Nanobiotix — Update 31 May 2016

Nanobiotix is a French nanotechnology company developing treatments that could enhance the efficacy of existing radiotherapy used to treat various cancers. Its lead product, NBTXR3, is being investigated in a Phase II/III trial with soft tissue sarcoma (STS) patients and the results are expected in the coming weeks. This will allow filing for Nanobiotix’s first CE mark in Europe, which if successful could be approved by end 2016. NBTXR3 works by enhancing the efficacy and tumour destruction of radiotherapy in cancerous tissue, but without increasing damage to surrounding healthy tissues. Follow-on products based on the same core NanoXray technology include NBTX-TOPO, a gel formulation for application into a tumour bed during surgery, prior to wound closure, and NBTX-IV for intravenous injection for hard-to-reach tumours. These products could all be used to improve the well-known benefits of radiotherapy without increasing the risks. Nanobiotix employs around 60 people and has partnered its lead product NBTXR3 with PharmaEngine in Asia-Pacific.

We have fine-tuned our financial forecast after the FY15 results. Nanobiotix carried out a private placement in March 2016 by issuing c 1.4m shares (10% of the outstanding share capital at that time) with gross proceeds of €21.3m. This added to the 2015 year-end cash position of €17.0m. We believe that net cash should be sufficient to fund operations to H117, assuming development continues in all ongoing indications at the same pace. For the purpose of our model we include illustrative long-term debt of c €40m, calculating that all projects can be fully supported with this in 2017.

We make no changes to our underlying assumptions for NBTXR3 and modestly adjust our model for the latest financial data and rolling forward in time. The net effect is slightly positive with the new rNPV at €543m vs €527m previously, while the valuation per share is slightly down from €37.2 to €34.8 following the recent share issue. We note that in Nanobiotix’s case we use an accelerated R&D de-risking approach in our model (see Valuation section).

Nanobiotix is subject to the usual biotech risks, including clinical development delays or failures, regulatory risks, competitor successes, partnering setbacks, financing and commercial risks. In the near term, Nanobiotix’s investment case depends on NBTXR3 and data from upcoming clinical trials (see next events on front page). Nanobiotix has sufficient cash to fund operations through H117. Phase II/III clinical development in additional indications and building a salesforce in Europe would likely require additional funds. There were c 3.4m (vs 15.6m total outstanding shares after the private placement in March 2016) potentially dilutive instruments at the end of 2015 with various contingencies and price points.

NBTXR3 is being investigated for a total of six indications with multiple catalysts coming within the next 12 months:

Recently Nanobiotix announced new plans to expand preclinical research into immuno-oncology. The underlying rationale is the observed effect of radiotherapy (RT) in amplifying the immune system’s response to the tumours it targets. Although this is a new area for the company, Nanobiotix will be able to use its lead product NBTXR3 as it is. The core idea behind this is a so-called immunogenic cell death (ICD) effect, which occurs after the RT. A combination regimen of RT enhanced with Nanobiotix’s NBTXR3 and used alongside immuno-oncology treatment theoretically should have a number of synergies. The first preclinical results are expected later this year.

NanoXray is Nanobiotix’s lead product family of nanoparticles, developed to enhance existing radiotherapy treatment by amplifying efficacy without increasing damage to surrounding healthy tissue. The average size of the particles is 50nm, which allows for entering cancer cells. Nanoparticles have an inorganic core of crystallised hafnium oxide coated with a biopolymer. NBTXR3 is the most advanced product for direct injection into a tumour. NBTX-IV for intravenous injection (hard-to-reach tumours) and NBTX-TOPO for topical application (into a tumour cavity during surgery) are two other follow-on products in preclinical development.

Radiotherapy is a common cancer treatment used in around 50% of all cancer patients,1 from front-line treatment to adjuvant (add-on) therapy with surgery and/or chemotherapy. Radiotherapy is effective at killing cells, but it does not specifically target malignant cells. Hence the dose has to be limited and an optimal therapeutic window chosen to minimise the effect on surrounding healthy tissue (left-hand side of Exhibit 2).

To overcome these issues, NanoXray nanoparticle products have been designed around the physical properties of hafnium oxide (HfO2). Current radiotherapy works by causing water found within cells to emit electrons, creating free radicals that damage DNA leading to cell death. HfO2 in the tissue absorbs more energy from ionising radiation and produces a larger quantity of electrons than water, multiplying the effect of the radiotherapy inside the tumour. Therefore, HfO2 introduced into a cancer cell and exposed to radiotherapy could lead to increased local tumour damage, but without worsening the impact on surrounding healthy tissue, thereby broadening the therapeutic window (right-hand side of Exhibit 2). Hence, NanoXray could be used to improve the benefits of radiotherapy without increasing the risks.

Nanobiotix’s strategy is to commercialise NBTXR3 alone in the US and Europe. While this will require a higher initial cash outlay, it should be more profitable in the long run. In Asia the company collaborates with PharmaEngine, a Taiwan-based biopharmaceutical company.

Typically two successful clinical trials – pilot and pivotal – would be sufficient for CE mark approval for a medical device. In addition to the lead STS indication in Europe, Nanobiotix is also conducting pilot trials in head and neck and liver cancers (HCC and metastases). In 2014 NBTXR3 completed the pilot STS development and data from the pivotal STS trial in Europe is expected by mid-2016. This could allow for first approval in STS in Europe as a medical device by end 2016. Given its setting in STS, where NBTXR3 is being used to improve the outcome of surgical tumour removal, surrogate endpoints such as tumour shrinkage and pathologic response (a measure of tumour cell death) were measured. Nanobiotix will focus on the pricing and reimbursement process in main European markets after the CE mark is approved. We expect limited revenues from self-pay patients in 2017 with more significant uptake once reimbursements are granted.

Prostate cancer is the newest indication. On 30 December 2015 the FDA approved the investigational new drug application (IND) for NBTXR3 to enter clinical trials for intermediate- and high-risk prostate cancer patients. As well as being a potentially large new indication, this is Nanobiotix’s first trial to be conducted in the US. A bridging study for the lead STS indication could also be undertaken in the US to gain regulatory approval, depending on data from the Phase II/III trial in Europe. Notably, the data from all other indications that are being explored in Europe can also be used for further development in the US.

PharmaEngine and Nanobiotix are running the STS trial in partnership, recruiting patients in Europe and Asia. PharmaEngine is also conducting a Phase I/II trial in rectal cancer on its own. According to the agreement signed in August 2012, the Asian partner is able to develop and commercialise NBTXR3 in the Asia-Pacific region for at least three indications. Although precise indications were not disclosed, we assume in our model that PharmaEngine will also develop NBTXR3 for oesophageal and liver cancer.

Under the terms of the deal, Nanobiotix received $1m upfront (recognised as deferred revenues) and is eligible for a further $56m in development and commercial milestone payments, in addition to tiered, up to double-digit royalties on sales. A milestone payment of $1m was triggered in October 2014 after PharmaEngine decided to co-sponsor the STS trial. Nanobiotix and PharmaEngine will share all data generated within this agreement. Nanobiotix could therefore potentially use data generated in Asia to support European development, and vice-versa.

In its latest update published with FY15 results, Nanobiotix confirmed that interim data from the ongoing STS trial is on track to be announced by mid-2016. This will include a data set from 104 patients, with the final analysis of all 156 enrolled patients due by end 2016. If successful, Nanobiotix will be able to file for the CE mark after the interim data. The trial is a two-arm study comparing NBTXR3 (10% tumour volume) with radiotherapy versus radiotherapy alone before surgical removal of the tumour. Patients with locally advanced STS of the extremity (arms and legs) and the trunk wall will be recruited. The primary endpoint is complete pathologic response (cPR), a measure of tumour necrosis, with secondary endpoints including safety, tumour volume changes and surgical resection rates. These endpoints are supporting the clinical value for the patients, while value for the payers is demonstrated by all those above in addition to quality of life.

H&N cancers represent a group of aggressive tumours that can be located in the oral cavity or in the upper parts of the respiratory and digestive tracts. If detected early the cancer is highly curable. In more advanced cases a combination treatment includes surgery, chemotherapy and radiation therapy. Nanobiotix is conducting an open-label, non-randomized, dose-escalation Phase I/II study. NBTXR3 is administered via intra-arterial or intra-tumour injection routes. The primary endpoints are the determination of the recommended dose and safety/toxicity (including for intra-arterial delivery). Secondary endpoints include evaluation of the objective response rate (ORR), progression free survival (PFS) and complete response rate (CRR), using Response Evaluation Criteria in Solid Tumours (RECIST) criteria).

Preliminary data has already been announced confirming a good safety/toxicity profile and feasibility of the delivery of NBTXR3. At the time of this preliminary analysis, two dose levels of 5% and 10% of the tumour volume were tested. 10% is the recommended dose in the lead STS Phase I/II study. No serious adverse events were recorded and no significant leakage to surrounding healthy tissues has been observed.

Nanobiotix confirmed that full Phase I/II data announcement is imminent. If positive, the company plans a Phase II/III registration trial. As this will be the first data set outside STS, particular attention from Nanobiotix will be on a comparative analysis between the STS and H&N cancer trials. This will provide insights about the transferability of the NBTXR3 treatment approach to other indications.

In July 2015 Nanobiotix started a Phase I/II trial in liver cancers, namely hepatocellular carcinoma and liver metastases that arise from the spread of other primary cancers (such as colorectal, breast and lung cancer). The non-randomised, open-label, dose escalation study explores both intra-lesion and intra-arterial dosing. After the dose escalation part, NBTXR3 will be tested in three patient groups: those with liver metastases; with HCC and no portal vein thrombosis; and with HCC and with portal vein thrombosis. Portal vein thrombosis is a complication associated with HCC, which significantly complicates the management of the disease. Primary endpoints are the determination of the recommended dose and safety/toxicity. Secondary endpoints are efficacy measured by (CRR), local progression-free survival (LPFS) and overall survival (OS). Initial data (safety and feasibility) are expected in H216.

Following the approval of the IND by the FDA, Nanobiotix plans to initiate the Phase I/II prostate cancer trial in the US in 2016. The trial will be a Phase I/II, open-label, non-randomised study with two treatment arms and will involve at least three US oncology centres. We expect the initial results could be released in H217. Notably, NBTXR3 is classified as a drug in the US and thus subject to more rigorous development compared to the medical device route.

Nanobiotix’ partner in Asia is conducting a Phase I/II trial with unresectable rectal cancer patients in Taiwan. According to clinicaltrials.gov, the study started in June 2015 and is expected to be completed by end 2017. This is a Phase Ib/II prospective, open-label, single-arm, non-randomised, dose-escalation study with estimated enrolment of 42 patients and intra-tumour injection method. Listed endpoints include the determination of the recommended dose, safety/toxicity and anti-tumour activity measured by response rate (RR, using RECIST criteria).

The Phase II/III STS study delivered the first clinical data in mid-2014. The trial was designed to investigate the feasibility of an intra-tumoral NBTXR3 injection in addition to safety. In terms of efficacy, the study evaluated the pathologic response according to RECIST criteria and tumour volume.

The trial included 20 patients with locally advanced STS of the extremity (arms and legs) or trunk wall. Updated efficacy data from 17 patients were presented at ASCO (American Society of Clinical Oncology) in June 2014. The trial was a four-step, volume-escalation trial (2.5%, 5%, 10% and 20% of tumour volume). NBTXR3 was administered 24 hours before a standard course of radiotherapy (typically five days a week for up to five weeks). This was followed by tumour removal, if operable, five weeks after the end of radiotherapy. There was no control arm in the trial.

NBTXR3 was safe and well tolerated, with no dose-limiting toxicity observed. Different sizes of tumours were successfully injected with NBTXR3, with the product well dispersed within the tumour and remaining in place throughout radiotherapy treatment with no leakage, which is important to ensure minimal damage to healthy tissues during radiotherapy.

While the main goals of this Phase I/II trial were to establish the feasibility and safety of NBTXR3’s intra-tumour injection, the trial also investigated the efficacy of NBTXR3. A summary of the key efficacy-related findings are shown in Exhibit 5. All patients were able to have their tumour surgically removed, which is key in STS. In addition, at the chosen optimal 10% by tumour volume cohort, the average tumour shrinkage was 49%, with an average pathologic response (a measure of cell death) of 74%.

The average tumour shrinkage increased with NBTXR3 dose (as a percent of tumour volume) indicating a dose response relationship (Exhibit 7). In the 10% volume dose, which is being investigated in the Phase II/III STS trial, four of five patients had more than 40% tumour shrinkage. Although there was no comparator arm in the trial, historical reference data2 from conventional radiotherapy alone suggest that 12% of patients achieve >20% tumour shrinkage. In the 10% volume cohort, the average pathologic response was 74%. While not directly comparable, the historical median pathologic response was 30% (range 5-100%) from conventional radiotherapy alone.2 All patients were able to undergo surgical resection of the tumour. This is a key benefit as current radiotherapy alone does not always cause the necessary changes in tumour size and morphology to facilitate surgery, meaning the tumour can be too large or too embedded to remove completely.

The goal of other pipeline products NBTX-TOPO and NBTX-IV is the same as NBTXR3: to improve the benefits of existing radiotherapy without increasing the risks, thereby broadening the therapeutic window. All the products in the pipeline are based on the same hafnium oxide (HfO2) NanoXray nanoparticles, but in either a different formulation or with a different surface coating. Both products are in the preclinical stage and progress will depend on cash management priorities.

Research in immuno-oncology is Nanobiotix’s latest initiative and was described in more detail in our last note. The first preclinical results are expected later this year. The rationale is radiotherapy’s property of amplifying the immune system’s response to the tumour it targets. The core idea behind this is a so-called immunogenic cell death (ICD) effect, which occurs after the RT. A combination regimen of RT enhanced with Nanobiotix’s NBTXR3 and used alongside immuno-oncology treatment theoretically should have a number of synergies. When RT is applied to a tumour locally, the resulting cancerous cell death activates different chain reactions that in turn amplify the immune system’s response to the tumour itself, which is also visible in distant locations away from the treatment field of RT.3

The successful advance of immuno-oncology products has given the ICD effect a whole new perspective. Immuno-oncology drugs are meant to boost a patient’s immune system to fight the cancer, which implies the efficacy of such products depends on the status of a patient’s health and the cancer’s immunogenicity. A variety of different mechanisms have been described,4 whereby the cancer cells shield themselves from being noticed by the immune system. This in turn lessens immuno-oncology drugs’ efficacy. Therefore a combination of immuno-oncology treatments with RT looks like a natural fit. In preclinical trials Nanobiotix will investigate the potential of NBTXR3-enhanced RT in combination with existing immuno-oncology products. This could lead to innovative combination treatments potentially allowing new patent applications. An attractive aspect of such a strategy is that these combination products would exploit radiation therapy benefit, which so far has not been patentable. Although specific oncology products are not disclosed, in our view, some obvious examples would be anti-PD-1/PD-L1, anti-CTLA4 or CAR T-cell therapies.

Nanobiotix is subject to the usual biotech risks, including clinical development delays or failures, regulatory risks, competitor successes, partnering setbacks, financing and commercial risks. In the near term, Nanobiotix’s investment case depends on NBTXR3 and data from upcoming clinical trials (see next events). Positive clinical data from Phase I/II STS trials were encouraging; nevertheless, this does not eliminate the risk of the results failing to meet expectations in the ongoing trials. Attracting premium pricing and driving sales of NBTXR3 in these and other indications will need robust survival data; the magnitude of any survival benefit is unknown at this stage. Nanobiotix has sufficient cash to fund operations through H117. Phase II/III clinical development in additional indications and building a salesforce in Europe would likely require additional funds. These assumptions exclude any potential milestone income from additional licensing deals, for which we have limited visibility on both the potential timing and terms. There were c 3.4m potentially dilutive instruments at end 2015 (vs 15.6m total estimated outstanding shares after the private placement in March 2016) with various contingencies and price points. Notably, 650k of these are warrants attached to shares that were subscribed by Capital Ventures International (CVI) during a private placement in end of 2014. They expire in June 2016 and if exercised before that, could raise €14m for Nanobiotix.

Our valuation remains focused on lead product NBTXR3 and the indications being investigated in clinical trials. We make no changes to our underlying assumptions for NBTXR3 and only slightly update our model with the latest financial data including rolling forward in time. The net effect is slightly positive, with the new risk-adjusted NPV at €543m vs €527m (Exhibit 8). The valuation per share has slightly decreased from €37.2 to €34.8, which is purely technical following the recent equity issue. Given the upcoming dense news flow, we can see opportunities for the revision of our R&D pipeline model. Our combined global peak NBTXR3 sales are €1.7bn. Further details on the market potential of NBTXR3 in all of the active indications were discussed in our previous reports. Our valuation also includes a contribution from the partnership with PharmaEngine in Asia Pacific in indications that we believe could be pursued in this region.

In Nanobiotix’s case the adjustment for R&D risk needs special consideration. The company expects to announce the results from the H&N cancer trial any time now, which will be the second indication with clinical data after the STS. If the results are comparable between the STS and H&N cancer studies, we believe this will have a de-risking effect on other indications. Due to its physical properties of enhancing radiotherapy, NBTXR3’s mechanism of action is the same in different cancers. In theory this could imply that NBTXR3’s efficacy in one cancer is likely transferable to other cancers. The upcoming H&N cancer data could potentially be proof-of-concept of this thesis. Nanobiotix also indicated that a special focus will be on comparative analysis of the clinical data from STS and H&N cancer. Our model includes modifications to account for this accelerated de-risking after the H&N cancer data.

Exhibits 9 analyses the impact of H&N cancer data on our model. In our current valuation, the H&N cancer project represents a significant part of the total rNPV (28%). In a typical de-risking approach we would increase the H&N cancer indication’s probability to 60% if the data from the Phase I/II H&N cancer trial are positive and the project moves to Phase II/III stage (commensurate with the typical probabilities for Phase III drug studies and our previous approach with STS development). Probabilities for other indications would stay unchanged. However, if the data from H&N cancer Phase I/II study shows similarities compared to the STS study, ie NBTXR3’s effect is likely to be transferable, then the success probabilities (to reach the market) of other indications should be raised as well. In the event of negative data, we would remove the H&N cancer project from the valuation without modifying current probabilities for other indications. This is because, in a scenario of a negative H&N cancer trial data, there would be a conflict with the positive results from STS trial, meaning that the only way to know whether NBTXR3 works in other indications would be to continue the trials.

Exhibit 9 shows our assumed probabilities for both an accelerated de-risking and our usual de-risking approach. In the event of positive H&N cancer data, the impact on rNPV/share under the accelerated de-risking approach would be +16% versus +10% under the usual de-risking approach. Notably, the transferability effect (if seen in the H&N data) should accumulate going forward, eg if the liver cancers trial also delivers positive data, the probabilities of the remaining indications would increase further.

We have updated our financial forecasts to include FY15 results. Nanobiotix reported revenues of €4.0m, largely in line with our estimate. R&D tax credits of €3.5m accounted for the majority of this. R&D expenses of €13.9m were lower than our expected €18.0m. This was offset by higher than estimated G&A of €7.3m versus our forecast of €4.5m. The increase was mainly related to increased market access activities ahead of the NBTXR3 launch in Europe and costs associated with share-based payments of €1.2m, which had no cash effect. Reported loss per share of €1.20 was somewhat better than our expected €1.30. Our projections are fine-tuned to increase G&A expenses and reduce the R&D cost estimate for 2016 with a small positive impact on EPS for 2016.

Nanobiotix carried out a private placement in March 2016 by issuing c 1.4m shares (10% of outstanding at that time) with gross proceeds of €21.3m. We estimate that net cash (€32.7m), consisting of €37.3m gross cash (end-2015 + private placement) together with debt of €4.6m of OSEO grants and bank loans, should be sufficient to fund operations to H117, assuming development continues in all planned indications. Further cash requirements could be partially met by the €10m commitment from Capital Ventures International (CVI) as part of the end 2014 private placement, in addition to €14m warrants that expire at the end of June 2016. We do not include the future €10m commitment or the exercise of the warrants in our financial forecasts, but for the purpose of our model we include illustrative long-term debt of c €40m, assuming that all projects can be fully supported with this in 2017.