Biotech

Bhavneesh Sharma

Top 20 Ranking (28.2% Avg Return) --TipRanks

Genocea Biosciences: Unique ATLAS Cancer Neoantigen Identification Platform And Attractive Valuation

Summary:

New Long position: Bought Genocea Biosciences stock, GNCA: Allocation=2% of the capital. Time frame= min. 2-3 years. Targeting $10/share.

Investment Thesis:

The stock is significantly beaten down after recent offering and trading at $3.50/share, down from $11.30 earlier this year. ATLAS neoantigen platform has advantages like the ability to identify inhibitory neoantigens as well. Recent ASCO data was very impressive and up to 91% of injected epitopes elicited T cell responses, (higher than Neon Therapeutics, NTGN data). Genocea will present additional immunogenicity/safety data from GEN-009 monotherapy program later this year and will start a combination trial of GEN-009 with checkpoint inhibitors this year (efficacy data in mid-2020). These catalysts over the next 12 months are expected to help the stock price to recover. They are also planning an adoptive T cell therapy program targeting neoantigens identified from ATLAS platform. Iovance Therapeutics (IOVA) partnership to develop tumor-infiltrating lymphocytes, TILs against neoantigens identified using ATLAS platform adds more conviction and validation of the ATLAS platform. The management is experienced and has a good track record. I had a phone call recently with the management (CEO) where they explained the advantages of the ATLAS platform in identifying neoantigens compared to traditional approaches, like the ability to identify inhibitory neoantigens, and using the actual T cell response to each cancer neoantigen candidate rather than guessing using algorithms. The pipeline is being valued at just $23M with a market cap of just $74M (with $79M in cash reserves) compared to the large target addressable markets. Including in long-term core biotech positions.

___________________________

Detail:

Novel ATLAS Platform uses T cell response to identify stimulatory and inhibitory cancer neoantigens

The body’s T cells respond to neoantigens, which are proteins processed by the tumor and presented as peptides on the tumor surface. However, the problem is that tumors produce hundreds or thousands of these neoantigen peptides in each cancer patient. Not all of these neoantigen peptides elicit T cell responses. While an ideal neoantigen candidate will produce only T cell stimulation, some others may be irrelevant (inert), or even worse may be inhibitory to T cell response, i.e. they may actually suppress the T cell response and thus help the T cells to escape the body’s immune response. Currently only 20%-30% of patients with cancers like melanoma respond to immunotherapies like anti-PD1 antibodies and it has been found that non-responder patients have a high number of inhibitory tumor neoantigens.

Rather than using educated guessing to identify candidate neoantigens by in silico methods, Genocea’s proprietary ATLAS platform exposes each candidate neoantigen to the patient’s T cells in the lab and identifies which neoantigens are stimulatory, irrelevant or inhibitory by measuring the T cell response.

The company has tested T cell (both CD8+ and CD4+ responses to more than 2,500 potential cancer neoantigens so far).

(Genocea’s ATLAS Platform)

The science behind the ATLAS Platform has its origins in the labs of Dr. Darren Higgins from Harvard University who is also the company’s scientific founder, and was further improved by the company’s scientists over the past decade.

How ATLAS platform is different from competition:

  1. Exposes T cells to a variety of cancer neoantigens and measures their response to identify which neoantigens are stimulatory and which are inhibitory or irrelevant.
  2. Only stimulatory neoantigens are isolated and injected as vaccine.
  3. ATLAS is the only known neoantigen identification platform that can exclude inhibitory antigens that appear to exert an immunosuppressive effect on the patient. Traditional neoantigen identification algorithms fail to identify inhibitory neoantigens.
  4. Preliminary clinical data presented at ASCO conference in June this year has demonstrated proof of concept showing high immune response to injected neoantigens (up to 91% neoantigens injected elicited T cell responses, and 53% elicited CD8+ T cell responses), thus validating ATLAS platform and showing higher immunogenicity  vs. competitor Neon Therapeutics data (NEO-PV-01+ immune checkpoint inhibitor in melanoma cohort, human) = 55% epitopes generated any T cell response in a melanoma model and 28% epitopes generated any CD8+ response.

GEN-009 neoantigen vaccine's Phase 1/2a study, part A data presented at the Annual Conference of American Society for Clinical Oncology, ASCO in June this year showed excellent T cell response

The importance of this clinical data is apparent from the fact that ASCO’s Journal of Clinical Oncology selected Genocea’s presentation at the conference as a ‘Top 10 Featured Immuno-oncology Abstract’.

Data was from 5 patients with different cancers including non-small cell lung cancer (NSCLC), melanoma, and bladder cancer (see details in the abstract image shown below). T cell responses were detected to 91% of GEN-009 vaccine neoantigens, including CD8+ T cell responses to 53% of GEN-009 neonatigens (which are significantly higher than that elicited by competitor Neon Therapeutics data as mentioned above). The reason for the higher T cell response to GEN-009 is obvious- the inhibitory neoantigens are identified and removed and only neoantigens which have been proven to elicit T cell responses are injected.

From a safety point of view, GEN-009 was well-tolerated and there were no dose-limiting toxicities.

(Genocea Biosciences: ASCO abstract: source)   

Next steps in GEN-009 program:

Part A of Phase 1/2a GEN-009 study: Part A of this phase 1/2a study of GEN-009 will enroll a total of nine patients. Data from all nine patients in this study is expected in Q4 this year, which is an important catalyst for the stock price (may also enroll head and neck cancer patients). Part A is enrolling patients with these cancer types which have who have completed treatment with curative intent for their disease (eg, surgical resection, neoadjuvant and/or adjuvant chemotherapy, and/or radiation therapy) and have no evidence of disease at the time of initiating vaccination with GEN-009. I expect GEN-009 to continue to show excellent immune response to T cells and maintain safety profile.

Part B of Phase 1/2a GEN-009 study: After completing Part A of this phase 1/2a study, Part B of the study will test GEN-009 in up to 90 patients with different advanced or metastatic cancers (treatment naive, including melanoma, NSCLC, renal cell cancer, bladder cancer and squamous cell head & neck cancer, up to 15 patients in each cohort) in combination with an immune checkpoint inhibitor (anti-PD-1 antibody like Opdivo or Keytruda). The objectives will be to study the immunogenicity, safety and preliminary antitumor efficacy activity of the combination. Part B is expected to start patient enrollment in the second half of this year and clinical efficacy data from the part B of the study is expected in mid-2020.

Efficacy data will include:

  • Part A: disease-free survival
  • Part B: response improvement rate, duration of response, progression-free survival
  • Part C: objective response rate, duration of response, progression-free survival

Part C of the Phase 1/2a GEN-009 study: It will include up to 15 advanced/metastatic cancer patients refractory to immune checkpoint inhibitors, who will be administered GEN-009 therapy.

Link to the ongoing phase 1/2a study for GEN-009 on Clinicaltrials.gov.

AACR 2019 presentation showed that ATLAS platform could identify biomarkers for melanoma patients who are likely to respond well to immune checkpoint inhibitors

The company presented data at the Annual meeting of the American Association for Cancer Research, AACR in April this year. The ATLAS platform revealed the presence of a dominant inhibitory antigen in melanoma patients. Melanoma patients who had poor response to immune checkpoint inhibitors showed fewer antigen-specific T cell responses (and no stimulatory CD8+ T cell responses). The data thus. showed the importance of the ATLAS platform to identify biomarkers for melanoma patients who may respond well to immune checkpoint inhibitors.

The complete AACR 2019 abstract is shown in the figure given below.

SITC conference 2018 data showed that 50% of the relevant tumor neoantigens in melanoma and non-small cell lung cancer are inhibitory which cannot be identified using traditional in silico methods

ATLAS platform analysis on spleen cells from untreated B16F10 melanoma mouse model showed that out of more than 1600 mutations, only 4% were important enough to elicit T cell response. 3% of these mutations were inhibitory to T cells. On the other hand, traditional MHC-binding algorithms failed to identify the majority of neoantigens identified using the ATLAS platform. Identifying these inhibitory neoantigens is important because injecting inhibitory neoantigens lead to hyper-progression of the tumor even on immune checkpoint inhibitors. On the other hand, stimulatory neoantigens showed a synergistic immune response when combined with immune checkpoint inhibitors. Similar results were shown with ATLAS platform analysis in non-small cell lung cancer patients.

Iovance partnership to develop next-generation TILs against neoantigens identified using ATLAS Platform adds conviction and validation of the company’s technology

Last month, Genocea announced a collaboration with Iovance (IOVA), a leader in TILs technology in cancers (one of my favorite cell therapy biotech companies a potential takeover candidate) to explore the development of next-generation TILs against neoantigens identified using the ATLAS platform. Financial terms of the deal were not announced but could include milestone payments and royalty payments as a percentage of net sales. I expect this deal could add significant future revenue to Genocea’s topline.

Adoptive T cell therapy program (GEN-011) could have advantages over other approaches like CAR-T, TCR and TILs

Genocea plans to file an IND for starting human trials of GEN-011, adoptive T cell therapy against neoantigens identified using ATLAS platform in the first half of 2020. GEN-011 will deliver autologous T cells (Both CD4+and CD8+ T cells with confirmed neoantigen responsiveness) expanded on ATLAS-identified neoantigens identified from peripheral blood T cells. Genocea believes that GEN-011 can be better than other adoptive cell therapy approaches against solid tumors, for example CAR-T, TCR and TILs.

The complete R&D pipeline is shown in the figure given below.

Next milestones:

  • Additional data from GEN-009 monotherapy , part A of phase 1/2 trial in Q4 2019: safety and immunogenicity data.
  • Initiate part B of the phase 1/ 2 trial of GEN-009 in 2H 2019 in combination with immune checkpoint inhibitors with preliminary efficacy data in mid-2020.
  • IND filing for GEN-011 in H1 2020.
  • Updates on clinical plans for GEN-010, next generation neoantigen delivery technology in 2019-2020.
  • Updates on use of ATLAS platform in non-personalized cancer neoantigens, e.g. shared neoantigens, or cancers caused by viruses, e.g. EBV.

Experienced industry veterans in the management add further conviction to the investment thesis

President and CEO, Chip Clarke earlier served as the company’s Chief Business Officer and a member of the Board of Directors. He earlier served as the Chief Business Officer at Vanda Pharmaceuticals (VNDA) which he co-founded in 2004. He has extensive experience in raising capital at Vanda ($400M). He also served as a Principal at a VC firm, Care Capital and served in various commercial and strategic roles at SmithKline Beecham (now GlaxoSmithKline, GSK). He holds an MBA from the Wharton School of Business.

Senior VP of Immune-oncology, Pamella Carroll, PhD served as the VP of Oncology Discovery at Roche (RHHBY), VP of Oncology at Janssen (Johnson and Johnson, JNJ), and founding Head of Research at the Belfer Institute for Applied Cancer Science at Dana Farber Cancer Institute, Harvard University.

Chief Business Officer, Girish Aakalu, PhD served as the VP and Global Head of External Innovation at the Ipsen Group (IPSEY), Executive Director and Head of Strategy, Innovation and Operations at Pfizer (PFE), and business development and oncology pipeline market planning at Genentech (now a part of Roche).

Chief Scientific officer, Jessica Baker Fletchner, PhD is a pioneer in developing vaccines directed at T cell immunity and leads the company’s R&D efforts using the ATLAS platform. She has previous experience in developing cancer vaccines and immunotherapies at Antigenics (now Agenus, AGEN).

Additional details of the management team can be accessed here.

Recent financing removes the capital raise risk for the near-future and the dip in the stock price has provided a buying opportunity

Last week, the company announced an equity offering raising $50M at $3.50/share. Prominent investment banks like Leerink, Stifel and Needham participated in the equity offering. This equity offering was the result of an option exercise by the insiders who participated in a private placement funding rebound in February this year. Existing investors who participated in the $14M offering in February this year indicated an interest to purchase $24M of the current equity offering in June. Per S1, the company decided not to proceed with the potential second equity offering (which was conditional upon positive ASCO data) but existing investors expressed interest in additional $24M of June offering.

The cash reserves are expected as $79M after this latest round of funding. Operating cash use was $41M in 2018 and $10.3M in Q1, 2019. There is $15.5M debt at Q1 end. I don’t expect any need for capital raise before the efficacy data from the Part B of GEN-009 phase 1/2a study in mid-2020.

Genocea’s product candidates have a large Target Addressable Market

Estimated price of GEN-009= $350K/patient, similar to CAR-T.

Target Addressable Markets

Type of cancer

Annual U.S. incidence of refractory cases

Estimated price/patient

Revenue opportunity

   

Malignant Melanoma

7,200

$350K

$2.5 billion

   

Non-small cell lung cancer (NSCLC)

140,000

$350K

$49 billion

   

Urothelial/bladder cancer

17,000

$350K

$6 billion

   

Renal cell cancer

14,000

$350K

$4.9 billion

   

Squamous cell head and neck cancer

10,800

$350K

$3.8 billion

   

The cumulative revenue opportunity for Genocea in the above-mentioned cancers is $66 billion.

Using input of peak 20% market share, $350K/patient and 30% probability (similar to phase 2 stage), U.S. launch in 2023 and peak market share in 2029, my estimate for peak risk-adjusted revenue for Genocea is $1.08 billion in 2029.

Using market cap/peak sales of 7 (average for biotech companies) and discounting by 15% cost of capital, my estimate for the fair value for Genocea’s R&D pipeline is $1.88 billion at present. In comparison, Genocea has a market cap of just $74 million at present with $79 million of cash reserves (and liquidation value of $51M), thus assigning only a value of $23M to the pipeline which is negligible compared to the large potential target revenue opportunity).

Insider buying and institutional support adds further strength to the bullish investment thesis

There was significant insider buying in February this year by exercising stock options. Institutions hold 53.7% of the outstanding shares. Glaxosmithkline added a 10% stake in February, thus increasing its stake to 12.7%. Prominent healthcare investment firm, NEA owns $15M of the stock and is the largest institutional shareholder. Biotechnology Value Fund owns 5 million shares or 8.5% stake ($3.4M). Dafna Capital Management owns 1.2 million shares (new position in Q1).

Conclusion:

In conclusion, the recent pullback in Genocea stock due to the capital raise has resulted in an excellent buying opportunity with minimum 2-3 timeframe and a 3x-4x upside potential. The stock was trading at approximately $12 recently and is now trading close to $3.50. The company’s ATLAS platform is unique and has shown proof-of-concept in accurately identifying stimulatory neoantigens and excluding inhibitory neoantigens in different refractory cancers, thus showing an advantage over the competition. Partnership with bigger biotech companies like Iovance adds further validation to the potential of the ATLAS platform and the company’s pipeline. The management includes industry veterans with years of big pharma experience and are well executing the company’s strategy. Compared to the large target addressable markets, the company’s market cap is just $74M with its pipeline being valued at just $23M. Insiders and prominent institutions have increased their stake in the company recently.

Rating Genocea common stock a Buy, first price target=$10/share, minimum 2-3 years timeframe, suggested allocation=2% of the capital.

(Genocea common stock price chart)

Risks in this investment:

Investing in developmental stage biotechnology companies could be risky and it is possible to lose the entire capital invested. Investing in this sector is appropriate for aggressive investors looking for high risk and high reward investments, and may not be suitable for risk-averse investors who cannot face the volatility in the stock prices. If the upcoming data readouts do not meet investor expectations, the stock price may fall. Unexpected side effects could be seen which may result in a fall in the stock price. The company may also need additional capital raises before any product reaches the market. Additional competing therapies may arise and Genocea’s product candidates may not be able to get significant market share in the planned indications. Investors are suggested to diversify their biotech/pharma portfolio across at least 35-40 positions.

Disclaimer:

This article represents my own opinion and is not a substitute for professional investment advice. It does not represent a solicitation to buy or sell any security. Investors should do their own research and consult their financial adviser before making any investment. Investing in equities, especially biotech stocks has the risk of significant losses and may not be suitable for all investors. While the sources of information and data in this article have been checked, their accuracy cannot be completely guaranteed.

I/we are long GNCA.

Bhavneesh Sharma covers biotech as one of the original contributing analysts at FATRADER. A market expert with a medical degree and MBA, he is ranked among the top 15 financial bloggers and top 100 overall financial experts (including Wall Street analysts) on TipRanks.
Sign Up Now - Free 15-Day Trial! Go! Fatty!