Erytech Pharma — Update 29 July 2016

In December 2015 Erytech carried out a second successful private placement since the IPO in April 2013, raising gross proceeds of €25.4m. The company’s ability to attract fresh capital underpins healthy progress with the R&D pipeline. The table below summarises Erytech’s key assets and newsflow, with at least four catalysts coming in the next 12-18 months.

Erytech’s core strategy is to reach the market as quickly as possible by developing its lead product, Graspa (brand name in Europe and Israel, ERY-ASP elsewhere), for relatively easy-to-penetrate target populations and then to expand in two directions: label/indication expansion and new products using its erythrocyte encapsulation technology.

ALL is the lead indication for Graspa, with a marketing authorisation application (MAA) already submitted to the European Medicines Agency (EMA). Erytech has a comprehensive programme to broaden the label for Graspa moving from the most difficult relapsed/refractory ALL patients to first-line treatment. Near term plans include two ongoing trials and another three pivotal trials.

The main basis for the European MAA filing is the data from the Phase II/III trial of Graspa versus native L-asparaginase in children and adult ALL patients who relapsed on previous asparaginase treatment. The trial was completed in 2014, with the results described in our previous reports. Initially, a better safety profile and non-inferior efficacy compared to native L-asparaginase were the key objectives for Graspa. As a reminder:

Although these results alone are likely to be sufficient for approval by the EMA, maturing Phase II/III data look beyond expectations. Two-year follow-up data were presented during the annual meeting of the American Society of Hematology (ASH) in December 2015. Median event-free survival was 11.8 months in the native L-asparaginase arm, but had not been reached in the Graspa arm after two years. Median overall survival was not reached in either of the treatment arms. This highlights Graspa’s potential to improve outcomes for patients without L-asparaginase tolerability issues.

Label expansion and FDA approval are the next steps to broaden access to the ALL population (Exhibit 2).

According to the latest update provided during the Q116 results call, the trials for other indications are progressing according to plan. A European Phase IIb for AML, funded by partner Recordati, is on track to complete enrolment in 2016, with preliminary results expected in mid-2017. The third safety assessment by DSMB at the end of 2015 raised no issues and recommended continuing the trial. Previously, Erytech indicated that this study could be sufficient to gain approval in Europe. Hence, if results are published in 2017, this could allow for potential approval in 2018. With AML affecting around 40,000 patients in the EU and US, this could be a much larger market than ALL (c 16,000 in 2015), including the fact that the disease primarily affects elderly patients who do not tolerate L-asparaginase.

Asparagine depletion can also be an effective approach in addressing solid tumours, as demonstrated by the collaboration with the MD Anderson Cancer Center in the US, which discovered that there are a large number of solid tumours which also require asparagine, but express low levels of asparagine synthetase (ASNS). Low ASNS-expressing tumours cells could therefore be sensitive to L-asparaginase treatment although, due to the toxicity of native L-asparaginase, this treatment has had limited use to date. Erytech’s Phase II study for pancreatic cancer is the first step in addressing solid tumours and, if successful, the results could serve as a proof-of-concept, not only for pancreatic cancer, but also for low ASNS-expressing solid tumours in general. The enrolment has recently reached its original goal of 90 patients, but the company elected to continue with the aim of increasing the statistical power of the study. Preliminary results are expected in Q416.

Erytech believes it can expand the use of its technology to develop cancer vaccines. This is still a preclinical-stage effort, but with potential for rapid progression, in our view, given the focus on immuno-oncology in the industry. According to this approach, red blood cells are loaded with tumour-specific antigens and injected intravenously (much like the lead product Graspa, which comprises erythrocytes loaded with L-asparaginase). The membranes of the erythrocytes are also coated with specific antibodies to make them target immune system cells called antigen-presenting cells or dendritic cells, which absorb them and incorporate the tumour antigens. A natural immune system response follows – dendritic cells present the tumour antigens to other lymphocytes, which then turn into cytotoxic T-cells that attack tumours.

Most recently, preclinical data were presented at the American Association for Cancer Research (AACR) annual meeting in April 2016 in New Orleans, US. As a proof-of-concept, Erytech has tested three antigens so far: ovalbumin (one of the best researched antigens), tyrosinase-related protein 2 (TRP2, present in melanoma, the most aggressive skin cancer) and prostate-specific antigen (PSA). The main conclusion was that immunisation with erythrocytes loaded with tumour-specific antigens induces efficient immune response against tumour. The results were consistent across different cancer cell lines (three types tested) and the approach could be used as a cancer immunotherapy. The key findings from the in vivo studies were:

Although we believe the scientific rationale is sound, it is still in the preclinical stage and we do not currently include any immuno-oncology projects in our model. Nevertheless, we can see the potential of this project and a partner could emerge sooner rather than later given the widespread interest in the field and the differentiation of Erytech’s technology. Moreover, Erytech mentioned that the approach could be used to form a standalone spin-off company.

Our Erytech’s valuation remains largely unchanged at rNPV of €321.8m (€324.9m previously) or €40.5/share. Main changes to our model include a delayed estimated launch date for Graspa/ERY-ASP in AML, a lower net cash position and somewhat increased R&D cost estimates (see financials), partly offset by an earlier launch date for Graspa/ERY-ASP in pancreatic cancer and rolling our model forward by one year. We now project the launch of Graspa/ERY-ASP for AML in 2020 (2018 previously), allowing more time for the Phase III trial, although this may happen sooner depending on the outcome of the Phase IIb results (primary data in mid-2017). We have also moved the estimated date of the launch of Graspa/ERY-ASP for pancreatic cancer from 2022 to 2021, having seen a speedy recruitment of the patients with the primary results expected in Q416.

We have made no other major changes to our underlying Graspa/ERY-ASP assumptions, maintaining our peak sales and probability for each indication. Our valuation, which is based on a risk-adjusted NPV analysis using a 12.5% discount rate, is shown in Exhibit 6.

Erytech reported total cash and equivalents at end-Q116 of €40.6m. This was boosted by the private placement of €25.4m in gross proceeds in December 2015. With last reported debt of €0.7m at end-2015 (the majority relating to OSEO/BPI France grants), we therefore estimate that Erytech had net cash at end-Q116 of approximately €39.9m. In line with an estimated 2016 cash burn in the range of €18-20m, we have raised our costs estimates (mainly R&D) for 2016 and 2017 as a result of the expected initiation of the clinical trials.

The healthy cash balance will allow Erytech to execute on its strategy to advance ERY-ASP in the US market, in addition to moving development into front-line ALL, as well as in other indications including solid tumours and lymphomas. Underlying cash burn in Q116 was c €5.1m, up from €3.0m in Q115, but in line with expectations. Our model suggests the current cash position should be sufficient into 2018. This does not include the potential milestone payments from partner Recordati on European approval of Graspa, which would therefore extend the cash reach even further.