BeyondSpring's lead asset, Plinabulin, is in pivotal studies for both the treatment of: 1) neutropenia (abnormally low neutrophils) associated with chemotherapy; 2) and non-small cell lung cancer (NSCLC). Data from both Phase 3 programs are expected in 2019, and we believe both will be positive, though NSCLC is a higher risk indication. We believe that the neutropenia indication represents the potential low-hanging fruit for Plinabulin as Phase 1/2 data point to highly significant reductions of Grade 4 neutropenia (and duration of severe neutropenia) in NSCLC patients receiving docetaxel (p<0.0003). The pivotal program is based on two Phase 3 studies, one non-inferiority study and one superiority, both compared to the standard of care, Neulasta (G-CSF). In NSCLC, the Phase 1/2 study identified a population, which we believe increases the likelihood of Phase 3 success, which showed an impressive survival benefit (11.3 mos. vs. 6.7 mos.). Given the positive data to date, we believe the risk-reward profile is favorable, and we are initiating coverage with a Buy rating and $43 price target.
Potential watershed change to treating chemo-induced neutropenia. In a $7.3B chemo-induced neutropenia market, Neulasta posted $4.6B in 2016 revenue, and we think Plinabulin has the potential to grab meaningful market share from this market leader. We believe Plinabulin will show superiority to Neulasta, based on reduced incidence of Grade 3/4 neutropenia and a better safety profile. Interstudy comparisons points to 41% Grade 3/4 neutropenia for G-CSF vs. 11.5% for Plinabulin treated patients. The two Phase 3 studies present the first head-to-head comparisons between the two drugs, which we believe will support our thesis. From an AE standpoint, bone pain in patients is a major complaint (sometimes mistaken for heart attack) with a frequency in >20% of patients. Plinabulin treated patients, to date, show a frequency of <4%. Plinabulin could also offer dosing advantages over Neulasta; one hour after chemo vs. 24 hours after chemo for Neulasta. We believe getting drug on board sooner helps reduce the incidence of serious neutropenia as well.
Both partnering and addressing multi-national, global market objectives are integral to the investment case. In order to go after the G-CSF dominated market, namely Neulasta, we project that BeyondSpring will leverage its pivotal programs for Plinabulin to attract a major pharma partnership for the U.S. and E.U. We believe a partnership would be necessary in order to leverage a strong marketing effort by adding Plinabulin to an established salesforce's 'bag'. We project a 25% royalty to BeyondSpring, which includes a blended average of both a straight royalty and revenue from a potential copromotion arrangement. We believe that the company will look to market Plinabulin on its own in China and our expense projections reflects this. Additionally, we expect cash payments from potential partners to reduce the chance that BeyondSpring will return to the equity capital markets.
Cash from IPO provides nice runway to meaningful catalysts. BeyondSpring completed its IPO on March 9, 2017. Pro forma cash on hand of $56.1M provides the company with important resources to achieve critical milestones. These include getting Plinabulin to two NDA filings projected for 2019 for both neutropenia and NSCLC, and expansion of a NSCLC study in combination with Opdivo.
How do you do the things you do? We believe Pinabulin's underlying value comes from a three-pronged mechanism of action:
1) vascular disrupting effects (through microtubule destabilization); 2) neutrophil rescue effects; and importantly 3) immune relate effects through dendritic cell activation mechanisms. The therapeutic goal of the vascular effect of the drug is to target existing tumor blood vessels in order to choke off blood flow. This in contrast to anti-angiogenesis approaches, such as Avastin, which target the formation of new tumor blood vessels. The anti-cancer effect is mediated through a two pronged mechanism, which includes dendritic cell activation that primes the T-cell response via MHC presentation of tumor antigens, and tumor vascular disruption that cuts off the necessary nutrients and oxygen required for tumor survival. Both anti-cancer activities rely on the microtubule de-polymerizing properties of Plinabulin, which regulates cellular signaling pathways in dendritic cells that activate them and disrupts the vasculature by altering the cellular structure of the tumor vessel endothelial cells leading to blood flow inhibition. In the end, the key results are translation of the mechanism of action to clinical effect. These effects are the rescuing of neutrophils following chemotherapy and anti-cancer activity. These effects, as stated above, are evidenced by significant reductions in neutropenia as well as increased survival in the previously conducted Phase 1/2 study.
Appetite for a long-term pipeline should be satiated nicely. A long-term share driver could come from news surrounding the company's early stage pipeline. While little value is currently ascribed to the pipeline assets (due to early stage nature), it should provide the company with an increasing number of shots on goal to help spread the overall biotech development risk cross multiple assets. We point to the company's collaboration with the Fred Hutchinson Cancer Center, which is expected to provide up to six new projects per year for five years.
Valuation and risks to price target achievement. Our $43 price target is based on our clinical net present value (NPV) model, which is currently driven by the company's lead asset, Plinabulin. Neutropenia drives the majority of the valuation at $35.89 oer share contribution. NSCLC contributes $7.17 per share, which we believe reflects both the riskiness and competitive landscape of the indication. This model allows us to flex multiple assumptions affecting a drug's potential commercial profile. Factors
which could impede reaching our price target include failed or inconclusive clinical trials or inability of the company to secure adequate funding to progress its drugs through the development pathway.
