SymBio Pharmaceuticals — Self-commercialization gains favor

SymBio is a Japanese specialty pharma company that was established in 2005. It in-licenses assets with proof-of-concept data for development and commercialization in Asia-Pacific, removing the need for investment in early-stage R&D. SymBio currently has two main assets: (1) Treakisym (bendamustine) for blood cancers, with Asia-Pacific marketing rights out-licensed to various commercial partners; and (2) rigosertib for a rare blood cancer, which is currently being investigated in a global Phase III trial in which SymBio is participating. SymBio is evaluating plans to commercialize Treakisym (after 2020) and rigosertib via its own salesforce in Japan. SymBio is aiming to in-license further assets during 2018. It is also looking to expand globally and it established a US-based subsidiary in 2016. SymBio has circa 78 employees and is based in Tokyo.

We value SymBio at $211m or $3.6/ADR, which is based on a risk-adjusted NPV analysis and includes $26m net cash at end December 2017. Our valuation includes Treakisym, where we assume sales can continue to grow in the future supported by approvals in 2016 in new indications, in addition to risk-adjusted contributions for the relapsed/refractory (r/r) DLBCL indication for Treakisym (Phase III ongoing) and for rigosertib. Our valuation assumes that liquid Treakisym formulations will allow SymBio to maintain a greater than 75% share of the market until at least 2031 in the face of competition from powder generics from 2022 onwards.

We estimate that end December 2017 net cash of $26m plus estimated proceeds of $6m from the issue of ~3.8m shares so far in 2018 should be sufficient to fund operations into Q119. We model $30m of indicative debt in FY19, and note that the company may require additional funding over and above these amounts for investment in new in-licensing or M&A opportunities.

The main sensitivities for SymBio relate to the main assets and SymBio’s ability to in-license additional products in the future. For Treakisym, our estimates assume that partner Eisai can continue to grow sales following approvals in new indications during 2016. We also expect top line data from Treakisym in r/r DLBCL and from rigosertib iv data during 2019, which will be critical in shaping the future development pathway. SymBio is evaluating plans to establish its own salesforce to market Treakisym and rigosertib (if approved) which would require investment into a commercial infrastructure from 2019 onwards.

SymBio acquired the rights to develop and commercialize Treakisym from Astellas in Japan (2005) and subsequently in China/Hong Kong, Korea, Taiwan and Singapore (April 2007). In 2008, SymBio out-licensed the marketing of Treakisym to various commercial partners (an overview of the main agreements is shown in Exhibit 2). Although precise deal terms have not been disclosed, we estimate that SymBio earns an average net margin of around 10-12% on top-line reported Treakisym sales in Asia-Pacific. The marketing arrangement with Eisai expires in December 2020.

SymBio added significant value to its Treakisym franchise when it in-licensed rights to patent-protected liquid formulations of Treakisym from Eagle in September 2017. These improved formulations will extend the lifecycle of Treakisym. Treakisym is likely to face competition from generic versions of the currently marketed freeze dried (FD) powder formulation from 2022, but the company expects to switch the majority of patients to the more convenient liquid formulations following the intended launch of the RTD formulation in H121.

The longer Treakisym lifecycle has prompted SymBio to invest in a Phase III study of Treakisym in r/r DLBCL patients, an indication where it reported promising results from a Phase II study in 2012. We estimate that the r/r DLBCL indication could double the peak sales potential for Treakisym, if approved.

The combination of the extended Treakisym lifecycle, ongoing growth in Treakisym sales driven by new indications approved in 2016, and the potential for an approval in DLBCL to further boost sales, has set the scene for SymBio to improve profit margins on Treakisym sales by establishing its own salesforce to market Treakisym and potentially also rigosertib (if approved) and other in-licensed products.

Japan accounts for about 95% of Treakisym sales. SymBio books revenue equal to about 50% of net in-market Treakisym sales under the marketing agreement with Eisai. Japanese in-market sales of Treakisym by partner Eisai grew by 61% in 2017 to $67m on a NHI price basis. On a net sales after discounts basis, Eisai reported Treakisym sales revenue of $57m (¥6.5bn) in Japan itself for the calendar year, and total net Treakisym revenue of $60m (¥6.8bn) when sales in other territories (South Korea and Singapore) were included.

The sales growth was supported by approvals for two new indications for Treakisym in Japan achieved in 2016:

These two indications represent patient markets of about 7,800 in Japan, compared to around 4,700 patients for the r/r lg NHL/MCL indications which were the subject of the earlier Treakisym approvals.

SymBio expects Treakisym to approach the upper limit of market penetration for first-line lg NHL/MCL in 2018. This is reflected in its guidance issued in February 2018 for 22% growth in Treakisym sales in 2018, with its performance targets implying further 1% growth in 2019 and 4% in 2020. We had previously assumed that it would take longer to reach peak market penetration and we had modelled 12% sales growth in 2019 and 6% growth in 2020. We have reduced our forecast peak market penetration in the two indications approved in 2016 from 42% to 37%, in order to align our sales forecasts more closely with the company’s targets. However, even with this lower peak market penetration we still forecast the two new indications to comprise over 50% of Treakisym sales by 2020, with in-market Treakisym sales (net sales after discounts) reaching $81m (¥9.1bn) in that year as shown in Exhibit 3.

SymBio is seeking to add an additional indication for the treatment of r/r DLBCL, an intermediate or high-risk form of NHL. It commenced a Phase III trial to confirm the safety and efficacy of Treakisym (bendamustine HCl) plus rituximab in r/r DLBCL in August 2017. SymBio’s mid-range plan aims to file an NDA in H120; we now model a potential launch in H221 vs our prior assumption of a launch in H121.

SymBio completed a Phase II study for Treakisym plus rituximab in r/r DLBCL in 2012. An analysis of 59 cases in the Phase II study showed an encouraging ORR of 62.7% and CR of 37.3%. The fact that the branded Treakisym liquid formulations are expected to maintain over 75% of the market out to 2031 has increased the potential value of the DLBCL indication to SymBio, and has made the expense of the DLBCL Phase III trial worthwhile (we model Phase III costs of $18m).

DLBCL is a rapidly growing, intermediate or high-risk form of NHL, in contrast to the slower-growing indolent or low-risk lymphomas that are included in the current approval for Treakisym. There is currently no standard chemotherapy for the treatment of DLBCL. Patients are typically treated with multiple drug therapies including:

Although DLBCL is an aggressive lymphoma, the rapidly growing cells are often susceptible to chemotherapy and a significant proportion of patients can be cured by first-line chemotherapy treatments. Unfortunately, a majority of patients relapse, typically within two years of the initial treatment. Patients who relapse or are refractory to first-line treatment have an extremely poor prognosis. A range of salvage chemotherapy regimens are used in relapse therapy.

DLBCL is the most common form of NHL, and is estimated to represent 45% of NHL cases in Japan1. Based on epidemiology studies1 and Globocan data we estimate that there will be 35,500 new cases of NHL and 16,000 new cases of DLBCL in Japan in 2020. Assuming that 70% of DLBCL patients progress to receive second-line therapy, we forecast a target market of 11,200 second-line (r/r) DLBCL patients per year in Japan by 2020.

The patient market of 11,200 r/r DLBCL patients in Japan is almost as large as the combined market of ~12,500 patients for the currently approved indications for Treakisym in CLL and first-line and r/r low-grade NHL and MCL patients. Given the high unmet need for this patient group, we model a 50% market penetration and peak sales (net sales after discounts) of $85m for DLBCL vs $84m for the currently approved indications.

SymBio has in-licensed two liquid formulations of bendamustine HCl (Treakisym) from Eagle Pharmaceuticals (Eagle). The new formulations will be an important component of Treakisym life cycle management, as they are protected by patents that extend to 2031, whereas orphan exclusivity on the company’s currently marketed FD powder Treakisym product expires in October 2020. The new formulations are more convenient for healthcare workers and patients and will be important advantages as SymBio seeks to switch users away from the FD formulations.

The first in-licensed product is a ready-to-dilute (RTD) liquid formulation that will significantly reduce dose preparation time, making it easier and safer for health professionals. This compares to the FD Treakisym which has to be reconstituted before administration, is time consuming and carries the risk of exposing healthcare workers to cytotoxic powders and vapors.

The second in-licensed product is a rapid-infusion (RI) formulation that will cut drug infusion time to 10 minutes from 60 minutes for the current Treakisym product (and the RTD formulation).

Exhibit 4 illustrates the differences in usage between the current FD Treakisym and the new liquid RTD and RI formulations.

We expect the approval pathway for the RTD Treakisym formulation to be relatively straightforward, as the same dose of drug is administered to patients in the same way, with the only difference being in the way the dose is prepared. SymBio is aiming to launch the RTD product in H121, which would allow the product to be well established in the marketplace before the expected entry of the first FD generics in 2022.

The RI product represents a greater change to the current treatment protocols, so approval of this product is expected to take longer – we model a 95% chance of a launch by the start of 2023. Given the greater convenience for patients of the rapid 10-minute infusion with the RI formulation, we expect over 95% of patients to be switched to this product.

SymBio is pursuing a similar strategy to that adopted by Teva in the US, where it markets bendamustine HCl under the brand names Treanda and Bendeka. Teva in-licensed the RI bendamustine HCl formulation from Eagle and now markets it as Bendeka.

Teva launched an RTD liquid formulation of Treanda in November 2014; it launched the Bendeka RI product in January 2016. FD Treanda powder for injection is still available, but its use has substantially declined in favor of Bendeka. Eagle disclosed in a corporate presentation in September 2017 that Bendeka has achieved a 97% market share in the US, which is testament to the appeal of the short infusion time.

Orphan exclusivity for SymBio’s Treakisym expires in October 2020, so the first generic copies of the FD Treakisym powder could be launched as early as the start of 2022. This means that SymBio may have less than 12 months to convert clinicians to using the liquid Treakisym formulations before the launch of the first FD Treakisym generics. This shorter time period creates additional uncertainty as to how large a market share the RTD and RI products will be able to gain before they potentially face competition from FD generics.

In our forecasts we model SymBio’s strategy being quite successful at maintaining market share, with dry powder Treakisym generics slowly growing market share from 2022 onwards to reach 25% market share by 2031, in line with company guidance. We model the growth in Treakisym generics’ market share accelerating in 2032 after the patents on the liquid formulations expire.

In our scenario analysis on page 10, we note that if Treakisym generics were to gain a 50% market share by 2031 (vs 25%), this would reduce our valuation by around $20m ($0.3/ADR).

Treakisym is currently marketed by Eisai under a business partnership agreement which expires in December 2020. SymBio’s mid-range plan is to shift Treakisym sales to its own salesforce from 2021 in order to improve profitability, which it rates as a top priority. We estimate that SymBio could earn an operating profit margin of 50% of net sales of Treakisym under a self-commercialization model.

SymBio intends to make a decision regarding the establishment of its salesforce in 2018, after considering the progress of development of rigosertib IV, as well as the timing of introducing new drug candidates for development. It has included an allowance for expenses related to the establishment and operation of its own salesforce in its performance targets from 2019 onwards, with hiring expected to begin in 2019 so that the salesforce can be fully operational from the start of 2021.

While the company has not yet made a final decision, we have formed the view that establishing its own salesforce is the most likely strategy that SymBio will pursue. In light of this assessment we have now adopted the self-commercialization of Treakisym after 2020 in our base-case forecasts (we previously considered this option in scenario analysis).

SymBio in-licensed rigosertib (iv and oral formulations, Japan and Korean rights) from Onconova in 2011 for MDS (myelodysplastic syndromes), a rare blood cancer. SymBio is contributing patients from Japan to the global Phase III INSPIRE trial of iv rigosertib for the treatment of second-line HR-MDS (higher-risk MDS), and has already enrolled 30 patients in the study.

Onconova announced in January that it is moving forward with the study as it had been cleared to continue following an interim analysis by the independent data monitoring committee (DMC). Following a pre-planned sample size re-estimation conducted by the DMC as part of the interim analysis, the target enrolment was expanded from 225 to 360 patients, with the aim of increasing the power of the trial. SymBio will continue to collaborate with Onconova on the study and plans to increase the total enrolment in Japan to 40 patients. With the trial having been expanded by 135 patients, Onconova is guiding for top-line results of the overall survival analysis after 288 events to be available in 2019. SymBio now aims to file for approval in 2021, vs the prior target of a 2018 filing.

The INSPIRE trial has been designed following analysis of the failed Phase III ONTIME trial of iv rigosertib in HR-MDS. In the ONTIME trial, iv rigosertib failed to meet the primary endpoint, although it did show improved survival in certain subgroups.

In order to improve the likelihood of success, patient recruitment in INSPIRE has been refined to focus on the subgroup of HR-MDS patients who: have failed HMA2 (hypomethylating agent) treatment within nine months of HMA initiation; are younger than 82 years of age; and received their last HMA dose within the six months prior to entering the INSPIRE trial. In the ONTIME trial, iv rigosertib was able to improve survival in this particular patient group (data summarized in Exhibit 5).

Onconova had $7.6m cash at 30 September and raised net proceeds of $8.7m from a capital raise in February. With a current cash burn rate of ~$6.5m per quarter, Onconova will need to raise additional funds to complete the INSPIRE trial in 2019. With a market capitalization of ~$20m, there is a risk that Onconova may not be able to raise sufficient funds to complete the study.

rigosertib is also available in an oral formulation. There are two main potential indications within MDS that could be pursued for oral rigosertib:

SymBio initiated a Phase I trial of oral rigosertib as a single agent in HR-MDS in Japan in June 2017. The company will conduct an oral rigosertib/Vidaza combination trial in HR-MDS in Japan after demonstrating the safety of oral rigosertib. SymBio intends to participate in the global Phase III study in untreated HR-MDS that Onconova is currently planning.

Data from the initial expansion phase of Onconova’s Phase II open-label trial of oral rigosertib in combination with Vidaza are summarized in Exhibit 6. Data were available from 33 evaluable MDS patients (from 40 MDS patients recruited into the trial). The median duration of remission was eight months. The combination appeared to have a similar side effect profile to monotherapy Vidaza, as reported in other studies (there was no control monotherapy Vidaza arm in this Phase II trial).

Onconova is currently recruiting an additional ~40 patients in a further extension to the Phase II study, to explore dose and schedule optimization and gain additional efficacy and safety data.

While Onconova has indicated that it expects to initiate a global Phase III study of oral rigosertib in untreated HR-MDS in 2018, we take a more conservative approach and assume that the study does not commence until 2020, after the INSPIRE iv rigosertib Phase III is completed. We model a market launch of the oral rigosertib/Vidaza combination in untreated HR-MDS in 2025.

SymBio in-licensed the exclusive rights to develop the IONSYS (SyB P-1501) pain patch in Japan from The Medicines Company (MDCO) in October 2015 and initiated a Phase III trial in Japan in June 2016. SymBio suspended enrolment in the trial in April 2017 due to concerns as to the continuity of MDCO’s business regarding the product. The license agreement between SymBio and MDCO was terminated effective 30 November 2017 and SymBio completed the process of terminating the development of SyB P-1501 in February 2018. SymBio is seeking damages of at least $82m arising from MDCO’s repudiation of the license agreement.

SymBio is actively seeking new drug candidates and in-licensing opportunities globally, targeting drug candidates with clinically confirmed efficacy and safety. Discussions with multiple potential licensors are ongoing. If the company proceeds with its plans to establish its own salesforce in Japan, then there will we increased incentive to in-license additional products that could be marketed by the salesforce.

The company has established a US-based subsidiary, SymBio Pharma USA, as a strategic base for overseas business development. It may look to in-license or develop drugs that it can commercialize on a global basis as part of a continued transformation to a global specialty pharma company.

SymBio 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 include rigosertib and DLBCL clinical trial success or failure, the ability to execute future in-licensing deals and successfully establishing its own salesforce if it decides to pursue self-commercialization of Treakisym after 2020.

For Treakisym, key risks relate to the outcome of the DLBCL Phase III trial, obtaining regulatory approval for the liquid Treakisym formulations and success in migrating patients to the liquid formulation to stave off competition from generic copies of Treakisym powder after 2021. The commercialization arrangements for Treakisym after 2020 (license vs self-commercialize) will influence profit margins on the product. If it decides to self-commercialize Treakisym, it will have to bear the cost of establishing a salesforce before the marketing arrangement with Eisai expires.

With a recent focus on oncology drug prices in Japan, Treakisym pricing could come under scrutiny. Our current forecasts assume stable pricing; any price cuts could therefore adversely affect our sales projections.

SymBio is seeking damages from The Medicines Company arising from its repudiation of the IONSYS license agreement. We do not currently model any compensation payments in regards to IONSYS, so if SymBio was to receive any compensation, this would represent the potential to recover some of the value now written off by Edison.

The main sensitivity for rigosertib is the outcome of the Phase III INSPIRE trial of iv rigosertib in second-line HR-MDS. Onconova may need additional cash to continue funding the trial until 2019 when it expects to report top-line data. If Onconova is unable to secure additional funds, this could also delay trial completion and therefore timelines. If the outcome of the trial is negative, then not only would this have an impact on the development of iv rigosertib, but there could also be read-across to oral rigosertib.

SymBio is reliant on in-licensing further assets to fill its pipeline. We believe the CEO’s network is crucial to securing future deals, although we have limited visibility on the potential terms and timing of any such agreements.

Our valuation of SymBio is increased to $211m, or $3.6 per ADR, based on a risk-adjusted NPV analysis, which includes $26m net cash at end December 2017. We use a 10% discount rate for approved products and 12.5% elsewhere. Our valuation includes Treakisym approved indications and the new r/r DLBCL indication, plus rigosertib. We have rolled our valuation model forward in time and have made a number of adjustments to our main assumptions. We have:

Our main assumptions are summarized in Exhibit 7 below.

We model a 95% likelihood that the RI Treakisym formulation will be launched by the start of 2023, thereby minimizing the penetration of generic copies of the FD Treakisym formulation. We model branded Treakisym market share gradually declining from 96% in 2022 to 75% in 2031, followed by a more rapid decline from 2032 after the liquid formulation patents expire.

Our Treakisym valuation continues to assume that SymBio earns an average net margin of 10-12% on top-line reported Treakisym sales until 2020. However, we now assume that after 2020 the net operating margin gradually increases to reach 50% in 2024 and subsequent years as SymBio switches to self-commercialization of Treakisym via its own salesforce and the liquid formulations in-licensed from Eagle gain market share vs powder formulations.

We model $13m of development costs to achieve approval for the RTD and RI liquid formulations of Treakisym. We estimate that a salesforce of 60 reps would be needed to market Treakisym in Japan. At a fully-loaded cost of $250,000 per rep this would cost approximately US$15m per year.

SymBio has not yet made a final decision whether to establish its own salesforce to self-commercialize Treakisym and other products in Japan. Should SymBio choose to market Treakisym through a marketing partner, we estimate that it could achieve an operating margin of 25% on Treakisym. Under this scenario our valuation would fall by around $87m ($1.5/ADR) to around $124m ($2.1/ADR).

On the other hand, in a scenario where the Treakisym market share declines to 50% by 2031 (vs 75% for the base case), our valuation would fall by around $20m ($0.3/ADR) to around $191m ($3.3/ADR).

We currently assume stable Treakisym pricing apart from a 5% price cut in 2022 when FD powder generics are expected to enter the market. However, should Treakisym be subject to an additional price cut in the future, this could represent downside to our forecasts; a 10% price cut in 2019 would remove around $20m from our Treakisym rNPV, or $0.3/ADR.

Our financial forecasts have been updated to reflect FY17 reported financials and SymBio’s updated financial guidance for 2018 and targets for 2019-2021. The main changes to our forecasts are summarized in Exhibit 8. Our sales forecasts previously assumed a 55% market penetration by 2021 for the approximately 7,800 additional patients in Japan in the new Treakisym indications that were approved in 2016 (first-line lg NHL/MCL and CLL). However, these forecasts have now been refined to a 40% peak penetration, to align our sales forecasts more closely to the growth in in-market sales implied by the company’s revised performance targets. Our previous forecasts assumed a 42% penetration in 2018, which we have revised to 34%.

We have made only minor changes to our SG&A forecasts in 2018, which are broadly in-line with SymBio’s guidance (Exhibit 9), but forecast SG&A spend to increase in 2019 as SymBio begins to build its own salesforce in Japan. SymBio anticipates R&D spend of $20.5m (¥2,311m) in 2018, compared to $26.7m (¥3,018m) in 2017, which included the $12.5m (¥1.4bn) upfront payment relating to the license agreement with Eagle Pharmaceuticals. We expect R&D spend to stay above 2016 levels for the next few years due the cost of the DLBCL Phase III trial and development costs to achieve approval for the liquid Treakisym formulations.

We estimate that current cash of $26m plus estimated proceeds of $6m from the issue of ~3.8m shares so far in 2018 should be sufficient to fund operations into Q119. We model $30m of indicative debt in FY19. The company may require additional funding over and above these amounts for investment in new in-licensing or M&A opportunities.