Positive comments and questions about Cyxone, T20K and Rabeximod continue to flood in. I am grateful for all the interest, and felt that in this newsletter I would try to offer a little more background so that you could better grasp our reasoning.
New safety data for T20K
Development work on T20K is continuing as planned, and we recently obtained data that suggests T20K could have a more specific effect on cells than previously thought, which is extremely positive as we map T20K’s safety profile. We are now following up on these results with studies that target biological molecules to which we have noted T20K appears to bind itself.
Valuation of T20K and Rabeximod
Many of your questions relate to how we evaluate the potential of T20K and Rabeximod. I believe that we can say we have an excellent understanding of this area because we have devoted a considerable amount of time to evaluating the projects before we decided to seek deals. In our press release, we described how we carried out an independent evaluation that formed a key part of the basis for our decision. The fact is that we conducted two evaluation projects with Venture Valuation. One project valued T20K for MS – partly to ascertain its risk-adjusted present day value, and partly to evaluate what the project will be worth once we have conducted clinical trials. The second project reviewed the value of Rabeximod in its current developmental stage, and what its value was expected to be following Phase IIB studies.
The technical value of a listed company should, in theory, be reflected in its share price, but my practical experience of the segment tells me that the real value of specific assets is only clear when a deal is negotiated by two parties. We therefore consider calculated current value as a better indicator of the “real” value of the project, even if this is not reflected in the current share price, and therefore base our strategic decisions on the calculated current value.
How the valuations were reached
The valuations of T20K and Rabeximod were reached, according to industry praxis, in the same way as big pharma calculates current values of project assets. Put simply, this means that reasonable assumptions are made in terms of development timelines, costs, pricing, patient numbers etc., and project the income these assumptions would result in. By then adding a time component and risk assumptions, a current value can then be calculated. We are not planning to publish all details of this process because these valuations will form the basis for future negotiations, but I will now provide an overview of our conclusions from the valuation work.
T20K’s projected value compared to existing drugs
We’ll start with our top candidate: T20K for MS. T20K is currently in pre-clinical development and is showing indications in an area that affects some 2.5 million people worldwide. Today, many of these patients receive expensive biological preparations with severe side effects. We have found a clear niche for T20K as a safe alternative. When we calculate the market potential for T20K, we see that candidates can achieve annual sales of USD 1.6 billion, even in scenarios where prices are set at around half of today’s prices for Tecfidera, Gilenya and Aubagio. Under these conditions, the current risk-adjusted value of T20K is already double Cyxone’s share value. In this calculation, we have risk-adjusted the current value by multiplying it by the average probability of a drug candidate achieving market approval from its current state. Purely statistically, an autoimmune candidate in our current phase is estimated to have around a 10 per cent chance of achieving market approval. This increases to 23 per cent at the end of Phase I, and to 62 per cent at the end of Phase II. Based on our assumptions, T20K’s current value therefore increases markedly (x3.7) when T20K completes its next phase, which also forms the background to how we have chosen to shape Cyxone’s business model. In this situation, we will have a strong negotiating position to either handover development to someone else, or develop a more creative solution similar to the one we reached a number of years ago with GeNeuro’s Phase I candidate for MS. French company Servier then signed a deal that saw GeNeuro retain USD 47 million in return for an option that Servier had the right to convert when Phase IIB studies in GeNeuro had been completed. Broadly speaking, the option meant that in exchange for exclusive commercial rights for all world markets, (with the exceptions of Japan and the US), Servier could finance a Phase III programme and pay USD 408 million in milestone payments and royalties to Switzerland-based GeNeuro.
Rabeximod’s value compared to existing drugs
Similar to T20K, Rabeximod is also being developed for an autoimmune condition. Rheumatoid arthritis affects around 0.5 to one per cent of the population, which makes the condition more prevalent than MS. It is therefore unsurprising that injectable RA drugs – among them Humira (>USD 14 billion/year), Enbrel (>USD 9 billion/year), and Remicade (>6 billion/year) – are some of the world’s bestsellers. When the first oral drug (Xeljanz) gained market approval, sales increased rapidly and surpassed half a billion USD in just three years. Due to market characteristics, the current calculated value of Rabeximod, like T20K, is very high even with conservative assumptions on pricing and market share. But in contrast to T20K, Rabeximod is already in clinical phase trials with considerably lower risk. This means that the current valuation of Rabeximod already exceeds T20K’s calculated current valuation, and the result of our valuation work shows that its current valuation is expected to triple once Phase IIB is completed. The higher, calculated potential was confirmed by similar deals that have been reached in the same segment. A typical example of this happened several years ago when Roche licenced an oral RA drug in Phase I from Toyama Chemical that included USD 370 million in advance and milestone payments, followed by royalties on net sales. Several years previously, MultiCell Technologies Phase IIB licenced candidate LAX-202 in a major deal worth USD 275 million in milestone payments and royalties. As biological copies of market leaders in RA, (e.g.: Humira), are introduced, it is our conclusion that Rabeximod has considerable scope to create meaningful partnerships between Cyxone and RA companies.
Major potential for Cyxone
My hope is that the reasons outlined above give a better insight to the background of why we believe that our strategy is likely to have significant financial potential. I am convinced that the proposed acquisition will create value for our shareholders in the short term by transforming Cyxone into a clinical company, and in the longer term through the excellent opportunities Rabeximod creates for licensing.
Malmö in July 2017
Kjell G Stenberg
CEO Cyxone AB