Description

EVENT-DRIVEN IDEA: LONG DBVT INTO PHASE 3 DATA

DBV Technologies (DBVT: $46.58)

Introduction:

DBV Technologies (DBVT) will soon be announcing top-line data from their Phase 3 (Ph3) PEPITES trial of their leading therapeutic candidate, Viaskin Peanut. This therapy is a patch intended to help peanut-allergic children ages 4-11 become desensitized to peanut protein. Data were originally expected in September, but in late August the company’s management guided for an October release. The stock has run up somewhat in anticipation of the data release and expectations for Viaskin Peanut seem somewhat high. However, in light of the incredibly large peanut allergy market and compelling Ph2 data, we believe that DBVT still has significant upside. Although we view the therapy’s efficacy as largely de-risked, PEPITES still represents an important binary event for the company, and it offers an investment opportunity for those not afraid of a bit of uncertainty.

Background:

DBVT is a French clinical-stage biopharmaceutical company investigating the use of epicutaneous immunotherapy (EPIT) to address food-borne allergies via their proprietary Viaskin patch platform. Their food-allergy portfolio consists of Viaskin Peanut, Viaskin Milk, and Viaskin Egg, all of which use EPIT to expose the patient to antigens during their treatment regimen. The company is additionally considering Ph1 immunogenicity findings for a potential Ph2 Pertussis booster and has presented data on Viaskin-OVA, an epicutaneous therapy patch for Crohn’s Disease patients. Lastly, in 2016, DBVT entered into a collaborative agreement with Nestle Health to develop and bring to market a diagnostic patch for allergies to cow’s milk. The common thread among all these candidate products is the use of the company’s proprietary patch technology. As such, a successful top-line readout for PEPITES would be a significant de-risking event for the pipeline as a whole and would reinforce the proof-of-concept for epidermal antigen delivery. Of course, poor topline results could deliver a deathblow to the company by discrediting their products’ mechanism of delivery.

Investment Thesis:

DBVT’s Viaskin Peanut is positioned to become the first therapy marketed for peanut allergy patients. There is strong mechanistic rationale for both impressive efficacy and very clean safety that should make DBVT a very strong competitor in the massive peanut allergy market. It is estimated that as much as 1.5% of children in the US have a peanut allergy (this figure consistently rising over the past few decades). For many peanut-allergic children and their parents the constant threat of an allergic reaction--especially anaphylaxis--can represent a terrifying reality that requires constant oversight. As a result, most serious peanut allergy patients carry epinephrine at all times and need to religiously avoid any trace of peanut protein. Bringing even marginal peace of mind is very valuable to these patients and their parents, and we believe Viaskin Peanut can do this.

Specifically for the PEPITES readout, we believe that prospects are very good. A very convincing Ph2b trial (VIPES) and its long-term follow up showed off Viaskin’s efficacy in desensitizing children to peanut protein. Perhaps more importantly, Viaskin’s adverse events (AE) were almost entirely limited to fairly benign skin rash. Based on its clean AE profile, we believe that Viaskin Peanut should compare very favorably to oral immunotherapy (OIT), which could expose patients to more extreme AEs that might not be acceptable for children; though we will be watching for AIMT’s PALISADE data to confirm this in early 2018. For DBVT, we believe that strong PEPITES data should give the stock >30% upside.  

Safety Discussion:

Firstly, and most importantly, DBVT’s EPIT technology is differentiated in its safety profile. Because of the delivery mechanism, adverse events are minimized. The Viaskin Peanut patch delivers a dose of peanut protein directly to the epidermis. Once in contact with the skin, Langerhans cells deliver the peanut protein directly to the lymph nodes. Once this antigen is in the lymphatic system, a patient’s immune system gradually becomes desensitized to peanut protein. Importantly, preclinical models show that peanut protein never comes in contact with the bloodstream. Consequently, patients’ risk of a systemic adverse reaction is mitigated. This result stands in stark contrast to oral-delivery of food allergen which could potentially place a patient at risk of various systemic reactions such as anaphylaxis, gastrointestinal reaction, and even eosinophilic esophagitis (EoE).

EoE is a chronic inflammation of the esophagus (white blood cells accumulate causing esophagus to narrow and difficulty eating). Any repreated oral consumption of allergen presents a risk of causing EoE, so it is intuitive that a safety-conscientious parent would want to avoid risking such a reaction (one of the 55 patients in AIMT’s Ph2 trial had a biopsy-confirmed EoE reaction). As such, DBVT’s method of allergen delivery appears comparatively attractive.  

Indeed, Viaskin Peanut’s demonstrated safety and tolerability record speaks for itself. Viaskin Peanut has demonstrated an absence of drug-related SAEs (Ph2 Trial, VIPES) –in addition to no epinephrine used in Ph2 trial–and a median trial compliance rate of 97.6%, a solid testament to the patch’s tolerability. The company’s Ph2 trial (n=221) saw two drop-outs attributable to Viaskin Peanut exposure. Dermatitis (rash) was the only observed AE. The extension study demonstrated 95.5% overall compliance, again with no SAEs or epinephrine use due to treatment during the 36 month period. For comparison, 18% of AIMT’s patients withdrew from their Ph2 trial due to gastrointestinal AEs.

DBVT management notes that they observed the majority of adverse event around the application site. Most of these symptoms, which were described as mild-moderate, decreased in severity and frequency over time. It is understood that allergic-contact dermatitis can be caused by trace contact with an allergen, but mere application-site rash is more of a potential tolerability concern than it is a genuine safety worry (such as GI AEs). However, the low drop out rate in the VIPES trial indicates that even this is probably not the case.

From a pragmatic perspective, DBVT bears might postulate that itchy children will rip off the patch, thwarting the treatment effect. However, the patch can be applied between the shoulder blades, removing this possibility. Because dermatitis and itchiness were shown to decrease in frequency and severity over time, this is probably not a serious worry for the viability of the therapy.

The PEPITES Trial:

DBVT’s Ph3 trial (PEPITES) is a double-blind placebo-controlled trial enrolling 356 highly-sensitive peanut allergic patients. The primary endpoint will be assessed at month-12 and an open-label extension will follow patients for up to 36 months.

Importantly, the Ph2 VIPES was also a multicenter double-blind placebo-controlled study so it does make a strong comparison to the Ph3 PEPITES (albeit with a less selective inclusion criteria). The highest dose studied in VIPES is the dose to be used in PEPITES. Given the clean safety shown in VIPES and the evident dose-response (see figure below), this dose selection makes perfect sense and reads well for PEPITES’ chances of success.

We believe that--given the strong mechanistic rationale, very clear and statistically significant evidence of a activity in ph2, and historical lack of a very large placebo response in peanut allergy patients--Viaskin Peanut will show activity in the PEPITES trial.  Furthermore, we believe that the primary endpoint of the PEPITES trial is easily achievable.

The primary endpoint is formulated in terms of a response rate: for those who began with a low eliciting dose (<10mg) a “responder” is one who gets to >300mg by the end of the trial; for those who began at >10mg, they need to get to >1000mg to be considered a “responder”.

Management has indicated that the trial is 90% powered to detect a 30% difference in response rates, assuming a 15% drop out rate and a 15% placebo response rate. We consider these assumptions to be conservative: VIPES saw only a 6% dropout rate, while the drug-placebo response rate delta was 34.2%.

However, there is important nuance. DBVT changed the primary endpoint from Ph2 to Ph3--even though they met the primary endpoint in Ph2. Some might consider such a change to be a “red flag” but we believe this change was prudent. In VIPES, a responder was either >1000mg or a 10-fold increase from baseline. In PEPITES, a very sensitive patient cannot be deemed a responder for a small improvement over baseline--say, from 4mg to 40mg. Instead, in PEPITES even the most sensitive patient at baseline must reach >300mg to be considered a responder.

For reference, one peanut represents ~300mg. As such, we view the PEPITES primary endpoint to be even more clinically significant. It is very impressive to have a patient who would react to a tiny exposure before therapy and is able to tolerate as much as a full peanut after therapy. The functional relevance is evident: a highly-allergic patient could accidentally take a bite of a food containing peanuts and spit it out without having a reaction and requiring ephinephrine and/or a trip to the hospital.

Of course, by introducing a new primary endpoint, the perceived risk of this trial is increased. However, we believe that DBVT’s post-hoc analysis performed on VIPES data does indicate that the change is prudent. Namely, it seems that the placebo response rate was driven much more by the 10x responders than were the drug-arm patients. This makes logical sense, as a small numerical difference caused by random fluctuation and a weak reaction to placebo could be a 10x response. However, a large (on the order of a full peanut) and clinically significant improvement seems unlikely to be achieved by something other than an active therapy. As such, we believe that the PEPITES Ph3 endpoint is at least as achievable as the Ph2, and is even more relevant to real-life usage of Viaskin Peanut.

Market Considerations:

When discussing efficacy, our review of academic research suggests that EPIT ought to be compared to oral immunotherapy. EPIT’s immunological changes, specifically peanut-protein-specific IgG4, appear to be comparable to those seen in OIT patients. Moreover, DBVT’s data indicates that patients staying in the OLFUS-VIPES follow-up study demonstrated increased responsiveness commensurate with additional time spent under treatment. As such, we believe that, in the pediatric population, Viaskin Peanut can go toe-to-toe with an oral immunotherapy such as AIMT’s AR101 in the long run. Even if 12-month efficacy in PEPITES is slightly weaker (which many expect based on prior OIT data) we believe that Viaskin’s safety profile can make it a preferred therapy in the pediatric market.

The immune system becomes increasingly less responsive to immunotherapy as an individual ages, making food-allergen exposure more fruitful if done at a younger age. Consequently, EPIT is a natural fit for the vast majority of allergic children; an older allergic patient might be willing to accept some side effects for stronger efficacy, while few parents would ever want to risk their child having an allergic reaction, especially if Viaskin Peanut works comparably well for children.  Some physicians indicate that they consider EPIT to be a valuable stepping stone for highly-allergic patients, enabling them to begin the desensitization process before transitioning to other desensitization regimens without risking severe systemic reactions.

Furthermore, most importantly, the addressable market for this indication is sufficiently large (and enticing) to allow for several key players to carve-out their respective niches with various efficacy/safety/price tradeoffs. In an editorial published alongside VIPES data, two researchers produce the table below, roughly comparing their impression of various types of immunotherapy.

Source: Katz and Goldberg, JACI 12/12/16

They view OIT as having the strongest efficacy, but also the worst adverse events. Viaskin Peanut (VP) is considered to have somewhat weaker efficacy, but with minimal adverse events. We believe this is how the market currently views the immunotherapy treatment paradigm, and that PEPITES is likely to confirm this. It would therefore seem that for pediatric patients, Viaskin Peanut is more appropriate due to its clinically-relevant desensitization and its lack of adverse events. For adult patients (who are not included in the PEPITES trial) oral immunotherapy makes more sense due to increased efficacy and more willingness to tolerate adverse events.

The authors of the above editorial point to the combination of OIT+omalizumab as a potentially best-of-both-worlds therapy choice. However, we consider the cost of omalizumab to be somewhat prohibitive, especially in light of the strength of data we expect from PEPITES. According to the Cleveland Clinic website, Omalizumab’s annual WAC in asthma is approximately $10-16K, or $20-32K for more frequent dosing; OIT itself is expected to cost another few thousand dollars. Sell-side analysts expect that Viaskin Peanut could be priced in a similar range to OIT, ~$3-$6k/yr, and we agree that this price seems reasonable and should receive reimbursement (i.e. consider the cost of carrying epipen at ~$600/yr; an actual therapy for the disorder seems at least 5-10x as valuable).

Valuation:

We estimate peak sales by assuming approximately 1M pediatric peanut-allergy patients. Many of these patients are severely allergic, but if we assume that only half of patients seek treatment, this is still 500K patients in the market. If DBVT can claim 40% of those seeking treatment in the US at $5K/yr, then Viaskin could do $1B in peak sales in the US alone. The EU represents another important market, but will probably require significantly lower pricing. Assuming a comparable market size but a price of only $2K/yr (1.7K in EUR) would add another $400MM in peak sales. Fully-derisked and with a peak sales multiple of 3x, we think Viaskin Peanut alone could be worth as much as $4.2B. For comparison, DBVT currently trades at a market cap of $2.3B, with net cash of ~$200M.

Exiting PEPITES data with a de-risked platform and an incredibly large potential market size, we believe DBVT has tons of upside. Because we think the efficacy of EPIT is decently clear, we estimate upside of only ~30% on an impressive readout (which we anticipate). Longer term, developing many innovative EPIT therapies, we view DBVT as meaningfully undervalued. However, due to what we believe will be an imminent positive catalyst, we recommend a long position now, ahead of PEPITES data.

Catalyst

PEPITES Ph3 efficacy data -- Imminent

PEOPLE safety study

AIMT's PALISADE peanut allergy data

MILES milk allergy ph2 study