Chimeric Therapeutics — Acquiring a promising first-in-class CAR T asset

Chimeric Therapeutics (AU: CHM)

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Research: Healthcare

Chimeric Therapeutics — Acquiring a promising first-in-class CAR T asset

Chimeric recently announced that it will be licensing a chimeric antigen receptor t-cell (CAR T) programme targeting cadherin 17 (CDH17) from the University of Pennsylvania. Specific financial terms are undisclosed, but they include an upfront fee, annual maintenance fees, milestones and a royalty (likely single digit, in our view). A CDH17 CAR T may have broad applicability in solid tumours, particularly in neuroendocrine, colorectal, pancreatic and gastric cancers. Importantly, preclinical evidence suggests the therapy may be able to eradicate tumours with little to no toxicity to normal tissues. The CDH17 CAR T is expected to enter the clinic in 2022.

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Written by

Maxim Jacobs

Healthcare

Chimeric Therapeutics

Acquiring a promising first-in-class CAR T asset

Development update

Pharma & biotech

29 July 2021

Price

A$0.33

Market cap

A$109m

A$1.30/US$

Net cash (A$m) at 30 June 2021

22.4

Shares in issue

330.9m

Free float

33.2%

Code

CHM

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

13.8

24.5

N/A

Rel (local)

12.6

19.2

N/A

52-week high/low

A$0.39

A$0.24

Business description

Chimeric Therapeutics is an oncology-focused Australian-based company that recently went public on the ASX. The lead programme is CLTX-CAR T, currently in Phase I for the treatment of GBM. This is an innovative approach for an unmet medical need. Beyond GBM, the technology may have applicability for other tumours such as melanoma. The company recently in-licensed a CDH17 CAR T for use in solid tumours.

Next events

CLTX CAR T data update

Autumn 2021

Analysts

Maxim Jacobs

+1 646 653 7027

Jyoti Prakash

+91 981 880 393

Chimeric Therapeutics is a research client of Edison Investment Research Limited

Chimeric recently announced that it will be licensing a chimeric antigen receptor t-cell (CAR T) programme targeting cadherin 17 (CDH17) from the University of Pennsylvania. Specific financial terms are undisclosed, but they include an upfront fee, annual maintenance fees, milestones and a royalty (likely single digit, in our view). A CDH17 CAR T may have broad applicability in solid tumours, particularly in neuroendocrine, colorectal, pancreatic and gastric cancers. Importantly, preclinical evidence suggests the therapy may be able to eradicate tumours with little to no toxicity to normal tissues. The CDH17 CAR T is expected to enter the clinic in 2022.

Year end

Revenue (A$m)

PBT*
(A$m)

EPS*
(A$)

DPS
(A$)

P/E
(x)

Yield
(%)

06/20

0.0

(0.1)

(62.01)

0.0

N/A

N/A

06/21e

0.0

(12.0)

(0.04)

0.0

N/A

N/A

06/22e

0.0

(14.0)

(0.04)

0.0

N/A

N/A

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

Targeting tumours while sparing normal cells

CDH17 is a very tumour-specific antigen with limited expression in normal cells (expression is limited to the tight junction of intestine that biologics typically do not reach). However, CDH17 is highly expressed in numerous solid tumours, such as colorectal, high-grade pancreatic, gastric and certain neuroendocrine tumours (NET) and is involved with tumour cell proliferation, cell adhesion, migration, invasion and clonogenicity.

Efficacy demonstrated in preclinical testing

In preclinical testing, CDH17 CAR T cells were able to eradicate NETs in vivo with no relapse seen. Importantly, no toxicity was seen in normal cells. This has historically been a major hurdle for solid tumour targeting CAR T therapies.

A large unmet need in solid tumours

There are currently no approved CAR T therapies for solid tumours so the current leading therapies for neuroendocrine, colorectal, pancreatic and gastric cancers are somewhat more traditional. Nevertheless, the combined sales for treatment of these cancers exceeded US$10.7bn in 2020 according to Evaluate Pharma.

Valuation: A$327m or A$0.99 per share

We have increased our valuation to A$327m or A$0.99 per share, from A$307m or A$0.93 per basic share, mainly due to rolling forward our NPV. This was partially offset by lower net cash. Because the CDH17 programme is not yet in the clinic, we are not including it in our valuation yet, in accordance with Edison methodology. Once included, it may have a meaningful impact upon the valuation due to the size of the markets targeted by the company. Chimeric reported A$22.4m in cash as of 30 June 2021. Due to the increased R&D associated with another CAR T programme, we have increased our projected financing need through 2026 from A$52.5m to A$80m.

Targeting the solid tumour holy grail

Chimeric recently announced that it will be licensing a CAR T programme targeting CDH17 from the University of Pennsylvania, a world-renowned leader in CAR T therapy research that was the source of Kymriah (tisagenlecleucel), the world’s first approved CAR T therapy. As a reminder, CAR T therapies have helped revolutionise the treatment of certain cancers. CAR T therapies work by engineering the body’s immune T-cells to recognise cancer cells as they would invading or diseased cells. Novartis’s Kymriah, which we mention above, was the first CAR T therapy approved in the US (in 2017) and was approved for relapsing B-cell acute lymphoblastic leukemia in children and young adults. Kymriah consisted of a one-time treatment that had an 83% complete response rate in clinical trials with patients who did not respond to standard treatments. Like many revolutionary cancer therapies, Kymriah was priced at a premium of US$475,000 for the treatment. Kymriah sales in 2020 were US$474m with current consensus expectations for 2026 sales at US$1.2bn according to Evaluate Pharma. A second therapy, Yescarta, was approved later in 2017 in patients with large-B-cell lymphomas whose cancer has progressed after receiving at least two prior treatment regimens. The therapy demonstrated a 51% complete response rate and has a price of US$373,000 per treatment. Sales in 2020 for Yescarta were US$563m with consensus expectations for US$1.2bn in sales in 2025 according to Evaluate Pharma. It is important to note that Gilead acquired Yescarta through its purchase of Kite Pharmaceuticals for US$11.9bn.

CDH17 is a very tumour-specific antigen with limited expression in normal cells (its expression is limited to the tight junction of intestine that biologics typically do not reach). However, CDH17 is highly expressed in numerous solid tumours, such as colorectal, high-grade pancreatic, gastric and certain NETs among others (see Exhibit 1).

Exhibit 1: CDH17 expression in select tumours

Cancer

CDH17 expression (% of samples)

Colorectal

100%

Gastric

90%

Pancreatic

50%

Oesophageal

82%

Neuroendocrine - Small intestinal

100%

Neuroendocrine - Appendiceal

100%

Neuroendocrine - Pancreatic

12%

Neuroendocrine - Bronchial

24%

Cancer

Colorectal

Gastric

Pancreatic

Oesophageal

Neuroendocrine - Small intestinal

Neuroendocrine - Appendiceal

Neuroendocrine - Pancreatic

Neuroendocrine - Bronchial

CDH17 expression (% of samples)

100%

90%

50%

82%

100%

100%

12%

24%

Source: Panarelli et al., Tissue-specific cadherin CDH17 is a useful marker of gastrointestinal adenocarcinomas with higher sensitivity than CDX2. American Journal of Clinical Pathology 2012 Aug;138(2):211-22.

CDH17 has been shown to be involved with tumour cell proliferation, cell adhesion, migration, invasion and clonogenicity and has been associated with poorer prognosis.1 Importantly, in preclinical testing, CDH17 CAR T cells were able to eradicate NETs in vivo with no relapse seen (see Exhibit 2).

  Qiu et al., Targeting CDH17 Suppresses Tumor Progression in Gastric Cancer by Downregulating Wnt/β-Catenin Signaling. PLoS One. 2013; 8(3): e56959.

Exhibit 2: Efficacy of CDH17 CAR T in mouse models

Source: Chimeric Therapeutics

Importantly, no toxicity was seen in normal cells. This has historically been a major hurdle for solid tumour targeting CAR T therapies. If the target antigen is also found in normal cells, catastrophic toxicities can result. In one case involving a breast cancer patient who received an HER2 targeting CAR T, just 15 minutes after cell infusion the patient started experiencing respiratory distress and then died five days after treatment from multi-organ failure due to systematic microangiopathic injury2. Of course, there are other issues that have hampered solid tumour CAR T development, including suboptimal infiltration into tumour tissue and the immunosuppressive tumour microenvironment affecting efficacy.3 It is yet to be seen if the CDH17 CAR T from Chimeric will be able to overcome these issues in humans. The in-licensed CDH17 CAR T construct does include CD28 and 4-1BB costimulatory domains, which have shown evidence of enhancing CAR T cell persistence and survival.4,5

  Morgan et al., Case Report of a Serious Adverse Event Following the Administration of T Cells Transduced With a Chimeric Antigen Receptor Recognizing ErbB2. Molecular Therapy vol. 18 no. 4, 843–851 apr. 2010

  Marofi et al., CAR T cells in solid tumors: challenges and opportunities. Stem Cell Research and Therapy (2021) 12:81

  Savoldo et al., CD28 costimulation improves expansion and persistence of chimeric antigen receptor–modified T cells in lymphoma patients. The Journal of Clinical Investigation 2011;121(5):1822–1826.

  Philipson et al., 4-1BB costimulation promotes CAR T cell survival through noncanonical NF-κB signaling. Science Signaling. 31 Mar 2020: Vol. 13, Issue 625, eaay8248

While there are a number of CAR T programmes targeting solid tumours, the CDH17 CAR T that Chimeric has licensed appears to be the only one that includes CDH17 as the target. However, there are two programmes targeting CDH17 in cancer through other approaches. Boehringer Ingelheim has a bispecific antibody (BI 905711) targeting CDH17 and TRAILR2. It is currently in Phase I development for advanced gastrointestinal cancer with 140 subjects expected to be enrolled. Completion of the study is expected in 2023. Arbele Bio is a Hong Kong based start-up, that is developing ARB202, a bispecific CDH17/CD3 t-cell engager (TCE) about to enter Phase I for refractory pancreatic/bile duct cancers. The company is also working on ARB001, a CDH17-CAR NK, which is in preclinical development targeting metastases in the liver.

The target markets

As mentioned, Chimeric will focus development on neuroendocrine, colorectal, pancreatic and gastric cancers. With regards to NETs, it is a very heterogeneous cancer given the multiple areas where these tumours may proliferate. About 43% develop in the gastrointestinal tract, 30% in the lung and the rest in various other areas. CDH17 seems to be particularly highly expressed in the gastrointestinal NETs and we would expect this subgroup to be the focus of development in this indication by the company. In total about 12,000 people are diagnosed in the US with a NET each year and another 175,000 are living with the diagnosis. Survival rates can vary widely based on the type of NET and the site at which it is found. The five-year survival rate at diagnosis for an advanced (distant) NET found in the colon is only 14%, while that number grows to 54% if found in the ileum (part of the small intestine).

Exhibit 3: Incidence, survival and sales in target indications

Incidence (US)

Five-year survival at diagnosis for advanced (distant) cancer

2020 worldwide sales in the indication (US$m)

Top selling drug (and 2020 sales)

NET

12,000

14-54%

1,435

Somatuline from Ipsen (US$801m)

Colorectal

149,500

15%

7,170

Avastin from Roche (US$3.1bn)

Pancreatic

60,430

3%

790

Abraxane from Bristol Myers (US$556m)

Gastric

26,560

6%

1,333

Aitan from Jiangsu Hengrui Medicine (US$389m)

Source: National Cancer Institute, Evaluate Pharma, Canadian Cancer Society, Cancer.net

Colorectal would be the largest market of all the target indications, with 149,500 cases estimated for 2021. The five-year survival rate at diagnosis for advanced (distant) colorectal cancer is only 15%. The largest drug servicing this market is Avastin, which had sales of US$3.1bn in the indication according to Evaluate Pharma. In total colorectal cancer drugs had sales of $7.2bn per year in 2020. The National Cancer Institute forecasts 60,430 new cases of pancreatic cancer for 2021. The five-year survival for all cases was just 11%, with that of advanced (distant) pancreatic cancer at diagnosis only 3%. As mentioned before, CDH17 is only expressed in about half of pancreatic cancers, but providing help for just half is better than none and we would expect patients to be tested for CDH17 prior to enrolment. Gastric cancer has about 26,560 cases expected this year and the five-year survival at diagnosis for an advanced (distant) gastric tumour is less than 6%. So, this indication is clearly an unmet medical need, almost to the same level as pancreatic cancer.

Chimeric’s lead programme CLTX CAR T continues to progress through its Phase I trial in 18–36 progressive or recurrent glioblastoma patients. The first patient in the second cohort has received treatment, which consisted of intracranial intratumoral and intracranial intraventricular dosing. The target dose is 88m CLTX CAR T cells, up from 44m in the first dosing cohort, which enrolled four patients who exhibited no dose-limiting toxicities from therapy. The company anticipates the release of a data update in the autumn of 2021 and also an expansion into other solid tumours in 2022.

Valuation

We have increased our valuation to A$327m or A$0.99 per share, from A$307m or A$0.93 per basic share, mainly due to rolling forward our NPV. This was offset in part by lower net cash. Because the CDH17 programme is not yet in the clinic, we are not including it in our valuation yet, per Edison standard methodology. Once included, it may have a meaningful impact upon our valuation due to the size of the markets targeted by the company. To provide some perspective, we attribute a A$305m value to CLTX CAR T, a Phase I programme targeting GBM which has a US incidence of around 12,000 per year. Total incidence for the cancers targeted by the CDH17 programme is estimated to be 248,490 in the US. Hence this may be a truly transformational acquisition by the company.

Exhibit 4: Chimeric valuation table

Product

Main Indication

Status

Probability of successful commercialization

Approval year

Peak sales (A$m)

Economics

rNPV
(A$m)

CLTX-CAR T

GBM

Phase I

10%

2027

3,210

100% less single digit royalty to COH

305.0

Total

 

 

 

 

 

 

305.0

Net Cash (as of June 30, 2021)

22.4

Total firm value (A$m)

327.40

Total basic shares (m)

330.9

Value per basic share (A$)

0.99

Options (m)

23.0

Total number of shares (m)

353.9

Diluted value per share (A$)

0.93

Source: Edison Investment Research

Financials

In the quarterly cash flow report for the fourth quarter of FY21 (the period ending 30 June 2021), Chimeric reported A$22.4m in cash. Due to the licensure of the CDH17 CAR T programme, we have increased our projected financing need through 2026 from A$52.5m to A$80m (including A$20m in FY22) as we now forecast additional R&D spending (including A$2.7m in FY22). Specific financial terms of the CDH17 CAR T programme licensing are undisclosed, but include an upfront fee, annual maintenance fees, milestones and a royalty (likely single digit, in our view). The company has stated that the license fees will be funded entirely through existing cash reserves.

Exhibit 5: Financial summary

A$'000s

2020

2021e

2022e

Year end 30 June

AIFRS

AIFRS

AIFRS

PROFIT & LOSS

Revenue

 

 

0

0

0

Cost of Sales

0

0

0

Gross Profit

0

0

0

Sales, General and Administrative Expenses

(64)

(7,203)

(4,007)

Research and Development Expense

0

(4,836)

(9,975)

EBITDA

 

 

(64)

(12,039)

(13,982)

Operating Profit (before amort. and except.)

 

 

(64)

(12,039)

(13,982)

Intangible Amortisation

0

0

0

Other

0

0

0

Exceptionals

0

0

0

Operating Profit

(64)

(12,039)

(13,982)

Net Interest

0

0

0

Other

0

0

0

Profit Before Tax (norm)

 

 

(64)

(12,039)

(13,982)

Profit Before Tax (FRS 3)

 

 

(64)

(12,039)

(13,982)

Tax

0

0

0

Deferred tax

(0)

(0)

(0)

Profit After Tax (norm)

(64)

(12,039)

(13,982)

Profit After Tax (FRS 3)

(64)

(12,039)

(13,982)

Average Number of Shares Outstanding (m)

0.0

335.5

338.9

EPS - normalised (c)

 

 

(6,200.80)

(3.59)

(4.13)

EPS - Reported ($)

 

 

(63.02)

(0.04)

(0.04)

Dividend per share (c)

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

0

17,466

20,863

Intangible Assets

0

17,457

20,024

Tangible Assets

0

9

839

Other

0

0

0

Current Assets

 

 

(0)

27,211

30,278

Stocks

0

0

0

Debtors

0

0

0

Cash

(0)

22,410

25,109

Other

0

4,801

5,169

Current Liabilities

 

 

(64)

(16,219)

(16,219)

Creditors

(30)

(16,219)

(16,219)

Short term borrowings

(34)

0

0

Long Term Liabilities

 

 

0

0

(20,000)

Long term borrowings

0

0

(20,000)

Other long term liabilities

0

0

0

Net Assets

 

 

(64)

28,458

14,922

CASH FLOW

Operating Cash Flow

 

 

(34)

(8,463)

(13,882)

Net Interest

0

0

0

Tax

0

0

0

Capex

0

(5,354)

(3,419)

Acquisitions/disposals

0

0

0

Financing

0

31,966

0

Dividends

0

0

0

Other

0

0

0

Net Cash Flow

(34)

18,149

(17,301)

Opening net debt/(cash)

 

 

0

34

(22,410)

HP finance leases initiated

0

0

0

Exchange rate movements

0

0

0

Other

0

4295

0

Closing net debt/(cash)

 

 

34

(22,410)

(5,109)

Source: Company reports, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Chimeric Therapeutics and prepared and issued by Edison, in consideration of a fee payable by Chimeric Therapeutics. 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.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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This report has been commissioned by Chimeric Therapeutics and prepared and issued by Edison, in consideration of a fee payable by Chimeric Therapeutics. 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.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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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

1185 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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Research: TMT

GB Group — Good start to the year

In today’s AGM trading update, management confirmed that it had seen a good start to FY22. All divisions are benefiting from the consumer shift to transacting online. Cryptocurrency trading has boosted Identity volumes in the quarter, while Location continues to see good demand and recent licence extensions point to a recovery in the Fraud business. The strong trading in Q122 provides management with confidence for the year ahead; we maintain our forecasts.

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