Viralytics : A Rising Tide Lifts All Boats

Viralytics (ASX : VLA) is one of the better small-cap Australian biotech stories. Regretfully, I did not have the opportunity to see their CAVATAK presentation at ASCO this year, but I enjoyed listening to their investor conference call and presentation yesterday (which included the ASCO data plus a few extra details).

Although VLA’s technology has been around for a long time, there is no doubt that the science is elegant and it may just be hitting its stride. We seem to have a surge of interest in immuno-oncology about every decade or so, and the recent “tsunami” of activity in the checkpoint inhibitor space has exploded, both clinically and commercially over the last 5 years or so. The news flow out of ASCO this year was frankly stunning, notwithstanding the persistent grumblings about what these therapies will really cost and their pharmacoeconomic impact on our healthcare systems.

Two other significant events are also pulling in VLA’s favour. The first matter is the recent FDA ODAC review of BioVex/Amgen’s T-VEC (Talimogene laherparepvec) oncolytic virus therapy. It’s worth a read if you can discipline yourself to get through the lengthy pre-amble but the most important take-home message from the ODAC review is that the FDA is highly supportive of encouraging the widest possible range of treatment options for late stage patients with aggressive disease (such as melanoma), where efficacy is demonstrated. In the case of T-VEC, some impressively durable responses, albeit in a small number of patients, in a sense illustrates why the FDA seems to be tolerating a slightly scatter-gun approach to advancing the field. With the PDUFA date for Amgen’s BLA application only a few months away, the “gambling man” (or lady) might just make a bet that some good news for Amgen might also mean a little stock price bump for VLA.

Stranger things have happened (like a 17% lift on Cellmid for some monkey tox data… sigh).

To be clear however, T-VEC and CAVATAK, while notionally similar, are rather different beasts. The construct that BioVex engineered has some distinct characteristics in terms of the type of (attenuated) virus used (herpes simplex) and the fact that the construct induces the expression of an adjuvant designed to further stimulate the immune system. In some respects, VLA’s technology is much simpler – less conceptually elegant (and the idea has been around for close to two decades) but with its own compelling reasons for why it might ultimately work rather well. The point, however, is that the FDA has gotten comfortable with an engineered viral therapy for cancer, and that paves the way for a number of players in the field, including VLA.

The second trend that is very much in VLA’s favour is the the firm reality that immuno-oncology is going to be a combination therapy business. This has been fairly clear for 4-5 years now, and while monotherapies with drugs like CTLA-4 and PD-1/L1 checkpoint inhibitors have shown some incredible responses in individual patients, the overall efficacy is still at the moderate end of the spectrum. Recent experiences, for example combining Nivolumab (Opdivo) and Ipilimumab (Yervoy) have shown some impressive results in aggressive cancers, particularly melanoma. Immuno-oncology is fundamentally about recruiting T-cells to the site of the tumor and then activating those cells (or de-activating “inhibition” of those cells, in the case of checkpoint inhibitors) and so this bodes very well for VLA because based on their presented data, the one thing CAVATAK seems to do quite well is recruit T-cells, and therefore the strategy of combination therapy is a good one. Of course, they are not alone and having had personal “exposure” to several promising programs in immune cell recruitment (such as Roche’s IL-2 fusion protein franchise, which has incredible T-cell recruitment efficacy by the way), I can firmly say that CAVATAK has to be more than just a good T-cell recruiter. Which, based on the CALM results, it may well be.

I take my hat off to VLA’s management team, they clearly have understood the major trends in the space, and the CALM cohort expansion to look at PD-1/L1 and CTLA-4 expression was nicely done. The histology data in their presentation, although somewhat variable in terms of impressiveness (and the “best” pictures are always wheeled out for investor presentations), demonstrated some quite convincing data. I’m not sure I like the CAVATAK/Yervoy combination as much as I would like to see a CAVATAK/Opdivo combination (which, I think reflects the data better because PD-1 expression was clearly upregulated, but the population of recruited CD3/8 cells – and ratio – didn’t immediately jump out as establishing a case for CTLA-4). But let’s be fair, it’s early data, and the most important thing is that the company is asking the right questions. Incidentally, I thought Dr. Andtbacka’s explanation of this data was excellent – a polished summary with the right academic balance (i.e. not too much hype, which as you know, I hate).

The risks? Well, there are always risks but there are a few that warrant specific mention as the company goes forward.

The first major risk as I see it, is that (in my opinion) the company is over-emphasising the potential of CAVATAK to have multiple routes of administration. Although I understand that this is going to be important for capturing a larger patient share for diseases like melanoma and non-small cell lung cancer (NSCLC), they don’t really have the data yet to support it. I am not saying that the initial experience isn’t promising, it is, but it’s far from a slam-dunk. Systemic dosing of a virus to achieve efficacy – even something comparatively benign like coxsackie virus – is tough. Building efficacy will likely involve multiple doses and this can have all kinds of issues including increasing the side-effect profile. Also CAVATAK is based on a relatively small virus and while lower molecular weight species can have better tissue penetration and “behave” better in the tumor microenvironment, dosing/clearance can be more challenging to establish.

Related to this is the issue with ensuring that the patient has a sufficiently constituted immune system to be able to deal with a systemic administration of CAVATAK and mount an effective immune response. One of the lessons learned from developing checkpoint inhibitor drugs (particularly Yervoy) was that some of the immune responses were incredibly delayed because of the punishing journey, with the consequent “depleted” immune systems, that patients had undergone to advanced disease. From a clinical development vantage, I think it is more important for VLA to show superior performance in accessible patients, where the patient selection criteria is tight (and the tumour microenvironment intrinsically able to be “sampled”) than it is to roll the dice on differentiation being intravenous administration.

The second risk is kind of an obvious one, but this space is so congested right now. There is just so much happening and there are alternatives to CAVATAK that are further along, somewhat less controversial and frankly easier to market (viruses, yuk). There is no doubt that Amgen’s success has generated a lot of interest and there is absolutely no question that the science is elegant, but we didn’t exactly see analysts scrambling over themselves to get an update (ROTH is a great firm, but they are not exactly front-and-centre of immuno-oncology deals at present). It will be interesting to see how VLA goes forth and builds traction for the story – so far so good.

The third risk is ICAM-1 as a target. Although this is the native mediating target for the coxsackie virus, and it is generally an interesting target in oncology, there are a few challenges. For the systemic dosing route (intravenous) very high ICAM-1 expression in the kidneys could be a real challenge as a “sink” (combined with a lower molecular weight) and require extremely high doses to have systemic efficacy. ICAM-1 expression on tumour cells is also very heterogeneous – in fact, because it is part of the mechanism to mediate cell adhesion, it is a target that is really expressed on aggressive/metastatic cancer, rather than being a “pan-cancer” target per se. That, of course, is good for a therapy in late-stage patients, but this also means that utility is probably limited to late stage patients – the most competitive end of the market.

But, on a positive note, ICAM-1 as a target has some intriguing upside. It is increasingly clear that its role is not just in cell adhesion, but also possibly a stand-out immunomodulatory target in its own right. Although the exact role and function of Mesenchymal Stem Cells (MSCs) in cancer remains quite controversial there is a growing body of evidence that MSCs play a key role in metastasis – both through promoting tumor progression but also through immune suppression. Given that ICAM-1 is highly expressed by MSCs in the tumour microenvironment, some of the clinical durability of CAVATAK may also come from blocking the immuno-suppressive effect of MSCs. It will be interesting to see whether some of VLA’s future tumour biology experiments address this potential.

Lastly … perhaps somewhat annoyingly (from the reader’s vantage), the final major risk as I see it, is intellectual property risk. One of the undesirable side-effects of having survived two epochs of the great cancer immunotherapy race, is that VLA’s technology is a bit long in the tooth. The foundation IP for the company will likely expire before product commercialisation, though some patent life extensions and FDA market access conditions may help. Still, the commercial shelf-life is not going to be long, even with “proprietary formulations” (a statement that usually makes me roll my eyes) and although some of VLA’s recently filed IP is quite a bit fresher, it is also – at face value – somewhat “predictable” based on the overall trends of the past few years. It therefore remains to be seen whether or not any really useful claims make it forward. Although IP is only one dimension of a commercial strategy, it certainly does impact valuation when a pipeline gets taken out.

But to conclude, this is a company I quite like, with a team that does a lot of things well. Not too much hype although I think some of the current analyst coverage is a teeny weeny bit over the top in terms of setting pricing expectations for this company (but hey, all boats rise in the tide…). Still, the advantage of having some US analyst coverage is that the American analyst lens is applied to valuation, and generally Australian biotech companies are undervalued relative to their US peers.

The good ones, that is. Not the crap out there.

You know who I am talking about.

Yes you.


Awesome Photo Credit: Ryan McGuire.

11 thoughts on “Viralytics : A Rising Tide Lifts All Boats

  1. Gotta say…this is one that I got completely wrong…at least kind of. I always thought Viralytics was a bit of a dog and, to be frank, for the first 12+ of its life it did look remarkably canine. I thought Malcolm McColl was probably the bravest man on the planet taking up the reins in 2012 after Bryan Dulhunty discovered that he had other interests that were in dire need of pursuit.

    But, quite frankly, Malcolm has really done a first rate job over the last couple of years, getting good funding in place, cleaning up its development plan and executing on it, and delivering some nice data and deserves to be commended for that.

    I agree with you that there is still more work to be done and risks in terms of competitive space but, really, those are real and acceptable risks for this sector.

    VLA has shown that even in companies that look as though it is all over, there can a Phoenix hiding in the ashes. While I would like to say that this shows every dog has its day….Novogen have made it clear that it is not every dog…just some dogs…some very special dogs.

    Woof, woof!!!!!


  2. No bones about it, VLA was a big hairy woofer that left unpleasant reminders of their presence all over town. Dodgy directors, dodgy investments (classic lost biotech strategy – invest in another hopeful to get 2 potential lines of business) and science that was a bit ‘out there’ (viruses, yuk indeed!).

    But, to their credit, that has been turned around. I have been watching VLA closely for some time (like 8 years), attending AGMs, reading the reports, pouring more SPP money down their throats… and I am pleased with the (eventual) results to date.

    VLA Mkii (circa 2009) was a less hairy beast, though it did still have fleas. They built a board with some cred in the right places (Altman, clinical; Molloy, Operations; Hopper, finance/wheeling/dealing), but the glaring weakness was in their CEO. Dulhunty was a nice guy, but utterly unqualified to run a biotechnology company and personally unsuited to managing capital market relationships.

    A new man at the front and proper, internationally regarded directors have done wonders. McColl has clarified and driven forward a drifting clinical programme (it took 2 yrs to not recruit 8 patients to their 1st Phase1 trial) and has communicated a story that has obviously impressed some real investors. He also isn’t full of shit, which is a nice change for the sector.

    The proof of the pudding, of course, will be in the quality of the transaction VLA puts together for Cavatak. Whether a product gets approved is not really the main game for this company. Their interest is in building a compelling dossier of robust clinical evidence supporting Cavatak’s effectiveness and then convincing some other schmuck to bet the house on large scale trials.

    Thus far I think they are doing a better than average job. Yes, the IP is ageing fast and yes, there are other technologies that might be getter/faster/safer but hey, the market for cancer immunotherapies is white hot. Big pharma is and will be over-buying and over-paying and many of those techs that won’t even make it out of the clinic.

    Maybe Cavatak will, and that’s why an opportunistic ‘me too’ deal will be good enough for me too!


    • Hi DJ,

      I think your summary is very good. Once-upon-a-time, CAVATAK was a cutting edge technology but in the last “cycle” of cancer immunology, there just wasn’t the understanding that we have today. I also don’t view it as a front-runner, but I also don’t discount it as having a play. Clearly, the biopharma world is a multi-tier landscape and it may very well be that someone takes it out if there is a fit, and the price is right (probably less on the up-front though).

      Your comments about the management team utterly resonate with me. Part of the reason why I support VLA (not just because the data is irrefutably nice) is because they are at least doing things properly, in a grown-up way. I think by now most Long Tail readers know that what really pisses me off is management/board quackery and spruiking a hollow chocolate bunny. VLA is none of those things and really a poster child for what can happen with a company when they pull their socks up. If more of the ASX did this, there would be much more success.

      On that basis alone, I am gunning for them…

      Thanks for reading.


  3. One question is about the trial they are running at the Providence Cancer Centre in combination with Yervoy. I would have assumed that when a combo trial is run, this would be agreed by both manufacturers and both would announce this. But I noticed there was no mention of BMS when this trial was announced. Is this normal? I’ve sometimes tried to read something into the lack of BMS buying into the trial but maybe there’s nothing to it.

    Concerning the potential problem with marketing a viral treatment, I don’t really see this. If I had a metastatic cancer with all that portends, and my specialist offered me a drug that may cure me but may have severe side effects, or a drug that may cure me but may give me a cold, I’d be stocking up on lemsip………


    • Hi Peter,

      Regarding the combo drug, Yervoy is an approved drug so nobody needs to ask for BMS’ “approval” to run a combination therapy study. Of course, it is always nice to try and set up some sort of a collaboration or data sharing agreement and even make some noise about it, but knowing BMS it is very unlikely that they would do so. The absence of a public announcement with BMS doesn’t mean that they don’t have a (non-material) data-sharing agreement. It really depends on what VLA’s strategy is.

      If the Yervoy is administered in a way that is consistent with the standard of care, it is even reimbursible for VLA’s clinical trial under the new Obamacare guidelines.

      As for your last comment, you are a robust sort of individual and I have no doubt that what you say is true. I also would line up if I knew that a virus was going to do the job (notwithstanding that I am always faintly amused at how things like CAVATAK and T-CEP belong in the plot for a movie like I Am Legend. I personally believe that when there are a lot of treatment options available that consumer preferences will also play a role and, depending on the eventual side effects of a systemic dose of something like CAVATAK (and I am not even touching on what a combo therapy might be like), the fact that the product is an oncolytic virus may have some impact. Time will tell.


  4. Pingback: Circadian : Where’s the bump? | The Long Tail

  5. Hi Chris,
    Regarding your claims that (1) VLA’s IP is a bit long in the tooth and (2) the commercial shelf-life of CAVATAK is not going to be long, I’d like to remind your readers that CAVATAK is a biologic and as such qualifies for 12 years of market exclusivity in the US. What this means (in case any of your readers don’t know) is that the FDA cannot approve any so-called “biosimilar” products for the same indication as the reference product for 12 years following the drug’s approval (= the date of the drug’s “first licensure” in the US).

    Furthermore, I’d like to point out that the probability of a generic version of CAVATAK emerging at any time is virtually zero. Only Viralytics (and its US manufacturing partner Sigma Aldrich) knows which cell lines it uses to produce CAVATAK. Any company trying to reproduce CAVATAK or a CAVATAK-like virus would have to start with its own cell lines, and this would necessitate it having to go through the entire clinical trial process again (and thus be subject to all the clinical risk). I simply don’t see a generic manufacturer doing this.

    I respectfully invite you to revisit your claim that “the commercial shelf life of CAVATAK is not going to be long.” Unless I’m missing something, it looks to me that, should CAVATAK gain approval for one or more indications, its commercial shelf-life will be long indeed.



    • Hi Tom,

      Thanks for your interesting and useful contribution. There are several distinct issues in your post and I will address them in turn.

      Firstly, I should probably clarify that I am generally fairly positive about VLA, and as a general rule I only view IP lifespan as one dimension of a commercial strategy. I do care about IP but I care about it MORE when a company overly spruiks its IP – particularly platform IP – as a key commercial value driver. I don’t, incidentally, feel that VLA particularly over-eggs the pudding in this regard.

      In the case of VLA/CAVATAK I think I clearly acknowledged (in my second-last paragraph) that FDA exclusivity periods will help the commercial potential of this product. Did you read this? Indeed, I think I wrote an appropriate caveat to that whole issue of IP that it was a slightly boring issue. However, having said that nobody models product lifespan/NPV with the expectation of a 12 year biologics exclusivity anymore because the public policy platforms to support that assumption are no longer robust. That’s just naive. The Affordable Care Act has an enormous Sword of Damocles hanging over it because it is simply not economically viable for the US healthcare system, partially because of changing patient demographics and partially because there have been such an unexpected number of outstanding biologics-based drugs hit the market since enactment. Current US legislation under consideration proposes to reduce biologics exclusivity periods from 12 to 7 years and it is widely expected that with that kind of trajectory, there is very little stopping a further reduction to 5 years in order to be consistent with small molecule drugs.

      It’s just a matter of time, and probably before VLA has a shot at getting grandfathered into the prior legislation.

      Part of the reason why that is likely to occur – aside from the political realisation that it is a pharmacoeconomic necessity – is because (as you have precisely said) the biosimilars domain hasn’t been quite as flamboyant as everyone had expected a decade ago when the first crop of antibody drug patent expirations were anticipated. It is exactly as you say, manufacturing is tough and there are significant barriers in cell line development, productivity optimisation, formulation, etc.

      Having said that, you and I both know that the technical challenges of expressing a wild-type virus like CAVATAK are very different than an engineered antibody construct, or manufacturing a CAR-T product or something like that. Wild-type Coxsackievirus A21 is intrinsically “expressible” (it has been cultured and expressed in many different mammalian cell lines) so the only really proprietary part that poses a competitive barrier to entry is formulation. And let’s face it, a small virus is a hell of a lot easier to formulate for shelf-life and stability than most other proteins.

      So, respectfully, I will not revisit my claims. I think that my initial position was balanced and reasonable. I do think that CAVATAK is an interesting product (with quite impressive results) but I don’t share your generic viewpoint on the benefits of either product exclusivity periods or barriers to generic entry. I will concede that if one were to rack-and-stack a priority list of generic biologics products, CAVATAK would be at the low-end of the list, but that alone somewhat alludes to its weak-ish commercial future. I’d rather have a super-hot drug in my portfolio that everyone is counting down the days for, to be able to file a biosimilar BLA application (which, as you know, is currently only 4 years of data exclusivity), than something that is probably never going to be exciting enough to copy.

      Don’t you agree?

      Thanks for reading, Tom.


  6. Pingback: Imugene’s big raise | The Long Tail

  7. Pingback: The VLA Coin Toss | The Long Tail

Say something useful (or at least interesting)...

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s