opexa therapeutics

30 November 2015

Opexa Therapeutics is a research client of Edison Investment Research Limited

Opexa’s Tcelna immunotherapy is advancing in Phase IIb studies in

secondary progressive MS (SPMS), with data expected in H216. The firm is

fully funded to Phase II data which, if positive, could sharply increase

investor and stakeholder interest. Merck KGaA has an option to in-license

Tcelna in MS. Opexa is also developing OPX-212 in neuromyelitis optica

(NMO), a rare autoimmune disorder leading to vision loss and paralysis.

Opexa plans to file an IND and start a Phase I/II study in H116. Our rNPV-

derived equity valuation is $51m.

Year end Revenue ($m)

PBT* ($m)

EPS* ($)

DPS ($)

P/E (x)

Yield (%)

12/13 1.3 (14.2) (8.50) 0.0 N/A N/A

12/14 1.3 (15.1) (4.33) 0.0 N/A N/A

12/15e 2.6 (12.7) (2.16) 0.0 N/A N/A

12/16e 26.6** 10.4 1.42 0.0 2.9 N/A

Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments. **This includes a $25m payment (not risk-adjusted) from Merck KGaA, contingent on positive Abili-T data and Merck KGaA exercising its Tcelna option.

ImmPath aims to suppress autoimmune responses

Opexa’s core platform, ImmPath, produces patient-specific (autologous) T-cell

immunotherapy following the collection of a patient’s own blood. The blood cells are

screened against predefined potential self-reacting (autoimmune) target proteins,

and the dominant self-reacting T-cell lines are isolated and expanded. An

attenuated end-product is reinjected into the patient, which aims to suppress these

undesired self-reacting T-cells and thus curb autoimmune disease progression.

North American Phase IIb underway in SPMS

Tcelna (imilecleucel-T) applies ImmPath to suppress myelin-reactive T-cells

(MRTCs). Phase I studies have shown that Tcelna down-regulates MRTCs. A

Phase IIb (TERMS) study in relapsing-remitting MS (RRMS) did not meet its

primary endpoint of reducing brain MRI lesions. However, TERMS did reduce

relapse rates vs placebo (in a modified intent-to-treat population), particularly in

patients with more advanced forms of the disease. Given this and early open-label

data suggesting that Tcelna may slow disease progression in SPMS, a more

advanced form of MS with much fewer treatment options, the firm began a 190-pt,

double-blinded two-year Phase IIb (Abili-T) study in SPMS in 2012. Recruitment

was completed in mid-2014 and data are expected in H216. Merck KGaA has an

option to in-license Tcelna in MS on study conclusion, which could lead to up to

$220m in upfront and milestone payments and 8-15% in tiered royalties.

Valuation: Equity value of $51m, large potential

Opexa’s current EV of $12.4m reflects low investor interest, partly predicated by

Tcelna not having met its primary endpoint in TERMS. The near- to intermediate-

term investment case hinges on Abili-T study results. We apply a risk-adjusted net

present value (rNPV), which factors a 15% Tcelna probability of success in SPMS

(and 2021 launch), and 5% for OPX-212 in NMO. These result in a valuation of

$51m, including $15.6m net cash at Q315, or $7.39 per share.

Opexa Therapeutics Initiation of coverage

Personalized immunotherapy for MS

Price US$4.09

Market cap US$28m

Net cash ($m) at Q315 15.6

Shares in issue 6.9m

Free float 97%

Code OPXA

Primary exchange NASDAQ

Secondary exchange N/A

Share price performance

% 1m 3m 12m

Abs 33.2 53.3 (43.2)

Rel (local) 31.7 28.6 (43.7)

52-week high/low US$7.28 US$2.43

Business description

Opexa is developing personalized T-cell

immunotherapy to treat multiple sclerosis (MS) and

other autoimmune diseases such as neuromyelitis

optica (NMO). Lead candidate Tcelna is in Phase

IIb studies for secondary progressive MS (SPMS),

with data expected in H216.

Next events

File IND for OPX-212 in NMO H116

Phase IIb SPMS data H216

Analysts

Pooya Hemami +1 646 653 7026

Beth Senko, CFA +1 646 653 7033

Christian Glennie +44 (0)20 3077 5727

[email protected]

Edison profile page

Pharma & biotech

mailto:[email protected]

http://www.edisoninvestmentresearch.com/research/company/opexa-therapeutics

Opexa Therapeutics | 30 November 2015 2

Investment summary: Tcelna trials ongoing for SPMS

Company description: Calming T-cells with self-proteins

Established in 2004, Opexa is focused on applying the proprietary ImmPath immunotherapy

platform in-licensed from Baylor College of Medicine, to poorly served autoimmune diseases.

ImmPath is a personalized immunotherapy using a patient’s own blood samples to help down-

regulate the dominant T-cells specific to that individual, which are responsible for or highly

contributory to disease processes. Lead product Tcelna is in Phase IIb studies for secondary

progressive multiple sclerosis (SPMS), with data anticipated in H216. OPX-212 is a separate

product candidate and in preclinical development for neuromyelitis optica (NMO). Merck KGaA has

an option to in-license Tcelna by the end of the Phase IIb program.

Exhibit 1: Opexa Therapeutics upcoming catalysts

Event Timing

IND filing for OPX-212 Phase I/II NMO study H116

Start OPX-212 Phase I/II study Mid-2016

Results from Abili-T Phase IIb SPMS study H216

Source: Edison Investment Research, company reports

Valuation: Equity value of $51m presents significant upside

Our rNPV-derived equity valuation of $51m (inclusive of $15.6m net cash at Q315), or $7.39 fully

diluted, applies a 12.5% cost of capital and assumes a 15% probability of success for Tcelna in

SPMS and a 5% probability for OPX-212 in NMO. We assume global Tcelna peak sales by partner

Merck KGaA of $2.6bn in 2026, with Opexa entitled to 8-15% in tiered royalties.

Financials: Funded through Phase IIb SPMS data

On 30 September 2015, Opexa had $15.6m in cash and equivalents and its trailing 18-month cash

burn rate was $17.3m. In September 2015, the firm raised $0.5m from a $5m equity facility

dedicated to OPX-212 (we expect the remaining $4.5m to be raised by year end 2017). We project

quarterly burn rates of $3.2-3.7m in the coming quarters as the firm completes the Tcelna Phase IIb

study and advances OPX-212. If Tcelna Phase IIb data, expected in H216, are positive, Merck

KGaA can exercise its option to in-license Tcelna, which would trigger a $25m upfront payment to

Opexa. Merck KGaA would then fund the remainder of Tcelna studies in MS. We forecast that

Opexa will raise $60m between 2018 and 2020 to advance OPX-212 and potentially other ImmPath

programs. This assumes Merck KGaA exercises its licence option; otherwise, we expect Opexa will

need to raise an additional $5m in Q416 and $10m in 2017. For illustrative purposes, we assign

these fund-raisings to long-term debt.

Sensitivities: Funding, development risks, competition

While early pooled open-label Phase I SPMS data show a slower than average rate of disease

progression, the condition is notoriously difficult to treat, with numerous clinical trial failures

(including the recently reported natalizumab Phase III SPMS study) and only one treatment being

approved by the FDA. Altogether, there remains significant development and regulatory risk for

emerging treatments in neurodegenerative conditions such as MS or NMO. An additional challenge

will be sustaining access to capital at favourable terms to fund OPX-212 and future ImmPath

programs through multiple clinical trials, and/or to further advance Tcelna if Merck KGaA does not

exercise its option. Competing products are also being developed for SPMS and could potentially

reach the market earlier than Tcelna, and Tcelna’s commercial success will depend on its

performance vs potential competing new products.


Company description: Targeted immunotherapy in MS

Opexa is advancing a novel and personalized T-cell immunotherapy platform to suppress

inflammatory processes implicated in several diseases, with the lead program Tcelna (imilecleucel-

T) in Phase IIb trials for secondary progressive multiple sclerosis (MS). Merck KGaA has an option

to in-license Tcelna following this study (results expected in H216). Opexa is also investigating its

platform for other indications of unmet needs, as it is developing OPX-212 for neuromyelitis optica

(NMO), for which it plans to file an IND by year end 2015.

ImmPath platform suppresses undesired immune responses

Opexa’s core technology platform, ImmPath, was in-licensed from Baylor College of Medicine in

2001 (Baylor will be entitled to low single-digit royalties on revenues received by Opexa on using

the technology) and encompasses a proprietary method for the production of a patient-specific

(autologous) T-cell immunotherapy following the collection of a patient’s own blood. Peripheral

blood mononuclear cells (PBMCs) are isolated and screened against prespecified peptide (protein

derivative) potential targets. The dominant reactive T-cell lines that are present against such

selected antigen1 (peptide) targets are isolated and then expanded.

The product is formulated into a desired number of treatment doses for a year and then

cryopreserved. Before administration, each product dose is attenuated by irradiation to prevent its

replication. These attenuated T-cells are then injected subcutaneously into the patient, to enable

the patient’s immune system to recognize the specific T-cell receptor molecules of the administered

T-cells as immunogenic. This is expected to initiate an immune response reaction against them,

resulting in the depletion and/or immunosuppression of the existing circulating reactive T-cells in

the patient’s blood that carry those peptide-specific T-cell receptor molecules. This should reduce

autoimmune reactions against these selected antigens. Management anticipates that its scalable

production process could have lower overhead costs than PROVENGE, an autologous

immunotherapy for prostate cancer hampered by high COGS. The firm’s lead program, Tcelna,

applies this process as a potential treatment for multiple sclerosis (MS).

Multiple sclerosis overview

MS is an inflammatory disease that attacks the central nervous system. It erodes the protective

myelin sheath around nerve fibres, impairing neural signal conduction, and may also attack the

nerve fibres themselves. Patients with MS experience a range of neurological dysfunction such as

paralysis, ataxia, vision and other sensory losses, in addition to dementia and psychological

symptoms. According to the Cleveland Clinic, MS affects approximately 400,000 people in the US

and 2.5 million worldwide. Onset is usually between 20 and 40 years and the disease tends to

affect women twice as frequently as men. MS is most frequently described in one of three forms:

relapsing-remitting MS (RRMS) is the most common form of the disease, accounting for 85-

90% of the initial diagnosis. In RRMS, neurologic symptoms appear periodically for several

days to weeks (relapse), after which they usually resolve spontaneously (remittance).

primary progressive MS (PPMS) affects approximately 10-15% of patients. These patients

have gradually worsening symptoms from the onset without clinical remissions.

secondary progressive MS (SPMS) is considered a later-stage form of RRMS. SPMS is

marked by progressive neurologic decline, similar to PPMS. According to the National Multiple

1 An antigen is any structural substance that can become a target for provoking the immune system to produce

an adaptive immune response (such as producing antibodies against it).


Sclerosis Society, historically 50% of people diagnosed with RRMS develop SPMS within 10

years, and 90% transition within 25 years.

A fourth form, progressive relapsing MS, is considered to be a variant of SPMS, where the initial

relapses/remittance were very subtle or asymptomatic.

Exhibit 2: Different forms of multiple sclerosis by clinical characteristics

Exhibit 3: Transition between RRMS and SPMS

Source: Adapted from Lublin FD, et al. Defining the clinical course of multiple sclerosis: results of an international survey. Neurology 1996; 46:907–911.

Source: Biogen Investor Presentation, 3 November 2015

Tcelna approach for MS

MS is believed to be an autoimmune disorder, as immune cells targeting myelin components and

associated inflammation factors or mediators (cytokines and antibodies) are involved. Most existing

approved disease-modifying treatments for MS (including interferon-beta, glatiramer acetate and

natalizumab) aim to modulate immune system function to reduce attacks against myelin and nearly

all these are specifically approved for RRMS only.

Tcelna intends to impede the inflammatory processes of MS by targeting and suppressing myelin-

reactive T-cells (MRTCs) believed to be responsible in modulating inflammatory processes. After

blood is extracted from an MS patient, PBMCs are isolated and screened for T-cells (MRTCs)

against a proprietary bank of 109 different myelin peptides. These include peptides from myelin

basic protein (MBP), myelin oligodendrocyte glycoprotein (MOG) and proteolipid protein (PLP). The

process then identifies which specific peptide antigens are being targeted by the patient’s own

MRTCs. Management estimates that out of 109 peptides screened by the process, typically MRTCs

against three or four peptides are dominant.

An autologous pool of MRTCs is then generated and raised against these selected peptides. The

treatment principle is that the dosage of these MRTCs (after being attenuated with gamma

radiation) initiate an immune response that depletes and/or suppresses circulating MRTCs that

carry similar peptide-specific T-cell receptor molecules. Hence, Tcelna attempts to impede the

function of specific subsets of personalized MRTCs believed to attack myelin and related

components.

The Tcelna approach screens patients’ blood each year (against the 109 myelin peptides), as the

myelin peptide antigens targeted by the patient’s own endogenous MRTCs can change over time.

Effectively, the patient’s own epitope2 profile is re-analysed at each year of therapy, thus re-

customizing the treatment to account for potential “epitope drift”.

2 An epitope is the specific part of an antigen that is recognized by the immune system (such as by antibodies,

immune B-cells, or immune T-cells).


Previous studies show evidence of MRTC reductions

A 16-patient, Phase I/II open-label study in MS patients intolerant or unresponsive to existing

treatments showed statistically significant MRTC cell count reductions over baseline at all visits

through one year (five doses given per year, at weeks 0, 5, 13, 21 and 28).3 Tcelna doses were

comprised of attenuated MRTC cells selected against six myelin peptides (two each from MBP, PLP

and MOG). Three dose levels were tested (6-9m cells per dose, 30-45m cells per dose, 60-90m

cells per dose), and the effect was strongest in the middle dose range. There were no reports that

MRTC changes for RRMS patients (n=9) differed from those of SPMS patients (n=7).

Exhibit 4: Change in MRTCs (%) in blood from baseline of patients by dose in evaluable per-protocol population (Phase I/II study)

Week 5 Week 13 Week 21 Week 28 Week 52

6-9m cells/dose cohort; n=6 -46.4 -56 -30.4 -67.8 -35.4

30-45m cells/dose cohort; n=5 -92.4 -86.9 -79.4 -76.7 -64.8

60-90m cells/dose cohort; n=5 -77.3 72.3 -54.1 -22.8 18.3

Source: Clin Immunol. 2009 May;131(2):202-15

In the high-dose group, the data were skewed by a high MRTC count increase for one subject. This

could suggest a dose-limiting effect. Opexa used 30-45m cells per dose for subsequent studies.

The data indicate that Tcelna causes immediate depletion of these MRTCs, which subsides in the

weeks following dosing. A subset of the above patients was followed in an extension study, and of

these, those who had a rebound of MRTC were given a subsequent annual Tcelna course and then

showed continued significant reductions over baseline in the MRTC counts.

TERMS Phase IIb RRMS missed primary endpoint but showed other signals

A 150-patient, 12-month, placebo-controlled Phase IIb study of Tcelna in RRMS (Tovaxin for Early

Relapsing Multiple Sclerosis, TERMS) in RRMS or Clinically Isolated Syndrome4 was completed in

2008. Patients received five subcutaneous Tcelna injections (at weeks 0, 4, 8, 12 and 24).This

study did not show statistical significance in its primary endpoint, cumulative number of gadolinium-

enhanced brain lesions using magnetic resonance imaging (MRI). However, in a modified intent-to-

treat patient population consisting of patients who received at least one dose of study product and

had at least one MRI scan at week 28 or later (n=142), the annualized relapse rate (ARR), a

measure of RRMS progression, for Tcelna-treated patients was 0.214 compared to 0.339 for

placebo-treated patients, representing a 37% decrease in ARR for Tcelna vs placebo. This

decrease in relapse rates vs placebo is comparable to those of approved RRMS drugs.

Exhibit 5: Comparison of effect on relapses between TERMS study subset (n=142) and selected approved RRMS therapies

Product Reduction in relapses vs placebo

Time period Source

Tcelna (n=142) 37% 12 months Opexa reports

Interferon Beta-1b (n=372) 34% 24 months FDA Betaseron prescribing information

Interferon Beta-1a (n=301) 29% 24 months Jacobs LD, Cookfair DL, Rudick RA, et al. Ann Neurol. 1996 Mar. 39(3):285-94

Peginterferon beta-1a (n=1512)

36% 12 months Calabresi PA, Kieseier BC, Arnold DL, et al. Lancet Neurol. 2014 Jul. 13(7):657-65

Glatiramer acetate (n=251) 29% 24 months Johnson KP, Brooks BR, Cohen JA, et al. Neurology. 1995 Jul. 45(7):1268-76

Natalizumab (n=942) 68% 12 months Polman CH, O'Connor PW, Havrdova E et al. N Engl J Med. 2006 Mar 2. 354(9):899-910

Dimethyl fumarate (n=1234) 53% 24 months Gold R, Kappos L, Arnold DL, et al. N Engl J Med. 2012 Sep 20. 367(12):1098-107

Source: Edison Investment Research, Medscape. Note: Excluding Tcelna, this table compiles data from the placebo-controlled pivotal Phase III studies used in regulatory applications for the listed RRMS drugs.

3 Loftus B, Newsom B, Montgomery M, et al. Clin Immunol. 2009 May;131(2):202-15. doi:

10.1016/j.clim.2009.01.005. Epub 2009 Feb 18. 4 Clinically Isolated Syndrome (CIS) is a patient’s first neurological event or episode attributable to inflammation

or demyelination of nerve tissue. Repeated episodes may be indicative of MS or other neurological diseases.

https://clinicaltrials.gov/ct2/show/NCT00587691



In a prospective group of patients (n=50) with more active disease at baseline (ARR>1), the Tcelna-

treated group demonstrated a 55% reduction in ARR vs placebo, and a significant improvement in

disability (using Expanded Disability Status Scale, EDSS5) vs placebo (p<0.045). A pooled analysis

from 36 SPMS patients from earlier Phase I open-label studies (two Opexa-sponsored studies

completed in 2006 and 2007 and one by Baylor in 19986) showed that c 80% of those completing

two years of Tcelna showed no disease progression as measured through EDSS. Historical control

data (ESIMS study,7 published by Hommes et al. in Lancet in 2004) suggest that 40% of SPMS

patients would normally progress. This, combined with the stronger efficacy signal in patients with

more active RRMS in TERMS, helped lead the company to pursue SPMS for future Tcelna studies.

Pathophysiology rationales for Tcelna in SPMS

Although SPMS develops from RRMS, it exhibits many PPMS characteristics. Where RRMS is

characterised by active inflammation, an increase in lesions and evidence of remyelination, SPMS

is characterised by more diffuse and less intense inflammation, little to no expansion in the number

or size of lesions, and sparse evidence of remyelination. SPMS patents tend to have significantly

more gray matter atrophy compared with RRMS patients.

The reduced level of acute inflammation could help explain how available immunomodulating and

immunosuppressive therapies approved and validated for RRMS have not been effective in SPMS.

Exhibit 6: Pathophysiological differences between RRMS and SPMS/PPMS

RRMS SPMS/RRMS

Active lesions Chronic lesions

Active expansion of new and existing lesions Slow expansion of pre-existing lesions

Axonal damage focused in demyelinating lesions Diffuse axonal damage (not concentrated in lesions)

Lesions are diffuse in white matter of brain Grey matter of brain more affected

Evidence of remyelination of certain lesions Inflammation behind BBB

Meningeal inflammatory aggregates

Brain atrophy

Source: Edison Investment Research, Lassmann, H. et al. Nat. Rev. Neurol. 8, 647-656 (2012); published online 25 September 2012; doi:10.1038/nrneurol.2012.168

SPMS pathology may involve both the adaptive and innate immune system (whereas RRMS

pathology is driven by adaptive immune cells). Unlike RRMS, cells of the innate immune system,

including persistently activated microglia and dendritic cells, are dominant in progressive MS,8 and

lymphoid follicles in the meninges (close to gray matter) are also present. Opexa believes that the

transition to SPMS may involve a transition to a T-cell-dependent inflammatory mechanism, which

may more heavily involve the MRTCs as targeted by Tcelna. This could potentially provide a

rationale for Tcelna to provide more efficacy in SPMS than RRMS.

Opexa believes that Tcelna’s down-regulatory responses against the overrepresented MRTCs can

in turn down-regulate similar (but not identical) alternate endogenous disease-causing MRTCs. It

believes that Tcelna up-regulates Foxp3 (Forkhead Box P3) and Interleukin-10 secreting regulatory

T-cells, both of which have been shown in animal studies to improve self-tolerance (and reduce

autoimmunity). The company cites that among TERMS patients who had baseline ARR>1, Tcelna-

treated patients had statistically significant changes from baseline (p=0.02) in Foxp3 cells.

5 EDSS is a widely used scale for quantifying the level of MS disability and is scored from 0.0 (normal

neurological performance) to 10.0 (death). The EDSS score combines measured impairments across eight functional systems (pyramidal, cerebellar, brainstem, sensory, bowel and bladder, visual, cerebral/mental, other). Patients with EDSS scores below 4.5 are able to walk without assistance.

6 Zhang JZ, Rivera VM, Tejada-Simon MV, et al. J Neurol. 2002 Feb;249(2):212-8.

7 Hommes OR, Sørensen PS, Fazekas F et al. Lancet. 2004 Sep 25-Oct 1;364(9440):1149-56.

8 Fitzner D and Simons M. Curr Neuropharmacol. 2010 Sep; 8(3): 305–315.


Blood-brain barrier issue an alternative explanation for SPMS difficulties

One complicating factor for SPMS, which may also explain why existing RRMS-approved drugs are

unsuccessful, is that the blood-brain barrier (BBB) is less disrupted (and more impermeable) in

SPMS compared to RRMS, which may impede the ability of therapeutics to reach target sites;

indeed, the (chronic) inflammation and inflammatory cells surrounding SPMS may effectively be

“trapped behind the BBB” and less reachable by proposed experimental treatments.

Abili-T Trial: Phase IIb clinical study in patients with SPMS

In fall 2012, Opexa initiated a 190-patient, placebo-controlled (1:1 randomization) Phase IIb study

(termed Abili-T) of Tcelna in patients with SPMS and recruitment was completed in June 2014. The

trial is being conducted at 35 US and Canadian sites and recruited patients must have EDSS

scores between 3.0 and 6.0, evidence of ongoing SPMS progression and measurable MRTCs in

their bloodstream. Patients receive two annual courses of Tcelna treatment consisting of five

subcutaneous injections per year at weeks 0, 4, 8, 12 and 24. The primary endpoint is the

percentage of brain volume change (whole brain atrophy) at 24 months, and EDSS change and

ARR are included as secondary endpoints. The firm will also monitor pro-inflammatory and anti-

inflammatory immune biomarkers for patients in the study. The firm expects top-line data in H216.

We have limited information as to whether Tcelna has shown effects on atrophy in SPMS patients

treated in prior studies. If Abili-T data are positive and Tcelna proceeds to pivotal Phase III SPMS

trials, we anticipate that the primary endpoint would be EDSS change.

Merck KGaA option to in-license Tcelna

In February 2013, Merck KGaA paid $5m upfront to Opexa to acquire an option to obtain an

exclusive worldwide licence (excluding Japan) to the Tcelna program for the treatment of MS.

Merck KGaA has existing familiarity with the MS drug development and commercialisation, as it

markets Rebif (interferon beta-1a) for RRMS.

Merck KGaA can exercise this option before or after the completion of the ongoing SPMS Abili-T

study. If the option is exercised, Merck would pay a $25m upfront licence fee, unless additional

Phase II studies are required (as determined by Merck KGaA) to bring Tcelna to Phase III studies,

which would reduce the upfront fee to $15m. Following the exercise, Opexa would be entitled to

tiered royalties on Tcelna commercialisation, at rates in a range of 8-15% of net sales, with step-ups

occurring in this range when annual net sales exceed $0.5bn, $1.0bn and $2bn.

Merck KGaA would also be responsible for funding all future development, regulatory and

commercial activities, as well as product manufacturing costs. Opexa would be entitled to up to

$195m of additional milestones, with up to $70m achievable for regulatory approvals or launches in

SPMS ($35m for US, up to $30m for Europe and $5m for other regions), up to $40m for approvals

or launches in RRMS and up to $85m in commercial milestones (with $55m achievable on annual

net sales exceeding $1bn).

Competition analysis in SPMS

Current RRMS drugs are not approved for use in SPMS, and the only FDA US-approved SPMS

product is mitoxantrone, an immunosuppressive drug that was originally developed and approved

as a treatment for certain cancers. Mitoxantrone’s use in SPMS settings is limited by its propensity

to cause irreversible cardiomyopathy. Several other products are in the pipeline for the treatment of

progressive MS, including SPMS. The commercial success of such candidates could influence

Tcelna’s potential market share and reach if it gains approval.



Exhibit 7: Selected NMEs in development of Progressive MS and/or SPMS

Product Company Mechanism Current stage

Notes Clinical trial ID

Ocrelizumab Roche Humanized Anti-CD20 mAb; targets mature CD20-positive B-lymphocytes; CD20-positive B-cells are proposed to strongly contribute to myelin and axonal damage in MS patients.

Phase III In 732-pt PPMS Phase III, ocrelizumab significantly reduced progression of clinical disability (EDSS) sustained for at least 12 weeks (primary endpoint) and 24 weeks vs placebo. Regulatory submissions for RRMS and SPMS are planned for H116.

NCT01194570

BG00012 (Tecfidera)

Biogen Oral dimethyl fumarate that activates the NF-E2-related factor 2 (Nrf2) pathway.

Phase III Investigate whether treatment with BG00012 (dimethyl fumarate) vs placebo slows the accumulation of disability not related to relapses in participants with SPMS. Estimated completion June 2019.

NCT02430532

BAF312 (siponimod)

Novartis Immune-modulating treatment designed to be a more selective sphingosine 1-phosphate (S1P) receptor modulator than Gilenya. Siponimod acts by retaining specific lymphocytes in lymph nodes to prevent them from reaching the central nervous system (CNS).

Phase III Specifically targets receptor subtypes 1 and 5 (S1P1 and S1P5); Only recruiting SPMS patients; Estimated study completion August 2016.

NCT01665144

MD1003 Medday Concentrated formulation of D-biotin that targets a rate-limiting enzyme in myelination; MD1003 may stimulate myelin production and improve nerve impulse conduction.

Phase III Data expected H116; regulatory applications to FDA and EMA expected in 2016. Reported additional positive data in progressive MS June 2015.

NCT02220933

Masitinib AB Science Selective tyrosine kinase inhibitor; may affect survival, migration, and degranulation of mast cells by inhibiting key cell signaling pathways; this indirectly controls the amount of pro-inflammatory mediators released in CNS that contribute to MS characteristics.

Phase IIb/III

Assessing patients with PPMS or SPMS; study completion near year-end 2015.

NCT01433497

MIS416 Innate Immuno-therapeutics

Immune modulation; MIS416, a microparticle derived from bacteria, may act to stimulate certain responses in the innate immune system. It is believed to suppress pro-inflammatory Th1, Th2 and Th17 immune cells and raise interferon-gamma signalling.

Phase IIB

Immunostimulant comprised of caspase recruitment domain family member 15 (CARD15; NOD2) and toll-like receptor 9 (TLR9) ligands. Currently recruiting. Estimated completion June 2016.

NCT02228213

ATX-MS-1467 Apitope Vaccine containing four synthetic peptides derived from human myelin basic protein.

Phase IIa

Open-label baseline proof-of-concept study primarily focused on RRMS, but includes SPMS patients. Completed Phase IIa enrollment September 2015. Data expected 2016. Partnership with Merck Serono.

NCT01973491

IR 1902 (Neurovax)

Immune Response BioPharma

Neurovax is designed to stimulate Foxp3+ regulatory T-cells, which can then potentially suppress the autoreactive T-cells in some patients.

Phase II Original development program halted in 2008 when predecessor company filed for bankruptcy. Anticipated study start date March 2016. Anticipated end date March 2018.

NCT02149706

BIIB033 Biogen anti-LINGO-1 mAb; LINGO-1 may inhibit myelination, neuronal survival, axonal regeneration, and oligodendrocyte differentiation. Anti-LINGO-1 inhibits LINGO-1 in an attempt to promote neuroprotection and remyelination in MS patients.

Phase II LINGO-1 looks at efficacy and tolerability of BIIB033 when used concurrently with Avonex. Patients must have RRMS or onset of SPMS. Estimated study completion June 2016.

NCT01864148

MN166 (ibudilast)

Kyorin Pharma

Orally bioavailable, small molecule glial attenuator that suppresses pro-inflammatory cytokines IL-1ß, TNF-a, and IL-6, and may up-regulate the anti-inflammatory cytokine IL-10.

Phase II Phase II interim data expected Q416 (full data H117). Partnership with MediciNova. Currently marketed for stroke and asthma.

NCT01982492

Source: Edison Investment Research, clinicaltrials.gov

Roche’s ocrelizumab, which targets CD20-positive B-cells, could be approved for SPMS before

Tcelna, given positive Phase III results in PPMS (n=732) reported in September 2015. Ocrelizumab

significantly reduced disability progression as measured by EDSS vs placebo. While these data

suggest CD20-positive B-cells could play a strong role in the myelin and axonal nerve damage

caused by progressive MS, it does not necessarily suggest that MRTCs (as targeted by Tcelna)

would be any less involved. Opexa hypothesizes that the involved B-cells could potentially help

present antigen to autoreactive T-cells, facilitating MRTC formation propagation. It suggests

ocrelizumab’s efficacy in the PPMS study could be driven by the downstream influence of CD20 B-

cell depletion on T-cells, and this could bode well for treatments targeting T-cells (such as Tcelna).

Other potentially promising SPMS competitors include Novartis’s siponimod, a more selective

sphingosine 1-phosphate (S1P) modulator than fingolimod and in a 1,500-pt Phase III study, and

Medday’s MD10003, which reported positive PPMS data (a 67% lower rate of EDSS progression in





the treatment arm at 12 months vs placebo; n=144). Biogen’s Anti-LINGO-1 mAb, currently in a

Phase II study, is noteworthy for aiming to regrow myelin, rather than just prevent future damage.

OPX-212 for neuromyelitis optica (NMO)

NMO is a rare autoimmune disorder whereby immune cells and antibodies attack astrocytic and

myelin cells in the optic nerves and the spinal cord, and for which there is no approved treatment.

NMO patients suffer from optic neuritis (acute ocular/oculomotor pain and vision loss) and

transverse myelitis, which can cause weakness and sensory loss in the limbs. The National Multiple

Sclerosis Society estimates NMO affects approximately 4,000 people in the US and 250k globally.

NMO attacks the Aquaporin 4 (AQP4) protein found on the surface of astrocytes (supportive

neurological cells) leading to demyelination and axonal damage. Opexa proposes that OPX-212

may reduce the number and/or regulate AQP4 reactive T-cells (ARTCs), thus reducing the

progression of disability. The firm intends to file an IND for OPX-212 in H116 and then may

potentially start a Phase I/II study in Q216. In September 2015, the company entered a five-tranche

stock purchase agreement with a private investor to fund this program, including the planned Phase

I/II study, for up to $5m, following achievement of predefined milestones. The initial tranche raised

$0.5m (in equity priced at $0.55/share) and the subsequent tranches (of up to $4.5m) will be priced

based at 90% of prevailing Opexa share market prices.

Tcelna and OPX-212 forecasts

Our model assumes that if Abili-T results meet the primary endpoint, Merck KGaA will exercise its

option to in-license Tcelna and will then fund all remaining development and commercialization

activities in MS. Under a best case scenario, a Phase III pivotal SPMS study could start in 2017,

with data in 2020 and potential approval and launch in SPMS in 2021. This schedule assumes

Merck’s resources and MS expertise can accelerate study recruitment and execution; as a means

of comparison, the pivotal dimethyl fumarate Phase III study (n=1234) took four years to complete.

We assume that Tcelna treatment will have a net US annual price of $60,000, that there are

122,000 people with SPMS in the US (and approximately 190,000 in Europe) and that 50% of these

would have measurable MRTC plasma levels justifying treatment. We assume that Tcelna will have

a peak US market share of 30% of this market by 2026, leading to end-user sales of $2.6bn. This

peak sales estimate is broadly in line with current sales figures for leading MS drugs (eg Biogen’s

dimethyl fumarate had 9M15 sales of $2.6bn, and Novartis’s fingolimod had $2.0bn). We model that

Opexa will receive tired royalties at 8-15% of such sales and the full amount of milestones slated

under the agreement with Tcelna. While Opexa believes that Merck KGaA may resume RRMS

development, we believe this is unlikely before the completion of Abili-T, and we are not including

RRMS revenue in our model until or unless another human RRMS trial begins.

For OPX-212, we assume that Opexa will retain product rights and market the product itself in the

US and Europe. We assume fast track and orphan designations, leading to a pivotal study in 2018

and launch in 2021. If Phase I/II study results are exceptional, there is the possibility for a

breakthrough therapy and quicker approval timeline. We assume a $100,000 annual US treatment

price in a target market of 4,000 NMO patients in the US (and c 7,500 in Europe), peak US market

share of 40% and peak OPX-212 sales of $382m in 2026.

Valuation

Our valuation includes the prospects of Tcelna in SPMS and OPX-212 in NMO. We apply a risk-

adjusted net present value (rNPV) model, with a 12.5% cost of capital. For Tcelna we apply a 15%

SPMS probability of success, which considers the efficacy signals shown in earlier Phase I and IIa



studies offset by the high hurdle rate and challenges for SPMS treatments. For OPX-212, we only

assign a 5% probability of success given its early development stage. While the ImmPath platform

may be applicable to other autoimmune diseases, we await further advancement and identification

of targeted projects and diseases before factoring them into our valuation. After including $15.6m

estimated net cash at Q315, our equity valuation of $51m equates to $7.39 per share fully diluted.

Exhibit 8: Opexa Therapeutics rNPV assumptions

Product contributions (net of R&D costs)

Indication rNPV ($m) rNPV/share ($)

Probability of success

Launch year

Peak US market share

Peak WW sales (US$m)

Tcelna* SPMS 73.5 10.71 15.0% 2021 30% $2.6bn in 2026

OPX-212 NMO 24.0 3.49 5.0% 2021 40% $0.38bn in 2026

SG&A expenses (35.4) (5.16)

Net capex, NWC & taxes (26.9) (3.92)

Total rNPV 35.1 5.12

Net cash (debt) (Q315e) 15.6 2.27

Total equity value 50.7 7.39

FD shares outstanding (000) (Q315)

6,864

Source: Edison Investment Research. Note: *Our Tcelna valuation applies a 15% probability of success for all forthcoming Tcelna-related event and milestone payments from Merck KGaA, including the $25m upfront fee.

Sensitivities

Development and regulatory risk: to gain approval, Tcelna and OPX-212 must deliver efficacy in

pivotal, randomized studies without significant safety concerns. SPMS and inflammation-based

neurological diseases are notoriously difficult to treat.

Competition considerations: the competitive landscape is sparse in SPMS (but intense in RRMS)

and Tcelna could become a breakthrough SPMS treatment and hold lead market share. However,

competitors are emerging in SPMS, and several may reach Phase III data before Tcelna. If they

gain market entry, commercial success will depend on relative performance.

Financing risk: Opexa expects its funds on hand to be sufficient to reach the conclusion of the

Abili-T study; if results are positive, Merck KGaA may fund remaining development. If Merck KGaA

does not exercise its licence option, Opexa will need a new partner and/or financing to proceed

further with Tcelna. In any case, we expect that Opexa will require continued funding to advance

OPX-212 into pivotal studies, and potentially other ImmPath-based candidates. We model $60m in

financings between 2018 and 2020, which assumes Merck KGaA exercises its option; otherwise,

we expect Opexa will need to raise an additional $5m in Q416 and $10m in 2017. While our model

accounts for these financings as long-term debt, the firm may need to issue equity instead, at issue

pricing that may not be favourable for current shareholders and could lead to significant dilution.

Intellectual property risk: the success of Tcelna and OPX-212 will depend on Opexa’s ability to

defend the IP assets surrounding its technologies. The firm indicates that its technology is

supported by an IP portfolio consisting of 160 domestic and international patents, including its

proprietary manufacturing process. The composition of matter patents surrounding Tcelna, including

using the technology for 109 proprietary antigens, will expire in 2028. We model market exclusivity

into 2029.

Financials

On 30 September 2015, Opexa had $15.6m in cash and equivalents, and its trailing 18-month cash

burn rate (operating cash flow minus net capex) was $17.3m. In September 2015, the firm

implemented a 1:8 share consolidation and raised $0.5m (at a post-consolidation price of $4.40 per

share) from $5m equity facilitated dedicated to fund OPX-212. We expect it will raise the remaining

$4.5m in equity by year end 2017, as this program proceeds through a Phase I/II study. We project


quarterly burn rates of $3.2-3.7m in the coming quarters as the firm completes the Tcelna Phase IIb

study and advances OPX-212. Our forecast includes positive Abili-T results and the triggering of a

$25m payment from Merck KGaA in H216, which we have risk-adjusted in our DCF, with the partner

funding the remainder of Tcelna MS studies. We expect Opexa to raise $60m between 2018 and

2020 to advance OPX-212 and potentially other ImmPath programs. For modeling purposes, we

assign these financings to long-term debt. We add that if Merck KGaA decides not to exercise its

option, we estimate that Opexa would need to raise an additional $5m in Q416 and $10m in 2017,

as well as seek a new partner or further funding if it wishes to further advance Tcelna. The firm has

been amortizing its $5m option fee from Merck KGaA (recording revenue of $1.3m in 2013 and

2014 each) and we expect this to continue in the coming quarters.

Exhibit 9: Financial summary

US$(000) 2012 2013 2014 2015e 2016e 2017e

31-December IFRS IFRS IFRS IFRS IFRS IFRS

PROFIT & LOSS

Revenue 0 1,267 1,272 2,580 26,600* 0

Cost of Sales 0 0 0 0 0 0

General & Administrative (2,509) (3,671) (3,833) (4,376) (4,485) (4,597)

Research & Development (6,318) (9,181) (12,119) (10,603) (11,500) (8,100)

EBITDA (8,827) (11,585) (14,680) (12,399) 10,615 (12,697)

Depreciation (304) (336) (388) (370) (324) (291)

Amortization 0 0 0 0 0 0

Operating Profit (before exceptionals) (9,131) (11,921) (15,068) (12,768) 10,291 (12,988)

Exceptionals 550 (2,483) 2 31 0 0

Other 0 0 0 0 0 0

Operating Profit (8,581) (14,404) (15,066) (12,737) 10,291 (12,988)

Net Interest (350) (2,252) 13 65 119 303

Profit Before Tax (norm) (9,481) (14,173) (15,054) (12,704) 10,410 (12,685)

Profit Before Tax (FRS 3) (8,931) (16,656) (15,052) (12,673) 10,410 (12,685)

Tax 0 0 0 0 0 0

Profit After Tax and minority interests (norm) (9,481) (14,173) (15,054) (12,704) 10,410 (12,685)

Profit After Tax and minority interests (FRS 3) (8,931) (16,656) (15,052) (12,673) 10,410 (12,685)

Average Number of Shares Outstanding (m) 0.7 1.7 3.5 5.9 7.3 8.0

EPS - normalised ($) (13.11) (8.50) (4.33) (2.16) 1.42 (1.58)

EPS - normalised and fully diluted ($) (13.11) (8.50) (4.33) (2.16) 1.42 (1.58)

EPS - (IFRS) ($) (12.35) (9.99) (4.33) (2.16) 1.42 (1.58)

Dividend per share (C$) 0.0 0.0 0.0 0.0 0.0 0.0

BALANCE SHEET

Fixed Assets 2,477 1,473 1,137 857 752 702

Intangible Assets 0 0 0 0 0 0

Tangible Assets 2,477 1,473 1,137 857 752 702

Current Assets 1,670 24,767 10,665 12,413 23,828 13,193

Short-term investments 0 0 0 0 0 0

Cash 592 23,645 9,906 11,851 23,266 12,631

Other 1,078 1,123 759 562 562 562

Current Liabilities (886) (3,324) (3,132) (4,215) (2,615) (2,615)

Creditors (886) (3,324) (3,132) (4,215) (2,615) (2,615)

Short term borrowings 0 0 0 0 0 0

Long Term Liabilities (377) (2,338) (1,231) (726) (726) (726)

Long term borrowings (377) 0 0 0 0 0

Other long term liabilities 0 (2,338) (1,231) (726) (726) (726)

Net Assets 2,883 20,577 7,439 8,329 21,239 10,554

CASH FLOW

Operating Cash Flow (8,574) (3,873) (14,209) (10,602) 9,015 (12,697)

Net Interest (350) (2,252) 13 65 119 303

Tax 0 0 0 0 0 0

Capex (550) (259) (191) (120) (219) (241)

Acquisitions/disposals 0 0 0 0 0 0

Financing** (128) 28,337 648 12,602 2,500 2,000

Net Cash Flow (9,602) 21,953 (13,738) 1,945 11,415 (10,635)

Opening net debt/(cash) 66,087 (215) (23,645) (9,906) (11,851) (23,266)

HP finance leases initiated 0 0 0 0 0 0

Other 75,905 1,477 0 0 0 0

Closing net debt/(cash) (215) (23,645) (9,906) (11,851) (23,266) (12,631)

Source: Company documents, Edison Investment Research. Note: *While this forecast includes $25m upfront from Merck KGaA (not risk-adjusted), if the company decides not to exercise this option, the amount is reduced to zero; our rNPV valuation applies a 15% probability of success to this upfront and future milestones from Merck KGaA. **Our financing forecast includes the full draw-down of the $5m equity facility directed towards OPX-212 by 2017.


Contact details Revenue by geography

2635 Technology Forest Blvd.

The Woodlands, TX 77381

281-775-0600

www.opexatherapeutics.com

N/A

Management team

President and CEO: Neil K. Warma Chief Financial Officer: Karthik Radhakrishnan

Neil K. Warma has been president and CEO of Opexa since June 2008. Previously, he served as president and CEO at Viron Therapeutics, and before that held several senior management positions at Novartis. In addition, he was co-founder and president of MedExact USA, an internet company providing clinical information and services. Mr. Warma has an honours degree specializing in neuroscience from the University of Toronto and an International MBA from York University.

Karthik Radhakrishnan was appointed as the chief financial officer in March 2013. He was previously a VP at ING Investment Management, and before that a senior healthcare analyst at Eagle Asset Management. Previously, he served in various analyst positions at The Dow Chemical Company. Mr. Radhakrishnan is a CFA charter holder and has an MBA degree from the University of Michigan, a Masters in Engineering from the State University of New York and a Bachelor’s degree from the Indian Institute of Technology.

Chief Development Officer: Donna R. Rill Chief Scientific Officer: Don Healey, PhD

Donna R. Rill has nearly 30 years’ extensive clinical and research laboratory experience. She has worked to design and qualify cGMP Cell & Gene Therapy Laboratories, cGMP Vector Production facilities, and Translational Research Labs at St. Jude Children’s Research Hospital, Texas Children¹s Hospital and Baylor College of Medicine. Ms Rill also held a laboratory director position at Baylor College of Medicine; and associate scientist/lab manager at St. Jude. She received her BSc from the University of Tennessee, Memphis.

Dr Healey has more than 25 years’ experience in cellular immunology and immune regulation in both academic and biotech environments. Before joining Opexa in April 2010, he was director of immunology for Argos Therapeutics and served as group leader for immunotherapy for ML Laboratories in the UK. He was previously a lecturer in immunology at the University of Leicester, UK. Dr Healey obtained his PhD at the Hunterian Institute in London and his BSc in the Department of Pathology, Bristol University in the UK.

Principal shareholders (%)

Frigate Ventures LP 6.56

Vanguard Group 2.11

Alkek & Williams Ventures 1.94

California Public Employees 1.00

Companies named in this report

Biogen, Merck KGaA, MedDay, Novartis, Roche

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