Hybrigenics — Inecalcitol advancing towards data

Hybrigenics is a French biotech spun out from Institut Pasteur. Its main activity is developing inecalcitol, a vitamin D analogue as a treatment for adult leukaemias, in particular CLL, CML and AML; and for other solid tumours. Additionally, Hybrigenics has a discovery and development programme focused on USPs. It also has a drug discovery collaboration with Servier based on USPs for oncology in pre-clinical development. Finally, Hybrigenics has its Helixio services division, which provides specialised genomics services for life sciences researchers from academia or pharmaceutical, cosmetic and agrochemical industries. Hybrigenics is listed on the Euronext Growth market.

Our risk-adjusted DCF valuation is €121m or €2.6/share vs €129m or €2.75/share before due to updating the USD/EUR exchange rate to 1.22 from 1.16. The rest of our assumptions remain unchanged. We maintain the probability of success in CML at 40% as we wait for full Phase II data release. We assume a slightly lower 30% success rate in AML since there is no clinical data available. We assume that the company retains rights in Europe, but in the US we model for both AML and CML that commercialisation is partnered with a 25% royalty rate. As development in CLL is currently paused pending funding we maintain the probability of success at 20%. In our sum-of-the-parts valuation inecalcitol in CML is worth €66m, AML accounts for €38m and CLL is €69m. We include a forecast of the retained genomics services division, Helixio. Additionally, we include our forecast of the milestone payments from the collaboration with Servier and pro forma net cash at end-July 2017 of €11m. The USP programme and inecalcitol in prostate cancer are excluded.

Last reported financials are H117, in which Hybrigenics reported the results of its retained activities (inecalcitol development, the research on USP inhibitors and its genomic services division Helixio) following the R&D reorganisation and sale of the majority of its proteomics services division for €0.8m in March 2017. Revenues from retained activities grew 20% from €1m in H116 to €1.2m in H117. Operating costs were €4.7m vs €3.5m in H116 largely due to the Phase II clinical trial of inecalcitol in AML. We maintain our estimates for FY17 total revenue of €2.5m and FY17 expenses of €10.1m that reflects the expansion of the Phase II trials. Hybrigenics raised €6.8m gross in June 2017, hence pro forma cash at 24 July 2017 was reported at €11m, which we estimate to be sufficient to fund operations into 2019.

The main sensitivities for Hybrigenics are clinical development, manufacturing, regulatory applications and reimbursement for its products. Hybrigenics has sufficient funds to carry out the Phase II trials in AML and CML, but would be reliant on further financing or a partnership to progress into further clinical trials in any or all three haematological indications, and potentially prostate cancer. Our assumptions are based on the company self-funding approval studies of inecalcitol in leukaemia.

Hybrigenics is focused on the development of its vitamin D3 analogue inecalcitol for adult haematological cancers. Inecalcitol has demonstrated an anti-proliferative effect and safety profile in preclinical studies as well as clinical studies in CML, CLL and prostate cancer. Inecalcitol is being positioned to slow progression and to enhance the efficacy of current treatments in patients receiving first-line therapy, as these patients are particularly prone to adverse events. Inecalcitol has orphan drug designation for CLL and AML in the US and Europe and the company is pursuing orphan status in CML based on the promising interim data recently published. Our peak sales estimate is US$735m across the three indications. Additionally, Hybrigenics offers genomics services through Helixio. Hybrigenics is also focused on biopharmaceutical drug discovery; in particular on DUB inhibitors and its ongoing R&D collaboration with Servier that could yield up to €12m in further development and regulatory milestone payments until drug registration.

Hybrigenics is investigating the anti-proliferative effect of oral inecalcitol, a derivative of vitamin D3, notably in haematological cancers and in solid tumours. Vitamin D plays a role in many cellular mechanisms, including cell proliferation and apoptosis as well as inflammation and immunomodulation. Inecalcitol demonstrates up to 15 times the anti-proliferative potency of calcitriol, the active form of vitamin D, on cancer cells in vitro. At the same time, inecalcitol has an excellent safety profile and its chemical structure leads to over 100-fold lower calcium toxicity than calcitriol, a major dose-limiting characteristic of other vitamin D3 derivatives.

Hybrigenics has three patent families for inecalcitol providing long-term marketing exclusivity out to 2031, including a patent on therapeutic use at high oral doses equal or higher than 1.5 mg/day. The company also has a long-term high yield patent on 14-epi isomerisation structure of inecalcitol in the EU and China until 2030, pending in the US and rest of the world as well as patents on tablet and soft gel capsule formulations.

Inecalcitol is being tested in an open label Phase II study in patients with CML. Inecalcitol is administered in combination with oral imatinib in patients with incomplete molecular response after at least two years on imatinib. Target enrolment is 42 patients in France and Hybrigenics plans to combine inecalcitol with other Tyrosine kinase inhibitors (TKIs). A new Phase II clinical trial in collaboration with the American consortium, Cure CML is in preparation. At February 2017, the trial had enrolled 21 patients and will complete in H218, according to Hybrigenics.

Initial efficacy: 43% of patients respond

In February 2017, Hybrigenics presented the first clinical data from the study. At the interim analysis, inecalcitol plus imatinib showed a further decrease from major molecular response (MMR) in six of 14 patients at three months (43%). Furthermore, three of nine patients (33%) who have completed one year in the study had a deep molecular response (DMR). Additionally, preclinical data showed that inecalcitol in combination with imatinib had synergistic effects in experiments in vitro by inhibiting the proliferation of CML stem cells, which are involved in relapse. The current Phase II trial aims to replicate this effect and prolong remission or achieve a functional cure.

Study end points and design

The primary end point is the proportion of patients achieving a deep molecular response, in particular an MR4.5 response, measured by the reduction in the expression of the BCR-ABL oncogene. The study is divided into two parts. In the first part of the study, inecalcitol will be added to imatinib for 12 months. In the second part, patients will be followed up after discontinuation of inecalcitol. Imatinib will be maintained for two years and then will be stopped for those still in MR4.5. These patients will be followed for an additional two years after discontinuation of imatinib.

Efficacy in CML can be measured as haematological response, which measures white-cell count; cytogenetic response, which tests the Philadelphia chromosome in the marrow; and molecular response, which measures expression of BCL-ACR by PCR in circulating blood cells.

CML is a myeloproliferative disorder affecting the haematopoietic stem cell compartment. CML arises from a translocation between the BCR and the ABL genes. This translocation creates the Philadelphia chromosome and the formation of a unique BCR-ABL protein product. This protein has kinase activity that drives uncontrolled proliferation of hematopoietic stem cells. CML is graded into three stages – chronic, accelerated and blast – defined by the percentage of blast cells in the blood. In a healthy person, the proportion of blast cells in the bone marrow and blood is below 5%. CML symptoms include susceptibility to infection, anaemia, weight loss and swelling of the lymph glands. CML is perhaps one of the most treatable forms of leukaemia. The first-line treatment for CML is TKIs. Most patients on TKIs achieve a lasting molecular response. Moreover, with second-generation TKIs, such as nilotinib (Tasigna, Novartis) and dasatinib (Sprycel, BMS) now on the market, more patients can achieve further responses, raising the expectations that survival rates improve, and second-generation TKIs may potentially achieve a functional cure for the disease. Ponatinib (Iclusing, Ariad Pharmaceuticals, acquired by Takeda for $5.2bn) is the only drug approved and marketed that addresses the T315I mutation in the BCR-ABL oncogene, which makes the cancer resistant to imatinib, dasatinib and nilotinib. Recent data show that patients who achieve DMRs can safely cease their therapy without relapsing, which is called treatment-free remission (TFR). Even patients who do relapse can still be responsive to other TKIs. Around 40% of patients who stop treatment after achieving stable DMR remain in TFR.

Guidelines from the US National Comprehensive Cancer Network (NCCN) and the European LeukemiaNet (ELN) recommend TKI treatment indefinitely in all patients who respond to it. However, long-term treatment with TKIs has been associated with side effects and loss of quality of life. Furthermore, these products have an economic burden. Gleevec’s list price is $120k per year, per patient in the US; Sprycel and Tasigna cost about the same. Gleevec’s US patent has expired and generic imatinibs from Teva and Sun Pharma have reached the market, although no information on pricing is available. In Europe, most TKIs cost around $30k per year, per patient. Therefore, achieving lasting DMRs that could take the patient off treatment would represent an innovative approach to improve patients’ quality of life and reduce costs. Inecalcitol could fit in this strategy and become an adjunct to other therapies, rather than directly competing with them. We believe that the Phase II initial data show the potential impact of inecalcitol on the CML treatment paradigm, due to its benign safety profile and potential to further improve molecular responses leading to discontinuation of treatment and functional cures.

We estimate c 14,250 new CML patients per year in the EU and the US (Sources: US National Cancer Institute’s Surveillance, Epidemiology and End Results programme and the European Treatment and Outcomes Study for CML). We maintain our forecast of EU/US peak sales for inecalcitol of $257m in CML. Hybrigenics plans to apply for orphan drug status in the EU and US based on these initial data.

Hybrigenics continues the Phase II study with inecalcitol in patients with AML. This is a double-blind, placebo-controlled trial that will recruit 110 patients over 65 years old and unfit for chemotherapy. Daily doses of oral inecalcitol (4mg) or placebo will be administered to patients who can only receive monthly cycles of decitabine infusions. The primary end point is overall survival after two years. The protocol was presented at the 2017 meeting of the Society of Hematologic Oncology (SOHO) in Houston, Texas (abstract AML-076).

The trial has enrolled 58 patients so far and is being expanded to include additional centres in other countries; the first patient has been treated in Belgium and the German and Spanish agencies have approved the trial in their respective countries. Hybrigenics expects to release data mid-2019. Inecalcitol has orphan drug status in Europe and the US.

AML covers a group of cancers affecting the blood and bone marrow, characterised by the fast-growing production of immature white blood cells or myeloblasts. It is a disease of older adults with a mean age of diagnosis of 63 and the early signs include fever, fatigue, weight loss or loss of appetite, shortness of breath, anaemia, easy bruising or bleeding and infections. The incidence rate is increasing with up to 21,000 new cases expected1 in the US in 2015. At the same time, the prognosis in this disease is poor, median five-year survival for AML is only around 25% and the relapse rate can reach 78%, depending on subtype. AML is a very fast-progressing disease and therefore younger patients tend to start chemotherapy immediately following diagnosis, while older patients are treated with low-dose chemotherapy or palliative care.

Preclinical data showed that inecalcitol prolonged survival and reduced splenomegaly (increase in spleen size and weight) in FLT3 animal models of AML as shown in Exhibit 3.

Additionally, in vitro data presented at the American Association for Cancer Research (AACR) annual meeting 2017 in cell lines of AML and multiple myeloma (MM) showed that inecalcitol is able to turn these into less invasive and more functional cells, in addition to its anti-proliferative properties.

Treatments targeting FLT3 include midostaurin (Rydapt, Novartis) approved in the US and EU and quizartinib (Daiichi Sankyo) in Phase III trials and target older patients ineligible for chemotherapy. Evaluate Pharma’s consensus forecast is $614m and $153 in 2022 for midostaurin and quizartinib, respectively.

We estimate c 40,000 new AML patients in EU and US and forecast inecalcitol peak sales of $119m in this indication.

In vitro data presented at the American Society of Haematology (ASH) 2017 showed inecalcitol induced a five-fold increase of the expression of antigen CD38 in the surface of cell lines of MM. The only cell line that did not respond to inecalcitol lacked the vitamin D receptor (VDR), suggesting a VDR-mediated effect. When compared with the CD38-inducer all-trans retinoic acid (ATRA), inecalcitol showed an average stimulation two- to three-times higher than CD38 at similar concentrations. Therefore, inecalcitol could improve the efficacy of anti-CD38 antibodies like Janssen’s daratumumab (Darzalex).

Hybrigenics has filed patent applications in the US and via the Euro-PCT route for the therapeutic use of inecalcitol in combination with anti-CD38 products in MM, AML and some forms of classical Hodgkin lymphoma and B-acute lymphoblastic leukaemia, based on the stimulation of CD38 by inecalcitol in human cell lines.

Hybrigenics has a discovery and development programme focused on new inhibitors of deubiquitinating enzymes (DUBs). DUBs play a fundamental role in the USP where ubiquitins bind to proteins for degradation by the proteasome, hence playing a crucial role in the regulation of protein processes in the cell. Ubiquitinitation requires a series of ATP-dependent enzymatic steps with the enzymes E1, E2 and E3. The ubiquitin-protein complex is recognised by the 26S proteasome. Ubiquitin is removed and the protein is linearized and injected into the central core of the proteasome, where it is digested to peptides. The peptides are degraded to amino acids by peptidases in the cytoplasm or are used in antigen presentation.

The approval and commercialisation of two inhibitors of the 26S proteasome, bortezomib (Velcade, Takeda: total 2016 sales $1.4bn) and carfilzomib (Kyprolis, Amgen: total 2016 sales $692m) underscore the importance of the USP in the treatment of cancer. Bortezomib is approved for the treatment of patients with multiple myeloma and mantle cell lymphoma. Carfilzomib is approved for bortezomib-refractory multiple myeloma.

Due to resistance to bortezomib and carfilzomib, research has focused on upstream elements of the USP such as DUBs. DUBs remove ubiquitins from proteins, thus preventing them from degradation. DUBs can recycle proteins and chains of ubiquitin. DUBs also regulate a number of cell processes, including regulate gene expression, apoptosis, cell cycle, DNA repair, cytokine signalling and protein location. Abnormal DUB activity is associated with a number of pathologies including cancer.

Hybrigenics has its own programme on DUBs particularly the subset USP. USPs are the largest class of DUBs and comprise approximately 56 molecules in humans. Some USPs can recycle oncoproteins, which are involved in cancer initiation or progression. Hybrigenics’s rationale is that inhibiting USPs that recycle oncoproteins would result in the forced degradation of oncoproteins and could offer a potential treatment for cancer. Hybrigenics has independently discovered several series of inhibitors of USP, in particular USP7/USP10 and USP8.

Furthermore, Hybrigenics has a strong patent position in the field of USP inhibitors, with five patents granted in the US, the EU, Japan and other geographies, with protection until 2032. This programme is excluded from our valuation as it is at an early stage.

Hybrigenics and Servier have an ongoing research and development collaboration in the field of DUBs. In particular, the deal involves the validation of one USP in oncology, screening of lead inhibitors and profiling candidates for further development. To date, Hybrigenics has received €4.7m in upfront and research funding and an additional €2m in milestone-related payments for meeting its research targets. Further potential milestone payments of up to €12m until registration are associated with this programme.

Phase II data in early-stage untreated patients with CLL at risk of progression were published in 2014 showing that inecalcitol was able to slow the progression of disease in 50% of patients. Disease progression is defined by the rate of doubling of the blood lymphocyte count (BLC). Out of 21 evaluable CLL patients, 11 experienced stabilisation of disease as measured by BLC, including one patient who achieved a 95% decrease in BLC after 10 months of treatment. This programme is waiting for funding before it begins Phase III trials.

While major advances in first- and second-line treatments have been made in CLL, there has been no change in the treatment guidelines for early-stage patients, which is watchful waiting until symptoms appear. Inecalcitol is positioned as a treatment that can slow disease progression and postpone the need for chemotherapy. Despite improvements in efficacy, chemotherapy may cause limiting side-effects in some patients. Inecalcitol has orphan drug status in the US and Europe in CLL. Based on official epidemiology sources, we estimate 30,000 new cases of CLL in the US and the EU and potential peak sales of $360m.

Inecalcitol also has potential in solid tumours, although the focus is currently on haematology. In a Phase IIa trial, inecalcitol was shown to lower PSA levels in patients but survival data are needed to assess the value of inecalcitol in this indication. Development of inecalcitol in prostate cancer has been paused, despite its potential, until additional funding is raised or a partnership is agreed upon. The incidence rate of castration-resistant prostate cancer is around 240,000 new cases a year in the EU. However, the competition has advanced since the trial completed seven years ago, so a potential partner might be more likely to focus on haematology.

The main sensitivity is the successful development of inecalcitol in haematological cancer. Initial data in CML are encouraging, but the study is open label and has no comparator arm, hence further controlled trials will be necessary to ascertain the value of inecalcitol in this indication. Additionally, this would represent a new approach in the CML treatment paradigm and adoption will be subject to clinical efficacy and physicians’ willingness to incorporate it in their practice. Results and progress will also influence Hybrigenics’s ability to attract a partnership for follow-on trials in haematological and solid cancers, including resuming development in prostate cancer. Hybrigenics has sufficient funds to carry out the Phase II trials in AML and CML, but would rely on further financing or a partnership to progress into further clinical trials in all three haematological indications and prostate cancer. We have assumed Hybrigenics self-funds development of inecalcitol in leukaemia through to approval, which implies a higher royalty on sales than through an earlier-stage partnership, although with higher costs and greater execution risk.

During 2017, the company underwent a R&D reorganisation and sale of the majority of its proteomics services division. Hybrigenics now reports the results of its retained activities ie the development of inecalcitol, the research on ubiquitin-specific proteases and its genomic services division, Helixio. Hybrigenics reported 20% growth in its first half revenues from retained activities, from €1m in H116 to €1.2m in H117. Our service revenue forecast is €2.5m in FY17 and and €4m in FY18. We expect total group revenue to remain the same in FY17 at €2.5m as we do not project any milestone payments from Servier, but this increases to €5.5m in FY18 when we forecast a €1.5m milestone payment.

We forecast FY17 operating costs of almost €10m due to additional R&D expenditure on the Phase II trials, with a similar level in FY18.

Hybrigenics raised €6.8m in June 2017, hence pro forma cash at 24 July 2017 was €11m which we estimate to be sufficient to fund operations into 2019.

Our risk-adjusted DCF sum-of-the-parts valuation is €121m or €2.6/share (previously €129m or €2.75/share as we have updated the USD/EUR exchange ratio), reflecting Hybrigenics’s strategy to develop inecalcitol as an orphan treatment in CML and AML in the US and the EU. We maintain the probability of success in CML at 40% on the back of the positive interim data published in February 2017. Development of inecalcitol in CLL is paused, despite its potential, because Hybrigenics requires funding or a partner to progress development in this indication – the probability of success remains 20% which we will look to update in the future depending on the company’s plans. We include our forecast of the milestone payments from the collaboration with Servier and our new forecast of sales of the genomics services division, Helixio. Preclinical projects and inecalcitol’s value in prostate cancer are excluded.

The key assumptions for our DCF valuation are detailed in Exhibit 6.

In 2018, Hybrigenics is expected to provide an update on the orphan drug designation for inecalcitol in CML in the EU and the US. The Phase II trial is expected to complete in H218. In addition, the company will present results from the Phase II trial in AML in mid-2019.