Silicon Valley-based immune-oncology company Gritstone Oncology (GRTS) raised $93M at $15/share on the Nasdaq last month. The company was founded in 2015 by Andrew Allen, who also founded Clovis Oncology (CLVS) and Drs. Tim Chan and Naiyer Rizvi, both from Memorial Sloan Kettering Cancer Center.
Cancer neoantigens: a personalized form of immunotherapy
Cancer cells acquire certain mutations during carcinogenesis and their progression, resulting in antigens which are unique to the cancer cells (neoantigens). A set of neoantigens may be unique to a patient and thus, may form the basis for a highly personalized form of immunotherapy. Unlike other tumor-associated antigens (also called 'public' or shared antigens, neoantigens are specific to the tumor (and are absent in the normal tissue), thus the immune response against them is likely to be more potent (due to a lower probability of developing peripheral and central immune tolerance), and highly specific, thus avoiding the off-target side effects.
Unlike CAR-T, it is also possible to target antigens within the tumor cells. Unlike checkpoint inhibitors, neoantigen-based therapies are also expected to be active against tumors with a low mutational burden. The technology to properly perform exome and RNA sequencing of the tissue isolated by biopsy from a patient is thus a key differentiating factor since the first step in developing this form of immunotherapy is the identification of neoantigens which are specific to the tumor and have the highest likelihood of eliciting a potent T cell immune response.
(Various forms of neoantigen-based immunotherapies using patient-specific tumor sequencing data, source)
T cells reactive against neoantigens have shown an excellent immune response. Complete response lasting beyond 10 years was seen in a melanoma patient with HLA-A*01-restricted mutated PPP1R3B using a tumor-infiltrating lymphocyte, TIL product that was approx. 50% reactive against this antigen. In another patient with metastatic cholangiocarcinoma treated with one billion mutated ERBB2IP-reactive CD4+ T cells, a partial response lasting for >2 years after the treatment was seen. Targeting multiple tumor neoantigens at one time may help to overcome the tumor escape due to heterogeneity.
Gritstone Oncology's neoantigen targeted T cell immunotherapy platform
EDGE machine-learning platform, 9x improvement in identifying neoantigens compared to publicly available approaches:
(EDGE model training and application)
Identifying correct neoantigens is the first step in this form of immunotherapy. Out of hundreds of mutations, approx 1% mutations are processed into a unique 'non-self' peptide sequence that is presented on the surface of tumor cells and can be recognized by the patient's T cells.
The EDGE platform has an extensive dataset of over a million HLA-presented peptides from over 300 human tumors and matched normal tissue specimens, and uses artificial intelligence and machine learning to predict which mutations will generate neoantigens that are most likely to be presented on the tumor cell surface. The platform has shown 9 times improvement (positive predictive value of 54%) in predicting the accurate neoantigens compared to publicly available approaches.
The management believes that the neoantigens identified using the EDGE platform have a higher probability of being useful targets for T cell immunotherapy than industry standard methods. Applying the EDGE model to select the top twenty mutations for each patient, a majority (19 of 26, 73%) of the tumor-specific neoantigens were included. In a study of NSCLC patients on anti-PD1 antibodies, the EDGE platform identified TSNA-specific T cells in a majority (5 out of 9, 56%) patients. An average of two peptides was recognized in each NSCLC patient in patients with detectable TSNA-specific T cells.
Preclinical data: >2X T cell response seen when its heterologous boost T cell immunotherapy was combined with checkpoint inhibitors (anti-CTLA4)
Preclinical data in non-human primates showed robust CD8+ and CD4+ cell responses that had a synergistic action in combination with checkpoint inhibitors like anti-CTLA4 antibodies.
(>2X T cell response seen when its heterologous boost T cell immunotherapy was combined with checkpoint inhibitors (anti-CTLA4)
The immune response as measured by T cells in non-human primates using heterologous prime-boost immunotherapy was even higher than that seen with adoptive T cell therapies in clinical trials, e.g. CAR-T and TCR therapies. See the figure below).
(Comparison of the T cells response by heterologous prime-boost immunotherapy to that seen in adoptive T cell therapies in clinical trials)
The T cell response in this NHP study was also long-lasting up to 6 months.
(Long-lasting immune response using heterologous prime-boost immunotherapy+anti-CTLA4)
The T cell response in this NHP study (heterologous prime-boost+anti-CTLA4) was even more durable than CD19 targeted approved adoptive T cell therapy (CAR-T) in the figure below.
The immunotherapy was also safe and well-tolerated.
It is an autologous neoantigen targeted T cell immunotherapy product candidate with metastatic non-small cell lung cancer (NSCLC), bladder cancer, gastric cancer (all hot tumors), and microsatellite stable, MSS colorectal cancer (cold tumor) as its initial targets. The target addressable population is expected as 70%-80% of cancers like lung cancer which have a high number of mutations.
A Phase 1/2 clinical trial (GO-004) is expected to start in the second half of 2018 in combination with checkpoint inhibitors (all on anti-PD1 and some on anti-CTLA4 as well) (provided by Bristol-Myers Squibb) as maintenance therapy or second-line therapy. The Phase 1 portion of the trial will seek to establish a dose for Phase 2 and also evaluate the safety, tolerability, and immunogenicity.
The Phase 2 portion of the trial will further evaluate the dose identified in Phase 1 in various solid tumors. Preliminary efficacy data is expected by the end of 2019. The management also plans to test homologous prime-boost immunotherapy in different tumor types. Based on the similar treatment regimen as the preclinical NHP study, we expect to see a robust clinical response.
(GO-004 trial design)
The therapy is expected to take approx. 16-20 weeks to manufacture from the patient's biopsy to infusing the T cells against neoantigens. This timeline is expected to decrease over time. The patent extends till at least 2031.
Compared to GRANITE-001 which is autologous, SLATE-001 is allogeneic, i.e. will seek to develop T cells against a subset of tumor neoantigens that are shared across a subset of cancer patients. Each such shared neoantigen is expected to be present in 2% of the tumors, but the therapy will deliver 20 of such neoantigens.
It may have the advantages like readily available to transfuse and less costly to manufacture compared to GRANITE-001. The target addressable population is expected to be 10%-15% of cancers like lung cancer and colon cancer. IND for the program is expected to be submitted in the second half of 2019, followed by initiation of a Phase 2 trial. The initial indications are lung adenocarcinoma, microsatellite stable advanced colorectal cancer, and pancreatic ductal adenocarcinoma based on the common prevalence of KRAS neoantigen. Preliminary efficacy data is expected by the end of 2020.
Both GRANITE-001 and SLATE-001 consist of sequential immunization with a viral prime and RNA boost (delivered by an intramuscular injection), called heterologous prime-boost.
(Comparison of Heterologous Prime-Boost with Homologous Prime-Boost and Prime Alone)
The use of an adenoviral vector has been shown to prime the T cell response, including both cytotoxic CD8+ and helper CD4+ T cells. The boost is a self-amplifying mRNA formulated in a lipid nanoparticle, LNP. GRANITE-001 uses top 20 predicted patient-specific TSNA.
(Prime and Boost Immunotherapy Construction)
The management is targeting community oncologists, rather than few selected academic centers. They have a sequencing lab in Cambridge, Massachusetts and a manufacturing facility in Pleasantville, California.
Other approaches beyond neoantigens and a $1.2 billion collaboration with bluebird Bio:
In addition, the company is also exploring modifying the receptors of the patients own T cells against tumor antigens (adoptive T cell therapy, the first indication is anti-cancer testes antigens, anti-CTA) and bispecific antibodies (targeting tumor antigens and T cells, the first target is anti-CTA engaging T cells). The company has a collaboration with bluebird bio (BLUE) where Gritstone will identify 10 tumor-specific targets and associated T cell receptors for use with bluebird bio's T cell therapy platform.
bluebird paid $20M upfront, $10M in equity investment in the IPO and potential $1.2 billion in milestone payments plus single-digit royalty payments on net sales. Certain lipoprotein nanoparticle, LNP technology was licensed from Arbutus Biopharma (ABUS).
The management is experienced in the industry. CEO and co-founder Andrew Allen also founded Clovis Oncology and prior leadership roles at Pharmion Corp. and Chiron Corp., where he worked on Proleukin (IL-2), the first cancer immunotherapy. His experience in Proleukin will be of value in developing Gritstone's immune-oncology pipeline. His experience as an entrepreneur in founding Clovis Oncology will also be valuable in running the company and raising capital.
Executive VP and Chief Business Officer, Matthew Hawryluk served as VP, corporate and business development at Foundation medicine, genomic testing company. He also held roles in business development, marketing, and product management at Thermo Fisher. His experience at these two large genomic testing firms, Foundation Medicine and Thermo Fisher will be valuable in further refining Gritstone's EDGE platform.
Executive VP and CFO, Jean-Marc Bellemin served as senior VP at Actelion (acquired by Johnson and Johnson). His experience will be useful in raising capital.
Executive VP of Research/Chief Scientific Officer Karin Jooss served as the head of cancer immuno-therapeutics in the vaccine immuno-therapeutics department at Pfizer (PFE). His experience will be useful in developing Gritstone's cancer neoantigen pipeline.
Financials and valuation:
Cash reserves are expected as approx. $158M after the IPO and should be enough for the next 12 months per the management's guidance. Net operating cash use was $34.9M in 2017.
The cash balance after the IPO will be enough till the release of preliminary Phase 1/2 data for GRANITE-0001 by the end of 2019.
The planned use of IPO proceeds (from prospectus) is:
- Approx. $20M-$25M to fund the planned Phase 1/2 trial for GRANITE-001.
- Approx. $15M-$18M to fund the further building of the manufacturing facility, including upgrades to increase manufacturing facility.
- Approx. $10M-$15M to fund internal R&D, including preclinical and IND-enabling studies for SLATE-001.
(Gritstone Oncology: statement of operations, source: prospectus)
(Gritstone Oncology: balance sheet, source: prospectus)
Checkpoint inhibitors market size is expected to reach approx. $32 billion by 2022, though they work in a minority of patients.
To calculate the risk-adjusted NPV of Gritstone's pipeline, our input was refractory/relapsed patients in the top 10 most common cancers for bluebird collaboration and the 4 cancers mentioned above for GRANITE-001. The probability of reaching the market was input was 10% at this stage per Pharmagellan guide. Conservatively, just 5% peak market penetration was input. Potential milestone payments from bluebird were risk-adjusted and discounted. The cost of capital was input as 15%, then decreased to 12% at the drug launch, and then decreased to 10% six years after drug launch (when sales reach maturity).
After adjusting for non-operating assets (including NOLs) and liabilities (including operating leases), our estimate for the fair value for equity is $992.8M or $33/share using diluted stock count.
We are initiating coverage on Gritstone Oncology common stock with a Buy rating and $33 price target.
There is no sell-side analyst coverage on the company yet.
Members of our Marketplace premium service, Vasuda Healthcare Analytics have access to the discounted cash flow, DCF model. A free trial is open for a limited time.
Our estimate for the fair value of equity of approx. $1 billion for Gritstone Oncology is reasonable considering the early promise shown by its pipeline, especially the potential to be even more efficacious than CAR-T. Gritstone oncology is being discounted at its current market cap since the pipeline is still to enter the clinical stage, however, the early data in non-human primates is expected to be replicated in human trials.
CAR-T companies have been assigned the valuation of multi-billions of dollars, e.g. Kite Therapeutics was acquired for $12 billion and Juno Therapeutics was acquired for $9 billion. We have not included the future estimated revenue from SLATE-001 and other planned pipeline like anti-CTA bispecific antibodies and CAR-T.
- A phase 1/2 clinical trial (GO-004) is expected to start in the second half of 2018.
- Preliminary efficacy data from this phase 1/2 GO-004 trial is expected by the end of 2019.
- IND for SLATE-001 program is expected to be submitted in the second half of 2019, followed by initiation of a phase 2 trial.
- Preliminary efficacy data from the phase 2 trial for SLATE-001 is expected by the end of 2020.
Risks in the investment:
Investing in emerging stage biotechnology companies is risky. Only a minority of the product candidates reach the commercial stage. The efficacy shown in preclinical studies may not be replicated in human trials. Unexpected side effects may be seen and FDA may place a clinical hold on the ongoing trials. Neoantigen immunotherapy is a competitive field and several companies like Neon Therapeutics, Aduro Biotech (ADRO), Advaxis (ADXS), etc. are developing competing therapies. Of these, the closest competitor is expected to be Neon Therapeutics. Our market share estimate may not be achieved. While the company is well-funded for now, significant capital is required before its product candidates reach the commercial stage which may dilute shareholders.
Disclaimer: This article represents my own opinion and is not a substitute for professional investment advice. It does not represent a solicitation to buy or sell any security. Investors should do their own research and consult their financial adviser before making any investment. Investing in equities, especially biotech stocks has the risk of significant losses and may not be suitable for all investors. While the sources of information and data in this article have been checked, their accuracy cannot be completely guaranteed.
I am/we are long GRTS, NTGN, ADRO, SRPT.
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