Signs of comfort and joy

Celyad 13 December 2016 ADR Update

Celyad

Signs of comfort and joy

American Society of Hematology data

Pharma & biotech

13 December 2016

ADR research

Price

$18.2

Market cap

$169m

ADR/Ord conversion ratio 1:1

Net cash ($m) at 30 September 2016

87

ADRs in issue

9.31m

ADR code

CYAD

ADR exchange

NASDAQ

Underlying exchange

Euronext Brussels

Depository

CITI

ADR share price performance

52-week high/low

$56.1

$15.7

Business description

Celyad is developing an innovative CAR T-cell (NKR-2) immuno-oncology technology. Phase I/II studies have reached the highest 30m cell dose. C-Cure, an autologous stem cell therapy for chronic heart disease, missed its primary endpoint. A part-US trial may run if partnered.

Next events

Final FY16 results

Q217

US trial starts

Q1 2017

THINK dose data

Q3 2017

6 mth THINK efficacy

H2 2018

Analysts

John Savin PhD

+44 (0)20 3077 5735

Lala Gregorek

+44 (0)20 3681 2527

Celyad is a research client of Edison Investment Research Limited

Celyad has reported at the American Society of Hematology (ASH) conference that the last treated patient from the three patient 30m cell dose cohort had stable AML disease for 12 weeks after NRK-2 treatment. Laboratory tests also indicate that responses to therapy were seen. The single dose used is 100x lower than the expected NKR-2 effective dose assessed in animal studies. Some other patients at lower doses also showed prolonged survival with unanticipated responses to other treatments despite their aggressive disease. Overall safety was good and importantly no cases of cytokine release syndrome, neurotoxicity and autoimmunity were observed. The new THINK Phase Ib trial is a major expansion of CAR therapy with five solid tumors plus AML and MM being explored. Our interim indicative value remains at $50 per share.

Year end

Revenue ($m)

PTP*
($m)

EPADR
($)

DPADR
($)

P/E
(x)

Yield
(%)

12/14

0.2

(19.6)

(2.90)

0.0

N/A

N/A

12/15

0.0

(30.1)

(3.46)

0.0

N/A

N/A

12/16e

11.9

(26.7)

(2.87)

0.0

N/A

N/A

12/17e

0.0

(33.2)

(3.56)

0.0

N/A

N/A

Note: Converted at €0.94/US$1. *PBT and EPS are normalized, excluding amortization of acquired intangibles, exceptional items and share-based payments.

Possible effect at 30m cell dose

In the completed dose ranging and safety Phase I, Celyad’s CEO noted “reports of unexpected clinical benefit”; unexpected because the single, low doses were not expected to show efficacy. Data presented at ASH has been disclosed, showing that a patient with acute myeloid leukemia (AML) treated with 30m NKR-2 CAR T-cells has shown no disease progression in the subsequent 12 weeks and has not received any further treatments. In addition, the patient has shown improved hematological parameters using laboratory testing. Also encouraging are reports that other patients who had aggressive disease on enrolment have shown prolonged survival and improvements in hematological parameters.

NKR-2 takes a lead positon in solid tumors

Celyad now has Belgian approval to start immuno-oncology autologous NKR-2 trials (THINK) in two hematological and five solid tumors at high doses. US trial approval is expected soon. The exploration of NKR-2 in solid tumors puts Celyad in a leading position in this area. Other CAR companies will have to compete for a limited number of patients in the congested CD19 area.

Valuation: Rebased and adjusted to $50 per share

Our valuation was revised in our last note (28 November), now focusing on NKR-2 indications and including five solid tumors plus the AML and multiple myeloma (MM) in the Phase I. The C-Cure value is now regarded as an indicative deal value on partnering. Celyad has cut its cash burn to no more than $33m per year to conserve cash to mid-2019. The interim indicative value is $50 per share.

ASH data in detail

The poster presented at ASH covers 12 patients. The Phase I study was a dose escalation safety study in which cohorts of three patients were treated sequentially before proceeding to a higher dose, the lowest dose tested was 1m cells rising to 30m cells in the fourth cohort. Both AML and MM patients were enrolled with at least one per cohort.

All patients had advanced cancers. In AML, patients were not in remission and had no reasonable standard treatment options available to them. In MM, patients had to have relapsed or have refractory multiple myeloma with progressive disease. The investigators reported that no objective clinical responses were seen, but cases of unexpected survival and improvements in hematological parameters were noted in both AML and MM patients. This is highly encouraging. Overall survival was 4.8 months. Exhibit 1 shows that seven of the 12 patients have died (as of early December 2016); many entered other trials.

Exhibit 1: Outcome from Phase I study based on days after treatment with NKR-2 cells

Source: Celyad. Note: Poster presented at ASH.

It should be noted that these unadjusted cell dose levels were very low compared to the doses used in CD19 CAR T-cell therapy trials run by other companies. Celyad also did not adjust for patient body weight. For example, Kite Pharmaceuticals in its adult B-cell lymphoma study (Zuma-3) is dosing patients after a chemotherapy conditioning regimen with 2 x 106 cell/kg. This equates to 16 x 107 cell for an 80kg adult human compared to 3 x 107 NKR-2 cells. It should also be noted that many CD19 CAR T-cell trials give two doses of cells to minimize the side effects.

However, the use by Kite of a conditioning regimen allows room for the CD19 CAR T-cells to grow and divide, so the effective dose is probably 100 fold (or more) higher than the administered dose. NKR-2 therapy is different because the cells do not expand. This has now been confirmed in the clinical study when it was shown that the autologous NKR-2 CAR T-cells were not detectable after two weeks in 11 out of 12 patients.

In the interim data from the ongoing Bluebird Phase I MM study, some responses were seen at fixed doses of 5x107 cells with two stringent complete responses seen at fixed doses of 1.5x108 and three partial responses (to date) at 4.5x108 cells. These patients received preconditioning so the larger doses may have been 100-fold higher at 1010 or more. The CAR target used here was an anti-B cell antigen. Up to 50 patients may be enrolled eventually.

The investigators identified four patients as being of note in the Celyad study.

Exhibit 2: Specific patient outcomes

Patient

Cancer

NKR-2 cell dose

Response

Patient 13

AML

3 × 107

After 12 weeks, Patient 13 showed stable disease (defined as a less than 50% change in bone marrow blasts maintained for 12 weeks without further therapy). He also improved on various hematological parameter tests.

Patient 7

AML

1 x 107

Patient 7 showed relative peripheral blood hematological stability for three months. No conclusive bone marrow results were available. This was despite a severe disease, including a difficult to treat p53 gene mutation. He did not enter any other trials and died about 130 days after infusion.

Patient 5

AML

3 x 106

Entered another clinical study about 60 days after receiving NKR-2 cells. Maintained stable disease for six months on that trial before entering another study. The patient is still alive despite two known gene mutations.

Patient 3

MM

1 x 106

Patient 3 had an aggressive disease before infusion with NKR-2 cells, but has demonstrated longevity of 400 days with enrolment in three subsequent clinical trials starting about 30 days after NKR-2 infusion.

Source: Celyad

The main concerns in CAR therapy are cytokine release syndrome and neurotoxicity (possibly from the preconditioning regimen used).These were not seen in the Celyad study. There was an interesting side effect possibly associated with generation of an immune response: two of the three patients in cohort 4 (including Patient 13) developed a grade 1 (low level) maculopapular rash. This is a raised, flat area of red, inflamed skin. It can be caused by variety of viral infections and other conditions, including graft-versus-host disease as a result of bone marrow transplant. This was a transitory effect in Patient 13 and not fully clinically assessed. If this is confirmed at higher doses, it might be a good early marker of efficacy.

All other side effects were considered to be due to the cancer rather than to NKR-2 cells. The side effect profile will become clearer during the upcoming THINK trials, which will be testing higher and repeat doses.

Laboratory validation

In an interesting experiment, cells from two patients were tested in a cytokine assay for interferon gamma. Interferon gamma is produced by T cells in response to activation. The experiment shows high specificity of response. Exhibit 3 is a powerful demonstration of the specificity of the NKR-2 cell product based on results of cell testing from Patient 1, who had AML. Other tests showed a memory effect being generated in patients. Long-term immunity at higher doses has been shown in animal studies.

NKR-2 CAR T-cells from Patient 1 were cultured with a negative control (P815 cells), with multiple myeloma cells from different patients and with AML cells from a different patient. Finally, the cells were cultured with peripheral bone marrow cells (so containing cancer cells) from Patient 1. In each case an antibody that blocked the NKG2D ligand, the target of NKR-2 cells, was added. If the NKG2D ligands are blocked, the CAR T-cells should not recognize them and so would not be activated and not produce interferon gamma. If the NKR-2 cells responded to any normal immune cells, then interferon gamma would be produced, which would show that the NKR-2 cells were not specific. The experiment shows high specificity in this case.

Exhibit 3 also shows that the NKR-2 cells from Patient 1 (with AML) did not respond to normal cells and responded to a limited extent to non-self-cancer cells from other patients; the NKR-2 cells responded to both MM and AML cells from other patients, showing the ubiquity of the NKG2D ligand family. The NKR-2 cells responded very strongly to autologous cells. By using the blocking antibody, it was shown that the NKR-2 cells only attacked “stressed” cancer cells that displayed NKG2D ligands. This is a powerful demonstration of the specificity of the NKR-2 cell product.

Exhibit 3: Laboratory experiment showing the specificity of cells from Patient 1

Source: Celyad

Exhibit 3 also shows that the NKR-2 cells from Patient 1 (with AML) did not respond to normal cells and responded to a limited extent to non-self-cancer cells from other patients; the NKR-2 cells responded to both MM and AML cells from other patients, showing the ubiquity of the NKG2D ligand family. The NKR-2 cells responded very strongly to autologous cells. By using the blocking antibody, it was shown that the NKR-2 cells only attacked “stressed” cancer cells that displayed NKG2D ligands.

The company has indicated that tests on all the patient samples will be run so that full data can be published, probably in or after H217.

Conclusions from the study

Although the trial was not designed to assess efficacy, and it was not expected that any benefits would be observed given the low dosing, there were cases of unexpected survival and improvement in hematological parameters. Investigators concluded that single doses of the NKR-2 cells were feasible and well tolerated to at least 30m cells. There were no objective clinical responses but there were cases of unexpected survival and improvement in hematological parameters. Safety was high with no CRS or neurotoxicity. Patient 13 has been the unexpected survivor as he has not enrolled in any other studies and has so far maintained stable disease with no therapy as against medical expectations (management statement) of rapid and fatal disease progression; the other two patients in Cohort 4 have died. The Phase I endpoint was at 28 days, as patients had short life expectancies. Four other patients at much lower doses have also survived to date but all also enrolled in other studies. In two patients with laboratory test data available, it was shown that the response was much stronger against autologous tumor cells displaying NKG2D ligands.


Phase Ib: Higher, multiple doses in seven tumor types

The next Phase Ib study, THINK (THerapeutic Immunotherapy with NKR-2), has been designed by Celyad as an open-label, multiple-dose US and European study. It will assess higher dose levels, safety and clinical activity of autologous NKR-2 cells in seven refractory cancers: the two hematological cancers with Phase I data (AML and MM) and five solid tumors (colorectal, ovarian, bladder, triple-negative breast, and pancreatic cancers).

In the THINK Phase Ib, Celyad intends to increase the dose starting at 3 x 108 an order of magnitude higher than the final Phase I dose, then 1 x 109 then 3 x 109. If patients have a weight of under 60kg, these doses will be adjusted but will otherwise be standardized. At each dose, the patients will receive three successive administrations, two weeks apart, of NKR-2 T-cells. There will be 24 patients, eight per dose group. They can be from any of the above cancer types. Results from this stage of the trial are expected by Celyad in Q317.

In the expansion phase, to test efficacy Celyad intends to enroll up to 86 more patients to evaluate each tumor type independently. Combined with patients in the dose-escalation phase that have the same tumor type, this should give at least 14 patients per cancer. According to management, this stage should start in H217.

Celyad expects the six-month interim follow-up data from the cohort expansion phase in H218. The formal one-year endpoint data will therefore be available in H119 with two-year data in 2020, depending on patient survival.

Potential NKR-2 tumor markets

It is too early to develop detailed predictive models for solid tumor NKR-2 sales. Exhibit 4 looks at the number of US deaths (SEER database) in each for the two hematological cancers and the five solid cancer types. The cancer incidence is also given. Our value assumes $150,000 per treatment. This may be perceived as very low in the putative acute lymphoblastic leukemia (ALL) market, where $500,000 is currently seen as affordable. However, if and when a therapy treats many cancer types, the overall cost to the healthcare system becomes crucial. Exhibit 4 values are also based on deaths as a proxy for refractory late-stage cancers. Earlier-stage cancers could be treated as well, which would magnify the market potential in some cases.

Exhibit 4: NKR-2 potential indications in Phase Ib THINK study

Indication

US incidence

US deaths

Peak share

Potential US sales (US$m)

Probability

Global sales
(US$m)

AML

20,386

10,460

50%

638

20%

127

MM

26,850

11,240

50%

686

20%

136

 Total hematological

1,324

263

Colorectal

136,830

50,310

36%

2,721

10%

222

Ovarian

21,290

14,180

69%

1,464

20%

244

Bladder

76,960

16,390

69%

1,692

10%

141

Breast

232,670

40,000

36%

2,163

10%

177

Pancreatic

46,420

39,590

69%

4,086

5%

170

 Total solid tumors

12,125

955

Source: SEER database, Edison Investment Research

In context the CD19 favorite, ALL, has about 1,500 deaths per year in the US. All are tragic and mostly children, so this is a worthwhile indication but a small market.

The probabilities used reflect a best estimate at this point but have no substantive evidence base. Ovarian scores highest as there is published preclinical work. Pancreatic cancer is notoriously hard to treat, so a high market share could be expected if NKR-2 had an impact on survival, but a very low probability is assigned. The global market opportunity is based on 75% of the potential US sales as the this is the main market for high-value biological therapies.

Valuation is stable, solid tumors are a big opportunity

The valuation was revised in our last note (Unexpected clinical benefit published 28 November 2016). It is summarized in Exhibit 5.

Exhibit 5: Revised Celyad valuation

Item

Indication

Probability 

Value (US$m)

CAR values

AML

20.0%

126.5

 

MM

20.0%

136.0

 

Solid tumors (weighted average of one success)

Variable

188.0

 

Allogeneic

 

10.6

CAR value

 

 

461.1

C-Cure partnered value (milestones plus royalties) 

35.0%

162.44

Costs

(Risk adjusted 2017-23)

 

(157.2)

Total indicative value

 

 

476.1

Shares

 

 

9.31

Warrants and options

 

 

0.30

Value per share ($)

 

 

49.5

Source: Edison Investment Research

The indicative value on the revised interim basis is $50 per share. No further dilution is expected until 2019; possibly later depending on any deals in the interim.

The solid tumor market will be further assessed as more clinical data is obtained. Although other companies are reporting successes with B-cell CAR approaches (Kite has stated a rolling BLA application to the FDA and Novartis will file in early 2017), solid tumor types remain a difficult area that has not yet been explored. Celyad may have a significant lead in this much larger market.

Exhibit 6: Financial summary

US$'000s

2013

2014

2015

2016e

2017e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

0

155

3

11,925

0

Cost of Sales

0

(122)

(1)

0

0

Gross Profit

0

33

2

11,925

0

EBITDA

 

 

(11,465)

(19,342)

(30,357)

(26,923)

(33,129)

Operating Profit (before amort and except)

 

 

(11,688)

(19,546)

(30,647)

(27,212)

(33,419)

Intangible Amortization

(710)

(718)

(806)

(806)

(806)

Other income and charges

0

4,005

0

0

0

Share-based payments

(1,333)

(1,164)

(843)

190

190

Operating Profit

(13,731)

(17,423)

(32,295)

(27,828)

(34,035)

Net Interest

(1,627)

(17)

591

530

265

PTP (norm)

 

 

(13,315)

(19,563)

(30,055)

(26,682)

(33,154)

PTP (FRS 3)

 

 

(15,358)

(17,440)

(31,704)

(27,298)

(33,770)

Tax

0

0

0

0

0

PAT (norm)

(13,315)

(19,563)

(30,055)

(26,682)

(33,154)

PAT (FRS 3)

(15,358)

(17,440)

(31,704)

(27,298)

(33,770)

Average number of ADRs outstanding (m)

4.1

6.8

8.7

9.3

9.3

EPADR - normalized ($)

 

 

(3.25)

(2.90)

(3.46)

(2.87)

(3.56)

EPADR - (IFRS) ($)

 

 

(3.75)

(2.58)

(3.65)

(2.93)

(3.63)

Dividend per ADR ($)

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

N/A

N/A

N/A

N/A

N/A

EBITDA Margin (%)

N/A

N/A

N/A

N/A

N/A

Operating Margin (before GW and except) (%)

N/A

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

10,370

11,703

53,111

53,311

52,375

Intangible Assets

9,964

10,882

51,716

50,913

50,107

Tangible Assets

258

634

1,204

2,207

2,077

Investments

149

188

191

191

191

Current Assets

 

 

23,958

32,081

115,985

85,181

51,418

Stocks

0

0

0

0

0

Debtors

447

880

582

1,449

1,449

Cash

23,381

29,291

113,964

82,751

48,988

Other

130

1,910

1,439

982

982

Current Liabilities

 

 

(3,593)

(6,416)

(12,179)

(9,762)

(9,040)

Creditors

(3,139)

(5,593)

(11,228)

(8,380)

(8,380)

Deferred revenue

0

0

0

0

0

Walloon loans for cash payment

(454)

(824)

(952)

(1,381)

(660)

Long Term Liabilities

 

 

(12,825)

(11,913)

(38,755)

(36,055)

(36,055)

Walloon loans (non-current)

(12,796)

(11,425)

(11,113)

(7,970)

(7,970)

Other long term liabilities

(29)

(489)

(27,642)

(28,085)

(28,085)

Net Assets

 

 

17,911

25,455

118,162

92,676

58,698

CASH FLOW

Operating Cash Flow

 

 

(11,276)

(18,442)

(29,534)

(28,772)

(32,849)

Net Interest

(1,627)

(17)

591

684

131

Tax

0

0

0

0

0

Capex

(563)

(678)

(888)

(1,590)

(159)

Acquisitions/disposals

0

(1,643)

(5,497)

0

0

Financing

32,725

28,002

115,704

0

0

Dividends

0

0

0

0

0

Other

2,380

1,736

(3,484)

(1,535)

0

Net Cash Flow

21,638

8,958

76,892

(31,213)

(32,877)

Opening net debt/(cash)

 

 

11,507

(10,131)

(17,043)

(101,899)

(73,400)

HP finance leases initiated

0

0

0

0

0

Walloon loan recognition (non-cash)

0

(2,046)

7,963

2,714

(210)

Closing net debt/(cash)

 

 

(10,131)

(17,043)

(101,899)

(73,400)

(40,313)

Source: Edison Investment Research estimates, Celyad reports and announcements

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Celyad and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document.
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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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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