Onxeo — Next generation of DNA damage repair inhibitors

Company description: Focus on DNA damage repair

Onxeo is a French pure drug developer, which focuses on novel DNA damage repair inhibition technology. The technology came from the acquisition of DNA Therapeutics in March 2016, which brought the lead asset AsiDNA and a broad IP portfolio covering similar oligonucleotides that Onxeo organised into a platform technology called platON. Onxeo has one commercialised product, an HDAC inhibitor, belinostat, branded as Beleodaq in the US. AsiDNA is completing Phase Ib. Unlike similar class PARP inhibitors, AsiDNA is not dependent on specific gene mutations and therefore has broader application areas. In preclinical studies, Onxeo has shown that AsiDNA not only has synergistic potential in combinations with chemotherapeutic drugs that damage DNA (eg carboplatin), but also potentially has a unique feature to abrogate resistance to PARP inhibitors.

Valuation: Risk-adjusted NPV of €129m or €2.3/share

The main revision to our model is the AsiDNA potential. We now include two cancer indications (breast and ovarian cancer). AsiDNA’s potential is much broader in various other solid tumours and in combinations with different anticancer treatments including radiotherapy. For valuation purposes, we chose these two cancers, as they are of high priority in Onxeo’s near-term R&D plans. We assume Phase II development between 2020-2023, Phase III studies starting in 2023 and launch in 2026. We also assume that Onxeo will be able to partner AsiDNA after Phase II. We factor in R&D costs of €10m per cancer indication (the industry average for Phase II trials in oncology). This implies Onxeo will need to raise more funds, as the current cash reach is to Q320. We have used historical PARP inhibitor licensing deals as benchmark averages for our licensing model: total deal value of US$417m split into $40m upfront payment (roughly 10% of the total value) and the rest into R&D and commercial milestones (50:50) plus tiered 12–15% royalties.

Financials: Cash runway to Q320

Onxeo booked revenues of €6.1m in 2018, of which €2.3m were recurring Beleodaq sales. In June 2018, the company had effectively sold the Beleodaq royalties to SWK Holdings for US$7.5m upfront. Total operating costs were €9.7m in 2018 versus €28.7m in 2017. This fall was mainly due to lower R&D expenditure after the completion of the Phase III ReLive study in September 2017. For 2019 and 2020 we forecast total operating costs of €15.0m and €15.3m, respectively. Onxeo had a cash position of €6.3m at end-Q219. In June 2019, the company announced that it had renewed an equity financing line with Nice & Green, which based on the current share price level, would extend the cash reach to around Q320.

Sensitivities: Biotech risks apply

Onxeo is subject to the usual drug development risks, including clinical development delays or failures, regulatory risks, competitor successes, partnering setbacks and financing risks. The main sensitivities relate to the lead asset, AsiDNA. If Onxeo continues the development beyond the ongoing Phase Ib study it will require additional investment. The company aims to accumulate an attractive data package for the potential early out-licensing of AsiDNA (after Phase Ib). However, we believe that the value inflection that clinical trial readouts typically provide could be used to fund the Phase II studies, which would advance AsiDNA to late stage R&D and, presuming a successful clinical trial, would warrant much better licensing deal terms. Onxeo announced in October 2017 that the court’s decision in the litigation case was unfavourable and the company was ordered to pay €12m to SpeBio and other smaller charges to SpePharm/SpeBio for costs incurred to market Loramyc in Europe. Onxeo paid the required amount, but it owns a 50% stake in SpeBio, which is a joint venture with SpePharm, therefore the net impact is unclear at present, but Onxeo aims to claim back the proportional payment.

Onxeo’s portfolio focuses on its novel platON platform; in early 2018 AsiDNA was the first product from the platform to enter clinical development (Exhibit 1). The compounds on platON belong to the DDR inhibitor class, which is vital in DNA repair regulation. This area is currently attracting significant attention from both large pharma and biotech. To date, the only approved drugs are commercially successful PARP (poly(ADP ribose) polymerase) inhibitors.

Belinostat, an HDAC inhibitor, is out-licensed and commercialised as Beleodaq for the second line treatment of peripheral T-cell lymphoma. It is approved and marketed in the US following conditional approval and the partner bears the responsibility for any subsequent required studies. As Onxeo’s business model focuses on value creation from bringing preclinical assets through to clinical mid-stage, it effectively sold the royalty stream to SWK Holdings for $7.5m upfront in June 2018, raising non-dilutive funds for the development of AsiDNA.

Onxeo gained access to the AsiDNA asset and the IP, around which the platON platform was formed, via the acquisition of DNA Therapeutics in February 2016 (€1.7m upfront, €1m on Phase II initiation: in total up to €25m per approved indication can be paid out). The most advanced asset is AsiDNA (formerly known as DT01), a novel clinical-stage compound. It had already been tested in clinical trials by DNA Therapeutics and showed positive safety/tolerability results and preliminary anti-tumour activity in a Phase I trial with melanoma patients when administered locally. The deal terms appeared attractive and back-loaded for an asset that had Phase I data and could address major cancer indications in broad settings. This was probably due to the following, in our view:

With the commercial success of the PARP inhibitors, there is now significant interest in the area from various players and Onxeo’s acquisition timing means that AsiDNA is at the forefront of the next wave entering mid-to-late stage development.

Onxeo recognised that the potential of the technology behind AsiDNA could be increased substantially with systemic administration. Following the acquisition Onxeo completed a preclinical programme and repositioned the asset for systemic use. Onxeo’s main focus was on advancing AsiDNA to clinical trials, but based on the preclinical data the company also recognised the potential in other analogue compounds. In October 2017, this was formally introduced as a proprietary platform – platON.

The second platON asset that Onxeo has chosen to progress is OX401, which is now in the proof-of-concept preclinical phase (results expected by Q419). OX401 is also an oligonucleotide decoy agonist targeting PARP proteins and the STING (STimulator of INterferon Genes) pathway. STING is a relatively novel research target in immunoncology, which positions OX401 as a potential combination partner with other immunoncology agents, such as checkpoint inhibitors. In addition to systemic use, Onxeo continues to explore its oligonucleotide decoy technology’s potential for intratumoural administration.

AsiDNA is a decoy oligonucleotide and is comprised of 64 nucleotides in two complementary strands (ie 32 nucleotides in each strand). In tumour cells AsiDNA acts as an agonist and interferes with the repair of tumour DNA by ‘distracting’ the tumour cell’s DNA repair mechanism. Decoy oligonucleotides are based on three components: double strand oligonucleotides, a linker (coupling agent) and a cellular uptake facilitator (Exhibit 2). Each of these compounds can be modified, resulting in different products, and the main mechanism of action is to act as a decoy and target the mechanisms of tumour DNA function regulation.

AsiDNA is now being tested in a Phase Ib trial in combination with classic chemotherapy agents (carboplatin + paclitaxel) in various solid tumours. Results are expected in Q419. Depending on available funding, near term development could include:

In the past five years four PARP inhibitors have been approved by the FDA, prompting a surge in interest in DNA repair inhibition.

Regardless of the type of DNA lesion (endogenous-like replication errors or exogenous-like chemotherapy and radiation) cells initiate a highly coordinated cascade of events known as DNA damage response, which leads to the initiation of the damage repair mechanism specific to the type of the lesion (Exhibit 3). There are at least four main, partly overlapping, DNA repair pathways in mammals: base excision repair (BER), mismatch repair (MMR), nucleotide excision repair (NER) and double-strand break repair via two different pathways – homologous recombination (HR) and non-homologous end joining (NHEJ)1:

PARP inhibitors, the most advanced drugs in the DNA repair inhibition field, inhibit the BER pathway. This results in the accumulation of single-strand DNA breaks, eventually leading to double-strand breaks2. This process could cause cell death, but in healthy cells double-strand breaks are repaired via HR or NHEJ pathways. In a special case of mutated BRCA1/2 genes, the HR pathway is dysfunctional and these cells have been shown to be 100- to 1,000-fold more sensitive to PARP inhibition2. A biological defect such as mutated BRCA (dysfunctional HR), complemented by a drug leading to cell death, a PARP inhibitor in this case (blocks BER), is known as synthetic lethality.

BRCA1/2 mutations are found in around 15% of all cases of ovarian cancer and 5–10% of total breast cancer patients. The first three PARP inhibitors were approved for ovarian cancer. Initially they were explored in BRCA-mutated ovarian cancers, but efficacy has also been shown in BRCA non-mutated ovarian cancer as well. At a later stage, the label of the first PARP inhibitor, Lynparza, was extended to include metastatic breast cancer (BRCA mutated, HER2 negative) and the latest PARP inhibitor, talazoparib, which was approved in October 2018, is indicated for breast cancer only (BRCA-mutated, HER2 negative).

The rationale for using AsiDNA standalone and in combination

PARP inhibitors have shown promising efficacy and safety in clinical trials, but the main drawbacks are the necessity of a dysfunctional HR pathway and a rapid emergence of resistance2. First-in-class AsiDNA is based on signal-interfering DNA technology; if introduced into a cell it acts as a signal mimicking the damage of the cell’s own DNA. AsiDNA molecules are short double-strand DNA (32 nucleotides in each strand) that mimic double-strand breaks in the cell’s DNA and are recognised as ‘damaged DNA’ by repair and signalling proteins. Namely, AsiDNA hyper-activates PARP1 and DNA-PK leading to a cascade of repair proteins being recruited to ‘repair the damage’; as a result the actual damage of a cell’s DNA remains unrepaired. This action renders the HR and NHEJ pathways dysfunctional. Therefore, AsiDNA is clearly differentiated from PARP inhibitors, as it acts more upstream; it is not a specific enzyme inhibitor but activates PARP (ie ‘distracts’, when olaparib inhibits) among other repair proteins. This treatment approach has a broader action than PARP inhibitors, as it targets the entire DNA repair system by hijacking the DNA repair signalling.3

Since HR and NHEJ are responsible for repairing double-strand breaks, AsiDNA’s ability to disrupt these pathways was initially explored by the original inventors in combination with DNA-damaging therapies, such as radiotherapy and chemotherapy. Due to its independent mechanism of action there is also strong rationale to use AsiDNA in combination with PARP inhibitors to potentiate their effect in BRCA-mutated tumours. In addition, AsiDNA could potentially be used to sensitise BRCA non-mutated tumours to PARP inhibitors, which in turn would expand their use substantially.

This was the first clinical trial Onxeo conducted after acquiring AsiDNA and is the most advanced dataset available at present. The open-label, dose escalation Phase I DNA Repair Inhibitor administered IntraVenously (DRIIV) recruited patients (n=22) with various advanced solid tumours, with the first patient treated in April 2018. All patients had metastatic cancers and were failing or progressing after one or more standard treatments with no further therapeutic options. The study aimed to assess:

The final results were announced in May 2019. The findings from a total of 22 patients who received five dose levels of AsiDNA ranging from 200mg to 1300mg include:

Our view

The rationale for this study was built on previous findings from the Phase I DRIIM, conducted by the inventor company. In that trial AsiDNA was administered intratumourally in melanoma patients. While the data released from the DRIIV-1 trial are still very early and no conclusions about efficacy can be made as yet, we find it reassuring that no serious drug-related side effects emerged with intravenous administration. The consistent pattern of increase in activity biomarkers also demonstrated that the drug reaches its target after intravenous administration. AsiDNA is a unique compound with no close comparators with respect to mechanism of action and therefore there was no visibility on the safety/tolerability profile via a systemic administration before DRIIV-1 results (safety data via local injection in the DRIIM trial was good).

The next step in the development plan for AsiDNA is the extension of the Phase Ib (DRIIV-1b) study, which started enrolling patients in May 2019. This is the first study testing AsiDNA in combination with carboplatin plus paclitaxel, in up to 18 patients (9 + 9 if dose-limiting toxicity is reached; Exhibit 5) with solid tumours eligible for such treatments (such as lung, breast, ovarian or head and neck cancers). The study will evaluate the efficacy of the combination treatment using RECIST criteria (response evaluation criteria in solid tumours) and the initial results are expected in Q419.

As discussed above, the AsiDNA’s mechanism of action allows it to be positioned in various combinations with other anticancer therapies. Therefore, near-term R&D plans include studies with AsiDNA in combination with classic chemotherapy drugs and novel PARP inhibitors (Exhibit 6). We note that only the Phase Ib DRIIV-1b study is ongoing; other trials are at the planning stage and the results from the DRIIV-1b trial will help to design other studies. The final decision on which indications to prioritise will be made in the near future, but ovarian and breast cancer seem to be most likely targets at present. In this regard, we find the Phase Ib/II study with AsiDNA in combination with PARP inhibitors of particular interest. It will explore AsiDNA’s potential to abrogate tumour resistance to PARP inhibitors. There is a strong rationale for such a combination and the proof-of-concept was demonstrated in the animal studies (discussed below). To date, the four approved PARP inhibitors have been approved for the treatment of ovarian or breast cancer. While commercially successful drugs, they still suffer from the rapid development of resistance, so AsiDNA’s benign safety profile could be a good partner drug because of its ability to abrogate resistance to the drug.

When it comes to late-stage development, Onxeo’s business strategy implies it will seek to partner or out-license the development of AsiDNA. Central to Onxeo’s investment case is its ability to secure a timely out-licensing agreement. The company would consider out-licensing soon after the ongoing Phase Ib trial, which would allow the company to focus on earlier stage products in the platON platform. To be prepared for that outcome Onxeo is accumulating as broad data package as possible. However, as Onxeo employs an early- to mid-stage development biotech business model, the data readouts, if positive, should create value inflection points for the share price, which would allow it to raise the necessary funds for the Phase II development. This option would lead to better deal terms and better returns to investors willing to take on the Phase II development risk.

In our model we assume that Onxeo will be able to partner AsiDNA after Phase II and the partner will cover all development and marketing costs from this point. We include two cancer indications (breast and ovarian cancer; detailed below) in our Onxeo rNPV valuation model. We assume the two Phase II studies are initiated in 2020, Phase III studies in 2023 and launch in 2026. The R&D cost for each of the two Phase II trials is €10m (industry average Phase II trials in oncology). This implies Onxeo will need to raise more funds, as the current cash reach is to Q320 (see Financials). Our partnering assumptions include a fairly typical deal structure, including an upfront payment, development and sales-related milestones, in addition to royalties on global sales. We assume that AsiDNA will be out-licensed after the Phase II studies, ie in 2022. We have used historical PARP inhibitor licensing deals as benchmarks for our valuation (Exhibit 17). In our model we include the total deal value of US$417m (average of the values of the three deals). This is split into an upfront payment of US$40m (roughly 10% of the total value) with the rest split into R&D and commercial milestones. These values are equally split between the two indications. We use tiered 12–15% royalty rates. We summarise our other valuation assumptions later in the report.

Phase I DRIIM results (AsiDNA via local administration)

DNA Therapeutics, the original developer, tested AsiDNA (DT01 at that time) in a clinical trial with skin melanoma patients. In the Phase I DRIIM study the drug was injected intratumourally or peritumourally in conjunction with radiation therapy. DRIIM was an open-label, non-randomised, multicentre, dose escalation study. In total, 23 patients received a full course of treatment and were evaluated for safety and pharmacokinetics, while 21 patients with a total of 76 skin melanoma lesions were evaluated for initial efficacy. Key headline results were presented at ASCO in May 2015 and published later4:

These results showed that AsiDNA was well-tolerated and had an effect on lesions when injected locally and that a systemic delivery is also possible. As discussed, we believe that this potential to reposition AsiDNA for systemic delivery was the primary driver for Onxeo’s acquisition of DNA Therapeutics in March 2016.

First proof-of-concept of AsiDNA systemic administration

After Onxeo acquired AsiDNA it completed the required additional preclinical development and the first preclinical proof-of-concept data demonstrating the potential for intravenous administration were released in July 2017. AsiDNA standalone significantly decreased tumour growth in triple negative breast cancer (TNBC) model and improved survival, while a combination with the classic chemotherapy agent carboplatin significantly reduced the growth further and outperformed all other arms (Exhibit 7).

Combination with PARP inhibitors offers synergies

Jdey et al (2017) explored in vitro the synergistic potential of the combination treatment of PARP inhibitors and AsiDNA2. The researchers studied AsiDNA with PARP inhibitors or standalone in 21 cancer cell lines with different BRCA status and three non-tumour cell lines. The most detailed comparison has been made between AsiDNA and the PARP inhibitor, olaparib, using a breast cancer model. BRCA mutations were observed in 8.8% of all new breast cancer cases, which increased to 30% in the difficult to treat triple-negative (ER-, PR-, HER2-) breast cancer subgroup. The main conclusions were:

In July 2018, Onxeo announced another set of positive preclinical data with AsiDNA in combination with various PARP inhibitors. AsiDNA was tested with olaparib and talazoparib in in vivo and in vitro models. The findings suggest the following:

One of the more unexpected Onxeo discoveries from the preclinical development was AsiDNA’s ability to ‘autosensitise’ tumour cells. According to this evidence, unlike the majority of drugs in oncology that develop resistance, the tumour cell’s sensitivity to AsiDNA could actually increase as the treatment progresses. If confirmed in future studies, it could be the first known drug with such an effect.

The data were first presented at the AACR’s annual meeting on 14–18 April 2018 in Chicago, Illinois. In an in vitro study AsiDNA’s effects were explored in six different tumour cell lines. Cells were treated with AsiDNA and various targeted therapy agents, namely imatinib (original brand Glivec, Novartis), olaparib (Lynparza, AstraZeneca) and 6-thioguanine. The results showed for the first time that long-term treatment with AsiDNA increases the sensitivity of tumour cells to AsiDNA itself. All six cell lines tested became more sensitive to AsiDNA and did not develop resistance. This is a unique feature in oncology, as tumours typically develop resistance to drugs. All tumour cell lines developed some resistance to other targeted therapy agents. In addition, normal cells were not affected by the standalone treatment with AsiDNA.

While the new publications describe early in vitro data, in our view, the unique value lies in the identification of a potentially new mechanism of action of AsiDNA, which Onxeo has termed autosensitisation. If the findings are replicated in further trials, AsiDNA could potentially be the first known drug with this effect.

One of the features of AsiDNA discovered more recently was its potential to abrogate resistance to PARP inhibitors. Onxeo presented the preclinical data at the 2019 American Association for Cancer Research Annual Meeting (AACR) in April 2019.

Cancers, such as ovarian, breast cancer, small cell lung and head and neck are known to have high degree of genomic instability and therefore can accumulate more DNA damage. These are also the primary target indications for AsiDNA to focus on in late-stage development.

Given that AsiDNA could be used independently of specific mutation, it opens various potential uses including in combination with existing other cancer therapies or as monotherapy. The currently ongoing DRIIV study is enrolling patients with solid tumours eligible to carboplatin with or without paclitaxel (TNBC, ovarian, lung, head and neck cancers). This could lead to a Phase II study in selected indications, which would position AsiDNA for use in combination with classic chemotherapy drugs, which are still standard of care in neoadjuvant treatment of TNBC and first/second-line treatment of advanced ovarian cancer. Another potential study will test AsiDNA’s potential to abrogate tumour resistance to PARP inhibitors and will most likely focus on ovarian cancer patients. In addition to these, Onxeo envisions that AsiDNA could also be combined with radiotherapy in future trials.

Such plans imply a broad potential for AsiDNA. We included TNBC in our valuation when Onxeo acquired AsiDNA. With Onxeo repositioning the use of AsiDNA for systemic administration and to reflect a broader potential we now include two cancer in our valuation and broader use of AsiDNA. We believe that these two cancers are most likely to advance to late-stage development because PARP inhibitors are gaining traction in these indications among physicians, but other solid cancers with genomic instability, such as SCLC, could also be advanced eventually as well.

According to the American Cancer Society, one in eight women in the US will develop breast cancer in her lifetime. Breast cancer is highly heterogeneous in its pathological characteristics; in some cases the cancer grows slowly with excellent prognosis, while in other cases it can be very aggressive. Breast tumours are grouped into different subtypes based on the expression of oestrogen receptors (ER) and progesterone receptors (PR), and HER2 oncogene. The most common driver mutations are in BRCA genes. Relevant breast cancer subtypes for Onxeo include:

TNBC

By pathological definition, TNBC lacks an expression of ER, PR, and human epidermal growth factor receptor 2 (HER2). This type of cancer is typically more aggressive compared with other types of breast cancer and is unresponsive to hormonal and monoclonal antibody therapies (eg Herceptin). The standard initial treatment options are surgery, anthracycline and taxane-based chemotherapy regimens (eg doxorubicin, cyclophosphamide, docetaxel, paclitaxel) and carboplatin (Ferguson et al, 2014; Cardoso et al, 2019). A relatively new development in the area is the approval of the anti-PD-L1 antibody atezolizumab (Tecentriq, Roche) in March 2019. It was the first immunotherapy approved for use in combination with chemotherapy drug nab-paclitaxel (Abraxane) in locally advanced or metastatic TNBC that express PD-L1 protein and cannot be treated surgically. TNBC accounts for around 15% of total new cases each year, which would imply c 89k patients in the US and Western Europe combined (detailed calculations in Exhibit 16; US data from NCI SEER program; European data extrapolated for top 14 western European countries).

Metastatic breast cancer, HER2-, BRCA-mutated

In January 2018, Lynparza became the first PARP inhibitor approved for second-line BRCA-mutated, HER2 negative metastatic cancer, while Talzenna was approved in October 2018. While current indications include PARP inhibitor use as second-line treatment options, interest in using these new drugs earlier in the treatment cascade is growing. Around 6–10% of new breast cancer cases are initially Stage IV or metastatic, but it is estimated that the number of metastatic recurrences can be much higher at 20–30% of all existing breast cancer cases (Metastatic breast cancer network). It is known that about 17% of breast cancers overproduce the growth-promoting protein HER2, so around 83% of the patients are HER2 negative, and that BRCA mutation prevalence is about 5–10% in the overall breast cancer patient population (American Cancer Society). Using mid-rage values, the total addressable patient population in the US and Western Europe is c 9,200 (detailed calculations in Exhibit 16).

Ovarian cancer

Epithelial ovarian cancer is the most common type of ovarian cancer, making up around 90% of cases (cancer.org). Rare ovarian cancer types include teratomas, stromal tumours and sarcomas and are considered on a case by case basis. Ovarian cancer is the most lethal gynaecological disease due to the ineffectiveness of screening tests. Most patients who are diagnosed with ovarian cancer have advanced disease (around 70–80%; Franzese, 2018; Narod, 2016), where the tumour has spread beyond the pelvic tissues, for example to the lymph nodes or peritoneum (stage III), or further to liver or spleen parenchyma (stage IV). AsiDNA has a broad potential in advanced ovarian cancer:

Cancer incidence data show that 50k new ovarian cancer cases were reported in 2018 (23k in the US and 27k in western Europe; US data from the American Cancer Society; European data extrapolated for the top 14 western European countries listed in Exhibit 16). Of that number, epithelial cancer accounts for 90%, which results in a total addressable population of 45k.

AsiDNA is differentiated from other DNA damage repair therapeutics in development as it does not target a specific protein in the DNA damage response cascade, but acts as an agonist decoy for proteins responsible for damage repair. PARP inhibitors target a specific protein in the cascade and they are the only DNA damage repair drugs approved to date. Therefore, AsiDNA represents a new treatment approach by itself or in combination with PARP inhibitors, which could not only potentiate them, but also expand their use beyond BRCA mutated tumours. For example, only around 15% of all ovarian cancer patients have the specific BRCA mutation. We expect the new platON compound will be positioned for combinations with immunotherapies.

There are four PARP inhibitors approved so far: Lynparza (AstraZeneca), Rubraca (Clovis Oncology), Zejula (GSK/Tesaro) and Talzenna (Pfizer). BRCA-mutated advanced ovarian cancer (Lynparza, Rubraca and Zejula) and HER2 negative, BRCA-mutated, second-line metastatic breast cancer (Lynparza, Talzenna) are the only approved indications for PARP inhibitors so far. These cancers were seen as the low-hanging fruit for the development of PARP inhibitors due to the link between BRCA mutation and these tumours. The market for PARP inhibitors is expected to reach around US$1.6bn worldwide in 2019 and, according to consensus, the market for PARP inhibitors could reach US$5.6bn in 2024 (EvaluatePharma, Exhibits 12 and 13). This will be driven by growth in existing products, the introduction of new PARP inhibitors (2019 will be the first full year for Talzenna; pamiparib from BeiGene is in Phase III, fluzoparib from Jingsu Henrui is in Phase III and veliparib from AbbVie is in Phase III), the possible transitioning of second line products into first line, new indications (prostate cancer) and combinations with other drugs. Although further indications are being explored, ovarian and breast cancers are expected to remain the largest indications for PARP inhibitors into 2024.

Large pharma are very active in the space, in particular AstraZeneca and Merck KGaA, with several projects investigating ATM and ATR (HR pathways), DNA-PK (NHEJ pathway) and WEE1 pathways. The most advanced projects are in Phase II.

Belinostat (HDAC inhibitor for peripheral T-cell lymphoma (PTCL)) is marketed as Beleodaq in the US under a conditional FDA approval granted in July 2014 for relapsed or refractory peripheral T-cell lymphoma (r/r PTCL). This was based on the US Phase II BELIEF study in relapsed/refractory PTCL (n = 120). We expected that a Phase III controlled trial would address the conditional approval in the US, which could also be used for filing in Europe. However, since the out-licensing the drug is in the hands of the partner and no further progress has been announced. In addition, Spectrum Pharmaceuticals, which in-licensed and marketed Beleodaq, sold its portfolio of selected drugs including Beleodaq to Acrotech Biopharma earlier this year. Onxeo indicated that the transaction will not have any material effect on its near-term financials (Onxeo effectively sold the royalties from Beleodaq to SWK Holdings), but there is little visibility about the timelines for any potential further development of Beleodaq in the US and Europe if any.

Onxeo could also explore the potential to combine belinostat with future compounds from the platON platform. Onxeo has published proof-of-concept in vitro data supporting the rationale. The findings demonstrated that there was a clear synergistic effect on malignant cells compared with monotherapy of either of the drugs (AsiDNA or belinostat). Notably, the effect on healthy cells was minimal. Belinostat is a strong inducer of DNA breaks and therefore the combination with AsiDNA, a DNA break repair inhibitor, could potentially be synergistic. As Onxeo owns both technologies it could explore the synergistic potential and the best way to market.

Onxeo is subject to the usual drug development risks, including clinical development delays or failures, regulatory risks, competitor successes, partnering setbacks, financing and commercial risks. The main sensitivities in both the near- and mid-term relate to the lead asset AsiDNA progressing through clinical development. Clinical development would lead to an increase in R&D spending and would require additional investment if Onxeo continued the development beyond the ongoing Phase Ib plus chemotherapy. The company is pursuing a comprehensive development strategy aimed at accumulating an attractive data package for potential early out-licensing (after Phase Ib). However, we believe that the value inflection that the clinical trial readouts typically provide could be used to fund the Phase II studies, which would advance AsiDNA to late stage R&D and, presuming a successful clinical trial, would warrant much better licensing deal terms.

Onxeo announced in October 2017 that the court’s decision in the litigation case regarding Loramyc was unfavourable and the company paid €12m in total to SpeBio and other smaller charges to SpePharm/SpeBio for costs incurred to market Loramyc in Europe. The litigation started in 2009 after Onxeo (formerly BioAlliance Pharma ie before the merger with Topotarget) terminated a distribution agreement with SpePharm/SpeBio. Onxeo believed that SpePharm/SpeBio breached contractual obligations resulting in the delayed marketing of Loramyc. Onxeo sought all legal options to appeal the decision, but in the end paid the required amount. However, the company owns a 50% stake in SpeBio, which is a joint venture with SpePharm, therefore the net impact is not clear at present, but Onxeo aims to claim back the proportional payment from the joint venture. In addition, the international arbitration procedure, which was on hold pending decisions from the French courts, has resumed and Onxeo still seeks appeal in higher jurisdiction.

Following Onxeo’s decision to focus solely on AsiDNA, we have substantially revised our valuation. We calculate rNPV of €129m or €2.3/share (our last published valuation was €172m or €3.3/share). We have updated our model to include the second indication for AsiDNA, offset by a review of the Validive out-licensing deal, the removal of residual rNPV values of Beleodaq (the cash was received upfront after the royalty sale agreement) and the removal of the small residual rNPV of Sitavig/Loramyc, two legacy specialty products.

We added the TNBC indication to our model soon after the acquisition in DNA Therapeutics in March 2016. We have now expanded AsiDNA’s use in advanced ovarian and breast cancers. The assumptions include:

Onxeo out-licensed Phase III-ready Validive (mucoadhesive clonidine for oral mucositis) to Monopar Therapeutics in September 2017 for US$109m (US$1m received upfront). We previously included a bottom up model for this asset in our valuation with 50% probability of success based on the data reported by Onxeo. However, given that the asset is now in different hands and seeing no progress reported by Monopar, we have simplified the valuation and only use the discounted (at the same 12.5% rate) and risk-adjusted value of the agreed milestones, which is adjusted by a 25% probability of success to account for operational and technology risks.

In June 2018, Onxeo effectively sold the Beleodaq royalties to SWK Holdings Corporation in exchange for an immediate payment of US$7.5m. SWK Holdings Corporation is entitled to receive US$13.5m in future royalties from Spectrum. Using a bottom up model we calculated that there could be a residual value from Beleodaq after the repayment of royalties to SWK. However, with the introduction of the generic competitor istodax (Celgene’s Romidepsin went off patent in 2018), which is also indicated for PTCL, we decided to remove the residual value of Beleodaq from our valuation. Furthermore, Spectrum Pharmaceutical, which had in-licensed Beleodaq from Onxeo and was marketing it in the US, sold some of its assets including Beleodaq to Acrotech Biopharma, which is a private company, and it did not indicate its intentions with regards to any additional R&D.

We have also removed the small residual values of two legacy products Sitavig and Loramyc (for labial herpes and oropharyngeal candidiasis), which included potential earn-outs, as Onxeo divested these assets to Vectans Pharma in July 2017. These earnouts were not disclosed and no updates have been provided.

Onxeo booked revenues of €6.1m in 2018. Recurring revenues of €2.3m came in from the sales of Beleodaq. On 7 June 2018, Onxeo announced that it had effectively sold the Beleodaq royalties to SWK Holdings Corporation in exchange for an immediate payment of $7.5m. SWK Holdings Corporation is entitled to receive $13.5m in future royalties from Spectrum. €3.8 million in non-recurring revenues were related to contractual payments from Vectans Pharma, which acquired Onxeo specialty drugs Sitavig and Loramyc in 2017.

Total operating expenses amounted €9.7m in 2018, which was a reduction from €28.7m in 2017. This significant fall was mainly due to lower R&D expenditure as a result of the conclusion of the Phase III ReLive study in September 2017 and subsequent cost cutting program. For 2019 and 2020 we forecast total operating expenditure of €15.0m and €15.3m respectively.

Onxeo reported a cash position of €6.3m at end-Q219. In June 2019, the company announced that it had renewed a 12-month equity financing line with Nice & Green. Remaining gross proceeds from this equity line would extend cash reach to around Q320. Over the course of the next 12 months Nice & Green will subscribe and exercise each month a number of share warrants corresponding to a monthly financing of €850k. The shares will be issued each month priced on the basis of the average volume-weighted share price over the three trading days preceding each issue, less a maximum discount of 5.0%. The total number of new shares to be created is limited to 12m (compared to 55.9m that existed before the issue).