Onxeo — Introducing platON; AsiDNA approaches Phase I

Onxeo is a French biotechnology company, which following the reorganisation of its portfolio now focuses on epigenetics and DNA break repair inhibition technology. Both these technologies are novel, indicating that the company has moved away from R&D strategies such as reformulation of existing drugs (Livatag is an example). Onxeo is now a pure drug developer with lead technologies in epigenetics (Beleodaq, belinostat, an HDAC inhibitor) and DNA break repair inhibition (AsiDNA). Beleodaq is approved and partnered with Spectrum Pharmaceuticals in the US for rare blood cancer peripheral T-cell lymphoma (PTCL). Onxeo plans to explore belinostat (oral or intravenous form) in combination with AsiDNA, which is from Onxeo’s newly introduced platON platform. Both compounds have synergistic potential with belinostat inducing DNA breaks, while AsiDNA prevents their repair. Onxeo has done extensive preclinical work to expand the use of AsiDNA via systemic administration and now plans to initiate clinical development in 2018.

We significantly revised our model to reflect the recent portfolio changes and our updated Onxeo valuation is €218m (vs €350m previously) or €4.3/share. This includes estimated net cash of €27.3m at Q317 (cash of €27.5m at Q317 less €155k in debt at H117). The main changes to our model include the divestment of Loramyc/Sitavig, out-licensing of Validive, increased peak sales assumption for AsiDNA and substantially reduced probability of success for Livatag. We keep the indications for AsiDNA and belinostat unchanged. However, as Onxeo progresses its R&D, there is a potential to add more indications for AsiDNA standalone or in combination with oral belinostat.

Following the Q317 business update released in September 2017, we increased FY17e revenues from €7.9m to €10.2m mainly due to upfront payments following the divestment of Loramyc/Sitavig and the out-licensing of Validive. We have reduced FY18e revenues to reflect the removal of Loramyc/Sitavig. We have decreased our forecast R&D costs related to Livatag programme as well as personnel costs as Onxeo stated that the workforce involved with the Livatag project could be reduced by 20%. Onxeo reported a cash position of €27.5m at end-Q317. The lower cash burn means that our forecast cash reach is now until early 2020, although this is dependent on the outcome of the litigation case against SpeBio/SpePharm, as described in the Sensitivities section.

Onxeo is subject to the usual drug development risks, including clinical development delays or failures, regulatory risks, competitor successes, partnering setbacks, financing and commercial risks. The main sensitivities in both the near- and mid-term relate to the lead assets: 1) AsiDNA progressing into clinical development; 2) Beleodaq US sales progression in PTCL in addition to initiation of the required Phase III trial and successful development of an oral formulation of belinostat. Beleodaq is approved in the US for PTCL, with partner Spectrum responsible for commercialisation. A further study is required to satisfy the FDA conditional approval requirements and to secure approval in Europe. Onxeo announced in October 2017 that the court’s decision in the litigation case was unfavourable and the company was ordered to pay €8.6m and other smaller charges to SpePharm/SpeBio. Onxeo had a distribution agreement with SpePharm/SpeBio for Loramyc, which was terminated in 2009. Onxeo indicated that it will seek all legal options to appeal the decision. Furthermore, as Onxeo owns a 50% stake in SpeBio, a joint venture with SpePharm, the net impact is not clear at the moment should Onxeo be required to make the payment.

Onxeo’s portfolio now focuses on its novel DNA-targeting platON platform, from which AsiDNA is the first product expected to move into clinical testing in 2018 (Exhibit 1). Belinostat is also in the core portfolio, which is approved for PTCL in the US. Onxeo is working on an oral administration formulation, which will allow for several clinical development pathways going forward: standalone oral formulation or in combination with other anti-cancer drugs, including AsiDNA. This sharp focus on epigenetics and DNA break repair inhibition follows a volatile period when the Phase III trial with Livatag did not meet the primary endpoint. More positive recent developments include Validive out-licensing to Monopar Therapeutics and divestment of non-core products Sitavig/Loramyc to Vectans Pharma. Exhibit 1 summarises Onxeo’s assets and current status.

Livatag (proprietary doxorubicin-loaded nanoparticles) was being explored in the Phase III ReLive trial in advanced hepatocellular carcinoma (HCC) patients who are refractory or intolerant to sorafenib (Nexavar). As announced in September 2017, the ReLive trial did not meet its primary endpoint of improving survival as a second line or more advanced therapy in HCC patients over the comparison arm, where patients received the best standard of care (BSC). Unexpected high survival in the comparison arm was the main reason given by the company for Livatag not meeting the primary endpoint. Onxeo noted that Livatag tended to show a similar level of efficacy as recently approved (April 2017) regorafenib in second line treatment of a subpopulation of HCC patients with well-preserved liver function (inter-trial comparison, not head-to-head data).

HCC is the fifth most diagnosed cancer globally and the third leading cause of death. Two thirds of patients are usually diagnosed at an advanced stage and so far only two innovative tyrosine kinase inhibitors (sorafenib and regorafenib) have been approved. The unmet need is still significant in this indication; therefore, while Onxeo discontinued internal development for Livatag, it expects to explore all options for licensing including potential development in combinations, regions where expensive branded therapies are not available (eg parts of Asia) or other indications. However, we do not expect rapid progress in this area.

In October 2017, Onxeo announced a major R&D expansion by introducing a proprietary platform – platON – based on decoy oligonucleotides. Decoy oligonucleotides are based on three components: double strand oligonucleotides, a linker (coupling agent), and a cellular uptake facilitator (Exhibit 2). Each of these compounds can be modified resulting in different products, which main mechanism of action is to act as a decoy and target the mechanisms of tumour DNA function regulation. The first product – AsiDNA, a DNA break repair inhibitor – is expected to advance into clinical testing in 2018 using an intravenous administration route.

DNA repair inhibition is experiencing a surge in interest after the three lead drugs in the area, all PARP inhibitors (Lynparza, Rubraca and Zejula) have been approved by the FDA over the past three years. Regardless of the type of DNA lesion (endogenous like replication errors or exogenous like chemotherapy and radiation) cells initiate a highly coordinated cascade of events known as DNA damage response (DDR), which leads to the initiation of the damage repair mechanism specific to the type of the lesion (Exhibit 3). There are at least four main, partly overlapping DNA repair pathways in mammals: base excision repair (BER), mismatch repair (MMR), nucleotide excision repair (NER) and double-strand break repair via two different pathways – homologous recombination (HR) and non-homologous end joining (NHEJ)1 (Exhibit 3):

The aforementioned PARP inhibitors, the most advanced drugs in DNA repair inhibition field, inhibit BER pathway resulting in the accumulation of single strand DNA breaks, which eventually leads to double strand breaks2. This could cause cell death, but in healthy cells double strand breaks are repaired via HR or NHEJ pathways. Therefore, otherwise healthy cells are not sensitive to PARP inhibition alone. In a special case of mutated BRCA1/2 genes, the HR pathway is dysfunctional and these cells have been shown to be 100- to 1,000-fold more sensitive to PARP inhibition2. BRCA1/2 mutations are found in around 15% of all ovarian cancer, which is the indication all approved PARP inhibitors were developed for. A biological defect such as mutated BRCA (dysfunctional HR) complemented by a drug leading to cell death, a PARP inhibitor in this case (blocks BER), is known as synthetic lethality.

The rationale for using AsiDNA standalone and in combos

PARP inhibitors have shown promising efficacy and safety in clinical trials, but the main drawbacks were the necessity of a dysfunctional HR pathway and a rapid emergence of resistance2. First-in-class AsiDNA is based on signal-interfering DNA technology, which if introduced into a cell acts as a signal mimicking the damage of the cell’s own DNA. AsiDNA molecules are short double-strand DNA that mimic double-strand breaks in the cell’s DNA and are recognised as “damaged DNA” by repair and signalling proteins. Namely, AsiDNA hyper-activates PARP1 and the DNA-dependent protein kinase (DNA-PK) leading to a cascade of repair proteins being recruited to “repair the damage”, as a result of which the actual damage of a cell’s DNA remains unrepaired. This action renders the HR and NHEJ pathways dysfunctional.

Since HR and NHEJ are responsible for repairing double strand breaks, AsiDNA’s ability to disrupt these pathways was initially explored in combination with DNA-damaging therapies, such as radiotherapy and chemotherapy. Due to its independent mechanism of action there is also strong rationale to use AsiDNA in combination with PARP inhibitors to potentiate their effect in BRACA-mutated tumours. In addition, AsiDNA could potentially be used to sensitise BRCA non-mutated tumours to PARP inhibitors, which in turn would expand their use substantially.

The initial preclinical efficacy of AsiDNA technology was observed in combination with irradiation, ie sensitising tumours to radiation therapy. However, due to AsiDNA acting as a non-specific decoy activating a false DNA damage signal, other treatment modalities that produce DNA damage were also found to be possible for use in combination with AsiDNA, such as chemotherapy (with alkylating agents, antimetabolites, topoisomerase inhibitor) and radio-ablation therapy (hyperthermia). Existing preclinical data from several tumour models with different DNA damage therapies and with PARP inhibitors using different AsiDNA administration routes show that AsiDNA is a very versatile technology (Exhibit 4).

Clinical data support further development

AsiDNA (formerly DT01) has already been tested in a clinical trial with skin melanoma patients by the original developer DNA Therapeutics, which was acquired by Onxeo in February 2016. In the Phase I DRIIM study the drug was injected intratumourally or peritumourally in conjunction with the radiation therapy. DRIIM was an open-label, non-randomised, multicentre, dose escalation study. In total, 23 patients received a full course of treatment and were evaluated for safety and pharmacokinetics, while 21 patients with a total of 76 skin melanoma lesions were evaluated for initial efficacy. Key headline results were presented at ASCO in May 2015 and published later on3:

Systemic administration opens many possibilities

Based on preclinical data and insights from the DRIIM trial, Onxeo believed that AsiDNA’s systemic administration was feasible in humans, which could open potential to explore many more indications than with local administration. The company has conducted preclinical studies and, in July 2017, announced its first preclinical proof-of-concept data with AsiDNA demonstrating the potential for intravenous administration. AsiDNA standalone significantly decreased tumour growth in a triple negative breast cancer (TNBC) model and improved survival (Exhibit 5). Onxeo also tested the drug in combination with the classic neoadjuvant chemotherapy (ie given before surgery), carboplatin. Despite AsiDNA being administered in lower doses than in the standalone trial, the combination with carboplatin outperformed other arms (untreated, low dose AsiDNA alone or carboplatin alone; Exhibit 6).

Combination with PARP inhibitors

Jdey et al explored in vitro the synergistic potential of the combination treatment of PARP inhibitors and AsiDNA2. The researchers studied AsiDNA with PARP inhibitor or standalone in 21 cancer cell lines in total with different BRCA status and three non-tumour cell lines. The most detailed comparison has been made between AsiDNA and PARP inhibitor olaparib using a breast cancer model. BRCA mutations were observed in 8.8% of all new breast cancer cases, which increased to 30% in the difficult to treat triple-negative (ER-, PR-, HER2-) breast cancer subgroup. The main conclusions were:

AsiDNA development strategy

Currently Onxeo is conducting preclinical studies in other tumour models and also in combination with PARP inhibitors. Onxeo indicated that it aims to file the investigational new drug application by end-2017, which will likely allow initiation of Phase I in H118, in our view. The Phase I trial will be in a variety of tumours, which will allow the selection of the best indication to progress forward.

Following the acquisition of DNA Therapeutics in March 2016 we revised our valuation and included triple negative breast cancer (TNBC) indication to reflect the potential value of AsiDNA. Onxeo mentioned that while this was one of the potential directions, it was open to explore other cancers, such as platinum-resistant ovarian cancer and non-small cell lung cancer. By pathological definition, TNBC lacks an expression of oestrogen receptor (ER), progesterone receptor (PR), and human epidermal growth factor receptor 2 (HER2). This type of cancer is typically more aggressive when compared to other types of breast cancer and is unresponsive to hormonal and monoclonal antibody therapies (eg trastuzumab). The standard initial treatment options are anthracycline and taxane-based combinations (eg doxorubicin, cyclophosphamide, docetaxel), but patients have a poorer prognosis and overall survival than in other types of breast cancer. A variety of new targeted therapies are in investigation, including PARP inhibitors, with AstraZeneca also exploring its olaparib in Phase III in metastatic breast cancer with BRCA1/2 mutations and HER2 negative disease.

PARP inhibitors on the market and in development

Currently, there are three PARP inhibitors approved by the FDA and all for ovarian cancer: Lynparza (olaparib, AstraZeneca), Rubraca (rucaparib, Clovis Oncology) and Zejula (niraparib, Tesaro). PARP inhibitors piqued the market’s interest after the first drug Lynparza (olaparib, AstraZeneca) was launched in late 2014 and brought $218m in sales in 2016. Initially Lynparza was approved for the treatment for ovarian cancer patients with BRCA mutant tumours no longer responsive to three or more prior therapies. However, in March 2017 AstraZeneca published new data showing that Lynparza delayed the recurrence of ovarian cancer by more than two years compared to a placebo in women with relapsed or recurrent BRCA-mutated ovarian cancer. This will likely allow expanding Lynparza's marketing label in the US to include maintenance therapy for ovarian cancer. AstraZeneca is currently evaluating olaparib in several other indications such as breast and prostate cancer. Pfizer’s talazoparib and Abbvie’s veliparib are two other PARP inhibitors in Phase III, both for breast cancer indication. EvaluatePharma estimates sales of all PARP inhibitors will total $4.8bn by 2022 (Exhibit 8).

Overall, AsiDNA is clearly differentiated from PARP inhibitors, as it acts more upstream; it is not a specific enzyme inhibitor, but activates PARP among other repair proteins (ie it distracts, when olaparib inhibits). Therefore, it represents a new treatment approach by itself or in combination with PARP inhibitors, which could not only potentiate them, but also expand their use beyond BRCA mutated tumours. For example, while the recent Lynparza data are impressive, prolonging the survival by two years versus placebo, all the women selected in the trial had BRCA mutation and only around 15% of all ovarian cancers have this specific mutation. Onxeo will continue discussions with PARPi manufacturers to explore opportunities to combine AsiDNA with PARPi in the treatment of certain gynaecological (ovarian) and pulmonary (NSCL) cancers, in particular for tumours without genetic mutation involved in HR (HR wild type).

Beleodaq is marketed in the US under a conditional FDA approval granted in July 2014 for relapsed or refractory peripheral T-cell lymphoma (r/r PTCL) by partner Spectrum. We continue to expect initiation in coming months of the Phase III trial in first-line PTCL comparing belinostat in combination with CHOP (cyclophosphamide, hydroxydaunorubicin, Oncovin, prednisone) therapy, compared to CHOP therapy alone. A Phase III controlled trial was a condition of the July 2014 FDA’s accelerated approval based on the US Phase II BELIEF study in relapsed/refractory PTCL (n = 120). Beleodaq’s approval in Europe for PTCL is also subject to the completion of a Phase III trial. As outlined previously, Onxeo and partner Spectrum plan to address both the FDA and European requirements with a single further Phase III controlled trial in first-line PTCL combining belinostat with CHOP (BelCHOP) compared to CHOP alone (ie expanding to frontline therapy and also into a new geography). The timing of the initiation of the new study, however, has not been announced by Spectrum. As per the co-development terms of the deal with Spectrum, costs will be shared, with Onxeo contributing 30%.

Onxeo is also focusing on developing an oral formulation of belinostat, which could provide a competitive advantage over the intravenous formulations of other HDAC inhibitors, allowing more flexibility not only in PTCL, but also other indications, including combination treatments. The oral formulation would also extend belinostat patent protection until 2038. Preliminary data demonstrated good bioavailability, which can be a hurdle in the development of orally available drugs. The bioavailability was 28% when using the new formulation technology, an amorphous spray dried dispersion, compared to 7% when using a conventional capsule formulation with active pharmaceutical ingredient. Onxeo expects that the first clinical trial could be conducted in 2018, which would allow it to accumulate PK/PD data. The company indicated that there is a rationale to combine oral belinostat with DNA repair inhibitors including Onxeo’s AsiDNA (Exhibit 9).

In September 2017, Onxeo reported new data from preclinical studies combining belinostat and various DNA break repair inhibitors including AsiDNA. There was a clear synergistic effect on malignant cells when compared to monotherapy of either of the drugs. Notably, the effect on healthy cells was minimal (Exhibit 10). Onxeo has started in vivo studies to confirm the in vitro data and expects peer-reviewed publications in H118.

HDAC inhibitors are attracting renewed interest. Belinostat is a strong inducer of DNA breaks, therefore the combination with AsiDNA, a DNA break repair inhibitor, could potentially be synergistic. Since Onxeo owns both technologies, the company is in a unique position to explore the synergistic potential and the best way to market.

Onxeo is subject to the usual drug development risks, including clinical development delays or failures, regulatory risks, competitor successes, partnering setbacks, financing and commercial risks. The main sensitivities in both the near- and mid-term relate to the lead assets: 1) AsiDNA progressing into clinical development; and 2) Beleodaq US sales progression in PTCL in addition to initiation of the required Phase III trial. Furthermore, as preclinical progress is made with an oral formulation of belinostat, it could become more critical to the investment case. Beleodaq is approved in the US for PTCL, with partner Spectrum responsible for commercialisation. Sales momentum in the US is a driver for the share price performance. A further study is required to satisfy the FDA conditional approval requirements and to secure approval in Europe. For both AsiDNA and Beleodaq, Onxeo is pursuing a comprehensive preclinical strategy to explore the potential of these assets in other cancers and in combination with other therapies. Future clinical development would likely lead to an increase in R&D spending and require additional investment, but could also provide considerable upside to our forecasts if the projects are successful.

Onxeo announced in October 2017 that the court’s decision in the litigation case was unfavourable and the company was ordered to pay €8.6m to SpeBio and other smaller charges to SpePharm/SpeBio for costs incurred to market Loramyc in Europe. The litigation started in 2009 after Onxeo (formerly BioAlliance Pharma, ie before the merger with Topotarget) terminated a distribution agreement with SpePharm/SpeBio. Onxeo believed that SpePharm/SpeBio breached contractual obligations resulting in a delayed marketing of Loramyc. Onxeo indicated that it will seek all legal options to appeal the decision. Onxeo owns a 50% stake in SpeBio, which is a joint venture with SpePharm, therefore the net impact is not clear at the moment should Onxeo be required to make the payment.

Following the changes to our R&D model and rolling our model forward our updated Onxeo valuation is €218m (vs €350m previously) or €4.3/share, which includes FY17e net cash of €27.9m. Our indications for AsiDNA and belinostat (described above) are unchanged. However, as Onxeo progresses its preclinical development, there is a potential to add more indications for AsiDNA standalone or in combination with oral belinostat. The main changes to our model include:

Following the Q317 business update released in September 2017, we upped our FY17 revenue estimate from €7.9m to €10.2m mainly due to the upfront payments following the divestment of Loramyc/Sitavig and the out-licensing of Validive. We have reduced our 2018 revenue forecast to reflect the removal of Loramyc/Sitavig. We have also reduced the R&D costs related to the Livatag programme and estimated personnel costs as Onxeo has stated that the workforce involved with the Livatag project could be reduced by 20%.

Onxeo reported a cash position of €27.5m at end-Q317 while we forecast cash of €27.9m at end-2017, as the company indicated earlier in the year that it is due to receive €4m in research tax credit in 2017. The lower cash burn means that our forecast cash reach is until early 2020. However, significant financial risk is related to the litigation case against SpeBio/SpePharm, as described in Sensitivities section. In addition, due to the lack of visibility on timing and the value of payments, at present we do not include any milestones from different partnerships in our financial estimates. A summary of the main changes to our financial forecasts is shown in Exhibit 12.