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Jun 16, 2014 - increased our price assumption for inecalcitol in oncology due to the .... reduction in PSA levels on doc
Hybrigenics

FY13 results

Inecalcitol shows promise in adult leukaemias

Pharma & biotech

Hybrigenics is making significant progress in developing inecalcitol, which

16 June 2014

could reinvigorate the partnership search for ongoing studies in oncology. Promising Phase II data in chronic lymphocytic leukaemia (CLL), designated as an orphan drug in the EU and US, and the addition of two

Price

€2.47

Market cap

€64m

new indications, chronic myeloid leukaemia (CML) and acute myeloid leukaemia (AML), increase the commercial potential of the vitamin D analogue. We have increased our valuation from €65m to €91m.

Net cash (€m) at December 2013 Shares in issue

25.9m

Free float

Revenue (€m)

PBT* (€m)

EPS* (c)

DPS (c)

P/E (x)

Yield (%)

12/12

5.9

(2.4)

(13.2)

0.0

N/A

N/A

12/13

6.1

(2.2)

(8.2)

0.0

N/A

N/A

12/14e

7.5

(2.0)

(6.9)

0.0

N/A

N/A

12/15e

7.2

(4.2)

(14.6)

0.0

N/A

N/A

Year end

1.9

85%

Code

ALHYG

Primary exchange

Alternext

Secondary exchange

N/A

Share price performance

Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments.

Inecalcitol – potentially a versatile oncology therapy Results from Phase II trials of inecalcitol in CLL suggest that it has therapeutic potential. Final Phase II data were consistent with earlier findings; inecalcitol halted disease progression in 52% or in 11 out of 21 patients treated for at least five months; one saw a 90% decrease in symptoms after 10 months of treatment. Two new Phase II studies of inecalcitol, in CML and in AML, are due to start in H214 and H115 respectively, after preclinical studies suggested anti-proliferative and potentially synergistic effects with existing therapies in these indications.

Services subsidiary diversifies and expands Services turnover grew 18% to €3.9 in FY13 from €3.3m; we forecast that FY14 revenue will increase 30% to €5.1m. The growth strategy is taking shape – Hybrigenics has bolstered its position in protein services and diversified into genomics. It is now well-positioned to offer its broader range of services to additional markets, leveraging growth through its newly established development and marketing hub in the US.

Funding in place for Phase II trials in AML and CML We forecast that Hybrigenics is funded into early 2017. The gross cash position at the end of December 2013 stood at €2.4m; subsequently it drew down €1.1m on the Yorkville equity line and raised a total of €6.1m through a private placement and capital raise. The proceeds will fund forthcoming Phase II leukaemia trials.

Valuation: DCF valuation of €91m

%

1m

3m

12m

Abs

6.0

(16.3)

252.9

Rel (local)

5.1

(21.4)

191.1

52-week high/low

€3.49

€0.53

Business description Hybrigenics is a French biotech company. It provides protein-protein, genetic and small molecule analysis services and is conducting Phase II studies on lead drug inecalcitol in chronic lymphocytic leukaemia, acute myeloid leukaemia, chronic myeloid leukaemia and prostate cancer.

Next events Final CLL data

2014

H114 results

October 2014

Analysts Emma Ulker

+44 (0)20 3077 5738

Dr Mick Cooper

+44 (0)20 3077 5734

[email protected] Edison profile page

We value Hybrigenics at €91m on a risk-adjusted DCF basis (€3.5 per share), vs €65m previously. The increase is due principally to the addition of two further indications for inecalcitol, with funding in place for Phase II studies. There is scope for the valuation to rise to €117m if inecalcitol moves into Phase III studies for CLL. The services division is valued at €10m or 2x FY14e revenue.

Hybrigenics is a research client of Edison Investment Research Limited

Investment summary Company description: French mid-cap biotech Hybrigenics is a French biotech company, formed from a spin out from the Institut Pasteur. It listed on the Paris Alternext exchange in 2007. Since inception Hybrigenics has raised over €65m in equity funding and also received grant funding from OSEO. Its main activity is development of vitamin D analogue inecalcitol as a treatment for chronic lymphocytic leukaemia (CLL) and other blood cancers as well as prostate cancer. In addition, it is developing pre-clinical targets based on the ubiquitin protease class through its research collaboration with Servier. Hybrigenics’ services subsidiary provides specialised proteomics and genomics services for life sciences and medical researchers and for the cosmetics and agrochemical industries. Hybrigenics is listed on the Alternext market and entered the CAC PME mid-cap index in April 2014.

Valuation: DCF valuation of €91m Our risk-adjusted DCF valuation is €91m (or €3.5 per share), increased from €65m mainly due to progress in CLL and the addition of new oncology indications CML and AML for inecalcitol. We have increased our price assumption for inecalcitol in oncology due to the relatively low previous assumption compared to other orphan drugs. We take a more conservative view on the potential in prostate cancer and have lowered our risk assumption as four years have elapsed since the last study data in the indication. Inecalcitol forms the highest proportion of our sum-of-the-parts. The key catalysts for 2014 will be news on the ongoing clinical progress for inecalcitol in CLL as well as trial starts in the other indications. If inecalcitol moves into Phase III studies for CLL, our valuation would increase to €117m. We value the services division on 2x 2014 sales at €10m. Preclinical projects, including potential milestones from research into USP targets under the Servier alliance, are excluded.

Sensitivities: Inecalcitol is the key After positive European Phase II data in CLL, Hybrigenics is looking to move forward into Phase III studies in Europe and the US. It aims to increase the value of inecalcitol by adding two new haematology indications, prioritising the use of funds to carry out Phase II studies in CML and AML. The potential to out-license inecalcitol for CLL and other haematological cancers, and potentially to resume in prostate cancer, is improved by the positive Phase II data and EU and US orphan designation. While previous discussions have not been fruitful due mainly to competition in oncology, progress in CLL and the addition of new haematological indications could support the search. Its options also include financing ongoing costs independently in case partnering discussions are unsuccessful. The expanding services division provides a source of diversification for the company, although the main focus is on inecalcitol in oncology, and reduces the risk profile of the company as compared to a pure biotech company.

Financials: Funds in place for Phase II trials Hybrigenics reported a 24% increase in total operating revenue in FY13 including 18% growth in services turnover from €3.3m to €3.9m. H213 services revenue growth of 21% to €2.5m was partly due to the acquisitions of the Y2H assets of Dualsystems and the genomics assets of Imaxio, which contributed c €0.3m in Q413. Hybrigenics boosted its end December gross cash of €2.4m by means of a total draw down of €1.1m on the Yorkville equity line in January and February, issuing 0.7m shares and through an equity raise of €6.1m gross through a private placement and capital raise (c 2.5m new shares). The proceeds of the latest round of funding are destined for financing two further Phase II trials of inecalcitol, in CML and AML, planned for H214 and H115 respectively. We estimate that Hybrigenics is funded into early 2017.

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Focus: Inecalcitol – a promising oncology therapy Hybrigenics is making progress developing inecalcitol as a therapy for adult leukaemias. Phase II European results confirmed that inecalcitol slowed disease progression in 52% of early stage CLL patients, supporting the rationale for taking the vitamin D derivative into Phase III studies. The company is exploring all financing options including conducting ongoing studies independently or through a licence partner. In addition, Hybrigenics is funding two new Phase II trials of inecalcitol as a therapy for other leukaemias, CML and AML, due to start within the next 12 months, following promising preclinical results in both indications. Hybrigenics has funds to complete both Phase II trials and will renew its efforts to secure a partner for further development in oncology. The services subsidiary is expanding and offers an increasingly differentiated range of services to a wider range of geographies; we forecast 30% revenue growth in 2014. The focus of the division is on organic growth through the new US subsidiary and through its newly branded genomics services division, Helixio. Hybrigenics is funded into early 2017.

Inecalcitol Inecalcitol is a derivative of vitamin D3 that demonstrates up to 15 times the anti-proliferative potency of calcitriol, the active form of vitamin D, on cancer cell lines in vitro. At the same time, its chemical structure leads to significant reduction in calcium toxicity, a major dose-limiting characteristic of other vitamin D3 derivatives. Vitamin D plays a role in many cellular mechanisms including cell proliferation and apoptosis. Hybrigenics is investigating the anti-proliferative effect of the oral form of inecalcitol in a range of diseases, notably haematological and solid tumours. Exhibit 1: Summary of development status of inecalcitol Indication CLL

Status Setting Phase II completed Monotherapy/untreated/ high risk of progression

CML

Phase II planned

AML

Phase II planned

CRPC

Phase IIa completed

Psoriasis

On hold

Secondary Pre-clinical hyperparathyroidism

Notes 21 untreated pts dosed with 2mg oral inecalcitol for at least five months; disease progression was halted in 52% of cases. Designated as orphan drug in EU/US. Next stage Phase III disease progression study. + first-line treatment/stable 50 pts across 6 centres; trial start in H214. chronic phase + standard chemo/newly 50 pts across 12 centres; trial start in H115. diagnosed + docetaxel/all Dose finding and safety study established daily 4mg oral dose – 40 out of 47 of patients exhibited an 85% reduction in PSA levels within three months, compared to a 65% reduction in PSA levels on docetaxel alone (in external registration study). Phase IIb proof of concept next development stage. Monotherapy/moderate to No significant difference in treatment group versus placebo group in Phase II trial in severe moderate-to-severe psoriasis. Unconfirmed In the Phase II trial of inecalcitol in psoriasis, PTH levels dropped below the normal range in 92% of dosed patients, suggesting that inecalcitol has a potential application in secondary hyperparathyroidism.

Source: Hybrigenics, Edison Investment Research

Chronic lymphocytic leukaemia Inecalcitol showed a promising therapeutic benefit in an update on the European Phase II trial of inecalcitol in untreated CLL, slowing disease progression in 52% of 21 patients treated for a minimum of five months. The update was provided on completing enrolment in February; full data are expected to be released in due course. Inecalcitol is being developed as an alternative to watchful waiting in CLL patients at risk of progression, to delay the need for chemotherapy or other treatments with significant side effects. Currently, the only option for untreated patients is to closely monitor symptoms including blood lymphocyte count (BLC). Inecalcitol is designated as an orphan drug by the European Commission and by the FDA for the treatment of CLL, confirming the medical plausibility of the treatment approach. Orphan status confers a range of benefits, including extended marketing exclusivity and eligibility for research tax credits. CLL is a rare disease affecting less than five in 10,000 of the EU population.

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The symptoms of disease progression in CLL include an increase in BLC, swelling of the lymph nodes, spleen enlargement and a drop in red blood cells leading to anaemia, coagulation deficiencies and susceptibility to infection. CLL patients tend to be elderly, c 75% of patients diagnosed are over 60 years old, and therefore they are more likely to suffer serious side effects or are unable to tolerate chemotherapy, particularly as immunity is often impaired. Phase II CLL data were consistent with earlier findings; inecalcitol halted disease progression in 52% or in 11 out of 21 patients treated for at least five months. Of these 21 patients, one saw a 90% decrease in BLC after 10 months of treatment; 10 other patients remained stable for at least five months and 10 patients did not respond. Three other patients left the study; two had been incorrectly included and one was diagnosed with lung cancer. These results support the ongoing development of inecalcitol in CLL. The next step remains to be confirmed by the company, but could be to start a combined European/US Phase III study or potentially a Phase II US trial first. Inecalcitol is positioned as a pre-chemo treatment in CLL, which means that it is targeted in a different setting to some of the developing and newly approved therapies in haematological cancer. Obinutuzumab (Gazyva) and ofatumumab (Arzerra) were FDA approved for untreated CLL and ibrutinib (Imbruvica) was approved for relapsed and refractory CLL. However, these treatments cause serious adverse events so that some patients are unable to tolerate them, while inecalcitol has a more benign side effect profile. Exhibit 2: Developing and recently approved CLL drugs Compound name/company Ofatumumab (Arzerra) /GSK/Genmab

Stage

Indication

Notes

Approved/ marketed

Relapsed and untreated/ CLL/refractory (approved)

Obinutuzumab (Gazyva) /Roche

Approved EU/US

First-line setting/CLL

Ibrutinib (Imbruvica) Pharmacyclics/ J&J

Approved EU/US

Relapsed or refractory CLL/small lymphocytic lymphoma/B-cell prolymphocytic leukaemia/mantle cell lymphoma

Marketed in the US and EU for CLL pts refractory to approved treatments. Approved as first-line treatment in CLL in combination with chlorambucil. In Phase III study of 447 pts with previously untreated CLL who received ofatumumab + chlorambucil or chlorambucil, median PFS was 22.4months in the ofatumumab arm vs 13.1m in the control arm. Phase III safety and efficacy study of GA101 + chlorambucil or rituximab + chlorambucil compared to chlorambucil in 781 untreated CLL patients. GA101 + chlorambucil pts saw 86% reduction in disease progression or death. Median PFS improved by more than a year from 10.9m for chlorambucil to 23m for GA101 + chlorambucil. FDA breakthrough therapy status in previously treated patients with MCL. In Phase II trial of 111 pts, ibrutinib arm demonstrated an ORR of 68%, a complete response rate of 21% and a median duration of response of 17.5m. Ibrutinib was approved by the FDA for relapsed or refractory CLL, Phase III data are due to be announced in late 2014.

Source: Edison Investment Research, Clinical Trials.com

Clinical background for new haematological indications Hybrigenics has carried out pre-clinical studies of inecalcitol to investigate its potential to slow disease progression or cure other forms of haematological cancer. These studies looked at the ways in which inecalcitol could be used in combination with existing standard treatments or as a monotherapy, for CML and AML.

Chronic myeloid leukaemia In CML, the abnormal leukaemic cells develop from blast or precursor blood cells. These cells become myelocytes or granulocytes and over-proliferate, preventing the blood from performing its normal functions. CML is graded into three stages, chronic, accelerated and blast phases, defined by the percentage of blast cells in the blood. In a healthy person, the proportion of blast cells in the bone marrow and blood is below 5%. CML symptoms include susceptibility to infection, anaemia, weight loss and swelling of the lymph glands. The preferred first-line treatment for chronic phase CML is first-generation tyrosine kinase inhibitor (TKI) imatinib (Gleevec). Patients are switched to second-generation TKIs nilotinib (Tasigna) and dasatinib (Sprycel) if they fail to respond or are intolerant of imatinib. The target of first-line therapy is to rapidly induce remission (BCR-ABL biomarker levels 65 yrs Quizartinib/Ambit Relapsed/refractory Biosciences

Phase III

Notes Phase III combination study with cytarabine completed. A randomised trial to compare this combination to standard therapy in AML is needed to further investigate the role of this combination. 240-pt Phase III study of CPX-351 (cytarabine/daunorubicin liposomal) vs conventional 7+3 (results: Dec 2016).

Phase III

714-pt trial of induction (daunorubicin, cytarabine) following by consolidation) ± midostaurin (fully recruited, results: Jul 2014).

Phase III

470-pt trial (SEAMLESS) of sapacitabine alternating with decitabine vs decitabine only (results: Apr 2015).

Phase III

1,250-pt NCI-sponsored study testing various regiments containing bortezomib and sorafenib in parallel in pts with/without mutations (results: June 2017). 480-pt study vs conventional care regimens. Median overall survival (OS) was 10.4 months for patients receiving azacitidine compared to 6.5 months for patients receiving CCR. 460-pt study of oral azacitidine + BSC (results: Aug 2018).

Phase III Phase III Phase III Phase II/III

660-pt study (POLO-AML-2) in combination with cytarabine (results: Jan 2016). Phase II portion of an open-label, US Phase I/II trial evaluating oral quizartinib in combination with 5azacitidine or low-dose cytarabine started April 2014. Up to 64 patients ages >=60 with previously untreated FLT3-ITD-positive AML or ages >=18 with FLT3-ITD-positive AML at first relapse. International Phase III QUANTUM-R trial to treat in FLT3-ITD-positive AML – 326 pts in first relapse. Orphan Drug designation in the US and EU and Fast Track designation in the US to treat FLT3-positive AML patients. STA-9090/ Patients ineligible Phase Three Phase II/III trials in AML and AMD starting in 2014 AML-LI low dose cytarabine (Ara-C) vs low dose ganetespib/Synta for intensive II/III Ara-C alone in patients not eligible for intensive chemotherapy. AML-18 and AML-19 due to start in H214. Pharmaceuticals Corp chemotherapy Phase IIb 1,000-pt six-arm Phase IIb study including ganetespib arm. Study also examines cytarabine, sapacitabine (Cyclacel), vosaroxin (Sunesis) ± cytarabine, quizartinib (Astellas) in parallel in pick-a-winner design. Crenolanib Relapsed/refractory Phase II 14-pt Phase II study results: May 2014. Besylate/Arog PLX3397/Daiichi Relapsed/refractory Phase I/II 47-pt Phase I/II trial (pts ≥ 60 years only if unable/unwilling to undergo induction chemotherapy). Primary Sankyo AML or secondary to an antecedent hematologic disorder. Awaiting results. Tasigna Relapsed/refractory Phase I/II 46-pt Phase I/II study of nilotinib + mitoxantrone, etoposide and high-dose cytarabine. Nilotinib was well (nilotinib)/Novartis tolerated in combination with re-induction chemotherapy. 150-pt Phase II trial (EffiKIR; double-blind, threearm, two doses of IPH2117 and placebo) in patients in first complete remission. Primary endpoint: leukaemia-free survival. Started in Q412; final data expected in Q316. Source: Edison Investment Research, Clinical Trials.com

The anti-proliferative activity of inecalcitol has been tested in preclinical studies under in vitro and in vivo conditions. The studies were led by scientists from a range of research institutes including APHP Paris and INSERM URM 1163 and presented at the 12th International Congress on Targeted 1 Anticancer Therapies. The principal observations noted were that inecalcitol was c 1,000 times more potent to promote myeloid differentiation than calcitriol (active vitamin D), strongly inhibited the growth of AML cell lines, promoted differentiation into more mature cells or caused cell death. In a mouse model of AML, engineered from the most common forms of AML gene mutation, treatment with inecalcitol delayed the onset of the disease. Following these preclinical studies, Hybrigenics is pursuing a Phase II trial in AML patients. Its low toxicity could be a particular advantage for patients with impaired immunity. The study results suggest that inecalcitol could induce remission. A Phase II study of inecalcitol in AML is at the planning stage; patients will be treated with inecalcitol in combination with standard chemotherapy versus placebo plus chemotherapy. Hybrigenics aims to recruit up to 50 patients across 12 centres. The trial is slated for a H115 start with potential 12-month duration. The objectives of the trial are to measure overall survival, response rate as well as tolerance of inecalcitol.

Commercial prospects for inecalcitol in oncology The promising end-of-recruitment data from the Phase II CLL trial and the addition of the two new haematology indications could help stimulate renewed interest from potential partners. Previous partnering discussions were unfruitful, largely due to competition in oncology and the lack of data 1

ABSTRACT: Inecalcitol, a highly potent VDR agonist promotes cell differentiation and eradicates tumor cells in acute myeloid leukemia, Paubelle, E, Zylbersztejn, F et al.

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on the use of inecalcitol as monotherapy in prostate cancer. Inecalcitol gained EU orphan designation in CLL and more recently, in the US, which not only provides support for the trial protocols but confirms the medical rationale for inecalcitol in the treatment setting. Hybrigenics has patented the therapeutic use of inecalcitol at high doses (>1mg/day) as in CLL studies, until 2029 in Europe and until 2031 in the US, therefore the period of post-approval marketing exclusivity, conferred by inecalcitol’s orphan drug status, is unlikely to be relevant . The US development strategy for CLL is not yet confirmed although it is likely that a Phase II trial would be conducted in the first instance and potentially a combined EU/US Phase III study, depending on the US strategy. Adult haematological cancers are orphan diseases, the most common being CLL with around 16,000 patients diagnosed a year in the US. There were around 15,000 new cases of AML diagnosed in the US in 2013 and around 6,000 cases of CML. Hybrigenics will pursue orphan designation for both AML and CML after it has initiated the Phase II trials. Although inecalcitol is unlikely to be a high-priced drug compared to other orphan therapies, we have increased our price assumption from $15,000 to $20,000 in oncology as there was previously too much disparity compared to peers. Our peak sales estimates are $385m for CLL, $90m for AML and $216m for CML. Inecalcitol is also a potential therapy for solid tumours although the focus is currently on haematology. In Phase II trials inecalcitol was shown to lower PSA levels in patients but a Phase IIb/III trial is needed to obtain survival data. Development of inecalcitol in prostate cancer has been paused, despite its potential, because Hybrigenics requires funding or a partner to move development forward in this indication (the approximate cost is €6-8m). The incidence rate of CRPC is around 240,000 new cases a year in the EU; our peak sales assumption is €404m in the indication. However, the last trial in prostate cancer was concluded nearly four years ago and the competition has advanced in that time, so a potential partner might be more likely to focus on haematology. Hybrigenics has raised funds of €6.1m for Phase II trials in CML and AML but it would require a partner or additional equity funding for follow-on trials. Such a partner may focus on developing inecalcitol in haematology but has the option to resume studies in prostate cancer.

Secondary indications for inecalcitol outside oncology Hybrigenics is developing inecalcitol primarily as an oncology treatment, however it has completed a Phase II trial in psoriasis. The study failed to show a therapeutic benefit in patients receiving the oral form of inecalcitol versus placebo, potentially due to the very high placebo effect seen particularly in the women in the study. There could be further potential in psoriasis, for example from a combination of oral and topical forms of the drug. The Phase II study also suggested inecalcitol’s therapeutic effect in secondary hyperparathyroidism (caused by chronic kidney disease or vitamin D deficiency and characterised by the over-secretion of parathyroid hormone). However, further development of inecalcitol in these indications is unlikely until the potential in haematological and solid cancers is known, owing to the possibility of marketing conflicts and/or pricing disparities, so these remain back-up indications for the drug.

Research collaboration with Servier on Ubiquitin Protease System Hybrigenics formed a collaboration with Servier in 2011, based on initial work in the field of deubiquitinating enzymes (DUBs). The financial terms of the collaboration included a total €4m fee, payable in instalments over the three-year term of the agreement (to the end of 2014). Hybrigenics is due to receive the c €1m balance of its fee in 2014. In addition, Hybrigenics is eligible for milestone payments up to €11.5m for each target that leads to a new drug reaching the market plus royalties on the sales of any companion diagnostic test. In January Hybrigenics announced its first milestone from the collaboration, the sum of €0.33m, having made progress towards identifying a new oncology drug.

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Hybrigenics is using its expertise in the field to screen and identify a large number of potential targets for treatments in oncology, neurology, rheumatology, ophthalmology, diabetes and cardiovascular diseases. Servier will then develop drugs to inhibit these specific DUBs. The focus of the collaboration is on the ubiquitin specific proteases (USPs), a subset of around 60 enzymes. Research on DUB inhibitors has demonstrated that they are characterised by high specificity and potency with reduced side effects. Proteasome inhibitor bortezomib (Velcade), which downregulates the ubiquitin-proteasome pathway affecting cell replication and apoptosis, is a marketed treatment for relapsed and refractory multiple myeloma. Its success indicates the therapeutic potential of the DUB inhibitors. Hybrigenics might independently develop DUB inhibitors in other areas including virology and immunology. However, while the DUB pipeline is promising, we have not included the programme in our valuation at this stage. We will do so if any target advances into clinical development.

Services division Hybrigenics’ Services division is delivering growth by expanding the breadth and range in order to deliver a more comprehensive range of services to its life sciences and industrial customers. It diversified into genomics by acquiring Imaxio in October and consolidated its position in protein services by acquiring the Y2H assets of key competitor Dualsystems last July. The division delivered 16.5% growth in FY13 to €3.9m, and we estimate that approximately €1.2m of revenue (on an annualised basis) came from acquisitions. Hybrigenics has rebranded the genomics services business as Helixio. The core strengths of the business include DNA and RNA microarray technologies measuring biological activity and the way in which genes are regulated and expressed within cells. It also offers next-generation sequencing, to help investigate the genetic basis of diseases. Helixio provides services across a broad range of sectors including life sciences, agriculture and cosmetics. The applications of these services include disease diagnosis, tailored analysis of the genes of living organisms and cancer profiling for personalised medicine. Helixio is well-positioned to benefit from the growth potential in genomics as it has a high level of expertise and strong commercial relationships. It aims to differentiate itself by delivering faster, lower-cost and more accurate analysis than some of its competitors using Agilent and Illumina next-generation, high-throughput sequencing technologies. Hybrigenics has also built on the core Y2H protein services business where it has established a strong niche, strengthened by the acquisition of the assets of Dualsystems last year. This acquisition was highly complementary and Hybrigenics has considerably extended the range of protein interactions that can be studied. The combined protein libraries or catalogue cover protein interactions of 60-plus species spanning human, bacteria, parasite and plant life. The study of protein interactions has applications in a variety of fields. In medicine for example, this can be used to map disease mechanisms across a whole organism. Hybrigenics extended this core service by developing YChemH screening, launched in 2013, which identifies interactions between small molecules and protein targets. This service was developed through Hybrigenics’ collaboration with Charnwood Molecular. The companies received a life sciences innovation award for the most innovative new service of 2014 at the recent European Lab Automation Exhibition. YChemH is adapted from the ‘bait’ and ‘prey’ principle of Y2H, and its applications include investigating the range of therapeutic activities of specific small molecule drugs. YChemH screen can also be used to detect the interactions between common chemicals and proteins. The award for innovation comes at a time when the division is focusing on delivering higher revenue from this service.

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Exhibit 5: Principles of interaction between anchor binding domain ‘bait’ and small molecule ‘prey’ in YChemH process

Source: Hybrigenics

This expansion allows it to benefit from cross-selling proteomics and genomics based services to its existing 1,500 plus customers as well as launching the full range of services across the range of geographies. Hybrigenics set up a US subsidiary, in Massachusetts in the heart of the Boston biocluster, in September to benefit from the high concentration of R&D activity in the region and based on the comparatively low level of sales it derives there. The opportunities for organic revenue growth, particularly in view of the new subsidiary, will be a key focus in the coming financial year. Looking forward, there are opportunities for further margin and revenue acceleration for the subsidiary by delivering this broader and more integrated range of services across a wider range of geographies – we forecast 30% services revenue growth in 2014 due to the expansion, which equates to ongoing organic growth of c 10% (stripping out acquisitions). Hybrigenics is positioned to provide a specialist range of services to these sectors where there is a demand for fast turnaround, accurate analysis and high data quality.

Sensitivities The key sensitivity is the clinical potential of inecalcitol in oncology and the rate of progress in clinical studies. Having completed a Phase II trial in CLL in Europe and gained orphan drug designation in both EU and the US, the next step is to initiate a Phase III study in CLL (which might be a combined US/EU trial or potentially a Phase II study in the US). The rate of progress in CLL, AML and CML will also influence Hybrigenics’ ability to attract a partnership for follow-on trials in haematological and solid cancers including resuming development in prostate cancer. Hybrigenics has sufficient funds to carry out the Phase II trials in AML and CML, but would be reliant on further financing or a partnership to progress into Phase II in the US and Phase III for all three haematological indications, and to conduct the Phase IIb for prostate cancer. The services division is in a period of expansion and offers an increasingly differentiated range of services with a high level of expertise. This business diversification means that the risk profile of Hybrigenics is lower than for a pure biotech company if it continues to execute the growth strategy.

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Financials Hybrigenics reported FY13 revenue growth of 24% to €6.1m. FY13 services sales increased by 18% to €3.9m from €3.3m in FY12. No breakdown of the revenues from the acquisitions was provided. However, we base our forecasts on the assumption that these account for c €1.2m on an annualised basis. Our underlying service revenue growth forecasts are unchanged at c 10% and we forecast FY14 services revenue of €5.1m, an overall increase of 30% over FY13. Total revenue is forecast to increase 23% in FY14 from €6.1m to €7.5m. FY13 operating costs reached €8.5m (€8.6m) and we forecast that there will be an increase in FY14 and FY15 costs to €9.6m and €11.6m, as the company continues to invest in growing the services subsidiary and due to additional R&D expenditure on the Phase II trials. Hybrigenics’ gross cash position stood at €2.4m as at December 2013. Since the end of December 2013, Hybrigenics drew down €1.1m on its equity line with Yorkville issuing 0.721m new shares. It raised a further total of €6.1m gross, issuing 1.6m shares at €2.35 through a private placement to raise €3.8m and issuing 932,730 new shares at €2.5, raising further capital of €2.3m. The total remaining balance currently available for draw down on the equity line is €4.9m. On this basis we forecast that Hybrigenics is funded into early 2017 assuming that the company will draw down a further €2.0m in 2015 and €2.5m in 2016 from the Yorkville equity line.

Valuation Our risk-adjusted DCF valuation is €91m (compared to €65m) or €3.5 per share, reflecting progress in the Phase II CLL trial of inecalcitol and the addition of CML and AML. If inecalcitol enters Phase III for CLL, our valuation would increase to €117m. We have increased our price assumption of inecalcitol in oncology from $15,000 to $20,000, as our previous assumption was low in line with other oncology drugs and orphan therapies. In prostate cancer, we have pushed back the potential launch date to 2020 and lowered the risk adjustment from 30% to 10% mainly due to the current focus on leukaemia and due to the length of time since the conclusion of the Phase II study. The key assumptions for our risk-adjusted, sum-of-the-parts DCF valuation are detailed in Exhibit 6. Exhibit 6: Valuation assumptions for inecalcitol Launch date 2018 2020 2020 2020 2020

Inecalcitol CLL Inecalcitol CRPC Inecalcitol HRPC Inecalcitol AML Inecalcitol CML

Peak sales $m 385 404 2,409 90 216

Risk adjustment 30% 10% 10% 30% 30%

Market penetration 15% 20% 10% 15% 15%

Royalty 15% 15% 15% 15% 15%

Source: Edison Investment Research

Exhibit 7: Sum of the parts DCF valuation Driver Inecalcitol CLL Inecalcitol CRPC Inecalcitol HRPC Inecalcitol AML Inecalcitol CML Services Division Servier collaboration Expenses + tax Net cash FY13 TOTAL Number of shares

Value per share € 2.1 0.4 1.3 0.4 0.9 0.4 0.1 (2.0) 0.1 3.5

Value €m 53.5 10.3 33.0 9.5 22.8 10.0 1.6 (51.7) 1.9 90.8 25.9

Source: Edison Investment Research

Hybrigenics | 16 June 2014

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The main element of our valuation is inecalcitol in oncology. We value Hybrigenics Services on 2x projected FY14 revenue at €10m. Preclinical projects, including potential milestones from research into USP targets under the Servier alliance, and inecalcitol’s value in psoriasis and hyperparathyroidism, are also excluded. The main catalysts for 2014 are final data from the CLL trial of inecalcitol, news of the next clinical steps and trial starts in CML and AML in H214 and H115. Exhibit 8: Financial summary 2012

2013

2014e

2015e

5,890 0 5,890 (2,261) (2,426) (332) 0 0 (2,758) (13) (2,439) (2,771) 322 (2,117) (2,449)

6,087 0 6,087 (2,054) (2,182) (226) 56 0 (2,352) (21) (2,203) (2,373) 601 (1,602) (1,772)

7,487 0 7,487 (1,900) (2,020) (147) 0 0 (2,167) (1) (2,022) (2,169) 360 (1,662) (1,809)

7,173 0 7,173 (4,165) (4,300) (110) 0 0 (4,410) 126 (4,174) (4,284) 361 (3,813) (3,923)

16.1

19.8

24.1

26.0

(13.2) (15.2) 0.0

(8.2) (9.0) 0.0

(6.9) (7.5) 0.0

(14.6) (15.1) 0.0

N/A N/A N/A

N/A N/A N/A

N/A N/A N/A

N/A N/A N/A

BALANCE SHEET Fixed assets Intangible assets Tangible assets Investments Current assets Stocks Debtors Cash Other Current liabilities Creditors Other current liabilities Short-term borrowings Long-term liabilities Long-term borrowings Other long-term liabilities Net assets

886 333 266 287 6,133 529 2,144 3,460 0 (3,942) (1,980) (1,282) (680) 0 0 0 3,078

1,134 588 241 305 6,704 906 3,364 2,434 0 (2,595) (1,625) (471) (499) 0 0 0 5,243

998 441 270 287 12,051 1,114 4,138 6,799 0 (2,539) (1,826) (612) (100) 0 0 0 10,510

902 331 283 288 10,467 1,068 3,964 5,435 0 (2,916) (2,136) (680) (100) 0 0 0 8,452

CASH FLOW Operating cash flow Net interest Tax Capex Payment of deferred consideration Capitalisation of development costs Expenditure on intangibles Acquisitions/disposals Financing Dividends Net cash flow Opening net debt/(cash) HP finance leases initiated Other Closing net debt/(cash)

(2,449) (13) 579 (50) 0 0 0 0 3,600 0 1,667 (1,849) 0 (736) (2,780)

(1,778) (21) 322 (40) 0 0 0 (495) 1,898 0 (114) (2,780) 0 (731) (1,935)

(2,822) (1) 601 (149) 0 0 0 0 7,135 0 4,764 (1,935) 0 0 (6,699)

(3,702) 126 360 (148) 0 0 0 0 *2,000 0 (1,364) (6,699) 0 0 (5,335)

Year end 31 December PROFIT & LOSS Revenue Cost of sales Gross profit EBITDA Operating profit (before GW and except) Intangible amortisation Exceptionals Share-based payments Operating profit Net interest Profit before tax (norm) Profit before tax (FRS 3) Tax Profit after tax (norm) Profit after tax (FRS 3) Average number of shares outstanding (m) EPS - normalised (c) EPS - FRS 3 (c) Dividend per share (c) Gross margin (%) EBITDA margin (%) Operating margin (before GW and except) (%)

€'000s

Source: Edison Investment Research, Company accounts. *Note: Equity raise includes funding drawn on Yorkville line.

Hybrigenics | 16 June 2014

11

Contact details 3-5 impasse Reille 75014 Paris France +33 (0)1 58 10 38 00 www.hybrigenics.com

Turnover by geography %

48%

52%

France

CAGR metrics

Profitability metrics

EPS 11-15e EPS 13-15e EBITDA 11-15e EBITDA 13-15e Sales 11-15e Sales 13-15e

N/A N/A N/A N/A 9% 18%

Export

Balance sheet metrics

ROCE 14e Avg ROCE 10-14e ROE 14e Gross margin 14e Operating margin 14e Gr mgn / Op mgn 14e

N/A N/A N/A N/A N/A N/A

Gearing 14e Interest cover 14e CA/CL 14e Stock days 14e Debtor days 14e Creditor days 14e

Sensitivities evaluation N/A N/A N/A 52 202 82

Litigation/regulatory Pensions Currency Stock overhang Interest rates Oil/commodity prices

 

   

Management team CEO: Rémi Delansorne

CMO: Jean-François Dufour-Lamartinie MD

Rémi Delansorne has been CEO since September 2005 (director since October 2007), having joined Hybrigenics as director of R&D in 2004. Previously he was with Théramex, a French subsidiary of Merck KGaA, latterly as director of research in diabetology. He holds a DVM from National Veterinary School, Alfort, France and a PhD in biology from the Université Pierre et Marie Curie.

Jean-François Dufour-Lamartinie joined Hybrigenics as head of clinical research in 2006. He has broad experience of clinical development, having been a clinician at various cancer research institutes including Institut Gustave Roussy and clinical research director of Bioalliance Pharma, prior to joining Hybrigenics.

CFO: Guillaume Floch

Chairman: Daan Ellens PhD

Guillaume Floch has been CFO since June 2008. Previously he was head of business planning and performance of Cephalon (France), and financial controller of Zeneus Pharma and Elan France.

Daan Ellens is chairman and partner with Life Science Partners, a Dutch venture capital firm. He is former CEO of Rhein Biotech (1997-2004); and was previously an executive of pharmaceuticals and diagnostics businesses within Akzo Nobel (1980-97).

Principal shareholders

(%)

Pradeyrol Development Life Science Partners Natixis Asset Management

10.1% 4.1% 2.1%

Companies named in this report Ambit Biosciences, Bayer, Boehringer Ingleheim, BMS, Celator, Celgene, Charnwood Molecular, Cyclacel, Daiichi Sankyo, GSK, Genmab, Innate Pharma, J&J, Novartis, Pharmacyclics, Roche, Sanofi, Servier, Synta, Takeda.

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