Ryvu Therapeutics — Diversified pipeline ensures continued newsflow

In addition to the lead clinical-stage assets (SEL24/MEN1703 and SEL120), Ryvu has developed a broad preclinical pipeline (Exhibit 1). The most advanced preclinical assets include a best-in-class dual A2A/B receptor antagonist, a small molecule STING agonist for systemic administration, an HPK1 inhibitor and first-in-class SMARCA2 inhibitor for treating SMARCA4-mutated cancers. Ryvu also has several undisclosed projects at earlier stages and we expect these to ‘feed’ into the preclinical and clinical pipelines.

One of the recent key developments is the research collaboration between Ryvu and Galapagos, announced on 16 April 2020. The work will focus on the discovery and development of novel small molecule drugs in inflammation. The drug target was identified by Ryvu and, since the company is predominantly focused on oncology indications, it makes sense, in our view, to partner non-core assets.

This is a joint research collaboration and both companies will provide resources. Ryvu is responsible for early drug discovery and Galapagos has an option to in-license the IP. If Galapagos exercises this option, it will be responsible for the remaining development. Ryvu will receive an upfront payment and will be eligible for further option, milestone and royalty payments, but financial details have not been disclosed. Given the stage of the programme (discovery), the €1.5m upfront is limited, but the upside could be significant. In addition, Galapagos is an experienced European drug developer with a long history, so a good partner for Ryvu and yet another external validation of Ryvu’s ability to innovate.

In its FY19 annual report, Ryvu provided an update on the expected impact of the ongoing COVID-19 pandemic. Although it acknowledges that it is not possible to predict the full extent of the impact, the company seems to be managing the situation well. Ryvu is a relatively well differentiated biotech company in that its origins are in drug discovery. Currently, its R&D pipeline is diversified across clinical and preclinical stage assets. Clinical trials in all markets affected by the pandemic face difficulties such as the suspension of new patient recruitment and restrictions related to monitoring recruited patients (eg remote monitoring instead of patients travelling to sites). Preclinical work seems to be going relatively well and Ryvu’s laboratories were able to work at around 75% capacity in March. This improved to 80% capacity after the Easter break.

Due to mainly remote working, which hinders due diligence, Ryvu also expects that partnering discussions may be delayed somewhat, but ultimately this will depend on data, in our view. As long as Ryvu manages to generate attractive data packages, commercialisation efforts should resume.

Finally, Poland’s government announced that a special public investment fund worth PLN30bn will be established to stimulate the economy and the biotechnology sector is expected to receive investment. To this end, this year alone Ryvu announced two new non-dilutive grant wins with a total of value of PLN55.2m (c $13.7m), which will be used over time to fund certain projects. In the FY19 report Ryvu indicated that that secured grant funding covers $25m+ until 2023 (does not include the new grants). As of end-2019, Ryvu’s cash position was PLN72.1m.

In March 2020, Ryvu reported that its partner Menarini Group (via subsidiary Berlin-Chemie) had successfully completed the dose-escalation part (Phase I) of the ongoing Phase I/II study with SEL24/MEN1703, triggering a €2m milestone payment to Ryvu (more details in our last report). The recommended dose for the Phase II part of the study (cohort expansion) has been established and the data should be presented at one of the upcoming conferences (not yet specified by Menarini). SEL24/MEN1703 is a dual PIM/FLT3 kinase inhibitor in a Phase I/II trial for acute myeloid leukaemia (AML).

The trial is progressing into Phase II which, in addition to the usual safety endpoints, will evaluate the anti-leukaemia activity of SEL24/MEN1703, a potential key catalyst for Ryvu in the near term. Menarini has not yet indicated when it expects to finish the Phase II part of the study. We expect results to be available in 2021, but the effect of the ongoing COVID-19 pandemic is an unknown factor at the moment. Notably, in May/June 2019 (at the ASCO and EHA conferences, respectively) Menarini reported its plans to expand the trial to a larger number of centres in the US and Europe. This provides reassurance of Menarini’s commitment to the trial.

The first-in-human Phase Ib study (n=68) with SEL120, a selective CDK8 inhibitor, is enrolling patients with AML or high-risk myelodysplastic syndrome, with the first patient dosed in early September 2019. As usual, the goal of a Phase Ib study is to establish the recommended dose and treatment schedule of SEL120 for further development. However, like SEL24/MEN1703, secondary endpoints include an assessment of SEL120’s anti-leukemic activity, which could provide interesting efficacy insights. Preliminary interim data were expected by the end of 2020, but all trial sites are in the US, so due to the large-scale lockdown, the COVID-19 pandemic could have some effect on trial progression, but the full extent is not known yet. Ryvu is the trial sponsor, so has a direct contact with the CRO, and also receives scientific and financial support from the Leukemia and Lymphoma Society’s Therapy Acceleration Program.

On 28 March 2020, Ryvu reported that the FDA had granted orphan drug designation (ODD) to SEL120 for the treatment of patients with AML. ODD facilitates the development of drugs for rare diseases (defined as fewer than 200k people in the US), one of the key benefits of which is the eligibility to request seven-year market exclusivity for the designated indication in the US in addition to other development assistance and financial incentives.

SEL120 is the highest value project in our valuation and has potential in many other indications. For example, Ryvu indicated that it is also evaluating the potential of SEL120 in other haematological malignancies, including other leukaemias and lymphomas, and also in solid tumours. The company also plans preclinical combination studies of SEL120 with a number of other cancer treatment agents, such as targeted therapies, chemotherapy and checkpoint inhibitors (CPIs). A more detailed review of the mechanism of action and available data can be found in our outlook reports.

The lead discovery and preclinical projects come from one of the two immuno-oncology or synthetic lethality platforms. A more detailed description of the lead assets can be found in our last outlook report. Below is an overview of the latest progress update.

The A2A/A2B project is the most advanced in this platform. Currently, the preclinical drug candidate is undergoing non-GLP toxicology studies to confirm the safety profile in rodents and higher species, which are planned to be completed in H120. Ryvu plans to initiate IND-enabling studies required in H220. These timelines seem to be roughly in line with those guided before (non-GLP toxicology work was expected to be completed in Q120 in Ryvu’s Q319 update). The project is expected to move into Phase I in 2021.

Ryvu’s approach is focused on targets involved in adenosine signalling pathways. Adenosine is one of the major microenvironmental immunosuppressive factors responsible for tumour immune escape and therefore resistance to the patient’s own immune response. Ryvu explored two strategies involving the adenosine pathway, ie inhibition of the production of adenosine by cancer cells (CD39/CD73 enzymes) or its effects on the immune cells (A2A/B receptors). In 2019, following advanced series optimisation and characterisation, the company selected a dual A2A/B receptor antagonist as a preclinical candidate. Accumulated preclinical data showed that it was able to reverse the immunosuppressive effects of high adenosine concentration, the immune escape ‘strategy’ used by most resistant cancers.

Small molecule, direct STING agonists for systemic administration are the second most advanced project in this platform (immuno-oncology). Ryvu is currently working on in vitro safety studies, drug metabolism and pharmacokinetics (DMPK) profiling, and wide selectivity panels. The aim is to select a preclinical candidate to initiate non-GLP safety studies in 2020.

Ryvu’s STING molecules are a potentially first-in-class, non-nucleotide, non-macrocyclic, small molecule, direct STING agonist, a direct protein binder to multiple STING haplotypes. This unique structure and optimised bsorption, distribution, metabolis, and excretion (ADME) properties distinguish Ryvu’s compounds from competitors that develop derivatives of nucleic acid which, due to their chemical nature, are mainly used for inconvenient intratumoural injections. Activity across STING haplotypes potentially broadens patient populations that could respond to treatment.

Most recently, Ryvu presented data from this project at the 34th annual meeting of the Society for Immunotherapy of Cancer (SITC 2019) on 6–10 November 2019, which we reviewed in our December 2019 report. STING agonists are expected to efficiently activate antigen-presenting immune cells (dendritic cells and macrophages), so they act early in the cancer immunity cycle and result in a tumour-specific immune response with ‘trained’ CD8+ T-cells attacking the cancer. Therefore, there is a strong rationale to combine STING agonists with anti-cancer therapies that act late in the cancer immunity cycle, such as checkpoint inhibitors which make the tumour ‘visible’ to ‘trained’ T-cells.

A more recently introduced project involves hematopoietic progenitor kinase 1 (HPK1), one of the major proteins in the T-cell receptor (TCR) signalling cascade. Inhibition of HPK1 could potentially have synergies with established immunotherapies like checkpoint inhibitors by addressing immune suppression in the tumour microenvironment and cancer immune response evasion. The main strength of HPK1 inhibitors lies in their ability to simultaneously activate dendritic cells and T cells, which potentially makes them a unique immunotherapy for cancer with strong first-in-class potential to treat both ‘cold’ and ‘hot’ tumours. Optimisation of the chemical series is currently underway to identify a lead candidate for in vivo proof-of-concept studies.

Disclosed targets in the synthetic lethality platform include first-in-class SMARCA2 inhibitor for treating SMARCA4-mutated cancers and cancers with a deletion of the metabolic MTAP gene. Due to competition, little information has been disclosed about the latter, while the BRM/SMARCA2 project is more advanced and we have included it in our valuation.

In malignant cells with the mutated SMARCA4 gene, non-mutated SMARCA2 becomes essential. Therefore, the inhibition of SMARCA2 causes cell death if there is an oncogenic mutation in the SMARCA4 gene. This concept of a ‘biological genetic flaw’, complemented by intervention with a drug that results in cell death, is known as synthetic lethality. For example, more than 8% of non-small cell lung cancers have the SMARCA4 mutation. Ryvu is developing first-in-class BRM/SMARCA2 PROTAC degraders and inhibitors of ATPase/helicase activity of BRM. Optimisation of the chemical series is underway to identify a lead candidate for in vivo proof-of-concept studies.

Following the corporate split, 2019 was the first full year of results reported by Ryvu. The first three quarters in 2019 still include the drug discovery and development services business segment, which was spun out and inherited Selvita’s brand. Q419 results include only Ryvu’s results (the former Innovation business segment). As a result, year-on-year comparison of the financial results will not be relevant throughout 2020. Our 2020 and 2021 estimates are based on former Selvita’s Innovation segment and Ryvu’s Q419 results. The caveat is that following the split, Ryvu had to adopt Polish accounting standards (PAS), while Selvita used to report using IFRS. The 2019 annual report includes notes summarising reconciliation of PAS to IFRS. The major difference between IFRS and PAS results from the recognition of NodThera shares (Ryvu holds an 8.6% stake), which are valued at fair value under IFRS and at cost under PAS. Therefore, the net result from continued operations (Innovation segment alone or current Ryvu) is higher by PLN16.6m in 2018 and by PLN752k in 2019 under IFRS than PAS. The company plans to go back to IFRS reporting in 2020 after the shareholder meeting approval, which we will reflect accordingly.

Ryvu is now a pure-play biotech company, R&D progress and balancing that with cash reach will be the main value drivers, rather than profitability and margins. Ryvu is the beneficiary of most of the grant funding after the split, as it is tied to R&D projects. Ryvu also has significant budgeted capital expenditure to build the R&D Center for Innovative Drugs (new R&D facilities), expected to be completed and equipped in 2021. We include PLN40m in capex in 2020 and PLN20m in 2021 (part of that is covered by grant funding). No significant capex is envisioned after that.

Our revised estimates include operating spend of PLN75m in 2020 and 2021. A significant part of that should be covered by grants. Currently, we include PLN30m in 2020 and 2021, but since the grant funding is tied to specific projects, variability will depend on the progress of the respective subsidies. In FY19, Ryvu indicated that grants currently cover $25m+ until 2023. The last reported cash position was PLN59m as of 6 April 2020. All in all, Ryvu indicated previously that existing funding is sufficient until early 2021, which is in line with our model. The funding gap in 2021 (PLN57m, as per our estimates) is included as long-term debt instead of equity issue (as per Edison's principles).

Our valuation of Ryvu is PLN1.10bn or PLN68.9/share compared to PLN1.08bn or PLN67.4/share previously, as lower net cash (PLN59m as of April 2020 and interest bearing-debt of PLN3.2m at end-2019) offset rolling the model forward. We keep our R&D assumptions unchanged. Overall, we maintain our valuation approach, in which we have developed detailed rNPV projects for the most advanced assets in clinical and preclinical stages. We use a discount rate of 12.5%.

Some of the catalysts for the share price expected over the next 12–18 months include: