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CKPT: Checkpoint Inhibitors: Dominating the Immuno-Oncology Space

06/28/2018


NASDAQ:CKPT


Checkpoint Inhibitors: Dominating the Immuno-Oncology Space

It was only eight years ago, at the June 2010 American Society of Clinical Oncology conference, when Bristol Myers presented groundbreaking data showing a significant survival advantage in melanoma for ipilimumab, the first successful checkpoint blockade inhibitor (CBI). This announcement followed years of failures in the immuno-oncology space with highly touted compounds such as Sanofi’s iniparib, GSK’s Elesclomol and many others falling by the wayside. Less than a year after its debut at the conference, ipilimumab was approved by the FDA in March 2011; then, three and a half years later, the second CBI was approved in September 2014 and the third in November 2014. These second and third approvals were Merck’s pembrolizumab and Bristol-Myers’ nivolumab, both given the go-ahead in melanoma indications. They were the first starts in what has been an accelerating race now featuring six new molecular entities approved in the CBI class for indications in Hodgkin lymphoma, bladder, NSCLC, kidney and other cancers in addition to melanoma. There are also combination approvals achieved which have shown synergies resulting in greater effectiveness of the combination regimen.

Evolution of Cancer Therapy

Cancer therapy has evolved dramatically over the last 50 years. Surgery and chemotherapy were standard practice in the 1970s to the 1990s. Targeted therapy came about in the 2000s with angiogenesis inhibitors such as Avastin and growth signal inhibitors like Herceptin. The success of this class was followed by a push into immuno-oncology with the approval of a cancer vaccine (Cervarix) in 2009 and then the abovementioned approvals in CBIs a couple years later and two CAR-T therapies in 2017. Now that immuno-oncology has firmly established itself as a valid approach, combination therapies are moving to the forefront. Investigators have found that CBI approaches may have synergies with other agents, including chemotherapy, other CBIs and other immuno-oncology drugs. Checkpoint inhibitors have been the most visible class in immuno-oncology since the first approval in 2011.



View Exhibit I - Evolution of Cancer Therapy

Immuno-oncology

Immuno-oncology is a branch of medicine that augments the body’s ability to generate an immune response to cancer. This group includes cancer vaccines, bi-specific t-cell engagers, oncolytic viruses, adoptive t-cell therapy (CAR-T), and the previously mentioned immune checkpoint inhibitors. The immune system is a complex defense network consisting of both innate and acquired responses that are able to fight foreign invaders and destroy abnormal tissue. Looking back to its origins, immuno-oncology was first used in the late 19th century when surgeon Dr. William Coley injected bacteria in patients to provoke an immune response against cancerous tumors. The field has progressed substantially since then and now the term predominantly refers to receptor blocking using monoclonal antibodies.

Checkpoint Blockade Inhibitors

The leading area in immuno-oncology is in checkpoint blockade inhibitors (CBIs). Over the last eight years, six different CBIs have been approved. This class has been successful due to its efficacy in the population of T-cell activated tumors and for its favorable side effect profile. First approvals for checkpoints were in melanoma as a second line treatment for patients with advanced or unresectable disease who no longer responded to other drugs. Since then, new and expanded indications have been added in a broad spectrum of cancers from kidney to lung. There are near 1,400 immunology trials being conducted with CBI, and almost 70% of them are anti-PD-1 and anti-PD-L1 candidates. Anti-PD-1/PD-L1 trials are focused on a number of solid tumor indications and by far the leading category is NSCLC. A distant second is melanoma, followed by breast and renal cancers.



View Exhibit II – Approved Checkpoint Inhibitors

What are Checkpoints?

Immune checkpoints are negative regulators of the immune system. They express themselves on the surface of cells and indicate to the immune system what type of cell they are. The checkpoints are important mechanisms for preventing the immune system from attacking the host body, and stopping T-cells from attacking healthy, autologous cells. They modulate the T-cell response and maintain health, control infection and eliminate malignancy.

T-cells are the body’s natural cancer fighting mechanism. T-cells have checkpoint receptors that can be activated on their surface and some of these receptors tell the T-cell to perform its function while others tell it to stop. When the immune mechanism identifies a damaged or harmful cell that does not present the proper signal, it is targeted for destruction. The T-cells retain a memory of the harmful cell’s characteristics so that they can recognize it more quickly in the future.

Some cancer cells have evolved to hide from the immune system by expressing a protein on their surface known as PD-L1 (programmed death-ligand-1). Under normal circumstances, the PD-1/PD-L1 pathway downregulates the immune system so that it doesn’t attack normal cells, thereby guarding against a response against healthy tissue. The checkpoint signal can also prevent the proliferation of other T-cells, reduce immune memory and enhance the function of T-regulatory cells, thereby preventing an overreaction. The engagement of this pathway also has the benefit of reducing immune response after disease elimination and preventing damage from inflammation.

When the checkpoints are not working well, the immune system can either attack healthy cells leading to autoimmune disease or fail to attack diseased cells. Cancerous cells have been able to co-opt the signaling pathway and communicate that they are not a threat. The cancer cell may express a variety of immune checkpoints such as CD155, CD112, B7-1/2 or PD-L1/2 that convey to T-cells that it is essentially an autologous normal cell. This allows the cancer to progress unmolested and propagate which may later result in tumors and likely metastasis.

There are many immune checkpoints that can disrupt the immune system’s activity. The most well-known are the PD-1 and PD-L1 pathway and CTLA-4. Others include TIGIT, LAG-3, TIM3 and Ox40, all of which have compounds in development to address them. Below we provide an exhibit depicting the various checkpoint inhibition receptors and how they present themselves on the surface of antigen presenting cells and T-cells.



View Exhibit III - Illustration of Immune Checkpoints

CBI is very effective in some patients; however, it is not perfect. In individuals that do not have T-cells already activated in the tumor, the response rate is low and only about 20% overall experience a durable effect. Checkpoints are also not appropriate for those with autoimmune diseases, and they do not work as well in patients with few tumor mutations, as the immune system is less likely to recognize the malignancy. Checkpoints also have a low rate of success when there are white blood cells in tumors that block T-cells, the cancer cells are using checkpoints other than PD-1/PD-L1, or the cancer substitutes other checkpoints when PD-1/PD-L1 is blocked.

While the side effect profile for the class is substantially better than that for chemotherapy, radiotherapy and surgery, there are some downsides. These immune-related adverse events relate largely to skin, gastrointestinal, liver and endocrine issues. The side effects are thought to arise due to the greater activity of the immune system and can usually be addressed with corticosteroids, TNF-α antagonists, or other immunosuppressive agents.

CBI Indication Approvals

The first indication approved for a checkpoint inhibitor was late stage, metastatic melanoma with ipilimumab. This was followed by Merck’s pembrolizumab and Bristol Myers’ nivolumab also receiving approval in melanoma. In May 2016, Roche was granted approval of atezolizumab in bladder cancer. Since then two other PD-L1 inhibitors were endorsed by the FDA and other studies were launched. To date, this class has been sanctioned to treat many additional cancers including head and neck, Hodgkin’s Lymphoma, colorectal, non-small cell lung (NSCLC), Merkel cell and kidney. Pembrolizumab has also been advanced to first line therapy in NSCLC and the drug was approved for cancers that have specific genetic features irrespective of tissue. CBIs have dominated the immuno-oncology space due to the substantial improvements in efficacy and tolerability as compared to the previous standard of care.

Combination Therapies

New efforts in immuno-oncology are focused on developing combination therapies that can increase effectiveness well ahead of the current 20% level achieved with CBI alone. The hope is that a combination therapy will approach the cancer from two different directions. One drug will inflame or heat up the tumor which will attract immune cells, then the checkpoint inhibitor will take the brakes off of the T-cell attack. Some of the combinations that have already been approved are between pembrolizumab and chemotherapies (pemetrexed and carboplatin) and between two types of checkpoint inhibitors (nivolumab and ipilimumab for first line treatment of kidney cancer). Numerous additional trials are also underway which combine checkpoint inhibitors with cancer vaccines, oncolytic viruses and agents that address other points in the cancer immunity cycle.



View Exhibit IV - Anti-PD-1 / PD-L1 Combination Study Indications

CBI Sales

There are many players in the checkpoint inhibitor space, including the five companies that currently commercialize the six approved CBIs and others with products in development. According to Evaluate Pharma, total 2017 revenues for this group were $11.4 billion and expected to grow 38% to $15.7 billion in 2018. Bristol Myers Squibb is the leader with two different monoclonal antibodies in the Purple Book and 2017 revenues of over $7.0 billion. Merck’s PD-1 inhibitor Keytruda is well known and generated $3.8 billion in 2017 sales. Revenues fall off quickly for the number three player, Roche with only $495 million for its PD-L1 Tecentriq, while AstraZeneca and the German Merck hold the last two spots with Imfinzi and Bavencio respectively.



View Exhibit V - CBI Sales

The effectiveness of this class of immuno-oncology drug and the improved patient experience compared to precedents has stimulated this tremendous growth. Success has also incentivized other small biotechnology companies to develop their own checkpoint inhibitors in an effort to enter this lucrative market. While the major pharmaceutical companies are dominating sales, the number of indications and related revenue potential is sufficiently large to accommodate additional checkpoint inhibitor candidates. New companies entering the space have recognized that there is demand for this class, especially in combination with other immuno-oncology drugs, a strategy which is expected to markedly increase the population in which checkpoints will work.

Deals

Evidence of continued interest in checkpoints is apparent in the number of deals that have recently taken place. Last year, Incyte acquired worldwide rights for MacroGenics’ anti-PD-1 MGA012 for $150 million upfront, $750 million in milestones and royalties between 15 and 24%. The deal closed December 5, 2017 and MacroGenics expects to launch a Phase Ib/II combination study with the checkpoint and a DART molecule in 3Q:18. In July 2017, Celgene entered into a collaboration with BeiGene to develop tislelizumab, an anti-PD-1. Celgene agreed to pay $263 million in upfront license fees and make a $150 million equity investment for worldwide rights outside of Asia for this Phase III asset. And in August of last year, Arcus Biosciences paid $18.5 million upfront for WuXi Biologics’ GLS-010 which is sponsoring an anti-PD-1 asset in Phase I. Arcus’ CEO summed up the strategy for the acquisition by saying “Everyone knows that combinations are important, but it’s become apparent that in immuno-oncology it may be advantageous to own or control parts of the combination.”

Checkpoint Therapeutics

These deals paint an attractive picture for development stage anti-PD-1 and PD-L1 assets. Current therapy cost for the leading checkpoint inhibitors is between $140,000 and $180,000 per year and the applicability of CBIs is only increasing as the number of indications grows. This provides an opening for companies with a development-stage checkpoint-targeting asset possessing comparable properties to the leaders in CBI. One emerging biotech company that fits this mold is Checkpoint Therapeutics (NASDAQ:CKPT), which has an anti-PD-L1 monoclonal antibody in a Phase I study. With a validated approval pathway, new candidates are able to advance relatively quickly and confidently through the human trial and approval process. We see a growing demand from other classes of cancer drugs that want to partner with checkpoint inhibitors due to their synergistic benefits. These new upstarts, which include companies developing cancer vaccines, oncolytic viruses and other treatments, are aware of market reluctance to pay for two leading brand assets and would prefer to have a backbone CBI partner that offers a competitive price and allows the emerging immunotherapy to set the marketing agenda. This approach aligns with Checkpoint Therapeutics’ strategy of entering the market at a substantially lower price point to gain market share. It is also an attractive strategy as many oncologists may favor familiar CBI therapies in monotherapy but will be open to using new ones if the insurance companies prefer the lower priced drug, the out-of-pocket costs to the patients are considerably lower or if they are approved in novel combination approaches.

Checkpoint Therapeutics’ distinguishing characteristics are its strategy to price substantially lower than the competition and its ability to either collaborate with other partners or work internally to generate combinations with its pipeline of potentially synergistic candidates. In addition to the anti-PD-L1 (CK-301), the company’s other clinical asset is CK-101, which is a third generation epidermal growth factor receptor (EGFR) tyrosine kinase inhibitor (TKI). CK-101 is intended to treat non-small cell lung cancer (NSCLC) with certain mutations and address many of the shortcomings in previous generation drugs. The current first line treatment for metastatic NSCLC with EGFR mutations is AstraZeneca’s Tagrisso; however, this drug is disadvantaged by toxicity limitations that are not expected from CK-101.

New approaches are needed for NSCLC due to constant tumor mutation and adaptation. A drug may eliminate a majority of cancer cells with specific mutations; however, the cells that survive may be impervious to the drug and a new approach is needed if the tumor returns. This has led to the pursuit of a more effective combination strategy where an EGFR TKI is paired with a checkpoint inhibitor to potentially lengthen a patient’s anti-tumor response. Published preclinical data suggest that combination therapy with checkpoint and EGFR inhibitors may provide increased effectiveness in the target NSCLC population. Shrinking a tumor with an EGFR inhibitor produces antigens that activate an immune response, while the use of a CBI allows T-cells to identify cancerous cells and mount a further attack. A benefit of combination therapies is that they may reduce development of drug resistance, since a tumor is less likely to lose effectiveness when multiple compounds are administered together.

While Checkpoint Therapeutics has not begun any combination trials between CK-301 and any of its other compounds, we think that it makes sense to focus on their own asset targeting lung cancer. Below, we include Checkpoint’s pipeline, highlighting the anti-PD-L1 CK-301 and EGFR inhibitor CK-101 as lead assets.



View Exhibit VI - Checkpoint Therapeutics’ Pipeline

Checkpoint Therapeutics has not spent much time elaborating its secondary assets, however, in an environment of combination therapies, the anti-GITR, PARP inhibitor, BET inhibitor and anti-CA9 can be very valuable. While the current focus lies with the anti-PD-L1 and the EGFR inhibitor, the other assets may turn out to be important companions to CK-301.

Clinical Trials

As of mid-2018, Checkpoint Therapeutics has an ongoing Phase I open label study for CK-301 which is examining a number of malignancies. The dose escalation segment was completed in the first quarter and it is now enrolling the first expansion cohort and expects to report its first clinical data in the coming months.

The other clinical asset, CK-101, is in a Phase I/II open label study which has conducted dose escalation and enrolled an expansion cohort. Data is expected from the expansion cohort in 2H:18 which is targeting the EGFR mutant NSCLC. Despite another approved third generation EGFR inhibitor in Tagrisso, CK-101’s lower toxicity potential suggests that it can accumulate significant share in this $5 billion market if approved.

With only a $100 million market capitalization and two lead products in clinical trials with multi-billion dollar sales potential, Checkpoint Therapeutics represents an attractive investment opportunity. This is especially true prior to the catalyst of potentially positive clinical data later this year.

Summary

Since the launch of the first checkpoint inhibitor eight years ago, this class has been revolutionary in the oncology space. Beginning as treatment for late stage melanoma, CBIs have advanced into a broad number of indications, even achieving first line therapy in NSCLC. Immuno-oncology has brought a great deal of hope to cancer patients, improving their treatment experience and overall survival. Despite its achievements, CBI monotherapy works only in a minority of cases, which has motivated researchers to seek out combinations that can potentially improve success. Uptake has been exceptional for CBIs, and revenues are expected to be almost $16 billion in 2018 boosted by approvals in new indications. Unmet need has encouraged transactions as competitors seek their own CBI molecule, offering upfronts, milestones and royalties up to $1 billion. One company that is in a strong position to benefit from these trends is Checkpoint Therapeutics (NASDAQ:CKPT), which has an anti-PD-L1 in Phase I and five other potentially synergistic compounds in development. We see a tremendous opportunity for Checkpoint Therapeutics to either work alone or with a partner to develop its pipeline. With two Phase I assets, Checkpoint is a prime candidate for a partner seeking to acquire a CBI backbone and other potentially complementary assets. We have seen acquisitions of Phase I assets occur, such as the MacroGenics deal, and in a space where the mechanism of action is well understood and the pathway to approval well worn, there is a higher probability of an early stage take out. Checkpoint Therapeutics is in a particularly attractive position to benefit from all of these trends, boasting both internal and external pathways for their anti-PD-L1 which supports a valuation not yet recognized by the market.

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