Description

BeyondSpring Inc (BYSI)

Overview

BeyondSpring Inc. (BYSI) is a small cap global clinical-stage biopharmaceutical company focused on immuno-oncology cancer therapies. The company’s main product (plinabulin) is in late stage approval for its first indications. The company is valued below similar drugs with less growth potential that have transacted over the past few years. In addition, one of BYSI’s largest holders (Decheng Capital) has a 13D filed and a history of getting its portfolio companies sold. Recent changes to the board and CFO indicate BYSI is at a crucial turning point. An additional positive is the way the corporate structure is split between US and China, setting up the stage for a potential IPO of the China segment via the Hong Kong market.

BYSI’s main product (plinabulin) is directed at chemo-induced febrile neutropenia (FN) in high-risk patients. Chemotherapy-induced neutropenia (CIN) is the primary dose-limiting toxicity in patients with cancer treated with chemotherapy. CIN can lead to febrile neutropenia (FN), and is associated with increased morbidity and early mortality, increased medical costs, and disruptions in potentially curative treatments.

Today oncologists struggle with chemo-induced febrile neutropenia (FN) and plinabulin would be added to AMGN’s Neulasta (pegfilgrastim, or biosimiliar competitors) in terms of treatment. Neulasta is widespread drug but patients on it are still vulnerable to CIN, especially patients that experience high grade neutropenia. Furthermore, the combination of the two drugs reduces the odds of having FN by 41% (SABCS 2020).

As shown below, BYSI is currently in Phase 3 of approval for CIN (all cancer, all chemo / Plinabulin + Pegfilgrastim program / PROTECTIVE-1 study 105 and PROTECTIVE-2 study 106) and non-small cell lung cancer (NSCLN) indications (2nd / 3rd line / the plinabulin +docetaxel program / DUBLIN-3 study 103). The latest data for both indications is very strong and milestones for CIN are in Q1’21 (both China and US NDA) and NSCLN global Ph3 data in H1’21.

CIN is a $9bn market in total (BYSI is targets nearly half of this market) and the global NSCLC market is a $11bln market. Furthermore, success in CIN and NSCLC could support a broader label and use expansion across other cancer types. Recent Plinabulin CIN data (PROTECTIVE-2) shows positive results; with BTD granted by both FDA and NMPA, a great signal for Plinabulin’s approval pathway.

November Prospectus, page S-3

Opportunity

Chemotherapy Induced Neutropenia (CIN) Opportunity

Disease:

Neutropenia is a condition defined by an abnormally low number of neutrophils, a type of white blood cell. Neutropenia weakens the body’s ability to fight infections, thereby increasing the risk of infection. Neutropenia is a common side effect of chemotherapy. Fighting CIN is critical to the successful application of chemotherapy, as if CIN develops, chemotherapy dosages must be lowered (or delayed), to prevent infection. Lowering chemotherapy dosages significantly decreases the effectiveness of chemotherapy though, leading to significantly worse patient outcomes. Profound neutropenia leads to 80% death in first week of infection, 48% FN and 50% infection.

Standard of care (SOC):

The current standard of care is to administer granulocyte colony-stimulating factor (G-CSF) to at risk patients with their chemotherapy cycle before CIN develops, as well as during CIN if it develops. G-CSF treatment was pioneered by Amgen, first with Neupogen (filgrastim) in 1991 and then with Neulasta (pegfilgrastim) in 2002. Neulasta is a long-acting improvement on Neupogen, requiring only one treatment per chemotherapy cycle compared to multiple for Neupogen. For many years, Neupogen and Neulasta were the only G-CSF treatments on the market, and thus, the only effective treatment for CIN.

While G-CSF treatments are very effective at preventing and treating CIN, they have significant side effects, most notably bone pain, which can limit their usage. Chemo’s anti-cancer effectiveness is linear to dose. With lower G-CSF, chemo must be lowered. BYSI mgmt. claims 15% reduction in relative dose intensity in chemo results in 50% reduction in OS. Plinabulin indirectly helps with effective chemo deployment while limiting CIN as a result of G-CSF intake.

Biosimilars for Neupogen first arrived on the market in 2015. Biosimilars of Neulasta first arrived on the market in 2018. Prior to 2015, sales of Neupogen and Neulasta combined were selling $6.5bln per year. Biosimilars have resulted in decreased pricing, however Neulasta still produced $2.8bn in US sales in 2019 despite biosimilar competitors. Plinabulin would also be used in conjunction with Neulasta’s biosimilar competitors for a similar purpose.

Drug:

Plinabulin is the first fundamentally new treatment for CIN since Neupogen’s introduction. BeyondSpring has conducted trials with it, and intends to market it, both as a monotherapy and in conjunction with pegfilgrastim.

While full Phase 3 trials are yet to finish, Phase 2 and interim Phase 3 results have been very promising. Plinabulin alone appears to be as effective at preventing CIN as pegfilgrastim alone, but with much fewer side effects, particularly bone pain. Plinabulin and pegfilgrastim together appears to be more effective than pegfilgrastim alone, and with fewer side effects.  Other than Plinabulin and more Neupogen/Neulasta biosimilars, there are no other major new therapies targeting CIN which will enter the market in the near term.

Studies:

CIN – 2 Phase 2/3 clinical trials:

PROTECTIVE-1 (aka. Study 105)

-          Reduction of CIN caused by intermediate risk chemo made of docetaxel in NSCLC, breast cancer, and prostate cancer patients

-          55 NSCLC patients treated Plinabulin reported less bone pain and had comparable absolute neutrophil count profiles (a measure of neutrophils per unit of blood that is calculated from measurement of the total number of white blood cells and bands, or immature neutrophils) and comparable durations of severe neutropenia (DSN) and neutropenia reduction compared to patients treated with Neulasta[1] (pegfilgrastim).

-          Phase 2 portion of PROTECTIVE-1 also observed that Plinabulin alleviated docetaxel-induced thrombocytopenia[2] while Neulasta did not.

-          Data also showed Plinabulin has superior immune profile compared to Neulasta based on promyelocytes and immature neutrophil data from the clinical study.

-          Established Phase 3 recommended dose; plan to enroll 150 patients for Phase 3 PROTECTIVE-1, which met its primary endpoint of non-inferiority vs Neulasta for DSN in first cycle, with statistical significance in pre-specified interim analysis at 105-patient enrollment.[3]

PROTECTIVE-2 (aka. Study 106)

-          Reduction of CIN caused by high risk chemo, a myelosuppressive chemotherapeutic regimen composed of 3 agents, docetaxel, doxorubicin and cyclophosphamide in breast cancer patients.

-          Phase 2 portion of PROTECTIVE-2, in 115 breast cancer patients

-          Plinabulin in combination with 6mg Neulasta (Plinabulin/Neulasta Combo) was shown to lead a clinically meaningful increase in the % of patients with no severe neutropenia (grade 4) in every cycle of chemo, a statistically significant reduction of bone pain, and less immune suppression compared with Neulasta monotherapy.

-          While Plinabulin alone showed neutrophil protection effect in week 1 after chemo, Neulasta showed effect in week 2, which is complementary to Plinabulin’s effect; combination of the 2 could improve prevention of CIN.

o   June 2020: Phase 2 portion of study showed that the combo regimen offered less severe neutropenia, enabling patients to remain more compliant and persistent with chemo, optimizing their care and providing them with best chance of improving overall survival.

-          Finished enrollment of 221 patients for Phase 3 portion of study (n=221; 111 in combination arm and 110 in monotherapy arm)

o   Global, multicenter, randomized, double-blinded study in patients with breast cancer undergoing myelosuppressive chemo with TAC (docetaxel @ 75mg/m2, doxorubicin @ 50mg/m2, and cyclophosphamide @ 500mg/m2). The objective is to evaluate protection against CIN: plinabulin (40mg) + pegfilgrastim (6mg) in 111 patients vs. pegfilgrastim (6mg) in 110 patients

o   Primary endpoint: prevention rate of grade 4 neutropenia in the first cycle of chemo, which correlates with high rates of infection, bacteremia, fever, and mortality.

o   November 2020: final topline data represented confirmatory data (based on absolute neutrophil count (ANC)) from interim analysis in June 2020.

§  Met primary endpoint showing statistically significant improvement in rate of prevention of grade 4 neutropenia in Cycle 1: 31.5% in combo vs. 13.6% pegfilgrastim monotherapy (p=0.0015)

§  All secondary endpoints were met

·       DSN Cycle 1 Day 1-8 (ANC < 0.5 x 109 cells/L): p = 0.0065

·       DSN Cycle 1: p = 0.03

·       Mean ANC nadir Cycle 1 (x 109 cells/L): p = 0.0002

·       Duration of profound neutropenia Cycle 1 (ANC < 0.1 x 109 cells/L): p = 0.0004

§  Safety data:

·       Lower grade 4 AE (58.6%) for combo compared to monotherapy (80%)

o   December 2020: Phase 3 PROTECTIVE-2 Study 106 demonstrated that plinabulin in combo with pegfilgrastim was 53% more effective than pegfilgrastim mono in reducing profound neutropenia incidence (absolute neutrophil count or ANC < 0.1 x 109 cells/L), 21.6% vs. 46.4%, respectively with p=0.0001 in patients going under chemo with TAC[4].

§  Mean duration of profound neutropenia: 0.3 days (combo) vs. 0.6 days (pegfilgrastim only); p=0.0004

§  The combo also reduced FN occurrence by 41% compared to pegfilgrastim monotherapy.

Market opportunity:

BeyondSpring management claims the CIN market is a $4.5bln per year opportunity. As combination therapy, Plinabulin’s base of business is G-CSF units: 1.3mn G-CSF cycles/yr (US); 4mn G-CSF cycles/yr (global). There are ~650k patients in US receiving chemo annually. In the US, unit growth in Aug 2020 went up 1.1% despite pandemic causing a 20% decline in chemo cycles nationwide from March to June. As a result of pandemic, prophylaxis now recommended for both high and intermediate risk patients, increasing the addressable population by 90%.

Alternatively, we can look at yearly G-CSF unit sales, which are 1.4mln in the US and 4mln globally. Each of these unit sales represents an opportunity for treatment with Plinabulin in place of G-CSF, or for the addition of Plinabulin to the G-CSF treatment. Growth beyond these will come from increasing numbers of patients receiving chemotherapy (mostly a global phenomenon) and increased usage of treatments to prevent CIN.

Pricing:

Management has not indicated pricing strategy. Currently, Neulasta is ~$4,000 per dose (net) while biosimilars are several hundred dollars less per dose, with both falling. BeyondSpring will probably face resistance to pricing aggressively above this. The lowered pricing of pegfilgrastim makes combination therapy with Plinabulin more affordable.

While strong adoption of Plinabulin would yield annual revenue of potentially several billion dollars, this is BeyondSpring’s first drug launch, and they are challenging a well-established standard of care. A more modest ramp should be expected. Nomura forecasts $400mln in sales in 2023 and $800mln in sales by 2026.

Regulatory designations:

Received Breakthrough Therapy Designation (BTD) for CIN from FDA and CDE of NMPA.

2nd/3rd Line Non-Small Cell Lung Cancer (NSCLC) EGFR Wild Type Opportunity

Disease:

Lung cancer is the most common form of cancer, and outcomes under current treatment regimens are quite poor (<30% overall 5-year survival rate).

Drug:

Plinabulin was initially being developed by Nereus as an anti-cancer drug, until its superb CIN fighting capabilities were discovered. Nevertheless, fighting cancer still remains an attractive indication.

BeyondSpring’s current focus is on developing Plinabulin for use in conjunction with docetaxel (a chemotherapy drug) as a 2nd/3rd line treatment for NSCLC exhibiting no EGFR mutations (known as EGFR wild type or EGFR-wt).

NSCLC Studies:

Phase 2 of Phase 1/2 in 163 advanced NSCLC patients (aka. Study 101)

o   Addition of Plinabulin to standard regimen of docetaxel (commonly used in chemo) led to a statistically significant reduction in incidence of Grade 3 and 4 neutropenia[5] (p<0.0003).

DUBLIN-3 (aka. Study 103; Plinabulin vs. placebo)

o   Phase 3 study for NSCLC (n=138) evaluated on a secondary endpoint of grade 4 neutropenia reduction in cycle 1 day 8 (lowest neutrophil account in a cycle due to docetaxel treatment) and observed Plinabulin’s ability to reduce docetaxel induced grade 4 neutropenia in NSCLC patients (p<0.0001)

Primary endpoint is for OS in NSCLC

  Market opportunity:

The global NSCLC market was worth $11bln in 2019 growing at a 16% CAGR, with nearly 1.5mln NSCLC patients globally and over 450thsd in the US. EGFR-wt accounts for 85% of NSCLC amongst Caucasians, but only 50% amongst Asians. Only ~30% of patients respond to first line treatments, making demand for 2nd/3rd line treatments strong.

 There are 6 current therapies for 2nd/3rd line treatment of NSCLC EGFR-wt: The three anti-PD-1 agents (Merck’s Keytruda, Bristol Myers Squibb’s Opdivo, Roche’s Tecentriq), docetaxel (a generic chemotherapy drug), Alimta (Eli Lilly, generics coming in 2022), and Cyramza (Eli Lilly) in conjunction with docetaxel. It is a crowed space that BeyondSpring will be joining. The closest comp would be Cyramza, which is also used (for this indication) in conjunction with docetaxel. Yearly sales of Cyramza (no comparable generic on the market) are ~$900mln, but these sales include several indications beyond 2nd/3rd line treatment of NSCLC EGFR-wt.

Summary of Key Dates for CIN / NSCLC:

·       Plinabulin US, CN CIN NDA submission 1Q21 (approval for plinabulin to prevent CIN)

·       Full plinabulin P3 FN data at ~ASCO 2021

·       P3 DUBLIN-3 NSCLC OS readout 1H21 (whether plinabulin has antitumor effects, would position

plinabulin for broader CIN penetration)

·       Additional plinabulin + IO early phase trial data 4Q21

·       Potential plinabulin approval ~4Q21

·       Potential NSCLC plinabulin filing 1H22

Other Indications

BYSI has phase 1 trials underway for Plinabulin & nivolumab for the treatment of 2nd/3rd line NSCLC and Plinabulin & nivolumab & ipilimumab for the treatment of SCLC. Still other indications and drug combinations for Plinabulin are being assessed at the preclinical stage. BYSI also has Plinabulin + PD-1/PD-L1 + radiation/chemo collaborated with MD Anderson, as well as several other in-house developed drug candidates, all in the preclinical stage.

Management

Lan Huang is founder and CEO. Ph.D. form UC Berkeley, with post graduate work at Memorial Sloan Kettering. Founded and sold two companies previously: Wuxi MTLH Biotechnology (sold to Shanghai Pharmaceutical Group in 2010) and Paramax International (sold to ReSearch Pharmaceutical Services in 2009). Most members of management team are strong with history of successfully bringing drugs to market. However, BYSI lacked proper communications with public investors, recent changes resolve this problem.

On the corporate finance side, Decheng Capital is a top BYSI shareholder with over $2bn in capital under management. Decheng is a 13D filer in BYSI with a board representative and success of getting its portfolio companies sold (i.e., Merck’s $2.75bn acquisition of VelosBio).  The fund has subscribed to every equity issuance BYSI conducted and is likely behind the recent board and CFO changes at BYSI.

Elizabeth Czerepak joined BYSI as CFO in September 2020. Prior to Czerepak joining, IR was handled by now CFO of Seed Therapeutics Edward Liu. Liu’s background is more suitable towards the Asian market and as such BYSI, never developed strong US coverage or following, neither a liquid market cap nor was ‘known’ among key biotech investors. BYSI always issued a small amount of equity at each issuance and concern over another near term dilutive offering was a constant overhang.

Czerepak is a tenured CFO with over 30 years in the healthcare industry spanning big pharma, biotech and healthcare venture capital. Her past roles include Merck & Co., Hoffmann-La Roche and BASF Pharma, and she played a key role in Roche $5.4B acquisition of Syntex and the $6.9B sale of BASF to Abbott. As a CFO of four biotech companies (two start-ups and two she took public) she brought a much needed US experience to BYSI. The November 2020 equity issuance of $8.63MM at $10/share resulted in the highest cash balance at the company and a more liquid share base compared to the constant small issuances and illiquid market cap that plagued the company before. By contacting with BoAML and Evercore to conduct the November issuance, coverage was broadened. Evercore’s released a lengthy initiation on 12/28/20 and BoAML is likely shortly. The November 2020 issuance can be thought of the company’s true IPO.

Other recent actions include adding two new board members:

·       Dr Ravindra Majeti (joined 8/18/20)

o   Co-founded Forty Seven, Inc., a clinical-stage immuno-oncology company developing therapies targeting cancer immune evasion pathways and specific cell targeting approaches based on technology licensed from Stanford. In March 2020, Gilead acquired Forty Seven for $4.9 billion.

·       Dr Jeffrey L Vacirca "Jeff" (joined 12/17/20)

o   CEO of a large community oncology practice, New York Cancer & Blood Specialists.

History and Corporate Structure

Wanchun Biotech was founded in 2010 by Lan Huang as a (Chinese LLC) holding company. In 2013, Wanchun Biotech purchased the global rights to Plinabulin from Nereus Pharmaceuticals, Plinabulin’s original developer. The exact terms of the deal are not public; but included an upfront payment and royalties. In concert with the acquisition, Wanchun Biotech founded BeyondSpring Pharmaceuticals, as a wholly owned, US incorporated, operating subsidiary to develop Plinabulin.

In 2015, BeyondSpring Pharmaceuticals shifted from Wanchun Biotech to a Cayman Island based holding company, BeyondSpring Inc. Also, in 2015, the deal with Nereus was amended, such that the former Nereus shareholders (Nereus had dissolved in 2013 after the deal) agreed to receive a 10% equity stake in BeyondSpring Inc, to be allocated immediately before an IPO, in exchange for forfeiting their right to royalties.

BeyondSpring Inc IPO’d on the NASDAQ Capital Market in 2017. BeyondSpring Inc’s structure is as such:

12/28/20 Evercore ISI Initiation “Highway (Away From) The Danger Zone; Initiating at Outperform, $30 PT” page 120

·       Ex-China

o   BeyondSpring Pharmaceuticals (100% owned) which holds the rights to Plinabulin outside China.

o   SEED Therapeutics Inc. (as shown above 100% owned pre-Lilly deal / post Lilly-deal BYSI owned 60.1%-64.38%).

§  On 11/13/20 (disclosed in an 6K), BYSI entered into a collaboration agreement with Lilly to discover/develop new chemical entities that could produce therapeutic benefit through targeted protein degradation.

§  Lilly paid $10MM cash up-front and up to an equity investment of $10MM if certain milestones are met via preferred shares, giving BYSI a range of 60.1% (with milestones) - 64.38% post-deal (without milestones). Resulting in a value for the sub of $28.074MM to $50.125MM.

§  While small, the wildcard is that SEED would also be able to receive up to $780MM in potential pre-clinical and clinical development, regulatory and commercial milestones, as well as tiered royalties on net sales of products that result from the collaboration.

·       Inside China

o   Wanchunbulin (58% owned by BYSI) holds the rights to Plinabulin inside China.

§  After CIN / NSCLC approval, potential to list Wanchunbulin in Hong Kong. This would effectively break the company into China / rest of world for Plinabulin.

§  The important part of the structure is this give the ability to conduct an eventual IPO of the Chinese segment.

Comparable M&A

Plinabulin’s only meaningful competitors for treating CIN are Neupogen and Neulasta (and their biosimilars). While Neupogen and Neulasta were principally developed and commercialized by Amgen, joint development and commercialization agreements where established with Roche and Kyowa Kirin, providing them the right to sell Neupogen and Neulasta in certain geographies (Roche was required to pay royalties on sales, Kyowa Kirin was not).

In 2002, Amgen purchased back from Roche the rights to Neupogen and Neulasta in the EU, Switzerland, and Norway for $138mln. In 2013, Amgen purchased back from Roche the rights to Neupogen and Neulasta from all remaining territories in which Roche still held rights (Eastern Europe, LATAM, Africa, and some Asian countries) for $479mln. Kyowa Kirin still retains the rights to Neupogen and Neulasta in Japan, China, and several other Asian countries. Several failed attempts to challenge Neupogen and Neulasta’s dominance have also left M&A trails.

When Immunex Corporation was purchased by Amgen in 2002, their competitor to Neupogen, Leukine, was sold to Schering (also in 2002) for $380mln plus $90mln in potential additional payments subject to meeting certain benchmarks. While eventually approved for sale, Leukine never took more than trivial market share. After a series of M&A involving its owners (so no clean deal values for Leukine itself), Leukine eventually ended up held by Sanofi. In 2018, Sanofi sold Leukine for an undisclosed, amount to Partner Therapeutics, a start-up which still sees potential in the drug.

In 2008, CoGenesys was purchased by Teva for $400mln. CoGenesys’s only significant asset was Neugranin, which was a near copy (but not an exact copy) of Neulasta. Amgen sued Teva to block the sale of Neugranin. Teva argued that Neugranin was different enough to Neulasta that it did not infringe upon Amgen’s patents. Teva lost the case in 2011 and was prohibited from selling Neugranin until late 2013. Teva would eventually decide not to commercialize Neugranin even when they were legally able, instead focusing on their Neupogen and Neulasta biosimilars (Granix and Lonquex).

In 2012, Spectrum Pharmaceuticals entered into a development and commercialization agreement with Hanmi Pharmaceutical for Rolontis, a drug very similar to Neulasta, but not quite a biosimilar. The terms of the deal are not entirely clear, but appear to include $5mln upfront, $238mln in additional payments subject to meeting certain benchmarks, and royalty payments on all Rolontis sold. Clinical results suggest Rolontis performs in line with Neulasta. Rolontis has not yet been approved for sale, but should it be, it will likely be treated by the market as just another biosimilar.

There have also been several public deals involving early stage CIN drugs for minimal amounts. These deals are not discussed as they do not provide meaningful insight into what Plinabulin, a drug nearing commercialization, could be worth.

Financials and Valuation

At an EV of near $376MM (post recent issuance), BYSI is trading below the transaction values of other CIN drugs, despite Plinabulin being closer to approval than those drugs at their transaction, Plinabulin a superior drug in effectiveness and BYSI having other products in their pipeline.

Given the size of the CIN market, Plinabulin’s superiority to present drugs, and additional indications for Plinabulin beyond CIN, over the next few years, $2bln+ in peak revenue is even possible.  With 3 major phase 3 trials ending within the first half of 2021, and NDA submissions over the next few months, there are many near term value catalysts. Given positive interim clinical data thus far, we see minimal risk associated with these catalysts.

There is also a possibility of an IPO of the China entity (58% owned by BYSI) to monetize the entire China business, or a royalty stake sale of CIN or NSCLC. The IPO would likely be conducted on the Hong Kong exchange where valuation would be well in excess of 1x peak sales used valuation above.

Additionally, the SEED collaboration agreement that could result in additional value if milestones are met. 

Conclusion:

BYSI is undervalued on several levels and provides multiple ways to win, with near term approvals for CIN/NSCLC, potential China segment IPO, value via its SEED Collaboration and other pipeline products. The first step in realize value is CIN/NSCLC to be approved in H1’21. Much of the valuation disconnect is due to lack of communication in the US with public investors, poorly managed equity issuances, limited sell side coverage, an illiquid float as well as company size. Recent actions taken will alleviate this issues.  With everything to look forward to BYSI in H1’21, the company positioned well.

[1] A type of long-lasting G-CSF – currently the SOC for prevention of high-risk CIN.

[2] A frequent side-effect of chemo’ it is the lowering of platelet counts that, when severe, leads to bleeding and anemia and can acquire transfusion with platelets and in severe cases can lead to cessation of chemo.

[3] Conclusion confirmed at DSMB meeting in Jan 2019, chaired by Dr. Jeffrey Crawford, Chairman of the National Comprehensive Cancer Network Guidelines for Neutropenia Management in the US.

[4] Docetaxel, doxorubicin, and cyclophosphamide

[5] an abnormally low blood concentration of neutrophils.

Catalyst

H1'2021 drug approvals