Scandion Oncology — A defining year ahead for SCO-101

Scandion continues to progress with the development of its lead clinical asset, SCO-101. SCO-101 is being investigated as an add-on therapy as a method of overcoming acquired chemotherapy resistance in mCRC and unresectable PC. The Phase IIb CORIST study in mCRC is investigating the effect of SCO-101 in tumours that have become resistant to treatment with FOLFIRI (folinic acid + fluorouracil + irinotecan), representing last-line therapy, while the Phase Ib PANTAX trial in PC is assessing SCO-101 in combination with nab-paclitaxel and gemcitabine (common first- and second-line therapies). Top-line results from part 3 of the CORIST study are expected in Q323, with top-line data from the PANTAX trial anticipated in H123, representing the most near-term potential catalysts for Scandion.

As a reminder, the Phase IIb CORIST study is a multi-centre, open-label, dose-escalation study of SCO-101 in combination with FOLFIRI. CORIST is targeting last-line mCRC treatment, in which enrolled patients will have failed all prior chemotherapy due to resistance and are in the terminal stages of the disease. The study consists of four parts, of which part 1 and part 2 have concluded. CORIST part 1 was a dose-escalation (3+3) study to identify the maximum tolerated dose (MTD) of SCO-101, which was followed by part 2 to assess the efficacy of SCO-101 in combination with FOLFIRI in mCRC patients harbouring the wild-type RAS gene, Exhibit 2.

The most significant clinical news reported by Scandion in FY22 was the top-line results from CORIST part 2, in which the trial failed to reach the +30% tumour reduction threshold defined as its primary endpoint. The SCO-101/FOLFIRI combination did, however, show evidence of tumour reduction, with prolonged progression-free survival (PFS) and stable disease. While the results from CORIST part 2 were ultimately disappointing for Scandion, we note that patients have continued treatment past the eight-week endpoint and longer-term results will be important in definitively assessing efficacy.

Following the results of part 2, Scandion has now initiated part 3 of the CORIST study. Part 3 aims to enrol up to 36 patients to identify a new dosing schedule for the SCO-101/FOLFIRI combination, based on pharmacokinetic and pharmacodynamic data from CORIST parts 1 and 2. SCO-101 in combination with FOLFIRI will be administered once daily on days one to six and FOLFIRI administered on days two to four of each treatment cycle. The company expects this protocol may be more efficacious than previous regimens as the drug has consistently demonstrated a good safety profile, suggesting higher doses may be tolerated and may deliver potentially better efficacy. However, we note that higher doses do not necessarily result in increased efficacy and may also result in undesirable side effects. Additionally, part 3 intends to recruit both wild-type and mutant RAS mCRC patients, with mutant RAS representing c 50% of mCRC incidences, and may significantly enhance the addressable market population for SCO-101 if successful. Patient enrolment for part 3 began in October 2022 and is ongoing as planned. Scandion expects to provide an update on trial recruitment at end Q123 and still expects top-line results to be reported in Q323.

CORIST part 4 will then look to recruit up to 24 patients to assess the efficacy of the optimised SCO-101/FOLFIRI dosing protocol identified in part 3. We expect part 4 could begin as early as Q323 and will use a similar trial design to that used in part 2. The study (part 4) would run for six months, bringing the earliest potential top-line readout to Q224. Following completion, the results from the overall CORIST study will be evaluated to determine the next steps for the clinical development of SCO-101 in mCRC.

The next key catalyst for Scandion will be top-line results in H123 from the Phase Ib PANTAX study in PC. The trial is primarily assessing the safety and tolerability of the SCO-101/gemcitabine/paclitaxel combination; however, we note that as SCO-101’s mechanism of action is the same in both mCRC and PC, there may be potential read across between the two indications. Key secondary endpoints from the study including objective response rate (ORR), PFS and overall survival (OS) will therefore be a critical focus. Should positive results be achieved from the study, management intends to initiate randomised Phase II trials in PC; however, we believe Scandion may prioritise clinical development of SCO-101 in mCRC and wait for results from CORIST before pursuing follow-on studies in PC.

In Q422 Scandion announced that it had appointed Francois Martelet, MD, as CEO, effective from 2 January 2023, when he took over from acting CEO and CFO Johnny Stilou. Francois brings more than 30 years of pharmaceutical industry experience to Scandion. Previously, Francois held a number of biotech CEO positions and has extensive leadership experience at large pharmaceutical companies. Additionally, in January 2023 Scandion also appointed Jan Stenvang as chief scientific officer. Jan was one of the co-founders of Scandion with 20 years of experience in cancer research and has played a critical role in the development of SCO-101, from early through to clinical studies. In our view, this management restructure provides Scandion with stability that will support the continued execution of SCO-101’s clinical development strategy.

We value Scandion based on a risk-adjusted net present value (rNPV) analysis using a 12.5% discount rate, including end-Q422 net cash of SEK115.8m. Our current valuation is wholly attributed to SCO-101 in both mCRC and PC and excludes pre-clinical assets (SCO-201), which may offer further upside on successful clinical progress. Following the results of CORIST part 2 we made significant changes to our valuation assumptions, estimating a potential launch date for SCO-101 in 2028, and we continue to assume that a global out-licensing deal for SCO-101 across all indications will be secured by end-2026. Our updated valuation now stands at SEK238.2m or SEK5.8/share (SEK241.1m or SEK5.9/share per share previously), which incorporates net impact of lower net cash position, rolling forward of the model by four months, updated FY23 estimates, along with introduction of FY24 estimates. Our underlying long-term assumptions remain unchanged.

Scandion reported operating losses for FY22 of DKK80.2m, a 44.8% increase from FY21’s figure of DKK55.4m. This increase was primarily driven because of Scandion’s continued clinical development activities with the ongoing part 2 CORIST study, initiation of CORIST part 3 and dose escalation of PANTAX. External R&D expenses therefore increased significantly compared to the previous year (DKK65.1m versus DKK47.7m in FY21). However, with the anticipated winding down of the PANTAX study in H123, we expect R&D expenses to be slightly lower in the coming year and we estimate FY23 R&D expenses to amount to DKK60m. General and administrative (G&A) expenses increased in FY22 to DKK17.1m, a 109% increase from DKK8,3m in FY21. This increase was attributed to severance accruals to former employees; however, management expects G&A expenses to decrease in the coming year following a reduction in employee headcount in Q422.

To adjust for reduction in employee headcount from 15 (FY21) to 10 (FY22), we have reduced G&A expenses to DKK6.5m in FY23 (from DKK16.9m), considering FY21 employee costs and FY22 G&A expenses were outliers due to inclusion of severance costs. Operating cash outflows for FY22 totalled DKK69.4m, which we estimate will decrease in FY23 to DKK59.3m due to anticipated reduction in R&D and G&A expenses. We have updated our FY23 estimates and have introduced FY24 estimates as we roll forward our model. With a net cash position of DKK77.6m at the end of December 2022, and based on our cash burn projections and in line with management guidance, we expect this to provide a cash runway into Q124. We estimate that Scandion will be required to raise c DKK200m in FY24–25 to fund operations into FY26, at which point our model assumes that Scandion will secure a global out-licensing for SCO-101 by end-2026 with no material R&D expenses associated with clinical development after this point. We account for this financing as illustrative debt in our model. Alternatively, if the funding is realised through an equity issue instead (assuming at the current trading price of SEK2.08/share), Scandion would have to issue 96.2m shares, resulting in our per share valuation coming down to SEK1.7 from SEK5.8 currently (shares outstanding would increase from 40.7m to 136.9m).