REPL - Replimune: The Rise Of Oncolytic Virus Therapies In Cancer Treatment

2023-07-09 01:22:08 ET

Summary

• The company's RPx platform, featuring RP1, RP2, and RP3, showcases a comprehensive and innovative approach to cancer treatment.
• Top-line results from the CERPASS clinical trial for RP1 combined with Libtayo for cutaneous squamous cell carcinoma are expected in Q3 2023.
• The partnership with Roche for RP2 and RP3 studies in challenging patient cohorts further emphasizes Replimune's resilience in positioning its treatments as leaders in the biotechnology sector.

Replimune (REPL) offers a compelling opportunity for investors seeking exposure to the rapidly growing field of oncolytic virus-based immunotherapy. Anchored by a diverse and innovative product pipeline, robust financial health, and promising clinical trial prospects, the company is well-positioned to make significant strides in combating various cancer types. Taking an opinionated and critical view of Replimune's potential, we believe the company is not only a disruptive force within the biotechnology sector, but it also presents an attractive investment opportunity in an era where innovative therapies are desperately needed.

Oncolytic virus-based immunotherapy is rapidly becoming one of the most exciting frontiers in cancer treatment, and Replimune is at the helm, steering the way toward pioneering advances in the field. With its cutting-edge RP1, RP2,and RP3 therapies, the company offers a multi-pronged approach in arming the immune system against cancer. What sets Replimune apart from its competitors is its ability to tackle the shortcomings of existing treatments through comprehensive and synergistic combinations of immune modulation mechanisms. Couple this innovative pipeline with the company's solid financial position, significant research and development (R&D) investments, and encouraging clinical trial outlook, and you have a potent recipe for success in the biotechnology market.

Financials Support Growth

As of March 31, 2023, Replimune's cash, cash equivalents, and short-term investments amounted to a notable $583.4 million, compared to $395.7 million at the close of the fiscal year on March 31, 2022. The cash increase is attributed to the net gains from equity offerings and the initial debt tranche, generating approximately $311.4 million in financing inflows year-to-date. Such notable cash growth, even with the expenditure in operating activities, showcases the company's capacity to obtain funding and progress in their clinical development strategies.

Besides maintaining a strong cash position, Replimune has also considerably augmented its R&D investments. Expenses for R&D reached $37.9 million for the fourth quarter and $126.5 million for the fiscal year ending March 31, 2023. When compared to the $21.7 million for the same quarter and $79.5 million for the fiscal year ending March 31, 2022, the increase is significant. This considerable R&D investment highlights the company's dedication to ingenuity and advancement of its leading programs.

In terms of burn rate, Replimune's current finances are definitely manageable. The company has been able to sustain sufficient research and development keeping up with its pipeline timeline with its current R&D budget - approximately $125 million in the last year. Should this even grow a conservative 50% due to unforeseen R&D expenses rising, the company would still be able to maintain another two to three years of research without additional investment on just its current cash alone. In addition to this, the company's expansions through recent financial inflows has clearly demonstrated its strong ability to obtain funding, so this should not be a concern.

Replimune has also reported an increase in selling, general, and administrative (SG&A) expenses, amounting to $15 million for the fourth quarter and $50.6 million for the fiscal year ending March 31, 2023. The upward trend was partly driven by strategic investments in staffing, particularly in sales and marketing, suggesting that Replimune is prepared to globally launch its products and create a robust commercial infrastructure.

As a result of these expenses, a net loss of $49.2 million for the fourth quarter and $174.3 million for the fiscal year ending March 31, 2023 is observed. Although this may initially appear concerning, it is vital to understand that these losses represent the company's significant investments aimed at propelling future expansion and market leadership. With the large number of therapies that are currently in the pipeline stage with some time remaining until they reach market, securing adequate funding for R&D and market positioning in the current stages is essential. Taking a long-term view, this will prove invaluable once the therapies reach the market-stage.

Tumor-Directed Oncolytic Immunotherapies

As of 2023, Replimune has an impressive lineup of four therapies. The first product, RP1, is developed from a modified HSV-1 backbone and carries two transgenes, GM-CSF and GALV-GP R- . GM-CSF inspires antigen-presenting cells to improve T cell stimulation, while GALV-GP R- facilitates virus dissemination across tumors, triggering an immune response. RP1 exemplifies Replimune's determination to produce revolutionary therapies designed for use alongside other immunotherapies.

Next in line is RP2 , which contains the same elements as RP1, but with an added transgene for an anti- CTLA-4 antibody. This antibody targets CTLA-4, a checkpoint inhibitor that can block T cell activation. Hence, RP2 stimulates a stronger immune reaction against tumors that may be less susceptible to anti-PD1 therapy alone. Building on this, RP3 enhances RP2's composition by including two additional transgenes, CD40L and 4-1BBL . These ligands connect with receptors present on antigen-presenting cells and T cells, magnifying their activation and duration. Consequently, RP3 can generate even more potent immune responses against "cold tumors," which exhibit low immunological activity.

RPx Program Continues to Impress

Replimune's RP1 program prospects remain encouraging , with the CERPASS clinical trial for RP1 combined with Libtayo , specifically aimed at cutaneous squamous cell carcinoma (CSCC), set to reveal top-line results in the third quarter of 2023. Given the favorable clinical benefits stemming from primary analysis data, the company plans to submit a Biologics License Application (BLA) for RP1 in Q1 2024. This progress signifies Replimune's forward movement in the CSCC market, marking a crucial achievement for the organization.

In addition, Replimune successfully enrolled 141 patients in the IGNYTE anti-PD1 failed melanoma cohort in March 2023, assessing RP1 coupled with Opdivo . Updated data from the first 75 patients will be shared in June, with snapshot data for all patients anticipated in Q4 2023. The ongoing inclusion of patients with anti-PD1 failed non-melanoma skin cancers, such as CSCC, is expected to provide data updates in Q3 2023. These advancements in patient enrollment, combined with the anticipated release of meaningful clinical data, exhibit Replimune's dedication to developing groundbreaking therapies in the complex skin cancer domain.

Furthermore, the ARTACUS clinical trial investigating RP1 monotherapy in solid organ transplant recipients with skin cancers is progressing, with data updates projected at the American Transplant Congress in June. This initiative highlights Replimune's determination to create innovative treatments for patients with specific requirements.

Regarding RP2 and RP3, the Phase 2 initiative with Roche ( OTCQX:RHHBY ) will incorporate two signal-finding cohorts of 30 patients each in third-line colorectal cancer ((CRC)) studies. This will enable an effective evaluation of RP2 and RP3's comparative efficacy in a challenging patient group. A two-cohort clinical trial will also be conducted to examine the combination of RP3 with standard-of-care therapy in squamous cell carcinoma of the head and neck (SCCHN) patients.

For hepatocellular carcinoma ((HCC)) therapy, two signal-finding cohorts of 30 patients each will be enrolled alongside Roche, targeting a first-line treatment cohort and a cohort with patients who have experienced progression on first-line immunotherapy. Replimune expects to initiate the Phase 2 program for RP2 and RP3 around mid-year. These extensive studies, in partnership with Roche, underline Replimune's resilience in positioning their treatments as forefront contenders in the biotechnology arena.

Lastly, the entire Phase 1 program's accrual is forecasted to conclude by Q3 2023, with any further Phase 2 developments not yet disclosed, scheduled for announcement by the end of the year. Consequently, Replimune's extensive clinical program advancements emphasize the company's robust standing in the biotechnology sector, attracting a well-informed audience eager to follow the organization's groundbreaking product pipeline.

Risks

When considering the potential ways these drugs can fail, it is important to analyze their mechanisms of action and identify potential concerns that may hinder their success. While Replimune's RP1, RP2, and RP3 products offer promising approaches in cancer immunotherapy, certain risks and challenges should be acknowledged.

RP1 utilizes an engineered HSV-1 backbone with transgenes GM-CSF and GALV-GP R- which stimulate antigen-presenting cells and enhance viral spread within tumors. Nonetheless, the potential off-target effects of viral infection may inadvertently infect healthy cells, leading to unintended consequences and harm.

RP2 advances on RP1 by including an anti-CTLA-4 antibody transgene, enhancing T cell activation. This approach boosts the immune response against tumors but may lead to immune-related adverse events such as autoimmune reactions affecting healthy tissues and organs. Striking the right balance between activating the immune response and preventing excessive immune activation is crucial for RP2's success.

RP3, a third-generation product, includes additional transgenes encoding CD40L and 4-1BBL costimulatory signals, enhancing the immune response against immunologically 'cold' tumors. However, there is a risk of excessive immune activation and inflammation, leading to severe cytokine release syndrome ((CRS)) or immune-related adverse events, thus impacting patient safety and treatment tolerability.

Other than mechanistic risks, the general risks of drugs not reaching the market stage still apply to this biotech company just like any other. As explained earlier, the company has secured adequate funding to sustain the development of these drugs, and the clinical data released thus far seems to point in the right direction. That said, of course, there is always a risk of candidate-failure as with any biotech company.

Competitors

In the competitive landscape of oncolytic virus-based immunotherapies, several companies have developed products that rival Replimune's RP1, RP2, and RP3. Among these competitors are T-VEC by Amgen ( AMGN ), CAVATAK by Viralytics ( acquired by Merck ) ( MRK ), and ONCOS-102 by Circio (Previously known as Targovax).

T-VEC (talimogene laherparepvec) is an oncolytic HSV-1–carrying GM-CSF, which improves antigen-presenting cells and, consequently, T cell stimulation . However, unlike RP1, it lacks the GALV-GP R- component, which enhances viral spread within the tumor and subsequently triggers a more potent immune response. RP1's inclusion of GALV-GP R- enables a more comprehensive attack on tumor cells and superior immune stimulation, positioning it as a superior contender compared to T-VEC.

CAVATAK , which Merck has recently dropped from its product offering, is an oncolytic Coxsackie virus that infects and kills tumor cells, but it lacks genetic modifications to boost the anti-tumor immune response. In contrast, Replimune's RP1 consists of GM-CSF and GALV-GP R- to enhance immune activity specifically targeting tumors. RP2, and RP3 go even further by incorporating additional transgenes for immune checkpoint blockade and costimulatory signals. By combining multiple immunomodulatory mechanisms, Replimune's products have the potential to activate broader and more potent immune responses against diverse tumor types compared to CAVATAK.

ONCOS-102 , developed by Circio, is an oncolytic adenovirus that carries the GM-CSF transgene with a tumor-specific promoter. While its selective targeting and immune stimulation are commendable, ONCOS-102 focuses solely on GM-CSF for immune-activation. In contrast, Replimune's pipeline incorporates an anti-CTLA-4 antibody in RP2 and both costimulatory ligands (CD40L and 4-1BBL) and an anti-PD-L1 antibody in RP3. This more comprehensive approach to immune activation renders Replimune's products potentially more effective than the prevailing single-mechanism approach.

Conclusion

Replimune's financial outlook, underpinned by its demonstrable commitment to innovation and well-thought-out strategies for future growth, is a testament to its potential for long-term success. The company's impressive financials, unparalleled dedication to R&D, and a diverse product lineup, coupled with auspicious clinical trials, underscores our view that Replimune indeed presents a unique and original investment opportunity.

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