Nicox — Commercial products continue to grow

Nicox provided a third quarter operational update on 19 October, and provided new prescriptions uptake data for its two commercial-stage out-licensed products, Vyzulta (latanoprostene bunod) and Zerviate (topical cetirizine), as it obtains recurring revenue from them. Vyzulta, the first nitric oxide (NO)-donating PGA drug approved for the treatment of glaucoma, is commercialised by Bausch + Lomb (B+L), Nicox’s exclusive commercial partner for the product, entitling Nicox to net royalties of c 6–12% of global sales. Nicox reported that the number of US prescriptions for Vyzulta rose by 35% y-o-y in Q321 (compared to a 21% y-o-y increase in Q221).

Zerviate is an antihistamine drug approved by the FDA for the treatment of ocular itching associated with allergic conjunctivitis. Zerviate is licensed by Nicox in the United States to Eyevance (acquired by Santen in September 2020) and was launched in the United States in Q120. Nicox’s effective royalty from Eyevance is c 5% until certain manufacturing costs under their licensing agreement are covered, after which the royalty rate rises to 8–15%. Nicox reported that the total number of US Zerviate prescriptions increased by 213% y-o-y in Q321, showing a continued robust increase and ramp up from the period following the launch, although Santen/Eyevance sales have not been disclosed yet. Nicox also licensed Zerviate to Ocumension in the Chinese market, but to our knowledge, it has not yet been commercialised in this region or other ex-US territories.

Net royalties (consisting of total royalty payments received by Nicox after its own royalty payment obligations1 to Pfizer are paid) were increased by c €0.1m q-o-q, to €0.7m. While the breakdown in royalties (B+L vs Eyevance) was not disclosed, we estimate the large majority of royalties continues to be from Vyzulta sales (B+L). Encouragingly, Nicox believes that the trend whereby Vyzulta revenue growth lagged prescriptions growth (given lower reimbursement rates attributed to some of the more recently negotiated insurance plans, as discussed here) could be ending, as more than 70% of US private and Medicare plans now cover the drug. Hence, it anticipates that by Q421 Vyzulta US net sales (and associated royalties to Nicox) should increase generally in line with US net prescription growth levels.

The company also reiterated recent guidance on the progress of its key internal programmes, namely NCX-470 and NCX-4251.

Lead candidate NCX-470 is based on the company’s proprietary NO-donating platform, which combines an NO-donating molecule with an analogue of established prostaglandin F2α (PGA) drug bimatoprost, thereby providing an additional mechanism for the drug to reduce IOP. Top-line data from Mont Blanc, the first of two Phase III studies, is guided for Q123, and results from the second Phase III study, Denali, are expected before the end of 2023. We continue to forecast potential NCX-470 commercialisation in H225.

The primary endpoint of both studies is the mean IOP reduction from a time-matched baseline at 8am and 4pm time points at weeks two and six and month three visits. IOP reduction is the most widely accepted measure of a glaucoma treatment’s efficacy in decelerating disease progression. As discussed in our initiation report, PGA drugs are the most commonly used first-line glaucoma treatment and bimatoprost (marketed as Lumigan 0.01% by AbbVie) is currently the best-selling branded glaucoma drug in the United States in terms of revenue. In Nicox’s Phase II study (Dolomites), NCX-470 (at 0.065% concentration) demonstrated both statistical non-inferiority and superiority in IOP lowering than PGA drug latanoprost at day 28, being up to 1.4mmHg superior (in IOP lowering efficacy) to it at day 28 (p<0.025). The chosen NCX-470 concentration (0.1%) in Mont Blanc and Denali is higher than the 0.065% used in the Dolomites study and hence it is possible that these trials could show a higher incremental IOP reduction to latanoprost. If such efficacy is confirmed in these trials, NCX-470 could potentially become the first non-combination glaucoma drug product in pivotal studies with statistical superiority to a standalone PGA drug, which we believe should support its market adoption and competitiveness.

As mentioned in our 5 October note, the company recently reported encouraging preclinical data showing that NCX-470 may also provide benefit in glaucoma patients through a mechanism other than IOP reduction, namely by potentially improving ocular perfusion. We believe there is much interest in alternative methods to provide neuroprotection to the retinal ganglion cells affected by the condition, such as by improving ocular perfusion.

In the above preclinical study on rabbits, a well-defined model of ischemia/reperfusion injury to the optic nerve was induced by endothelin-1 (ET-1), which was applied twice weekly for two weeks, followed by concomitant dosing with NCX-470 0.1% twice daily or vehicle for an additional four weeks. The dosing of ET-1 increased ophthalmic artery resistivity after two weeks (p<0.05 vs baseline) and this continued to increase during the next four weeks in the vehicle group to approximately 40% of baseline at week six. This detrimental effect was significantly reversed in eyes co-administered with NCX-470 (p<0.05 vs vehicle at week six). The ET-1 dosing also lead to a marked decline in photoreceptor responses, which continued in eyes treated with vehicle. The decline was nearly completely reversed by week six in the NCX-470-treated eyes (p<0.05 vs vehicle).

With regards to NCX-4251 (a proprietary ophthalmic formulation of fluticasone propionate nanocrystals), the company previously reported that the drug did not meet its primary and secondary endpoints from its Mississippi Phase IIb study assessing once-daily dosed NCX-4251 against placebo (each arm dosed for 15 days) in 224 patients with acute exacerbations of blepharitis. The primary outcome measure was the proportion of patients achieving complete cure in all three of the selected eyelid-specific signs and symptoms of blepharitis (margin redness, debris and discomfort) at day 15. The two secondary endpoints were measures of the signs and symptoms of dry eye.

While the above endpoints were not met, the company reported a signal of potential efficacy as there were statistically significant improvements over placebo in the eyelid composite score (consisting of scores on a 0–3 scale in eyelid redness, debris and discomfort) at day 8 (p=0.029), day 11 (p=0.011) and day 15 (p=0.012). NCX 4251 was also found to be safe and well-tolerated over the 14 days of treatment, with no serious adverse events (AEs). The company plans to have a meeting with the FDA in early 2022 to discuss a future development plan for NCX-4251, after which it plans to provide an update on the next steps.

The company reported €2.4m in net Q321 revenue, as in addition to the €0.7m in Q321 net royalties described above, Nicox reported €1.7m in Q321 licensing revenue. This revenue relates to the $2m payment received by the company in July from Ocumension, which was attributable to the amendment of the March 2019 agreement covering Ocumension’s exclusive rights to develop and commercialise Zerviate in the Chinese and majority of South-East Asian markets. The $2m reflected a full advance payment of the future development and regulatory milestones for the product, but Nicox remains eligible to receive the same sales milestones of up to $17.2m, together with tiered royalties of between 5% and 9% of net Zerviate sales by Ocumension. Zerviate is currently being assessed in a confirmatory Phase III trial in China by Ocumension, to support a Chinese new drug application for the treatment of ocular itching associated with allergic conjunctivitis.

At 30 September 2021 Nicox had €32.7m in cash and equivalents (vs €36.5m at 30 June) and it reported €18.1m in gross debt, consisting of €16.1m in the form of a bond financing agreement with Kreos Capital and a €2m credit agreement with Société Générale and Le Crédit Lyonnais, guaranteed by the French State and granted in August 2020. Nicox expects cash at Q321 to be sufficient for it to meet its requirements for the next 12 months (assuming NCX-470 development alone). This guidance remains consistent with our maintained estimate that Nicox has sufficient funds on hand to operate into H222.

Our financial forecasts are unchanged from our 5 October note. We continue to model a €10m fund-raise in 2022, followed by an additional €10m in 2023, €20m in 2024 and €15m in 2025 (all of these fund-raisings are modelled as illustrative debt). Following the anticipated NCX-470 launch in H225, we do not expect Nicox to require additional capital as we expect its royalty streams plus NCX-470 sales should enable it to start achieving consistent positive operating income starting in H226.

Our rNPV valuation of €282.8m for Nicox is unchanged. After updating for Q321 net cash of €14.6m, we now obtain an equity value of €297.4m, or €8.00 per share.