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.
Awesome Photo Credit: Ryan McGuire. http://www.gratisography.com/