Nanobiotix — Update 31 January 2016

On 30 December 2015 the FDA approved the investigational new drug application (IND) for NBTXR3 to enter clinical trials for intermediate- and high-risk prostate cancer patients. As well as a potentially large new indication, this is Nanobiotix’s first trial to be conducted in the US. NBTXR3 is being investigated for a total of six indications including STS (Europe/Asia; Phase II/III; in partnership with PharmaEngine), liver cancers (Europe; HCC and metastases; Phase I/II), head and neck cancers (Europe; Phase I/II) and rectal cancer (pilot, run by PharmaEngine in Asia). The US trial will be a Phase I/II, open-label, non-randomised study with two treatment arms and will involve at least three US oncology centres. We expect the results to be reported around mid-2017.

We had already included this indication in our valuation, so make no changes on this announcement. Being the second leading cause of cancer death among men in the US, the indication represents a vast patient population of around 233k new cases and around 29k of deaths per year. We believe the latter is a good proxy for high-risk cases, which we use in our model. Based on this target patient market, and assuming 25% penetration of those patients who receive radiotherapy in the US and Europe, our calculated peak sales stand at €400m (we maintain our assumed price of €20k per patient). Assuming two years for the upcoming pilot trial and another three to four years for a pivotal study and regulatory filing, we estimate launch in 2021 (as previously included in our model).

On 5 January 2016 Nanobiotix announced new plans to expand preclinical research into immuno-oncology. The underlying rationale is the observed effect of radiotherapy (RT) in amplifying the immune system’s response to the tumours it targets. Although this is a new area for the company, Nanobiotix will be able to use its lead product NBTXR3 as it is. The core idea behind this is a so-called immunogenic cell death (ICD) effect, which occurs after the RT. A combination regimen of RT enhanced with Nanobiotix’s NBTXR3 and used alongside immuno-oncology treatment theoretically should have a number of synergies:

When RT is applied to a tumour locally, the resulting cancerous cell death activates different chain reactions that in turn amplify the immune system’s response to the tumour itself, which is also visible in distant locations away from the treatment field of RT.1 Several other mechanisms that are responsible for immunogenic potential of RT have also been described.1 For example, besides causing cell death, irradiation can alter malignant cells so they become more visible to the immune system. Such increased immunogenicity of a tumour (ie, whether a cancer is ‘visible’ to the immune system) can potentially enable a better control of the disease and has garnered significant attention in the research community over the past few decades.

More recently, the successful advance of immuno-oncology products has given the ICD effect a whole new perspective. Immuno-oncology drugs are meant to boost a patient’s immune system to fight the cancer, which implies the efficacy of such products depends on the status of a patient’s health and the cancer’s immunogenicity. A variety of different mechanisms have been described,2 which the cancer uses to shield itself from being noticed by the immune system. This in turn lessens immuno-oncology drugs’ efficacy. Therefore a combination of immuno-oncology treatments with RT looks like a natural fit. This has been investigated in numerous retrospective studies with prospective clinical data still very scarce, although with a number of trials already underway.

The RT dose is one of the key variables that causes uncertainty in modelling combination treatment trials. Some authors suggested3 that a low RT dose could be the reason why the ICD effect was sometimes not sufficient to observe a better control of cancer. It would follow that higher doses would be beneficial, which is not always possible. Therefore, due to its mechanistic ability (see our initiation of coverage) to enhance the RT without the need to increase the dose, Nanobiotix’s NBTXR3 seems like a natural evolution of a combination treatment. In preclinical trials Nanobiotix will investigate the potential of NBTXR3-enhanced RT in combination with existing immune-oncology products. Although specific oncology products are not disclosed, in our view, some obvious examples would be anti-PD-1/PD-L1, anti-CTLA4 or CAR T-cell therapies.

To date, RT alongside treatment with ipilimumab (Yervoy, Bristol-Myers Squibb; anti-CTLA4; approved for melanoma by the FDA in 2011) is one of the most-researched combinations in this area. Due to ipilimumab’s established clinical use, there have been numerous case studies and retrospective trials published, so this direction can provide some learning points and insights that can be leveraged to expand in other indications.

Early-stage R&D partnerships with companies involved in immuno-oncology seem plausible to us due to the win-win situation enabled by multiple synergistic interactions. Although we see the scientific rationale as sound, it is still the first step and we do not include any immune-oncology projects in our model at this stage. We will revisit this opportunity once Nanobiotix announces more details or, possibly, a new clinical project. Nevertheless, we can see potential for this project to progress rapidly should a partner emerge even before the project enters clinical trials.

Our key assumptions are largely unchanged although our overall valuation increases slightly to €527m (from €505m) due to rolling our model forward, including last reported net cash position and updating for the currency effect. We have made only one change to our underlying product assumptions, which was postponing the initiation of the Phase I/II study in prostate cancer from H215 (our previous assumption) to H116, however, this had a minimal impact on the rNPV. Otherwise, we continue to include NBTXR3 in the various indications being pursued (STS, H&N, HCC and high-risk prostate cancer), which we assume will be commercialised alone in the US and Europe. Our combined US/EU peak NBTXR3 sales are €1.4bn. Our valuation also includes a contribution from the partnership with PharmaEngine in Asia-Pacific in indications that we believe could be pursued in this region. The breakdown of our rNPV valuation, which uses a 12.5% discount rate, is shown in Exhibit 1.

We have updated our financial forecasts to include H115 results. Nanobiotix reported H115 revenues of €1.7m, of which €1.4m was R&D tax credits. Due to increasing activities, operating costs grew to €9.5m (€6.1m R&D spend and €3.4m G&A and other costs) and largely met our expectations; operating loss came in at €7.9m. We have increased our estimate for R&D tax credits in 2015, which is the main driver behind our upped revenue forecast for 2015. Our longer-term projections were only fine-tuned, thus the impact on 2016 and 2017 estimates is minimal.

We continue to believe that net cash at end of June 2015 of €20.1m (consisting of €24.8m gross cash together with debt of €4.7m of OSEO grants and bank loans) should be sufficient to fund operations to H216, assuming development continues in all planned indications. Further cash requirements could be met by the €10m commitment from Capital Ventures International (CVI) as part of the end 2014 private placement, in addition to €14m warrants that expire at the end of June 2016. We do not include the future €10m commitment or the exercise of the warrants in our financial forecasts, but for the purpose of our model we include illustrative long-term debt of €8m to finance operations until the end of 2016. Similarly, in 2017 our model estimates an additional €54m is needed, assuming that all projects can be fully supported with this.