Novogen — Anisina nixed, GDC-0084 on track for Phase II

Novogen is an Australian biotechnology company focused on oncology drug development. It is listed on both ASX (ASX:NRT) and NASDAQ (NASDAQ:NVGN). The company is developing two classes of anti-cancer compounds: GDC-0084, a Phase II-ready PI3K inhibitor licensed from Genentech that is being developed for GBM; and its SBP drugs, Cantrixil and Trilexium, which have shown strong preclinical efficacy in a range of cancers. A Phase I trial of Cantrixil in ovarian cancer is underway and a Phase II trial of GDC-0084 in GBM is expected to commence in H2 CY17. Novogen recently initiated an ATM drug discovery programme, largely funded by a A$3m government grant.

We value Novogen between A$86m and A$146m. Our base case valuation of A$86m assumes that GDC-0084 could be approved in 2025 after a confirmatory pivotal trial. Our alternative valuation of A$146m is for a scenario where GDC-0084 seeks potential accelerated approval in 2021 after a single Phase II trial. Our base case valuation is equal to A$0.18/share, or A$0.17/share after diluting for options and convertible notes. Our valuation is based on a risk-adjusted NPV analysis, which includes net cash and our forecasts for GDC-0084, Cantrixil and Trilexium, with probability of success of 5-25% to reflect the stage of development of each product. Our undiluted base case valuation equals US$3.39 per ADR at current exchange rates.

Novogen reported a net loss of A$4.2m in H1 FY17 (six-month period ending 31 December 2016). R&D expenses for the period were A$4.9m and administration expenses were A$4.0m, including costs associated with the GDC-0084 transaction. We forecast R&D expenditure of A$10.9m in FY17 and A$22.5m in FY18. With A$18.6m cash at 31 December 2016 and the Phase II trial of GDC-0084 estimated to cost US$25m, Novogen will require additional funding to complete the trial. We estimate the funding requirement to be A$10m in FY18 and A$15m in FY19 (the FY19 funding requirement could potentially be met by out-licensing Cantrixil at the completion of the Phase I trial, if the outcome is positive).

The key sensitivities for Novogen will be the success of its three lead drugs in clinical trials and funding risk. A crucial question will be whether GDC-0084 works sufficiently well as a single agent in GBM to justify filing for accelerated approval, or whether it will need to be used concurrently with radiotherapy or in combination with temozolomide (TMZ) or other chemotherapies in order to deliver sufficient efficacy in the target population. In our base case scenario, we assume that a confirmatory trial will be required to prove efficacy of GDC-0084, either as a single agent or as part of a combination therapy, delaying potential launch until 2025 versus 2021 under an accelerated approval scenario. While Novogen has funds to initiate the Phase II study of GDC-0084 in GBM, it would require additional funds of ~A$25m over FY18 and FY19 to complete the planned trials, which could result in significant dilution of existing shareholders given the current market capitalisation of ~A$25m. The outcome of the ongoing Cantrixil Phase I will influence the prospects of Trilexium entering the clinic.

Novogen is developing two groups of anti-cancer compounds, including GDC-0084, a Phase II-ready PI3K inhibitor licensed from Genentech (a subsidiary of Roche) that is intended for GBM. The company has transferred the GDC-0084 IND from Genentech and is finalising the design for a Phase II study expected to start in H217. Its SBP drugs include Cantrixil and Trilexium, which are potent against cancer stem cells that are resistant to standard chemotherapy drugs, both in vitro and in vivo. A 60-patient Phase I trial of Cantrixil in ovarian cancer commenced in December 2016. Novogen has terminated development of its preclinical ATM drug Anisina, but has initiated a next-generation ATM drug discovery programme supported by a A$3m government grant. The company’s product pipeline is summarised in Exhibit 1.

Novogen in-licensed the Phase II-ready drug GDC-0084 from Genentech in October 2016. GDC-0084 is an orally administered small molecule phosphoinositide 3-kinase (PI3K) inhibitor that targets an important growth signalling pathway in cancer cells. The drug was specifically developed to cross the blood-brain barrier and target the aggressive brain cancer GBM, a disease with poor patient survival for which there are few effective therapies. The drug has completed a Phase I trial in patients with advanced disease, which confirmed that it readily crosses the blood-brain barrier and that it led to dose-dependent inhibition of tumour growth. Seven of the eight patients treated at the maximum tolerated dose of 45mg/day demonstrated levels of drug in the bloodstream that were associated with significant inhibition of tumour growth in preclinical models.

GBM is the most common and most aggressive primary malignant tumour of the brain and spinal cord. Approximately 11,500 patients are diagnosed with GBM each year in the US. GBM tumours are characterised by invasive and diffuse growth, which makes complete surgical removal difficult. Standard treatment for GBM entails surgical resection of the tumour followed by radiotherapy with concurrent chemotherapy with TMZ, followed by adjuvant chemotherapy with the same drug to treat the residual infiltrative component of the tumour. Despite this aggressive treatment the disease invariably returns, resulting in a five-year survival rate of only 5%.1

Novogen has outlined plans for a randomised Phase II study of GDC-0084 as first-line maintenance therapy in patients with recently diagnosed GBM, as shown in Exhibit 2. Patients will undergo surgery to remove the bulk of the tumour and receive a standard six-week course of radiotherapy in combination with TMZ before entering the study. Study participants will be randomised to receive either 45mg of GDC-0084 for up to two years or to receive TMZ for up to six months (which is the approved duration of treatment with TMZ).

The trial will recruit patients where the promoter of the O6-methylguanine methyltransferase (MGMT) gene in the tumour cells is unmethylated. These patients receive only minimal benefit from treatment with TMZ and are in urgent need of more effective therapies. About 61%2 of GBM patients have an unmethylated MGMT promoter, so GDC-0084 will be targeting use in the majority of recently diagnosed GBM patients.

The proposed Phase II trial design shown in Exhibit 2 is in line with the assumptions in our report dated October 2016, but the trial will be larger, recruiting 200 patients vs our prior assumption of 160 subjects. The trial is also expected to start slightly later (H2 CY17 vs Q2 CY17) and take longer to complete (2.5 years vs 21-24 months). Top-line PFS data are now expected in H1 CY20 vs our prior assumption of Q119.

Our previous budget estimate for the trial of US$25m still seems adequate, despite the modest increase in trial size and duration.

The PI3K signalling pathway plays a crucial role in cellular proliferation, metabolism, survival and apoptosis (programmed cell death). PI3K signalling is initiated by receptor tyrosine kinases or G-protein coupled receptors located at the cell surface, and by some oncogenic proteins such as Ras.

The PI3K pathway is frequently over-activated in cancer. The over-activation can occur through a variety of mechanisms including mutation and amplification of genes in the pathway, or by loss of function of the tumour suppressor PTEN, which is a negative regulator of PI3K signalling. Abnormal PI3K signalling is associated with over 80% of cases of the GBM.3

The first approved cancer drugs that target the PI3K pathway were the rapamycin analogues everolimus and temsirolimus, which inhibit mTORC1. The PI3K inhibitor idelalisib (Zydelig, Gilead Sciences) was first approved by the FDA in 2014 and is approved to treat several types of leukaemia and lymphoma, providing validation for PI3K as a target for anticancer drug development. Idelalisib is a selective inhibitor of the delta isoform of PI3K (PI3Kδ).

In March 2016, Gilead halted six combination trials of idelalisib in newly diagnosed patients due to serious side effects including deaths from infections. Idelalisib inhibits the delta isoform of PI3K and inhibiting strongly PI3Kdelta affects the immune system. In contrast, GDC-0084 strongly inhibits PI3Kalpha and only weakly inhibits PI3Kdelta, and has not caused similar side effects in clinical trials.

Novogen will benefit from the thorough preclinical development programme that Genentech has conducted for GDC-0084.

GDC-0084 is a potent brain-penetrant small molecule inhibitor of PI3Kalpha (EC50 2nM) that was specifically designed for treatment of brain cancer. The drug is also deliberately designed to be a moderately potent inhibitor of mammalian target of rapamycin (mTOR) kinase (EC50 70nm) to avoid the toxicity seen with drugs that are potent inhibitors of both targets.

GDC-0084 was shown to freely cross the blood-brain barrier in the mouse, rat and dog. Studies showed that the drug inhibited PI3K activity in mouse brain, and strongly inhibited tumour growth in animal models using patient-derived tumours.

GDC-0084 showed increased efficacy when it was combined with radiotherapy under different treatment schedules in two separate studies performed in mice with GBM tumours implanted in the brain. However, it was not clear from the mouse studies whether GDC-0084 will give maximum benefit when administered as a monotherapy at the completion of a course of radiotherapy, or whether it would be more effective if it was administered at the same time as radiotherapy.

Genentech conducted a Phase I study of GDC-0084 in patients with progressive or recurrent high-grade gliomas (WHO Grade III–IV), including GBM and malignant astrocytoma. The study enrolled 47 patients in eight successive dose escalation cohorts (2-65mg). The maximum tolerated doses (MTD) was identified as 45mg.

Overall, the adverse event profile was consistent with PI3K/mTOR class effects; adverse events at the MTD were amenable to monitoring, manageable and reversible upon dose hold or discontinuation. The most common Grade 3 adverse events related to GDC-0084 were hyperglycaemia (four patients) and mucositis (three patients).

Oral dosing of GDC-0084 demonstrated favourable pharmacokinetics in the Phase I trial, with sustained plasma levels following daily oral dosing. Analysis of tissue samples from a surgical brain specimen from one patient confirmed that the drug crosses the blood-brain barrier in humans, with concentrations seen in healthy brain and in tumour tissue higher than the levels in plasma
(Exhibit 3).

Exhibit 4 summarises the tumour responses for the patients in the Phase I study, grouped by dose cohort. Although none of the tumours reached the 50% reduction in tumour size that would qualify as a partial response, a dose response in tumour growth was apparent, with much less tumour growth in patients treated at 45mg (the MTD) or higher doses.

It is important to note that the Phase I study was performed in patients with late-stage disease and rapidly growing tumours. In the planned Phase II trial, Novogen will be testing whether this reduction in tumour growth is sufficient to improve PFS and/or overall survival in patients with early-stage disease who have undergone surgical resection and radiotherapy.

Novogen anticipates conducting a randomised Phase II trial of GDC-0084 as adjuvant therapy in newly diagnosed GBM patients with unmethylated MGMT promoter. In a seminal study reported in 2005, Hegi et al4 found that GBM patients with an unmethylated MGMT promoter received only minimal additional benefit when standard of care drug TMZ was added to radiotherapy in first-line treatment of newly diagnosed disease.

Exhibit 5 shows that patients whose tumour contained a methylated MGMT promoter received a survival benefit when TMZ was added to standard radiotherapy; their median survival was 21.7 months, as compared with 15.3 months among those who received only radiotherapy (HR 0.51, P=0.007). In patients with an unmethylated MGMT promoter, there was a smaller and statistically insignificant difference in survival between patients who received TMZ and radiotherapy (orange line) compared to radiotherapy alone (blue line, 12.7 vs 11.8 months, HR 0.69, P=0.06).

Although initial development of GDC-0084 will target GBM, it also has the potential to treat brain metastases for a range for different cancers. Brain metastases are quite common, but there are few drugs available to treat them. Lung, breast and melanoma represent the majority of brain metastases. Genentech has done preclinical studies showing that GDC-0084 improves survival in mouse models of brain metastases in HER2+ breast cancer. A large study5 estimated that approximately 7% of HER2+ breast cancer patients eventually develop brain metastases.

The company has highlighted that the treatment of brain metastases from cancers that originate in other parts of the body is a potential opportunity for future partners. In order to provide a modest recognition of this opportunity, we have added a potential indication for the treatment of brain metastases of HER2+ breast cancer in our indicative valuation model.

Additionally, even though GDC-0084 has been specifically designed to cross the blood-brain barrier, it is also likely to be effective against tumours elsewhere in the body. However, at this stage we have not included potential applications of GDC-0084 for any indications other than GBM and breast cancer brain metastases in our valuation model.

A Phase I study of Cantrixil in ovarian cancer enrolled its first patient on schedule in December 2016. Up to 60 patients are expected to be enrolled across six sites in the US and Australia. While the primary purpose of the trial is to demonstrate safety and tolerability, patients will also be assessed for tumour responses. The trial is expected to take around 18 months to complete, reporting data in H1 CY18. The US FDA has granted Cantrixil Orphan Drug status for ovarian cancer.

Cantrixil is being administered as an intraperitoneal (IP) therapy delivered directly into the abdominal cavity. IP administration delivers higher concentration of the drug to the site of the tumour for longer periods, and studies of advanced ovarian cancer patients have shown a survival benefit for IP delivery compared to intravenous administration of chemotherapy drugs.

Researchers at Yale University have shown that Cantrixil is active in a stringent, clinically relevant rodent model of human ovarian cancer. Cantrixil is the first drug to show uniformly high potency against the Yale library of ovarian cancer stem cells collected from tumours that had stopped responding to chemotherapy. Patients with ovarian cancer face a very poor prognosis, with a five-year survival rate of only 35%, so an urgent unmet clinical need remains for better treatment for ovarian cancer patients.

Trilexium is at an earlier stage of development than GDC-0084 and Cantrixil. The company is undertaking an ongoing programme of drug formulation, preclinical efficacy and toxicology studies, but the drug is not expected to enter the clinic before 2018. If Cantrixil shows signs of efficacy in the ongoing Phase I trial, then we would expect to see increased focus on the development of Trilexium.

Trilexium has shown efficacy against cells from a wide range of cancers, including melanoma, colorectal, liver, lung, breast, prostate and brain cancers, in in vitro studies. Notably, the drug is highly cytotoxic against patient-derived explants of the childhood brain cancer known as diffuse intrinsic pontine glioma (DIPG) in vitro. Trilexium also inhibits tumour growth in flank models where GBM, melanoma and prostate cancer tumours are growing under the skin of rodents.

In addition, combination therapy with Trilexium and the BRAF inhibitor dabrafenib (Tafinlar, GlaxoSmithKline) inhibited melanoma tumour growth and improved survival in mice to a significantly greater extent than dabrafenib alone.

Additional orthotopic animal studies are planned where the human tumour cells are growing in the same organ as the original cancer. This allows the cancer cells to interact with the surrounding organ tissue, which affects the growth, differentiation and drug sensitivity of tumour cells. Mechanism of action and biomarker studies are underway, aimed at informing patient selection for future clinical trials.

The company has terminated development of Anisina, following inconsistent efficacy and emerging toxicology findings in preclinical studies that raised concerns about whether a therapeutically active dose could be safely administered to patients. The scientific committee of the board of directors concluded that the available preclinical data did not support initiation of clinical trials for Anisina. Anisina had been scheduled to enter the clinic in H2 CY17.

Separately, a collaboration led by Novogen has been awarded a grant of up to A$3m from the Australian government payable over three years to develop next-generation ATM therapies for cancer treatment. The research is distinct from the technology underlying the terminated Anisina programme.

Novogen is the lead partner in the collaboration that also involves the University of New South Wales and the privately held CRO, ICP Firefly. Novogen will contribute A$1m and the University of New South Wales will contribute A$0.3m to funding the project.

While the project is at a very early stage, it could potentially provide a new ATM drug with a superior toxicity and activity profile to address the market opportunity that had previously been identified for Anisina.

We consider two potential development scenarios for GDC-0084 in GBM (accelerated approval post-Phase II or standard approval post-Phase III), as outlined below.

If the upcoming Phase II trial of GDC-0084 in GBM demonstrates that treatment with GDC-0084 delivers a statistically significant and clinically meaningful improvement in PFS, then this would probably justify filing an application for accelerated approval. With PFS data anticipated in H1 CY20, this scenario could potentially see the drug launched in H2 CY21 as shown in Exhibit 6.

Our second scenario assumes that the results of the first Phase II trial indicate that GDC-0084 is efficacious against GBM, but that additional evidence from a second clinical trial is required before filing for approval. We anticipate that this second trial would take three years to complete and note that it could potentially involve combining GDC-0084 with radiotherapy or TMZ. Exhibit 7 shows our forecast timeline for this two-trial scenario, which could potentially see a launch in H1 CY25.

In our view, Novogen could give potential partners more options for future development of GDC-0084 by completing an additional Phase Ib trial while the Phase II trial is underway. One potential option for such a trial would be to identify the dose GDC-0084 can be safely administered while the patient is undergoing radiotherapy treatment (concurrent administration); a second option would be to identify a dose of GDC-0084 that can be safely used in combination with TMZ (ie adding GDC-0084 on top of TMZ therapy).

Both of these treatment strategies could potentially lead to higher overall efficacy. Adding GDC-0084 on top of standard TMZ therapy would have the added advantage of opening up the potential to treat GBM patients with a methylated MGMT promoter, as well as the unmethylated patient population to be targeted in the upcoming Phase II trial.

Novogen has not disclosed any plans to conduct an additional Phase Ib trial, but we have included one in Exhibits 6 and 7 to illustrate potential timing.

We have substantially revised our valuation model for Novogen to reflect the termination of the Anisina development programme, the addition of GDC-0084 following the completion of the in-licensing transaction, and longer development timelines for Cantrixil and Trilexium. We have valued GDC-0084 under two different development scenarios for GBM – in addition to our base case valuation, which assumes market launch in 2025 following completion of a Phase III trial, we have also valued GDC-0084 assuming accelerated approval with a launch in 2021.

As a result of these changes our base case valuation of Novogen has declined to A$86m (previously A$112m) or A$0.18/share undiluted (vs A$0.26/share) and A$0.17/share after diluting for options and convertible notes (vs A$0.23/share). Novogen is also listed on NASDAQ under the code NVGN, with each NASDAQ-listed ADR representing 25 ordinary shares. Our undiluted base case valuation equals US$3.39 per ADR at current exchange rates (previously US$4.95 per ADR). Note that the per-share value accounts for the shares issued as part of the acquisition of Glioblast (A$1.5m in shares) but not the Glioblast milestone payments (potentially A$1.25m of shares in FY18 on initiation of Phase II, and a further A$1.25m potentially payable in FY20 on successful completion of Phase II).

In both valuation scenarios for GDC-0084, we assume that the programme is out-licensed to a marketing partner in mid-2020 after reporting PFS data from the Phase II trial in a deal that includes US$120m in clinical and regulatory milestone payments (but differing upfront payments; we risk-adjust milestone payments in our forecasts). We also assume that Novogen pays a royalty of 10% of net sales to Genentech and that global sales for GBM reach US$1,050m in 2030.

Under both scenarios for GDC-0084 we also include a second indication for the treatment of brain metastases in patients HER2+ breast cancer, with a 2026 launch date.

The two scenarios assume different launch dates, upfront payment amounts and royalty rates payable to Novogen. For the post-Phase III approval scenario used in our base case valuation, we assume a 2025 launch date, and that the licence deal includes a US$20m upfront payment and that Novogen receives a 15% royalty on net sales (the accelerated approval scenario valuation is discussed below Exhibit 8).

We have revised forecast development timelines for Cantrixil and Trilexium to include a Phase II trial duration of 2.5 years in line with the forecast for GDC-0084 (vs two years previously). Cantrixil is now assumed to be launched in 2025 (vs 2024). Trilexium is now assumed to commence clinical trials in 2018 (vs 2017) and launch in 2027 (vs 2026).

While our valuation reflects our understanding of the likely development path for Novogen’s three lead drugs, it should be considered as indicative because of the early stage of development of Cantrixil and Trilexium. Our valuation is based on a risk-adjusted discounted cash flow model. Our cash flow forecasts extend out to 2035, but do not include any terminal valuation and apply a 12.5% discount rate. In calculating the diluted NPV/share, we assume that the A$0.6m remaining balance of the Triaxial convertible note is converted to 24m shares on completion of Phase II trials. (the A$1.5m convertible note was issued as part of the purchase of Triaxial and its SBP technology, A$0.9m was converted in H1 FY17).

Exhibit 8 shows our base case market assumptions for GDC-0084, Cantrixil and Trilexium and the contribution of product royalties and milestone payments to the rNPV. We have offset the risk-adjusted trial cost against milestone revenue for each drug, rather than against royalty revenue. This understates the contribution of the milestone payments to the rNPV and overstates the contribution of royalties.

For our alternative accelerated approval valuation scenario, we assume a market launch in late 2021 and that Novogen receives a higher 20% royalty rate and a larger US$40m upfront payment because the data are ready for filing, with other deal terms the same as for the Phase III approval scenario. Exhibit 9 shows that accelerated approval for GDC-0084 would increase our valuation for Novogen to A$146m or A$0.30/share (undiluted) and A$0.28/share after diluting for options and convertible notes.

The key sensitivity for Novogen will be the success of its three lead drugs in clinical trials. A crucial question regarding GDC-0084 will be whether it works sufficiently well as a single agent in adjuvant therapy to justify accelerated approval. If it needs to be used concurrently with radiotherapy or with TMZ to deliver sufficient efficacy in GBM then one or more additional efficacy trials may be required, as outlined in our base case scenario, delaying potential launch until 2025 vs 2021 under an accelerated approval scenario. There is also a significant risk that GDC-0084 may not provide sufficient survival benefit to justify approval either as a single agent or combination therapy.

We have assumed that a Phase Ib study of GDC-0084 in combination with either radiotherapy or TMZ is conducted in parallel with the planned Phase II trial, but that will be dependent on adequate funding.

While Novogen has funds to initiate the Phase II study of GDC-0084 in GBM, we estimate that it would require additional funds of ~A$25m over 2018 and 2019 to complete all the planned trials, which could result in significant dilution of existing shareholders given the current market capitalisation of ~A$25m.

Our valuation includes revenues from the development of three drugs in five disease indications, as well as (risk-adjusted) upfront and milestone payments for three licensing deals. While each of these targeted indications is supported by the current preclinical efficacy studies and evidence of a dose response in the GDC-0084 Phase I trial, the company may not ultimately pursue development of the drugs for all of these indications. On the other hand, ongoing preclinical efficacy studies could identify additional disease indications that should be investigated in clinical trials. While we believe that the drug development timelines used in our forecasts are achievable, at this early stage it is hard to accurately predict how long it will take to get the drugs to market.

Novogen’s H1 FY17 results (six months ending 31 December 2016) showed a net loss of A$4.2m, 6% larger than the previous corresponding period. R&D expenses were virtually unchanged at A$4.9m compared to A$5.0m in H1 FY16. Administration expenses rose to A$4.0m (vs A$3.0m in H116), including costs associated with the GDC-0084 transaction. Cash at 31 December was A$18.6m.

Glioblast and the GDC-0084 licence acquired in 2016 are valued in the accounts at A$19.6m. The valuation comprises A$7.1m cash consideration (A$6.5m (US$5m) to Genentech and A$0.6m to Glioblast) and A$1.5m shares issued to Glioblast vendors (17.2m shares at A$0.09), plus contingent consideration of A$5.1m and deferred tax liability of A$5.9m. The contingent consideration payable to Glioblast comprises four milestone payments, while the contingent consideration to Genentech comprises a single milestone payable on market launch of GDC-0084. Novogen has probability weighted the milestones and then discounted to present value in calculating the A$5.1m valuation.

We have updated our financial forecasts to reflect termination of Anisina development and later timing of forecast spending on GDC-0084 and Trilexium clinical trials. We have reduced forecast R&D expenditure by 44% to A$10.9m in FY17 and by 26% to A$22.5m in FY18. We estimate that Novogen has sufficient funds to support operations to the end of FY17, but will require addition funds of ~A$10m in FY18 and a further A$15m in 2019 if Trilexium progresses to clinical trials and the GDC-0084 Phase II trial progresses as planned (part of the FY19 funding requirement could be met by upfront payments if Cantrixil is out-licensed at the completion of the Phase I trial). Note that we include unrisked clinical trial costs in our financial forecasts to show the potential funding requirement if the clinical trial programme is conducted in line with our expectations (trial costs risk-adjusted for NPV calculation).