Expert Financial Analysis and Reporting

Key Points:

• I continue to think that first ever CAR-T drug approval will be for Novartis’ CTL-019 in r/r pediatric ALL in September or October of 2017.
• Not long afterwards (weeks or a month or two), my best judgment is that CTL-019 and Kite’s Axi-Cel will be approved at the same time for the second indication r/r adult DLBCL. This is in contrast to the consensus Wall Street view that Axi-Cel will be approved first.
• The arrival of the era of CAR-T drugs and engineered T-cell therapies is eagerly anticipated by investors who have poured billions of dollars into companies developing drugs based on this technology. One of the most interesting ways to invest in this area is through Cryoport. See my initiation report. Initiating Coverage of this Highly Unique Health Care Company with a Buy.
• Cryoport is providing logistical support for both products and this should lead to a significant (probably dramatic) upward inflection in its sales. I am a buyer of CYRX.

Investment Overview

The CAR-T space has caused tremendous excitement among investors as Novartis and Kite are in a race to bring their CAR-T drugs to market. (There are more than 30 other biotech companies following in their footsteps.) Kite management has claimed that it will have first mover advantage and many investors and analysts agree. Novartis (to my amazement) has been dismissed and “dissed”. Perhaps this is because Novartis has been relatively silent on its filing plans in the US while Kite has provided a blow by blow account. Without meaningful guidance from Novartis, interested observers have been less sure as to where that company’s drug development program stands.

My best judgment is that Novartis will gain the first ever approval for a CAR-T drug for CTL-019 (tisagenlecleucel-T) in r/r pediatric ALL in September or October of 2017. I then think that the FDA is likely to approve Kite’s Axi-Cel (axicabtagene ciloleucel) and Novartis’s CTL-019 in r/r DLBCL, r/r PMBCL and TFL at the same time and perhaps one or two months later. I would refer you to my recent report “Novartis and Kite File for Regulatory Approval of Their CAR-T Products; I Do Not Believe That KITE Has a Meaningful First Mover Advantage” for more detail.

New Information will be Forthcoming on Novartis’ JULIET Trial

According to CLinTrials.gov, Novartis is conducting the JULIET study in r/r adult DLBCL. It is likely that this trial also enrolled r/r PMBCL and TFL patients but that is not clear. In its ZUMA-1 trial Kite enrolled all three types of patients and broke out r/r PMBCL and TFL patients in one cohort and r/r DLBCL patients in another. Investors have had a fairly detailed look at the ZUMA-1 data and are anxiously awaiting JULIET data to try to draw comparisons. Novartis has now confirmed that it will present interim data from JULIET at the International Conference on Malignant Lymphoma (ICML) in Lugano, Switzerland on June 14, 2017. Novartis has earlier suggested that this would be data on 80 patients based on a 3 month follow-up.

So how good is the data? Novartis’ Chief Medical Officer Vas Narasimhan, M.D., said the breakthrough designation it got from the FDA hopefully gives some indication of how the data have panned out. This doesn’t give any insight on how it might compare to ZUMA-1.

Will Kite's AxiCel Be Approved First?

Kite’s management has consistently said that it will have first mover advantage in r/r DLBCL. The arguments supporting this are:

• Kite’s ZUMA-1 trial started five months before JULIET.
• Kite presented three month interim data at the American Society of Hematology meeting on 51 r/r DLBCL patients on December 6, 2016
• Novartis will report three month interim data on 80 r/r DLBCL patients on June 14.
• Kite reported six month interim data on 71 patients on March 1, 2017
• Kite completed its rolling BLA submission on March 31, 2017. We don’t know if Novartis has submitted its BLA.

It is possible to argue that based on this that Kite could be several months ahead.

Thoughts on FDA Approval

The drug development efforts of Kite and Novartis are focused on two hematological cancers.

r/r pediatric ALL

The FDA accepted the BLA filing of Novartis’s CTL-019 for r/r pediatric ALL on March 29, 2017 and granted it a priority review which means that the agency will strive to finish the review in six months instead of the usual ten. Novartis has not yet announced the PDUFA date; but I would surmise that it might be in September or early October of 2017. The agency had earlier designated CTL-019 as a breakthrough for r/r ALL. Kite is still in clinical trials for this indication and will not be able to submit a BLA in until 2H, 2018.

r/r DLBCL

Kite completed its rolling BLA submission for Axi-Cel on March 31, 2017 in r/r DLBCL, r/r PMBCL and TFL. The FDA has not yet announced that it has accepted the filing, but since the drug is designated as a breakthrough drug, it is a virtual certainty that the agency will accept the filing and grant a priority review. This points to an October 31, 2017 PDUFA date.

Novartis’ JULIET trial in this indication started five months after Kite’s ZUMA-1, which has led some investors to conclude that Axi-Cel could be approved before CTL-019. Novartis has not commented on whether it has filed a BLA for CTL-019 in r/r adult DLBCL. However, on April 18 it did receive breakthrough designation for this indication and possibly this means that its BLA has been filed. The FDA almost certainly saw impressive interim data from JULIET in awarding the breakthrough drug status that investors will see on June 14.

My feeling is that the FDA will review both drugs in parallel and approve them at the same time for r/r DLBCL despite the arguments I laid out earlier that suggest Kite could be approved first. Here is my non-consensus argument. Both JULIET and ZUMA-1 are not definitive studies. They are small, non-randomized, phase 2 exploratory trials that won’t provide a lot of data. For example, the interim six month data for ZUMA-1 in r/r DLBCL was based on just 71 patients. Of these, 22 had a complete response, 4 had a partial response and 45 progressed. (A CR means that there is no evidence of tumor upon imaging and a PR means that the tumor mass has shrunk 50% or more.) The data is too immature to draw any conclusions on how length of survival correlates with these PRs and CRs. We don’t yet have any data on JULIET.

We are in the very early days of understanding the role of CAR-T drugs in these cancers, a process that is likely to take a decade or more. Given the paucity of data, the FDA, in my opinion is going to want to look closely at every shred of data from both trials to see if the data from one trial confirms or contradicts conclusions from the other. Given the close timing of these trials, I see no rationale for approving one drug first just because the filing was made a few days or weeks earlier. The FDA will want to give physicians all of the data possible and let them determine which drug to use or whether they want to use both.

Other Points on CAR-T Drugs

At this point, we don’t know how the JULIET data will compare to ZUMA-1; we will learn more on June 14. Presumably, the FDA likes both data sets as it has given breakthrough status to each drug. My guess is that the data from each trial will be roughly similar.

I think there is almost no question that the FDA will approve the drugs based on clinical data. Why else the breakthrough designation? There does remain the risk that one or both companies could run into manufacturing issues. These occur with some frequency and can cause the FDA to issue a complete response letter (CRL). The recent complete response letter for Portola’s antidote for oral factor XA inhibitor anticoagulant drugs is a case in point. It was designated a breakthrough drug but received a CRL due to manufacturing issues. There is no way for an investor to predict this.

The whole process of treating patients and manufacturing the cells is an extremely complex and costly medical process which will require a close working relationship between the company and the treatment site. This raises the question in my mind as to whether some clinical sites will only want to deal with one company. If so, Novartis might have an advantage because the center could treat both r/r pediatric ALL patients and r/r DLBCL patients by dealing with Novartis. If they choose Kite for r/r DLBCL, they would have to use Novartis for r/r ALL. This may or may not be an issue.

Cryoport Is A Novel Way to Invest In CAR-T

In my initiation report on Cryoport, I compared the Company to a merchants selling supplies to miners in the 1849 California gold rush. They made a lot of money without having to take the binary risk of finding gold. Cryoport is in a similar situation as it is providing logistics services to Novartis CTL-019 in both indications and for Kite’s Axi-Cel. It doesn’t care which prospector discovers the gold, just that gold is discovered.

Cryoport provides a number of logistics services that can be combined in a variety of ways. It is not just reimbursed for handling the shipment of a dewar. This business model makes it very difficult to judge how much revenues it will receive when any given product goes commercial. The Company has provided guidance that revenues associated with any single product (in this case there are three) can range from $2 to $18 million once the products has achieved meaningful penetration of its market (say in three to five years after launch). Hence, these three indications could add $6 million at a minimum (assuming $2 million per product) and probably much more if Cryoport’s guidance is correct.

In my initiation report, I took a conservative stance and estimated that the Cryoport’s CAR-T related revenues would be $1.6 million in 2018, $2.4 million in 2019 and $3.5 million in 2020. I am projecting revenues of $17.6 million in 2018, $25.8 million in 2019 and $37.3 million in 2020. This compares to $7.7 million of revenues in 2017 and projected revenues of $11.0 million in 2017. Hopefully, my projections for sales related to the CAR-T launches will prove conservative and create even more upside.