In June, Alligator reported that OPTIMIZE-1 (the phase II study of mitazalimab in pancreatic cancer) was published in The Lancet, one of the world’s highest-impact academic journals. The publication validates the study and is positive for business development. In July, the 450 µg/kg cohort was fully recruited. This was a requirement from the FDA to continue with a phase III study without having to perform a phase IIb dose-ranging study. The purpose of the study is to look at pharmakokinetics and safety profile to establish that the toxicity profile is not significantly different so as to motivate the use of 450 µg/kg instead of 900mg/kg. We believe this should satisfy the authorities. Double the dose has already been tested in phase I with good tolerability, so 900 µg/kg is not the maximum tolerated dose, which is in line with Project Optimus (i.e. to find an optimal dose and not just choose the maximum). The possibility to continue with phase III makes mitazalimab a late-stage asset, which is what large pharmaceutical companies usually look for.

In the 18-month readout from OPTIMIZE-1, the median overall survival had improved to 14.9 months (previously 14.3 months) while the ORR had improved to 42% (40%). These figures are clearly favourable compared to historical controls (Conroy et al.), but the median progression-free survival of 7.7 months was only slightly better than the historical 6.4 months. As mentioned above, the 18-month survival and 12-month PFS were much better than expected, meaning many more patients were alive and had not progressed at these times. This is a reason why OPTIMIZE-1 cost more than planned.

When making comparisons between trials, one has to take into account that Alligator’s numbers are calculated on the evaluable patients (n=57) and not on the intention-to-treat population (n=65). This is common in phased II trials with just one arm. In placebo-controlled trials, the ITT population is used. But this means the numbers from FOLFIRINOX’s NALIFIROX’s phase III trials are not strictly comparable. They will be slightly overstated in comparison. The median overall survival in FOLFIRINOX’s phase III trial was 11.1. OPTIMIZE-1’s 14.9 months would be adjusted downward slightly if measured on an ITT basis, though it would certainly still be longer. The 18-month survival rate of OPTIMIZE-1 was 36% and would probably still be over 30% on an ITT-basis versus 19% for FOLFIRINOX.

Mitazalimab will be qualified for a pivotal phase III study in 2025. The primary endpoint will be median overall survival. Although the median OS of mitazalimab + FOLFIRINOX appears superior to FOLFIRINOX alone, it is difficult to judge whether it will prove superior in a controlled setting. We believe the duration of response, 18-month survival rate and 12-month PFS rate stand out more and are likely to prove superior to FOLFIRNOX alone in a controlled setting. Regulators will take these secondary endpoints into account when deciding whether to approve a drug or not. For example, a great 18-month survival rate would most likely lower the bar for how much better overall survival needs to be compared with the control group. Therefore, the 18-month results from OPTIMIZE-1 in these secondary endpoints are important.

In June, Alligator announced an investigator-sponsored trial of mitazalimab in up to 18 patients treated with surgical irreversible electroporation. This is a narrow indication, being a subset of resectable pancreatic cancer, but one where mitazalimab would fit well and have a good possibility of showing effect, as there will be much less tumour burden for the immune system to clear away compared to metastatic cancer.

Operating expenses in Q2 2024 have decreased dramatically since the peak and are down to SEK-53m. This was expected as OPTIMIZE-1 winds down and phase III preparations finish. The cash position is SEK78m. A further SEK30m may be drawn from Fenja (discussed below). This can fund the company into Q1, which implies a burn rate of around SEK40-45m per quarter.

The company also had some income, mainly from Orion, like in previous quarters. The operating cash flow was SEK-38m in Q2.

Alligator signed a loan agreement worth gross SEK80m from Fenja (previously Formue Nord), of which SEK12m in convertibles and SEK68m in loans, both of which mature on March 25. The conversion price is SEK1.47. Loans drawn accrue at an annual rate of STIBOR 3M plus 10%. The loan consists of two tranches, the first of which, worth SEK38m plus SEK12m in convertibles, was drawn when the deal was signed. The second, worth SEK30m, is conditional on the total facility (including convertibles) not exceeding 10% of the company’s market value; interest of STIBOR accrues until it is disbursed. An arrangement fee of SEK4m was paid upon signing the deal.

Assuming the loan is repaid on March 25, 2025, the annualised interest will be around 19%, based on the company receiving net SEK76m and having to repay SEK87m in March. This assumes the second tranche will be drawn in December-January.   

Debt financing has the positive characteristic of being non-dilutive. However, the debt (SEK50m, likely to rise to SEK80m) and short-term liabilities (like the accrued expenses and deferred income of cSEK50m) increase the risk when investing in the share. It is important for the company to negotiate a deal for mitazalimab so these can be paid off with the proceeds from the upfront payment by March 2025.

We have increased the LOA of the Orion collaboration to 3.7% (2.3%) since targets have been successfully found and antibodies developed. Since only two of the three programmes will be advanced, we have reduced the total milestone payments to EUR313m (EUR469m).

Even though the OPTIMIZE-1 results are solid and, in our opinion, show a clear immunotherapy efficacy pattern, a phase III trial in pancreatic cancer will always be risky. We judge a partner might not be willing to pay a large sum upfront in addition to funding a phase III trial that would probably cost around USD100m. We have therefore decreased the expected upfront to USD40m (our previous USD75m was benchmarked on similar global immunotherapy deals). We have also updated the timeline for mitazalimab in pancreatic cancer with an expected phase III start in 2025 and a market launch in 2029 (2028). As a comparison, NALIRIFOX was approved in 2024 by the FDA, exactly four years after the first patient was treated in NAPOLI 3 in 2020. We have changed the market launch of mitazalimab in its second indication (bladder cancer) to 2031 (2030). These changes have a negative effect on the base case. We have removed our previous dilution assumptions as funding until a potential deal is in place, which has a positive effect on the base case. The overall result is a new base case of SEK2.4.

Alligator cannot fund a phase III study by itself, so it risks being left with a stranded asset without a partner, or will have to do a phase III study in several parts (or a similar set-up) that will take much longer. This leaves the company in a negotiation position that cannot be described as strong, which is another reason why we have lowered our estimated upfront payment. We retain the phase II probability of success of 70% since phase III is not funded nor approved, resulting in an overall likelihood of approval of 25%. We will raise it when a partner is in place and the study approved. One should note that although the major reason for lack of success in drug development is lack of efficacy, lack of funding or change of strategy are other important factors. We set the phase II probability of success to 100% in our bull case together with our original upfront payment of USD75m and a WACC of 13%, resulting in a valuation of SEK4.4. Our bear case of SEK0.8 represents the failure to attract a partner leading to significant dilution with a WACC of 17%.