Opexa Therapeutics — Update 29 June 2016

Opexa continues to progress its 190-patient Abili-T Phase IIb study of lead candidate Tcelna in secondary progressive multiple sclerosis (SPMS), with top line data guided for early Q416. The firm initiated the placebo-controlled (1:1 randomization) Abili-T study in fall 2012, completed recruitment in June 2014 and approximately 98% of expected patient visits have been completed to date. Patients receive two annual courses of Tcelna treatment consisting of five subcutaneous injections per year at weeks zero, four, eight, 12 and 24. The primary endpoint is the percentage of brain volume change (whole brain atrophy) at 24 months, and Expanded Disability Status Scale (EDSS) score changes and annual relapse rates (ARR) are included as secondary endpoints.

MS is an inflammatory disease that attacks the central nervous system by eroding the protective myelin sheath around nerve fibers, impairing neural signal conduction and possibly also attacking the nerve fibers themselves. According to the Cleveland Clinic, MS affects approximately 400,000 people in the US and 2.5 million worldwide. While several approved treatments exist for RRMS, the most common form of the disease, none of these treatments has proved to be successful in SPMS. The only FDA US-approved SPMS product is mitoxantrone, an immunosuppressive drug that was originally developed and approved as a treatment for certain cancers, and whose use in SPMS settings is limited by its propensity to cause irreversible cardiomyopathy. According to the National Multiple Sclerosis Society, historically 50% of people diagnosed with RRMS develop SPMS within 10 years, and 90% transition within 25 years.

In contrast with episodes of relapsing neurologic symptoms and remissions associated with RRMS, SPMS is characterized by progressive neurologic decline. Where RRMS is characterized by active inflammation, an increase in lesions and evidence of remyelination, SPMS is characterized by more diffuse and less intense inflammation, little to no expansion in the number or size of lesions and sparse evidence of remyelination. SPMS patents tend to have significantly more gray matter atrophy compared with RRMS patients. The reduced level of acute inflammation could help explain how available immunomodulating and immunosuppressive therapies approved and validated for RRMS (dimethyl fumarate, fingolimod, interferon beta-1a, teriflunomide, etc) have not been effective in SPMS.

Another complicating factor for SPMS therapy, which may also explain why existing RRMS-approved drugs are unsuccessful, is that the blood-brain barrier (BBB) is less disrupted (and more impermeable) in SPMS compared to RRMS, which may impede the ability of therapeutics to reach target sites; hence, the (chronic) inflammation and inflammatory cells surrounding SPMS may effectively be “trapped behind the BBB” and less reachable by proposed experimental treatments.

Tcelna is well differentiated from existing MS treatments in that it intends to apply a customized (patient-specific) immunotherapy approach to impede the inflammatory processes of MS by targeting and suppressing myelin-reactive T-cells (MRTCs) believed to be responsible in modulating inflammatory processes. Opexa operates its own scalable manufacturing process whereby, after blood is extracted from an MS patient, peripheral blood mononuclear cells (PBMCs) are isolated and screened for T-cells (MRTCs) against a proprietary bank of 109 different myelin peptides. These include peptides from myelin basic protein (MBP), myelin oligodendrocyte glycoprotein (MOG) and proteolipid protein (PLP). The process then identifies which specific peptide antigens are being targeted by the patient’s own MRTCs. An autologous pool of MRTCs is then generated and raised against these selected peptides and then attenuated with gamma radiation (to prevent their future replication). The treatment principle is that the dosage of these attenuated MRTCs back to the patient initiates an immune response that depletes and/or suppresses the patient’s own circulating MRTCs, which carry similar peptide-specific T-cell receptor molecules. Hence, Tcelna attempts to impede the function of specific subsets of personalized MRTCs believed to attack myelin and related components in each treated patient.

A 16-patient, Phase I/II open-label study in MS patients intolerant or unresponsive to existing treatments showed statistically significant MRTC cell count reductions over baseline at all visits through one year (five doses given per year, at weeks 0, 5, 13, 21 and 28). In the 30-45m cells per dose treatment arm (n=5), there was a 92% reduction vs baseline in circulating MRTCs at week five; while the depletion subsided in following weeks, the level of MRTCs at week 52 was still 65% below baseline. Opexa used a 30-45m per dose treatment approach for subsequent trials (including the ongoing Abili-T study).

A 150-patient, 12-month, placebo-controlled Phase IIb study of Tcelna in RRMS (Tovaxin for Early Relapsing Multiple Sclerosis, TERMS) or Clinically Isolated Syndrome1 was completed in 2008. While this study did not show statistical significance in its primary endpoint (cumulative number of gadolinium-enhanced brain lesions using MRI imaging), in a modified intent-to-treat patient population,2 the ARR for Tcelna-treated patients was 37% lower than placebo. In a prospective group of patients (n=50) with more active disease at baseline (ARR>1), the Tcelna-treated group demonstrated an even stronger (55%) reduction in ARR vs placebo, and a statistically significant improvement in disability (using Expanded Disability Status Scale, EDSS) vs placebo (p<0.045).

A pooled analysis from 36 SPMS patients from earlier Phase I open-label studies (two Opexa-sponsored studies completed in 2006 and 2007, and one by Baylor in 1998) showed that c 80% of those completing two years of Tcelna showed no disease progression as measured through EDSS. Historical control data (ESIMS study,3 published by Hommes et al. in Lancet in 2004) suggest that 40% of SPMS patients would normally progress. This, combined with the stronger efficacy signal in patients with more active RRMS in TERMS, may suggest that Tcelna could be more efficacious in more advanced forms of MS such as SPMS. Mechanistically, Opexa believes that the transition from RRMS to SPMS may involve a transition to a T-cell-dependent inflammatory mechanism, which may more heavily involve the MRTCs as targeted by Tcelna. This could potentially provide a rationale for Tcelna to provide more efficacy in SPMS than RRMS.

Merck paid $5m to Opexa in 2013 to acquire an option to obtain an exclusive worldwide license (excluding Japan) to the Tcelna program for the treatment of MS. Merck can exercise this option until approximately 60 days following the release of top-line data from the ongoing SPMS Abili-T study. If the option is exercised, Merck would pay a $25m upfront license fee, unless additional Phase II studies are required (as determined by Merck) to bring Tcelna to Phase III studies, which would reduce the upfront fee to $15m. Following the exercise, Opexa would be entitled to tiered royalties on Tcelna commercialization, at rates in a range of 8-15% of net sales. Merck would also be responsible for funding all future development, regulatory and commercial activities, as well as product manufacturing costs.

Opexa would be entitled to up to $195m of additional milestones, with up to $70m achievable for regulatory approvals or launches in SPMS, up to $40m for approvals or launches in RRMS, and up to $85m in commercial milestones. Merck already markets Rebif (interferon beta-1a) for RRMS, and total Rebif sales in 2015 were €1.04bn. Merck’s existing familiarity with the MS drug development and commercialization would appear make it an ideal product development partner. The company also paid $3m in Q115 to Opexa in order for it to develop a detailed plan for potential Phase III development of Tcelna, including identifying all of the actions needed to reach operational readiness for potentially starting a pivotal study.

Biogen reported unsuccessful results on 7 June 2016 from its 419-pt Phase II study of its Anti-LINGO-1 monoclonal antibody (mAb), opicinumab, which was being dosed in combination with interferon beta-1a (Avonex). Opicinumab was designed to help try to regrow myelin, rather than just prevent future damage, but it did not meet the primary endpoint on a multicomponent measure evaluating improvement of physical function, cognitive function, and disability. However, Biogen indicated there was some evidence of a clinical effect with a complex, unexpected dose-response, and it will further analyze the data and potentially engage in another study.

MedDay, a privately held French biotech firm, reported results in April 2016 of its 154-pt Phase IIb study of its drug MD1003, a highly-concentrated formulation of D-biotin, and intended to stimulate myelin production and improve nerve impulse conduction. The study was designed to assess MD1003’s ability to reverse disease progression in patients with non-active progressive MS.

The primary endpoint was defined as the proportion of patients with either improvement of EDSS or TW25 (timed 25-foot walk) after nine months and confirmed at 12 months, reflecting a confirmed reversion of progression. The primary endpoint was met (p=0.0051) with 12.6% of patients in the MD1003 arm showing a confirmed reversion of progression at nine months (confirmed at 12 months), compared to none (0%) in the placebo arm. During the 12-month extension phase, MD1003 patients showed sustained improvement, with 15.4% of patients showing improvement vs baseline at 24 months. The mean EDSS decreased in the MD1003 group (-0.03) compared to progression in the placebo group (+0.13, p=0.014). These results appear promising and would likely need to be replicated in a larger-scale Phase III study prior to regulatory submissions.

Other potential SPMS competitors include Roche’s ocrelizumab, which targets CD20-positive B-cells, and which could be approved for SPMS before Tcelna, given positive Phase III results (n=732) in primary progressive MS (PPMS) reported in September 2015. Ocrelizumab significantly reduced disability progression as measured by EDSS vs placebo. Roche received breakthrough therapy designation for the product, and is expected to file for FDA approval in 2016; approval in a progressive form of MS could eventually lead to studies and applications in SPMS. In addition, Novartis’s siponimod, a more selective sphingosine 1-phosphate (S1P) modulator than fingolimod, is under evaluation in a 1,600-pt Phase III study in SPMS, with data expected in 2017. Other NMEs under development in SPMS are shown in our 30 November 2015 initiation report.

Ultimately, while the current treatment landscape is sparse in SPMS, competitive products are emerging in this indication and several may reach Phase III data before Tcelna. If they gain market entry, Tcelna’s commercial success will depend on product efficacy and relative performance, as well as the effectiveness and breadth of the marketing efforts.

We continue to assume that Tcelna treatment will have a net US annual price of $60,000, that there are 122,000 people with SPMS in the US (and approximately 190,000 in Europe), and that 50% of these would have measurable MRTC plasma levels at baseline to justify Tcelna treatment.4 We assume that Tcelna will have a peak US market share of 30% of this market by 2026, leading to end-user sales of $2.6bn. This peak sales estimate is broadly in line with current sales figures for leading MS drugs (eg Biogen’s dimethyl fumarate had 2015 sales of $3.6bn, and Novartis’s fingolimod had $2.8bn). We model that Opexa will receive tired royalties at 8-15% of such sales and the full amount of milestones slated under the agreement with Tcelna. We do not include RRMS revenue in our model, but will revisit this assumption if or when another human RRMS trial begins.

Our forecasts are slightly adjusted and we are lowering our risk-adjusted valuation of Opexa from $47.6m or $6.81 per diluted share, to $44.8m or $6.41 per diluted share, mainly due to a lower level of net cash, which was mitigated somewhat by rolling forward our forecasts. Opexa had $9.9m in net cash ($10.0m gross cash and $0.1m of short-term debt) at 31 March 2016. Our model continues to assume that if Abili-T results meet the primary endpoint (whole brain atrophy vs placebo), Merck will exercise its option to in-license Tcelna and will then fund all remaining development and commercialization activities in MS. We continue to apply a 15% probability of success. Under a best-case scenario, a Phase III pivotal SPMS study could start in 2017, with potential approval and launch in SPMS in 2021. For OPX-212, Opexa’s other product candidate and under development for neuromyelitis optica (NMO), the company continues to work on resolving technical challenges regarding product manufacturing and no specific timeline has been provided by the company for resolution, or for its IND (Investigational New Drug) application with the FDA. We continue to use a 3% probability of success and assume a pivotal NMO study in 2019 and launch in 2022.

As Q116 R&D and G&A costs were slightly less than anticipated, we have slightly reduced our 2016 cash burn estimates; whereas we previously forecast a 2016 cash burn (operating cash flows plus net interest minus net capex) rate of $12.3m (excluding the potential $25m upfront fee from Merck KGaA in the event of positive Abili-T data), we now expect a 2016 cash burn rate (excluding upfront) of $11.1m.

Given Q116 net cash of $9.9m, we are also modelling that the firm’s cash on hand will be sufficient to fund operations into Q117, as per the company’s current guidance. Hence, as Abili-T Phase IIb data is expected in early Q416, we believe the company has sufficient funds on hand to reach this pivotal clinical event milestone. We reiterate that positive data would likely prompt Merck to exercise its option on the program, triggering a $15m or $25m milestone payment to Opexa. We continue to expect Opexa to raise $60m between 2018 and 2020 to advance OPX-212 and potentially other programs based on its proprietary ImmPath immunotherapy platform. For illustrative purposes only, we have added these requirements to long-term debt, and our models do not include the potential dilutive impacts of future equity offerings.