CymaBay Therapeutics (CBAY)

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1 Company Update CymaBay Therapeutics (CBAY) CymaBay Finds Success in Phase II Study for Seladelpar, Observed Drug Profile is Likely Competitive. On July 17 th, CymaBay Therapeutics (NasdaqCM: CBAY) announced positive results from a Phase II study with seladelpar in the treatment of patients with primary biliary cholangitis (PBC). These data demonstrate strong reductions in alkaline phosphatase (AP) levels with seladelpar treatment, which support the potential for superior efficacy compared to current standard of care second-line therapy, Intercept s (NasdaqGS: ICPT) Ocaliva (obeticholic acid). Furthermore, the Company initiated this lower-dose study to avert increases in transaminase levels that were previously seen with higher doses, and this goal was achieved. While data are preliminary and in a small number of patients, the adverse event (AE) profile is also compelling from a competitive perspective, which we highlight in this note. CymaBay also announced that the FDA has lifted the peroxisome proliferator-activated receptor (PPAR) class-wide, partial clinical hold for seladelpar in PBC and non-alcoholic steatohepatitis (NASH), allowing drug administration for longer than 6 months. As such, the Company has amended the ongoing Phase II study to dose patients out to 52 weeks. CymaBay anticipates data from this study in the first quarter of 2018, and initiation of a pivotal Phase III study in the second half of Take Home Points and Broader Implications from Phase II Data. The key messages from CymaBay s update on seladelpar and their implications can be summarized as follows: Patients receiving seladelpar showed clinically meaningful reductions in AP, surpassing those achieved in a similar study for Ocaliva. Placebo response in AP reduction has been minimal in recent PBC studies, de-risking interpretation of open-label data. A safety signal of increases in transaminases was not observed; instead, decreases in transaminases were reported, an additional sign of potential efficacy. Pruritus was not reported as a drug-related AE, which may become a major point of differentiation from Ocaliva. FDA has lifted the partial clinical hold for seladelpar in PBC and NASH, allowing dosing beyond 6 months. CymaBay has amended its ongoing Phase II study to enroll additional participants for up to 52 weeks, some of which will receive 2 mg seladelpar to establish a minimally effective dose. Analysts Patrick Dolezal, M.S. (AC) (212) pdolezal@lifescicapital.com Market Data Price $5.65 Market Cap (M) $162 EV (M) $147 Shares Outstanding (M) 28.7 Fully Diluted Shares (M) 34.3 Avg Daily Vol 357, week Range: $ $7.77 Cash (M) $23.4 Net Cash/Share $0.44 Annualized Cash Burn (M) $24.0 Years of Cash Left 0.8 Debt (M) $8.2 Short Interest (M) 0.55 Short Interest (% of Float) 2.1% Financials FY Dec 2015A 2016A 2017A EPS Q1 (0.44)A (0.29)A (0.20)A Q2 (0.09)A (0.30)A NA Q3 (0.27)A (0.25)A NA Q4 (0.31)A (0.30)A NA FY (0.82)A (1.14)A NA Seladelpar Drives Clinically Meaningful Reductions in AP. The primary endpoint of this study was a reduction in alkaline phosphatase (AP) levels, an enzyme associated with cholestasis that was the basis of approval for Intercept s Ocaliva (obeticholic acid) in PBC. We also note the correlation between lower AP levels and longer transplant-free survival in Expected Upcoming Milestones Q week data from a Phase II study for seladelpar in PBC. Q End of Phase II meeting with FDA. H Initiation of a pivotal Phase III study for seladelpar in PBC. For analyst certification and disclosures please see page 6 Page 1

2 PBC patients. In CymaBay s study, patients receiving seladelpar showed mean AP decreases of 39% at 5 mg (n = 11) and 45% at 10 mg (n = 11). These decreases correspond are clinically meaningful and compare favorably to the % reductions observed in a Phase II study for Ocaliva. We compare these studies in greater detail below, noting the need for caution when performing such analyses. Placebo AP Response Historically Low. While this was an open-label Phase II study for seladelpar in PBC, an important consideration for extrapolating these results to potential Phase III success is anticipated response rate of the control arm. Notably, patients receiving placebo in recent clinical trials for PBC have not demonstrated meaningful reductions in AP. For example, during Ocaliva s Phase III study, patients receiving placebo (n = 73) showed AP reductions of about 4% or 14 U/L. We think it s fair to assume a similar response rate for the placebo arm of a larger Phase III study for seladelpar, which has clear implications for trial powering, and bodes well for the prospects of a successful pivotal study. Transaminase Increases Not Observed. As a reminder, CymaBay previously enrolled 23 patients into a Phase II study using substantially higher doses of seladelpar (50 and 200 mg), and 3 patients experienced grade three transaminase elevations which caused the trial to be halted. This prompted the ongoing study, which is enrolling participants to receive lower doses of seladelpar (5 or 10 mg), and there were not any grade 2 or 3 increases in transaminases in the data reported today. Actual results showed decreases in alanine transaminase (ALT) levels of 11% and 35% with 5 and 10 mg of seladelpar, respectively. This finding is consistent with reductions in other biomarkers for inflammation and liver damage, such as gamma-glutamyl transferase (GGT) and high-sensitivity c-reactive protein (hs-crp), and indicates not only the potential for an acceptable safety profile but also an efficacious therapy for PBC. These data also contribute to a growing body of data supporting the potential of seladelpar in a broader inflammatory disorder such as NASH. Absence of Pruritus is a Compelling Point of Differentiation. The adverse event (AE) profile of any PBC therapy in development should be a critical consideration from a commercial perspective, as this is the primary weakness of Intercept s Ocaliva due to meaningful rates of treatment-related pruritus. We note that pruritus is a chief symptom of PBC, with more than half of patients experiencing it, and it can be severe enough to disrupt daily activities and sleep, and require medical intervention. In a Phase III study for Ocaliva, 56-68% of patients receiving drug experienced pruritus, as compared to 38% for the placebo group. Furthermore, the labeling indicates the occurrence of severe pruritus in 19-23% of patients receiving treatment, as compared to 7% for placebo. Labeling also includes management strategies for severe pruritus resulting from Ocaliva use, such as use of bile acid resins or antihistamines, reduction in Ocaliva dosage, or temporary treatment cessation. In contrast, results from CymaBay s Phase II study for seladelpar have not indicated a signal of drug-induced pruritus. While data have only been reported on the initial 24 patients through 12 weeks, there is a mechanistic rationale as to why Ocaliva may cause pruritus and why seladelpar may not. Ocaliva, or obeticholic acid, is an agonist of the farnesoid X receptor (FXR) and derivative of human bile acid, which becomes problematic when considering the association between serum bile acid levels and pruritus. On the other hand, seladelpar is not a bile acid derivative and is an agonist of PPARd, which is a nuclear receptor that regulates various genes involved in inflammatory, fibrotic, and metabolic processes. Thus, we think it s likely that seladelpar will maintain a drug profile devoid of treatmentrelated pruritus, which is a compelling point of differentiation from Ocaliva given that this symptom is a key concern for PBC patients. Full Data From Phase II Study for Seladelpar. Today, CymaBay reported positive results from an open-label Phase II study for seladelpar in the treatment of patients with PBC. The primary endpoint was reduction in AP, which was achieved, as patients treated with 5 mg seladelpar showed 39% reductions and those receiving 10 mg had 45% reductions. The reductions in AP through 12 weeks are presented in Figure 1. Page 2

3 Figure 1. Mean % Change in AP from Baseline to 12 Weeks Source: LifeSci Capital Another important metric is the reduction in AP level below 1.67 times the upper limit of normal (ULN), as it was the most critical component of the composite endpoint used in the pivotal trial for Ocaliva. 45% and 82% of patients receiving 5 mg and 10 mg seladelpar achieved this measure, respectively. We note that baseline AP levels in the 10 mg arm were lower than expected at 260 U/L, which likely caused a higher proportion of patients to achieve AP levels below 1.67 x ULN in this treatment arm. The 5 mg arm was more in-line with historical studies at baseline AP levels of 356 U/L, and is likely sets reasonable expectations for a larger pivotal study. These data are presented in Figure 2. Figure 2. Baseline AP Levels and Change at 12 Weeks Source: Company Presentation and LifeSci Capital The Company did not report any SAEs, grade 2 or 3 increases in transaminases, or drug-induced pruritus. CymaBay did note the occurrence of an asymptomatic myocardial infarction unrelated to study drug, and a discontinuation for pruritus possibly related to PBC, ciprofloxacin, or seladelpar. However, this patient exhibited intense pruritus at baseline and discontinued 5 days into the study. The lack of pruritus in the Company s prior Phase II study that assessed substantially higher doses of seladelpar (50 and 200 mg) gives us additional confidence that this patients pruritus was likely related to the disease. AP Decreases in Phase II Study for Seladelpar Compare Favorably to Those of Phase II Trial for Ocaliva. To better assess the commercial potential of seladelpar in PBC, it is worthwhile to compare data from CymaBay s Phase II study with those from Page 3

4 Intercept s Phase II trial for Ocaliva, although we note that caution should be used in making such comparisons due to the many potential differences between trials that may confound analysis. The primary endpoint of AP reduction is an obvious metric for comparison, and patients receiving seladelpar demonstrated absolute and percent reductions in AP far beyond those achieved in a Phase II study for Ocaliva. Specifically, patients taking 5 and 10 mg seladelpar showed absolute reductions of 139 and 117 U/L, respectively, as compared to U/L for Ocaliva. Notably, baseline AP levels in the 10 mg seladelpar arm were 260 U/L, lower than the ~325 U/L observed in recent, larger studies in a similar patient population. We hypothesize a similar or greater absolute AP reduction in future studies, assuming greater baseline AP values. On a percentage basis, patients receiving seladelpar showed 39% and 45% AP reductions, as compared to % for Ocaliva. A side-by-side comparison with key aspects of these trials is presented in Figure 3. Figure 3. Comparison of Phase II Studies in PBC Source: LifeSci Capital The endpoint used in a pivotal Phase III trial for Ocaliva was a responder analysis at 12 months that required: AP < 1.67 x ULN AP decrease > 15% Bilirubin < or = ULN While topline data from CymaBay s Phase II study don t directly translate into patient responses defined by these criteria, the observed AP reductions do compare favorably to those achieved with Ocaliva, and give us confidence for potential success when considering a larger, pivotal Phase III study for seladelpar in PBC. Trial Design for Phase II Seladelpar Dose-Optimization Study in PBC. Based on preliminary results from this study, the FDA has agreed to allow dosing with seladelpar beyond 6 months. CymaBay decided to amend and continue the study accordingly, to expand the body of clinical data available for NDA submission. This is an open-label Phase II trial evaluating seladelpar in PBC patients who do not adequately respond to or are intolerant of ursodeoxycholic acid (UDCA) treatment. The primary endpoint of this trial is AP reduction from baseline. 42 patients will be enrolled into one of the three following treatment arms: 5 mg seladelpar once-daily for 8 weeks, with 5 or 10 mg extension phase for 44 weeks (n = 18). Page 4

5 10 mg seladelpar once-daily for 8 weeks, with 5 or 10 mg extension phase for 44 weeks (n = 18). 2 mg seladelpar once-daily for 8 weeks, with 2, 5, or 10 mg extension Phase for 44 weeks (n = 6). The lower 2 mg dose of seladelpar will be utilized to determine a minimally effective dose, and the Company is not currently planning to assess a dose above 10 mg. Risk to Invesment We consider an investment in CymaBay to be a high-risk investment. CymaBay is currently in clinical-stage development and does not have any marketed or approved products. The Company has not entered Phase III clinical trials for any program. Failure to show convincing results in future pivotal clinical studies or failure to reach FDA or EMA approval could adversely affect CymaBay s stock price. Regulatory approval to market and sell a drug does not guarantee that the drug will penetrate the market, and sales may not meet expectations. As a clinical-stage company, CymaBay is not profitable and may need to seek additional financing from the public markets, which may result in dilution of existing shareholder value. Page 5

6 Analyst Certification The research analyst denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies), with respect to each security or subject company that the research analyst covers in this research, that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or subject companies, and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. DISCLOSURES This research contains the views, opinions and recommendations of LifeSci Capital LLC ( LSC ) research analysts. LSC (or an affiliate) has received compensation from the subject company for producing this research report. Additionally, LSC provides investment banking services to the subject company and has received compensation from the subject company for such services within the past 12 months. LSC expects to receive or intends to seek compensation for investment banking services from the subject company in the next 3 months. An affiliate of LSC has also provided non-investment banking securities-related services, non-securities services, and other products or services other than investment banking services to the subject company and received compensation for such services within the past 12 months. LSC does not make a market in the securities of the subject company. Neither the research analyst(s), a member of the research analyst s household, nor any individual directly involved in the preparation of this report has a financial interest in the securities of the subject company. Neither LSC nor any of its affiliates beneficially own 1% or more of any class of common equity securities of the subject company. LSC is a member of FINRA and SIPC. Information used in the preparation of this report has been obtained from sources believed to be reliable, but LSC does not warrant its completeness or accuracy except with respect to any disclosures relative to LSC and/or its affiliates and the analyst's involvement with the company that is the subject of the research. Any pricing is as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute LSC s judgment as of the date of this report and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, companies, financial instruments or strategies to particular clients. The recipient of this report must make his/her/its own independent decisions regarding any securities or financial instruments mentioned herein. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Additional information is available upon request. No part of this report may be reproduced in any form without the express written permission of LSC. Copyright Page 6