Xspray Pharma: Encouraging News Flow

HyNap-Nilo is an improved version of nilotinib (brand name Tasigna), a leading drug for chronic myeloid leukemia (CML). Nilotinib is an oral Bcr-abl inhibitor that was approved by the FDA in October 2007 and the EMA in November 2008. While Nilotinib has been proven very efficacious in treating CML, it carries a black box warning and tends to be associated with severe adverse events.

Xspray’s goal is to create an improved version of nilotinib that has greater bioavailability and does not have a food interaction problem that can cause adverse events. HyNap-Nilo has been studied to examine the bioavailability and food interaction and has achieved clinical proof-of-concept both in fasted and fed subjects.

Since the goal is to make HyNap-Nilo an improved version of nilotinib, Xspray will seek to register the product through the hybrid 505(b)(2) pathway. The 505(b)(2) pathway, specific to the US and the FDA, is a type of new drug application (NDA) with changes to a previously approved drug, making it an NDA/ANDA hybrid pathway.

In our view, the ODD received for HyNap-Nilo is undoubtedly positive and contributes to a smoother and cheaper regulatory pathway to market. Also, it provides seven-year market exclusivity from the day of approval – contingent upon displaying clinical superiority over the originator drug. From an investor perspective, it’s also encouraging to see progress in the pipeline beyond HyNap-Dasa.

Commercial Potential for HyNap-Nilo
After HyNap-Dasa, we consider HyNap-Nilo the most commercially attractive product candidate in Xspray’s disclosed pipeline. The originator drug nilotinib is:

• sales of USD804 million in the US in 2019
• associated with severe side effect and carries a black box safety warning

The commercial success for nilotinib despite its black box warning tells us that there is a great need for efficacious therapeutics for CML. We argue that HyNap-Nilo, if launched, could capture a considerable share of the market on the back of a more benign safety profile. The primary substance patent for Tasigna expires in July 2023, while secondary patents start to expire in July 2026, giving a three-year “patent window” opportunity. We currently assume a market launch of HyNap-Nilo under the 505(b)(2) pathway in early 2024.

Following the orphan drug designation, we have lowered the costs associated with the project and upped the probability of approval – now 80%. HyNap-Nilo now constitutes ~15% of the total NPV in our SOTP-valuation model – implying some SEK30 per share.

Results improved HyNap-Dasa
Last week, Xspray also presented positive preliminary results from a bioavailability study in healthy volunteers with an improved HyNap-Dasa version. The results show that the improved HyNap-Dasa is not dependent on the gastric pH level. This is encouraging news since the uptake of the originator drug (Sprycel) is highly dependent on the gastric pH level, where an increased pH level decreases the absorption of Sprycel vastly.

Specifically, in the trial, improved HyNap-Dasa showed a minor absorption increase of 8% measured as AUC, when given together with omeprazole (which increases the gastric pH). This should be compared to published data for Sprycel where AUC was reduced by 43% in combination with omeprazole. We believe these are clinically meaningful results.

It should be emphasized that Xspray’s goal is to register HyNap-Dasa as an ANDA, which should give a quicker market penetration and greater profitability. A key difference between ANDAs and 505(b)(2) generics is that the latter, due to its differentiation, needs to be sold rather than being a mandated switch at the pharmacy.

With these results, Xspray could fall back on the 505(b)(2) pathway in the case BE is not achieved. In this scenario, the drug could be developed as an improved dasatinib with higher bioavailability and without the drug-drug interaction that tends to happen if the stomach pH level is too high. We believe that such a product would be well received by patients and doctors.

Impact on our Valuation
Following these news, we raise our Base case to SEK220 (200) per share. Our Bull case, where BMS buys the HyNap-Dasa project, remains at SEK650 per share. We also raise our pessimistic Bear case to SEK140 (105) on the back of lower probabilities for a “worst-case scenario” following the positive data with the improved HyNap-Dasa.