Lytix Q2 2023: ATLAS-IT-05 Fully Recruited
Since our initiating coverage, Verrica presented promising results in BCC. Lytix has recruited the first planned 20 patients in its phase II study in melanoma, while an additional 20 may be added after an interim analysis. Furthermore, a new investigator sponsored trial, ATLAS-IT-06, in neoadjuvant melanoma is planned to start in H1 2024.
The phase two trial of LTX-315 in BCC sponsored by Verrica consists of two parts. In part one, four out of six patients who received the highest dose had complete tumour clearance, one a 95% reduction and one a 30% reduction. Part two is now recruiting. Based on the positive results, Verrica has decided to accelerate the trial. According to ClinicalTrials, 80 patients will be recruited across parts one and two, with results expected by H1 2024.
All twenty patients in the ATLAS-IT-05 study have now been recruited across ten sites in the US, Norway, France and Spain. A decision on whether to include an additional 20 patients to arrive at a total of 40 will be based on an interim readout this year. A positive new development is the planning of a new investigator-sponsored trial (ATLAS-IT-06) in neoadjuvant melanoma with 27 patients, scheduled for H1 2024. Neoadjuvant treatment is used before resection. This is a similar setting to that of Verrica’s BCC trial, though more serious since melanoma often metastasises. The expenses for Lytix will be small, consisting among other things of clinical material (LTX-315).
Lytix' projects are developing according to plan, with the addition of ATLAS-IT-06 being a positive surprise. The interim readout of ATLAS-IT-05 will be the next major catalyst. We recently initiated coverage with a base case of NOK14, which we restate after the Q2 report.
First-in-class candidates with partnering potential
Generating phase II data in ATLAS-IT-05
Sum of LTX-315, Verrica deal and LTX-401
Lytix has a management team that has been working together for a long time and a long experience of its technology platform. Inside ownership from management is limited, however. The shareholder structure provides solidity to operations, as two major shareholder are represented on the board (33%) and there is a sizeable group of long-term oriented owners.
Pharmaceuticals is a high-margin industry in which there is clear product protection for companies' projects through patents. It is generally a non-cyclical industry. For research companies like Lytix, the situation is different, with risks associated not just with clinical development but also with the (cyclical) stock market, where capital requirements are large and often handled via new issues.
As of Q2 2023, Lytix had a cash position of NOK100m, which will finance the phase IIa study of LTX-315 and other operations well into 2024. Being a research company, it will likely take some time before becoming cash flow neutral.
ATLAS-IT-05 has now recruited 20 patients and results from all patients should be available soon. Most patients have received two to three lines of prior treatment, including several with two different checkpoint therapies, so the expected response rate from treatment with pembrolizumab alone would be low (see our discussion of this and comparison benchmarks in the initiation coverage).
The first data to be available is typically objective response rates. Two scans are necessary to confirm a response, with at least four weeks between them. In this case, the first scan after trial initiation will be after six weeks, then every nine weeks, so there is potential to measure a first confirmed response from all patients within the year. However, often a longer period of treatment is necessary to achieve a response, with the tumours shrinking until the 30% threshold is achieved. Median progression-free survival figures in second-line melanoma are usually short (2.7 months for ipilimumab alone in SWOG S1616), which might also be available this year, though the later the better. An interim readout from a smaller number of patients will be presented at ESMO in October. A decision on whether to include an additional 20 patients to arrive at a total of 40 will be based on an interim readout from slightly more than 10 patients. We believe this expansion will be necessary to draw firmer conclusions about efficacy.
The new trial in adjuvant melanoma will be called ATLAS-IT-06. It will be conducted in Norway at Oslo University Hospital, Radiumhospitalet. As it is a sponsor investigated trial, the costs for Lytix are low. The setting is similar to that of Verrica's study in basal cell carcinoma, as the object is to shrink the tumour size before surgery. It is not yet metastatic. However, often there are undetected micrometastases, leading to recurrence for many patients even though the main tumour was removed. A potential effect of LT-315 in this setting is the removal of residual cancer cells, such as micrometastates, which could prolong the life of the patients (recurrence-free survival is a typical endpoint here). Checkpoint inhibitors are used in this setting for this reason. In ATLAS-IT-06, LTX-315 will be combined with pembrolizumab (which Lytix will not have to pay for as it is an investigator sponsored trial).
LTX-401 is ready for a phase I study, but the application is on hold as the company’s cash position does not admit two simultaneous studies. Rather, Lytix focuses on LTX-315 and will continue with LTX-401 when the financial situation admits it. As financing is challenging for biotech companies right now, this is clearly the correct prioritisation.
There has been a recent decline in the interest in oncolytic viruses among larger pharmaceutical companies, due to a history of failures. One would therefore be interested to know what the sentiment is concerning oncolytic molecules. In the conference call, the management of Lytix stated that they do not experience this lack of interest in their programs. Although Lytix’ molecules are also called oncolytic, they are in fact a different class of drugs. They are small molecules or peptides, while viruses are living organisms cultured in cells and dependent on replication in cancer tissue as their mode of action. This means their mode of action and production are quite distinct from oncolytic molecules. The administration of oncolytic molecules is also much less problematic, as there can be immune reactions against viruses but not oncolytic molecules. We agree with Lytix that their candidates represent a distinct class of drugs. However, it is important that potential partners also appreciate this.
Total operating expenses were NOK-34m in Q2, a sequential increase from Q1 (NOK-25m). This is the highest quarterly expense since 2021 as all sites are now open and a large number of new patients have been recruited. If the expansion cohort with 20 new patients is recruited, costs will likely remain high; otherwise, they should drop off as patients progress or die. The cash burn in the quarter was NOK-26m with positive working capital effects of NOK4m resulting in a cash position of NOK100m (NOK126m) that will last well into 2024.
The interest from investigators demonstrates that LTX-315 has potential in more settings than just advanced melanoma. We have included sarcoma, head & neck cancer and triple negative breast cancer in our valuation of LTX-315 to capture this potential. We therefore do not include adjuvant melanoma as an indication yet, since we believe this would overstate the potential and valuation of LTX-315. As new data is generated, we will reconsider this.
|Asset||Indication||LoA||Royalties||Peak Sales||Est. launch||Deal Size||rNPV|
|Subindication 2||Head & Neck||8%||14%||623||2032||64|
|Project value (NOKm)||938|
|Shared costs incl. tax (NOKm)||-329|
|Fair value (NOKm)||709|
|Shares outstanding (2022)||40|
|Value per share (NOK)||18|
|Source: Redeye Research|
|Cost of Revenue||-||-||-||(7)||-|
|Shares in Associates||-||-||-||-||-|
|Net Financial Items||0.28||(0)||10||-||-|
|Income Tax Expenses||-||-||-||-||-|
|Property, Plant and Equipment (Net)||-||-||0.12||0.13||0.13|
|Other Non-Current Assets||-||-||-||-||-|
|Total Non-Current Assets||-||-||0.12||0.13||0.13|
|Other Current Assets||-||-||-||-||1|
|Total Current Assets||33||203||152||60||41|
|Equity and Liabilities|
|Non Controlling Interest||-||-||-||-||-|
|Long Term Debt||-||-||-||-||-|
|Long Term Lease Liabilities||-||-||-||-||-|
|Other Non-Current Lease Liabilities||-||-||-||-||-|
|Total Non-Current Liabilities||-||-||-||-||-|
|Short Term Debt||-||-||-||-||-|
|Short Term Lease Liabilities||-||-||-||-||7|
|Other Current Liabilities||9||12||10||10||1|
|Total Current Liabilities||13||13||17||17||11|
|Total Liabilities and Equity||33||203||152||60||41|
|Operating Cash Flow||(24)||(45)||(52)||(96)||(89)|
|Investing Cash Flow||-||-||(0)||-||-|
|Financing Cash Flow||40||214||0.13||-||72|
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