~By Dr. Udaya Kumar Maiya, MBBS, MD, DNB, DCCF-Paris
In the entire field of oncology, perhaps the most disruptive ongoing revolution is the application of Chimeric Antigen Receptor – T Cells or (CAR-T) to cancer immunotherapy. In this therapy, engineered T-cells that express a specific tumor antigen binding domain called Chimeric Antigen Receptor is infused into the patient. As the construct binds to its target domain, the T-cell is activated and attacks the cancer cell with great specificity. Remission rates as high as 94% in late-stage acute lymphoblastic leukemia (ALL) have been observed. While ALL itself is a very curable cancer with high CRs (Complete Remission) seen with HSCT therapy (hematopoietic stem cell transplant), subdued whispers are being heard in laboratory corridors and newsrooms whether cancer has finally found its nemesis.
CAR-T therapy has three specific problems: one, off-target toxicity; two, lack of an allogenic version of the therapy; and three, difficulty in applying CAR-T therapy to solid tumors. While the first issue is being widely tackled with various forms of biologic switches, and there is considerable ongoing research to develop allogenic off-the-shelf models of CAR-T, CAR-T’s application to solid tumors has been restricted by the inherently immuno-suppressive solid tumor microenvironment which limits T-cell infiltration, and the original focus on the B-cell surface specific CD19 receptor which has also somewhat restricted research to the hematologic space.
However, while liquid or blood cancers account for only about 9% of cancer deaths in the US, solid tumors like carcinomas, sarcomas, and lymphomas account for over 43% cancer deaths in the US. If there is a small company developing CAR-T for solid tumors, that should be a valuable speculative investment.
Celyad (NASDAQ:CYAD), a small Belgium-based drug developing company, is working to develop a CAR-T therapy for solid tumors. Its approach is to move away from the CD19 receptor and work with a construct which expresses Natural Killer Receptors (NKRs), binding to eight different ligands that are expressed in over 80% of solid tumors. With a market cap of just $444mn, very little debt, low cash burn rate, and a cash runway to see it through the next couple years, Celyad is solidly positioned to appreciate many times per my valuation sheet below.
About the ongoing revolution in CAR-T
The chimeric antigen receptor T (CAR-T) is a construct of two elements, the CAR and the T cell. CARs are synthetic receptors consisting of an antigen-binding domain called scFv or single-chain variable fragment. The scFv component identifies and then binds to one of the numerous tumor-associated antigens (TAAs) expressed on the tumor cell surface. T-cell is then activated and kills the targeted tumor cell. Third generation CARs have multiple co-stimulatory domains besides the primary activation domain and provide for greater expansion, prolonged anti-tumor activity, and cytokine secretion.
Here’s an excellent selection from a CAR-T primer presented at ASCO:
“CAR T cells can recognize a wide range of molecules or antigens – proteins or pieces of proteins, sugars, and fat molecules (each specific CAR is programmed to recognize one specific antigen). When the receptor attaches to an antigen molecule on a cancer cell, it sends a signal to turn on the T cell’s destruction mode. Unlike traditional cancer treatments, this “living therapy” needs to be given to the patient only once because CAR T cells continue to multiply in the patient’s body. This means the anticancer effects of CAR T cells persist and can even increase as the cells multiply. The persistence of CAR T cells in the body differs between CAR T-cell products, with some persisting o ne or two months and others for years.”
CAR-T has been spectacularly successful. Early success came with CD19-targeting CAR-Ts in acute lymphoblastic leukemia or ALL, with up to 90% remission of up to two years durability in a poor-prognosis disease with expected survival duration of no more than six months. Recently, a BCMA-targeting CAR-T was responsible for 94% remission in high-mortality refractory multiple myeloma patients, as shown by results presented at ASCO 2017.
However, CAR-T in solid tumors has not been very successful. A 2016 article reports that “To date, the two most positive trials reported have used GD2 CARs to target neuroblastoma (3 of 11 patients with complete remissions), and HER2 CARs for sarcoma (4 of 17 patients showing stable disease).” Both were academy-sponsored trials; neither was as spectacularly successful as the hematologic cancer trials. This article also lists a number of barriers to tumor invasion by CAR-T cells, which is shown in the graphic below:
Clearly, new research is needed to develop CAR-Ts for this very large market.
The Solid Tumor market
The solid tumor (malignant) market is much larger than the blood cancer market.
According to some research, the global solid tumors drugs market is expected to reach more than $43 billion by 2020.
On the other hand, according to this market research, the leukemia therapeutics market was valued at $6.3 billion in 2010 and is expected to reach $11.3 billion by 2020 at a CAGR of 3.84% between 2015 and 2020. The market was dominated by chronic myeloid leukemia in 2010. However, in 2020, the market is expected to be equally dominated by acute lymphocytic leukemia and chronic myeloid leukemia, with sales amounting to $3.91 billion and $3.58 billion, respectively.
So, what we see here is that CAR-T is only being investigated in a market that is almost a fourth of the much larger solid tumor market. There is, thus, a huge opportunity here.
According to the WHO, in 2015, the most common causes of cancer death are cancers of: Lung (1.69 million), Liver (788,000), Colorectal (774,000), Stomach (754,000), and Breast (571,000). As you can see, these are all solid tumor cancers. Leukemia comprises only about 2.5% of all new cancer incidents annually.
Celyad’s approach to using CAR-T in solid tumors
Celyad is developing CAR-Ts using T-cells designed to express the Natural Killer Receptor Group 2D (NKG2D) receptor. This approach is based on preclinical work done by Professor Charles Sentman at Dartmouth College (USA) who showed that these receptors fused with CD3味 (CD3-zeta) chain of the T-cell receptor complex drive impressive anti-tumor activity against established tumors in mouse models. The good thing about NKG2D CARs is that they not only target tumor cells but also target immuno-suppressive cells (MDSCs, Tregs) within the tumor microenvironment (TME) which also express NKG2D ligands. Immuno-sup pression in the TME is a major issue that has hindered CAR-T development in solid tumors.
Celyad scientists have a number of important publications in the application of NKR-based CAR-T immunotherapy, one of which is presented below in abstract simply in order to demonstrate research pedigree.
Professor Sentman lists a number of human tumor cells that express NKG2D ligands: carcinomas (ovarian, bladder, breast, lung, liver, colon, kidney, and prostate), melanoma, Ewing’s sarcoma, glioma, neuroblastoma, various leukemias (acute myelogenous leukemia, chronic myelogenous leukemia, and chronic lymphocytic leukemia), lymphomas, and multiple myeloma. Together, these constitute about 80% of all solid tumors as well as some leukemias.
Celyad’s intellectual property portfolio includes four patent families exclusively licensed to Celyad by Dartmouth College. This includes four issued U.S. patents; six pending U.S. patent applications; and 13 foreign patent applications pending in various jurisdictions.
It also has an allogenic program in preclinical stage. Allogenic, off-the-shelf CAR-T therapy is an important critical development need for the future because it will drastically reduce cost of therapy and make it more efficient and less time-consuming to administer.
In other areas of development, Celyad has a cardiology candidate named C-Cure, which is being evaluated in an European Phase III clinical trial. This trial is now complete, although with mixed results, as the primary endpoint was met (p=0.015) for only a subset of patients, although representing 60% of the population of the study. Celyad is now looking for a partner to further develop and commercialize the product.
Preclin ical and clinical studies
The company has completed a Phase I study at the Dana-Farber Cancer Institute in the US in patients with AML and MM without prior lymphodepletive preconditioning chemotherapy. Preconditioning chemotherapy and subsequent lymphodepletion is a major drawback of existing CAR-T. No major safety issues were reported – “There were no cases of cytokine release syndrome, cell-related neurotoxicity, auto-immunity, or CAR T-related death.” This, although premature and needs following up, is promising because CAR-T does have a number of safety issues associated with it. The trial data was presented at 2016 ASH Annual Meeting and demonstrated the drug to be safe and well tolerated in the highest dose level tested (3×107) as well as showing early clinical activity signals, including prolonged survival in both Acute Myeloid Leukemia (AML) and Multiple Myeloma (MM) patients:
“However, cases of unexpected survival without further therapy and responses to subsequent treatments were noted. For example, a patient with p53-mutated AML survived 4 months despite 50% blasts at infusion, and another entered PR at 6+months after cells on an IDH-1 inhibitor with <5% IDH and 54% p53 mutation burden at initiation. RCR testing at 3 (n=6) and 6 months (n=1) was negative.”
Such signs of clinical activity were unexpected based on the single-dose schedule and dose-level being 100 times below the estimated pharmacological effective dose, according to the report.
In murine models in in vivo studies, CAR-T NKR-2 demonstrated the ability to recognize and eliminate “most tumor cell types over the natural life of the animal.” Even a single injection of murine CAR-T NKR-2 showed some anti-tumor activity, and three sequential doses produced complete recovery and overall survival without adverse events. Note that NKR ligands in mice are quite different from those in humans.
As can be seen from the following graphics, the NKR platform showed significant survival benefits in early preclinical murine models:
Source: Company Presentation
Celyad is running seven Phase I trials with autologous CAR-T using NKR targeting two heme cancers and five solid tumor malignancies. THINK (THerapeutic Immunotherapy with NKR-2) is a multinational open-label Phase I study to assess the safety and clinical activity of multiple administrations of autologous NKR-2 T-cells in seven refractory cancers including five solid tumors (colorectal, ovarian, bladder, triple-negative breast, and pancreatic cancers) and two hematological tumors (acute myeloid leukemia and multiple myeloma).
Source – Investor presentation
Differences with standard CD19-based CAR-T therapy
A number of critical, even-game changing differences exist between standard CD19 based CAR-T therapy and Celyad’s NKR-2 approach.
Beyond just cytotoxic activity: Along with targeting tumor cells, CAR-T NKR-2 also targets the blood vessels supplying blood to the tumors. Not only that, it also targets immune suppressor cells that would otherwise block T-cells from activation. These three combined modes together, along with sustained replication, provide a long-lasting adaptive immune response as was observed in animal models. According to the company, this goes beyond what is currently described for standard CAR-T therapy. No preconditioning chemotherapy required: In standard CAR-T, high doses of chemotherapy are needed to precondition the patient by lymphodepletion, or removal of the patient’s white immune cells which may hinder T-cell activity. Such lymphopenia creates space for the T-cells and improves their homeostatic expansion. However, it also results in the standard side effects of both high-dose chemotherapy and lymphopenia. In contrast, Celyad’s Phase 1 trial was done without preconditioning, and no limiting effects were observed as a result. Preventing relapse: While this is true of various other CAR-T therapies, it should be noted that CAR-T NKR2 was able to prevent relapse in 100% of animals re-challenged with the same tumor type after initial therapy. This goes to show sustained activity of the therapy. Broad expression of NKR2 ligands: At least one NKG2D ligand is expressed in 88% of triple negative breast cancer, 88% of colorectal cancers, 68% of ovarian cancers, and 78% of primary and 100% of metastatic bladder cancers. It is also present in 86% of pancreatic cancers and 92% NSCLC lung cancers and 100% non-squamous NSCLC. Such high presence across the board makes NKG2D an ideal target in solid tumor therapy, unlike CD19 whose application is limited.
Celyad is a $450mn market cap company with about $80mn in cash balance as of the March quarter. This, the company says, is enough to last it for two entire years – which, given it has pret ty early stage trials as of now, sounds about right. However, as it goes towards later stage trials, hopefully no later than 2019, it will need much more money.
If its cardiology product begins generating revenue, it can make some money out of it. Also, it has signed couple decent sized deals with a Japanese company named ONO and CAR-T giant Novartis. The ONO deal is worth $311mn plus double-digit royalties and is for the development and commercialization of Celyad’s allogeneic CAR-T NKR-2 immunotherapy in Japan, Korea, and Taiwan. The other deal with Novartis (NYSE:NVS) is worth about $96mn, including upfront and milestone payments and single-digit royalties for a non-exclusive license for its allogeneic TCR-deficient CAR-T cells patents. I don’t have separate figures for the milestones, but I assume it has been planned keeping future developments in mind; so that assures me it will have some cash flow for the Phase III trials. The company is, however, trading very near its 52-week highs, so, at these levels, dilution is something of a long-term worry.
Market Opportunity and Valuation
We have done a valuation of CY AD’s autologous CAR-T platform here. The valuation note and the complete spreadsheet are provided below.
The valuation, admittedly, is a little simplistic because we have taken the broad solid tumor market as our target indication. We have adjusted for that by taking a very conservative market penetration rate. The recent approval of Keytruda based on genetic markers and not on cancer type gives us hope that this may become the norm for drugs that are based on markers. Given that Keytruda already makes almost $2 billion per year, our revenue figures do not look unrealistic to me. Moreover, autologous immune therapies, unlike checkpoint inhibitors, may charge a premium because this is not just a drug but a drug and a service facility.
Another issue is year of approval. We have taken this to be 2020, and that, I am afraid, is very optimistic. To mitigate that, we have taken the terminal year a little conservatively as 2028. The company has a set of major patent families from Dartmouth, and just last year, it acquired its own patent covering allogenic modules. There are a number of pending patents as well. It can also be argued that a drug+facility setup needs more than patent expiry to be challenged, because even if patent expiry leads to a copycat drug, the technical knowhow behind the facility needed for the autologous CAR-T production may be a trade secret. Given that, I believe 2028 is overly conservative and rightly compensates our early approval date. Now, the assumptions below.
This valuation is based on the expected solid tumor market size of $43 billion by 2020. A large bulk of this global market consists of the US market, where CYAD will launch its product. Keeping this in view, we have assumed the initial market penetration to be 3% of the global market size. The company is expected to grow its market share by 2 percent per annum, while the overall global market is expected to grow by 8% annually. We have assumed the operating margin at 25% which is in line with industry standards and provides for slightly higher expenses due to the additional costs surrounding autologous therapy. Further, free cash flow has been assumed to be 85% of the operating income.
The cash flows have been discounted at 10%. Also, the cash flows are risk adjusted to account for the fact that the drug is still under testing phase. The probability of the drug approval has been set at 30%, which is purely based on our study of the trial results so far. The double discounted cash flow is used for arriving at the present value of the funds. The per share valuation is thus found by dividing the present value by the total number of shares currently outstanding. It has been assumed that the company will not be issuing any new equity in the near future but can continue with Phase III based on collaborations and other revenue channels besides dilution. Based on these assumptions, the fair value of the stock has been arrived at $108.25 which shows over 125% upside from its current value.
Investment Strategy and catalysts
The stock is trading quite near its 52-week high after two key positive news came out in March, one about a patent being upheld by the USPTO, and the other the FDA’s nod to begin the THINK clinical trial. While I see considerable upside to the stock, the window is quite large; meaning, we have a lot of time. So, while we could take a small position right now, we should wait for any dip in price to accumulate. I don’t see any dilution risk in the next couple years either; however, this is early stage technology, so while investing at this stage has its rewards, there’s always a risk. To mitigate that risk, follow the basic rule of healthcare retail investing – whenever the stock presents a profit-taking opportunity, take profit. And, an associated personal rule that I always follow, sell out before a catalyst. My rationale is: a catalyst’s result, such as a PDUFA, is never certain. But bullish expectations before a major catalyst of ten buoy the stock. So, to reduce risks but still make a decent profit, pre-catalyst sell-out of most of one’s holdings is important. Also, consider that stocks often go down sometime after approval and remain depressed until very good market uptake figures come through – and that takes a quarter or two; for example, consider Acadia (NASDAQ:ACAD) and its nuplazid. Given all that, Celyad should be mostly a catalyst play with only a small tranche held out for beyond approval scenarios.
Competition and risks
The NKR-2 ligands are sometimes, although very rarely, seen in healthy cells. So, there is a chance of off-target toxicity. This can be enhanced by certain drugs that help overexpress NKR-2. While these drugs may aid in the efficacy of Celyad’s therapy, they may also add to the off-target toxicity. That is something we haven’t seen in these early trials, but we will have to see how the larger and better powered trials go.
Another issue is competition. B ellicum (NASDAQ:BLCM) has its BPX-601 program in early stages, and this also comes with its proprietary rimiducid-controlled switch. The approach here is via the prostate stem cell antigen, or PSCA route; and CYAD’s NKG2D route has its advantages, having broader expression. Juno (NASDAQ:JUNO) also has a modest program in a few solid tumor cancers. While Juno is much higher valued than CYAD, BLCM is close. Here, the slight edge that CYAD has, besides its NKR-2 angle, is its cardio program which can generate revenue for the company.
Dilution is the third risk here. The company says it has cash until 2019. A large scale Phase III trial will cost a few hundred millions for a CAR-T trial, if I am not mistaken. The two deals it has right now together do not make up that amount before Phase III as far as I understand. However, if Phase II is successful, I expect more intense deal-making.
As with all early stage biotech, everything is speculative here. However, the idea of using CAR-T constructs in solid tumor is itself revolutionary. Moreover, the Dartmouth College association, the IP portfolio, the solid results with low toxicity in early trials in vivo and in the clinic, and lastly the technology surrounding NKR-2 all point to a promising future for the company. I would buy this stock for the long term, reduce my acquisition cost as opportunities present themselves, and play the catalysts as they come around the PDUFA.
Disclosure: I am/we are long CYAD, BLCM.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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