Hybrigenics — Inecalcitol shows promise in CML, R&D refocus

Hybrigenics is a French biotech company formed from a spinout from Institut Pasteur. Its main activity is developing vitamin D analogue inecalcitol as a treatment for adult leukaemias, in particular chronic lymphocytic leukaemia (CLL), chronic myeloid leukaemia (CML) and acute myeloid leukaemia (AML); and for other solid tumours. In addition, it has a drug discovery collaboration with Servier based on the ubiquitin-specific proteases class and focused on oncology in pre-clinical development. Hybrigenics’ services activity now only comprises the Helixio division providing specialised genomics services for life sciences researchers from academia or pharmaceutical, cosmetic and agrochemical industries. Hybrigenics is listed on Alternext and entered the CAC PME mid-cap index in April 2014.

Our risk-adjusted DCF valuation is €141m or €3.9 per share, a slight decrease from €146.1m or €4.1 per share due to changes in the probability of success of inecalcitol in CML and CLL. We have increased the probability of success in CML from 30% to 40% on the back of the positive interim data. Development of inecalcitol in CLL is currently paused, despite its potential, because Hybrigenics requires funding or a partner to move development forward in this indication. Therefore, until we have further updates on the development plans, we are reducing the probability of success from 30% to 20%. For AML we assume in Europe that the company retains rights, but in the US we assume for both AML and CML that commercialisation is partnered with a 25% royalty rate. Inecalcitol in CLL forms the highest proportion of our sum-of-the-parts valuation at €78m, while CML is €74m and AML accounts for €43m. After the management buyout of Hybrigenics Services, which represented c 80% of the services division revenues, we have removed the proteomics services subsidiary from our valuation and include a forecast of the retained genomics services division, Helixio and Pharma R&D. We include our forecast of the milestone payments from the collaboration with Servier. Preclinical projects and inecalcitol’s value in prostate cancer are excluded.

FY16 revenue grew 66% to €3.6m, mainly due to a €1.5m milestone payment from Servier and restated to reflect the sale of the controlling stake in Hybrigenics Services. Helixio’s FY16 sales increased by 70% from €0.6m to €1m. For FY17 we estimate group revenues broadly unchanged at €3.7m without any Servier milestone payment. This includes our estimated 40% increase in the reshaped service revenues to €1.4m. FY16 operating costs were €7.1m vs €6.1m in FY15 and we forecast an increase in FY17 costs to €8m to cover the Phase II trials. Hybrigenics’ net cash position was €8.5m at end December 2016. We estimate the company is funded into 2018.

The key sensitivity is the rate of progress in developing inecalcitol in haematological cancers with the usual clinical, regulatory and financial challenges of biotech development. 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. The sale of the proteomic services division significantly reduces the diversification of its business model and increases the risk profile of the company.

Hybrigenics has adopted a development strategy with vitamin D3 derivative inecalcitol, initially focusing on adult haematological cancers, based on the anti-proliferative potency and safety profile demonstrated in preclinical studies as well as clinical studies in CLL and prostate cancer. The investment case rests on inecalcitol’s potential to enhance rather than to replace approved therapies, particularly in view of the significantly weakened general health of older leukaemia patients who are unable to tolerate therapies with harmful side effects. 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. Hybrigenics’ proteomics services subsidiary has been subject to a management buyout and the company offers genomics services through Helixio. With two ongoing clinical trials, the company is focused on biopharmaceutical R&D; in particular on DUB inhibitors and its ongoing collaboration with Servier that could yield up to €12m in further development and regulatory milestone payments until drug registration.

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 is developing inecalcitol in three haematological cancers: CLL, CML and AML. Exhibit 2 shows the main grouping of haematological cancers divided into the lymphoid and myeloid leukaemias.

Inecalcitol is undergoing a Phase II study in patients with chronic myeloid leukaemia (CML). This is an open-label study that plans to enrol 42 patients in France. The study assesses oral inecalcitol administered in combination with oral imatinib in patients with incomplete molecular response after at least two years on imatinib. At February 2017 the trial had enrolled 21 patients and will complete in H218, according to Hybrigenics. The CML programme is built on the back of preclinical data in which inecalcitol in combination with imatinib demonstrated synergistic effects in experiments in vitro by inhibiting the proliferation of CML stem cells, which are involved in relapse. The trial aims to replicate this effect and prolong remission or achieve a functional cure.

The primary endpoint is the proportion of responders measured by the reduction in the expression of the BCR-ABL oncogene. Efficacy in CML can be measured as haematological response, which measures white cells count; cytogenetic response, which tests Philadelphia chromosome in the marrow; and molecular response, which measures expression of BCL-ACR by PCR in circulating blood cells.

In February 2017 Hybrigenics presented the first clinical data from the study. At the interim analysis, inecalcitol plus imatinib showed a further decrease from MMR in six of 14 patients at three months (43%). Additionally, three of nine patients (33%) who have completed one year in the study had a DMR.

The Phase III DASISION study one-year MR4.5 was 5% for dasatinib and 3% for imatinib. The two-year MR4.5 rate was 19% for dasatinib and 8% for imatinib.

The ENESTnd Phase III clinical trial comparing two doses of nilotinib vs imatinib in newly diagnosed CML patients showed that at one year 7% and 11% of nilotinib and only 1% of imatinib patients achieved an MR4.5 response. At two years up to 25% of patients on nilotinib achieved an MR4.5, while 9% of patients in the imatinib arm achieved an MR4.5.

In the absence of a comparator that shows the MR4.5 at different points in time with and without imatinib; and with the limited data disclosed, it is difficult to discern what proportion of the effect is attributed to inecalcitol. Cross-trial comparisons are difficult, but if we assume that patients have been on imatinib for at least two years and, that inecalcitol is added for one year, which is a total of three years, then a 33% MR4.5 is better than 15% at three years in the ENESTnd imatinib arm, and comparable to 32% in the nilotinib arm. Likewise, these data compare better than 24% and 13% in the dasatinib and imatinib arms in the DASISION study, respectively. Therefore, we believe that these preliminary data could be considered positive, while we await full one-year data.

The first-line treatment for CML is tyrosine-kinase inhibitors (TKIs). Most patients on TKIs achieve a lasting molecular response. Moreover, with the advent of second-generation TKIs, such as nilotinib (Tasigna, Novartis) and dasatinib (Sprycel, BMS), more patients can achieve further responses, raising the expectations that survival improves, and second-generation TKIs may potentially achieve a functional cure for the disease. 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 treatment. 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 deep molecular responses 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.

Based on official epidemiology sources, such as the US National Cancer Institute’s (NCI) Surveillance, Epidemiology and End Results (SEER) programme and the European Treatment and Outcomes Study (EUTOS) for CML, we estimate c 14,250 new CML patients per year in the EU and US. We forecast EU/US peak sales for inecalcitol of $257m in CML. The company plans to apply for orphan drug status in the EU and US based on these initial data.

During H216 Hybrigenics started enrolment in a Phase II study of inecalcitol in patients with acute myeloid leukaemia (AML). The study is a double-blind, placebo-controlled trial that will recruit 110 patients (55 in the US and 55 in France) 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 endpoint is overall survival and secondary endpoints are response rate and tolerance. The company guides for data read out in H119. Inecalcitol has orphan drug status in Europe and the US.

Preclinical data were presented at the 12th International Congress on Targeted Anticancer Therapies in 2014. Inecalcitol prolonged survival and reduced splenomegaly (increase in spleen size and weight) in FLT3 animal models of AML as shown in Exhibit 7.

Moreover, 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.

Based on updated epidemiology data, we estimate c 40,000 new AML patients in EU and US and peak sales of $119m.

There are a range of treatments in the late stages of development shown in Exhibit 8, including those targeting FLT3, eg midostaurin and quizartinib, in Phase III trials being targeted for treatment of older patients ineligible for chemotherapy.

Hybrigenics and Servier have an ongoing research and development collaboration in the field of deubiquitinating enzymes (DUBs). In particular, the deal involves the validation of one ubiquitin-specific protease (USP) in oncology, screening of lead inhibitors and profiling candidates for further development. Hybrigenics has to date 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.

The company has its own programme on DUBs and has independently discovered several series of inhibitors of USP7. Furthermore, Hybrigenics has a strong patent position in the field of USP inhibitors, with five patents granted in the US, EU and Japan, as well as other geographies, with protection until 2032. This programme is excluded from our valuation as it is at an early stage.

Hybrigenics announced the disposal via management buyout of a 75.8% stake in Hybrigenics Services, its proteomics subsidiary, for €796k. This includes a €196k upfront payment and three potential payments of up to €200k each, depending on the net result levels achieved by Hybrigenics Services in 2018, 2019 and 2020. Hybrigenics Services generated revenues of €3.5m in 2015 and €3.8m in 2016.

The company retains its Helixio division, which offers genomics, sequencing and bioinformatics services across a broad range of sectors and its Pharma R&D activities including pharmaceuticals, agrofood, cosmetics and environmental industries. Retained services revenues were €2.5m in FY16 (including the Servier €1.5m milestone payment) vs €1.2m in FY15.

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 half of patients. Disease progression is defined by the rate of doubling of 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 awaiting 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 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 is 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’ 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 to approval, which implies a higher royalty on sales than through an earlier-stage partnership, although with higher costs and greater execution risk.

The sale of the proteomic services division, which represented the bulk of revenues, significantly reduces the diversification of Hybrigenics’ business model and increases the risk profile of the company.

Hybrigenics reported FY16 revenue growth of 66% from €2.2m to €3.6m, which includes a milestone payment of €1.5m from Servier in H216, recorded as revenue. Following the R&D reorganisation and sale of the majority of its proteomics services division, the company now reports the results of its retained activities, which include the development of inecalcitol, the research on ubiquitin-specific proteases and its genomic services division Helixio. FY16 genomic services sales increased by 70% from €0.6m to €1m. Our service revenue growth forecast is 40% in FY17, reflecting the rapid growth of this division, and we forecast FY17 services revenue of €1.4m. Total group revenue is expected to remain approximately the same in FY17 at €3.7m as we do not project any milestone payments from Servier.

FY16 operating costs reached €7.1m vs €6.1m in FY15 and we forecast that there will be an increase in FY17 costs to €8m due to additional R&D expenditure on the Phase II trials.

Hybrigenics’ net cash position stood at €8.5m as at end December 2016. We estimate this should be sufficient to fund operations into 2018. However, we expect the group to move into a cash shortfall during 2018, which, for the purpose of our model, we have assumed will require new long-term debt of €2m.

Our risk-adjusted DCF sum-of-the-parts valuation is €141m or €3.9 per share, trimmed from €146m or €4.1 per share, reflecting Hybrigenics’ strategy to develop inecalcitol as an orphan treatment in CML and AML in the US and Europe. We have increased the probability of success in CML from 30% to 40% on the back of the positive interim data. Development of inecalcitol in CLL is paused, despite its potential, because Hybrigenics requires funding or a partner to move development forward in this indication. Therefore, we have lowered the probability of success from 30% to 20% and we look to update it 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 9.

The changes to our valuation include:

In 2017, 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 H119.