Oryzon Genomics — Q323 recap ahead of key clinical stages

Management recapped on Oryzon’s clinical progression across its ongoing activities in the Q323 release. It reaffirmed the company’s plans to share important readouts in H124, while it is also preparing for new clinical programmes to supplement its active pipeline focused on lead assets vafidemstat (for CNS) and iadademstat (for oncology), see Exhibit 1. A key highlight remains the recent favourable blinded safety data from the PORTICO Phase IIb trial shared in October 2023 and we await top-line data in early 2024. Oryzon remains on track for its clinical activities in terms of patient recruitment for other ongoing trials (ie EVOLUTION for schizophrenia and FRIDA for AML). Additionally, it is strengthening the pipeline further by advancing its preclinical portfolio, for example ORY-4001 (a selective histone deacetylase 6 inhibitor), which has recently been nominated for clinical development for the treatment of neurological diseases such as Charcot-Marie-Tooth disease and amyotrophic lateral sclerosis.

The company’s lead study in the CNS space is PORTICO, a multicentre, double-blind, randomised, placebo-controlled Phase IIb clinical trial evaluating the efficacy and safety of vafidemstat in patients with BPD. The two independent primary objectives for the trial are improvements in agitation and aggression, and overall improvement in BPD severity. Encouraging safety data for this fully enrolled study were reported in October (see our previous note for details). The last patient is due to be dosed by the end of 2023 and top-line results are expected in Q124, consistent with prior guided timelines.

Oryzon has also made steady progress enrolling patients for the EVOLUTION trial. This is a Phase IIb study assessing vafidemstat as a potential treatment for negative symptoms (affective flattening, anhedonia and avolition) and cognitive impairment (deficits in memory, attention, learning and executive function) in patients with schizophrenia. We note that there has not been much progress in the field of treatments for schizophrenia since the development of typical antipsychotics (dopamine type 2 receptor antagonists, eg chlorpromazine, haloperidol, pimozide and loxapine) in the 1950s and atypical antipsychotics (which target serotonergic receptors 5-HT2A, eg clozapine, olanzapine, risperidone and quetiapine) in the 1970s. While these drugs have been effective for positive symptoms (hallucinations, delusions) of the condition, they have limited efficacy against negative and cognitive symptoms. Therefore, we believe there is a significant opportunity for Oryzon to address this unmet need and we anticipate an update on this study in 2024.

Management continues to prepare an investigational new drug (IND) application for the planned Phase I/II HOPE trial in Kabuki Syndrome, a rare congenital disorder. Notably, this will be Oryzon’s first clinical effort in developing a precision medicine approach tackling a monogenic CNS indication, meaning a disease known to be caused by a single genetic abnormality. With the clinical successes observed in targeting monogenic diseases in the field of CNS (further information is included in our neuroscience sector report) and potential upside from pursuing an orphan indication, this represents a significant opportunity for Oryzon, in our view. Management is in the process of finalising the design of this trial with the FDA and is targeting the IND application submission in 2024 with the intention of initiating the trial in the same year.

For iadademstat in oncology, Oryzon has continued to enrol patients in the FRIDA study in Q323, and a new cohort was initiated in the quarter. This is an open-label, multicentre Phase Ib trial assessing iadademstat in combination with gilteritinib as a potential treatment for relapsed/refractory (r/r) AML patients harbouring the FLT3 mutation. The primary objectives include an assessment of safety and tolerability, and establishing the recommended Phase II dose for this drug combination. Oryzon aims to recruit a total of c 45 patients to the FRIDA trial. We note that the company is targeting the second-line setting in AML, which may expedite the route to market for iadademstat, in our view. We expect updates from this study in Q224.

The Phase II basket trial of iadademstat in combination with paclitaxel in platinum r/r small cell lung cancer (SCLC) and extrapulmonary high-grade neuroendocrine tumours (NET) has also continued to enrol patients across the period. This is being carried out in collaboration with the Fox Chase Cancer Center (FCCC). As part of this collaborative agreement, the FCCC will conduct various combination trials with iadademstat and Oryzon is responsible for the funding, as well as providing technical expertise. Study updates are due to be shared in H224.

Management is also preparing for the Phase Ib/II STELLAR trial. This will be a randomised, multicentre study to investigate iadademstat in combination with an immune checkpoint inhibitor (ICI) for the treatment of extensive-stage SCLC in the first-line setting. In our view, ICI combination approaches are critical in the development of new oncology treatment regimes, and hence we believe this represents a sensible strategy for Oryzon. Furthermore, management believes that STELLAR could support an accelerated approval application. The IND application is in preparation and due to be submitted in 2024.

During Q323, R&D expenses (accounting for c 85% of total operating expenses) were down at US$3.8m from US$4.3m in Q322. However, year-to-date total R&D expenses for FY23 were higher at US$12.2m versus US$11.9m in 9M22. Lower amounts of ‘other income’ were recorded at US$3.7m in Q323 (vs US$4.2m in Q322), which is usually capitalised R&D expense, mirroring the reduced R&D expense during the quarter. Gross cash stood at US$8.8m at end Q323 compared to US$14.6m at H123, indicating a total cash burn of US$5.8m during the quarter.

Based on year-to-date results and visibility of Q423, we have made some adjustments to our FY23 estimates. Overall, we expect Oryzon to continue its R&D activities in Q423 at a similar pace. Hence, based on the Q323 run rate for operating expenses, we have slightly decreased our FY23 R&D and SG&A expense estimates to €15.6m (€17.0m previously) and €3.2m (€3.5m previously), respectively. As Oryzon capitalises its R&D expenses and offsets it as other income, we have also slightly lowered our other income estimate to €15.9m from €17.3m previously. These modifications have translated to an increase in our FY23 free cash outflow estimate to €18.7m compared to €14.5m previously. Our FY24 estimates remain essentially unchanged.

Our valuation for Oryzon increases to €900.3m from €874.1m previously, mainly reflecting rolling forward our model by six months, which more than offsets the impact of the above-mentioned changes in estimates and increased net debt balance. As we move closer to the anticipated product launches (iadademstat in 2026 and vafidemstat in 2027) and expected milestones, our discounted valuation increases, while our long-term term assumptions are unchanged. However, the per-share valuation declines to €15.4 compared to €15.6 previously due to an increased total number of shares outstanding (58.6m in Q323 vs 56.2m in Q123). Based on gross cash of US$8.8m (€8.4m) in Q323 and the latest cash burn rate of US$5.8m (€5.5m) in Q323, we estimate that Oryzon has a cash runway to Q124, excluding debt repayment obligations in FY23. We also note that the company has the optionality to raise €8m in convertible bonds in two tranches as part of its €20m convertible bond programme. This could extend the company’s cash runway to Q224.

The estimated Q323 net debt balance of €6.6m includes gross cash of €8.4m at end Q323 and the H123 gross debt balance (€15.0m), which is the most recent debt figure the company has reported. Considering the anticipated debt repayments due in H223 (c €2.3m) and debt maturity schedule, we estimate the need to raise a total of €50m through FY23–25, shown as illustrative debt in our model. Alternatively, if the funding is realised through an equity issue instead (assuming at the current trading price of €2.00/share), Oryzon would need to issue 25.0m shares, resulting in our per-share valuation decreasing to €11.4 from €15.4 currently (the number of shares outstanding would increase from 58.6m to 83.6m). A breakdown of our risk-adjusted net present value (NPV) valuation is shown in Exhibit 2.