Buzzword du jour falls flat with Genocea investors

Pity poor Genocea. Many companies touting a strategic switch into immuno-oncology, the hottest area in biotech today, might have expected the markets to respond positively, but such bullishness has eluded the young US group.

Perhaps one problem is that Genocea now plans to turn its hand to cancer vaccines – a notorious graveyard for developers, even if it does involve the attempted activation of the immune system. Or maybe it is merely that the shift, announced after market close yesterday, wipes out a lead asset that the sellside had valued at some $783m.

Either way, investors’ response was savage, wiping out over half of Genocea’s market cap at market opening today. Neither did it help that the company plans to cut 40% of its workforce at a cost of $1.1m to save $6.5m a year and eke out its $24m of net cash out until the middle of next year.

The lead asset the company is effectively washing its hands of is GEN-003, a herpes vaccine it says is ready for phase III, but for which it is now “exploring strategic alternatives”.

GEN-003 had been expected to sell $241m in 2022, according to sellside consensus compiled by EvaluatePharma, giving it an estimated risk-adjusted NPV of $783m. After this morning’s crash Genocea’s market cap stands at just $70m.

There had earlier been doubts about the lack of GEN-003’s effect on herpes lesion reduction (Without further support Genocea data should be viewed with care, April 1, 2016). But subsequent data reported recently, in which Genocea did claim a success on this endpoint at the proposed phase III dose, did not improve the asset’s prospects either.

The assessment of Stifel analysts was savage. They wrote yesterday that Genocea had likely been shopping GEN-003 around prospective partners for some time already, so chances of doing a deal now were low; they removed the asset from their valuation, and slashed the group’s target price from $15.00 to $2.50.

What’s new?

In GEN-003’s place Genocea now proposes to turn its antigen-selection technology to generating novel therapeutic cancer vaccines targeting neoantigens.

These types of targets are newly expressed antigens on cancer cells, and are usually specific to a particular genetic mutation. Thus they differ from the much more common antigens that are usually present on all the cells of a given type that is undergoing uncontrolled growth in a malignancy.

This is all very well, and neoantigen approaches are today seen as relatively promising, but cancer vaccines in general struggle because targets are only half of the puzzle; in the absence of T-cell receptors of sufficient affinity to trigger a response it makes little difference whether they recognise a novel antigen or not.

It is perhaps because of this that Stifel is already mentioning combinatorial approaches, to enhance checkpoint inhibition, for instance. However, for Genocea it is still extremely early days: its lead vaccine asset, GEN-009, will not even have an IND filed until early next year.

If GEN-003 is not licensed out the threat of a deeply discounted equity raise will be a major risk to Genocea stock. And, given the near-100% failure rate of cancer vaccines, the group looks like it is saying little in hoping to develop best-in-class products in this field.

To contact the writer of this story email Jacob Plieth in London at jacobp@epvantage.com or follow @JacobPlieth on Twitter

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