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Hybrigenics — Update 14 February 2016

Hybrigenics — Update 14 February 2016

Hybrigenics

Analyst avatar placeholder

Written by

Hybrigenics

Landing US orphan drug designation and an IND

Pipeline update

Pharma & biotech

15 February 2016

Price

€0.78

Market cap

€30m

Net cash (€m) at end June 2015

14.8

Shares in issue

35.8m

Free float

85%

Code

ALHYG

Primary exchange

Alternext

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(17.3)

(33.1)

(52.4)

Rel (local)

(8.5)

(15.9)

(43.0)

52-week high/low

€1.86

€0.82

Business description

Hybrigenics is a French biotech company. It provides protein-protein, genetic and small molecule analysis services and is conducting Phase II studies on lead drug inecalcitol in orphan adult leukaemias: chronic lymphocytic leukaemia, chronic myeloid leukaemia and acute myeloid leukaemia.

Next events

Phase II interim reading chronic myeloid leukaemia

Q216

Full recruitment acute myeloid leukaemia US and France

H116

2015 results

April 2016

Analysts

Katherine Genis

+1 646 653 7026

Christian Glennie

+44 (0)20 3077 5727

Hybrigenics is a research client of Edison Investment Research Limited

Hybrigenics is progressing its vitamin D3 derivative inecalcitol through Phase II trials in orphan adult leukaemias. In addition to chronic lymphocytic leukaemia (CLL) and chronic myeloid leukaemia (CML), inecalcitol is prioritising acute myeloid leukaemia (AML) with the start of a Phase II study in France and the US in 2016. Interim Phase II data are expected in Q216 in CML. We lower our valuation from €143m to €120m as hormone-responsive prostate cancer (HRPC) has been put on hold while Hybrigenics focuses on castrate-resistant prostate cancer (CRPC).

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/13

6.1

(2.2)

(8.2)

0.0

N/A

N/A

12/14

5.9

(3.4)

(11.1)

0.0

N/A

N/A

12/15e

6.6

(4.9)

(12.5)

0.0

N/A

N/A

12/16e

7.1

(7.1)

(17.4)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Green light for inecalcitol Phase II in AML

Hybrigenics is prioritising its development of inecalcitol in AML given the treatment’s orphan status in the US and Europe and the scarcity of treatment options in this aggressive and difficult to treat form of leukaemia. The company recently received regulatory approval in both France and the US (in December and January respectively) for the start of a Phase II double-blind placebo controlled trial with inecalcitol in older or frail patients with AML who are not tolerant of standard-of-care chemotherapy and can only receive monthly intravenous perfusions of cytotoxic decitabine. The primary endpoint of the study is overall survival (OS). Enrolment in the 110-patient trial is expected to complete within a year with results in Q418.

Interim Phase II data anticipated in CML

In January 2015, a Phase II trial commenced for inecalcitol in CML as an add-on to imatinib (Gleevec) and interim data, measured by minimal residual disease negativity, are expected in the first half of 2016. The principle of treatment with inecalcitol in CML is to potentially slow disease progression and postpone the need for chemotherapy. Following a 50% response rate in Phase II in CLL, we anticipate some responsiveness of CML patients in combination with imatinib in due course.

Valuation: DCF moves to €120m from €143m

Our revised valuation of €120m primarily reflects the removal of inecalcitol in HRPC from our fair value calculations as the company is now focusing on CRPC. This is partially offset by Hybrigenics’ decision to market inecalcitol on its own in Europe (and partner in the US and ROW), thereby reaping the benefits of direct commercialisation. Renewed development in Phase II/III trials in CLL would increase our valuation to €150m. We estimate that Hybrigenics had cash on hand of €13m at year end 2015, sufficient to fund operations into 2017e and to support ongoing Phase II trials in AML and CML. The company also has a €5m equity line.

Prioritising inecalcitol in AML in the EU and US

Hybrigenics is developing vitamin D3 derivative inecalcitol as a niche therapy in adult leukaemia, progressing trials in AML, CLL and CML. Inecalcitol’s strong safety profile and demonstrated anti-proliferative potency allow for its potential to treat leukaemia patients whose health is already impaired. Ongoing development is supported by encouraging evidence in a Phase II trial in CLL showing a significant slowing of disease progression in treated patients. However, Hybrigenics has prioritised the development of inecalcitol in AML over other leukaemias given the aggressive nature of this indication, lack of effective treatments and supportive clinical data to date. In December, Hybrigenics received the go-ahead from the French Drug Agency for the Investigational Medicinal Product Dossier (IMPD) of its planned Phase II trial of inecalcitol in AML. Authorisation was provided for the start of a study of inecalcitol in older or frail patients with AML who are not tolerant of standard-of-care chemotherapy and only able to receive monthly intravenous perfusions of cytotoxic decitabine. Subsequently, in January the FDA approved the US arm of the inecalcitol Phase II AML trial providing a clearer pathway to marketing authorisation in this critical market. The Phase II study is slated to enrol a total of 110 patients of ~65 years of age, approximately 50% of whom will be recruited in France and the other 50% in the US. The trial will assume the same protocol in each country – double-blind, placebo controlled – and patients will receive decitabine infusions together with oral inecalcitol (4mg) or placebo. The primary endpoint is overall survival, and response rate and tolerance other objectives.

Inecalcitol has orphan drug status in Europe and received the orphan designation in the US in August 2015 supported by in vitro and in vivo preclinical evidence. A disease of adults with a mean age of 63 on diagnosis, AML covers a group of cancers affecting the blood and bone marrow, characterised by the fast-growing production of immature white blood cells or myeloblasts. Prognosis is poor with a median five-year survival rate of ~25%. Hybrigenics received the green light for approval of its Phase II study in just two months in France and one month in the US post filing, evidence of the high unmet medical need in AML and of the regulatory quality and completeness of the inecalcitol dossier for a Phase II investigational new drug (IND). The company has recently taken the decision to market inecalcitol on its own in Europe and will seek a marketing partner in the US. Hybrigenics began Phase II trials for inecalcitol in January 2015 in CML using minimal residual disease (MRD) negativity as an endpoint, an increasingly accepted proxy for improved survival. Inecalcitol is being positioned in CML primarily to prolong remission in patients receiving first-line therapy and reduce the duration of standard treatment by the potential acceleration of an early response. CML is perhaps one of the most treatable forms of leukaemia, particularly with the first approvals of tyrosine kinase inhibitors (TKIs) in 2001 (used to treat up to 90% of patients). The company will seek orphan status in CML based on interim data from the ongoing trial, anticipated in Q2116.

In 2014, Hybrigenics completed a Phase II clinical trial of inecalcitol in early-stage, untreated CLL patients at risk of progression. CLL is the most prevalent form of adult leukaemia and accounts for around 25% of all new cases of leukaemia, although it has the highest five-year survival rate of all haematological cancers at 80%. Inecalcitol is positioned as a pre-chemo treatment in CLL to delay chemotherapy. Results from the French Phase II study in CLL showed that inecalcitol halted disease progression in 52% or 11 out of 21 CLL patients treated for at least five months. Hybrigenics’ management indicates that Phase III studies are pending data completion of the AML trial, which is taking a prominent role in the company’s clinical efforts given the high unmet need and limited competition in this indication.

We provisionally price inecalcitol at an average of €20,000 in the EU and US, below that of other orphan cancer drugs, but see scope for increases based on PFS and OS survival rates.

Exhibit 1: R&D pipeline (all inecalcitol)

Indication

Status

Setting

Notes

CLL

Phase II completed

Monotherapy/untreated/
high risk of progression

21 untreated pts dosed with 2mg oral inecalcitol for at least five months; disease progression was halted in 52% of cases. Designated as orphan drug in EU/US. Next stage Phase III disease progression study.

CML

Phase II ongoing with interim results Q216

+ first-line treatment/stable chronic phase

50 pts across six centres.

AML

Phase II start Q216

Newly diagnosed frail or elderly pts ineligible for standard chemo + decitabine or azacytidine

Trials in the US and France planned in 2016. Designated as orphan drug in the US and EU.

CRPC

Phase IIa completed, programme

+ docetaxel/all

Dose-finding and safety study established daily 4mg oral dose – 40 out of 47 of patients exhibited an 85% reduction in PSA levels within three months, compared to a 65% reduction in PSA levels on docetaxel alone (in external registration study).

Phase IIb proof-of-concept next development stage.

Secondary hyperparathyroidism

Preclinical

Unconfirmed

In the Phase II trial of inecalcitol in psoriasis, PTH levels dropped below the normal range in 92% of dosed patients, suggesting that inecalcitol has a potential application in secondary hyperparathyroidism.

Breast cancer

Preclinical

Unconfirmed

Data from in vitro studies indicate that inecalcitol inhibits proliferation of breast cancer cells and promotes cell death – efficacy correlates to the level of vitamin D and oestrogen receptors.

Source: Hybrigenics, Edison Investment Research

Valuation and financials

Our risk-adjusted DCF sum-of-the-parts valuation moves to €120m, or €3.4 per share, from €143m. Changes to our valuation include:

■

pushing back the formal launch date of inecalcitol to 2021 from 2018 in CLL due to the prioritisation of AML clinical work (but moving peak sales out by just two years and factoring in some off-label use in earlier years);

■

rolling the valuation forward and rebasing it to FY15e from H115;

■

modelling the receipt of income in inecalcitol in AML through direct sales in Europe rather than prior assumptions of royalties and milestones from a partnership. We now assume the cost of a Phase III trial at US$10m over 2018/19 and cost of sales at 30% of annual revenue (modelled as a percent of peak sales). Our assumptions regarding inecalcitol in AML in the US remain unchanged (see Exhibit 2);

■

removing estimates and value for HRPC, given suspension of this programme and current strategic focus on leukaemia indications (previous value for HRPC was €29m); and

■

pushing back the launch of inecalcitol in CRPC to 2022 from 2021 due to the prioritisation of clinical work in leukaemia indications.

Exhibit 2: Valuation assumptions for inecalcitol

Status

Launch date

Peak sales ($m)

Risk adjustment

Market penetration

Royalty

Inecalcitol CLL

Phase III ready

2021

360

35%

15%

25%

Inecalcitol CML

Phase II

2019

257

30%

15%

25%

Inecalcitol AML US

Phase II

2020

62

30%

15%

25%

Inecalcitol AML Europe

Phase II

2020

45

30%

15%

NA

Inecalcitol CRPC

Phase IIa completed

2022

202

10%

10%

15%

Source: Edison Investment Research

Exhibit 3: Sum-of-the-parts DCF valuation

Driver

Value per share (€)

Value (€m)

Inecalcitol CLL

2.3

83.0

Inecalcitol AML - US

0.3

9.6

Inecalcitol AML – EU

0.4

13.4

Inecalcitol CML

1.4

49.0

Inecalcitol CRPC

0.2

5.4

Milestones

0.3

10.4

Services Division

0.2

8.9

Servier Collaboration

0.05

1.7

Risk-adjusted expenses including R&D

(0.7)

(24.7)

Tax

(1.4)

(49.7)

Net cash FY15e

0.4

13.0

Total

3.4

120.1

Number of shares

35.8

Source: Edison Investment Research

The principle portion of our valuation remains inecalcitol in oncology. Our value for Hybrigenics Services is unchanged on 2x FY15e revenue. We apply a royalty rate in the leukaemia indications of 25%, assuming the company completes pivotal studies rather than out-licensing inecalcitol before Phase III. Chief catalysts for 2016 are interim data from the CML trial and full enrolment of the AML trial, which if positive provide scope for an increases in our valuation. In AML we await critical survival data which, if they demonstrate a significant increase in survival benefit, might lead us to increase our pricing assumptions for inecalcitol (AML is the more aggressive of the three leukaemia types in clinical development at Hybrigenics and therefore the indication with the quickest potential for OS).

Our near-term forecasts for Hybrigenics are unchanged since our outlook report published in July 2015, at which time preliminary H115 results including revenue and cash position had been released. The company reported a net result for H215 in October of €2.3m (H114: €2.1) helped by an increase in research tax credit. We await detailed 2015 results in April, at which time the company is likely to present its financials in IFRS as the company transitions to the new accounting standards. Our year-end cash estimate of €12.9m should fuel operations into 2017, enabling funding of the CML and AML Phase II studies. Additionally, Hybrigenics has a €5m equity line with Yorkville, which it can draw down.

Exhibit 4: Financial summary

€000s

2013

2014

2015e

2016e

Year end 31 December

LOCAL GAAP

LOCAL GAAP

LOCAL GAAP

LOCAL GAAP

PROFIT & LOSS

Revenue

 

 

6,087

5,862

6,564

7,122

Cost of sales

0

0

0

0

Gross profit

6,087

5,862

6,564

7,122

EBITDA

 

 

(2,054)

(3,281)

(4,808)

(7,191)

Operating profit (before GW and except)

 

(2,182)

(3,424)

(5,031)

(7,376)

Intangible amortisation

(226)

(200)

(155)

(116)

Exceptionals

56

151

0

0

Share-based payments

0

0

0

0

Operating profit

(2,352)

(3,473)

(5,186)

(7,493)

Net interest

(21)

29

125

241

Profit before tax (norm)

 

 

(2,203)

(3,395)

(4,906)

(7,135)

Profit before tax (reported)

 

 

(2,373)

(3,444)

(5,061)

(7,252)

Tax

601

573

638

928

Profit after tax (norm)

(1,602)

(2,822)

(4,268)

(6,208)

Profit after tax (reported)

(1,772)

(2,871)

(4,423)

(6,324)

Average number of shares outstanding (m)

19.8

25.9

34.1

35.8

EPS - normalised (c)

 

 

(8.2)

(11.1)

(12.5)

(17.4)

EPS - FRS 3 (c)

 

 

(9.0)

(11.1)

(13.0)

(17.7)

Dividend per share (c)

0.0

0.0

0.0

0.0

Gross margin (%)

N/A

N/A

N/A

N/A

EBITDA margin (%)

N/A

N/A

N/A

N/A

Operating margin (before GW and except) (%)

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed assets

 

 

1,134

1,296

1,125

971

Intangible assets

588

621

466

349

Tangible assets

241

446

371

333

Investments

305

229

288

289

Current assets

 

 

6,704

15,351

19,434

13,646

Stocks

906

2,025

2,267

2,460

Debtors

3,364

3,677

4,117

4,468

Cash

2,434

9,649

13,049

6,718

Other

0

0

0

0

Current liabilities

 

 

(2,595)

(3,368)

(2,850)

(3,628)

Creditors

(1,625)

(2,548)

(2,215)

(2,941)

Other current liabilities

(471)

(482)

(535)

(589)

Short-term borrowings

(499)

(338)

(100)

(99)

Long-term liabilities

 

 

0

0

0

0

Long-term borrowings

0

0

0

0

Other long-term liabilities

0

0

0

0

Net assets

 

 

5,243

13,279

17,708

10,989

CASH FLOW

Operating cash flow

 

 

(1,778)

(2,920)

(5,876)

(7,062)

Net interest

(21)

29

125

241

Tax

322

601

573

638

Capex

(40)

(349)

(148)

(147)

Payment of deferred consideration

0

0

0

0

Capitalisation of development costs

0

0

0

0

Expenditure on intangibles

0

0

0

0

Acquisitions/disposals

(495)

(42)

0

0

Financing

1,898

10,944

8,964

0

Dividends

0

0

0

0

Net cash flow

(114)

8,263

3,638

(6,330)

Opening net debt/(cash)

 

 

(2,780)

(1,935)

(9,311)

(12,949)

HP finance leases initiated

0

0

0

0

Other

(731)

-887

0

0

Closing net debt/(cash)

 

 

(1,935)

(9,311)

(12,949)

(6,619)

Source: Company accounts, Edison Investment Research

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