Clal Biotechnology Industries — A strategic approach to MediWound

In March, MediWound announced it had been approached by a third party interested in a strategic transaction. The exact nature of the proposed transaction was not disclosed but could include anything from a product out-licensing to the acquisition of all of MediWound. If it does involve licensing the rights to a MediWound product, we believe it would likely be for EscharEx, which has a larger addressable market than NexoBrid. It is important to note that we currently do not include any upfront or milestone payments in our EscharEx model so a licensing agreement could provide upside to our valuation for the product. Also, a takeout price above our current NPV/share for MediWound ($7.65 with current MediWound shares outstanding) would also provide upside to our valuation. The parties are in advanced discussions and conducting mutual due diligence so we should receive further updates in the coming weeks and months. We will update our model once an agreement, if any, is finalised.

In terms of the underlying business, MediWound recently announced its full-year 2017 results. Revenues, which are based on NexoBrid sales in the EU, were up 60% (to $2.5m) in 2017 compared to the previous year.

The company also updated timelines for its clinical programs for NexoBrid and EscharEx. In terms of the 175-patient US NexoBrid Phase III, top-line results are now expected around the end of the year (compared to our previous expectation of H118). The reason for the delay is that there is a lot of fluctuation in the monthly enrolment numbers as they are highly dependent upon how many patients burn themselves in any given month and meet the enrolment criteria. Also, MediWound’s regulatory consultants recommended that it not lock the database until three months follow up was completed on all patients.

With regards to EscharEx, the company now expects to submit the Phase III protocol to the FDA in H218 (versus previous expectations of H118) with the actual initiation of the study likely sometime around the end of 2018 or the beginning of 2019. Also, the company announced that after speaking with regulatory experts, it believes the Phase III programme might only need 500 patients across two studies (250 each study), 200 fewer than the previous expectations of 700 (350 each study). If agreed to by the FDA, this could lead to significant R&D cost savings for the EscharEx programme.

Gamida Cell recently presented the results from its 13-patient trial of CordIn in 13 patients with sickle-cell disease (SCD) who were in need of allogeneic bone marrow transplant (BMT) at the 2018 BMT Tandem Meetings (21-25 February, Salt Lake City). Engraftment was observed after a median of seven days post-treatment in all 13 patients. And in the nine patients with long-term follow up, transfusion independence with a normal haemoglobin profile was achieved. However, two patient deaths were reported, one due to secondary graft failure and the other due to severe graft versus host disease (a common complication from BMT). The company plans to continue development although we do not yet include this programme in our valuation as it is still relatively early and timelines are unclear.

As a reminder, enrolment is underway for Gamida Cell’s 120-patient Phase III study of NiCord in patients with haematological malignancies, which will take place worldwide in 12 sites. This trial is investigating the ability of NiCord to provide an umbilical cord blood (UCB) graft with an ample amount of cells that have fast and vigorous in vivo neutrophil and platelet producing potential to improve transplantation outcomes (as low cell dose is associated with delayed engraftment and poor outcomes). The primary endpoint for the trial is time to neutrophil engraftment following transplantation (on or before the 42nd day post-transplant) compared to a non-manipulated cord blood unit. The company intends to use the funds from its recent $40m fund-raising to progress its Phase III trial, which is expected to read out in H219.

In January, BioCanCell (44% owned by CBI) announced it had executed a non-term sheet for a $25m private equity investment. The lead investor expects to contribute $7m to the offering and has the right to allocate $8m from other equity investors. Existing investors would provide another $5m and additional new investors would provide an additional $5m. As this is a non-binding term sheet, the exact amount of investment is unknown and it is possible that the financing does not close at all. If and when it does close, BioCanCell will have the funding to initiate two registrational studies for its lead program, BC-819 in non-muscle invasive bladder cancer (NMIBC). However, it is likely that CBI’s percentage ownership of BioCanCell will fall from current 44% due to dilution from the placement.

BioCanCell is preparing to initiate two pivotal clinical trials in 2018. BC-204 will be an open label Phase II single-arm trial in 140 patients who are unresponsive to BCG therapy and the primary end point is durable response rate (either partial or complete) at 12 months. It is expected to begin in H118. BC-301 will be an open-label Phase III trial in approximately 495 patients of BC-819 in combination with BCG in versus BCG alone and is expected to begin in H218. The BC-301 trial has been granted a special protocol assessment (SPA) by the FDA and the primary end point is median time to recurrence. The BC-301 trial will be the first comparative study and we expect the results to elucidate the clinical value of BC-819 for NMIBC.

BioCanCell also recently presented updated data for BC-819 at the ASCO Genitourinary Cancers Symposium (8-10 February, San Francisco). In a Phase II trial of 38 patients with NMIBC, a combination of BC-819 and BCG (the current standard of care) achieved a 24-month recurrence-free rate of 54% an improvement over prior data at the 24-month mark for BC-819 alone. In an open label 18-patient Phase I/II single-arm trial, intravesical infusion of BC-819 into the bladder showed a 24-month recurrence-free rate of 29%. In another open-label 39-patient Phase II single-arm trial, the intravesical infusion of BC-819 into the bladder demonstrated a 24-month recurrence-free rate of 33%.

In late March, CBI announced an agreement to sell CureTech (53% owned by CBI) to InSight Innovations. This is not a surprise following the termination of the CureTech agreement with Pfizer for CureTech’s pidilizumab in October 2017 and the announcement by CBI that CureTech would no longer be considered a material portfolio company.

As part of the agreement with InSight Innovations, CureTech’s shareholders will receive up to $550m in milestone payments, additional royalties and CBI will receive $3m upfront. Also, if CureTech’s pidilizumab is approved and InSight Innovations receives a priority review voucher (PRV), CureTech’s shareholders would receive 20% of any monies received if that voucher is then sold. There were several sales of PRVs in 2017, with prices ranging from $125m to $150m (hence CureTech’s shareholders could receive $25m to $30m). As a reminder, PRVs can currently be granted to companies that receive approvals for drugs treating a variety of indications, including rare pediatric diseases such as diffuse intrinsic pontine glioma (DIPG), currently the lead indication for CureTech’s pidilizumab. We continue to not include CureTech in our valuation for CBI as timelines for future development and hence the payment schedule of the milestones are unclear. We will revisit this if we gain additional clarity.

Biokine’s (27% owned by CBI) partner BioLineRx announced partial results from the monotherapy portion of its 30-patient single-arm Phase II trial to evaluate BKT-140/BL-8040 in combination with KEYTRUDA (pembrolizumab), the anti-PD-1 therapy, in patients with metastatic pancreatic adenocarcinoma. The results showed that BL-8040 induced an increase in the number of total immune cells in the peripheral blood while reducing the frequency of peripheral blood regulatory cells that may impede the anti-tumour immune response. Top-line clinical results from this trial are on track for H218. We do not currently include pancreatic cancer in our model so any positive data from the trial could provide upside to our valuation for Biokine.

Also, Cadent announced that it has initiated a Phase I for its lead program CD-1883, a positive allosteric modulator. CD-1883 is being developed to treat spinocerebellar ataxia, an orphan genetic disorder characterised by cerebellum dysfunction or degeneration that causes difficulty co-ordinating movements, and essential tremor (ET), a neurological disorder characterised by involuntary and rhythmic shaking, most commonly of the hands and forearms. CD-1883 increases the sensitivity of calcium-sensitive potassium (SK) channels that play an essential role in regular neuronal firing with the intent to restore regularity and improve motor function.

We are increasing our valuation from NIS918m or NIS5.87 per share to NIS1,011m or NIS6.46 per share. This was mainly due to rolling forward our NPV and increasing the value of two of its portfolio companies. We have increased the value of the Neon investment (5% owned by CBI) to $12.4m from $5m based on the valuation of the most recent funding round completed in December 2017. We have also increased the value of its Cadent stake (it owns 24%) from $7.1m to $18m, due to company disclosures that the implied value of Cadent following the Novartis milestone is $75m. This was partly mitigated by a more conservative view of the trajectory NexoBrid launch in the EU and delaying the US launch to 2020 due to delayed clinical timelines (although we have kept peak sales the same). We expect to update our valuation of MediWound further once we get more information about the advanced discussions with the potential strategic partner. We also note that our valuation may change as a result of BioCanCell’s ongoing funding round.

As a reminder, due to significant ownership stakes, CBI consolidates the financials of several of its investments (MediWound, Vedantra, CureTech and the Anatomy fund) and on this basis, it had NIS165.1m ($47.4m) in cash, cash equivalents and bank deposits as of Q417. CBI’s cash position at the corporate level (excluding consolidation) was NIS28.4m ($8.1m) at the end of 2017.

Total consolidated revenues of NIS43.5m ($12.5m) were generated through the sales of MediWound’s NexoBrid in Europe, Israel and Argentina, licensing agreements and rent in addition to a gain of NIS11.0m ($3.2m) from the decrease of equity interest in associates and a NIS19.1m ($5.5m) gain from the disposal of subsidiaries or loss of control in 2017.

Significant investment was made into the development of underlying technologies and products of CBI’s material assets as indicated by R&D spend of NIS32.6m ($9.4m) in 2017 although this is down from NIS42.0m ($12.1m) in FY16. For the year, general and admin costs, which include payroll and related expenses, management fees, and marketing and advertising expenses on a consolidated basis, were NIS61.7m ($17.7m), down from NIS81.1m ($23.3m) in the prior year.

We outline historical financials in Exhibit 5; however, we are not providing forecasts at this time.