Formycon — FY20 results – core progress on key projects

Formycon reported 2020 revenues of €34.2m as development payments vs €33.3m in 2019. The net loss was €5.9m (vs a loss of €2.3m in 2019). Cash was €42.2m (2019: €22.4m).

The FYB202 project is run through a joint venture company which requires investment (FYB 202 GmbH & Co. KG, undisclosed financials). There was no 2020 investment in the JV. The last investment was €4.7m in 2019. The JV has a balance sheet value of €20.7m. As this project is in Phase III, a further cash investment is possible and can be funded from cash reserves.

Formycon raised €25.75m gross at €25.75 per share by issuing 1m shares in October 2020. Formycon’s share capital increased to €11m comprising €1 par value shares.

The underlying 2020 operating outflow was €5.1m. There was €0.65m of capital investment and a small interest charge of €0.1m. After the €25.75m cash raised, year-end 2020 cash and cash equivalents increased to €42.25m from €22.35m as of 31 December 2019.

Formycon’s pipeline is shown in Exhibit 2. For more detail on underlying regulatory issues and details of Formycon’s structure and alliances, see our May 2020 note.

Formycon’s project is FYB201, a biosimilar to Lucentis and licensed to Bioeq, based in Zug. FYB202, a Stelara biosimilar, entered Phase III in November 2019. The Eylea biosimilar, FYB203, entered Phase III in August 2020. A further project is undisclosed beyond a name: FYB206. FYB207, a preclinical project developed strongly over 2020, is a fusion protein to neutralise SARS CoV-2 virus. This is a potential general therapy for treatment of COVID-19 patients.

The three main projects with identified targets are each in a deal or joint venture. Although we cite the reference product sales for each project, the in-market biosimilar price will be typically lower by about 15–20% initially and possibly 30–50% if competition is fierce. One element in these markets is that switching rates from established reference products to slightly cheaper biosimilars have often been slow. Some competitor clinical trials now appear to be generating data to resolve this issue.

Lucentis (ranibizumab, Roche, US, and Novartis, EU) is a humanised monoclonal antibody fragment. It binds vascular endothelial growth factor-A (VEGF-A) preventing the growth of blood vessels across the retina. It is given by intravitreal injection. Lucentis had 2020 US sales of $1.9bn, a decline of 7%. In the EU, sales were CHF1.4bn ($1.6bn), a 16% decline. This indicates global sales of about $3.5bn relative to 2019 sales of $3.9bn. Eylea increased sales in the period (see below). Lucentis patents expired in 2020 in the US and will expire in 2022 in Europe.

FYB201 is fully licensed to Bioeq. Bioeq comprises a joint venture between Polpharma (a Polish pharmaceutical company) and Santo. The clinical studies for FYB201 were run by a Bioeq subsidiary, Bioeq GmbH, based in Germany. In 2019, Bioeq licensed the US sales rights to Coherus, a US biosimilar specialist. Out-licensing to a European marketing partner has not yet been completed but we would expect an announcement this year.

Coherus is developing and in-licensing a variety of products. It has one approved and marketed product so far (UDENYCA (pegfilgrastim-cbqv) for oncology), which generated $476m in sales in 2020. Coherus will share 50–55% of gross profits on US sales of FYB201 with Bioeq. Formycon management has indicated tiered royalties (up to double digit) on net sales.

The Phase III study, COLUMBUS-AMD (NCT02611778), reported its primary endpoint in May 2018, which confirmed comparable efficacy between FYB201 and Lucentis in patients with nAMD (included in wet AMD).

The project suffered a setback in early 2020 as the BLA, filed by Bioeq in Q419, was withdrawn. The reason was a reconfiguration of the manufacturing plant by the contractor. The regulatory strategy has been revised and the decision taken to scale up the manufacturing process. The resubmitted BLA will therefore be for the product based on the commercial scale process. This is planned to be submitted to the FDA by mid-2021. We assume that an EMA filing will be made subsequently so FYB201 could be available soon after the European patent expiry.

Competitors in nAMD include:

A market complication will be biosimilar versions of Avastin. Avastin is a cancer therapy (stopping blood vessel growth into tumours) and has the same biochemical action as Lucentis. Avastin is sometimes used off-label for nAMD, as it is cheaper; it is not approved for use in the eye.

FYB203 is a project to develop an Eylea (aflibercept) biosimilar. Regeneron had 2020 Eylea sales of $7.9bn (up 5% from $7.5bn), split into US sales of $4.9bn with European sales at $3bn.

Eylea is injected into the eye, like Lucentis, but has a different mode of action as Eylea binds to both VEGF-A and placental growth factor; Lucentis binds only VEGF-A. Formycon has a global licensing deal with Klinge Biopharma GmbH and gains sales-related royalties.

The Eylea maintenance dose interval is every eight weeks, double that of Lucentis, although Formycon notes that clinical surveys show that the use patterns are similar. US Eylea patents start to expire in 2020, but there seem to be patent extensions (Sharma et al., 2018) that should prevent biosimilar competition in the US until 2024. European patents expire in 2025. In addition, Eylea formulation patents do not expire until 2027–28. Formycon has filed patents for an alternative formulation that has shown preclinical intraocular bioequivalence.

The Bioeq Phase III (MAGELLAN-AMD, NCT04522167, sponsored by Bioeq) started in August 2020 and is scheduled to complete its primary endpoint in August 2021 so we might expect an announcement in Q421. The primary endpoint is the change in visual acuity at eight weeks. The trial will recruit 400 patients and has a straightforward design with a biosimilar arm and an Eylea comparator arm. There is no switch over.

The visible competitive products in development have increased over the last 12 months. There are two strong players: Samsung Bioepis (with Biogen) and Amgen.

Formycon is developing a biosimilar, FYB202, to Stelara (ustekinumab, Jansen), the second biggest anti-inflammatory product after Humira. The biosimilar market for anti-inflammatory therapies is likely to be competitive with the patent expiries Humira (adalimumab, an anti-TNF monoclonal), mainly used for rheumatoid arthritis, but also Crohn’s disease, ulcerative colitis and psoriatic arthritis. Stelara has a different mode of action to anti-TNF therapies as it binds a different set of inflammatory messenger proteins.

Stelara is an antibody that binds interleukin-12 (IL-12) and IL-23. These potent cytokines drive the immune response so neutralising them controls autoimmune diseases such as Crohn’s disease and psoriasis. Ustekinumab is not used for rheumatoid arthritis (a massive market) but is effective for psoriatic arthritis (Veale and Fearon, 2015). It is also now indicated for Crohn’s disease and ulcerative colitis and these appear to be driving the sales growth. Sales in 2020 rose strongly by 20% to $7.7bn from $6.4bn in 2019.

FYB202 is licensed to privately owned Aristo Pharma through a joint venture vehicle, FYB 202 GmbH & Co KG. Formycon holds 24.9% (Aristo owns 75.1%) and will therefore fund this proportion of the clinical and development costs and receive that share of profits. Phase III started in November 2020. This ‘VESPUCCI’ trial, NCT04595409, is recruiting 392 psoriasis patients in a blinded comparison trial against Stelara. The primary endpoint should be reached from September 2021 with full data by May 2022. This should enable a regulatory filing in H222 and launch in 2023. Stelara has its main US patent expiry in September 2023 in the US and in January 2024 in Europe.

Competitors with biosimilars in development are increasing in number as the patent expiry looms. Interestingly, several of these companies are running three-arm studies, one arm being their candidate product and the other two comparing US and EU manufactured Stelara. Presumably some differences in the two manufacturing sites has raised some marketing concerns. This does not seem an issue for Amgen.

Formycon has announced a preclinical COVID-19 project to produce a fusion protein against the SARS-CoV-2 virus to clear virus quickly from the blood. Other similar ideas use monoclonal antibodies, for example Regeneron uses a mix of two monoclonal antibodies. The Formycon approach uses the natural target of the SARS-CoV-2 virus: the spike protein angiotensin-converting enzyme 2 (ACE2).1

ACE2 is on the surface of cells in some organs like the heart and kidneys and normally cleaves a precursor protein to release a small peptide hormone. This causes blood vessels to dilate. If SARS-CoV-2 spike protein binds the ACE2 catalytic pocket, the virus become anchored to a cell and can then enter the cell and replicate driving infection.

FYB207 takes the binding pocket of ACE2 and attaches it (by gene engineering) to the constant region of immunoglobulin. The constant region allows the fusion protein to be taken up and destroyed by other cells. As the natural ACE2 binding region is used, SARS-CoV-2 cannot evolve not to bind it as it would then not be able to enter cells and reproduce. It is an ingenious system but at this preclinical stage, there is no data.

Regeneron’s antibody mixture, REGN-COV2, is an intravenous infusion of a combination of two monoclonal antibodies (REGN10933 and REGN10987) that bind virus and block the infectivity of SARS-CoV-2. The Phase III efficacy reported in March 2021 showed that in high-risk non-hospitalised patients it significantly reduced the risk of hospitalisation or death by 70% compared to placebo. Data on hospitalised patients is being acquired. The weakness of the antibody approach is that is can be rendered less effective by viral mutations, which spread rapidly.

FYB207 might be a better product than antibody mixtures. Clinical Phase I / IIa trials are expected by Formycon to start in Q421. The dose will also be crucial as a lower effective dose could be much cheaper. A trial would also need to observe any effects on blood pressure. The key advantage is that FYB207 might be effective irrespective of viral mutations. In commercial terms, vaccination should curb high infection rates but if, like flu, SARS-CoV-2 remains a perennial background disease, there will be significant numbers of vulnerable people. A fast, effective and strain independent therapy should therefore have an important long-term role.

Formycon’s market cap is €673m with about €7.6m of liabilities. Adding liabilities and subtracting €42.2m cash gives an EV of about €638m (compared to €285m in September 2020). Formycon has a robust financial position with high development revenues covering most costs, cash for investment (plus €7m in receivables) and a pipeline targeting major global markets.

Commercially, the Samsung Bioepis-Biogen alliance may be the first into the US Eylea biosimilar market with SB11. FYB201 might be second, with Xbrane’s Xlucane third in late 2022. In Europe, the 2022 patent expiry means that all three may launch in a similar timeframe.

A more lucrative market is likely to be for Eylea biosimilars. Two strong players, Samsung Bioepis and Amgen, are moving quickly. Within a few years, the new Roche product, faricimab, could become well established and take the ultra-long injection interval premium slot; we note that injection intervals are in reality determined by the physician and the patient response.

The Stelara opportunity is the biggest market and still showing strong growth. Having the FYB202 Phase III underway shows excellent progress. The main current competitor is Amgen in Phase III. Samsung Bioepis is not too far behind as it will complete Phase I in late 2021.

It is harder to assess the potential for FYB207. It is clearly a very innovative product and there will remain a need for effective therapies to rapidly clear SARS-CoV-2 viral loads. FYB207 could become a key weapon in the therapeutic arsenal. The long-term market will be affected by mutation rates and vaccination effectiveness; hence, it is difficult to project the market at this time.

The main uncertainties are on exact product launch dates, competition and the ability of partners to market effectively in complex global markets. We believe that Formycon should become one of the leading biosimilar companies as its portfolio develops and projects mature. For maximum value potential, Formycon intends to take more financial risk and to fund projects itself.