Polyphor — Balixafortide Phase III data coming soon

Polyphor is a clinical-stage Swiss-headquartered biopharmaceutical company formed in 1996 that went public on the Swiss Exchange in 2018. It is focused on balixafortide, a potent and selective blocker of CXCR4, a G-protein coupled receptor (GPCR) that has been implicated in the invasiveness and metastasis of numerous cancers. It has a Phase III trial ongoing in HER2-negative advanced breast cancer patients as overexpression of CXCR4 is associated with both recurrence and unfavourable survival in those patients. Additionally, it is developing inhaled murepavadin to treat P. aeruginosa infections in CF patients. That programme is expected to enter the clinic by the end of the year. The company has additional early-stage programmes in oncology and antibiotics that are expected to enter the clinic over the next few years.

We are initiating coverage of Polyphor at CHF413m or CHF37 per basic share using a risk-adjusted NPV model focusing strictly on the balixafortide programme. We attribute a 40% probability of success to the balixafortide programme, which takes into account the fact that it is in a large Phase III trial and prior clinical data. We forecast peak sales for the US and EU5 at CHF730m. We will include the other programmes in our valuation once they enter the clinic. Inhaled murepavadin is expected to enter the clinic in Q420.

Polyphor reported CHF42m in net cash (CHF44m gross) at 30 June 2020 and will likely need to raise cash in 2021, which we estimate at CHF40m. The company expects to partner balixafortide likely following Phase III data, which should greatly alleviate a significant portion of any future financing needs (especially if it is a standard deal with upfront, milestones and royalties). Polyphor in August 2020 licensed China rights to Fosun Pharma for US$15m upfront, development milestones of US$19m, commercial milestones of US$148m and double-digit royalties. However, if it does not partner the product in the US and EU we estimate it would need to raise CHF220m through 2024.

The bulk of our valuation for Polyphor comes from balixafortide, currently in a Phase III trial. There will be two key readouts in 2021, which will help decide the future of the product. First, in Q221, ORR data are expected in third line patients with measurable disease and, if positive, could allow for an accelerated approval of the product in the US. If Polyphor does not clear the hurdle on the ORR data cut, the next key piece will be PFS data, expected by the end of the year, which could lead to full approval of balixafortide if positive. Interim overall survival data are also likely to be needed for that approval especially for the EMA. The basis for the hypothesis of balixafortide’s efficacy in HER2-negative metastatic breast cancer was a single-arm Phase I dose-escalation trial that enrolled 56 patients (with a 38% response rate in patients on the Phase III dose of balixafortide plus eribulin compared to the 13% that was seen in the original eribulin registration trial), so it is unclear if those data will carry over into a 407-patient randomised-controlled trial. Inhaled murepavadin also has risk as the intravenous version had a Phase III halted due to kidney toxicity issues. However, the inhaled version has a much lower level of systemic exposure so could have a higher safety margin. Additional risk comes from dilution (with new issuances potentially greater than current shares outstanding) as the company will have to raise significant capital if it is unable to fund operations through partnerships.

Polyphor is a clinical-stage Swiss-headquartered biopharmaceutical company focused on balixafortide, a potent and selective blocker of CXCR4, a GPCR that has been implicated in the invasiveness and metastasis of numerous cancers. It has a Phase III trial ongoing in HER2-negative advanced breast cancer patients as overexpression of CXCR4 is associated with both recurrence and unfavourable survival in those patients. Additionally, the company is developing inhaled murepavadin to treat P. aeruginosa infections in CF patients. That programme is expected to enter the clinic by the end of the year. The company has additional early-stage programmes in oncology and antibiotics that are expected to enter the clinic over the next few years.

Polyphor’s lead programme is balixafortide, a CXCR4 antagonist. CXCR4 tends to have low or no expression in most healthy tissues (among healthy tissue it is most highly expressed in bone marrow and lymphoid tissues according to the Human Protein Atlas) but is highly expressed in a variety of tumour types and is correlated with poor outcomes (Exhibit 2) as it is associated with tumour immune evasion, angiogenesis and metastasis.1 Importantly, inhibiting CXCR4 has been shown in preclinical experiments to impair tumour migration,2 growth and angiogenesis.3 While CXCR4 inhibition does not appear to have much of a cytotoxic effect by itself, there does appear to be evidence of an enhanced cytotoxic/chemosensitisation effect per both clinical and preclinical data when combined with chemotherapy, hence the combination with eribulin in the Phase III programme.

While there are other CXCR4 inhibitors in the pipeline, balixafortide appears to be the only candidate for breast cancer. That is likely because there are so many potential targets for a CXCR4 inhibitor. For example, Mozobil (plerixafor) was approved in 2008 in combination with granulocyte colony-stimulating factor (G-CSF) for hematopoietic stem cell mobilisation and is marketed by Sanofi. We should note that Polyphor previously had a programme to develop balixafortide for this indication but stopped development in 2015 when it was in Phase II. The company has stated that the compound demonstrated proof of mechanism and that it induced hematopoietic stem cell mobilisation but further development was not pursued for commercial reasons.

The reasoning for choosing breast cancer is clear. In 13 studies covering 2,318 breast cancer patients (of which 31% were CXCR4 expressors), the hazard ratio was 1.8, indicating a significantly negative survival impact from being CXCR4 positive.4 In one study of 101 breast cancer patients, which compared the impact of high CXCR4 expression to other prognostic factors in breast cancer, it appeared to be the most important prognostic factor by far, more important than tumour size, hormone receptor status or the grade of the cancer5 (Exhibit 4).

Breast cancer also remains a high unmet medical need, particularly in HER2-negative patients who tend to have lower rates of five-year survival than HER2-positive patients. In the United States alone there will be an estimated 276,480 new cases of breast cancer this year (with a total prevalence of 3.6 million) according to the National Cancer Institute, and there were 522,513 cases in Europe in 2018 according to the Global Cancer Observatory. A total of 68% of cases are ‘Luminal A’ (Exhibit 5), which means they are positive for hormone receptors on tumour cells (and that hormones such as oestrogen and progesterone may promote their growth) but have low levels of HER2.

Localised tumours are treated surgically, with or without radiotherapy. This is typically followed by adjuvant treatment including one or more anti-hormone therapies (also known as endocrine therapies), for instance aromatase inhibitors such as anastrozole and selective oestrogen receptor modulators such as tamoxifen. Adjuvant chemotherapy is not typically recommended for this population, due to the generally positive prognosis with hormone-based adjuvant therapy.

Non-resectable tumours or metastatic tumours of this class are typically treated initially with drugs such as Faslodex (fulvestrant, AstraZeneca), anastrozole, tamoxifen, or other drugs that interfere with HR signalling. A new class of drug that can be combined with hormone therapy are CDK4/6 inhibitors such as Ibrance (palbociclib, Pfizer) Kisqali (ribociclib, Novartis) and Verzenio (abemaciclib, Eli Lilly). Ibrance was the first drug of this class to be approved in 2015 and had sales of over $5bn in 2019, which speaks to the size of this market (Exhibit 6). These drugs have significant antiproliferative and antimetastatic activity and their increasing integration into the treatment algorithm is expected to replace or delay the use of other therapies for refractory disease.

Polyphor will be especially focused on Luminal A patients (although there will be some focus on triple negative patients as well) as they make up the bulk up of breast cancer patients but also have a low level of usage of novel agents once the patients progress past hormone therapy, with monotherapy chemotherapy remaining the standard once Luminal A patients reach that stage. Monotherapy chemotherapy is also the standard for these patients who are in a visceral crisis even if they have not previously been treated with hormone therapy. According to Global Data, this is not likely to change in the near future. They project the novel agent share in second to fifth line in 2023 being in the 4–9% range, with the rest being monotherapy chemotherapy. There is also not much of a standard chemotherapeutic regimen once patients have failed front line agents. In the eribulin Phase III Embrace registration trial of the drug in 762 heavily pretreated (87% had three or more prior lines of chemotherapy, 85% had prior hormone therapy, 83% had prior radiotherapy and 86% had surgery) locally recurrent or metastatic breast cancer patients, the comparator was a physician’s choice of therapy. In the control arm 25% of patients received vinorelbine, 19% gemcitabine, 18% capecitabine, 15% taxanes, 10% anthracyclines, 10% other chemotherapies and 4% hormone therapy.6

Data we have so far have been positive, although early, and come from a Phase I dose-escalation study in combination with eribulin in 56 HER2-negative metastatic breast cancer patients (23% of which were triple negative). These patients were heavily pretreated with 78% having three or more prior chemotherapy regimens.7 In this trial there was a clear dose response with the high dose (the dose chosen in the Phase III FORTRESS study) achieving ORR, median PFS and median overall survival (OS) greater than was previously seen with eribulin alone. It is always tough to compare across trials, especially small Phase I trials versus Phase III results, but eribulin has not typically seen 38% response rates as a monotherapy (ORR has typically been around 13% as seen in its Phase III trial, see Exhibit 7) so this is likely indicative of an effect of balixafortide therapy.

Toxicity was very similar to the eribulin safety profile seen in the Phase III programme. In Phase I, only two patients discontinued due to treatment-related adverse events, one due to Grade 2 fatigue and another treatment-related to Grade 1 peripheral neuropathy. A total of 18% of patients required a reduction in eribulin dose but only 2% (one patient) required a reduction in balixafortide to manage infusion reactions at the first cycle (although the full dose was resumed in subsequent cycles). Two patients died during the trial due to adverse events although this is likely due to their advanced status as well as known eribulin toxicity. One patient enrolled in cohort one (the lowest dose for both balixafortide and eribulin), developed neutropenia (45% of patients in the eribulin Phase III developed Grade 3 or 4 neutropenia) and pneumonia and died of septic shock. They had multiple comorbidities on study entry and had received four lines of hormonal therapy, three lines of chemotherapy as well as radiation. The second patient was enrolled in the high dose/expanded cohort and had a history of asthma. They previously received three lines of hormonal therapy and three lines of chemotherapy as well as radiation. They died of pneumonia after having Grade 4 neutropenia.

Infusion reactions seem to be the biggest issue related specifically to balixafortide and the only one observed to have a dose response. In total, 46% of patients in the trial had a Grade 1–2 reaction and 2% (one patient) had a Grade 3 infusion reaction with reactions highest during the first cycle.

Polyphor is enrolling its pivotal FORTRESS study, which is a randomised global controlled trial studying balixafortide with eribulin versus eribulin alone, in 407 previously treated (320 third line and 87 second line) HER2-negative advanced breast cancer patients. Enrolment started in June 2019 and by early September 2020, 366 patients had been recruited, including all 87 second line patients, so a further 41 third line patients are needed for the trial to complete enrolment (expected at the end of September). The primary endpoint of the trial is PFS 12 months after the last patient is randomised. Those data are expected for Q421 and, if positive, would enable a standard NDA filing with the FDA as well as a filing with the EMA (although the EMA may also require some interim overall survival data for approval).

However, depending on the data, the company may be able to file for accelerated approval with the FDA (but not the EMA) on ORR data assessed in patients with measurable disease who are third line or later (estimated by the company to be 66–75% of the study population) based on discussions with the agency. These results should be available in Q221, six months after the last patient is randomised. Additionally, if the p-value of the balixafortide + eribulin arm versus eribulin is p≤0.001, the company plans to first apply for breakthrough therapy designation (BTD) with the FDA (the agency typically responds within just 60 days) prior to filing for accelerated approval. A BTD allows for more intense FDA involvement in the drug development process, an organisational commitment of senior managers and eligibility for both rolling and priority review.

Based on the characteristics of the pre-approval studies for drugs previously being granted accelerated approval from 2009 and 2013 (Exhibit 8), Polyphor would have a strong case if it is able to achieve the necessary ORR hurdle. The FORTRESS study is much larger than the median for those receiving accelerated approval, has an active comparator (63% of those receiving approval had no comparator at all) and has an appropriate endpoint.8 Also as recently as June 2020, lurbinectedin (Zepzelca) from PharmaMar/Jazz was approved on an accelerated basis by the FDA based on ORR from 105 small cell lung cancer patients in a single arm trial. In April 2020 Immunomedics (an acquisition by Gilead Sciences for $21bn was announced in September) received an accelerated approval for sacituzumab govitecan (Trodelvy) in third line or later triple-negative breast cancer based on a single arm trial with data from 108 patients (with a 33.3% ORR).

With regards to timing of an accelerated approval, Polyphor believes an accelerated approval could occur in Q422 while the standard approval in the US/EU could happen in Q123.

The company also has a plan beyond the FORTRESS study and approval. Polyphor is conducting preclinical studies in combination with other drugs and in other tumour types. Also, in Q420 the company expects to begin an improved dose scheduling study as well as a Phase I/II in combination with other chemotherapies in earlier-stage metastatic breast cancer. Additionally, in Q221 the company expects to begin work on a non-intravenous formulation that may be more convenient for patients. The company is also working on a CXCR4 companion diagnostic that may help select appropriate patients when on the market, although it is unclear what level of expression is necessary. All the Phase I patients were CXCR4 positive although 61% in that trial had low expression and responses were observed regardless of the level of expression.

Our estimates for balixafortide are based on the assumption that 60,000 patients in the US and another 90,000 patients in the EU5 will be eligible for therapy. This encompasses advanced/metastatic Luminal A patients who are third line or later in the US and second line or later in the EU5. We are not including triple-negative breast cancer patients in our estimates as it is both a smaller market (10% of breast cancer incidence versus 68% for Luminal A) and a more competitive one with a higher degree of novel therapies in use. These patients are included in the FORTRESS trial so we may decide to add them to our estimates but this will depend on the data as well as the commercial focus once balixafortide is on the market.

We estimate launch in 2023 and peak share to be 3% in the respective markets as the later line metastatic breast cancer market is relatively fragmented across different therapies, although this may change if the FORTRESS data are particularly strong. Our market share assumption also includes potential competition from Immunomedics, which is conducting a Phase III of sacituzumab govitecan in 400 third line or later Luminal A patients, with data likely in 2022/23. In 54 Luminal A patients in the sacituzumab govitecan Phase I/II study, the ORR was 31% with a PFS of 6.8 months, which is relatively similar to the data seen with balixafortide in the dose Polyphor is moving forward with in the FORTRESS study.

It is important to note this market share assumption does not include any future label expansions or use with other chemotherapies other than eribulin. We estimate a price of US$100,000 per treated patient in the United States, which we believe is reasonable for that market, especially as balixafortide will likely be considered a targeted therapy due to the CXCR4 mode of action. By way of reference, Kisqali, the CDK4/6 inhibitor for Luminal A patients, costs between $5,021 and $12,553 per month depending on the dose, according to Novartis, whereas sacituzumab govitecan for triple-negative breast cancer costs US$16,096 per 21-day cycle on average. In the EU, we assume a price of US$50,000 per patient. Taken together, we arrive at peak sales at CHF730m, which again focuses only on Luminal A patients and no label expansions.

Polyphor is also developing inhaled murepavadin for the treatment of P. aeruginosa infection in CF patients. It is a potentially first-in-class outer membrane protein targeting antibiotic (OMPTA). CF is an autosomal recessive condition caused by mutations in both copies of the CFTR gene. CFTR is involved with the production of sweat, digestive fluids and mucus. These fluids are normally thin and slippery but the defective gene in CF patients leads to the secretions becoming thick and sticky instead. In the lungs, CF patients have airway hyper-inflammation and the development of chronic bacterial infection, which leads to the accumulation of thick mucus, airway obstruction/destruction and fibrosis. Over time there is a decline in lung function leading to respiratory failure and then either lung transplantation or death. Infections of airways usually begin in the first months of life so this tends to be a lifelong problem. P. aeruginosa is the most common microbe involved in CF infection, involved in the infection of over 60% of CF patients once they reach the age of 30 (Exhibit 9).

There are a number of antibiotics used to treat these infections, usually tobramycin, aztreonam and colistin. However, there are multi-drug resistant P. aeruginosa strains, which made up 16.9% of total CF-related P. aeruginosa infections in 2018 in the US according to the Cystic Fibrosis Foundation and at some age groups has infected around 20% of individuals with CF (see Exhibit 10).

These multi-drug infections are the area of the market where Polyphor can have the most impact with inhaled murepavadin, which would be a new class of antibiotic. In vitro testing has indicated it has activity against P. aeruginosa including multi-drug resistant strains (Exhibit 11).

The company plans to submit a clinical trial application and start the Phase I programme in Q420, which will include single and multiple dosing in healthy volunteers for up to seven days. Data are expected in 2021. A Phase II would then be expected to start by the end of that year. Part of the funding for this programme comes from the Innovative Medicines Initiative, a partnership between the European Union and the European pharmaceutical industry. Polyphor is also seeking additional external sources of funding for this programme.

One issue with the market potential for this product is that CFTR modulator therapies (the first CFTR modulator, Kalydeco (ivacaftor) was approved in 2012) help restore some CFTR function, which appears to be reducing the frequency of P. aeruginosa infections in CF patients although approximately 43% of CF patients have the infection according to the 2019 Cystic Fibrosis Patient Registry (down from around 60% historically). We are not including inhaled murepavadin in our model at present as it is not in the clinic. But assuming around 30,000 patients in the US and another 20,000 in the EU and a falling rate of P. aeruginosa, 15% peak market share and a US$50,000 per year price in the US and US$30,000 per year price in the EU, we calculate peak potential sales of CHF157m. For the sake of reference, Tobramycin (which is one of the standards of care for CF infections) sales peaked at US$387m in 2013.

The company has additional early-stage programmes in antibiotics and oncology that are planned to enter the clinic over the next few years. The preclinical antibiotics programme consists of OMPTA BamA and Thanatin. OMPTA BamA is targeting gram-negative bacteria such as Enterobacteriaceae, P. aeruginosa and A. baumannii and so far has shown a very low propensity for resistance in in-vitro experiments, according to the company. Polyphor is working on the formulation and peptide design. The Thanatin programme is a narrow spectrum gram-negative antibiotic focusing on carbapenem-resistant Enterobacteriaceae as commonly used antibiotics are generally inactive against this infection.9 Polyphor believes it should be able to receive external funding for at least part of the development of these molecules given the high public health concern for such resistant infections. With regards to oncology, the company is creating a pipeline of novel molecules based on its macrocycle platform in both liquid and solid tumours.

Most of the risk is development related as the bulk of our valuation for Polyphor comes from balixafortide, which is in a Phase III trial. There will be two key readouts in 2021 that will help decide the future of the product. First, in Q221, ORR data are expected in third line patients with measurable disease and, if positive, could allow for an accelerated approval of the product in the US. If Polyphor does not clear the hurdle on the ORR data cut, the next key piece will be PFS data expected by the end of the year, which, if positive, could lead to full approval of balixafortide. Interim overall survival data are also likely to be needed for that approval especially for the EMA. The basis for the hypothesis of balixafortide’s efficacy in HER2-negative metastatic breast cancer was a single-arm Phase I dose-escalation trial that enrolled 56 patients (with a 38% response rate in the 24 patients treated at the same balixafortide plus eribulin dosing level chosen for the ongoing Phase III trial, compared to the 13% rate that was seen in the original eribulin registration trial), so it is unclear if those data will carry over into a 407-patient randomised-controlled trial. Additionally, it is unclear what the correlation is between efficacy and patient CXCR4 expression levels or how the levels differ in the Phase III versus Phase I. Inhaled murepavadin also has risk as the intravenous formulation had Phase III halted due to kidney toxicity issues, although the inhaled version has a much lower level of systemic exposure so should have a higher safety margin. And while P. aeruginosa does continue to be an unmet need with resistant infections, the incidence of these infections is falling due to disease-modifying treatments affecting infection rates. Additional risk comes from dilution (with new issuances potentially greater than current shares outstanding) as the company will have to raise significant capital if it is unable to fund operations through partnerships. However, the recent Fosun Pharma partnership for China indicates there is demand on the business development front and provides some comfort that the company will find partners for the US and EU.

We are initiating coverage of Polyphor at CHF413m or CHF37 per basic share using a risk-adjusted NPV model focusing strictly on the balixafortide programme. We attribute a 40% probability of success to the balixafortide programme, which takes into account the fact that it is in a large Phase III trial and prior clinical data (which, while limited, did demonstrate promising efficacy and a relatively clean toxicity profile for balixafortide itself). We forecast peak sales for the US and EU5 at CHF730m. The composition of matter patent in the US expires in 2028 with a 2027 expiry in the EU; however, both can be extended by up to five years. There is also a pending balixafortide/eribulin patent that expires in 2038, which is the date we model sales to. As the company has stated it is working on different formulations and different combinations, patent protection may be potentially further extended.

We will include the other programmes in our valuation once they enter the clinic. Inhaled murepavadin is expected to enter the clinic in Q420. Also the company has stated that it plans to expand the balixafortide programme into other cancers, which we will include once clinical development commences. Additionally, we currently model the company marketing Balixafortide itself in the US and EU5. We will adjust our model for partnerships in these regions once they are announced.

The company recently reported H120 results. The net loss was CHF27.8m, roughly in line with the net loss of CHF27.9m from H119. The vast majority of this was due to R&D expenses, which were CHF24.6m in H120, down slightly from the CHF25.3m the same period the prior year. Polyphor reported CHF41.5m in net cash (CHF43.7m gross cash) at 30 June 2020 and we estimate will need to raise CHF40m in FY21 to fund the company through key inflection points.

To potentially assist with near-term funding, in July 2020 the company announced an equity-linked financing arrangement with IRIS, a French financial firm, to raise up to CHF19.3m over the next two years. Under the terms of the agreement, IRIS may buy 24 tranches of CHF800,000 worth of zero-coupon mandatory convertible bonds on a monthly basis. These bonds would then convert into shares at a discount to the volume weighted average price every month. It is unclear whether Polyphor will use this arrangement as other forms of financing would be preferable, especially non-dilutive funding from partnerships (likely after Phase III data) or investments from long-term investors.

If the company partners balixafortide, it should greatly alleviate a significant portion of any future financing needs as commercialisation and any additional R&D would likely be the responsibility of the partner. Polyphor recently licensed China rights to Fosun Pharma for US$15m upfront (which we have included in FY20 revenues), development milestones of US$19m, commercial milestones of US$148m and double-digit royalties, indicating demand exists with regards to business development. However, if it does not partner the product in the US and EU we estimate it would need to raise CHF220m through 2024, which we record as illustrative debt per Edison policy.