Cantargia — Tackling tumour promoting inflammation

Cantargia is a clinical-stage biotechnology company based in Lund, Sweden, established in 2009 and listed on Nasdaq Stockholm First North in 2015. The technology is based on research conducted by the company’s founders at the Lund University that identified IL1RAP, a molecule essential for signalling through the interleukin-1 receptor (IL-1R), as a target and has since built a patent portfolio around this. Cantargia is developing two antibodies against IL1RAP: CAN04 and CANxx. CAN04 is being studied in a Phase I/II CANFOUR trial in solid tumours with the focus on NSCLC and pancreatic cancer. It has a dual mechanism of action and blocks the IL-1 signalling pathway by shutting down the tumour-promoting inflammation and inducing ADCC. CANxx is in pre-clinical testing for autoimmune and inflammatory diseases. Cantargia successfully raised SEK232m in December 2017, which should be sufficient until 2020. The company is preparing to apply for a listing on the Nasdaq Stockholm Main Market, which is expected in H218.

Our Cantargia valuation is SEK1.64bn or SEK24.8/share, which includes CAN04 in the two lead indications – NSCLC and pancreatic cancer. Cantargia also has substantial amount of preclinical data supporting CAN04 use in leukaemia. In addition, the company is diversifying its R&D pipeline and is developing CANxx for the treatment of inflammatory conditions, which is also in preclinical development. We will revisit these preclinical projects once they mature. We have derived our rNPVs based on the assumptions discussed below, such as target population, pricing, R&D costs, patent expiry dates/market exclusivity and calculated peak sales. Cantargia’s strategy is to finalise the Phase I/IIa study and then either carry on with the development or establish a partnership. We assume that in the case of positive Phase I/IIa data, the company will be able to out-license CAN04 after the Phase I/IIa.

Cantargia reported an operating loss of SEK60.0m in 2017, compared to SEK47.6m in 2016. Expenses associated with R&D projects were SEK44.8m versus SEK35.5m a year ago. Our total operating expense estimates for 2018 and 2019 grow to SEK80.9m and SEK93.8m, respectively, mainly reflecting increasing R&D costs as Cantargia moves from the Phase I part of the trial to Phase IIa and advances its preclinical projects. Cantargia had cash and short-term investments of SEK270.0m at the end of 2017 compared to SEK34.8m at the beginning of 2017. According to Cantargia, the operations are now financed until 2020, which is in line with our model.

Cantargia is subject to typical biotech company development risks, including the unpredictable outcome of trials, regulatory decisions, success of competitors, financing and commercial risks. The near-term R&D sensitivities are tied to the lead asset CAN04, which is the only clinical-stage product. Any setbacks with this asset will influence Cantargia’s share price significantly. Our model assumes that products will be out-licensed; therefore, our valuation is sensitive to potential licensing timing and actual deal terms. Cantargia is mainly an early-stage drug developer, therefore in the foreseeable future the value creation will depend on successful R&D progress and any potential partnering activities. However, as CANxx reaches clinical development, this risk will be diversified.

Cantargia’s technology has been built on research at Lund University, which showed that IL1RAP is highly expressed on leukaemia stem cells but rarely seen in healthy tissues. This formed the basis for Cantargia’s original focus on leukaemia. The company is developing humanised, monoclonal antibody (CAN04) against IL1RAP, expecting to induce ADCC in the cancer cells. While conducting preclinical studies Cantargia showed that in addition to this direct action on tumour cells, its drug candidate also affects the tumour microenvironment by inhibiting the IL1RAP signalling pathway caused by IL-1. Studies also showed that IL1RAP is expressed in other tumours, for example in about 80% of NSCLC and 70% in pancreatic cancer. Furthermore, other third party research groups also identified IL-1’s role in the progression of cancer. As a result, Cantargia shifted its focus on solid tumours (Exhibit 1) that potentially represent a higher unmet need and could better exploit the dual mechanism of action of the company’s technology: the anti-inflammatory effect inside the tumours and direct cell killing.

CAN04 is being tested in the first part (Phase I, started in Q317 with the first part of the study to report data shortly) of the planned Phase I/IIa study CANFOUR in four solid tumour indications: NSCLC, pancreatic cancer, breast cancer and colorectal cancer. The second part of the study (Phase IIa) will focus on NSCLC and pancreatic cancer, and CAN04 will be evaluated both individually and in combination with standard treatments in each indication. NSCLC and pancreatic cancer are the primary indications, although Cantargia is also working on other indications and assets in earlier stages, namely, CAN04 for other solid tumours or leukaemia and CANxx for various inflammatory conditions. Given that Cantargia’s product blocks the IL-1 signalling, chronic inflammatory conditions are a natural further direction to explore. CANxx is also an antibody against IL1RAP and has the potential to treat autoimmune and inflammatory diseases because of the involvement of IL-1/IL-33/IL-36 signalling in these diseases. Cantargia is evaluating which other indications it will prioritize and carry into the clinic.

In terms of R&D and commercial strategy, Cantargia is a classic specialist drug developer and aims to accumulate proof-of-concept data and then will seek collaboration agreements or out-licensing deal to carry the products through late-stage development. To this end, Cantargia’s technology and R&D strategy received a boost, in our view, when in September 2017 Novartis reported six-year data from its Phase III trial Canakinumab Anti-inflammatory Thrombosis Outcomes Study (CANTOS), which explored canakinumab’s (an IL-1β inhibitor) efficacy in cardiovascular outcomes study in patients post-myocardial infarction. Surprisingly, Novartis reported that canakinumab significantly reduced the lung cancer incidence and mortality rate (described below). Furthermore, according to in vivo data from recent publications in Nature, cytokine release syndrome, which became one of the most concerning and potentially fatal complications of the CAR T cell therapies, can be abated by IL-1 blockade opening interesting possibility for CAN4 to be used in combinations with these novel therapies in the future.

The fact that the immune system reacts to malignant lesions is long established.1 Historically, such an immune response was thought to reflect the immune system’s attempt to clear the malignant tissue. The advent of checkpoint inhibitors put the notion of taking the ‘immune system brakes’ away from the cancer in the spotlight. However, inflammation can be tumour destructive as well as tumour promoting. The latter came to light around two decades ago; since then, certain inflammatory cells and mediators in the tumour microenvironment have been identified as ‘helpers’ of tumour growth. These mechanisms are not well understood, but the research field is growing and some have been identified including transcription factors (NF-κB and STAT), inflammatory mediators (including IL-1 and TNF-α) and tumour-associated macrophages (Exhibit 2). With its CAN04 antibody, Cantargia tackles tumour-promoting inflammation by targeting the IL-1 signalling pathway in the tumour microenvironment.

Increasing the understanding of inflammation in malignant process now includes findings that cytokines are not only produced by the immune cells, but also cancer itself could produce certain cytokines and the associated receptors to escape from the immune response.2 Cytokines represent potentially promising class of targets in cancer management and the most explored molecules with carcinogenic characteristics are IL-1, IL-4 and IL-6.2

IL-1 is a proinflammatory cytokine that exists in two forms: IL-1α and IL-1β. IL-1α is found in epithelial cells and the membranes of immune cells and is not secreted. IL-1β is secreted by immune cells such as monocytes and macrophages in response to infection or inflammatory signals.

IL-1α and IL-1β are both ligands for IL-1R and through this receptor initiate the same signalling processes inside the cell. There are several types of IL-1R, but IL-1R1 is the most important for IL-1α and IL-1β signalling. In non-tumour tissues and immune cells, IL-1 binds to IL-1R. This results in the activation of NFκB, which in turn activates the expression of certain genes and proteins that are involved in inflammation, proliferation and survival. In the tumour microenvironment, IL-1 is found in high concentrations (the level of expression of the two forms of IL-1 can differ in different forms of cancer). It binds to IL-1R on tumour cells and immune cells and the same downstream signalling occurs, but in this environment the genes and proteins resulting from NFκB activation promote tumour growth and metastasis (Exhibit 3).

The link between IL-1 and tumour growth and metastasis was discovered in 1990 when a research group in Italy found that IL-1β increased the level of experimental lung metastases in mice.3 Several studies have pointed to angiogenesis (blood vessel formation) as the mechanism through which IL-1 is tumour promoting, via induction of certain pro-angiogenic factors via NF-κB activation, eg. VEGF.4,5 Angiogenesis is a key mechanism in tumour progression because tumours require a blood supply to grow and metastasise. Other tumour-promoting mechanisms could be COX2-HIFα pathway activation6 and induction of the IL-17 pathway.7

Some research groups have studied IL-1 inhibition as a potential strategy for cancer treatment. Most of this research is still pre-clinical. A 2016 study found that anakinra, a recombinant form of IL-1R antagonist (marketed as Kineret for several immune disorders), inhibits tumour growth via inhibition of IL-1R and subsequent inhibition of NF-κB in human pancreatic ductal adenocarcinoma cell lines and mouse models.8 Zhang et al. (2017) discovered that inhibition of IRAK4; a target downstream from IL-1R, can also inhibit NF-κB activity in pancreatic ductal adenocarcinoma and thus highlighting the potential for IRAK4 as a target for cancer treatment9. Furthermore, combination treatment with gemcitabine was more effective than monotherapy with either rhIL-1R antagonist or gemcitabine. This supports the case for IL-1 pathway inhibitors in combination with standard treatments for solid tumours.

XBiotech, a US biotech company, delivered first Phase III-stage data with Xilonix, an antibody blocking IL-1α in colorectal cancer. The company ran two Phase III trials in Europe and the US. In 2016 the results from the European study (n=333) showed that Xilonix could reverse symptoms in patients with metastatic or unresectable colorectal cancer such as muscle loss, fatigue, appetite loss and pain. 33% of patients in the Xilonix group and 19% patients in the placebo group achieved the primary endpoint, which was statistically significant difference (p=0.0045).

The larger US study was initiated in 2013 and aimed to recruit more than 600 symptomatic colorectal patients with cachexia, and the primary endpoint was overall survival. In June 2017, an Independent Data Monitoring Committee performed a second unblinded interim efficacy analysis (the recommendation after the first analysis was to continue the trial). While no safety concerns were reported, the committee recommended stopping the trial early as the findings were not sufficient to expect that the efficacy endpoint could be reached. XBiotech indicated that it will continue to analyse the data, but the status of Xilonix development in colorectal cancer indication is currently unclear.

XBiotech also tested Xilonix in a Phase I trial in non-small cell lung cancer patients and is currently running a Phase I trial with pancreatic cancer patients with cachexia. While these first large trials provided a glimpse in IL-1 pathway inhibition effect in trials designed specifically for cancer, there are several substantial differences between Xilonix and Cantargia’s products. Xilonix targets only IL-1α and not IL-1β. In addition, this target is more upstream of Cantargia’s target IL1RAP. Furthermore, Cantargia’s CAN04 has a proven mechanism of action of not only modulating inflammation via IL1RAP, but also the ADCC.

To our knowledge the largest set of data on IL-1 inhibition in cancer were produced by Novartis during the CANTOS trial (NCT01327846) and published in a Lancet paper in August 2017. Canakinumab (Ilaris, Novartis, sales of $402m in 2017, EvaluatePharma) is a fully humanised monoclonal antibody that selectively binds and neutralises IL-1β. It was first approved by the FDA and the EMA in 2009 for cryopyrin-associated periodic syndromes, a group of rare, heterogeneous autoimmune diseases characterised by IL-1β-mediated systemic inflammation.

The six-year CANTOS study was a randomised trial to establish the role of IL-1β inhibition by canakinumab in atherosclerosis carried out in 10,061 patients, who had a medical history of myocardial infarction. By design, all participants had to be free of previously diagnosed cancer, had to be with a persistent proinflammatory response defined by the presence of high-sensitivity C­reactive (hsCRP) concentrations of 2mg/L or higher and were followed up prospectively for three to five years (median 3.7 years). The trial met its primary endpoints, demonstrating that canakinumab in combination with standard-of-care treatment reduced cardiovascular event risk. In addition, surprisingly, additional analysis revealed that IL-1β inhibition might have an effect on cancer incidence. Specifically, the data showed that:

In terms of safety, canakinumab moderately reduced absolute neutrophil counts and no clinically significant hepatic toxicity was reported. The major toxicity of canakinumab in CANTOS was a significant increase in fatal infection and sepsis versus placebo (p=0.02, 78 events out of n=6,717 versus placebo 23 events out of n=3,344). However, this adverse effect was balanced by the reduction in cancer mortality, therefore no increase in all-cause mortality was noted. Although theoretically there is risk of increased infection rate, given that canakinumab was tested in chronic use, the safety profile for anticancer treatments is likely to be more than sufficient in our view. Furthermore, canakinumab and third-party data show that the inhibition of this pathway could actually be beneficial in chronic inflammatory diseases such as arthritis and gout.

Authors concluded that canakinumab is unlikely to have had a direct effect on the development of new lung cancers. A more plausible explanation is that canakinumab reduced the rate of progression, invasiveness and metastatic spread of lung cancers that were undiagnosed at the start of the trial. The findings tie well into existing preclinical data, showing that cytokines such as IL-1β can promote angiogenesis and tumour growth and that IL-1β is essential to tumour invasiveness in existing malignant cells. In addition, the lower incidence of certain cancers such as colorectal carcinoma and lung cancer in persons taking non-steroidal anti-inflammatory drugs such as aspirin is well described. However, while those drugs need to be used for many years to affect cancer incidence, the potential beneficial effects of canakinumab on the incidence of lung cancer and lung cancer mortality were obtained in a much shorter timeframe.

Based on this promising data, Novartis has initiated or planned several clinical studies:

In our view, the findings from the CANTOS trial are supportive of Cantargia’s technology and R&D plans. In the case of positive data from the Phase III trials, Novartis is likely to be first to the market with canakinumab in lung cancer. We believe that competition risk to Cantargia is mitigated as CAN04 has a different mechanism of action (different target and dual mode of action). In addition, if canakinumab proves successful in commercial terms, this will only attract attention to CAN04.

Although the Novartis trial did not find statistical significance in other cancers, we note that:

CAN04 is fully humanised IL1RAP IgG1 antibody with enhanced ADCC (licensed from BioWa Potelligent). Therefore, CAN04’s mechanism of action consists of two separate effects: ADCC and IL1 signalling pathway inhibition.

IL1RAP is associated with IL-1β and IL-1α receptors (IL-1R1, IL-1R2), IL-33 receptor (ST2), IL-36α, IL-36β and IL-36γ receptors (IL1Rrp2) (Exhibit 6). Inhibition of IL1RAP is expected to inhibit the downstream signalling pathways of all these receptors. Cantargia believes inhibition of IL-1 and IL-33 signalling has beneficial anti-inflammatory and anti-tumour effects, and inhibition of IL-36α, IL-36β and IL-36γ has anti-inflammatory effects (Exhibit 6). CAN04 has been shown to potently inhibit signalling via both IL-1 receptors and approximately 50% via IL-33 receptor. CAN04 data on IL-36 inhibition has not been disclosed. Cantargia’s second lead project CANxx is being developed for autoimmune and inflammatory diseases. CANxx is in a preclinical development and a clinical candidate antibody will be selected in 2019, which is when more information is likely to be released on its specific mechanism of action.

A potential advantage of Cantargia’s approach is that CAN04 inhibit both IL-1β and IL-1α signalling, whereas the most advanced clinical products do not: canakinumab (Novartis) only targets IL-1β and Xilonix (XBiotech) only targets IL-1α. For example, inhibition of IL-1β will not prevent all signalling through IL-1R and so the effects on tumour progression could be limited. CAN04 has the potential to inhibit IL-1 signalling to a greater extent because IL1RAP is associated with both IL-1α and β receptors (IL-1R2, IL-1R1). In theory, this could lead to a greater inhibition of the IL-1 pathway and perhaps a greater anti-tumour effect. Anakinra and drugs targeting downstream signalling of IL-1R such as IRAK inhibitors also potentially have this advantage.

Natural killer (NK) cells are part of the innate immune system. They are present in the bloodstream and can detect and directly kill foreign cells including cancer cells by a process called ADCC. Cantargia believes CAN04 will lead to ADCC of bound tumour cells:

ADCC is a well-known and established mechanism in cancer treatment. Many marketed monoclonal antibodies partly attribute their therapeutic effects to ADCC including: nivolumab (antibody against PD-1), rituximab (CD20), obinutuzumab (CD20), dinutuximab (GD2), trastuzumab (HER2) and cetuximab (EGFR).

Cantargia has measured IL1RAP expression in several solid tumour types: melanoma (86%), pancreatic cancer (86%), NSCLC (85%), breast (52%) and colon cancer (27%).16 More recently, the company released information that liver cancer, oesophageal cancer and head and neck cancer all showed high expression of IL1RAP, with at least 80% of the patients with these cancers overexpressing IL1RAP at moderate to strong levels. The company has decided to focus on NSCLC and a pancreatic cancer as lead indications, based on IL1RAP expression and commercial potential, but believes there may be potential for CAN04 in other IL1RAP-expressing solid tumours as well. So far, the company has gathered pre-clinical data around IL1RAP inhibition in several solid tumours (NSCLC and breast cancer) and haematological malignancies (acute myeloid and chronic myeloid leukaemias).

More recent preclinical data publication is Cantargia’s poster presentation in 2016 detailing a preclinical study of CAN04 in a patient-derived xenograft (PDX) mouse model for NSCLC. This was the first in vivo CAN04 data in solid tumours. Cantargia was able to demonstrate that:

Most recently, Cantargia presented fresh pre-clinical data at the 2018 Annual Meeting of the American Association of Cancer Research. A surrogate antibody (3A9, Exhibit 9) to CAN04 was developed specifically for this study, so that it could be tested in animal studies. The animal model used was mice inoculated with 4T1 breast cancer cells. These cells express low levels of IL1RAP, therefore the antitumour effect of 3A9 could not be attributed to direct IL-1 pathway blockade directly affecting the tumour cells or ADCC. With this model Cantargia was exploring CAN04 effects on tumour microenvironment, primarily targeting myeloid cells (part of the innate immune system), which are known to express IL1RAP and sustain tumour-promoting inflammation. One of the key findings was that the treatment of 4T1 tumour-bearing mice with 3A9 did not reduce primary tumour growth significantly, but reduced both the number of (47% reduction, p=0.02) and size of lung metastases. Given that this was unlikely achieved by IL-1 blockage or ADCC of tumour cells, one potential explanation could be that targeting IL1RAP with an antibody could inhibit the formation of metastases by affecting the tumour microenvironment. The discovery potentially indicates an additional novel mechanism of action for CAN04. Theoretically CAN04 could be used even in cancers where IL1RAP expression in low, but the patient could still benefit by reduced number the metastases.

Cantargia recently initiated the Phase I part of a Phase I/II trial, known as CANFOUR, testing CAN04 in four solid tumour indications: NSCLC, pancreatic cancer, breast cancer and colorectal cancer in a small number of patients (Exhibits 10 and 11). This Phase I/IIa trial is divided into two parts. This study will establish the safety profile of the drug and the dose for the Phase IIa part of the trial. Results from the Phase I study are expected in mid-2018. The second part of the trial (Phase IIa) will look at the efficacy of CAN04 in NSCLC and pancreatic cancer both as a monotherapy and in combination with standard treatments (Exhibits 10 and 11). In the case of a positive data readout, Cantargia is open to various pathways for further development including an out-licensing deal.

Cantargia has a preclinical programme exploring the potential of its IL1RAP inhibition technology in autoimmune conditions. It intends to develop and patent a new antibody targeting IL1RAP to treat various autoimmune and inflammatory diseases (Exhibit 12), with the aim to have a product candidate selected in 2019. CANxx is in pre-clinical testing and is being developed in collaboration with Panorama Research Inc, a California-based company. The aim of the collaboration is to generate a lead product candidate that Cantargia can then develop to the point of clinical efficacy. At this point it aims to licence it in the same way as the strategy for CAN04. Panorama Research Inc will contribute its antibody technologies and Cantargia will be responsible for any further development and manufacturing. Cantargia will have to share future profits through royalties or subsequent licensing revenues, but Panorama will receive not more than the amount proportional to its investment in the development prior to partnering with Cantargia. Panorama is a biotech and pharmaceutical incubator based in Sunnyvale, California, and supports the development of both in-house-discovered and in-licensed technologies and offers services including antibody humanisation and production.

Lung cancer is the leading cause of cancer-related deaths globally (19.4% of total cancer-related deaths); 1.8 million new cases were reported worldwide in 2012. NSCLC is the most common type of lung cancer, accounting for 85-90% of all cases. Five-year survival rates for NSCLC remain poor despite significant investment resources over the last 15 years; only 15% of patients diagnosed with lung cancer survive more than five years. The more recent availability of new treatment options as described below has improved outcomes and survival for patients, but there is still much need for more effective treatments across first-, second- and third-line settings.

NSCLC is not a single entity but a number of pathologies with different molecular abnormalities; subsets of NSCLC can be further defined at the molecular level by identification of ‘driver mutation’ that occurs across multiple oncogenes. Lung adenocarcinomas are associated with KRAS (30%), EGFR (15%), ALK (5%) and MET (4%) mutations. Common treatable oncogene mutations in NSCLC include the EGFR mutation and ALK translocation. As a result, treatment of NSCLC varies and depends on the type and stage of the tumour and its size and position in the lung; ~10% of lung cancers are surgically operated on, while the majority are treated with a combination of chemotherapy, radiotherapy and targeted drug therapies. Historically, drug treatment decisions have been based on NSCLC tumour histology and platinum-based chemotherapy has been the cornerstone of treatment; the main limitations of it are low survival rates alongside the troublesome side effects of these cytotoxic agents.

More recently, the treatment paradigm for the management of NSCLC has shifted with the availability of targeted therapies. Current guidelines from the College of American Pathologists and International Association for the Study of Lung Cancer recommend that patients with advanced NSCLC (adenocarcinoma) have the primary tumour or metastasis analysed for EGFR and ALK where feasible. Targeted therapies have improved progression-free survival in patients to 10-12 months versus six months on platinum doublet treatment in a clinical trial setting. In the clinical setting, treatment of NSCLC depends on stage diagnosed and molecular status of the tumour.

Most recent advances are in the field of immunotherapy, specifically immune checkpoint inhibitors (ICIs). This field is dominated by PD-1/PD-L1 immune checkpoint inhibitors. PD-1 inhibitors Opdivo (Bristol Myers Squibb, NSCLC sales $536m in 2017) and Keytruda (Merck, sales $3.8bn in 2017) are approved for the treatment of second-line NSCLC patients who have progressed after platinum-based chemotherapy. Additionally, Keytruda is indicated for first-line patients with metastatic NSCLC whose tumours have high PD-L1 expression (above 50%). Opdivo and Keytruda have demonstrated a significant impact on OS: 12.2 months (vs 9.4 months) and 12.7 months (vs 8.5 months), respectively, versus chemotherapy in their respective clinical trials in second-line NSCLC patients. First-line Keytruda OS was 17.3 months vs 8.2 months for chemotherapy. PD-L1 inhibitor Tecentriq (Roche) was approved in October 2016 for the second-line treatment of NSCLC (NSCLC sales of $495m in 2017).

The NSCLC treatment paradigm will continue to evolve as new resistance mechanisms and further driver mutations are identified. The treatment strategies will move increasingly to a personalised level with genotype testing in all patients as soon as feasible. NSCLC market is already fragmented with novel approved drugs. Furthermore, ongoing combinatorial drug studies are proving that combination therapy is more effective on progression-free survival rates and on challenging the resistance mechanisms. This will further diversify the available treatment options. Due to early stage of CAN04’s development precise positioning in clinical setting is premature to model, but given the likelihood that combination treatments are likely to become commonplace, we believe, is Cantargia’s CAN04 has a broad potential given its differentiated mechanism of action if synergy is proven. When calculating the target patient population, we therefore take the total lung cancer incidence rates as 223,000 in the US and 315,000 in Europe (defined in Exhibit 15 notes) in 2017, with 85% being NSCLC and 85% expressing IL1RAP (Cantargia’s data). This leaves us with 161,000 new patients in the US and 174,000 in Europe.

Pancreatic cancer, or pancreatic adenocarcinoma, is responsible for 7% of all cancer-related deaths – the fourth leading cause of cancer deaths and 11th most common cancer diagnosed in the US17. Pancreatic cancer is somewhat unique in that there has been very little progress over the past four decades in prolonging survival rates compared to other types of cancer. This challenge has been compounded by the disease usually being diagnosed at a late stage; even if the tumour is resectable, surgery is complicated and dangerous with high recurrence rates, and tumours are relatively resistant to chemotherapy. This means the overall five-year survival is still around 8%.16

An estimated 54k new cases were diagnosed in the US in 2017 and we calculate that 64,000 new cases were reported in target European countries. Around 20% of cases are stage I or II at diagnosis (Cancer Research UK). Surgery is the primary mode of treatment; however, because around half of patients are diagnosed with a distant disease, often the resection is palliative and chemotherapy follows. For resected pancreatic cancer there is no approved treatment, implying a high unmet need. For non-resectable cancer chemotherapy options include gemcitabine alone or in combinations with several other agents such as capecitabine, erlotinib (Tarceva, Roche) and nab-paclitaxel (Abraxane, Celgene). The non-gemcitabine regimen FOLFIRINOX has been shown to be somewhat more effective than gemcitabine alone in a certain subset of patients. Recently, the standard of care chemotherapy (adjuvant) in resected disease has been changed to gemcitabine plus capecitabine (GemCap). Due to the early stage of the CAN04 development, it is too soon to model precise positioning in a clinical setting; however, because most of the newly diagnosed patients receive chemotherapy, we adjust the incidence number by the rate IL1RAP is expressed (86%) and assume 46,000 as target population for CAN04, growing alongside the population in future years.

Both backbone therapy drugs gemcitabine capecitabine are off patent. Roche’s Tarceva revenue was $189m in pancreatic cancer in 2017, second highest to Abraxane with $443m. These two drugs accounted for the majority of the pancreatic cancer market, which was $809m in 2017 (EvaluatePharma). With Tarceva’s patent expiring in the next couple of years sales are forecast to decrease; however, the total pancreatic cancer market is projected to grow to $2.2bn due to Abraxane and new entrants, which are still in R&D, but included in the consensus.

Due to their well-known pro-inflammatory effects, IL-1 inhibitors have been successful in various immunology indications. Top-selling IL-1 inhibitors are Ilaris (Novartis), with sales of $402m in 2017 and peak sales of $1.5bn by 2024 expected by consensus (EvaluatePharma); and Kineret (Sobi), with sales of $138m in 2017 forecast to reach $215m peak sales by 2024. In contrast, reflecting the relatively new discovery of IL-1 in tumour growth and metastasis, there are only a few IL-1 inhibitors in development for cancer indications.

Cellerant Therapeutics is the only other company developing IL1RAP antibodies. Its product CSC012 is in pre-clinical stage for myelodysplastic syndrome and acute myeloid leukaemia. However, there has been no recent update about the status of CSC012.

Cantargia has four patent families, all having claims relating to IL1RAP target and antibodies in solid tumours and haematological cancers. This will help it to build a control position in this area and cover its lead product CAN04 and any further antibodies it may develop against IL1RAP in these cancer indications. Two of Cantargia’s granted European patents had an opposition filed but both remain in force, which suggests the patents are strong and might withstand any further opposition. Cantargia is developing the IP protection around CANxx.

Other drugs in development are targeting other parts of the IL-1 signalling pathway (Exhibit 12). The most advanced IL-1 inhibitor in cancer is Novartis’s Ilaris (canakinumab), as discussed previously. Canakinumab is already marketed in several immune indications. Anakinra, marketed as Kineret (Sobi), is being studied in several cancer indications, but these appear to be investigator-led trials with no commercial sponsor involved. IRAK is a downstream target of IL-1 and IL1RAP and is being evaluated as a potential target in cancer as well as inflammatory diseases. Curis has a Phase I IRAK inhibitor for non-Hodgkin lymphoma (Exhibit 12). Large pharma companies also have several early-stage projects in the field.

Other interleukins have also been implicated in tumour growth and metastasis. For example, there is a lot of literature around IL-17 as a tumour-promoting factor.18 IL-17 has also been found to induce IL-6 and IL-8 production,19 which have also both been found to be tumour promoting.20,21 To our knowledge, there are only a few such inhibitors in clinical development (Exhibit 13). No clinical efficacy data have yet been seen from these trials.

Cantargia is subject to typical biotech company development risks, including the unpredictable outcome of trials, regulatory decisions, success of competitors, financing and commercial risks. Our model assumes that products will be out-licensed; therefore, our valuation is sensitive to potential licensing timing and actual deal terms. Cantargia is mainly an early-stage drug developer, therefore in the foreseeable future the value creation will depend on successful R&D progress and any potential partnering activities, although typically the timing of licensing deals is difficult to forecast. The near-term R&D sensitivities are tied to the lead asset CAN04, which is the only clinical-stage product. Any setbacks with this asset will influence Cantargia’s share price significantly. As CANxx reaches clinical development, this risk will be diversified. Markets in such indications as NSCLC are already rather fragmented with innovative drugs, which means subsequent therapies need to demonstrate added benefit. This is partially mitigated in Cantargia’s case, because the underlying rationale of its technology is a potential synergistic effect when using in combinations with current treatment options.

We value Cantargia based on risk-adjusted NPV using a 12.5% discount rate, including SEK210m net cash estimated at end-Q218. This results in a value of SEK1.64bn or SEK24.8/share. A relative valuation is not meaningful given cash-losing operations and a technology comparison has been provided above. Exhibits 14, 15 and 16 provide assumptions and our valuation of CAN04 in specific indications. We include CAN04 in the two lead indications, NSCLC and pancreatic cancer. Cantargia has a substantial amount of preclinical data supporting CAN04 use in leukaemia. In addition, the company is diversifying its R&D pipeline and developing CANxx for the treatment of inflammatory conditions. Both CAN04 for leukaemia and CANxx are still in preclinical development; Cantargia will decide which project to prioritize and bring to the market as the CANFOUR trial progresses. We therefore do not include these in our model but will revisit this once the projects advance to clinical development.

We have derived rNPVs based on the assumptions discussed above, such as the target population and pricing, R&D costs, patent expiry dates/market exclusivity (summarized in Exhibit 15) with the calculated peak sales shown in Exhibit 16. Cantargia’s strategy is to finalise the Phase I/IIa study and then either continue with development or establish a partnership. Given a ‘typical’ drug development model includes smaller biotech, taking the risk and developing assets until proof-of-concept stage and the initiating partnering discussion, we therefore assume that in the case of positive Phase I/IIa data, the company will be able to out-license CAN04 after the Phase I/IIa.

Deal terms are based on relevant benchmarks over the last few years (sourced from EvaluatePharma). There is a lack of directly comparable deals, ie mid-stage, targeting IL-1 pathway for cancer treatment. Therefore, we took the average of deal terms within targeted therapy space (Exhibit 15) and use upfront/milestones of $123/$844m in our model. These values, like R&D costs (Exhibit 14), are split between the NSCLC and pancreatic cancer indications. Licensing deal is adjusted with 70% probability and tiered 11-13% royalty rates used. We excluded deals in the checkpoint inhibitor space due to very high values and a proven mechanism of action. Cantargia’s technology also works by harnessing the immune system to fight cancer, therefore if early efficacy signs are positive after the Phase I/IIa trial, we believe there is potential for licensing deal terms closer to the checkpoint inhibitor space shown in Exhibit 15 for comparison.

Target patient populations are discussed above in the relevant indication sections. Target geographies used in the model are the US, top five European countries, Benelux, Scandinavia, Austria and Switzerland. If CAN04 development will be successful, significant upside could come from other major markets like Japan and China. NSCLC market penetration is assumed at 10%, given the market is fragmented. However, because of a differentiated mechanism of action and potential synergies with other drugs, CAN04’s potential can be broad. In pancreatic cancer, we assume a higher marker penetration at 20% as there is a high unmet need and little innovative treatment in this indication. We assume $80,000 is a pricing per year per patient (30% discount in Europe). This is closer to pricing that targeted therapies achieve and is very conservative compared to some checkpoint inhibitors, which can reach c $12,000 a month as with Opdivo and Keytruda. NPV projects for both indications end with eroding sales after 2036 over several years. Until then, CAN04 is protected by patents or biological market exclusivity (Exhibit 14).

Cantargia reported an operating loss of SEK60.0m in 2017, compared to SEK47.6m in 2016. Expenses associated with R&D projects were SEK44.8m versus SEK35.5m a year ago, and personnel expenses came in at SEK8.1m versus SEK6.8m. Cantargia recently switched to IFRS reporting and is now expensing all R&D related costs. Our total operating cost estimates for 2018 and 2019 grow to SEK80.9m and SEK93.8m, respectively, mainly reflecting increasing R&D costs (detailed in Exhibit 15) as Cantargia moves from Phase I of the trial to Phase IIa and advances its preclinical projects. Cantargia had cash and short-term investments of SEK270.0m at the end of 2017 compared to SEK34.8m at the beginning of 2017. The company has received SEK232m gross after a share issue in Q417. According to Cantargia, the operations are now financed until 2020, which is in line with our model. As of end Q118, Cantargia has 85k warrants, which allow holders to subscribe for the same amount of shares (total number of shares outstanding 66.2m at end-Q118).