47 Scoop: Trillium Bleeds, Surface Hemorrhages, And Forty Seven Throws In The $47 Million Towel On Synthon Lawsuit

Summary

• Forty Seven to pay $47 million in upfront/milestone payments and drop all lawsuits against Synthon/Sanquin in exchange for a non-exclusive sublicense to IP covering antibody combinations.
• Surface Oncology trades down 30%, barely above their current cash position, despite receiving Orphan Drug Designation in multiple myeloma.
• Trillium Therapeutics continues to bleed in the post-ASCO summer holiday as clinical readouts emerge in the horizon.

CD47, a novel immune checkpoint in the innate immune system, is a rapidly emerging target in cancer immunotherapy. Previously, I spoke to the merits of the technology and the key drivers fueling a cohort of 8 companies developing CD47-directed therapies. Today, I provide updated commentary on factors affecting the competitive space, including new details on a key lawsuit, as well as the issuance of an FDA Orphan Drug Designation in multiple myeloma.

Forty Seven throws in the towel after multiple rounds of litigation with Synthon/Sanquin over IP rights to combination trials

After acquiring a third-party appeal on June 4th, in opposition to Synthon's European patent licensed from Sanquin Blood Foundation, Forty Seven (NASDAQ:FTSV) reached a settlement with Synthon. Forty Seven receives a non-exclusive sublicense to relevant Synthon patents. In exchange, FTSV will drop all lawsuits and make upfront and milestone payments totaling $47 million. Synthon's patents cover combinations of CD-47- and SIRPa- directed antibodies with certain antitumor antibodies, including rituximab and trastuzumab.

I previously reported that FTSV's ability to operate in combo trials could be affected by the outcome of this legal battleground. That their hand was forced to settle at a considerable price is unquestionably a loss, but they have taken the action necessary to preserve their freedom to operate.

Source: Google Patents

Companies with mAbs in development (including Surface Oncology (SURF), Celgene (CELG), Arch Oncology, and OSE Immunotherapeutics) will almost certainly need to enter into a similar licensing agreement to pursue combination trials with their product. The lawsuit is unlikely to affect companies developing fusion proteins (i.e Trillium Therapeutics (TRIL) and Alexo Therapeutics).

The next round of legal action is set to begin in late August, pitting numerous parties, including Surface Oncology, Arch Oncology, and Bristol-Myers Squibb (BMY), against the key '512 patent licensed to Forty Seven by Stanford.

Surface Oncology shares hemorrhage on negative investor sentiment

I previously published a piece in which I did not recommend investing in Surface Oncology due to a lack of competitive positioning in the CD47 space. Since writing that piece, SURF is trading down 25-30%, at barely 50% above their most recent cash position.

Company	Share Price (7/31/18)	Common Shares + Equivalents Outstanding	Equity Valuation ($mn)	Cash + Equivalents (3/31/18) ($mn)	Valuation multiple of cash+equiv
Surface Oncology	11.33	27,597,315	$313	$205	1.53
Forty Seven	16.29	29,960,103	$488	$178	2.74
Trillium Therapeutics	5.05	19,260,003*	$97	$57	1.71

Click to enlarge

*Excludes warrants issued to purchase preferred and common stock.

In a bit of a surprise, SURF also announced they have received Orphan Designation for SRF-231, their CD-47 antibody, in multiple myeloma, which would grant 7 years marketing exclusivity in this indication. These factors start to make SURF a more attractive investment, although we still feel these assets are late-in-class and lack differentiation. However, SURF, has yet to disclose notable data on SRF-231, and strong multiple myeloma data, combined with the orphan designation, could give them a viable path to a significant market share.

Shares of Trillium Therapeutics continue to bleed on no news:

TRIL currently trades down over 50% from their post ASH2017 high. Shares have continued to slide in a period of relative silence following their last scientific updates at AACR in April. Ongoing declines provide a reasonable opportunity to initiate a position at an affordable price.

Source: Yahoo Finance

I expect clinical updates on both TTI-621 and TTI-622 by ASH18 in December, at the latest.

Top Takeaways:

The Synthon lawsuit marks a big shift in the CD47 space. Combination therapy appears to be essential to achieving a viable regulatory pathway for CD47 therapies, and with Forty Seven's concession in the courts, Synthon now acts as the gatekeeper for crucial cancer combinations.

As previously reported, Surface Oncology needs a competitive break to have a chance at achieving a potential market share in CD47 that will improve their valuation. They may have found a lifeline with their Orphan Drug Designation, now they need to validate that SRF-231 actually works in multiple myeloma.

Trillium has struggled in the post-ASCO hangover, with their share price declining over 30% on essentially no news. This decline provides an attractive valuation to consider initiating a long position before update clinical results are announced later this year.

Overall, CD47 remains an encouraging area and we look forward to reviewing new clinical updates.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.