BCYC - Bicycle Therapeutics: Decent Upside Opportunity Mid-Stage Data Readouts Due

2023-07-31 19:07:20 ET

Summary

• Bicycle Therapeutics is an intriguing play in the drug development space.
• Using its fully synthetic short peptides, the company has developed two mid-stage oncology assets that have achieved some results of interest in urothelial / ovarian cancers.
• The company also has numerous potentially lucrative co-development opportunities with the likes of Roche, Novartis, Ionis Pharmaceuticals.
• About to complete a $200m fundraising, investors may suffer dilution - although the stock arguably looks undervalued already.

Investment Overview

Bicycle Therapeutics ( BCYC ) completed its Initial Public Offering ("IPO") and listed on the Nasdaq back in May 2019, raising ~$61m via issuance of ~$4.3m ADR shares priced at $14. Today, shares trade at a value of $24, up 71% since IPO.

To be outperforming a recent IPO price is a fairly rare phenomenon for a biotech, as the torrid bear market that lasted through most of 2022 (after five years of exceptional growth) saw money flow out of early stage, non-commercial stage pharmas.

As such, with the company set to provide its Q2 2023 earnings and company updates on Aug. 3, and seeking to raise $200m via a public offering of new American Depositary Shares ("ADS"), I thought this would be a good time to initiate some coverage on the company.

In this post I'll discuss the short- and long-term investment opportunity based on Bicycle's progress in the clinic, with its partnered programs, and as a result, where the share price could be headed next.

Bicycle Therapeutics Overview - Intriguing Platform, Multiple Partnerships

Bicycle describes its business as follows in its Q1 2023 10Q submission:

We are a clinical-stage biopharmaceutical company developing a novel class of medicines, which we refer to as Bicycles , for diseases that are underserved by existing therapeutics. Bicycles are fully synthetic short peptides constrained to form two loops which stabilize their structural geometry. This constraint facilitates target binding with high affinity and selectivity, making Bicycles attractive candidates for drug development.

We have a novel and proprietary phage display screening platform which we use to identify Bicycles in an efficient manner. The platform initially displays linear peptides on the surface of engineered bacteriophages, or phages, before "on-phage" cyclization with a range of small molecule scaffolds which can confer differentiated physicochemical and structural properties.

Our product candidates, BT5528, BT8009, and BT1718, are each a Bicycle Toxin Conjugate, or BTC. These Bicycles are chemically attached to a toxin that when administered is cleaved from the Bicycle and kills the tumor cells.

Bicycle therefore has two ways of generating revenues - by developing and commercializing its wholly owned candidates, and by partnering with other pharmaceuticals who can leverage its unique approach to drug development.

According to a recent investor presentation , Bicycle has partnerships in place with Swiss Pharma giant Roche's ( OTCQX:RHHBY ) Genentech and another major Swiss pharma in Novartis ( NVS ), German Pharma Bayer ( OTC:BAYN ), RNA-interference specialist Ionis Pharmaceuticals ( IONS ), Cancer Research UK, and Eye Specialist Oxurion. The Dementia Discovery Fund ("DDF"), Sanofi ( SNY ), and AstraZeneca ( AZN ) are mentioned as paying clients in Bicycle's 2022 10-K submission (Annual Report), which states that since inception, it has received:

$135.2 million of cash payments under our collaboration revenue arrangements, including $46.6 million from Ionis, $54.0 million from Genentech, $10.3 million from AstraZeneca, and $6.6 million from Oxurion

It may not be a huge contribution to date - and has not prevented Bicycle recording net losses of $(65.6m), $(117m), and $(131m) in the past three years to 2022 - but there are milestones in place with Genentech - up to $400m per candidate if successfully commercialized and meeting sales targets - and with AstraZeneca ( AZN ) - up to $170m in milestones per candidate.

In April, the company announced its deal with Novartis involved an up-front payment of $50m, and "development and commercial-based milestone payments totaling up to $1.7 billion."

In May this year, Bicycle also agreed a deal with Bayer to "leverage Bicycle's synthetic peptides for the discovery and development of multiple targeted radioconjugates of the company in oncology" by the terms of which the company received an upfront payment of $45m, and "potential development and commercial milestone payments of up to $1.7bn, plus royalties on sales."

As we can see above, most of the partnered programs have not yet progressed beyond the Investigational New Drug ("IND") phase - once an IND is approved by the FDA, in-human studies can begin - other than the Oxurion partnered THR-149 - a plasma kallikrein inhibitor indicated for treatment of diabetic macular edema ("DME"), and the toxin conjugate developed with Cancer Research UK ("CRUK"), BT1718.

Oxurion is conducting a 100-patient Phase 2 study in patients who have previously shown a suboptimal response to anti-VEGF therapy, although Bicycle is only in line for some minor milestone payments and royalties on sales in the low single digits, if commercialized.

The CRUK partnership has seen BT1718 move into a Phase 2 study, after signs of activity were observed in a Phase 1 - Bicycle summarizes the results as follows in its 10K submission:

at doses of between 9.6mg/m ² and 32.0mg/m ² administered weekly, 13 out of 24 response evaluable patients at the eight-week timepoint exhibited best response of at least stable disease. Ten of these 13 patients had a greater than 10% reduction in at least one target lesion, including a tumor reduction of 68% observed in one patient, a reduction that meets the RECIST 1.1 criteria of a partial response.

The Phase 2 study will have two cohorts, with one in squamous non-small cell lung cancer, or NSCLC, and the other in an all-comers "basket" cohort. Bicycle retains the right to continue development of the drug, in exchange for milestone payment "in cash and ordinary shares, with a combined value in the mid-six digit dollar amount," or if it does not, CRUK can continue development, although the majority of any sales if commercialized would go to Bicycle in royalties. By the terms of the Ionis agreement:

Ionis will be required to make milestone payments upon the achievement of specified development and regulatory milestones of up to a low double-digit million dollar amount per collaboration target. In addition, we are also eligible to receive up to a low double-digit million dollar amount in cumulative sales milestone payments. We are also entitled to receive tiered royalty payments on net sales at percentages in the low single digits, subject to certain standard reductions and offsets.

In short, the partnerships Bicycle has struck have more potential in the long term than the short to medium term, the partnerships with the biggest payout potential being in the earliest stages. With that said, to have as many as seven different development partners suggests that Bicycle either has a very good drug development platform, or a very good sales and marketing team.

Bicycle Therapeutics - Internal Programs - BT8009 Show Promise In Urothelial Cancer

In truth, Bicycle's internal programs are not that much further advanced than its partnered programs, with no Phase 3 studies yet initiated.

However, Bicycle has identified an opportunity for candidate BT8009, which the company describes as a "second-generation Bicycle Toxin Conjugate ("BTC") targeting Ephrin type-A receptor 2 ("EphA2")" in urothelial cancer, based on data collected from a Phase 1 dose escalation study designed "to assess safety, pharmacokinetics, and preliminary clinical activity in patients with Nectin-4 expressing advanced malignancies."

As shown above, the drug achieved a complete response in one patient, and there also were three partial responses, and three cases of stable diseases, for an overall 50% response rate ("ORR") in urothelial cancer ("UC") at the 5/mg/m2qw dose.

Among nine overall responders across different dose levels, five, or 56%, showed responses maintained for longer than six months. The median duration of response is estimated by Bicycle to be "approximately 14 months among urothelial patients in the 5 mg/m2 cohort." It's also the first time a drug targeting Nection-4 has exhibited anti-tumor activity outside UC, which may be intriguing.

As we can see above, the safety profile seems to suggest most patients experienced Grade 3 or worse adverse safety events, which could be a potential red flag, although the patients in this trial had been heavily pre-treated.

Bicycle says that the Fast Track designation the drug has earned from the Food and Drug Agency ("FDA") "supports an ambitious development program with parallel indication planning in metastatic UC," and both as a monotherapy in later lines, or potentially in combo with Merck's >$20bn per annum selling immune checkpoint inhibitor Keytruda. Longer-term targets include non-small cell lung cancer ("NSCLC"), triple negative breast cancer, and ovarian cancer.

Bicycle Therapeutics - Internal Programs - BT5528 Shows Promise In Ovarian

According to Bicycle, "immunohistochemistry data suggest EphA2 positive patients are more likely to respond to BT5528" based on results from a Phase 1 study that showed, among 9 EphA2+ response evaluable patients across cohorts with ovarian cancer, that 1 complete response was observed, and four stable disease (44% of patients), with what appears to be a stronger safety profile than BT8009.

As we can see above, Bicycle plans to explore a number of different indications, such as NSCLC and head and neck cancer, as well as stomach and breast cancer.

The good news is that there will be data readouts from both the BT8009 and BT5528 studies before the end of the year, with expansion cohorts initiated in both studies. As such, this is an interesting time to be considering buying Bicycle stock, provided the data are positive - what are the chances?

Back in December 2021, Bicycle stock traded >$60 per share, but when the results from the BT8009 study were made public in April last year, the market sold the stock, and Bicycle stock was trading <$14 by early May, staging a slight recovery in recent months.

Whether it was safety, duration of response or efficacy that spooked the market is unclear, but it guarantees that the next data set will be scrutinized closely, and if more progress is demonstrated, it is tempting to wonder if the share price could reclaim prior highs.

If the data is not positive, the losses are likely to be more minor than they were last year, since expectations are low, and there are other intriguing pipeline assets in development, such as Nectin-4 and CD137 targeting BT7480, which is already in the clinic, or a next-generation version of BT5528 in immuno-oncology, in BT7455. Bicycle's tumor-targeted immune cell agonists ("TICA") programs are clearly an area of focus, based on the company's R&D spending in Q123.

Concluding Thoughts - Can Bicycle Reclaim Lost Gains With Short-Term data Readouts? - What's The Long Term Outlook?

To summarize my research into Bicycle, this appears to be a company that is attempting to scale rapidly on the back of securing some notable co-development opportunities. The thinking behind the proposed $200m share offering is likely to future-proof funding of the R&D platform - in its investor presentation, the company boasts $293.8m of cash, enough to fund the company into 2025, management says.

Investors will suffer some dilution when the issuance is complete, and Bicycle stock may drop a little further, but for a company with as many opportunities in play as Bicycle has, with a shot at a potential approval for drugs indicated for both ovarian and urothelial cancers for its wholly-owned assets leading the way, supported by credible, if inconclusive data, and plenty of assets set to enter the clinic in the coming years, it's not hard to be intrigued by the possibilities.

With its current market cap of $740m, plenty of funding in place, numerous partners pledging "biobucks" in the multi-billions, and with some crucial data readouts arriving this year, I would make Bicycle a high risk opportunity, but an opportunity nonetheless.

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