OSE Immunotherapeutics — A change of pace with three new clinical trials

On 7 February 2019, OSE announced that Servier had exercised the first step of the two-step option agreement (background to the deal is discussed in more detail in our initiation report). According to the agreement, this event triggers a €12m milestone payment.

The option was exercised based on the initiation of the Phase I study with OSE-127, where the first healthy volunteer was dosed on 20 December 2018. This study will be a randomised, double-blind, placebo-controlled study with 63 healthy volunteers, and will investigate the safety and tolerability of single and multiple ascending doses of OSE-127 (intravenous and subcutaneous doses). Pharmacokinetics, pharmacodynamics and immunogenicity will also be evaluated as well as exploratory biomarkers.

On 5 March 2019, OSE announced that it has clinical trial authorisation by both French and Belgian health authorities to start its Phase I study with BI 765063 (previously OSE-172), which is partnered with Boehringer Ingelheim. The trial is being conducted by OSE but paid for by BI. The milestone payment was partially triggered on the clinical trial authorisation (we expect €7.5m), but the remaining amount of the expected €15m milestone payment will be triggered once the first patient is dosed in the study (H119). As per the press release the trial will investigate safety, pharmacokinetics, pharmacodynamics and preliminary efficacy in patients with advanced solid tumours. The trial will evaluate BI 765063 as a monotherapy and in combination with BI’s own investigational PD-1 inhibitor BI 754091. Following this study, BI plans to carry out additional studies with BI 765063 (exclusive license to BI, no expense to OSE).

On 2 April 2019 at The American Association for Cancer Research Annual Meeting, OSE presented new preclinical data demonstrating the potential for SIRPα inhibition in combination with anti-PD-L1 therapy, supporting the rationale for the combination in the Phase I study described above. The presentation was entitled ‘SIRPα blockade reinvigorates myeloid cells in the tumour microenvironment and reverses T-cell exclusion’. The preclinical study found that a monoclonal antibody against SIRPα combined with an anti-PD-L1 improved overall survival in a mouse model of hepatocellular carcinoma (n=18). Eleven of 18 mice went into remission. OSE hypothesises that the synergistic effect was achieved by modifying the tumour microenvironment leading to an increased entry of T cells, which are then able to attack and kill the tumour cells.

Meanwhile, the CD47/SIRP-α space is gathering momentum. In March 2019, private US company Arch Oncology raised $50m in series B funding. The company is developing AO-176, an antibody against CD47 for the treatment of solid tumours. The company’s investors include Roche. The company has recently initiated a Phase I study in solid tumours (n=90). Forty Seven, the current leader in the CD47/SIRP-α space (in terms of having the most advanced clinical programmes), published positive data from a Phase Ib study evaluating Hu5F9-G4 in non-Hodgkin’s lymphoma in combination with rituximab: an objective response rate of 50% (n=11/22), and a complete response rate of 36%. Forty Seven is now evaluating Hu5F9-G4 in a Phase II study. Relevant companies in the field presented at the recent CD47/SIRP-α Summit in April 2019, including BI and OSE.

At the end of 2018, OSE’s partner GERCOR (a physician network) initiated a Phase II trial with Tedopi in combination with Opdivo in pancreatic cancer. This was earlier than expected (H119). The trial information is available on clinicaltrials.gov and is detailed in Exhibit 1. Management will evaluate options for further development and commercialisation depending on results from this study, which is when we will also reassess the opportunity. The insights from this trial could lead to further development for pancreatic cancer or a Phase III trial in non-small cell lung cancer (NSCLC) in combination with a checkpoint inhibitor.

OSE presented results from three patients from its ongoing ATALANTE Phase III trial with Tedopi at AACR in Atlanta on 31 March 2019 (abstract and presentation are available). Out of 18 patients enrolled so far in the experimental arm, three patients were selected by clinicians for case reports(Exhibit 2). These patients all had advanced NSCLC – one patient had squamous-cell carcinoma (SCC) and two patients had non-squamous cell carcinoma (NSCC). Each had two previous lines of treatment; two of the patients were treated with an anti-PD1 and one patient had been treated with an anti-PD1 + anti-CTLA4.

OSE reported that the safety profile was manageable in these patients, no patients were withdrawn for toxicity, a partial response (PR) was seen in one patient and stable disease (SD) by RECIST 1.1 criteria in two patients.

These initial case reports are interesting, but presented from only three patients. The trial is still enrolling, which according to management is progressing as expected. The timelines are unchanged: interim data is expected at the end of 2019 (step 1, n=100). If the trial continues after this point (subject to independent data monitoring committee review), 225 additional patients will be enrolled, in which case final data is expected in 2021 (step 2, n=325).

A trial that could be used as a benchmark for the Atalante 1 trial is Medimmune’s Phase Ib trial with durvalumab and tremelimumab in patiesnts that had received up to three prior lines of therapy, including prior anti-PD-1 or anti-PD-L1 monotherapy (NCT02000947, ASCO 2018 abstract). Overall, the one-year survival rate was 34.1%, median progression free survival (PFS) was 1.8 months and median overall survival (OS) was 8.5 months. According to management, the one-year survival rate for the Tedopi study could be benchmarked against this study in order to determine whether it will progress to the second step of the trial, which means that OSE will need to show 34.1% one-year survival.

Recently, the European Society for Medical Oncology (ESMO) and National Comprehensive Cancer Network (NCCN) published updated sets of treatment guidelines for NSCLC.

Our main conclusion from reading these updated guidelines is that the standard of care is changing in first-line (1L) and second-line (2L) advanced NSCLC patients without an actionable mutation, whereby checkpoint inhibitor and chemotherapy combinations are being used more and more in 1L:

The changing clinical practice will improve outcomes for patients, but at the same time, many will still progress to 2L/3L. Since patients are now receiving a checkpoint inhibitor and chemotherapy earlier in the treatment pathway, this should have the effect of increasing the addressable population for Tedopi and supports our original assumptions. We maintain our assumption that 90% of metastatic NSCLC patients will receive a checkpoint inhibitor and chemotherapy (across both histologies – squamous and non-squamous), and 50% will progress (addressable for Tedopi).

Additionally, there remains a significant unmet need in this 2L/3L setting that Tedopi is targeting. That is, patients who do not have an actionable mutation and who have progressed after treatment with a checkpoint inhibitor and platinum-based chemotherapy (as described in our recent initiation report). The updated guidelines do not describe any new options for these patients. A popular option is a ramucirumab and docetaxel combination (based on the REVEL study). Since this patient population remains an area of unmet need, we maintain our original assumption of 25% peak penetration for Tedopi.

A notable close competitor in this space is AstraZeneca, which is carrying out a Phase II study with multiple treatment arms (NCT03334617, ASCO 2018 abstract), with results expected in 2021.

On 7 March 2019 at the World Immunotherapy Congress in San Diego, OSE announced its new technology called Bispecific Checkpoint Inhibitor Platform (BiCKI). This technology is a proprietary anti-PD-1 bispecific technology.

The BiCKI platform is a bispecific fusion protein built on an engineered anti-PD-1 mAb key backbone. The bispecific will therefore target both PD-1 and an additional target, such as IL-7.

The company plans to focus on developing this platform and candidates from it while other trials are ongoing. In this platform novel targets are identified from a new collaboration with Léon Bérard Cancer Center.

We value OSE based on a risk-adjusted NPV using a 12.5% discount rate and including net cash at end-Q418, which results in a value of €190m or €12.8/share, vs €171m or €11.7/share previously. This increase is due to rolling our model forward. The 2019 milestone payments that have been triggered (total €19.5m) are no longer risk adjusted, and the second half of the BI milestone €7.5m is risk adjusted with a high probability of 95%. We make no other changes to our assumptions, described in detail in our initiation report.

We include Tedopi NSCLC, FR104, OSE-127 and OSE-172 in our valuation. Although GERCOR has initiated the Phase II study with Tedopi in pancreatic cancer, we still do not include this indication in the valuation since the commercial strategy in this indication has not been confirmed – OSE will evaluate this based on the Phase II results. We do not include the new bispecific platform in the valuation since it is still in pre-clincial stage.

With its full year 2018 financial results OSE reported revenues of €24.5m (vs €6.7m in 2017) and an operating profit of €4.8m (vs a loss of €12.6m in 2017), which were largely in line with our expectations. The increase in revenues and operating profit in 2018 was mainly due to the upfront payment from BI (received in April 2018) and recognising income from the upfront payment from Servier (upfront payment received in 2016 but recognised over a longer period of time).

Total operating expenses for 2018 were €19.5m vs €19.3m in 2017. R&D expenses are the company’s largest expense: €15.1m in 2018 vs €14.6m in 2017. The largest contributor is the Tedopi Atalante 1 Phase III study. We expect R&D costs to remain largely stable at €15m per annum until the end of the trial in 2021. This is because we expect other clinical trials to be fully financed by the partner and grants for the cost will be relatively low for the preclinical and some clinical work. In the nearest future we do not expect OSE to initiate its own Phase II study with FR104, recently returned from Janssen, so we do not factor in any costs relating to future studies in our financial model, as we expect the company to seek a partner. OSE will start to focus more on its new bispecific platform, however we do not expect this to become a significant part of R&D expense for now since it is still in pre-clinical stage. Overhead expenses were €4.4m in 2018 vs €4.7m in H117. OSE’s operations are currently funded through its partnerships and Bpifrance grants, where some grants relate to a particular R&D project.

As of 31 December 2018, OSE had cash, cash equivalents and financial assets of €12.4m (includes ‘current financial assets’). Last reported (FY18) results also include debt of €4.5m, which is mainly government loans. Since end-2018, OSE has received a €12m milestone payment from Servier (first step of the option exercise) and a €7.5m milestone payment from BI (approximately, our estimation due to the milestone being partially met). According to management, current cash burn is around €15m per year. Therefore, current cash including the cash received since end-2018 is expected to last into early 2021. If the full €15m milestone from BI is received H119, the cash runway should extend further into 2021. If this payment is not received, OSE may have to raise funds in another way or adjust its R&D activities. We assign a very high probability that OSE will receive the second half of the milestone payment from BI (95%), since OSE now has clinical trial authorisation and is likely to dose the first patient in the coming months.

Our 2019 revenue estimates have increased to €27m from €0m, which represents the milestone payments that were not previously included. €19.5 has now been triggered and €7.5m has a very high probability of being received in 2019 so we now include these in the P&L. Overhead forecasts are slightly lower at 8% since the 2018 figure was lower than our expectations.