Oxford BioMedica — Juno deal expands CAR-T revenue streams

Over the last few years the global cell and gene therapy market has expanded rapidly as evidenced by the first approvals for both ex vivo (chimeric antigen receptor T-cells [CAR-Ts] Kymriah and Yescarta) and in vivo (Strimvelis for ADA-SCID and Luxturna for RPE65 inherited retinal disease) gene therapy products. OXB is a pioneer and global leader in the development and manufacture of commercial-scale lentiviral vectors (LVV), a critical component of cell and gene therapies. OXB’s expertise in lentiviral development means it continues to remain extremely attractive to future and existing partners. By end 2020 OXB’s commercial LVV production capacity will have increased via its investment in OxBox, an 84,000 sq ft state-of-the-art bioprocessing manufacturing facility. Extension of the Novartis (NOVN) commercial supply agreement (in December 2019) validated OXB’s foresight to invest for growth as vector manufacturing capacity remains constrained globally. Under the recently announced LSA, Juno Therapeutics will have access to manufacturing capacity at OxBox on the four undisclosed active projects but will also be able to initiate additional projects in the future.

US-based Juno Therapeutics is one of the main pioneers in CAR-T development (alongside NOVN, and Kite/GILD. Juno has been developing a broad pipeline of CAR-T and T-cell receptor T-cell (TCR-T) programmes in oncology and other indications spanning preclinical, clinical trials and a biologics license application (BLA) filing for its most advanced asset (JCAR017). Recognising its unique and broad pipeline in cell and gene therapy, Celgene acquired Juno in 2018 for $9bn. The hunter became the hunted in 2019 as Bristol-Myers Squibb (BMS) acquired Celgene for $74bn. Juno is now nestled within the BMS group, and the rationale for the BMS-Celgene acquisition was to leverage on differing competencies in the immuno-oncology space (potential for combination approaches with check point inhibitors, eg Opdivo, with CAR-T cell therapies). We highlight that prior to the OXB-Juno deal announcement, OXB will have been active on development and validation work for Juno’s potential programmes and OXB will have received process development revenue). As such, the Juno/Celgene/BMS acquisition may have delayed deal timings.

Under the terms of the recently announced deal, OXB will receive an upfront payment of $10m in cash. OXB is eligible for up to $86m upon achievement of certain development and regulatory milestones spread across four undisclosed assets (we assume that these are focused on CAR-T or TCR-T assets in preclinical and clinical development and may include one of the CD22, WT1, L1CAM and MUC16 programmes) over multiple potential indications (discussed below). In addition, OXB is eligible to receive up to $131m in sales-related milestones plus an undisclosed royalty on the net sales of products sold by Juno utilising OXB’s LentiVector platform. OXB is working on four assets covering multiple indications (see below), this is a non-exclusive deal, thus OXB can supply LVV for these targets to others; in context, the licence with NOVN gives exclusivity to CD19.

We expect multiple revenue streams from the deal to include bioprocessing (the sale of vector batches) revenues and development milestones in addition to payments from process development and scale-up projects. If Juno’s pipeline progresses towards regulatory approvals and launch, then we expect this mix to alter as the royalty stream builds. This is an initial deal with Juno and as these assets progress towards commercial viability, we would expect additional deals to cover commercial manufacturing supply. However, our caveat remains that much of Juno’s pipeline is at the proof-of-concept stage. In terms of deals we illustrate how the original NOVN deal signed in October 2014 was a process and manufacturing deal (for CTL019) consisting of $90m over three years ($14m upfront including a $4.3m equity subscription, $76m in milestones over three years and undisclosed royalties). In June 2017 as CTL019 (Kymriah) moved towards commercialisation NOVN signed a new commercial supply agreement for CTL019 which included $10m upfront and in excess of $90m in additional revenue over the next three years. Kymriah received FDA approval for paediatric acute lymphoblastic leukaemia (pALL) in August 2017 and diffuse large B-cell lymphoma (DLBCL) in May 2018. OXB is the only supplier to NOVN and, as its technology and manufacturing process was involved in the regulatory application of Kymriah, we believe it is extremely unlikely that NOVN will switch. If OXB’s LVV technology forms the basis of regulatory filings for Juno’s assets this will likely apply to Juno.

The OXB-Juno deal covers four CAR-T and TCR-T candidates. The targets are undisclosed by OXB. Currently approved CAR-T therapies, Kymriah (NOVN) and Yescarta (Kite/GILD), target the CD19 antigen and are focused on the lymphoid haematological segment, mainly ALL and DLBCL. We note that under a previous agreement, OXB granted exclusivity for CD19-related manufacturing to NOVN; Juno’s pipeline contains three CD19-targeting CAR-T assets (JCAR017, JCAR014 and JCARH125) that we assume are not included in the LSA with OXB.

CAR-Ts are individual treatments that are personalised to a patient (autologous) by the removal and isolation of their T-cells (leukapheresis) and the modification of these cells to express the relevant chimeric antigen receptors (CARs). This is followed by incubation with a viral vector (such as OXB’s LVV), expansion of these cells and then reinfusion into the patient. The combination of a cancer-recognising element with the cell-killing ability of T-cells makes for an effective therapeutic combination. OXB’s lentiviral technology is used to insert genetic material into a patient’s isolated T-cells, which enables the cell to make and present cancer-targeting receptors (CARs). However, while many companies have adequate R&D facilities, OXB is one of a few globally that can manufacture LVVs on the commercial scale needed for use in these therapies.

The holy grail in CAR-T therapy is targeting solid cancers, an elusive area but a potentially huge market for a successful CAR-T. To be effective with low side effects requires the identification of a cell surface protein that is overexpressed in malignant tumours and not healthy cells. This is a very rare set of attributes that have only been validated for haematological cancers with CD19, and more recently CD22, though not yet for solid tumours. TCR-T therapies target peptide fragments expressed on the cell’s surface that can be from proteins expressed either inside the cell or on the cell’s surface. This potentially allows TCR-Ts to successfully target a broader range of tumours, including solid cancers.

Further challenges posed to CAR-T therapies by solid cancers include finding, infiltrating and surviving the tumour microenvironment. Many solid cancers have seen minimal progress in patient survival rates for decades, with old and ineffective therapies still being used extensively.

Juno’s pipeline covers several antigens and a range of haematological and solid cancers. The assets covered are undisclosed under the terms of the deal, and are likely to be a mixture of preclinical and early clinical-stage assets. For illustrative purposes we discuss JCAR018 in detail and include it in our valuation to contextualise the impact. Exhibit 1 highlights the clinical-stage assets presented on the Juno website; preclinical assets are not listed. We have not included CD19-targeting therapies given the exclusivity to CD19 that OXB has under its deal terms with Novartis.

CD22, much like antigen target CD19, is widely expressed on B lymphocytes and is expressed by the majority of B-cell malignancies including ALL, chronic lymphocytic leukaemia (CLL) and non-Hodgkin lymphoma (NHL). CD19 expression still remains more common in these cancers, however we note that 60–90% of B-cell malignancies express CD22 and when expressed, CD22 is expressed throughout a tumour. Importantly, like CD19, CD22 is not known to be expressed on any other healthy tissue, or more specifically, hematopoietic stem cells.

In the relapse and refractory setting, the uptake of CD19-targeting therapies has led to the emergence of CD19-negative cancer cells, with significantly reduced levels of CD19 expression, in some patients. These cells retain CD22 expression and therefore a CD22-targeting CAR-T could be an important potential treatment. There is also an opportunity for combination therapies that target both CD19/CD20 to provide enhanced efficacy and duration of response.

JCAR018 is being evaluated in a Phase I study in paediatric and young adult patients with relapse/refractory ALL (NCT02315612). In August 2019, JCAR018 was granted breakthrough therapy designation by the FDA for this indication based on preliminary data from the study. The five-year survival rate for paediatrics with ALL has greatly increased over recent years, with only 15% of patients relapsing after treatment. This is largely due to advances in the treatment armament which include CD19 CAR-T’s (Kymriah and Yescarta), Blincyto (CD19 BiTE) and Besponsa (CD22 antibody). Future treatment modalities are likely to use combination therapies; several clinical studies are currently investigating various combinations.

JCAR018 is also being evaluated in relapse/refractory NHL in the same study (NCT02315612). First-line treatment is with R-CHOP, a combination of Rituxan (CD20 antibody) and four chemotherapy drugs (CHOP) that have been the standard of care for more than 25 years. However, treatment in the relapse/refractory setting has been revolutionised by the approval of the CD19 CAR-T therapies, Kymriah and Yescarta, although resistance is an issue for a fraction of patients; If approved, JCAR018 could offer a potential treatment for these CD19-resistant patients (18% of initial non-responders and 38% that relapse within a year of CD19 treatment).

OXB provided an unaudited trading update on its FY19 numbers and post period end review on 18 March 2020 and expects to announce preliminary results on 23 April. Financial highlights are as follows.

We have highlighted the main operational highlights achieved in FY19 in our note published in February 2020 OxBox investment to aid future growth.

We also note that long-standing chairman of the group, Dr Lorenzo Tallarigo, has announced his retirement from the OXB board. A replacement is yet to be announced.

We note that BMS has suspended many of its clinical trials. This comes as no surprise as global hospital capacity is overrun with COVID-19 patients, many of whom are in a critical condition and the majority of resources are directed towards the pandemic. While we anticipate a delay in clinical trials in the short term, we expect OXB to continue to manufacture and supply the viral vectors required for products in clinical trials for all its partners. OXB has stated ‘so far, the Group has not experienced any and does not currently expect to experience significant supply issues or any changes in customer demand.’ OXB has 18 programmes in development, of which 14 are in commercial development at the vector construct stage and as such will not be affected by clinical trial delays. The second Novartis and Axovant products could potentially be affected by clinical trial delays. However, OXB has said it has seen no change in demand from customers.

Following the Novo Holdings equity investment, OXB has a strong balance sheet to fund its operations. Furthermore, as it is approaching profitability we believe OXB is in a strong position to weather this global pandemic and related economic downturn.

We value OXB at £718m (£9.33 per share) vs £692m (£9.02 per share) previously. The uplift stems largely from our inclusion of the Juno deal netting off the impact of the removal of OXB-202 from our valuation. Additionally, we roll our model forward and update for exchange rates and net cash of £16m at 31 December 2019. For the Juno partnership we have modelled the opportunity for JCAR018 only for illustrative purposes, given the assets are undisclosed. At present we do not have sufficient visibility on the assets, indications and Juno’s timeline for progression, but we will revisit our assumptions as we gain more visibility as time progresses. We have applied a low (20%) probability of success for JCAR018 for pALL and NHL. We have also removed OXB-201, replacing it with OXB-203 in wet AMD (preclinical) instead. The impact here is longer timelines for development given it is a preclinical asset.

In all partnerships except Sanofi, we value the royalty, milestone and bioprocessing (manufacturing) revenues; with Sanofi we only value potential future royalties and milestones. We forecast that all internal assets are out-licensed post Phase II data. We value all partnerships to 2040 and, due to an expanding and evolving long-term revenue stream, we include a terminal value (10% discount rate, 1% growth) for OXB, which contributes £2.40/share to our valuation. We forecast that OXB will receive bioprocessing manufacturing revenue from partners throughout the collaborations and not just on commercial launch. We assume our standard 12.5% discount rate for assets, with a 10.0% discount rate for manufacturing revenues. We note that pricing of gene therapies remains a key sensitivity and, as the market evolves and these dynamics change, we assume pricing of $475,000 for rare diseases and $300,000–350,000 for more common indications.