Oryzon Genomics — Q3 results recap key upcoming inflection points

Oryzon’s two lead assets, vafidemstat (central nervous system (CNS)) and iadademstat (oncology), are in active clinical programmes spanning a range of indications (Exhibit 1). The company is a European leader in the field of epigenetics, and as such, both vafidemstat and iadademstat are inhibitors of LSD1, a histone-modifying enzyme that forms part of complexes responsible for the regulation of genes implicated in CNS disorders and cancer.

In CNS, the BPD programme remains a top strategic priority for Oryzon. The final analysis from the Phase IIb PORTICO trial demonstrated robust improvements per State-Trait Anger Expression Inventory 2 (STAXI-2) trait anger measures (assessing agitation/aggression) at weeks 8–12. The results were more marked compared to the initial top-line results, with nominal statistical significance now recorded as p=0.0071 (vs p=0.0259 previously). The other key secondary efficacy measure showed an improvement in Borderline Evaluation of Severity (BEST), an overall assessment of BPD disease severity, at weeks 8–12 compared to the top-line data; nominal statistical significance is now recorded as p=0.0260 (vs p=0.0423 previously). With key opinion leaders claiming that improvements of 25% or over across measures of overall severity and agitation/aggression would mark a clinically meaningful benefit, we believe the fact that PORTICO achieved this provides a strong foundation for the subsequent stages of development. (For a more detailed discussion of the final analysis, we direct readers to our prior update note.) Following a productive EoP2 meeting with the FDA, management is in preparations for a Phase III PORTICO-2 trial. The estimated total population size for PORTICO-2 is 350 patients (randomised 1:1 to receive either vafidemstat or a control), with a study duration of 18 weeks. The next inflection point will be regulatory clearance for this Phase III study. Management plans to submit the protocol to the FDA in Q125, and expects approval in late Q125 or early Q225. We note that PORTICO-2 would be one of two registrational trials required by the FDA before Oryzon could file for regulatory approval.

Oryzon is also assessing vafidemstat as a potential treatment for the negative symptoms of schizophrenia and is involved in the Phase IIb EVOLUTION trial. According to the Q324 update, an assessment of effect sizes in the BPD programme has resulted in a re-evaluation and increase in the recruitment target for EVOLUTION. The programme continues to enrol participants across multiple hospitals in Spain, and we highlight that it is partially financed by the Spanish Ministry of Science and Innovation.

Vafidemstat is also being considered for a precision medicine approach for Kabuki syndrome, a rare congenital disorder, and management has communicated it will decide on a possible Investigational New Drug submission for the Phase Ib/II HOPE trial in 2025.

In oncology, following the positive results of ALICE (iadademstat in combination with azacitidine for the treatment of first-line AML), Oryzon is taking a broadened approach involving two new trials to evaluate the potential of the candidate in this patient population. The first is under the company’s cooperative research and development agreement (CRADA) with the National Cancer Institute (NCI), while the second is an investigator-initiated study in collaboration with Oregon Health & Science University (OHSU). Both trials are exploring a potential broadened treatment synergy, assessing iadademstat in combination with azacitidine and venetoclax in the first-line AML setting. The first patient was dosed in the OHSU-sponsored study in September 2024 and the first cohort is now fully enrolled, while the NCI study is expected to start enrolment in Q424. The programme in focus, however, is the Phase Ib FRIDA trial (expected n=45), which is assessing iadademstat in combination with the tyrosine kinase inhibitor gilteritinib for relapsed or refractory (R/R) AML patients harbouring the FLT3 mutation (second-line setting). A promising update was shared in June 2024, demonstrating strong antileukemic activity in the first two cohorts (13 patients) of the study, with encouraging response rates and a shorter time to response compared to historical data for gilteritinib. According to the Q324 update, enrolment for the third cohort is now complete, and management intends to share updated results once the data mature. We anticipate the next update to be at the next European Hematology Association (EHA) conference (in June 2025). We highlight that if this trial is successful, the company and the FDA have agreed to hold a meeting to discuss the best plan to further develop this combination.

Beyond AML, Oryzon is also assessing iadademstat in combination with paclitaxel in platinum R/R small cell lung cancer (SCLC) and extrapulmonary high-grade neuroendocrine tumours in a Phase II basket trial. This is being conducted in the US in collaboration with the Fox Chase Cancer Center, and continues to enrol patients.

Under the CRADA agreement with the NCI, iadademstat will also be explored in combination with immune checkpoint inhibitors in patients with SCLC. The protocol has been approved by the FDA, and patient enrolment will commence in Q424 with the Memorial Sloan Kettering Cancer Center (MSKCC) as one of the main sites. It is intended that the results of the CRADA-MSKCC trial will inform the design of Oryzon’s STELLAR trial, which will be a randomised, multicentre Phase II study of iadademstat plus a checkpoint inhibitor in first-line extensive-stage SCLC. Management believes that STELLAR may support an application for accelerated approval.

FY24 to date has been highly rewarding for Oryzon in terms of strengthening its IP portfolio for vafidemstat, with numerous announcements relating to the candidate:

Collectively, we believe these patents bolster the value proposition of the company’s CNS pipeline and note that similar patent applications are pending in other relevant markets. Provided the drug candidate is successful in subsequent clinical trials, it will be well-protected across various key geographies. Oryzon also holds composition-of-matter patents for vafidemstat, expected to expire in the US and EU in 2037 and 2036, respectively, including patent term extension/supplementary protection certificates.

Following the completion of the Phase IIb PORTICO trial in late-2023 and cost rationalisation by the company, R&D expenses have continued to come down, with Q324 recording expenses of €1.7m, more than 50% lower than the Q323 figure of €3.6m. R&D as a percentage of opex declined to 69% (vs 85% in Q323). Total R&D expenses in the first nine months of FY24 (9M24) were €6.3m, materially lower than the €11.5m booked in the first nine months of FY23. We note that €5.6m of the €6.3m in R&D expenses in 9M24 has been capitalised by the company, reflected as other income in the accounts. Personnel expenses stayed broadly in line with the trend in the previous quarter, coming in at €0.77m (vs €0.82m in Q224 and €0.87m in Q124). Net loss was reported at €1.2m in Q324, a c 16% increase over the Q323 figure of €1.1m.

Following the positive EoP2 meeting with the FDA on the BPD programme, management expects to file the study protocol by early 2025, with anticipated FDA clearance for the Phase III trial within Q125. If approval is received, Oryzon plans to commence the first Phase III trial in H225. We therefore expect the R&D expenses to stay low until at least H125. As indicated previously, management anticipates the need for two Phase III trials for the New Drug Application and has guided for a clinical trial cost of less than €50m for each trial, recruiting 350 patients each. For reference, the Phase II PORTICO trial, which had enrolled around 200 patients, cost the company around €25m in R&D expenses. For our model we assume that the Phase III programme would be advanced under a licensing agreement, with the partner taking over R&D-related responsibilities.

Based on the Q324 results and near-term visibility, we have made minor adjustments to our FY24 and FY25 estimates. We have reduced our R&D expenses estimate for FY24 to €8m, from €9m previously, to reflect the nine-month run rate. This also has an impact on the other income estimate (remember that the company capitalises a large proportion of its R&D expenses, reflecting the capitalised portion as income), which goes down to €7.6m, from €8.6m previously. For FY25, however, our revenue estimate goes up to €40.5m, from €31.6m previously, due to higher risk-adjusted income assumed as we increase the probability of success (PoS) for the BPD programme from 20% to 30% following the positive FDA feedback from the EoP2 meeting. Overall, we now project an operating loss of €4.1m in FY24 (€4.2m previously) and an operating profit of €26.7m in FY25 (€16.8m previously). We note that our estimates currently do not include potential non-dilutive inflows/grant proceeds under the Med4Cure project, which the company is entitled to receive. Management has recently indicated that the budget for Oryzon under the project will be in the range of €20–25m and it expects to receive 60–70% of this (c €14–17.5m) between Q424 and Q125.

The company ended Q324 with net debt of €10.0m, including a €7.5m cash balance and €9.8m in short-term debt (bonds: €4.7m; credit institutions: €5.0m; other public organisations: €1.2m) and €6.6m in long-term debt (bank debt: €3.0m; other public organisations: €3.6m). Based on our projected cash burn rates and assuming no incremental cash inflows in Q424 (or debt repayment), we expect the gross cash at hand to be sufficient to fund operations into FY25. We remind readers that Oryzon had announced a €45m convertible debt facility in November 2023, of which €14m has been drawn down until the end of H124. Our model assumes that another €6m will be utilised in H224 and the remaining €25m in FY25, which we reflect as illustrative debt in our projections. We note that the timing of inflows is subject to change based on receipt of grant proceeds under the Med4Cure project.

Following Oryzon’s positive EoP2 meeting with the FDA and further clarity on the Phase III trial protocol, we have made certain adjustments to our launch timelines for the vafidemstat CNS programme. For BPD, we increase our probability of success to 30% (from 20% previously), given the transition to a Phase III-ready programme. The valuation upside from this has been partially offset by a more protracted timeline to approval which we now assume. This is based on our understanding that two Phase III studies will be required to meet the requirements of a regulatory filing. As per management guidance, we anticipate the first Phase III study to commence in H225 and expect it to take three years to complete, given the trial design and size (350 patients and treatment period of 18 weeks). While the possibility of running two Phase III trials in parallel cannot be ruled out, we believe a more feasible scenario (keeping funding and other requirements in mind) would be for the company to initiate the second study after interim readouts from the first. We therefore expect the combined Phase III programme in BPD to now be completed in 2029, followed by a launch in 2030 (versus 2028 previously).

In terms of the underlying market assumption and commercial potential, while we understand that the trial will focus on agitation/aggression related to BPD as a primary endpoint, we continue to forecast the entire BPD population as the target population given the high propensity of agitation/aggression in BPD patients (over 70% of all BPD patients). We continue to assume a peak penetration of 10%, to be achieved in 2036, versus 2034 previously (peak sales estimate remains unchanged at US$1.6bn), but now project a longer tail to sales erosion following the recent patent extensions for vafidemstat (patent protect to 2040 in Europe and 2041 in the US for treatment of BPD, excluding possible patent term extensions). Overall, we revise our risk-adjusted net present value (rNPV) for vafidemstat in BPD to €271.4m, versus €245.0m previously.

We also note that based on observations from the Phase II PORTICO trial, management now plans to increase the enrolment in the Phase IIb EVOLUTION trial (previously c 100 patients) evaluating vafidemstat in schizophrenia (with a primary focus on improving negative symptoms). Based on this update, we conservatively push out our estimates for a launch timeline to 2031, from 2029 previously. The downside from this has also been offset by the longer lead time to sales erosion following the recent strengthening of vafidemstat’s IP position. Our revised rNPV for this indication is €119.6m (€120.8m previously).

Finally, for agitation/aggression related to Alzheimer’s disease (AD), we continue to expect it to be pursued as a label extension opportunity. Concurrent to the revised timelines for BPD and schizophrenia, we also push out the launch timeline in AD to 2031, from 2029 previously. This again has had a limited impact on our valuation, given the longer patent life, which still provides over a decade of protection, assuming these launch timelines. Our updated rNPV for AD stands at €132.0m, from €137.8m previously.

For the oncology programme (iadademstat in AML and SCLC), our underlying assumption remains unchanged for now, but we will reassess our estimates as more information on trial progression and development plans becomes available.

Based on the aforementioned changes, and reflecting the adjustments from model roll forward and updated net debt position, our overall valuation for Oryzon increases to €796m or €12.3/share, from €775m or €12.1/share previously.

A breakdown of our rNPV is shown in Exhibit 2.

We note that our model reflects licensing deals in FY25e and FY26e, associated with cash inflows that should support break-even in FY26e. If Oryzon does not finalise a partnership deal, and self-commercialises all programmes, the company will be required to raise sizeable external capital; we estimate c €30m annually between 2026 and 2029 for a total of €150m. Assuming all funding requirements across FY24–29 (c €181m) are realised through equity raises, Oryzon would have to issue 107.7m shares (assuming the current price of €1.68/share). Our per-share valuation would therefore be diluted to €5.7/share, from €12.3/share currently (shares outstanding would increase from 64.7m to 172.3m).