28 October 2015 Viralytics Limited (OTCQX: VRACY) | VLA.AX -...

28 October 2015

Viralytics Limited (OTCQX: VRACY) | VLA.AX - AUD0.57 - ASX | Buy Company Update

VLA.AX: Regulatory Door Wide Open Now for Differentiated CAVATAK

The FDA approved the first-ever oncolytic virus therapy in Amgen's (AMGNNC) talimogene laherparepvec, now branded Imlygic. We believe this broken regulatory barrier to a live viral therapy significantly favors Viralytics' CAVATAK over the long term, offers a non-engineered virus, multi-route administration and broad therapeutic applications. Reiterate Buy and AUD 3.84 price target

Event The FDA approved Amgen's talimogene laherparepvec, under brand name Imlygic which is the first-ever oncolytic virus approved by the FDA. The average cost for the drug will be $65,000. Imlygic was approved for the local treatment of unresectable cutaneous, subcutaneous, and nodal lesions in melanoma patients following initial surgery. The novel therapy was approved based on durable response rate (DRR) from the pivotal study. A key point is that Imlygic did not show an overall survival benefit (22.9 months vs 19.0 months, p=0.116) or have an effect on visceral metastases, both of which significantly favor Viralytics' CAVATAK, in our belief. From CALM, median overall survival was 27 months, which compares favorably to the Imlygic Phase III which showed 23 months OS. Impact The Imlygic approval is an important win for the oncolytic virus field, especially as it broke down the regulatory barrier for this first-in-class, live viral therapy (and genetically modified in the case of Imlygic). We believe that Viralytics' position is further strengthened based on the broad potential profile of CAVATAK. We also believe the Imlygic approval will further stoke the business development fire for Viralytics' ongoing discussions. Recall in 2011, Amgen acquired BioVex for talimogene and Amgen will pay up to $1 billion based on an upfront payment at the time of $425 million followed by up to $575 million in regulatory and sales milestones.

We believe that Viralytics and CAVATAK have put together a thorough development program to date and has 1) delivered strong data in the CALM study, which we believe is differentiated from Imlygic, 2) is developing CAVATAK for diverse administration routes for multiple tumor types, whereas Imlygic is currently focused only on intralesional injection and 3) CAVATAK is a non-engineered virus, which could provide a potentially more favorable safety profile. Therefore, CAVATAK has fast follower potential and could be the second oncolytic virus approved.

Action With positive Phase II data in hand, and several ongoing clinical studies with near-term data readouts, we believe VRACY represents an attractive opportunity for U.S. investors.