Oryzon Genomics — Update 9 March 2016

Oryzon was founded in 2000 by the current CSO Tamara Maes and the CEO Carlos Buesa. It is developing epigenetics-based therapeutics for patients with cancer and neurodegenerative disorders. The two lead products in clinical development target AML and AD patients, but could be expanded into other indications, based on the abundance of preclinical data suggesting efficacy in a broad range of cancers and non-malignant diseases. In addition, the company has a number of other preclinical candidates, which can be progressed depending on R&D priorities and cash management. ORY-1001 has already been partnered with Roche, which is responsible for further development of the compound after the end of the Phase I/IIa study. All Oryzon’s know-how and IP in epigenetics has been developed in-house with no royalties to other inventors due. Oryzon is headquartered in Barcelona, Spain, with a US office in Cambridge, MA, and employs around 30 people.

On 14 December, Oryzon listed its shares on the Madrid Stock Exchange. However, this was a technical listing without raising new funds, as the company is already well funded after the €16.5m private financing round in October. The public listing was a strategic step to boost share liquidity in the near term and to provide access to capital markets. Oryzon also has plans for a dual listing on NASDAQ in future.

Our Oryzon valuation is €158m or €5.6/share, based on a risk-adjusted NPV analysis using a 12.5% discount rate and with €12.7m of net cash at end of December 2015. We assume ORY-1001 can achieve peak sales of around $900m in 2028 in subsets of AML patients most susceptible to LSD1 inhibition and $630m in SCLC patients. We use peak sales of $4.5bn for ORY-2001 in 2032 (assumptions detailed in Valuation section), which represents a conservative scenario at this early stage, where the compound will show symptom improvement in AD patients in line with or better than existing non-disease-modifying drugs, such as Aricept or Namenda. But if ORY-2001’s disease-modifying effects seen in preclinical studies are found in patients as well, our bottom-up scenario suggests peak sales potential of $9.9bn. The expansion into other indications or progression of the preclinical pipeline is not included at this stage, but represents significant upside. In the near term, the main value drivers are the preliminary efficacy results from the ongoing Phase I/IIa study with ORY-1001 and safety data from Phase I with ORY-2001.

At the end of December 2015 Oryzon had an gross cash position of €19.5m with another €2.2m in term deposits classified as other current assets, which we believe should be sufficient to fund operations during the next two to three years. Historically the company has been successful in attracting public grants to fund operations and this should continue. For example, in 2015 Oryzon secured a total of €2.6m in public loans and grants. The company’s shares are listed on the Madrid Stock Exchange and management envisions a potential dual listing on NASDAQ in the next two years, depending on market conditions.

The main sensitivities for Oryzon are the outcomes of the ongoing Phase I/IIa trial with ORY-1001 (preliminary efficacy) and Phase I trial with ORY-2001 (safety and tolerability), with data expected around end of 2016 and in the beginning of 2017 respectively. ORY-1001’s future development will solely depend on Roche’s decisions, while Oryzon will still have to partner ORY-2001 depending on the clinical proof of concept to be established in Phase II. The company is well funded for the next two to three years; financing needs beyond that will depend on milestone revenues from Roche, potential new partnering activities and the scale of preclinical research.

Initially Oryzon focused on genomics diagnostics, providing research services to pharmaceutical and agricultural industries. Boosted by fresh capital in 2008, the company has shifted its focus to diagnostic and therapeutic biomarker research within oncology and neurodegeneration using public funding such as government grants or via international programs, when available. With the acquisition of Crystax Pharmaceuticals in 2008, Oryzon has started drug discovery programmes in epigenetics and is now fully focused on this area. The company’s business model is to develop drug candidates through Phase II and then to out license. The development pipeline is summarised in Exhibit 1.

Simplistically, epigenetics can be defined as the study of changes in how genes are ‘read’ (expressed). A number of external factors can switch genes on and off modifying the expression, but without actually making any changes in the sequence of DNA. These changes are called epigenetic modifications. In cell nuclei the DNA is tightly packed and forms 23 pairs of chromosomes. To achieve that, the DNA is rolled up on protein complexes called histones, which provide compaction and prevent genes being accessible (Exhibit 2). Epigenetic modifications cause changes in this spatial organisation, which lead to different genes becoming accessible for expression or silenced. This process is a part of normal gene expression regulation, but if it falters, can also be the cause of a variety of diseases. There are three main types of epigenetic modifications:

Oryzon’s technology evolves around histone modifications; the most common are: acetylation, catalysed by histone acetyltransferases (HATs) and histone deacetylases (HDACs); and methylation, catalysed by histone methyltransferases (HMTs) and histone demethylases (HDMs or KDMs – Oryzon’s expertise). Histone modification can occur when enzymes attach (write) or remove (erase) chemical tags from different amino acids like lysine, arginine and serine among others. A third class of enzymes (readers) can bind to specific epigenetic marks and recruit other proteins.

Epigenetics is relatively young field in terms of drug development and HDACs were among the first epigenetic therapeutics that were brought to market. However, one of the key drawbacks of HDACs is low selectivity and resulting side effects. Oryzon and some third-party researchers2 have started classifying HDACs as the first generation of epigenetic modifying agents and Oryzon’s products can be assigned to a second generation of selective inhibitors of histone demethylases (KDMs) alongside other newer compounds in the R&D stages, such as histone methyltransferases (HMTs), BET inhibitors, PRMT5 inhibitors, etc (see our Competitive landscape discussion). Oryzon’s lead compounds ORY-1001 and ORY-2001 are among the most advanced second-generation compounds in epigenetics.

Oryzon has developed a proprietary platform to create therapeutic inhibitors for a class of enzymes known as histone lysine demethylases or KDMs. In total, 30 members belong to two ‘super families’ of iron and flavin adenine dinucleotide (FAD)-dependent amine oxidases (enzymes with broad range of functions). The two most advanced compounds in Oryzon’s pipeline are ORY-1001 and ORY-2001. ORY-1001 is a potent and highly selective LSD1 (also called KDM1A) inhibitor, while ORY-2001 is bi-specific LSD1/MAO B inhibitor. ORY-1001 is in Phase I/IIa partnered with Roche and has an orphan drug designation in AML from the European Medicines Agency. ORY-2001 has just entered Phase I for the Alzheimer’s disease indication. In addition, Oryzon has a number of additional programmes, mainly other histone demethylases, in various preclinical stages, which if needed can be progressed into the clinical phase.

ORY-1001 – first-in-class LSD1 inhibitor for leukaemia

ORY-1001 is a highly selective LSD1 inhibitor that can be orally administered. LSD1 is a histone eraser enzyme that removes methyl groups. Oryzon is focusing initial development of ORY-1001 on myeloid malignancy. In normal hematopoietic development (blood production process) blood cells have a defined life-span and must be continuously replaced. These cells are produced by the proliferation and differentiation of a small population of self-sustaining hematopoietic stem cells (HSCs). During differentiation, the progeny of HSCs progresses through various intermediate maturational stages, which are partially mediated by epigenetic modifiers such as LSD1. In leukaemia, this normal process of cellular maturation falters. The leukaemic stem cells (LSCs) do not differentiate appropriately and this results in an accumulation of immature blast cells in bone marrow and blood (therefore sometimes it is called liquid cancer). There are many different types of leukaemia with various genetic and epigenetic origins. Acute myeloid leukaemia represents 15% to 20% of all childhood leukaemias, approximately 33% of adolescent leukaemias and approximately 50% of adult leukaemias3. In total there were around 53,900 cases of AML in the US and Europe in 2015.

ORY-1001 highly efficient in MLL models, but needs to reach beyond

So far, preclinical data demonstrated ORY-1001’s potential in AML subtype called mixed lineage leukaemia (MLL). It is well known for its chromosomal rearrangement, during which the MLL gene becomes fused with genes present in other chromosomes, leading to either acute myeloid or lymphoid leukaemia. MLL is an aggressive form of AML and current treatments are not very effective with just over a third of patients surviving five years. MLL accounts for about 10% of all AML cases.3 In the ongoing Phase I/IIa trial Oryzon is exploring initial efficacy on MLL patients, but since the condition is rare, it is also exploring other subtypes, which it believes could be susceptible to LSD1 inhibition. The goal is to capture as many genetic subtypes as possible to be able to treat a wide AML subpopulation.

Highlights of preclinical data in AML/MLL

Harris et al’s work with ORY-1001’s prototype, OG-86, was instrumental in demonstrating preclinical proof-of-concept using a mouse model of human MLL-AF9 leukaemia.4 Their main conclusion was that LSD1 is a key effector causing an arrest in cell differentiation in MLL and that in vitro and in vivo inhibition of LSD1 causes changes in gene expression, leading to differentiation of leukaemic immature murine and human cells into normal differentiated blood cells, reducing the viability of leukaemic stem cells. Remarkably LSD1 inhibition leads to a variety of rather different effects on different haematopoietic cells, which can potentially offer a therapeutic window for a successful intervention. Selected key findings include:

The idea of forced differentiation of immature leukaemic cells into mature myeloid cells is not entirely new. One therapeutic approach that has been successfully used in clinical practice since the 1990s is an induction of the differentiation of leukaemic blasts using all-trans retinoic acid (ATRA), which is a standard therapy in a subtype of AML called acute promyelocytic leukaemia (APML). However, the ability of ATRA to promote leukaemic cell differentiation in APL is specific to this subset of leukaemia. In our view, the fact that such treatment strategy is familiar to oncologists is favourable situation to Oryzon, as this means there is less need for professional education.

ORY-1001 entered clinical trials in January 2014 and in April that year Oryzon signed a partnership agreement with Roche. The licensing agreement includes two Oryzon’s patents that cover ORY-1001 and back-up compounds. Roche will be solely responsible for further development of the compound on successful completion of the ongoing Phase I/IIa study. In addition, Roche can expand into other indications within oncology, as well as non-malignant conditions. Oryzon still has 17 patents in its IP portfolio, which cover other small molecules for different indications, including ORY-2001.

Roche paid an upfront fee of $17m on signing and a milestone payment of $4m was booked in July 2015, triggered by the determination of the recommended dose in Phase I. Development and sales milestones can potentially total more than $500m depending on what indications Roche decides to develop ORY-1001 for. Royalties will be tiered up to the mid-teens. Overall, we view the deal terms as attractive for a relatively early-stage asset. Oryzon also collaborates with the Roche Translation Clinical Research Centre for an initial two-year period, which ends this April. The goal is to share expertise and advance knowledge of LSD1 inhibitors in oncology and haematology. Notably, Roche is reimbursing Oryzon’s resources invested in this collaboration.

Phase I/IIa to deliver preliminary efficacy

ORY-1001 was the first specific LSD1 inhibitor to enter a clinical trial in January 2014. Part 1 of the Phase I/IIa study included patients with relapsed or refractory acute leukaemia and demonstrated preliminary safety and tolerability. Part 2 started in November 2015, enrolling genetically selected patients with different subpopulations of AML including MLL. This extension arm will provide preliminary efficacy results and thus represents the next milestone event for the company, which we expect could happen around year-end 2016. Notably, there is limited detail about the trial design, including what endpoints were selected to evaluate preliminary efficacy and what information will be released after the completion of the trial.

MLL is an obvious initial target subpopulation of AML backed by encouraging preclinical data. However, LSD1 is upregulated in other acute leukaemias as well. For example, Lin et al. found LSD1 to be overexpressed in the bone marrow in 90.4% of new AML cases, 77.8% of acute lymphoblastic leukaemia (ALL) cases; and in all cases of refractory AML or ALL versus only 4.7% of the cases that went into complete remission after treatment.5 Therefore, in the ongoing Phase I/IIa trial Oryzon is exploring the efficacy in other genetic subtypes of AML. Based on findings in the Phase I/IIa extension arm Roche will decide the way forward to Phase II, which is when there will be more clarity as to exactly what acute leukaemia patient subpopulations will be targeted with ORY-1001.

Potential in other cancers and non-malignant diseases

Oryzon’s and third-party preclinical research demonstrated that inhibition of LSD1 might be a valid therapeutic approach in other blood cancers such as acute lymphoblastic leukaemia (ALL). Stepping beyond leukaemias, there is evidence that LSD1 is also highly expressed in different solid tumours such as SCLC, bladder and colorectal cancer, oestrogen-receptor-negative breast cancer and prostate cancer5. Roche could potentially expand even further including non-malignant diseases such as sickle cell disease and neurodegeneration, where preclinical data show that LSD1 inhibition may be effective.

Lung cancer next

In our view, SCLC appears to be the most likely indication for Roche to expand. GlaxoSmithKline (GSK) has an LSD1 inhibitor GSK2879552 in Phase I for SCLC. GSK2879552 showed activity in SCLC cell lines and in SCLC xenograft models, providing support for the use of LSD1 inhibitors in non-haematological cancers5. As GSK’s interest in GSK2879552 validates LSD1 inhibition potential in SCLC and the SCLC market is larger than AML’s, Roche may be interested in expanding to this indication. SCLC patients constitute 10-15% of total lung cancer patients, with around 27,650 in the US alone. They respond well to first-line treatment, but almost always relapse. Overall five-year survival is only 5%, reflecting a clear medical need for improved treatment5.

Competitive landscape

HDACs are regulators of gene expression, which remove the acetyl group from histones. There is already a handful of first-generation HDAC inhibitors approved by the FDA (Exhibit 5) with the first being vorinostat (Zolinza) developed by Merck & Co for third-line therapy of cutaneous T-cell lymphoma and marketed in 2006. Because of a lack of specificity, the common feature of these HDACs is a rather unfavourable safety profile. For example, vorinostat received a critical review in 2009 from the European Medicines Agency (EMA) about the risk/benefit ratio and the trial design, following which Merck & Co withdrew its marketing application.

Despite these hurdles, a number of other HDACs are still being explored in different stages for oncological indications, but we believe that second-generation epigenetic inhibitors are a more relevant peer group for Oryzon’s technology since, like the LSD1 inhibitor, they also have greater selectivity for their molecular targets. Second-generation compounds can be broadly classified into demethylase inhibitors, methyltransferase inhibitors and BET (bromodomain and extra‐terminal) inhibitors or acetyl lysine readers. Methyl lysine readers (MBTL) are also emerging in preclinical research. Second-generation epigenetic inhibitors are still considered in their infancy with most companies having a lead programme in Phase II or earlier. Epizyme is among the leading peers in this area; it is more advanced than Oryzon but similar in terms of the pipeline breadth and therapeutic areas. It has two lead compounds: tazemetostat, an EHZ2 inhibitor for a range of indications, but primarily focused on non-Hodgkin’s lymphoma with an ongoing five-arm phase II study; and pinometostat, a DOT1L inhibitor in Phase I for rearranged mixed lineage leukaemia in children.

ORY-2001 – unique dual synergistic effect

ORY-2001 is a first-in-class, selective dual inhibitor of LSD1/MAO B. ORY-2001’s clinical trial application has just been approved for AD and a Phase I trial with 88 healthy volunteers is about to begin to establish the safety profile and pharmacokinetics and the results are expected at the beginning of 2017. While the lead indication is AD, other neurodegenerative diseases can follow.

Rationale for bi-specific effect

Historically, the recognition of epigenetics’ role and its importance was first described in oncology and then further extended to neurodevelopment and neurodegenerative diseases.6 The potential use of LSD1 inhibitors is not limited to oncological diseases and Oryzon’s decision to choose oncology and neurodegeneration as primary areas of interest is supported by a significant amount of pre-clinical work.7 ORY-2001 is a unique dual inhibitor, which is possible due to the structural similarity of MAO B and LSD1.

MAO is a very well-researched target with already marketed drugs, such as the first generation of antidepressants, and has two forms, A and B. Non-specific monoamine oxidase inhibitors were the first type of antidepressants developed, but due to inhibition of MAO A, suffered from numerous side effects associated with its more widespread presence. A new generation of selective MAO B inhibitors (eg selegiline) were developed, which cause fewer side effects and are used in early stage Parkinson’s disease, but trials are ongoing to explore the potential of this target for AD as well (Evotec, Avraham Pharmaceuticals). Due to an abundance of data about the effects of MAO B inhibition and its relatively good safety profile, we believe that the downside of potential ‘negative’ interactions between inhibition of LSD1 and MAO B is significantly reduced, while there is potential upside from synergistic effects. This idea is also supported by Oryzon’s preclinical studies.

Highlights of preclinical data in AD

Oryzon tested ORY-2001 in five different oral treatment studies with SAMP8 mice, a non-transgenic model for accelerated ageing and AD. The effect on cognition was examined with an established test, the novel object recognition task (NORT), which uses a calculated discrimination index. Key findings include:

Potential biomarkers

Oryzon has identified different biomarkers that could be used to monitor the response to treatment with ORY-2001. At this stage the most promising is S100A9, which is a pro-inflammatory protein typically upregulated in the context of inflammation-related neurodegenerative diseases, such as in patients with AD, postoperative cognitive dysfunction (POCD) and traumatic brain injury (TBI). Therefore the observed downregulation of S100A9 protein by ORY-2001 is particularly interesting. While the work is still early stage, a progression biomarker may eventually prove invaluable in the context of a late-stage clinical trial designed to prove the disease-modifying effect of a drug. This is because it may be difficult to clearly differentiate between symptomatic and disease-modifying effects just with clinical endpoints (eg cognition, function).8 The key in convincing regulators of disease-modifying effect (which has never happened in AD’s case) may be the link between the slowdown in the progression of clinical signs accompanied with a significant effect on validated biomarkers8.

Alzheimer’s disease and the vast target population

AD is typically recognised as a condition that starts with preclinical stage, when there are no clinical signs of the disease but pathophysiological processes are already noticeable. The next stage is prodromal or minimal cognitive impairment (MCI), which refers to first signs of unspecified dementia. The disease progresses to mild AD and later stages. Accordingly, AD patients’ stage should correspond to treatment claims, which can be symptomatic improvement, disease modification or prevention.

Following recent high-profile failures of experimental antibody-based treatments mainly targeting amyloid-beta (Abeta) (eg bapineuzumab), there has been a shift of focus to recognising the benefits of treating AD patients in earlier stages of the disease. This, however, poses significant screening challenges, as in the early stages AD can be difficult to distinguish from the decline in cognitive abilities due to normal aging or from the MCI that not always converts to AD. The most recent two major revisions of the AD diagnostic criteria were carried out by the International Working Group for New Research Criteria for the Diagnosis of AD (IWG) and the National Institute on Aging-Alzheimer’s Association (NIA-AA) in 2012. As yet, in 2016 the criteria are still not fully validated and undergo constant refinement, including the fact that there are substantial differences between the two versions.8 For a drug developer this poses challenges in defining the target population using a set of criteria that eventually would also be convincing to the regulatory authorities.

There are 44 million dementia sufferers worldwide, around 60% of whom have AD (World Alzheimer Report 2014) and this figure is expected to more than triple by 2050. The lack of disease-modifying treatments leaves a vast unmet clinical need. Oryzon’s primary goal is to evaluate ORY-2001 as a potentially disease-modifying drug; therefore the preliminary target population is defined as early and clinically proven AD patients. For the purpose of our model we will use mild AD prevalence to define the target population, which is around 27% of the total AD population in 2015 (Alzheimer’s Association). This translates into 1.4 million AD patients in the US and another 2.4 million in Europe.

Potential in other indications

In addition to AD, Oryzon has in-house preclinical data demonstrating an improvement of survival and recovery in impaired cognition in mouse models of Huntington’s disease (HD), as well as further data from experimental studies in other neurodegenerative diseases like Parkinson's disease; this is also supported by third-party studies and could be extended to other dementias. For now, the company focuses on AD, but it may add other indications, which depends mainly on R&D priorities and available resources.

Oryzon is subject to the usual risks associated with drug development, including clinical development delays or failures, regulatory risks, competitor successes, partnering setbacks, and financing and commercial risks. The biggest near-term sensitivity for Oryzon is the success or failure of ORY-1001 in Part 2 of the ongoing Phase I/IIa trial. Part 1 focused on the safety profile and established a recommended dose, so the significant side-effect risk is reduced, but still present. Notably, there is limited detail about the trial design, including what endpoints were selected to evaluate preliminary efficacy and what information will be released after the completion of the trial. ORY-2001 is in Phase I with healthy volunteers, so is subject to an unforeseen significant side effect risk, although preclinical models showed efficacy using dose ranges below those causing haematological side effects.

Roche will be solely responsible for further development of ORY-1001 after the end of Phase I/IIa, which means Oryzon will not be able to influence future development decisions, including expansion into other indications. ORY-2001 will need to be partnered, as Phase II and III studies for AD can be very costly. We have assumed a deal in our valuation after Phase II, however, we have limited visibility on the timing and terms. ORY-1001 initially targets AML subtypes and we assume it will be able to capture 25% of the patient population. Any deviations from this represent both upside and downside. AD is a substantial market with a large unmet medical need; hence any disease-modifying therapy is likely to generate significant sales. However, development risk is high, with multiple failures by other companies. We have also included the SCLC indication in our model, but there is no certainty that Roche will progress in this direction.

Future pricing and market dynamics are hard to predict, especially if competitors are successful. We estimate that Oryzon has sufficient cash to fund operations, including the cost of the both ongoing clinical studies, beyond data readout expected around end of 2016 (ORY-1001) and early 2017 (ORY-2001). However, future financing needs will depend on the scale of operations with preclinical candidates, on the progress with ORY-1001, related milestone payments from Roche and potential revenues from other partnerships, for which there is limited visibility. Any capital raise would likely be a dilutive financing event.

We value Oryzon at €158m or €5.6/share, based on risk-adjusted NPV analysis, which includes €12.7m net cash at December 2015. As can be seen in Exhibit 9, we only include clinical stage compounds and one preclinical indication, but will revisit this should Oryzon progress with more projects into the clinic. We use a 12.5% discount rate with a 15% and 12% probability for reaching the market for ORY-1001 and ORY-2001 respectively.

Assumptions for ORY-1001

MLL patients are the first AML subpopulation that Oryzon identified in preclinical studies as the most responsive to LSD1 inhibition, but the ongoing Phase I/IIa study explores other genetic subtypes as well. At this stage there is no certainty on what other susceptible subpopulation could be, but we assume that initially ORY-1001 will likely work in around 25% of the total AML population, which translates into c 13,500 patients in the US and Europe per year. Given lack of innovative approved drugs for AML, pricing and market access dynamics still seem attractive at this stage. We assume market penetration of 50% and a price tag of $100,000 per patient. Pfizer's Mylotarg (gemtuzumab ozogamicin) was an antibody-based conjugate with a chemotherapy agent marketed for AML in mid-2000s at a cost of around US$55-60,000, but was withdrawn from the market in 2010 due to efficacy and safety concerns. A premium to this would be justified given ORY-1001’s expected efficacy in specific subpopulations such as MLL, which is also an aggressive form of AML with poor prognosis. This translates into peak sales of $900m in 2028, assuming launch in 2022.

The SCLC target population is substantially larger than AML’s with a total of c 80,000 cases in the US and Europe in 2015. Unlike non-SCLC, SCLC has not been shown to respond well to targeted therapies.9 The treatment landscape is still dominated by well-established classic chemotherapeutic agents with no novel drugs in the market as of yet. Given the poor prognosis, any novel effective treatment regime could achieve attractive pricing, which we assume at $30,000 per patient with market penetration of 20% and calculated peak sales of $630m in 2031, assuming launch in 2025.

ORY-1001 is partnered with Roche, which we assume will take over the development after the end of Phase I/IIa. We expect Phase I/IIa results around end of 2016, therefore R&D costs related to ORY-1001 should be limited estimating a total of €1.2m for 2016 and 2017. The announced deal structure includes $21m upfront payment and near-term milestones, $435m development-related milestones, $90m sales-related milestones and a tiered up to 15% royalty rates on global sales. $235m of development-related milestones can be triggered by events related to oncology projects; therefore we assume one-third of that can be triggered in the AML project and another third in the SCLC project.

Assumptions for ORY-2001

The key question is whether the disease-modifying effect seen in preclinical studies will be confirmed in AD patients. As there is no approved drug that has done this and the project is still in an early stage, we take a conservative stance and use peak sales of existing symptomatic medicines as a benchmark. Aricept (donepezil) achieved global sales of $3.5bn in 2009 before the patent protection expired in 2010. Including a standard long-term inflation rate of 2.5%, our calculated ORY-2001 peak sales stand at $4.5bn in 2032. Launch is assumed in 2026, which allows enough time for at least a four-year Phase III clinical study.

We also developed a scenario in which ORY-2001 is successfully approved as a disease-modifying AD treatment. As described before, we estimate a total target (mild AD) population of 3.8 million patients in the US and Europe. Pricing dynamics and penetration of ORY-2001 will depend on its efficacy and developments in the AD market and therefore are difficult to predict at this early stage. However, assuming the compound proves to be disease modifying, we estimate a 10% market penetration, which is relatively modest. One study found that persistence rates with oral AD medications (ie how well patients adhered to the therapy) are 40-54%. Assuming a disease modifying effect, the adherence to oral drugs should be even higher. We estimate a reasonable $20,000 per patient per year given the chronic nature of the disease. This translates into ORY-2001’s peak sales of $9.9bn in 2032. The combination of a significant unmet need and a large patient population underpins the commercial attractiveness of this market, however, we stick to our scenario with benchmark sales. This will be revisited once ORY-2001’s efficacy data starts to accumulate.

We assume that Oryzon will be able to partner ORY-2001 after Phase II and the partner will cover all development and marketing costs from this point. Before that we include a cost of €2m for the ongoing Phase I (safety/tolerability in healthy volunteers) and €20m for the subsequent Phase II. This is at the higher end for a study in this stage, but justified given the chronic nature of the disease with prolonged treatment timelines and the complexities of screening patients. Our partnering assumptions include a fairly typical deal structure, including an upfront payment, development and sales-related milestones, in addition to royalties on global sales. We assume a total deal value of €640m, which is below the $825m deal signed in 2013 between Otsuka and Lundbeck for the Phase III AD asset, a selective serotonin 5-HT6 receptor antagonist. We include a €40m upfront payment, €200m development-related milestones with the remainder as sales-related and tiered up to 18% royalty rates on global sales.

Oryzon had an estimated gross cash of €19.5m and another €2.2m in term loans at end December 2015, of which €9.1m is in subsidised loans and bank borrowings. This includes the €16.5m gross proceeds of the recent private funding round in October 2015. Our model suggests that existing cash should be sufficient to fund operations at least through to 2018, but the company has a history of efficient use of available public grants, which could add to the runway. After that, financing needs will depend on the scale of operations with preclinical candidates and on the progress with ORY-1001, related milestone payments from Roche and potential revenues from other partnerships. Oryzon had €15.2m booked as intangible assets at end of December 2015, of which the majority is capitalised development costs. Oryzon follows Spanish GAAP and research costs are expensed, while development costs can be capitalised. This is achieved by recognising the costs as revenue in the P&L, cash outflow from investing activities and a subsequent increase in intangible assets.

Oryzon’s other revenues in 2014 and 2015 consist of reimbursement payments from Roche according to the R&D collaboration separate to the ORY-1001 deal. Due to uncertainty about the extension of the R&D collaboration agreement (separate from licencing deal) after it ends in April this year, we include reimbursement payments only until the expiry month. A signing fee of $17m was booked in 2014. R&D spend in 2015 was €4.2m (€2.9m in 2014). We forecast similar R&D expenses in 2016 and 2017, as the costs related to ORY-1001 will wind down, which will be offset by the ramp up of the R&D costs related to ORY-2001.