ORIC’s Christmas Present From Pfizer: A $25m Equity Stake (NASDAQ:ORIC)

Investment Overview

South San Francisco-based ORIC Pharmaceuticals (NASDAQ:ORIC) IPO’d back in April 2020, raising ~$120m via the issuance of 7.5m shares at a price of $16.

ORIC – which stands for “Overcoming Resistance in Cancer” – planned to use the funds to develop lead product candidate ORIC-101, which the company described as “a potent and selective small molecule antagonist of the glucocorticoid receptor,” plus a second candidate, ORIC-533, described as:

… an orally bioavailable small molecule inhibitor of CD73, a key node in the adenosine pathway believed to play a central role in resistance to chemotherapy- and immunotherapy-based treatment regimens.

ORIC’s share price initially climbed after its IPO, reaching a high of $40 by December 2020, but by the beginning of 2022, with the biotech having made limited clinical progress with either candidate, shares had fallen in value to <$10.

Worse was to come after management announced in March this year that it would discontinue development of ORIC-101, after tests alongside Pfizer (PFE) / Astellas Pharma’s blockbuster (>$1bn per annum) selling androgen receptor inhibitor Xtandi in patients with solid tumor cancers including breast, prostate, ovarian and pancreatic failed to generate results sufficient to warrant further investigation.

By the beginning of November this year, ORIC stock had fallen in value to >$2.5 – a market cap valuation of <$100m, despite the fact management reported a cash position of $194m as of Q322.

A Phase 1b study of ORIC-533 was underway, whilst another candidate – ORIC-114, a brain penetrant EGFR/HER2 exon 20 program – had been acquired for $13m from South Korea based biotech Voronoi, and was being prepared for Investigational New Drug (“IND”) submission from the FDA, (to allow in-human studies to begin in the US).

A third candidate – ORIC-944, a an allosteric inhibitor of the polycomb repressive complex 2 (“PRC2”) indicated for prostate cancer – had also been entered into a Phase 1b study.

With net loss for the year to date standing at $68m as of Q322, and its lead candidate discarded, ORIC’s prospects for 2023 looked bleak, but things may just have changed in the blink of an eye.

Yesterday, ORIC announced that it had entered into a clinical development collaboration with Pharma giant Pfizer (PFE), who will assist with a Phase 2 study of ORIC-533, in combination with elranatamab – Pfizer’s investigational B-cell maturation antigen (“BCMA”) CD3-targeted bispecific antibody – in patients with Multiple Myeloma (“MM”).

As part of the agreement Pfizer has made an equity investment of $25m into ORIC, buying 5.4m shares at a price of $4.65 per share. ORIC will “maintain full economic ownership and control of ORIC-533,” a statement read, while Pfizer’s Chief Scientific Officer, Oncology Research & Development, Jeff Settleman Ph.D. will join ORIC’s Scientific Advisory Board.

ORIC’s share price has responded by climbing >50% to its highest price since August of $4.6 at the time of writing, but is this the deal that reverses ORIC’s fortunes? Let’s take a deeper dive look at the deal and ORIC’s prospects for 2023.

The Pfizer Deal – Small, But Significant?

Management’s quickly pointed out that it now has a cash runway into 2025 after announcing the Pfizer deal, and that it will use some of the funds to further investigate ORIC-114, and ORIC-944.

From Pfizer’s perspective this deal is practically immaterial, given how much the Pharma’s cash position has increased over the past two years thanks to the success of twin COVID assets Comirnaty, the vaccine, and Paxlovid, the antiviral.

Pfizer had >$35bn available at the end of Q322 to spend on bolt-on acquisitions, having already spent >$25bn on acquisitions of Arena Pharmaceuticals, Biohaven, Global Blood Therapeutics and Reviral, so this latest investment is small change to the pharma and could easily be written off if the combo of ORIC-533 and elranatamab does not succeed.

Oddly for this type of deal, there do not seem to have been any milestone payments agreed. Usually, a pharma will offer financial incentives for progress in the clinic, a first approval, first commercial sales, and royalties on global sales that can run into the billions of dollars.

ORIC will now initiate a Phase 2 combo study of ORIC-533 and elranatamab but should that trial succeed, it’s unclear if Pfizer would offer to fund further studies, or leave ORIC to take responsibility for guiding its asset through the approval process where it would be reunited with elranatamab.

A best-case scenario for ORIC may be for Pfizer to acquire it, which may suit Pfizer also given it now has a substantial position in ORIC stock.

Why ORIC-533?

As mentioned above, ORIC-533 will not read out Phase 1 study data in MM until H123, but preclinical studies have been relatively encouraging. ORIC recently presented preclinical data pertaining to its CD73 inhibitor at the 64th American Society of Hematology (“ASH”) Annual Meeting with Jacob M. Chacko, MD, ORIC CEO, commenting as follows:

ORIC-533 continues to demonstrate strong potency in reducing adenosine generation and thereby overcoming immune suppression and restoring lysis of multiple myeloma cells as a single agent in ex vivo models

CD73 is a well known target that drug developers have believed for some time could work synergistically with immunotherapies. According to an abstract paper on CD73 inhibition I found online:

In tumors, CD73 regulates the production of immunosuppressive adenosine through the hydrolysis of AMP, and inhibiting the enzyme was shown to be beneficial as an antitumor mechanism.

CD73 is overexpressed in the tumor microenvironment as a consequence of hypoxia-inducible factor HIF-1 activation, together with many other proteins, and the combination of CD73 inhibitors with antitumor agents targeting such proteins may be synergistic.

The ~$1.5bn market cap valuation biotech Arcus (RCUS) for example has a lucrative deal in place with Gilead Sciences (GILD) to develop numerous clinical cancer drug candidates, and although the main thrust of the deal is related to Arcus’ anti-TIGIT candidate domvanalimab, one of the other molecules in question is quemliclustat, a small molecule inhibitor of CD73.

To date, Arcus’ quemliclustat data has been underwhelming, with trials in pancreatic cancer as part of a triplet combo apparently failing to significantly improve on chemotherapy alone.

Another company looking at CD73 is Corvus Pharmaceuticals (CRVS), although apparently development of its candidate Mupadolimab has been paused at the Phase 2 trial design stage in order to prioritise other assets. The Phase 2 is described as a:

randomized, blinded trial designed to compare standard chemotherapy plus pembrolizumab (anti-PDL-1) with or without mupadolimab in patients with any tumor PDL-1 expression. The primary endpoint for the trial is progression-free survival.

Mupadolimab is being investigated by Angel Pharmaceuticals for the Chinese market, but to summarize, progress seems to have stalled, and the same seems to be true of another candidate, Surface Oncology’s (SURF) NZV930, which is being licensed to Novartis (NVS) but is still at the Phase 1 study stage, and another candidate, Innate Pharma’s IPH5301, which is still at the proof-of-concept stage.

Progress with CD73 to data tells us a few things about the nature of the Pfizer / ORIC deal. Firstly, CD73 is a well-known, albeit unproven target for drug developers.

Secondly, that no biotech has produced much data of note in the clinic, so much of the evidence that CD73 inhibition can help immunotherapies destroy more cancer cells is preclinical and based on an as-yet unproven thesis, even if the preclinical data is quite persuasive.

Thirdly, it likely tells us about the strength of Pfizer’s commitment to this deal. Pfizer’s oncology division earned revenues of >$12.5bn in 2021, driven by three blockbuster assets in Ibrance (breast), Xtandi (prostate), and Inlyta (various solid tumors).

Pfizer’s focus tends to be on solid tumor cancers, but the company does harbor high hopes for elranatamab, which achieved a high objective response rate of 61% in a study in >120 relapsed or refractory MM patients, with a manageable safety profile, as recently as this month.

The MM market is crowded, however, and newly approved cell therapies such as Bristol Myers Squibb’s (BMY) Abecma and Legend Biotech (LEGN) and Johnson & Johnson’s (JNJ) Carvykti have posted ORRs of 72% and 98% respectively in R/R MM, and complete response rates of 28% and 78% respectively, data shows, so the bar for approval is high.

Additionally competing with JNJ subsidiary Janssen’s T-cell redirecting bispecific antibody, teclistamab, and Regeneron’s (REGN) linvoseltamab (REGN5458), which recently posted positive data in MM with a 64% response rate, Pfizer is likely searching far and wide for a competitive advantage, and opted to work with ORIC.

What Happens Next – Can ORIC Develop This Partnership?

To make the most of this partnership, ORIC likely needs to buck a trend of CD73 targeting drugs not performing adequately in the clinic. Since it will be down to ORIC to design and initiate the trial, management does at least have the opportunity to look at different approaches, and test different theses to those that have gone before.

ORIC is working toward the theory that “high CD73 and adenosine are associated with poor prognosis and therapeutic resistance in multiple myeloma, and that the preclinical activity of ORIC-533 has been “favorable to standard of care therapies in cross literature comparisons” (quotes taken from ORIC website).

It’s worth remembering that ORIC worked with Pfizer on its failed candidate ORIC-101, but perhaps Pfizer saw something in ORIC’s approach that persuaded the pharma to maintain relations and try working with ORIC’s other candidates.

With access to Pfizer’s R&D infrastructure, and enough cash to not have to worry about fundraising for at least 12 months, ORIC has an opportunity to make the breakthrough with CD73, although the terms of Pfizer’s deal and quotes from both sides do not seem to suggest that either party is very confident of success. Consider Dr. Settleman’s quote:

Given the high unmet need for patients with multiple myeloma and potential for relapse, we believe new treatments and combinations with novel mechanisms of action that counter mechanisms leading to resistance are essential to improving outcomes.

Both sides seem to acknowledge that this is the most speculative of trials, unlike, say, Gilead’s much bigger money deal with Arcus, where expectations for success were higher, or even Surface Oncology and Novartis’ work. It’s also perhaps telling that ORIC is setting some of the funds raised aside to fund its other projects.

ORIC-114 is an interesting prospect, being brain penetrant, and specifically targeting Epidermal growth factor receptor (“EGFR”) and human epidermal growth factor receptor 2 (“HER2”) exon 20 insertion mutations. ORIC-944 – designed to inhibit EZH2 is part of a new drug class that could work in a range of solid tumors.

There’s also a preclinical program targeting PLK4 inhibition, so ORIC certainly has options when it comes to picking which candidates to progress and which to shelve, although its targets are indicated for markets that are highly competitive, and where prospects for a biotech are inevitably slim.

Conclusion – This Deal May Not Be ORIC’s Saving Grace in 2023, But It Is Good PR

ORIC has not been a listed company for a very long time, and the CV of its CEO, Jacob Chacko MD suggests he is a dealmaker – he has been on the Board of Directors of 3 companies – Turning Point Therapeutics, Bonti, and EnvisionRX which have been acquired by Big Pharma, or in EnvisionRX’ case, Rite Aid.

That may imply that the best thing about the Pfizer deal is the equity stake the bigger company has taken, which may be the first step in a longer-term acquisition of ORIC.

The two companies already have worked together on ORIC-101, which was a failure ultimately, and ORIC-533 would surely have to make a difference to elranatamab’s performance in the clinic for Pfizer to move for a full takeover of ORIC.

That sets ORIC an intriguing challenge for 2023, but also one that I would not be overly optimistic about given the difficulties presented by the CD73 class in the clinic, and Pfizer’s ability to look elsewhere for ways to deploy its huge cash resources.

As such, I would be cautious on the investment case for ORIC based on today’s deal, although at the very least it gives management a stay of execution.