Sequana Medical — Completion of POSEIDON study implantations

Sequana met a key milestone for its North American POSEIDON pivotal study for the treatment of RRA due to liver cirrhosis, by completing all the alfapump implantations required for the study, as announced on 5 April. Enrolment was completed in December 2021 and, of the 71 patients enrolled in the study’s pivotal cohort, 40 have been implanted with the alfapump. Top-line efficacy data from this cohort are still expected in Q422 and the company expects to submit a US PMA application in mid-2023, which we believe could lead to a US launch in mid-2024.

As a reminder, POSEIDON is single-arm, open-label, within-subject crossover study, whereby patients serve as their own controls. 29 patients were enrolled in a training (or ‘roll-in’) cohort (which will be excluded from primary efficacy analysis but included in the safety analysis), to ensure centres are experienced in using the alfapump before the actual study (pivotal) cohort is enrolled.

Patients in the pivotal cohort entered a three-month pre-implant observation period in which they received standard-of-care (SoC) therapy, consisting of therapeutic paracentesis (TP), before the alfapump was implanted. Eligible patients were implanted with the alfapump.

Given the severe disease status of patients with RRA due to liver cirrhosis, as described in our initiation report, we estimate that c 44% patients who met the inclusion criteria at enrolment (71) no longer met the required criteria for implantation at the end of the three-month observation period, leading to a final implantation number of 40 patients. Furthermore, the COVID-19 pandemic, together with the resulting healthcare restrictions and effects on the RRA population (who tend to have weaker immune status than the general population), may have exacerbated the decline in the proportion of enrolled subjects in this study who eventually underwent implantation.

Following implantation, a three-month stabilisation period began whereby the patients’ alfapump settings were adjusted as needed and patients were fully trained. After the stabilisation period, a three-month, post-implant observation period began. Primary effectiveness outcomes include:

In December 2021, Sequana reiterated its objective for POSEIDON, which was to enrol c 70 patients in the pivotal cohort, implant the alfapump in 50 of those patients and obtain c 40 patients evaluable for the primary efficacy analysis. Within this, given the severe disease status and lower life expectancy of the RRA population, is the assumption that a number of implanted patients may not be evaluable six months post-implantation.

With Sequana now confirming that the total number of implanted patients within the pivotal cohort is 40, we estimate that the number of patients evaluable for primary efficacy analysis is likely be c 30–35, or c 13–25% below the company’s earlier target. As described in a prior note, the second interim analysis of the study roll-in cohort from July 2021 showed that subjects had a greater than 90% reduction in mean frequency of TP versus baseline, and all patients experienced at least a 50% reduction in mean TP frequency per month versus baseline. As these trends substantially exceed the primary endpoints as defined in the pivotal cohort, we are confident that there is likely to be a sufficient efficacy buffer or margin (assuming the pivotal cohort data would be similar to the roll-in cohort data to date) for the pivotal cohort to still meet the primary endpoint targets despite the lower number of evaluable patients than originally planned. For instance, we estimate that a 90% reduction in the overall average frequency of TP (similar to that shown in the roll-in cohort) in a sample size of 30–35 would provide a stronger statistical signal than a 50% reduction in a sample size of 40. Further, as stated above, once enrolment in the pivotal cohort began, study centres had already accumulated more experience with the alfapump system (compared to when they were enrolling the roll-in cohort). We believe this provides the potential for the data resulting from this cohort to be more robust than that reported to date from the roll-in cohort.

Given that the overall intent of alfapump is to improve quality of life (by reducing the need for TP) in RRA patients, Sequana has not attempted to assess whether the alfapump could have any effect on overall mortality. In addition, designing a study to assess mortality would require larger enrolment and a control arm, which would greatly lengthen development times and costs. Nonetheless, Sequana reported a preliminary interim analysis (as of 25 March 2022) of patient survival in the roll-in cohort following alfapump implantation, which showed a mean survival probability of 70% at 12 months. This compares favourably with published reports (Biggins et al. as cited in the American Association for the Study of Liver Diseases Practice Guidance; Moreau et al),1 which found a 12-month survival rate for refractory ascites patients of only c 50%.

Given the general poor state of health of patients with RRA, including weakened immunity and poor renal function, we believe it would be challenging for any treatment to show a significant change in mortality, taking account of the multitude of conditions or events that such patients could inevitably experience and the difficulty in controlling a trial for such aspects. Hence, while we apply caution in comparing the roll-in cohort result with historical outcomes in the RRA population (given differing study and inclusion criteria), the company’s reporting of lower 12-month mortality may potentially bode well for the overall safety dossier of the device (when the PMA is to be filed in 2023). Further, we reiterate that the primary benefit of the alfapump in the RRA population is to provide a convenient and unobstructive long-term therapy to improve patient independence and quality of life (QoL) and reduce the need for TP. Ascites results in a loss of appetite, sleeping and mobility difficulties and commonly requires time-consuming and burdensome TP procedures, which must often be repeated as the ascites re-accumulate. By reducing the frequency of required TP post-implantation, the alfapump can potentially greatly improve patient independence and QoL.

Sequana strengthened its balance sheet through an equity issue in early March, raising €28.4m (gross) though the issue of 5.167m shares at €5.50 per share. Notably, Partners in Equity (PiE), an experienced institutional investor in healthcare companies, subscribed to 3.6m shares, representing 15.3% of the company's shares after the offering.

The company expects net proceeds from the offering to extend its operating cash runway into Q223 (from Q222 previously). Importantly, the financing should fund the company well through the POSEIDON study’s top-line data readout, expected in Q422. We believe this particular milestone is very critical and, if positive, could trigger a re-rating of the stock as it would signal an improved likelihood of success for advancing the alfapump system in RRA for the all-important US market, which is the largest driver of our valuation for the product in this indication. As well as completing the POSEIDON study, the company indicates that portions of the funding will be allocated to: the preparation of the PMA filing for alfapump (which we assume is contingent on positive POSEIDON data), activities for the completion of the SAHARA DESERT study (expected in H222), continuing to develop its proprietary DSR Infusate 2.0 and working on initiation for the MOJAVE DESERT US feasibility study for short-term direct sodium removal (DSR) therapy (which will use DSR Infusate 2.0 and is scheduled to start in H222).

Following the Q122 equity raise, we have reduced our future total financing expectations to €100m (from €125m previously), which we model that Sequana will raise over the next few years until it starts to generate sustained positive operating cash flows (which we continue to expect in H127). We have not modified our forecasts in local currency terms (for instance, in US dollars for the US market) but have adjusted our FX rate to $1.09/€ (from $1.13/€ previously). Following minor financial income/expense adjustments, our net operating cash burn rate assumptions are little changed, and we expect rates of €22.6m and €23.0m for 2021 and 2022 respectively. Sequana reported H121 net cash of €14.7m (excluding lease liabilities) and, based on our assumptions described above and the Q122 financing, we currently estimate 31 March 2022 net cash of c €25.4m. The company is expected to report FY21 results on 12 April 2022, and we will update our forecasts following this release.

We continue to value Sequana Medical using a risk-adjusted NPV model with a 12.5% cost of capital for alfapump in North America and alfapump DSR, and a 10% rate for alfapump in ex-North American markets (where it is commercialised). Given the reduction in our estimate of the number of evaluable patients in the pivotal arm of the POSEIDON study (30–35 vs 40 previously), we have mildly reduced the probability of success for alfapump in the North American market to 55%, from 60% previously. We continue to remain confident in alfapump’s efficacy profile to date (given the interim POSEIDON data cited above) and in the likelihood that POSEIDON will meet the efficacy endpoint, but we believe that a mild adjustment in our probability estimate is warranted as the statistical power of the overall data set will be affected by the reduced evaluable subject sample size. We have also adjusted our forex forecasts (as described above) and rolled forward our estimates.

Following these adjustments, we now obtain a pipeline rNPV valuation of €296.4m versus €255.7m, previously. After adding Q122e net cash of €25.4m (excluding lease liabilities), we obtain an equity valuation of €321.8m or €13.55 per share (€12.59 fully diluted), versus €14.55 previously (€13.30 fully diluted).