Invion (ASX: IVX) – Helping cancer to see the light

Invion, which was formerly focused on the development of new drugs for respiratory disorders, in late 2017 changed direction with the acquisition of rights to a new Photodynamic Therapy (PDT) for the treatment of cancer. PDT, in which light-sensitive drugs are used to kill cancer cells, has been worked on by companies and academic groups for many years, but the approach has yet to mainstream as a cancer therapy.

We argue that that is about to change, thanks to the recent European approval of a PDT called Tookad, initially indicated for localised prostate cancer. Invion’s competing product, called IVX-P02 (previously Photosoft or NGPDT), has generated some interesting case studies and early clinical data, and the company will now proceed to conduct larger studies aimed at registration in Australia and New Zealand, possibly by 2021.

The initial indication will be non-melanoma skin cancer, but there is potential in many other cancers including prostate, ovarian and lung cancers. Funding for this work is being provided on a non-dilutionary basis through an R&D services agreement between Invion and Photosoft’s original developer, the Guangzhou-based Cho Group, which (with associates) owns 66% of Invion. This provides significant upside for Invion’s shareholders from Photosoft.

We value Invion at 3.1 cents per share base case and 9.6 cents optimistic case using a probability-weighted DCF approach.

Our target price of 6 cents per share sits at the midpoint of our valuation range. Invion stock has come back from the highs of 2018 but has potential to re-rate again as the clinical development of IVX-P02 further de-risks this product.

Invion is now a player in Photodynamic Therapy for the treatment of cancer.

Invion, which was formerly focused on the development of new drugs for respiratory disorders, in late 2017 changed direction with the acquisition of rights to a new Photodynamic Therapy (PDT), initially for the treatment of localised prostate cancer, but with potential in many other cancers.

Photodynamic Therapy (PDT) involves the use of light sensitive compounds to kill abnormal cells. Under the NGPDT Transaction of 2017, which was announced to the ASX on 31 August 2017 and which was approved by shareholders on 30 November 2017, Invion acquired the exclusive commercialisation and distribution rights in Australia and New Zealand to a new PDT called NGPDT for A$5.5m, satisfied through the issue of Invion shares.

As part of the NGPDT Transaction, the vendor and licensor of the product, the Guangzhou-based Cho Group, recapitalised Invion in early 2018 by fully underwriting a A$2.5m non-renounceable entitlement issue at 0.2 cents per share. Invion then started the groundwork for clinical development of NGPDT, which the company initially called Photosoft, in Australia and New Zealand, aimed at local registration of a new formulation called IVX-P02.

Invion will begin with non-melanoma skin cancers and then move on to solid tumours, since Invion’s license covers the use of Photosoft in all cancers in the two countries. The first solid tumour indication will be mesothelioma. Encouragingly, non-dilutive funding for the various clinical studies will be provided by the Cho Group. After the 2018 rights issue the Cho Group held ~66% of Invion stock.

What is Photodynamic Therapy and how is it set to ‘mainstream’ in cancer therapy?

In PDT, the patient is administered a drug called a ‘photosensitising agent’ that is preferentially taken up by cancer cells. When the  patient is exposed to light beams at a wavelength corresponding to the ‘absorption band’ of the photosensitiser, the drug produces activated oxygen molecules that are toxic to nearby cancer cells.

PDT has been worked on by companies and academic groups for many years, but the approach has yet to mainstream as a cancer therapy in part because the photosensitising agents that have been tried lacked either water solubility for good tissue distribution, strong absorption of long wavelengths allowing cancer to be reached at depth, or low circulation times so that patients weren’t left vulnerable to damage from sunlight. One product that has all these qualities is a new PDT called Tookad, from a privately held company called Steba Biotech. We argue that Tookad’s 2016 Phase 3 clinical success in prostate cancer, and November 2017 European approval, can be the product that moves PDT into the mainstream.

What is IVX-P02 and why does it represent a promising new cancer treatment approach?

IVX-PO2, previously known as NGPDT and Photosoft, is Invion’s lead molecule. NGPDT, short for ‘Next Generation Photo Dynamic Therapy’, is a photosensitising agent with similar qualities to Tookad, only with less clinical data than that which has been generated for Steba’s product. Various case studies and early clinical studies have hinted at NGPDT’s effectiveness in multiple cancers. IVX-P02 is Invion’s reformulation of NGPDT/Photosoft. Invion will now seek to generate the validating clinical data of IVX-P02 in various cancers, ahead of potential Australian and New Zealand registration, possibly in 2021.

Why did Invion change direction so that it is now focused on PDT?

Between 2012 and 2016 Invion worked primarily on the repurposing of an old blood pressure drug called nadolol while before then, from 2010 to 2012,
when it was known as CBio Ltd, it had been working on a new biological anti-inflammatory drug called XToll. By 2016 Invion had evidence that nadolol’s capability as a beta-2 adrenergic inverse agonist would make it useful in
a range of respiratory disease conditions, most notably asthma, chronic bronchitis and smoking cessation.

Significantly, the company had participated in an end-of-Phase 2 meeting with the FDA regarding nadolol’s use in patients with COPD where those patients could not quit cigarette smoking. Despite this clinical progress, Invion faced difficulties raising the necessary capital to move to Phase 3 with nadolol. This caused the company to look for other biomedical opportunities while seeking to out-license the nadolol programme, and that search culminated in the NGPDT Transaction.

In September 2018 Invion announced that some of the original Invion assets would be spun out into a new company called Chronic Airway Therapeutics Ltd, with that company to raise fresh venture capital. The shares of Chronic Airway Therapeutics were subsequently distributed pari passu to Invion shareholders.

Why is Invion currently capitalised at A$71.5m when it is still pre-clinical with IVX-PO2?

Invion stock re-rated strongly after completion of the NGPDT Transaction, in part because of the removal of funding risk from the story. The stock has since come back, however we see potential for the stock to re-rate again as the clinical
development of IVX-P02 further de-risks this product.

Nine reasons to look at Invion

1. Invion’s Photodynamic Therapy is part of an emerging treatment paradigm for cancer, with the in licensed Photosoft technology having shown, in various case studies and early clinical studies, that it can potentially treat a range of cancers.

2. Invion’s new formulation of Photosoft, called IVX-P02, shows promise across a range of cancers, with the company pursuing early approvals in non-melanoma skin cancer and actinic ketatosis, to be followed by indications in various solid tumours.

3. Tookad’s clinical success can help to mainstream Photodynamic Therapy. The 2016 Phase 3 clinical success in prostate cancer, and November 2017 European approval, of Steba’s Tookad PDT has the potential to moves PDT into the mainstream, allowing competitor products with the right drug properties, such as IVX-PO2, to emerge.

4. Invion may have a valuable new treatment option for localised prostate cancer. In recent years men with localised prostate cancer have increasingly preferred ‘watch and wait’ to potentially damaging surgery or radiotherapy. Photodynamic Therapies like Invion’s represent a valuable alternative given
the safely profile.

5. Invion’s product may work well with cancer immunotherapy, with a proteomics analysis of proteins found in the urine of patients showing various immune-related biomarkers.

6. Invion’s speed to market is relatively high. We argue that the company can be looking at its first regulatory approval in Australia for basal cell carcinoma and actinic keratosis by around 2021.

7. Invion’s clinical programme does not have funding risk. With the costs of the development and clinical trials of IVX-P02, being funded via an R&D services Agreement between Invion and the Cho Group, the capital that was raised in the 2018 rights issue is likely to be the last that Invion has to make.

8. Invion has experienced management, with CEO Dr Greg Collier having previously built the cancer drug developer Chemgenex prior to its 2011 acquisition by Cephalon.

9. Invion has potential to re-rate with further clinical development. We value Invion at 3.1 cents per share base case and 9.6 cents optimistic case using a probability-weighted DCF approach. Our target price of 6 cents per share sits at the midpoint of our valuation range. We see Invion re-rating as the clinical development of IVX-PO2 further de-risks this product.

Invion is now a player in Photodynamic Therapy

What is Photodynamic Therapy?

Photodynamic Therapy (PDT) is simply the use of light (Greek ‘photos’) to
destroy cancerous or other abnormal tissue. In PDT for cancer, a drug called a ‘photosensitising agent’ is administered to the patient, which is preferentially taken up by cancer cells. When the patient is exposed to light beams at a wavelength corresponding to the absorption band of the photosensitiser, the drug produces ‘reactive oxygen species’ that kill nearby cells. As well as direct tumour cell death, PDT works by occluding the blood vessels feeding the tumour, and by the induction of an anti-cancer immune response.

The science behind PDT has been evolving for over a century, initially for skin diseases, and researchers have had clinical evidence since the mid-to-late 1970s of PDT’s potential effectiveness in cancer. The PDT field began to mainstream around 1995 when a photosensitiser called Photofrin, generic name porfimer sodium, gained FDA approval, and in the more than two decades since then various groups have worked on developing more effective and better-tolerated photosensitising agents. Photofrin was part of the first generation of photosensitisers based on a molecule found in the blood called hematoporphyrin.

Those photosensitisers tended to stay in the patient’s body for too long and not take up the longer wavelengths of light that would increase treatment depth. Second generation photosensitisers mostly based on chlorophyll allowed the use of the longer wavelengths. Third generation photosensitisers are now being developed by various academic groups designed to better target the photosensitiser to tumour tissue with, say, the use of conjugated monoclonal antibodies.

Why Photodynamic Therapy can potentially be a valuable treatment option for cancer patients.

There are number of obvious theoretical advantages to treating cancer with PDT:

– PDT can be targeted very precisely, thereby avoiding the usual side effects of systemic treatment;
– PDT can be used to debulk difficult-to-reach tumours prior to surgery;
– PDT is minimally invasive, in that the light source used can often be applied externally;
– PDT is repeatable, unlike many radiation therapies;
– PDT is low cost;
– PDT can be performed quickly on an outpatient basis

If Photodynamic Therapy is so good, how come it’s not routine in cancer therapy yet?

Often in the history of cancer therapy various treatments are discovered, then largely ignored by the mainstream for decades before being taken up again. A classic case is cancer immunotherapy, where the patient’s own immune system is harnessed to attack the cancer. This approach was first worked on in the 1890s but its clinical potential is only being realised today.

Generally, the catalyst for the rediscovery of the forgotten approach is one successful clinical study of a new agent after a long history of products that showed promise but had drawbacks of some kind. This is indeed PDT’s history. Since Photofrin, better photosensitisers have been developed, but none has quite got to the point where it is a must-use therapy for any cancer. 5-Aminolaevulinic acid (5-ALA), a porphyrin pro-drug, worked faster than Photofrin but had poor bioavailability; Metvix and Hexvix, esters of ALA, had better bioavailability but were weak on long-wavelength absorption and so remained largely for diagnostic use only.

Foscan (temoporfin) proved useful therapeutically, and as a result gained European approval in 2001 for the treatment of head and neck cancer, because as a chlorophyll derivative it had improved long-wavelength absorption, however the product was not water soluble and for that reason probably had poor tissue distribution which left patients photosensitive for around three weeks after initial illumination.

As we’ll see below, it has taken until the Phase 3 data from a new product called Tookad for three key issues with PDT to be satisfied:

– Water solubility for good tissue distribution that allows ideal targeting to tumour sites.
– Strong absorption of long wavelengths allowing cancer to be reached at depth;
– Low circulation times so that patients aren’t left vulnerable to damage from sunlight.

We argue that, with Tookad approved in Europe, PDT is set to mainstream in cancer therapy. Invion expects to benefit from Tookad’s success as interest in PDT by oncologists increases globally and the Australian company and its Chinese partner comes forward with a competing product.

What is Next Generation Photodynamic Therapy?

NGPDT, also called PhotoSoft E4 or just plain Photosoft, is a chlorophyll-based PDT photosensitiser that was developed by the Cho Group around a decade ago. Specifically, it is a complex of chlorin, chlorophyllin and zinc which activates at three light wave sensitivity ranges – 430 nm, 630-650 nm and the Near-Infrared (NIR) wavelength range of 750-850 nm. The latter range is particularly important as it allows good body penetration for the light source, and, potentially, the ability to hit Circulating Tumour Cells. The chemistry of Photosoft is water soluble, and the product’s bioavailability is so good it can be administered sublingually rather than intravenously as needed, allowing for patient convenience when appropriate. The Cho Group regularly administers Photosoft to patients in a clinic in Guangzhou.

What clinical work has been performed with NGPDT/Photosoft?

The Cho Group and others have reported case and clinical studies of NGPDT/Photosoft in various cancer settings.

– Case studies. In China patients have been treated at the Cho Group’s clinics for some years now. We have identified one online anecdotal report from an Australian patient treated for cervical cancer in late 2013, and the Cho Group have logged several encouraging case studies on the NGPDT web site featuring patients with nasopharyngeal carcinoma, astrocytoma (a brain cancer), neurinoma of the peritoneum (a cancer of the peripheral nerves in the membrane lining the abdominal cavity), and lung cancer. There are also several case reports on the Cho Group’s WO/2014/091241 patent application. An online search shows increasing patient interest in NGPDT but also concern at the lack of data on effectiveness as far as randomised controlled trials are concerned. This is Invion’s opportunity to make Photosoft more ‘respectable’ with larger, carefully designed clinical studies.

– An initial Australian Phase 1 in prostate cancer, 2013. The Geelong urologist Dr Donald Murphy and collaborators administered Photosoft to 68 prostate cancer patients. Results for 26 patients that had been treated for >6 months were reported at the Urological Society of Australia and New Zealand meeting in Melbourne in April 2013. Murphy found half of these patients had stable to decreasing PSA and half increasing PSA, while prostate size was generally falling on assessment using diagnostic imaging.

– A second Phase 1 in prostate cancer, 2017. A second Phase 1 has been completed by Donald Murphy in collaboration with Monash University, and a paper has been prepared for publication. This study evaluated 36 patients, 23 with localised treatment-naïve prostate cancer and 13 with local relapse. In
the study Murphy was evaluating another photosensitiser called Radachlorin and a ‘sonosensitising agent’ called SF130 as well as Photosoft, so for the Photosoft patients there were only 22 evaluable patients.

What do we know about the effectiveness of Photosoft?

The 2017 Murphy et. al. study showed that Photosoft was safe and well-tolerated. As for efficacy, the investigators checked the PSA levels of NGPDT-treated patients at three months post-treatment and found 10 of 15 first-line patients registering stable PSA, but only one of seven PSA-stable in the relapse group. However, these patients had their sensitising agent activated by both light and sound. For the light-only Photosoft group, the comparable figures are 4 of 7 first line patients and none of three relapse patients. This suggests the potential for efficacy in a first-line setting, but a larger Phase 2 study, probably of 50-100 patients, using just Photosoft, would be needed before stronger confidence can be placed on treatment outcomes. That said, there were two encouraging aspects of this study:

  • Reduced prostate size: Murphy et. al., while not going into details, report a ‘serendipitous finding of a global reduction in prostatic size was noted across the primary treatment group’.
  • An apparent anti-cancer immune response. Scientists from Melbourne’s Hudson Institute of Medical Research led by Dr Andrew Stephens did a proteomics analysis of protein samples found in the urine of the patients and found various immune-related biomarkers were upregulated, with high statistical significance (p<0.001). Andrew Stephens joined Invion’s Scientific Advisory Board in March 2018.

Immune response – a key potential competitive advantage for NGPDT. Invion believes that the immune response observed by Murphy et. al. in the Phase 1 give it a potential advantage over other water-soluble PDT therapies such as the aforementioned Tookad, now being brought to market by Steba Biotech, a privately-held company based in Luxembourg. There is a growing body of knowledge that PDT has the potential to generate an anti-cancer immune response, which, in the era of immuno-oncology we have moved into with BMS’s Yervoy in 2011 and Merck & Co.’s Keytruda in 2014, is likely to attract a lot of attention from oncologists and researchers alike.

Tookad’s Phase 3 in prostate cancer has potential to take PDT well and truly into the mainstream. Tookad, generic name padeliporfin, is a new photosensitising agent derived from the bacteriochlorophyll found in
aquatic bacteria. The product was originally developed at the Weizmann Institute in Israel and then licensed to Steba, which completed a successful Phase 3 in prostate cancer in early 2016 and gained European approval in
November 2017. We argue that Tookad can take PDT well and truly into the mainstream:

– Unlike most photosensitisers investigated to date, Tookad is water soluble, and, encouragingly, the product activates at a NIR wavelength of 753 nm, which, as we noted above, allows great depth penetration. Also, the product acts via the vascular occlusion mechanism rather than directly on the tumour cells, so that the damage to healthy tissue is minimised.

– Tookad’s 413-patient randomised controlled Phase 3 in low-risk prostate cancer, which compared the product 1:1 with ‘active surveillance’, saw the Tookad group register a 28% progress rate at 24 months versus 58% for active surveillance (p<0.0001). Also, at 24 months 49% of the Tookad group had a
negative prostate biopsy as against only 14% for active surveillance (p<0.0001). This data, for which topline results became available in January 2016, were published in The Lancet Oncology in December 2016.

– The reason that active surveillance is an accepted treatment option for most low-risk prostate cancer is that, as we’ll see below, the potential side effects for surgery and radiotherapy are considered too high for many patients and their treating physicians. In the US, this has led to a trend where up to half of all
patients choose active surveillance. New, low-cost therapies with Tookad are reasonably expected to tap this considerable opportunity.

The path to market for Invion with PDT involves multiple cancer therapies

Photosoft is likely to be useful across a range of cancers. While Invion largely talked of the prostate cancer opportunity around the time of the NGPDT Transaction, by April 2018 it was foreshadowing a pipeline of opportunities with its PDT alongside prostate cancer, notably:

Skin cancer: PDT is often used to treat skin cancers such as actinic keratosis or some cases of nodular basal cell carcinoma, which makes sense because the skin is readily accessible to light-based therapies. Invion sees an opportunity to move quickly into this space given the general acceptance of PDT in Australia

Ovarian cancer. In ovarian cancer conventional treatment options are limited but the clinical data from other PDTs is encouraging. Invion reported in July 2018 that IVX-P02 had been found to have high evels of activity in multiple ovarian cancer cell lines in vitro. The work on ovarian cancer was presented
at Combio, the annual meeting of the Australian Society for Biochemistry and Molecular Biology, in Sydney in September 2018, where Andrew Stephens was able to report that Photosoft performed better than the aforementioned Foscan PDT.

Invion spent 2018 and early 2019 assembling the elements of future clinical success. In preparation for Invion taking Photosoft into the clinic in Australia, it needed to take care of four matters – R&D, product manufacturing, choice of indication, and the right team:

1) R&D – The company signed a Research and Development Alliance Agreement with the Hudson Institute, which is part of Monash University, in March 2018, with the two parties agreeing to work on various projects related to Photosoft. We expect that Invion’s Hudson Institute collaborators can help the company firm up its clinical development plans.

2) Manufacturing. Photosoft had been used clinically in China for several years but as part of the process of preparing it for use outside China Invion decided to have the product formulated to GLP standards by an Australian manufacturer. The resulting product, called IVX-P02, was subsequently found to have 15-fold better potency against ovarian cancer cells lines in vitro than the original Photosoft, which Invion now calls ‘Photosoft Oral’. The work that went into IVX-P02 has also allowed valuable know-how to be gathered as well as formulations suitable for skin conditions to be developed, and Invion was able
to unveil an IVX-P02 gel in November 2018.It is currently working on an IV formulation of IVX-P02 for solid tumours.

3) Indications. During 2018 Invion’s leadership had discussions with various clinicians in Australia on the indications to pursue and by the end of the year had settled on non-melanoma skin cancer for its lead programme.

4) The team. By early 2019 Greg Collier and colleagues had brought together a clinical and regulatory team as well as a group of scientific advisers.

This year Invion takes IVX-P02 into the clinic. By late February 2019 Invion was able to talk in detail about the clinical path for IVX-P02:

– Initial clinical work will see the IVX-P02 gel studied in non-melanoma skin cancer, with a Phase 1 in basal cell carcinoma to be followed by a couple of Phase 3s between now and early 2020.

– Subsequently clinical work with an IVX-P02 intravenous formulation will involve an initial indication in mesothelioma to be followed by potential indications in prostate, ovarian and lung cancer

Invion expects to Initiate Phase 1s in basal cell carcinoma and in mesothelioma in the third quarter of 2019.

This puts the company on a path to be filing for its first Australian or New Zealand registration in 2021 for non melanoma skin cancer and for mesothelioma possibly in 2023.

IVX-P02 in non-melanoma skin cancer

Skin cancer is common, but not all skin cancer is the same. There are three major types of skin cancer: basal cell carcinoma (BCC), squamous cell carcinoma (SCC), and melanoma. BCC and SCC are cancers of the epidermis, the outermost of the three layers that make up the skin. Melanoma is a cancer of the skin’s pigment-producing cells, the melanocytes. BCC and SCC can be grouped together as non-melanoma skin cancer (NMSC) and while both cancers are malignant, they are unlikely to metastasise.

Melanoma, by contrast, is a highly aggressive and metastasising cancer. The thing about skin cancer is its high frequency in countries with predominantly Caucasian populations. In the US, for example, more than 5.4 million cases of nonmelanoma skin cancer were treated in over 3.3 million people in 2012. This year it is estimated around 190,000 Americans will be diagnosed with melanoma.

Why non-melanoma skin cancer makes a great first indication for IVX-P02. As Australians and New Zealanders well know, their countries have some of the highest skin cancer rates in the world, as a result of a
predominantly Caucasian population inhabiting areas of the world with a high level of Direct Normal Irradiance. Australia has at least 400,000 new cases of non-melanoma skin cancer per year and around 13,000 new cases of melanoma, in a population of only around 25 million. Invion believes it has a new treatment option for the NMSCs, as well as a precancerous condition of the skin called actinic keratosis (AK), where in excess of 600,000 patients are treated each year in Australia.

PDT has been used to treat non-melanoma skin cancer for many years. Traditional surgery or, more recently, cryosurgery (involving the use of extreme cold to ablate abnormal tissue) have been the standards of care for
NMSC and AK, but generally the results have not been good from a cosmetic point of view. Because the NMSCs tend not to metastasise, and, as we noted above, the skin is readily accessible to light-based therapies, PDTs have in recent years been used more frequently because of the better cosmetic outcomes and the apparent noninferiority to surgery. Metvix, for example, continues to be marketed by the Nestlé dermatology unit Galderma for NMSC, and there are even guidelines for the use of PDT use from the dermatology professional societies. The downside for existing therapies, however, is the pain associated with them as well as general patient tolerance. The evidence for Invion to date is that their PDT would not have pain associated with it.

The path forward for IVX-P02 in NMSC. Invion intends to initiate, in the second half of calendar 2019, a Phase 1 study in BCC patients, to be followed shortly thereafter by Phase 3 studies in BCC (versus Metvix plus traditional
surgery) and in AK (versus Metvix plus cryosurgery). The company believes that these studies can be completed in early 2020, allowing it to potentially gain Australian approval by 2021.

IVX-P02 in mesothelioma

What is mesothelioma? Mesothelioma is a cancer of the mesothelium, that is, the cells of the protective sacs that line the lungs (the pleura) and the abdomen (the peritoneum). It used to be one of those cancers no one had
heard about. It’s still an uncommon cancer, not fitting, for example, into the list of cancers recorded in the American Cancer Society’s Cancer Facts and Figures list. The cancer is, however, not unheard of anymore. Two developments of the 20th Century saw to that. One was the presence in the early polio vaccines of a virus that infects monkeys called SV40.

That virus, which was not identified until 1960, five years after the polio vaccine was introduced, was later demonstrated to be able to induce mesothelioma in an animal model. Which means that polio vaccines administered up until 1961 may have been causing mesothelioma. However, most of the mesothelioma patients now in treatment contracted their condition from something a little more prosaic – their exposure, generally in their daily work, to the mineral asbestos. Workers handling the fibrous material, it is speculated, breathed it into their lungs where it become lodged in the pleura, and then caused irritation that changed the surrounding normal cells into mesothelioma cells.

The resultant cancer happened, ominously, after a long latency period. It takes about 30 years for a case of mesothelioma to show up, but the disease then kills its victim with alacrity, the median Overall Survival period post diagnosis being a mere 15 months because of the cancer’s usual inoperability and lack of response to radiotherapy. Large-scale asbestos use in industry only really started with the Second World War and the first bans didn’t come in until the 1970s, so new cases of the disease are not expected to peak in some countries until the 2020s.

And these new cases are coming not just from the men who mined it at places like Wittenoom in Western Australia, but from men involved in the building trade, as well as many shipyard workers and people who laboured in appliance factories as well up until the 1980s, in each case because asbestos made a great insulation material due to its resistance to burning as well as its poor showing as a heat conductor. Mesothelioma may be a ‘high profile’ cancer however the disease still has a relatively small incidence in the industrialized world. In the United States there are only around 2,000 new cases of mesothelioma annually and around 10,000 in other advanced industrial countries.

Why Invion is pursuing a mesothelioma indication for IVX-P02? The reason that Invion is contemplating an initial study for its IVX-P02 IV formulation is twofold:

– Such studies can gain a read-out data quickly, since even with Eli Lilly’s Alimta drug, FDA approved in 2004, patients generally only live around three months longer than expected.

– Generally, mesothelioma clinical studies can be run in Australia.

The path forward for IVX-P02 in mesothelioma. Invion contemplates a Phase 1 study of its IV formulation in healthy volunteers to initiate in the second half of 2019, to be followed by an 18-patient Phase 3 in mesothelioma patients to be run between 2020 and 2022.

IVX-P02 in prostate cancer

Tookad provides a pathway for Invion to follow in prostate cancer with IVX-P02. We believe that the two coprimary endpoints from Tookad’s Phase 3 –treatment failure and absence of definite cancer – provide a pathway for Invion to follow with IVX-P02 in prostate cancer. We see the following approach being taken by Invion once it turns its attention to this condition:

– A Phase 2 single arm study recruiting only low-risk treatment-naïve patients with newly diagnosed localised prostate cancer. The study would probably require 50-100 patients and treat those patients only with IVX-P02. We expect that this Phase 2 would see the photosensitiser administered intravenously to improve and speed uptake into cancer cells, as against the sublingual delivery used by the above mentioned Donald Murphy and colleagues, which required a 15 hour wait between the administration of the drug and the application of the light source.

– A Phase 3 randomised study controlled against active surveillance, probably of 400 patients. This Phase 3 would likely vary from Tookad’s approach in using MRI rather than biopsy to measure the endpoints, since the latter approach is non-invasive and speeds up the process of data gathering faster.

– A small proof-of-concept study of perhaps a dozen patients evaluating the potential of IVX-P02 to debulk tumours prior to surgery or radiotherapy. This could be used in preparing larger studies to show that, where these traditional modalities become necessary, PDT can reduce the side effect profile.

Prostate cancer survival rates are high, but there remains opportunity for new therapies. Prostate cancer is, notionally, a large market opportunity. In most Western countries, it is the third most common cancer after breast and lung, and the most common in men. The trouble with prostate cancer as a market for new therapies, as many see it, is that incidence and mortality are declining. The decline in incidence has more to do with a change in diagnostic strategy – the PSA test routinely used in the 1990s was over diagnosing the disease and is now less relied on.

However, the decline in mortality has been a striking example of the success of early diagnosis. In the US five-year survival rates for men, across all stage of cancers, was 68% in the mid-1970s but this had improved to 83% in the late 1980s and to virtually 100% today. When prostate cancer is diagnosed at the local stage it can be managed with relative ease using surgery, radiotherapy, ablative therapy (ie treatment
that destroys the tumour without removing it), or active surveillance.

However, it is patient dissatisfaction with these modalities that opens up opportunities for approaches like IVX-PO2. Surgery and radiotherapy are radical treatments associated with urinary incontinence (9-18% over 15 years), erectile dysfunction (87-94%) and poor bowel function (22-36%). Ablative therapies may have a better side effect profile but are not necessarily cost effective, and the data on cryotherapy, where erectile dysfunction is commonplace, has blunted the popularity of all ablative therapies. No wonder, then, that active surveillance has gone from something like 6% of patients in the US in the early 2000s to over 40% now.

Indeed, Donald Murphy became interested in PDT, and ran his studies with NGPDT, because of the increasing number of his patients who didn’t want ablative therapy. Given the trend towards non-treatment where possible, we argue that PDT, because it is low cost and non-invasive, has the potential to attract a large following, either as a monotherapy, or by facilitating surgery through pre-operative tumour debulking.

Valuing Invion

We valued the IVX-PO2 opportunity using a probability-weighted DCF approach. We used a 15-year time horizon, valuing the opportunity across the range of indications currently of interest to Invion and assuming Invion would commercialise IVX-P02 by sales of drug to third-party clinics. We assumed that the product could launch in Australia and New Zealand in calendar 2022 (conservative since Invion believes there is potential for first approvals in 2021), after the completion of Phase 3 studies, and adjusted out DCF to account for the probability of clinical success. Here are our key valuation parameters

Chances of success roughly one in five. When valuing any investigational new agent, it is necessary to apply a probability weighting to account for the chance of either clinical failure or the unwillingness of regulators to approve the product. Drug development is risky, and many drug candidates fail either at pre-clinical, in the various clinical stages of development (Phase I, II and III), or at the regulatory stage when agencies have to make the decision to approve or not-approve a drug. For clinical stage drug candidates, there are databases available stretching back to the 1960s that have allowed researchers to estimate the probability of success at various stages of development. One recent estimate has been:

Multiplying the probabilities in each case suggests that the probability that a drug entering Phase 2 will ultimately gained regulatory approval is around 21% for small molecules. Since IVX-PO2 is a small molecule, we have used this probability weighting for both our base and optimistic case.

Cost of capital. A key question in developing a DCF model is the cost of capital. At NDF Research we use the following approach:

Risk-Free Rate. We use the Australian Ten-Year Bond Rate, which is currently 1.8%;

Market Risk Premia. We use three basic MRPs for Life Science companies – 7.5% for ‘medium risk’ companies, 9.5% for ‘high risk’ companies and 11.5% for ‘speculative’ companies. We regard Life Science companies with existing businesses, or who have enough capital to reach the market with their products, as ‘Medium’ risk. Companies that have small revenue streams from marketed products but that are still potentially in need of capital are ‘High’ risk. Everything else is ‘Speculative’. We regard Invion as ‘Medium Risk’, since global development of IVX-PO2 is being funded via an R&D services agreement between Invion and the Cho Group.

Ungeared beta. We use an ungeared beta of 1.1.

This approach suggests a discount rate for Invion of 11.1% at the present time.

Commercial life of IVX-P02. We assume that IVX-P02 in Australia and New Zealand enjoys 15 years of commercial exclusivity, partly through WO/2014/091241 (priority date 14 December 2012) and partly through
other IP protection that Invion and the Cho Group could be expected put in place around, say, mechanisms of action for the IVX-P02 formulation. We assume that the business continues after that, hence our use of a terminal growth rate, but that costs are higher to compete against newer modalities, hence the 25% terminal EBITDA margin.

Royalty to Cho Group. We assume no royalty back to Cho Group, with that company benefiting from the success of NGPDT through its equity stake in Invion.

Patients. We assume that across Australia and New Zealand in 2022 there will be >1,000,000 cases of the NMSCs plus AK as well as prostate, lung and ovarian cancers that would be amenable to IVX-P02 treatment.

Market share at year 15. We believe our assumptions on the caseload by Year 15 is reasonable, since generally, in medicine, a new therapy with no notable competitors can take 80-90% of the addressable market within three
to ten years.

Pricing and gross margins. We assume that the IVX-P02 gel could enjoy pricing in the order of A$600 per patient while the IVX-P02 IV product could sell for more like A$18,000. We believe our pricing and cost of goods assumptions are reasonable. Consider that for BCC and SCC the total treatment cost in Australia for surgical excisions is in the order of A$1,100 per patient. Consider also that for prostate cancer, A$18,000 would fall well within the cost of a radical prostatectomy in Australia, which averaged A$21,500 in 2016, as well as the out-of pockets typically reported by patients. As for gross margins, typically in the pharmaceutical industry these are close to 70%.

Overhead costs. EBITDA margin in the pharmaceutical industry is ~20%. This suggests that overhead costs around roughly 50% of revenues. We have used 20-25% since we believe that this level of overhead funds a sufficiently-sized field force – 2 or 3 sales people at the beginning – to adequately grow the business Working capital. In 2015 pharma companies at the median were investing 18-27% of their sales in working capital.

Terminal growth rate. Our terminal growth rate assumptions sit at or below the recent annualised growth in real overall healthcare outlays in Australia.

Further capital. We assume no further capital needs to be raised given Cho Group has committed to non dilutive funding for the Australia / New Zealand studies of IVXPO2. We assume that A$50m is contributed in this way over the next few years.

Tax losses and corporate overhead. We assume that the company can realise, over time, the value of the $143m in accumulate tax losses. We also assume A$0.15m per month in corporate overhead.

Valuing Invion. Plugging the above assumptions into our model yields a valuation for Invion of base case 3.1 cents per share, optimistic case 9.6 cents per share.

Looking forward for Invion

We see a number of events helping to maintain Invion’s share price over the next 12-18 months:

– The publication of various papers generated by clinical and pre-clinical work on Photosoft/IVX-PO2;

– Initiation of further clinical studies of IVX-P02 in Australia;

– Publication of further data on the clinical effectiveness of Tookad and other emerging PDTs.

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Article reprinted by InvestmentsRevolution from NDF Research. For the full report click here: http://www.ndfresearch.com/uploads/8/1/7/4/81743720/2018_03_20a_orthocell_report_from_ndf_research.pdf

NDF Research’s work is commissioned by the listed companies it covers, and NDF Research has received or will receive payment for the preparation of such work. Please refer to the bottom of the research notes as published on NDF Research’s web site for risks related to the companies being covered, as well our General Advice Warning, disclaimer and full disclosures. Also, please be aware that the investment opinion in this report is current as at the date of publication but that the circumstances of the company may change over time, which may in turn affect our investment opinion

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