In December 2023, the clinical trial application for ATLAS-IT-06 in neoadjuvant melanoma was submitted to the regulatory authorities for approval. The trial is set to begin in H1 2024. It will recruit 27 patients with clinically detectable and resectable stage III-IV melanoma, which is the same stage as ATLAS-IT-05, although ATLAS-IT-06 will be tilted towards stage III and ATLAS-IT-05 towards stage IV. Furthermore, the patients in ATLAS-IT-05 are end-stage, having, on average, received several treatments; their cancers have more resistance mechanisms, and their immune systems are in worse shape. The ATLAS-IT-06 patients will be anti-PD-(L)1 naive.

In our opinion, the most logical setting for LTX-315 is as an adjuvant (after resection) or neoadjuvant (before resection) treatment. We therefore agree with Lytix switching focus to ATLAS-IT-06, which has the benefit of costing very little for Lytix as it is investigator-sponsored. The data from ATLAS-IT-05 will contribute to the overall data package supporting further development. Late-stage melanoma might be an indication expansion in the future. The data from Verrica’s phase II study will also be illustrative, even if the cancer type is different.

Checkpoint inhibitors have not been approved as neoadjuvant treatments in melanoma, only as adjuvant treatments. Most recently (December 2021), pembrolizumab was approved in high-risk stage II melanoma as an adjuvant treatment. However, there is much data suggesting treatment before resection rather than after improves event-free survival. One study investigated neoadjuvant plus adjuvant pembrolizumab versus adjuvant pembrolizumab in stage III-IV melanoma (SWOG 1801/ NCT03698019), a study which is likely similar to ATLAS-IT-06. The event-free survival at two years was 72% in the neoadjuvant versus 49% in the adjuvant group. This shows that initiating checkpoint treatment before, rather than after, surgery can improve survival.

Cancer recurrence is very common in stage III after resection. Therefore patients are also treated pharmacologically. The scientific rationale for neoadjuvant treatment is that leaving the tumour intact and treating the cancer before resection will activate the immune system when large amounts of tumour material is available. After resection, there is often some tumour material left, including potentially micrometastases, which may be so small that they are not detected by the immune system even with checkpoint immunotherapy. Another advantage is that it allows for prognostication based on the initial response to therapy since not all patients respond.

Adding LTX-315 to pembrolizumab as a neoadjuvant treatment would have a dual effect: (a) it would reduce the tumour size before resection, and (b) it would act as a cancer vaccine, which could help the immune system kill of any remaining cancer cells, including micrometastases. Some patients with a complete pathological response might even avoid surgery completely. Cancer vaccines have shown greater potential in earlier stages of disease when there is less tumour burden. For example, a promising phase III trial is underway with a personalised cancer vaccine (mRNA-4157) combined with pembrolizumab in stage II-IV melanoma patients. Furthermore, melanoma is one of the most mutated cancer types, where one would expect a vaccine to work best. We are, therefore, very positive about Lytix transitioning LTX-315 to neoadjuvant melanoma. We believe this is where LTX-315 fits best. It is also an economically sound decision, as the situation for raising cash in the capital markets is still challenging, even if it is improving. Adding another 20 patients would likely cost some tens of millions of NOK. Lytix will need more cash, but it will need much less now when it focuses on ATLAS-IT-06 which is funded by the investigator. Lytix only has to provide LTX-315 material.

Melanoma is a cancer area with much ongoing activity with some developments impacting LTX-315, so the right positioning of the candidate compared to competitors is important. There may be some competition in the refractory space from Imlygic, the only approved oncolytic virus in melanoma, which is combined with pembrolizumab in a phase II study for the treatment PD-1 refractory patients. Lifileucel (Amtagvi), an autologous tumour infiltrating lymphocyte (TIL) cell therapy from Iovance, was granted accelerated approval in refractory melanoma in mid-February this year. The indication is late-stage melanoma previously treated with a PD-1 inhibitor (and potentially a BRAF or MEK inhibitor). This is likely the same (or very similar) indication for which LTX-315 is positioned with the ATLAS-IT-05 study, being the melanoma indication with the highest unmet need. LTX-315 has previously been tested with autologous TILs in ATLAS-IT-04 in other types of cancer with promising early results.

The launch of lifileucel (Amtagvi) has already been strong with 20 patients signed on for treatment (according to Endpoints News). Analysts expect full-year sales of USD180m in the US with 350-385 patients treated. The treatment cost has a list price of USD515,000. Expansion into the EU is planned in H1 2024. Lifileucel is also being investigated as a first-line treatment in combination with pembrolizumab. We believe combining LTX-315 with Lifileucel would be a strong fit in both the first and second lines. LTX-315 has now been tested both with pembrolizumab and TIL therapy, so we expect no tolerability issues, even for a triple combination. The efficacy results are also encouraging, so it should be interesting for Iovance to test if LTX-315 can potentiate lifileucel, which would improve its market position. However, negotiating a partner deal might be tricky as the potential for LTX-315 is likely much larger in early-stage melanoma, and Iovance is a moderately sized biotech company with a market cap of USD4.4bn with somewhat limited resources (compared to large pharma). But it would be logical for the companies to collaborate, and we believe Lytix is trying to do this.

Revenue amounted to NOK5m in the period, deriving from the ‘SkatteFUNN’ R&D tax incentive for LTX-315. Lytix' application was approved in October and makes the company eligible for up to NOK14.3m in non-dilutive funding from 2023 to 2025. Operating costs, NOK-25m, increased somewhat compared with the previous quarter (NOK-23m). The operating cash flow in the period was NOK-28m. The cash and cash equivalents position decreased to NOK51m, which should last into mid-2024. We estimate the company will raise around NOK90m before then.

We have removed the previous potential indication expansions of TLX-315, assuming Lytix will focus on skin cancer in various settings in the foreseeable future. We have added three years to the development time of LTX-315 in stage III-IV refractory melanoma, with a potential market entry in 2032 (2029). We have decreased the market penetration to 12% (20%) because of the delay to make room for the potential entry of new competition in the meantime. We have also decreased the expected costs for this trial. Since the potential market of LTX-315 expands with neoadjuvant treatment, we have increased the deal package to USD600m (USD500m). Of the USD600m deal value, we assume USD150m will pertain to the refractory indication and USD450m to the neoadjuvant setting.

We assume both LX-315 and LTX-401 will be out-licensed in 2026 instead of 2025. We have also increased the development costs for LTX-401. This leads to a lowering of its valuation.

We have included neoadjuvant melanoma as the main indication of LTX-315. We have based our forecast on patients with stage II and III with adjuvant therapy assuming that a proportion of these would go over to neoadjuvant treatment in the future. These are around 70 000 patients per year in the US and 60 000 in EU5, or around three times as many as second-line advanced patients.  

We believe pricing will be lower than in metastatic disease, as the treatment period will be shorter. In NeoLIPA, patients will be treated for nine weeks before surgery, including three infusions of pembrolizumab. Therefore, we project a cost per patient of USD40,000 in the US and 65% of this in other countries. We assume a market share of 20%. This results in a peak sales value of USD1,550m, or around twice the previous number in advanced disease.

Based on the favourable results shown in metastatic melanoma (ATLAS-IT-05), we use the same likelihood of approval (13%) in the trial in neoadjuvant melanoma. Based on the mechanism of action and theory, we would expect LTX-315 to work better in the neoadjuvant setting, but this remains to be proven empirically.

Common endpoints in neoadjuvant trials are relapse-free survival (after two years), distant metastasis-free survival, and overall or melanoma-specific survival. Instead of ORR (based on radiology), pathologic response is used (using tissue samples). The primary endpoint of NeoLIPA will be pathologic complete response rate. The exact development path for LTX-315 to the market has not yet been defined, but we believe a phase III study would likely take around four years to complete or more. If such a study starts in 2027, we expect LTX-315 could be on the market in 2032. LTX-315 has a patent in combination with checkpoint inhibitors expiring in 2035, but five years extra would likely be granted (until 2040); there might also be additional patents filed.

All these changes constitute a significant revaluation of Lytix, but the effect on our sum-of-the-parts valuation is minor, with a slightly lower fundamental value owing to a smaller cash position and a lower valuation for LTX-401. Since the share is price lower than in our last update, which should lead to capital having to be raised with more dilution, our new base case decreases by NOK1 to NOK13. We forecast around NOK90m will be raised.

Our new bull case is NOK25. It assumes a positive readout for Verrica increasing the LOA to 44%; it also assumes a slightly positive readout for LTX-315 in adjuvant melanoma in H1 2025, increasing the LOA to 16%. Our new bear case of NOK6 assumes failure in all projects except LTX-315 as a neoadjuvant treatment.