Cerulean Pharma — Update 24 June 2016

Cerulean Pharma — Update 24 June 2016

Cerulean Pharma

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Cerulean Pharma

Update on ovarian cancer and CRLX301

Pipeline update

Pharma & biotech

24 June 2016

Price

US$2.14

Market cap

US$59m

Net cash ($m) 31 March 2016

42.0

Shares in issue

27.4m

Free float

90%

Code

CERU

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(8.5)

(24.1)

(54.4)

Rel (local)

(11.4)

(26.9)

(54.1)

52-week high/low

US$5.1

US$1.9

Business description

Cerulean Pharma is a US-based cancer company with a proprietary platform utilizing nanoparticle-drug conjugates. Lead product CRLX101 combined with Avastin is in Phase II clinical trials in third- and fourth-line RCC and second- and third-line ovarian cancer. Second compound CRLX301 with its payload docetaxel has entered Phase IIa in solid tumors.

Next events

Top-line data CRLX101 in mRCC

Q316

Analysts

Maxim Jacobs

+1 646 653 7027

Nathaniel Calloway

+1 646 653 7036

Cerulean Pharma is a research client of Edison Investment Research Limited

Cerulean recently presented the results on the Phase Ib trial of CRLX101 with weekly paclitaxel for the treatment of platinum-resistant ovarian cancer. The nine-patient trial showed a 56% overall response rate (ORR). The company also reported data from the Phase I/IIa dose escalation trial of CRLX301 (docetaxel nanoparticle conjugate) for solid tumors. The primary purpose of the study was to determine the maximum tolerated dose, but six of the 13 patients evaluable for efficacy were stabilized during the study.

Year end

Revenue ($m)

PBT*
($m)

EPS*
($)

DPS
($)

P/E
(x)

Yield
(%)

12/14

0.1

(21.4)

(1.64)

0.0

N/A

N/A

12/15

0.0

(39.6)

(1.56)

0.0

N/A

N/A

12/16e

0.0

(40.4)

(1.48)

0.0

N/A

N/A

12/17e

0.0

(42.7)

(1.52)

0.0

N/A

N/A

Note: *PBT and EPS are normalized, excluding amortization of acquired intangibles, exceptional items and share-based payments.

CRLX101 + paclitaxel: Higher ORR than with Avastin

The Phase Ib trial of CRLX101 and weekly paclitaxel showed a higher ORR (56%) than the recently reported results of CRLX101 and Avastin (17%). Additionally, the ORR was higher than a previous study of paclitaxel as a monotherapy (21%), suggesting an additive benefit from CRLX101. One interesting finding, however, was that the clinical benefit rate (CBR) in the current trial was lower (67%) compared to the Avastin trial (94%).

CRLX301: Docetaxel NPC formulation validated

CRLX301 is a nanoparticle conjugate of the widely used chemotherapeutic docetaxel. Among other results, the Phase I/IIa trial found that for the same exposure of unbound drug in the blood, CRLX301 can deliver 10 times the concentration of nanoparticle conjugated drug targeted to tumors, compared to commercially available docetaxel. Because the free drug is responsible for the undesirable effects associated with the compound, these results suggest the potential for increased potency and similar tolerability to the commercial drug at these concentrations.

Valuation: Increased to $261m or $9.52 per share

We are increasing our valuation to $261m or $9.52 per share, from $250m or $9.12 per share. The adjustment is because we are increasing the probability of success from 10% to 15% for the CRLX301 program because we believe that the Phase Ib results support continued development and provide an early indication of efficacy. We expect to update our model with the upcoming Phase II readout of CRLX101 in renal cell carcinoma in Q316.

Early-stage pipeline advancing

Cerulean recently presented data during scientific meetings on both the Phase Ib trial of CRLX101 in ovarian cancer and the Phase I/IIa trial of CRLX301 in solid tumors.

CRLX101 in ovarian cancer

CRLX101 is a formulation of the chemotherapeutic camptothecin using the company’s proprietary nanoparticle drug conjugate (NDC) technology. The company’s lead program is the Phase II trial of CRLX101 in renal cell carcinoma with an expected readout in Q316. However, the drug is also being investigated in two clinical trials for the treatment of platinum resistant ovarian cancer: a Phase II investigating it in combination with Avastin; and a Phase Ib in combination with weekly paclitaxel. The company presented data from the Phase Ib trial at the Gynecologic Oncology Conference in May 2016.

The investigation of CRLX101 in combination with paclitaxel is important despite the advancement of the program with Avastin because a large number of platinum-resistant ovarian cancer patients have been previously treated with and are refractory to Avastin. The Phase Ib trial enrolled nine patients of which four had a partial response (PR) and one had a complete response (CR), for an overall response rate (ORR) of 56%. Moreover, this response appeared to be independent of previous treatment with Avastin. This detail is important because the cytotoxic effect of CRLX101 due to HIF-1α inhibition could potentially be compromised in Avastin refractory patients.

Exhibit 1: Changes in tumor size in response to CRLX101 and paclitaxel

Source: Gynecologic Oncology Conference, Cerulean Pharma

These are several differences between these results and the results reported in April 2016 for the first stage of the Phase II trial of CRLX101 in combination with Avastin (Exhibit 2). The ORR was substantially higher than what was seen with CRLX101 as a monotherapy or in combination with Avastin (14% and 17% previously respectively). This is not entirely surprising considering that paclitaxel is a more aggressive treatment (with the associated increased adverse events). However, the clinical benefit rate (CBR, combined CR, PR and SD, stable disease) was lower than CRLX101 + Avastin. Additionally in both trials, patients were monitored for reductions in CA125, a blood born biomarker for ovarian and other cancers. The number of patients with a 50% or greater reduction in CA125 was lower in the paclitaxel group (33%) than in the Avastin group (44%).

There are multiple possible explanations for these differences seen between these two trials, including the different activity profile of the combinations and the relative resistance rates. Currently it is too soon to draw any definitive conclusions due to the low number of patients examined in these trials. However, an interesting finding is that the synergy between CRLX101 and paclitaxel seems to be greater than seen with Avastin. The ORR with paclitaxel was significantly better than historical data of weekly paclitaxel alone (21% ORR),1 whereas the combination with Avastin showed little increase over previously reported ORR with Avastin monotherapy (16%).2 This appears to be contrary to prior thinking that the HIF-1α inhibition of CRLX101 would complement Avastin’s anti-angiogenic activity.

  Markman M, et al (2006) Phase II trial of weekly paclitaxel (80 mg/m2) in platinum and paclitaxel-resistant ovarian and primary peritoneal cancers: A Gynecologic Oncology Group stud. Gynocol. Oncol. 101(3), 436-440.

  Cannistra, SA, et al (2006) Bevacizumab in patients with advanced platinum-resistant ovarian cancer. J. Clin. Oncol. 24(18s), 5006.

Exhibit 2: CRLX101 response rates in platinum resistant ovarian cancer

Monotherapy

+ Avastin

+ paclitaxel

N

22

18

9

ORR

14%

17%

56%

SD

59%

78%

11%

CBR

73%

94%

67%

CA125 response

23%

44%

33%

Source: AACR, Gynecologic Oncology Conference, Cerulean Pharma

CRLX301 in solid tumors

CRLX301 is an NDC formulation of docetaxel that the company recently investigated for the treatment of an array of solid tumors in a Phase I/IIa clinical study. The study enrolled 20 patients and primary endpoints of the study were safety, but patients were examined for signs of efficacy. Doses in the study ranged from 7.5mg/m2 to 90mg/m2, and dose-limiting toxicities were only observed in the highest dose cohort (two out of six patients). The drug showed significantly prolonged serum kinetics and reduced clearance when compared to an equivalent dose of commercial docetaxel (Exhibit 3). The exposure of patients to systemic free docetaxel (as measured by the area under the curve, AUC) was similar between the commercial drug and CRLX301. However, greater than 10 times the amount of drug remained bound in the NPC and available for tumor targeting. This serves as a validation of the NPC model for this new molecule.

Exhibit 3: Pharmacokinetic of 75mg/m2 CRLX301 vs 75mg/m2 commercial docetaxel

Source: ASCO 2016, Cerulean Pharma. Note: A) Serum concentration of total docetaxel (solid lines) and free docetaxel (dashed lines) after administration of CRLX301. B) Serum concentration of free docetaxel from a commercial preparation.

The efficacy data from the trial is limited and complicated by the fact that multiple indications were examined at different doses. Six of 13 patients evaluable for efficacy exhibited stable disease for three cycles (nine weeks), with two patients requesting extension to seven and 17 cycles. One patient with Zelboraf-resistant adenocarcinoma showed a partial clinical response after two cycles. These results provide encouraging evidence that the drug could demonstrate efficacy with a consistent dose in future clinical trials. The company initiated the Phase IIa portion of the trial in June 2016 based on these data.

Valuation

We are increasing our valuation to $261m or $9.52 per share, from $250m or $9.12 per share. We have increased the probability of success for the CRLX301 program from 10% to 15% because the Phase I results support continued development of the compound and it has advanced to the Phase IIa portion of the trial. Otherwise, our valuation has remained unchanged. We expect to update our valuation in Q316 with the results of the Phase II renal cell carcinoma trial.

Exhibit 4: Valuation of Cerulean

Product

Launch

Peak sales
($m)

NPV
($m)

Risk adjustment

rNPV
($m)

rNPV/share ($)

CRLX101 mRCC

2019

487

296

35%

104

3.79

CRLX101 ovarian

2021

343

146

20%

29

1.06

CRLX101 rectal

2021

770

357

15%

54

1.95

CRLX301

2023

551

216

15%

32

1.18

Net cash (end Q116)

42

1.53

Overall valuation

261

9.52

Source: Edison Investment Research, Cerulean Pharma reports

Financials

Our financial predictions are unchanged at this time. We expect approximately $40m in operational spending in 2016 and $42m in 2017. The company ended Q116 with $60.5m in cash, which we expect to provide a runway into mid-2017. Based on current predictions, we expect the company to require $80m in additional financing before profitability in 2020. We currently include this financing as illustrative debt, but should the company seek these funds in the equity markets, it could result in significant dilution.

Exhibit 5: Financial summary

$000s

2013

2014

2015

2016e

2017e

Year end 31 December

US GAAP

US GAAP

US GAAP

US GAAP

US GAAP

PROFIT & LOSS

Revenue

 

 

6

80

0

0

0

Cost of Sales

0

0

0

0

0

Gross Profit

6

80

0

0

0

Research and development

(9,700)

(11,772)

(25,948)

(27,500)

(28,500)

General & administrative

(6,166)

(8,587)

(11,224)

(12,346)

(13,581)

EBITDA

 

 

(16,057)

(20,405)

(37,364)

(40,019)

(42,287)

Operating Profit (before GW and except.)

 

 

(15,860)

(20,279)

(37,172)

(39,846)

(42,081)

Intangible Amortization

0

0

0

0

0

Exceptionals/Other

0

0

0

0

0

Operating Profit

(15,860)

(20,279)

(37,172)

(39,846)

(42,081)

Net Interest

(1,485)

(1,074)

(2,422)

(602)

(612)

Other (includes change in fair value of warrants)

202

(1,989)

0

0

0

Profit Before Tax (norm)

 

 

(17,345)

(21,353)

(39,594)

(40,449)

(42,693)

Profit Before Tax (FRS 3)

 

 

(17,143)

(23,342)

(39,594)

(40,449)

(42,693)

Tax

0

0

0

0

0

Deferred tax

0

0

0

0

0

Profit After Tax (norm)

(17,345)

(21,353)

(39,594)

(40,449)

(42,693)

Profit After Tax (FRS 3)

(17,143)

(23,342)

(39,594)

(40,449)

(42,693)

Average Number of Shares Outstanding (m)

0.7

14.5

25.4

27.3

28.1

EPS - normalized fully diluted ($)

 

 

(25.35)

(1.64)

(1.56)

(1.48)

(1.52)

EPS - FRS 3 ($)

 

 

(25.35)

(1.64)

(1.56)

(1.48)

(1.52)

Dividend per share ($)

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

380

557

923

1,034

1,119

Intangible Assets

0

0

0

0

0

Tangible Assets

245

342

576

687

772

Other

135

215

347

347

347

Current Assets

 

 

6,447

52,836

77,302

39,020

38,914

Stocks

0

0

0

0

0

Debtors

959

1,662

1,394

1,394

1,394

Cash

5,488

51,174

75,908

37,626

37,520

Other

0

0

0

0

0

Current Liabilities

 

 

(15,146)

(8,061)

(16,337)

(16,337)

(16,337)

Creditors

(12,012)

(4,937)

(8,685)

(8,685)

(8,685)

Short term borrowings

(3,134)

(3,124)

(7,652)

(7,652)

(7,652)

Long Term Liabilities

 

 

(85,980)

(7)

(13,145)

(13,346)

(53,549)

Long term borrowings

(3,124)

0

(12,672)

(12,873)

(53,076)

Other long term liabilities

(82,856)

(7)

(473)

(473)

(473)

Net Assets

 

 

(94,299)

45,325

48,743

10,370

(29,853)

CASH FLOW

Operating Cash Flow

 

 

(17,202)

(19,477)

(31,915)

(37,706)

(39,868)

Net Interest

588

416

0

610

616

Tax

0

0

0

0

0

Capex

(7)

(225)

(277)

(284)

(291)

Acquisitions/disposals

0

40

23

0

0

Equity Financing

35

60,002

39,813

0

0

Dividends

0

0

0

0

0

Other

8,236

8,064

(412)

(1,035)

0

Net Cash Flow

(8,350)

48,820

7,232

(38,415)

(39,543)

Opening net debt/(cash)

 

 

(7,580)

770

(48,050)

(55,584)

(17,100)

HP finance leases initiated

0

0

0

0

0

Exchange rate movements

0

0

0

0

0

Other

0

0

302

(69)

288

Closing net debt/(cash)

 

 

770

(48,050)

(55,584)

(17,100)

22,155

Source: Edison Investment Research, Cerulean Pharma reports

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Crossject — Update 24 June 2016

Crossject

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