Imperial Innovations — Update 27 September 2016

Improving cancer care

Company profiles

PsiOxus Therapeutics

Cell Medica

MISSION Therapeutics

Crescendo Biologics

Inivata

Kesios Therapeutics

Storm Therapeutics

Imperial Innovations’ oncology portfolio comprises seven companies, six of which fall into the therapeutics sub-sector and one into medtech. Three companies (PsiOxus Therapeutics, Cell Medica and Mission Therapeutics) are included in Innovations top 10 portfolio investments by fair value (ranked four, five and eight respectively). They have a collective fair value (carrying value) of £53.8m representing 23.1% of the value of the top 10 and 15% of total portfolio value at end January 2016. The total carrying value of Innovations’ investment in its seven cancer-focused portfolio companies (excluding Storm, where this is undisclosed) is £72.1m, or 20% of total portfolio value.

A common theme across the Innovations oncology portfolio is a commitment to improving cancer care. The global oncology market covers a diverse range of indications, with similar diversity in the therapeutics and diagnostics that address these cancers. Innovations’ investee companies are equally diverse (Exhibit 1), applying various approaches to improve the treatment of cancer:

Innovations’ investment case rests on the success of its investment strategy, in particular its ability to achieve increases in portfolio value (and hence NAV) over and above net new investment. Its model involves creating, building and investing in early-stage companies based on pioneering technologies and outstanding scientific research. Over a longer time frame, there is significant potential for value creation from its unquoted portfolio. In the near to mid-term, a number of maturing ‘accelerated growth’ companies are approaching important catalysts.

As of 31 January 2016, Innovations’ total unquoted portfolio was valued at £255.1m vs a quoted portfolio valuation of £100.0m. The momentum in and increasing maturity of the unquoted oncology portfolio is evidenced by the number and size of recent funding rounds led by Innovations. These include significant investment rounds in Kesios Therapeutics (£19m), Inivata (£31.5m), Mission Therapeutics (£60m) and Storm Therapeutics (£12m) in the last 12 months. It also highlights the wider belief in the potential of these companies shared by the respective investment syndicates. Exhibit 2 provides an overview of the investment history of Innovations’ oncology portfolio.

With increasing maturity there has been an increased divergence between the carrying value of companies in Innovations’ accounts and the funds invested. The most recent disclosed carrying value of the seven oncology companies was c 1.55x the cumulative cash invested. As illustrated by Exhibit 3, this uplift differential is greater for the three companies in the top 10: 65% for PsiOxus, 71% for Cell Medica and 73.5% for Mission.

Innovations’ involvement is not limited to providing funding to build high-quality companies, but also to supporting technology development and building highly skilled management teams. These world-class, internationally experienced management teams consist of individuals with the right scientific and commercial acumen to develop and grow their respective companies with the aim of creating substantial value. Within oncology, and more broadly across the healthcare portfolio, the products/technologies being developed demonstrate the combination of innovation, market need and potential for disruptive technologies that Innovations seeks.

The recent approvals of several breakthrough – and blockbuster –immunoncology drugs has revolutionised the treatment of certain cancers. Drugs such as the immune checkpoint inhibitors Opdivo (BMS) and Keytruda (Merck), antibody-drug conjugates (eg Genentech’s Kadcyla) and T cell engagers including Amgen’s Blincyto have had a dramatic impact on survival and have made immunoncology a sub-sector to watch. The potential of this market continues to grow. There are an increasing number of potential drug targets that are being characterised, which in the context of resistance in some tumour types means that combination approaches are coming to the fore. Parallels can be drawn with the combination ‘land-grab’ seen with hepatitis C combinations as the larger immunoncology players evaluate and secure access to different combination approaches to consolidate their leadership position by developing the most clinically relevant combinations.

Innovations has invested in three companies – PsiOxus, Cell Medica and Crescendo – that are each applying a different proprietary platform to address unmet needs in immunoncology. PsiOxus and Cell Medica also have early-stage drug pipelines that include candidates for combination therapy approaches. The focus of development for these therapeutic companies includes:

From the medtech angle, Innovations has recently increased its investment in Inivata, a clinical cancer genomics company based on the detection and analysis of circulating DNA (ctDNA) from a blood sample. Inivata is developing its liquid biopsy platform with the ultimate goal of improving clinical decision making in personalised medicine; helping physicians ensure they get the right drug to the right tumour type.

Multiple value inflection points are approaching for the oncology portfolio companies (Exhibit 4). Additional investment and the positive outcome of key catalysts have the potential to unlock hidden value. A substantial portion (83.3%) of the unquoted portfolio is valued at cost or last funding round, with a much smaller, albeit growing amount of value (14.4%) attributed to the last funding round adjusted for milestones and impairments. Achieving technical, clinical and commercial milestones should prompt greater valuation uplifts in the future; other mechanisms for unlocking unquoted portfolio value include IPOs or trade sales.

Four healthcare companies make up Innovations quoted portfolio, which at end January 2016 was valued at £100m or 28% of total portfolio value. One of these companies, Abzena, is involved in cancer R&D. It is a fully integrated research and manufacturing services company that offers its clients enabling technologies to develop safer and more effective biological products, some of which are being evaluated in the clinic. Further discussion on Abzena is outside the scope of this report; Edison research on the company can be found here.

Ahead of FY16 results (to end July), which will be announced in October, we have used market information to ‘revalue’ the quoted portfolio (Exhibit 5). The announcement in June that Circassia’s Cat-SPIRE Phase III trial failed to meet its primary endpoint resulted in a sharp drop in its share price, which lost over two-thirds of its value. Before this, Circassia was Innovations’ largest portfolio holding so the market reaction means that Nexeon, a battery materials company, will move into the top spot and the relative contribution of healthcare and also quoted companies to the portfolio will be depressed at end July (FY16).

We highlight that the last reported value of Innovations’ oncology assets (£72.1m) now exceeds our assessment of the quoted portfolio value at end-FY16. In our view, 2016 is an attractive entry point for investors in Innovations. There remains significant potential for future valuation uplift given the material near-term milestones approaching for many of the unquoted oncology assets and evidence of accelerating investment into a maturing portfolio.

PsiOxus Therapeutics is an Oxford-based immunotherapy company that has developed a tumour-targeted delivery platform based on its lead oncolytic vaccine, enadenotucirev (formerly ColoAd1). Enadenotucirev is an oncolytic virus that selectively kills cancer cells by lysis; it is being studied in four clinical trials in various epithelial-derived and solid cancers (due to the range of the host virus). Under the PsiOxus collaboration with Bristol Myers Squibb, a Phase I combination study of enadenotucirev with checkpoint inhibitor nivolumab (Opdivo) in a range of tumours is due to start by year end. PsiOxus also has a next-generation platform (T-SIGn therapy) in development. This platform enables the anti-tumour effect of enadenotucirev to be expanded through the addition of new genes creating a broad range of unique oncolytic immune therapeutics. NG-348, the first product candidate to emerge from this platform, will start Phase I in 2017.

PsiOxus has made significant progress in advancing its oncology pipeline and technology platform since closing a £25m Series C round in May 2015 (Exhibit 6). Two new enadenotucirev combination trials (OCTAVE with paclitaxel in ovarian cancer and SPICE with nivolumab in carcinomas including colorectal cancer) have begun enrolment. SPICE was originally initiated with pembrolizumab (Merck &Co’s Keytruda); as part of the new BMS collaboration, the combination was switched.

Data from the checkpoint inhibitor combination trials could establish whether enadenotucirev’s ability to infect tumour cells and trigger an immune response is able to overcome issues with checkpoint resistance. If this is shown in mCRC (one of the indications in the SPICE trial), it could potentially become the lead indication, overtaking others also in the clinic and opening up a new and lucrative commercial opportunity for PsiOxus by introducing a first-in-class oncolytic immunotherapy in the large mCRC market (Evaluate Pharma forecast modest growth in annual sales in mCRC from $6.8bn in 2015 to $7.3bn by 2022).

Enadenotucirev is also central to PsiOxus’s patented tumour specific delivery platform, T-SIGn therapy, which underpins its next-generation pipeline. This technology enables the expansion of enadenotucirev’s anti-tumour effect though the addition of new genes (Armed EnAd). Investment has been made into multiple preclinical projects that are designed to deliver immunotherapies to local tumour sites of action. The lead T-SIGn programme, NG-348, which infects and modifies cancer cells to express T cell activating ligands, is expected to enter the clinic in 2017. Data from ongoing trials, progress under the BMS collaboration and advancement of the new pipeline into the clinic will all contribute to a newsflow-rich 2017/18.

Enadenotucirev, a systemically administered intravenous oncolytic adenovirus therapy, is being studied in four clinical trials in a variety of cancer indications. Initial data is available from a dose finding Phase I/II study (EVOLVE) and a Phase I mechanism of action study (MoA). Combination studies of Enadenotucirev with paclitaxel (OCTAVE) and nivolumab (SPICE) are ongoing. These four trials are all expected to read out within the next six to 18 months (Exhibit 7). Results so far suggest that enadenotucirev has a safety profile in line with other adenoviruses with mostly grade 1 or 2 events, while efficacy data at this stage is limited due to the early stage of results and limited patient numbers (data to date is from 10 patients in the MoA study and 15 patients in EVOLVE). Safety and initial efficacy data from OCTAVE and maximum tolerated dose data from SPICE are due later this year, with clinical proof of concept in both studies expected to be achieved in 2017.

Enadenotucirev was selected from an adenovirus library that was screened against tumour and healthy cells. Viruses that killed cancer cells but demonstrated low healthy cell death were selected as product candidates. It can be delivered intravenously or intratumorally and PsiOxus predicts it will be able to produce it in 1,000L bioreactors (currently 50L) when it comes to launch with stability at +4°C (currently -60°C). Both are vital for a successful launch and substantial sales.

Enadenotucirev appears to have a number of potential benefits over Amgen’s first-in-class oncolytic virus, Imglyic (talimogene laherparepvec or T-vec), which is approved for melanoma and was the rationale behind its $1bn acquisition of BioVex in 2011. Benefits include mode of administration, not being subject to the same manufacturing limitations, improved stability and potential for use in all epithelially derived tumours (but not melanoma or other neuroendocrine tumours).

PsiOxus and Bristol Myers Squibb (BMS) recently announced a clinical collaboration to test the combination of Opdivo (nivolumab) and enadenotucirev in a range of tumours in late-stage cancer patients. This is one of a number of combination-focused deals across the sector, with interest driven by the clinical and commercial success of immune checkpoint inhibitors and the increased efficacy seen when used in combination with other types of immunotherapy. Preclinical studies using human cells have shown that enadenotucirev is able to directly stimulate immune cell activity; this stimulation has recently been shown to synergise with the activity of checkpoint inhibitors. This synergistic effect requires clinical validation, which the BMS collaboration aims to provide.

PsiOxus and BMS will work together to conduct Phase I studies to determine whether combining enadenotucirev (an immune stimulator) with nivolumab (an inhibitor of immune suppression) leads to a significant improvement in efficacy (ie the proportion of patients achieving objective tumour responses, tumour shrinkage and/or durability of response). A Phase I study (in mCRC plus three other undisclosed patient cohorts) is expected to start patient enrolment by year end.

Under the terms of the BMS deal both parties will jointly fund the development of an expanded range of clinical trials with BMS making a one-time upfront payment of $10m to PsiOxus. The agreement covers the exclusive use of enadenotucirev with anti-PD-1/PD-L1 antagonist antibodies and also provides BMS with a time-limited right of exclusive negotiation for commercial rights to enadenotucirev. This deal structure balances the early developmental stage of the combination with the potential BMS see in enadenotucirev. Positive future clinical results could pave the way to expand the target market for nivolumab into indications where the majority of tumours show resistance to checkpoint inhibitor monotherapy, eg mCRC where >90% of tumours are considered to be resistant.

PsiOxus’s tumour-specific delivery platform, T-SIGn therapy (Tumour-Selective Immuno-Gene therapy), forms the basis of its next-generation pipeline. This technology approach can be seen as ‘gene therapy for cancer’. Multiple preclinical T-SIGn viruses have been developed, each of which delivers a different gene or combination of genes to cancer cells. These genes in turn each target a different receptor or pathway that is important for cancer immunotherapy.. The existing preclinical programmes use the following therapeutic molecules to deliver immunotherapies to local tumour sites of action:

The lead T-SIGn programme is a MiTE; NG-348 is a virus that modifies tumour cells to express a receptor that is recognised by a T cell. It is independent of any tumour antigen and aims to be an off-the-shelf mass-produced product (not an autologous cell therapy) directed against solid tumours. NG-348 is on track to enter the clinic in 2017. Clinical data will be important in validating the broader Armed enadenotucirev approach, even though it has been somewhat de-risked by the available enadenotucirev data. Further data on all enadenotucirev-based programmes should confirm efficacy and also improved safety due to minimal systemic exposure.

Adenovirus technology is attracting significant scientific and investor interest, specifically in oncology. Some of this interest can be attributed to clinical and preclinical developments within gene therapy; however, much is due to the clinical and commercial and success of the checkpoint inhibitors Opdivo and Keytruda, which have focused attention on immunotherapies in general.

Immunotherapy deals and acquisitions have become common, including viral vectors and oncolytic viruses. Amgen acquired Imlygic, the first and so far only oncolytic virus approved for use by the FDA and EMA, through its $1bn purchase of BioVex in 2011. It was approved for the local treatment of unresectable nodal lesions with recurrent melanoma after initial surgery on the basis of an improved durable response (complete or partial response) in 16.3% of patients vs 2.1% of patients treated with GM-CSF (an immune stimulator). However, it did not demonstrate any overall survival benefit over GM-CSF. The limited efficacy and the £65,000 average price mean Imlygic’s commercial success is limited. Nevertheless, of greater importance to the field is that it has both paved the regulatory pathway for viral technology and introduced clinicians to the concept. The next wave of oncolytic viruses to demonstrate both good efficacy and safety could find a pivotal role in cancer treatment.

Against this background, there have been various recent deals; with Celgene and Pfizer either announcing collaborations or investments furthering their exposure to oncolytic viruses in July. The Pfizer collaboration with Western Oncolytics will investigate novel oncolytic virus technology and carry out preclinical and Phase I studies of WO-12 (which Pfizer retains an exclusive option to acquire).While no deal terms are disclosed, Pfizer points to the promise of combination immunotherapies as a driver for the deal. Celgene participated in a $57m Series A funding round for Oncorus, which has a product based on a herpes simplex virus in preclinical development for glioblastoma multiforme.

Of the public companies with oncolytic virus assets, Transgene (market cap: c €113m) has the most advanced clinical programme Pexa-Vec (partnered with private company Sillajen), which is in a Phase III combination study with sorafenib in advanced unresectable hepatocellular carcinoma. Another interesting public company, Viralytics (market cap: c A$220m), is evaluating Cavatak in Phase I/II studies in late-stage melanoma and other solid tumour types as monotherapy and in combination (with Yervoy and with checkpoint inhibitors).

PsiOxus’s T-SIGn Therapy platform uses gene therapy-based technology to generate a tumour selective response. Recent corporate activity in gene therapy has been outside oncology, but still provides a reasonable metric with which to compare the potential value of the overall technological approach. Examples include the August 2016 Pfizer purchase of Bamboo Therapeutics for $150m plus $495m in milestone payments (exclusive of the $43m Pfizer invested in Q116). Bamboo has an adenovirus associated (AAV)-based technology platform that is focused on central nervous system and neuromuscular diseases. Their lead product candidate is in Phase I/II for giant axonal neuropathy. Another significant deal involved Biogen’s licensing agreement with AGTC in July 2015 with a $124m upfront (including a $30m equity investment) and potential milestone payments exceeding $1bn for an ophthalmology-focused AAV technology platform. Finally, the NASDAQ IPO of Audentes Therapeutics in July 2016 raised $75m gross (current market cap: c $340m); their AAV technology platform is focused on rare diseases and is entirely preclinical.

Lead T-SIGn therapy programme, NG-348, has broad parallels with CAR-T/TCR as it involves the generation of a T cell specific response; however, it also has the potential to address challenges that have emerged with CAR-T.CAR-T/TCR companies continue to generate significant investor interest as pipelines progress towards commercialisation: Bluebird Bio, Kite Pharma, Juno Therapeutics and Novartis are four leaders within CAR-T/TCR technology. More detail on their deals and current status can be found in the Cell Medica section of this report. Novartis’ announcement that it intends to disband its dedicated cell and gene therapy unit, absorbing some functions in its broader oncology business, highlights some of the challenges faced by the CAR-T field (toxicity, manufacturing limitations/costs and limited efficacy in solid tumours).Two important differences between CAR-T and NG-348 are the target indications and safety and toxicity profile. CAR-T therapies are typically directed against haematological malignancies while PsiOxus is developing products for epithelial-derived and solid cancers due to the range of the host virus.

The safety of CAR-T is a major area of concern, particularly as it broadly correlates with efficacy. CAR-T therapies have been shown to cause broad inflammatory responses causes by cytokine release syndrome (CRS), while neurotoxicity has recently been put in the spotlight after the death of three patients in trial being carried out by Juno Therapeutics. PsiOxus’s T-SIGn therapy product candidates are unlikely to see these same side effects. Unlike CAR-T they aim to modify the tumour cells to be more receptive to T cells and not the other way around. Thus the side effect profile may be more akin to gene therapy and oncolytic viruses, which to date have demonstrated more favourable safety than CAR-T or TCR technologies. A final noteworthy transaction is the $320m (£205m) private financing round completed in July 2015 by Immunocore, a company developing novel TCR-based bi-specific biologic drugs primarily for immunoncology. It has a proprietary ImmTAC platform, an unpartnered lead programme that has completed Phase I/IIa in melanoma and has multi-target discovery partnerships with Genentech, GSK, AstraZeneca (MedImmune) and Eli Lilly (with the latter including a co-development option).

PsiOxus was founded in 2010 in its present form and has raised £45.7m to date, excluding non-dilutive payments received from collaborators. The most recent funding round was a £25m Series C in May 2015. Innovations hold 27.9% of the company, which has a fair value of £22.6m, a 65% increase on its £13.7m investment. This implies a whole company fair value of £81m.

In addition to the prospect of further investment or potential for an exit (through IPO), there are multiple clinical and business development catalysts that could drive significant valuation uplifts for PsiOxus. These relate to three different but interlinked aspects of its business:

Cell Medica is focused on the development of T cell immunotherapies for cancer and immune reconstitution. It markets Cytovir CMV for the prophylaxis and treatment of CMV (cytomegalovirus) infections following allogeneic hematopoietic stem cell transplantation (allo-HSCT); however, this profile concentrates solely on Cell Medica’s oncology pipeline. The current pipeline targets viral cancers. Lead project, CMD-003 (consisting of autologous T cells that target cancer cells expressing the oncogenic Epstein Barr virus, EBV)is being studied in four indications. The Phase II CITADEL trial in EBV-positive extranodal natural killer T cell lymphoma (ENKTCL) is the most advanced with potential for BLA/MAA filing in 2018/19. The recent Delenex Therapeutics acquisition and new collaborations with Baylor College of Medicine and University College London (UCL) expand Cell Medica’s capabilities, enabling it to begin to build an earlier-stage pipeline targeting solid tumours with CAR and TCR-modified approaches.

Cell Medica’s early leadership position in the development, marketing and manufacturing of T cell immunotherapies was established with its immune reconstitution products,1 with subsequent progression into oncology, in particular viral-associated cancers (EBV and human papilloma virus, HPV). The lead cancer asset, CMD-003, is approaching clinical decision points that, if positive, would allow for first regulatory filings in 2018/19. Expansion of the pipeline into solid tumours is the next step in Cell Medica’s evolution. The execution of a number of significant deals so far in 2016, including the acquisition of Delenex Therapeutics and strategic collaborations with Baylor and UCL, gives Cell Medica access to cutting-edge technology platforms to build a pipeline of autologous cellular immunotherapy products based on CAR (chimeric antigen receptor) and gene-modified TCR (T cell receptor) technologies. Deal structures and recent newsflow are outlined in Exhibit 8.

Cell Medica’s current oncology pipeline is focused on virus-specific T cells. By targeting tumour cells that express antigens associated with a specific virus, any immune response should be contained to malignant cells with minimal toxicity due to reduction of on-target/off-tumour effects (drug targets are often expressed on both cancerous and healthy cells, a drug, in this case a modified T cell can bind to the correct target [on-target] but on a healthy cell [off-tumour] causing unintended toxicity). Two product candidates are in development for treatment of virus-related cancers: CMD-003 targeting the EBV protein and CMD-004 for HPV. EBV was the first virus to be discovered to cause cancer and is now widely associated with a range of cancers; while HPV is the cause of most cervical cancers, in addition to some oropharyngeal (back of the throat) and anogenital cancers. In both cases, to manufacture the products, cells are isolated from a patient’s blood sample and virus specific T cells are isolated and expanded before (autologous) administration back into the patient. Expansion of the T cells involves stimulation with viral antigens, antigen presenting cells and cytokines.

CMD-003, the lead product candidate is being studied across four indications. It has FDA orphan drug status for all EBV positive (EBV+) non-Hodgkin lymphomas, more recently being granted European Orphan Designation for EBV+ extranodal natural killer T cell lymphoma (ENKTCL), nasopharyngeal carcinoma and post-transplant lympho-proliferative disorder (PTLD). An application for FDA Fast Track Status will be made later this year. The most advanced trial is the single-arm open label CITADEL Phase II in ENKTCL; initial data is expected towards end-2016 with completion expected in 2017. A similar product to CMD-003 is under investigation in patients with a range of EBV+ lymphomas in the GRALE study at Baylor with further data updates anticipated in 2016.

Expected newsflow from the cancer pipeline is shown in Exhibit 9. We highlight that enrolment is due in the CMD-003 Phase II label expansion CIVIC trial in H216, which will study CMD-003 in three additional indications: EBV+ Hodgkin lymphoma, EBV+ diffuse large B cell lymphoma and EBV+ PTLD. The completion of the CITADEL trial and data updates for CIVIC, both expected in 2017, will represent potential major value inflection points for Cell Medica. Additionally, progress is expected with the earlier-stage pipeline in 2017; in particular with CMD-004 for HPV-related cancer, which will move into Phase I in 2017 (proof of concept demonstrated with a similar product in academic studies); and with the CAR and TCR-modified collaborations discussed in more detail below.

Cell Medica broadly articulated its pipeline development strategy for solid tumours at Innovations’ May capital markets day, also unveiling a preclinical pipeline including autologous CAR immune cells (in small cell lung cancer, neuroblastoma, liver and triple-negative breast cancer) and gene-modified TCRs (in pancreatic, ovarian and gastric cancers) for undisclosed targets. It has since secured important CAR-and TCR-enabling technologies and IP in three deals, providing additional capabilities to Cell Medica’s existing approaches for the development of gene-modified immunoncology therapies. Deal values for all three are undisclosed.

The deals (outlined below) will facilitate Cell Medica in identifying novel products with enhanced potency as well as combining the targeting aspects of CAR (surface antigens) and TCR (intracellular antigens) with functional engineering to counteract tumour immune evasion/inhibitory mechanisms. This will add to and strengthen the existing pipeline which is targeting the start of first-in-man studies in 2018/19.

The structure of the two strategic collaborations is similar and in our view provides the template for further deals of this type. Baylor and UCL are responsible for preclinical and Phase I research under the guidance of a joint steering committee, while Cell Medica supports product development and applies its manufacturing and process know-how for clinical production and scale up. Post Phase I, the products transfer to Cell Medica for further development and commercialisation.

Cell Medica’s collaborations with Baylor and UCL and rapidly advancing pipeline put it in a prime position for future investment or deals. Immunotherapy-focused companies are vying to be at the forefront of cancer treatment and the commercial success of immune checkpoint inhibitors has only further increased investor interest. CAR-T and TCR therapies, alongside checkpoint inhibitors, continue to be one of the most promising immunotherapy sub-sectors.

Bluebird Bio, Kite Pharma, Juno Therapeutics and Novartis are four leaders within CAR-T and TCR technology (Exhibit 10), although Novartis has recently announced that it is disbanding its cell and gene therapy unit. The first three listed on NASDAQ within the last four years, raising significant sums although all are now trading at levels close to their admission price, largely due to safety concerns. Cytokine-release syndrome and neurotoxicity are common with CAR-T and their incidence broadly correlates with efficacy; the former is generally well characterised and easier to treat than neurological side effects which, in clinical trials have been seen to occur more frequently in patients with a higher disease burden.

Safety was recently brought into focus with the clinical hold of Juno’s Phase II ROCKET study of its CD19 targeting CAR-T (JCAR015) in B-cell ALL following the death of two patients from cerebral oedema. The recently added fludarabine preconditioning regimen was promptly identified as the cause of the problem, which once removed persuaded the FDA to lift the hold uncharacteristically quickly within a week. Kite’s ZUMA-1 trial also utilises a fludarabine pre-treatment, albeit at a lower dose, and is progressing that trial unchanged.

Nevertheless, the rapid advance of CAR-T lead immunotherapy products continues; Kite, Juno and Novartis are looking to edge each other to market the first CAR-T therapy (targeting CD-19 in a range of haematological cancers). Kite could be first to market; if the upcoming trial in DLBCL (ZUMA-1) is positive, it plans to approach the FDA to discuss BLA filing by end-2016 under accelerated approval. If approved, Kite could launch KTE-C19 in 2017. Novartis is targeting BLA filing in 2017 for CTL019, while the short-lived clinical hold of Juno’s JCAR015 has pushed its potential launch window into 2018. This could enable Kite to have a first to market advantage; however, the small patient numbers and follow-up time may come under scrutiny from the FDA.

It is apparent that while CAR-T therapies have demonstrated impressive efficacy (with remission rates from 67% to 90% achieved by various investigational therapies), any improvements in safety achieved by next-generation platforms and technologies could give them a substantial advantage. Cell Medica’s T cell platforms, while comparable, are based on different technology. Thus its product candidates CMD-003 and CMD-004 may demonstrate safety advantages over CAR-T technology due to their reliance on external stimulation of T cells rather than genetic modification. Additionally the specificity of Cell Medica’s modified T cells to viral antigens could help minimise off-tumour effects and favourable safety data has been reported to date. The Baylor agreement to develop CAR- and TCR-based NKT cells will be watched with interest as any safety benefits over current generation therapies could provide a major market edge for Cell Medica.

Since its foundation in 2007, Cell Medica has attracted £72m in investment; most recently raising £50m in a November 2014 Series B round led by Innovations (which committed £15m). Innovations holds a 27% share of Cell Medica, carried at £21.0m. This represents a 71% increase over the £12.3m invested, and implies a £77m company valuation.

Success of CMD-003 in the Phase II CITADEL trial could prove a major valuation driver and if FDA fast track status is achieved, it would allow BLA/MAA filing in 2018/19. Label expansions could also be expected around 2022/23 if data proves positive.

Further in the future, the shift into the CAR and TCR space and the broadening access to an arsenal of technologies through collaborations will expand Cell Medica’s pipeline into a more diverse range of tumour types. Progress with this next-generation pipeline could attract industry partners and unlock further hidden value. The comparator public companies highlighted, while much more progressed, give some indication on potential value that may be lie ahead for Cell Medica whether through deals or an IPO.

Mission Therapeutics is a drug discovery company that is uniquely placed at the forefront of deubiquitylating enzyme (DUB) drug discovery and development. Since inception in 2011, Mission has built and developed a proprietary chemistry platform and significant know-how in the generation of potent and selective small molecule DUB inhibitors. Ubiquitin is a small protein that is found in the vast majority of tissues and is involved in numerous cellular processes, including DNA damage and cell proliferation; DUBs are proteases that cleave ubiquitin from protein/other molecules. Hence targeting ubiquitin through the inhibition of DUBs holds the potential to generate novel drugs to treat cancer and other unmet medical needs, including neurodegenerative disease, inflammation, fibrosis, muscle wasting and infectious disease.

Mission’s founder and CSO, Professor Steve Jackson, is an eminent figure in cancer research. He has held leadership positions at the Gurdon and Sanger Institutes in Cambridge as well as heading Cancer Research UK’s laboratories. He was also co-founder of KuDOS Pharma, which was acquired by AstraZeneca in 2006 for £120m and was the originator of Lynparza(olaparib), the first PARP inhibitor, approved in 2014. Consequently the origins of Mission lie within the oncology space, and it has subsequently generated DUB inhibitor leads, which target regulatory T cells (T-regs), DNA damage response and synthetic lethality mechanisms.

DUBs are one component of the ubiquitin proteasome system (UPS), which was established as an anti-cancer target with the approval of proteasome inhibitors (PI) in haematological malignancies. To date, three PIs bortezomib (Velcade, Millennium Pharmaceuticals), carfilzomib (Kyprolis, Onyx Pharmaceuticals) and ixazomib (Ninlaro, Millennium/Takeda) have received regulatory approval. However, with the increased understanding of the role of DUBs in various indications and the development of the proprietary DUB platform, Mission is following the science and diversifying its therapeutic applications.

Mission Therapeutics’ strategy is to leverage its technology platform and expertise to advance multiple pipeline opportunities through early-clinical development across a range of indications, with the ultimate aim of developing first-in-class small molecule DUB inhibitor drugs. Its DUB platform is unique and incorporates a number of proprietary elements, including insights into DUB target identification and validation, a robust DUB-specific screening cascade and a growing small molecule DUB inhibitor library. The company has filed numerous patent applications covering various aspects of its platform (target validation, proprietary assay development) and pipeline (composition of matter and patient selection/biomarker strategies). In March 2016, its first chemistry patent was published. Exhibit 11 summarises recent news.

Following its £60m Series C round in February 2016, Mission is sufficiently funded to take its two lead programmes through Phase I. These two programmes, a potentially disease-modifying USP30 inhibitor for Parkinson’s disease and a USP7 inhibitor for unspecified cancers, are both less than 18 months from entering the clinic. Expected pipeline catalysts are shown in Exhibit 12.

In addition to its two lead programmes, Mission is pursuing lead optimisation work on a number of other undisclosed DUB targets and has the potential to leverage its DUB platform to explore multiple additional DUB targets in other indications. Existing funds are not specifically earmarked for these activities; securing strategic partnerships for the existing pipeline or to access the platform would advance progress on these fronts. In the absence of a partner, additional funding would need to be sought from other sources – private or public –to deepen and progress Mission’s pipeline.

Mission’s ability to generate potent and selective DUB inhibitors against a diverse array of well-characterised, albeit previously chemically intractable targets should attract the attention of large pharma, who remain on the hunt for approaches to replenish their R&D pipelines. Mission is not aware of any DUB inhibitors in clinical development; thus its technology represents a compelling opportunity to generate first-in-class drugs to address unmet medical need in commercially attractive markets. Importantly, Mission is pursuing indications in which there is a clear clinical pathway. First Phase I data would be central to providing clinical validation for the DUB inhibitor approach, although it is not critical to securing collaboration with a major pharma company.

A number of deals worth hundreds of millions of US biodollars have been executed in recent years for related technologies/assets. Economics are likely to be back-end weighted, although terms are undisclosed. These deals would typically encompass an up-front payment, R&D funding, option fee and potential research, development, regulatory and commercial milestones in addition to tiered sales royalties. Often they include an equity investment in addition to the upfront payment, and are structured as discovery collaboration with an option to license.

DUBs are a novel therapeutic target; however, kinase drug discovery has parallels with this approach and FDA/EMA approval of the first PIs has established the UPS as an oncology target. As the development of resistance to PIs is a limitation on their use, focusing on upstream components of the UPS is a potential strategy to circumvent this. More broadly, as the UPS is an important regulatory pathway in protein degradation, an essential cell function, and is therefore applicable to multiple disease areas, it has attracted the attention of a variety of biotech and pharma companies.

Significant deals with large pharma that are related to the UPS include Arvinas’s $300m licence agreement with Genentech (October 2015) and $434m collaboration with Merck & Co (April 2015), and C4 Therapeutics’ $750m+ discovery collaboration with Roche (January 2015). Both Arvinas and C4 Therapeutics are private companies (having raised c $60m and $75m in venture funding respectively) focused on targeted protein degradation. In both cases, deal economics are undisclosed. Nurix is another private company developing UPS modulators, specifically ubiquitin ligase function. Nurix has attracted cumulative equity investment of $31.3m up to 2014, and in September 2015 announced a collaboration with Celgene, which included a $150m upfront and undisclosed equity investment. This deal covers oncology, inflammation and immunology indications and includes an option to license post-Phase I after which Nurix would be eligible for up to $405m in total milestones plus global royalties on sales.

Proteostasis Therapeutics, a listed company that completed its $50m NASDAQIPO in February 2016 (market cap: c $372m), is also targeting therapeutics that modulate protein homeostasis. It has three pipeline programmes; one is a DUB inhibitor for neurodegenerative diseases associated with protein aggregation. This research programme is directed against Usp14 and is the subject of a $200m global research and development collaboration with Biogen signed in 2013. Usp14 modulates proteasome activity and increases the rate of degradation of aggregation-prone proteins (egα-synuclein in Parkinson’s disease and tau in Alzheimer’s disease).

Other competitive developments in the DUB space are also early stage and have limited disclosure. In the last 18 months, Forma Therapeutics has established three virtual asset discovery and development companies with Cancer Research Technology to advance its DUB assets. While in 2015, Hybrigenics and Servier extended their exclusive 2011 DUB and ubiquitin-specific proteases research partnership for a further year.

To date, Mission has raised a total of £87m in venture associated capital. Post the recent £60m Series C round, Innovations has updated the portfolio carrying value of Mission to £10.1m (recognising a £4.1m fair value gain). This represents a 21.6% stake giving Mission an implied valuation of £47m; however, this is only reflective of the funding already received. The Series C round was tranched and the amount invested so far is undisclosed; we highlight that Innovations has invested a total of £5.8m to date and has a £11.3m Series C commitment. Investment of further tranches will positively affect Mission’s carrying value, contribution to portfolio NAV and implied valuation.

Achievement of key milestones would unlock further ‘hidden’ value’ and prompt a revaluation. Milestones would include positive Phase I data for USP30 and/or USP7, providing important validation for the pipeline and the wider platform, and possibly proving to be the catalyst for securing strategic partners. However, a partnership may also come before data. Additional investment – from an equity investment from an industry partner or a subsequent private funding round –or an exit via IPO or M&A would also result in unlocking upside.

Crescendo Biologics is a Cambridge-based, cancer-focused drug discovery and development company with a proprietary transgenic VH mouse platform and rapid formatting capabilities that are used to create its therapeutic product candidates, Humabodies. Humabodies are built from fully human single-domain antibody VH fragments (heavy chain variable domain) generated by a proprietary triple-knockout transgenic mouse (Crescendo mouse) and can be bi- or multi-specific. Its initial focus is on the development of Humabody drug conjugates (HDCs) and multi-specific checkpoint modulators.

At the core of Crescendo’s Humabody technology is its proprietary transgenic mouse platform. It enables the development of fully human VH products that are matured in vivo, enabling naturally optimised affinity and biophysical properties that increase potency. The VH ‘building blocks’ are the foundation from which the Humabodies are built and combined with its rapid formatting capabilities allow for the generation of novel and differentiated multi-specific biologics. They potentially offer many advantages over monoclonal antibodies including their small size, faster tissue penetration and distribution, wider therapeutic windows, tuneable internalisation, cost-effective production and their amenability to modular ‘plug and play’ engineering. The company plans to explore and identify optimal formats for engaging therapeutically valuable targets in a way that is fundamentally different from those using whole antibodies.

Since the appointment of new CEO Dr Peter Pack, in August 2015 (announced in October 2015), Crescendo has made the transition from a platform-based biotechnology company to one focused on the creation of differentiated therapeutics for oncology. Exhibit 13 summarises recent newsflow.

Utilising the advantages of the Humabody format, Crescendo is pursing two main therapeutic approaches: multi-specific immunoncology (IO) modulators and Humabody Drug Conjugates (HDCs), a novel alternative to antibody-drug conjugates (ADCs). It has built a preclinical pipeline and is seeking to advance this through a hybrid business model combining in-house development (with a medium-term aim of taking one product into the clinic) and strategic collaborations, to provide both external validation and non-dilutive funding.

Crescendo is focused on pipeline development of its next generation therapeutics for oncology; the most advanced HDCs and IO modulators are in late discovery/approaching preclinical development. Additionally it has a non-core preclinical dermatology (psoriasis) asset (a naked Humabody VH domain formulated for topical delivery to the skin) available for licensing. Exhibit 14 provides a technology overview of the platform and pipeline.

Crescendo’s Humabody platform enables it to build and explore numerous multispecific combinations of VH building blocks that target a range of key mechanisms in the cancer immunity cycle. It is able to design constructs that can simultaneously trigger multiple synergistic pathways, something that is substantially more difficult for larger, less flexible antibodies. An array of mechanisms are being targeted in the cancer immunity cycle including the blocking of inhibitory signals, the activating of stimulatory pathways, enhancement of antigen presentation and inhibition of immunosuppressive tumour microenvironment.

Crescendo’s lead programme is a formatted PD-1 Humabody, which will provide first proof of concept and will be the base from which the platform can be developed. Combination immunotherapies are seen as the future of oncology treatment. One notable example was the combination of nivolumab (Opdivo) and ipilimumab (Yervoy) for the treatment of metastatic melanoma, which was approved by the FDA in October 2015. Progression-free survival increased to 11.5 months for the combination vs 6.9 months (Opdivo) and 2.9 months (Yervoy). Crescendo and its multi-specific Humabodies potentially have a unique advantage in this combination future, particularly if the single multi-specific product approach can unlock synergistic effects that multi non-linked products cannot.

Crescendo’s research into HDCs has generated supporting evidence that they have potential as an improved alternative to ADCs. To date, there have been three ADCs approved: Pfizer’s Mylotarg (approved in 2001, but withdrawn from the market in 2010), Seattle Genetic’s Adcetris (approved 2011) and Roche/Genentech’s Kadcyla (approved 2013), but all have concerns with systemic toxicity. The HDC approach could circumvent this with a better therapeutic window; data has shown that HDCs distribute and penetrate tissues rapidly, concentrating faster in tumours, and clear quickly from systemic circulation. Crescendo’s goal would be to conjugate highly potent toxins to their HDCs with the aim to hit the tumour aggressively before the quick removal of the HDC from circulation to minimise off tumour toxicity. Crescendo aims to enhance both the specificity and internalisation of its Humabodies by making them bispecific or biparatopic respectively. Both serve to increase the therapeutic window in a way that is challenging for whole antibodies. Crescendo’s first HDC, targeting prostate cancer, is in lead optimisation and formatting. Like ADCs, HDCs consist of three components: Humabody, linker and payload. Crescendo has the Humabody technology in-house, and has entered into a number of undisclosed payload/linker collaborations.

Various other companies have technologies with parallels to aspects of Crescendo’s business; Exhibit 15 provides an overview of those that are most relevant, ie most similar in either approach or desired outcome.

Humabodies sit in the middle of the spectrum between small molecules and IgG. They have the size, formulation flexibility and simpler manufacturing/cost of goods advantages of the former coupled with the binding specificity of the latter. Humabodies lack the Fc region of whole antibodies; as such they are unable to bring antibody effector functions to bear and are subsequently cleared rapidly from systemic circulation. This shortened circulating half-life is beneficial in reducing toxicity but in cases where an increased half-life is needed, Crescendo is able to add a human serum albumin binding domain or if required an Fc region. The flexibility and diversity of formats that can be created with Humabody building blocks (plug and play) and the speed at which they can be generated and tested are one of Crescendo’s key differentiators. Another important factor is that Crescendo controls its IP; there is no royalty stack as is common with monoclonal antibodies. It successfully defended core IP relating to its mouse knockout background in 2015 and continues to expand its patent portfolio. In February 2016 Dr Barbara Fleck was appointed as head of intellectual property, highlighting the importance Crescendo places on protecting its assets.

Crescendo’s closest peer is Ablynx, a Belgian biotherapeutics company developing proprietary single-domain antibody fragments termed Nanobodies. Crescendo is pursuing a similar business model, although Ablynx is a more mature company. We discuss Ablynx in more detail below. Ablynx’s Nanobodies comprise only the VHH heavy chain derived from llamas and are a humanised rather than fully human construct. Ablynx raised €85m at IPO in 2007 and has a current market cap of c €716m. It has a clinical pipeline of eight assets (the most advanced, caplacizumab is on track for MAA filing in H117) and numerous large pharma partners (both for individual Nanobodies and broader strategic collaborations). One of the most valuable is the Merck & Co immunoncology deal struck in 2014 and subsequently expanded in 2015. It covers up to 17 fully-funded Nanobody programmes targeting multiple immune-checkpoint modulators, with deal terms including €33m upfront with up to €5.7bn in potential future milestones plus royalties.

Across the industry, we highlight that in addition to partnerships, large pharma and biotech have also shown interest in acquiring companies with platforms for new therapeutic formats. Notable historic deals of this type include: Amgen’s $1.16bn purchase of Micromet in 2012 (the first product, Blincyto, based on its bispecific antibody construct technology [BiTE or bispecific T cell engager] was approved in 2014); and GlaxoSmithKline’s £230m ($454m) acquisition of platform technology company Domantis, a pioneer in single-chain domain antibodies, in 2006.

Crescendo has received aggregate investment of £32.6m by 1 September 2016 (£4.5m seed, £18.8m Series A funding, £2.3m from Astellas Venture Management plus a £7m internal round). Innovations’ carrying value of £6.5m represented the value of its Series A investment and represents a 22.7% undiluted holding (20.32% fully diluted holding) prior to the issue of the £7m internal round in July 2016. The July 2016 internal round was issued by way of a loan note and raised £7m, £3.35m of which was from Innovations. Consequently, Crescendo has an implied company valuation of £39m.

In common with other portfolio companies, catalysts that could prompt a revaluation of Crescendo include a subsequent private funding round, securing partnerships, material pipeline progress and/or an exit given the attractiveness of its platform and pipeline potential. Expected newsflow is shown in Exhibit 16. Crescendo is still an early-stage company, but will be approaching the clinic in the near- to mid-term. It is reasonable to expect that additional funds will be needed for pipeline development in the future either from collaborative deals or existing/new investors. Crescendo expects to sign a major strategic collaboration that would validate the Humabody platform in the near future and has successfully monetised IP around the mouse background with a licensing deal signed in 2015.

Inivata is a clinical cancer genomics company focused on detection and analysis of tumour DNA (ctDNA) within the blood, a technology that is part of a fast-growing liquid biopsy field. Inivata was spun out of Cancer Research UK in September 2014 based on pioneering work by its founders and, having achieved proof of concept, is now focused on clinically validating its ctDNA platform in collaboration with key opinion leaders. TAm-seq, its proprietary technology platform, is a tagged-amplicon sequencing method for detecting ctDNA in blood plasma extracted from a patient by a simple blood draw. The data generated from this test will provide clinicians with actionable information on a potentially broad range of solid tumours. This information can improve patient outcomes and could be a vital component of any future personalised treatments or medicines.

Genomic information on solid tumours can be accessed from an invasive tissue biopsy of the tumour or by a liquid biopsy where circulating tumour information is obtained from a blood draw. Liquid biopsy is a rapidly advancing field within cancer diagnostics (Cancer Discovery review), which offers a minimally invasive and reproducible method for obtaining real-time tumour mutation status information from blood. The two different liquid biopsy sources for tumour genomic data are circulating tumour DNA (ctDNA, tumour DNA shed into the circulation during tumour cell death) or circulating tumour cells (CTC, primary and/or metastatic tumour cells shed into the circulation from tumour masses).

Liquid biopsy has the potential to overcome some of the limitations to the use of the current gold standard, solid tumour tissue biopsy (availability/accessibility of primary and metastatic tumours, selection bias from single-site biopsy, cost and risk to patient), and may play an important role in clinical decision marking. It could be used to stratify patients and inform treatment decisions by enabling better assessment of prognosis, monitoring of response to therapy, surveillance for disease recurrence, and screening for initial diagnosis. This is particularly relevant given the increasing number of targeted oncology and immunoncology drugs that have been approved or are in late-stage development. These are typically premium priced due to their remarkable efficacy, but this clinical benefit is only seen in certain patient populations and is associated with emergence of resistance. The ability to identify those responders in advance is increasingly sought by patients, doctors and payers.

Inivata’s technology integrates next-generation sequencing and ctDNA in its InVision product, a 34-gene molecular profiling panel. It has positioned itself in the field of personalised treatment, leveraging the TAm-seq platform, which offers “quantitative detection of blood-based tumour data with an unprecedented level of sensitivity” (~50% of mutations detected at <1% allele frequency) and pursuing a highly data-driven strategy. Inivata is working towards demonstrating that it is able to provide “the most sensitive coverage and breadth of clinically relevant genomic alterations supported by data developed in specific tumour indications under a quality system” (CE mark/ISO in Europe and CLIA in the US).Proof of concept was demonstrated in non-small cell lung cancer (NSCLC) in collaboration with investigators at Institut Gustave Roussy in Paris and presented at the 2015 International Association for the Study of Lung Cancer (IASLC). Inivata is now working towards generating the clinical data necessary to validate the TAm-seq platform and demonstrate clinical utility. The first step is to establish the concordance in mutations derived from plasma compared to tissue, followed by prospective trials to assess the clinical utility of the technology. The January Series A round provides funding to accelerate these therapeutically oriented clinical studies and take the company through to pre-commercialisation. Additionally, Inivata has strengthened its management team with key hires ahead of commercialisation (Exhibit 17).

Clinical data is central to Inivata’s commercialisation strategy. It will be invaluable in enabling quantification of the value-added by InVision and the TAm-Seq platform to support reimbursement. Existing and new collaborations with key opinion leaders/investigators will not only help generate this data, but as they are Inivata’s target customers, they will have a better understanding of how the platform can consistently benefit them, building trust and driving future adoption.

Personalised medicine is seen as one of the next major advances in healthcare. The development of precision (or personalised) medicine providing ‘the right patient with the right drug, at the right dose, at the right time’ is a core mission for the FDA and governments worldwide. The goal is to streamline clinical decision making by distinguishing in advance those patients most likely to benefit from a given treatment, improving outcomes and minimising costs and morbidity associated with ineffective treatment and avoidable adverse events (Precision Medicine Initiative). The ability to tailor an individual’s treatment could prove beneficial to both the patient and the healthcare system: patients would receive the care that will have the largest benefit, potentially reducing both the long-term burden of a patient on healthcare system and the initial treatment costs for patients who would not respond to a particular treatment.

With the landscape of cancer care shifting from non-specific cytotoxic drugs to targeted and immunotherapy approaches, treatment decisions are increasingly based on the mutation status of a tumour. This status is determined by analysis of the patient’s tumour cells (through biopsy) and can provide information about the likelihood of a favourable response to a particular treatment. The ability to detect and characterise a range of cancers, and importantly also to identify which patients are likely to respond to a therapy, will be vital in future oncology treatment, especially given payer pressures and the growing cost of increasingly more sophisticated drugs and combination regimes.

Therapeutics that target a range of biomarker-associated cancers are already available, or are in late-stage development, although current marketed companion diagnostics are limited leaving opportunity for new technologies like ctDNA liquid biopsies. The FDA recognises the need for new technologies, hosting a recent workshop in conjunction with the American Association of Cancer Research (AACR) to discuss the regulatory environment and mechanisms to support the development of new diagnostics.

Data was presented by Institut Gustave Roussy in collaboration with Inivata at ASCO 2016 on the ability of its system to profile and monitor NSCLC patients also underlined the difficulty in performing an invasive solid biopsy on small/insufficient tumours. It was shown that this area of significant unmet need, due to the high failure rate of solid biopsy (c 30%), could be addressed by liquid biopsy. Of 30 advanced NSCLC patients analysed, all were profiled for ctDNA with at least one cancer mutation detected in 70% (21/30) of the patients. In comparison, 27 patients had a tumour biopsy and molecular profile on the tissue performed, and four of these had insufficient cellularity in biopsy; of the remaining 23 patients, 39% (9/23) reported a molecular alteration. Of those nine patients, Inivata’s liquid biopsy assay demonstrated concordance to the genomic alterations reported in 89% (8/9) of tissue. Results from a separate prospective study presented at AACR 2016 showed that a ctDNA based liquid biopsy could be used for molecular profiling of mutations in NSCLC in the absence of an invasive biopsy. Mutations were detected in 83 patients of the 116 that had enrolled in the study and been profiled. 50% of mutations were detected at a <1% frequency. 22% of the patients subsequently received personalised treatment tailored to the mutations detected. Thus the ability to collect molecular information from all patients through liquid biopsy could prove vital in future applications of precision medicine.

Inviata’s platform is based on polymerase chain reaction (PCR) and next-generation sequencing (NGS) technology. As rare mutation often occurs at low frequencies (<0.1%), detecting it among a background of normal DNA can be problematic. Inivata’s enhanced TAm-Seq technology (which underpins InVision) aims to solve this problem with IP licensed from the Rosenfeld group at the Cancer Research UK (CRUK) Cambridge institute. The enhanced TAm-seq method allows identification of alleles (mutations) at a frequency of 0.1%, which is vital in detecting low concentration oncogenes. It involves the direct amplification of genes of interest and incorporates three proprietary components: (1) extraction and processing (blood cells are the biggest contaminant); (2) primer design; and (3) bioinformatics. The latter integrates efficient library preparation with statistical algorithms to identify and quantify cancer mutations.

The combination of bioinformatics and amplicon based sequencing used by Inivata may provide inherent advantages over other technologies, such as the hybrid capture ‘bait and hook’ used by peers (eg Fountain Medicine and Guardant Health). Hybrid capture involves use of DNA primers specific to gene regions, which will “hook” the regions of interest out of a sample for amplification by PCR and sequencing. This technique is useful if the gene of interest is known; however, the efficiency of capture can be limited resulting in relatively small amount of genetic information being collected, which reduces the sensitivity of the test. Inivata’s technology is different; it does not capture specific genes but directly amplifies specific regions in genes of interest. Significantly more data is collected and as such more molecular information is available. However, the development of the value proposition (correlations with improved clinical outcomes) will be important for Inivata as it progresses. If Inivata is able to demonstrate its ability to interpret molecular information with higher sensitivity and better accuracy then its peers and provide actionable outcomes that have a clear impact on patient care, it will be well placed to take advantage of the diagnostic needs of personalised medicines.

Potentially unrecognised value also lies within the data collected; analysis of these broad data sets could reveal key biomarker information and new insights into potentially unknown oncolytic genes. The detection and utilisation of such cancer biomarkers could give Inivata a scientific and commercial edge in what is becoming a hot market. Any additional opportunities arising from the data collected will come down to Inivata’s bioinformatics know-how. With competing companies all vying for position in the field of precision genomics and liquid biopsy, the ability to search and identify regions of interest in vast and extremely complex libraries should not be undervalued. Key to Inivata’s progression is its growing know-how, which supplements and strengthens its IP position.

The ctDNA liquid biopsy field is highly fragmented, with players focusing on defining and validating single or multigene panels with high detection sensitivity for research and/or clinical purposes (Exhibit 19). FDA approval via the classical route of regulatory approval of in vitro diagnostic test has proved challenging, so most suppliers offer a lab developed test, which can be run in ISO or CLIA certified labs. CLIA/ISO labs do not need FDA test approval as the tests are run by experts; this route allows companies to sell service tests. The FDA’s view on these tests is changing and a recent FDA report highlighted that in the absence of FDA compliance requirements, patients may have come to harm. Additionally, healthcare providers differ in their willingness to pay for tests without clinical validation. To date, the only FDA approved ctDNA blood-based genetic test is Roche’s cobas EGFR Mutation Test v2, a companion diagnostic for Tarceva (erlotinib). In addition to pursuing in-house development of companion diagnostics, Roche also has a c $1bn strategic R&D collaboration with Fountain Medicine, which includes a majority equity stake.

Inivata has attracted £35.5m in total external funding (a £4m seed round and £31.5m Series A). Innovations was a seed investor and led the Series A round, committing £10m. Cumulative cash invested to end January 2016 by Innovations was £4.8m, which is held in their accounts at a value of £6.2m, representing a 27.3% stake and implying a valuation of £22.7m for Inivata.

While Inivata is a relatively young company (founded in 2014) it has a strong academic heritage having emerged from the Rosenfeld group at CRUK Cambridge, providing important credibility as well as the founding IP. It is already recognised as a leader in ctDNA analysis. The next steps are to build on this credibility with KOLs and developing a robust clinical data package in collaboration that will drive adoption and support reimbursement. New/extended collaborations, clinical data and reimbursement are critical to a successful commercial launch, potentially by 2020.

Kesios Therapeutics is a clinical-stage drug discovery and development company focused on personalised medicines that target abnormal NF-κB signalling in multiple myeloma(MM) and other haematological cancers. Lead product candidate KES-0001 has a novel target (GADD45β/MKK7) in this signalling pathway and is due to start a Phase I MM monotherapy trial imminently. Kesios is pursuing an accelerated development strategy that could see first launch in fourth-line relapsed/refractory MM in 2020, with label expansion into earlier lines of MM treatment as part of a combination approach, as well as in NF-κB-driven haematological malignancies and solid tumours.

Kesios is an Imperial College spin out based on the work of Professor Guido Franzoso (head of the centre for signalling and inflammation at the Department of Medicine) in the regulation and function of nuclear factor kappa B (NF-κB) transcription factors and the development of specific therapies targeting the NF-κB signalling pathway. This pathway is involved in apoptosis (cell death); in many types of cancer it is abnormally overactive, thus promoting cancer cell survival. Imperial researchers identified a novel drug target (the GADD45β/MKK7 protein complex; GADD45β is an anti-apoptotic protein) downstream of NF-κB, and the DTP3 peptide (later to become KES-0001).

KES-0001 binds directly to the JNK kinase, MKK7, causing disruption of the GADD45β/MKK7 complex that in turn disrupts the NF-κB survival pathway. The binding of GADD45β to MKK7 is an essential survival pathway of cancerous cells; hence, inhibition of this should lead to an increase in cancer cell death. Unlike more direct approaches to NF-kB inhibition, KES-0001 has demonstrated selectivity to cancer cells with no significant off-target effects or toxicity to normal cells.

Kesios achieved Investigational New Drug (IND) clearance for KES-0001 in March 2016 and a UK Phase I/II monotherapy MM trial is open. Some of the in vitro and in vivo pharmacology, safety and toxicology data supporting the IND application were published in Cancer Cell in 2014. Preclinical data demonstrated potent in vitro activity of KES-0001 in drug resistant MM cell lines and also potential increased selectivity for MM vs non-MM cells compared with bortezomib (Velcade, a proteasome inhibitor approved as a first-line MM therapy).

Kesios closed a £19m Series A round in late-2015 securing funding for the Phase I/II KES-0001 monotherapy programme, simultaneously announcing the expansion and strengthening of the leadership team as it makes the transition to a development company.

Kesios is pursuing an accelerated development strategy for its iv bolus formulation of KES-0001. Initial trials will focus on supporting approval in fourth-line refractory multiple myeloma (MM), targeting US and EU filing by early 2020. In parallel, formulation work will be underway for a second-generation subcutaneous/intramuscular controlled-release formulation. Phase I combination studies of KES-0001 in myeloma patients with high GADD45β, targeting earlier lines of therapy, are expected to launch in 2017. These studies will assess the combination of KES-0001 with approved MM therapies such as the proteasome inhibitor bortezomib (Velcade), immunomodulator (IMiD) lenalidomide (Revlimid) and CD38 antibody daratumumab (Darzalex), which are used as induction, second-line and third-line therapy, respectively. Subsequent clinical development will aim to expand the breadth of KES-0001’s application into other indications in which NF-κB plays an important role; this includes other haematological malignancies (eg diffuse large B-cell lymphoma, DLBCL) and solid tumours (the first being colorectal cancer). Company guided timelines for these studies are shown in Exhibit 21.

KES-0001 could become the first personalised medicine for MM. Demonstrating the utility of the potentially prognostic and/or predictive biomarker GADD45β is central to this ambition. An estimated>80% of relapsed/refractory MM is associated with high GADD45β expression. This suggests that high GADD45β is responsible for aggressive disease and thus a poor clinical outcome.

The next step for Kesios is to evaluate the prevalence and prognostic value as GADD45β as a biomarker, first retrospectively and then prospectively using a diagnostic test. The current diagnostic approach requires a bone marrow biopsy (a standard procedure in the confirmation of MM diagnosis), although development of a blood-based diagnostic is an area of interest.

If validated, GADD45β could be used as a pharmacodynamic biomarker to support clinical development (and drive access to earlier lines of treatment in combination) as well as stratify patients based on prognosis.

MM is an incurable bone marrow cancer characterised by the proliferation of abnormal plasma cells. It is the third most-common blood cancer (after leukaemia and lymphoma) with estimated global incidence of c 124,000 and mortality of c 87,000 in 2015 (Globocan 2012). MM has a five-year survival rate of 44%. Most patients experience a relapse and/or become refractory following treatment with standard therapies (including proteasome inhibitors or IMiDs); for these patients the prognosis is poor and treatment options are limited with c40% of MM patients ultimately receiving fourth line therapy. Consequently there is a significant market opportunity for new entrants, particularly those targeting later lines of therapy. Evaluate Pharma forecasts that global sales of MM drugs will increase from $8.9bn in 2015 to $23.3bn in 2022.

KES-0001’s novel mechanism of action is a key differentiator, which may also have synergistic potential with established MM therapies. Clinical data from the planned trials and the feasibility of the biomarker-driven targeted personalised approach will be critical in defining where Kesios will sit on the treatment spectrum (as part of a first- and/or second-line combination regime or as later-stage monotherapy) and whether it merits a breakthrough designation. Data will also determine the level of pricing that could be supported, a particularly important consideration for reimbursement of a combination therapy. As an illustration, Velcade, a first-line therapy approved 2008 in the US and 2013 in Europe, costs $26,000-$35,000 per year, while Revlimid (indicated as a second line therapy) is priced at c $74,000 annually and Darzalex (third-line) costs c $136,000 for the first year and $76,000 per year thereafter.

Kesios has received a total of £20.85m in external investment (£1.85m seed and £19m Series A funding). Innovations took part in both funding rounds, cumulatively investing £3.3m; this 42.0% holding is carried in its accounts at a fair value of £5.7m. This translates into an implied company valuation of £13.6m for Kesios.

The pursuit of a personalised medicine approach with an accelerated route to market could present multiple catalysts that could unlock upside. These include clinical data read-outs from 2017 and regulatory newsflow, with potential first launch of KES-0001 from 2020. Otherwise, the company has guided to a funding requirement in 2018 on current plans; any new equity investment would trigger a revaluation of Innovations’ stake.

Storm Therapeutics (formerly Iceni Therapeutics) is a spin out of the Gurdon Institute at the University of Cambridge; created to commercialise the work of founders Professors Tony Kouzarides and Eric Miska in RNA epigenetics. This describes the variations in cellular and physiological traits caused by modifying gene expression through RNA manipulation. Storm is focused on identification and discovery of small molecules that modulate RNA-modifying enzymes for development as cancer therapies. It is the ‘youngest’ of Innovations’ oncology portfolio companies, having been seeded in 2015.

Living organisms store genetic information in their DNA, which is transcribed and translated during protein synthesis by RNA (ribonucleic acid). In addition to translating genes into proteins via messenger RNA (mRNA), RNA is involved in multiple regulatory functions in the cell through a range of non-coding forms (eg, tRNA, rRNA, miRNA), including RNAs that act as tumour suppressors. Several large families of RNA-modifying enzymes have been identified that impact key processes by changing the activity of RNA through catalysing epigenetic RNA modifications. Advances in the understanding of RNA modification and its role in the development of cancer offer the prospect of exploring novel therapeutic targets and potential discovery and development of first-in-class products. Storm seeks to be at the forefront of this new field.

The recent Series A round provides funding for Storm to leverage IP licensed from the University of Cambridge to study small molecules targeting certain RNA-modifying enzymes involved in cancer. These undisclosed targets were identified by Professors Kouzarides and Miska and their research groups.

Since inception in May 2015, Storm has raised £12.6m in seed and Series A funding. Innovations made a £3m commitment in the June 2016 Series A round and holds a 22.1% stake. Given the recent closure of the latest funding round, we assume Storm has an implied company valuation broadly equal to monies invested. Storm is the smallest and most early-stage of Innovations’ oncology investments and, at present, has the least disclosure and visibility on its assets and upcoming milestones. As a consequence, we would anticipate that a follow-on investment would be the next event to unlock valuation upside, although we acknowledge that other development milestones may be forthcoming, albeit further in the future for Storm compared to other companies profiled in this report.