or immunotherapy) yield a tumour response rate of 22.6% and corresponds to median progression-free survival and overall survival of 7.6 months and 15.1 months, respectively.4

Akaza, H., et al. (2018). Metastatic Castration-Resistant Prostate Cancer Previously Treated With DocetaxelBased Chemotherapy: Treatment Patterns From the PROXIMA Prospective Registry. Journal of Global Oncology,(4), 1-12.

Two 2X-121 trials underway

OV’s Phase II 2X-121 trial in breast cancer is ongoing. 2X-121 is an orally bioavailable small molecule and a dual PARP-1/2 and TNKS-1/2 inhibitor. The open-label trial was initiated in June 2018 and the primary endpoint is overall tumour response according to RECIST at more than 24 weeks post-treatment. The company plans to read out the first efficacy data as soon as patients have been enrolled long enough to demonstrate some response. However, an exact timeframe was not provided and has fallen behind previous expectations (Q418). In October 2018, OV announced its plans to initiate a second Phase II 2X-121, this time in patients with ovarian cancer in the US and in Germany in H119. OV previously received IDE and IND approvals for 2X-121 DRP technology and treatment protocol.

Refinement of the dovitinib DRP biomarker

In February this year, OV provided an update on the process of developing the DRP assay for dovitinib. With its data mining process for the refinement of its dovitinib DRP biomarker, the company had to identify patients highly likely to respond to the drug. As a reminder, OV in-licensed dovitinib, an oral TKI that inhibits fibroblast growth factor, vascular endothelial growth factor and platelet-derived growth factor receptors, from Novartis. As part of the agreement, OV also received an ample amount of biopsy and gene expression data from previous studies from Novartis. OV recently announced that its data-mining process for dovitinib and its unique DRP is complete for two distinct indications, renal cancer and endometrial cancer, which is an essential step in OV’s business model. Optimising the DRP is also important for identifying the patients most likely to respond. According to the company, the unique dovitinib DRP is guiding towards two- to four-fold higher response rates. We note that this is the first time OV has commented on the possibility of treating patients with endometrial cancer with dovitinib and its DRP companion diagnostic. The company has not yet announced trials in these indications for dovitinib, however OV previously discussed going into renal and liver cancer, which we model trials initiating within the next year. Furthermore, we expect the company to select the best indications based on its data mining process to move forward with.

Valuation

We have increased our valuation of OV to SEK1,117.7m or SEK22.22 per share (SEK20.84 per diluted share) from SEK1,100.5m or SEK21.87 (SEK20.52). This increase is primarily attributed to rolling forward our NPVs and is partly offset by lower net cash. Future adjustments to our valuation of the LiPlaCis programme are contingent on feedback from the FDA regarding breakthrough therapy designation. According to the company, its three highest-priority assets are LiPlaCis, 2X-121 and dovitinib; based on our estimates, we value these assets at SEK5.39, SEK3.29 and SEK5.26 per share, respectively. We expect to make further adjustments to our valuation of OV following feedback from the company’s six clinical programmes.

Exhibit 1: Valuation of OV

Development Program

Indication

Clinical stage

Prob. of success

Launch year

Launch pricing

Peak sales ($m)

rNPV (SEKm)

% owned by OV

OV rNPV (SEKm)

LiPlaCis

Metastatic breast cancer and metastatic prostate cancer

Phase II

25%

2023

$91,000

259.8

695.3

39%

271.2

Irofulven

Metastatic prostate cancer

Phase Ib/II

20%

2023

$129,000

52.6

61.9

100%

61.9

APO010

Multiple myeloma

Phase Ib/II

20%

2023

$143,000

80.9

101.1

100%

101.1

2X-121

Metastatic breast cancer and ovarian cancer

Phase II

25%

2023

$132,000

116.4

180.0

92%

165.6

2X-111

Glioblastoma and brain metastases from breast cancer

Phase Ib/II

25%

2024

$169,000

212.6

302.3

92%

278.2

Dovitinib

Renal and liver cancer

Phase Ib/II

35%

2024

$145,000

152.0

480.9

55%

264.5

Total

 

 

 

 

 

 

 

 

1,142.3

Net debt (at 31 December 2018) (SEKm)

(24.6)

Total firm value (SEKm)

1,117.7

Total shares (m)

50.3

Value per basic share (SEK)

22.22

Warrants and options (m)

3.3

Fully diluted shares in issue

53.6

Fully diluted value per share

20.84

Source: Company reports, Edison Investment Research

Financials

OV recently announced its FY18 results. For FY18, OV reported revenue of DKK2.1m, primarily attributable to rendered services, and a post-tax loss of DKK15.5m. As of 31 December 2018, OV had DKK1.5m in cash and equivalents and DKK18.9m in debt. Operating losses came in slightly under expectations at DKK32.5m compared to our previous estimates (DKK37.6m). This is due in part to lower than expected SG&A expenditure, which we have adjusted for and carried forward. We do expect OV’s operational expenditure to increase significantly over the next few years as several trials continue to ramp-up.

Due to lower spend and the drawdown of part of the flexible loan facility established with Trention, we have lowered our expectations to DKK388m (from DKK430m) in capital requirements, which we record as illustrative debt, to bring all six of its anticancer programmes to Phase III out-licensing (Exhibit 2). The company has established several avenues to significantly address these financing requirements. Firstly, the company recently announced it is preparing for a rights issue of SEK60m–SEK100m. As per the terms of the rights issue, shareholders may subscribe for one new share and one warrant for SEK4.00 for every two existing shares held, with a warrant strike price of at least SEK7.50. According to the company, guarantees and undertakings of approximately SEK60m have already been received. For accounting purposes, we record this as long-term debt and will move it to proceeds from equity in 2019 once the offering is complete. Secondly, OV intends to use SEK20m remaining from the flexible loan facility established with Trention to strengthen its financials in the near term.

Additional funding sources include the outstanding financing agreement with the European High Growth Opportunities Securitization Fund (EHGOSF, advised by Alpha Blue Ocean) for SEK200m in convertible notes and warrants over the next 24 months, bearing 2% fixed interest and potentially an additional SEK100m if all warrants are exercised. The pricing of the convertible notes and warrants will be determined once they are drawn (95% and 150% of the average of the last 15 trading days, respectively) and there is 50% warrant coverage in each tranche. The funding may be drawn down through the issuance of 20 tranches at SEK10m (the size of tranche can be decreased to SEK7.5m). This agreement was revised in March 2019, allowing OV to solely determine the drawdown of the tranches and taking full control over the potential implementation of this financing (previously EHGOSF was in control of five of these drawdowns). We assume that all six of OV’s assets will move forward; however, costs may be brought down if the development programmes do not progress as we expect.

Exhibit 2: Financial summary

DKK'000s

2017

2018

2019e

2020e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

5,145

2,147

3,646

3,646

Cost of Sales

0

0

0

0

Gross Profit

5,145

2,147

3,646

3,646

EBITDA

 

 

(23,794)

(32,258)

(190,777)

(89,295)

Operating Profit (before amort. and except.)

 

 

(23,848)

(32,471)

(190,564)

(89,082)

Intangible Amortisation

0

0

0

0

Exceptionals/Other

0

0

0

0

Operating Profit

(23,848)

(32,471)

(190,564)

(89,082)

Net Interest

(7,132)

(192)

(2,015)

(212)

Other

0

10,146

0

0

Profit Before Tax (norm)

 

 

(30,980)

(22,517)

(192,579)

(89,294)

Profit Before Tax (IFRS)

 

 

(30,980)

(22,517)

(192,579)

(89,294)

Tax

590

6,973

3,694

1,761

Deferred tax

0

0

0

0

Profit After Tax (norm)

(30,390)

(15,544)

(188,885)

(87,533)

Profit After Tax (IFRS)

(30,390)

(15,544)

(188,885)

(87,533)

Average Number of Shares Outstanding (m)

24.3

33.8

52.8

55.5

EPS - normalised (DKK)

 

 

(1.27)

(0.44)

(3.58)

(1.58)

EPS - IFRS (DKK)

 

 

(1.27)

(0.44)

(3.58)

(1.58)

Dividend per share (ore)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

4,883

237,096

237,096

237,096

Intangible Assets

135

236,733

236,733

236,733

Tangible Assets

4,424

363

363

363

Other

324

0

0

0

Current Assets

 

 

8,102

14,401

46,634

117,689

Stocks

1,048

0

0

0

Debtors

3,048

5,262

19,083

9,099

Cash

3,326

1,547

16,265

95,543

Other

680

7,592

11,286

13,047

Current Liabilities

 

 

(10,540)

(35,407)

(27,017)

(12,791)

Creditors

(10,540)

(16,515)

(27,017)

(12,791)

Short term borrowings

0

(18,892)

0

0

Long Term Liabilities

 

 

0

(34,234)

(265,126)

(441,126)

Long term borrowings

0

0

(230,892)

(406,892)

Other long term liabilities

0

(34,234)

(34,234)

(34,234)

Net Assets

 

 

2,445

181,856

(8,413)

(99,132)

CASH FLOW

Operating Cash Flow

 

 

(10,702)

(31,392)

(197,069)

(96,509)

Net Interest

(170)

(2,391)

0

0

Tax

2,527

6,159

0

0

Capex

0

0

(213)

(213)

Acquisitions/disposals

(784)

9,855

0

0

Financing

7,478

198

0

0

Dividends

0

0

0

0

Other

(308)

(3,299)

0

(102)

Net Cash Flow

(1,959)

(20,870)

(197,282)

(96,824)

Opening net debt/(cash)

 

 

(5,488)

(3,326)

17,345

214,627

HP finance leases initiated

0

0

0

0

Exchange rate movements

(203)

(199)

0

0

Other

0

398

0

(0)

Closing net debt/(cash)

 

 

(3,326)

17,345

214,627

311,451

Source: Company reports, Edison Investment Research

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This report has been commissioned by Oncology Venture and prepared and issued by Edison, in consideration of a fee payable by Oncology Venture. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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