Bison Capital Acquisition Corp.

609-610 21st Century Tower

No. 40 Liangmaqiao Road

Chaoyang District,

Beijing 100016,

China

Phone: +86(10) 8444-6968

Email: jim.li@bisonholding.com

EXECUTIVE SUMMARY

INTRODUCTION

Venture Valuation was retained by Bison Capital Acquisition Corp. to establish a fair value of Xynomic Pharmaceuticals, Inc and its assets.

For the purpose of this valuation, we have calculated the value of Xynomic’s lead product, namely XP-101 (Abexinostat, an HDAC inhibitor) for use in cancers on the rNPV (risk adjusted Net Present Value) calculation, and have considered the value of follow on products and indications, including XP-102, in the DCF (discounted cash flow) calculation. A further product XP-105 is also discussed in the appendix.

COMPANY DESCRIPTION

Xynomic Pharmaceuticals is a drug development company headquartered in Shanghai, China. The company is focused on development of therapies targeting cancers. The company’s most advanced product, XP-101 (Abexinostat), is in Phase II/III clinical trials for follicular lymphoma and renal cell carcinoma.

Xynomic was established in 2017, is privately funded and currently employs 11.5 full time equivalents (FTEs) and is projecting to expand to 60 employees by the end of 2018. The company aims to generate revenues by development and marketing of the products in its pipeline including the most advanced drug, XP-101 (Abexinostat), and its other products including XP-102 BI 882370, a RAF inhibitor) for treatment of cancers.

At present, Xynomic and Bison are in discussion about a potential business combination.

Xynomic has a pipeline of development products, aimed for treatment of cancers. The two key assets are described, in summary, below:

HDAC inhibitor: XP-101 (Abexinostat, Abex)

●     Abexinostat (XP-101) is an orally bioavailable broad spectrum HDAC inhibitor, which inhibits Class I HDACs including HDAC1,2,3,6,10 and 11. Xynomic in-licensed this drug from Pharmacyclics LLC, currently a wholly owned subsidiary of AbbVie Inc., in Q1 2017, catalyzing the establishment of Xynomic. To date, a total of 18 Phase I and II clinical trials of Abexinostat have been completed, demonstrating the efficacy and safety profile of this compound in multiple types of cancers. Xynomic is now in the process of completing a number of Phase I-III clinical trials using XP-101, as listed below.

RAF inhibitor: XP-102 (BI 882370)

●     XP-102 (BI 882370) is a B-RAF inhibitor, that inhibits B-RAF in an ‘inactive’ mode (DFG-out confirmation) and has potential use in the treatment of cancers associated with B-RAF mutations, including malignant melanoma and colorectal cancer. Xynomic acquired exclusive global rights to XP-102 (BI 882370) from Boehringer Ingelheim in Q3 2017. To date XP-102 has demonstrated efficacy and safety in animal models of colorectal cancer (CRC) and melanoma. Xynomic aim to proceed toward Phase I clinical studies examining the utility of XP-102 in melanoma and CRC. 

Xynomic is focused on development of novel therapies for the treatment of a variety of cancers. The company is running a number of clinical trials examining the efficacy of its lead drug XP-101 (Abexinostat) in renal cell carcinoma, follicular lymphoma, diffuse large-B-cell lymphoma and mantle cell lymphoma, multiple solid tumors and breast cancer, as well as its drug XP-102 (BI 882370) in colorectal cancer and melanoma.

The epidemiology for differing cancers, in particular the prevalence, and the estimated number of patients is listed in the table below.

Disease Prevalence

The current therapies for the cancer indications, for which XP-101 and XP-102 are being developed, include surgery, monotherapies, and combination treatments. These approaches tend to represent first, second, and third line treatment methods, with palliative care measures instigated with terminal illness diagnosis.

There are a number of advantages XP-101 has over current products. These primarily come from XP-101 being an oral HDAC inhibitor which has benefits over the injectable competitors. XP-101 assists in prolonging drug resistance of other cancer therapies, and works by modifying DNA. As such the levels of XP-101 in the body can be maintained at a constant low level, potentially offering better safety profile. The oral availability, meeting of unmet clinical needs and safety properties of XP-101 represent clear advantages.

XP-102 is a 2^nd generation pan-RAF kinase inhibitor that can block multiple RAF kinases and signaling pathways, which may provide benefits over 1^st generation RAF kinase inhibitors that develop drug resistance. XP-102 has a unique binding mode, insofar as it binds the RAF kinase in a DFG-out ‘inactive’ confirmation providing high selectivity. For CRC and melanoma this property might help in providing synergistic efficacy with currently used MEK inhibitors. In toxicity studies, XP-102 appears to have a large safety/therapeutic window, which may be better than current 1^st generation RAF kinase inhibitors.

There are a number of direct as well as mechanistic-based competitors.

With regard to direct competitors, there are first, second and third line therapies for many of the cancer indications for which XP-101 and XP-102 are being developed. Please see main body of this report.

Mechanistically, a number of pan-HDAC and selective HDAC inhibitors are marketed or in development that may compete with XP-101. Similarly, RAF inhibitor marketed drugs or those in development could represent competition to XP-102 (BI 882370) (please see below).

Below is a brief summary of the strengths as we see them:

●     Strong evidence of safety and efficacy from clinical studies

●     Significant market size and unmet medical need

●     Opportunities for indication and territory extension

●     First mover advantage

●     Knowledge to penetrate China market

●     Positive demographics, including aging population, rising disposable incomes, and healthcare awareness

●     Significant expertise of company management as an asset to the company

●     Well defined portfolio strategy and pipeline for sustained product development

Below is a brief summary of the weaknesses as we see them:

●      Need for financial investment for clinical studies and running costs (approximately USD 50-60m).

●      Uncertainties surrounding M&A and/or IPO

●      High dependence on success of Abexinostat

●      Lack of sufficient support staff to assist Senior Management

●      Challenges of staff as company expands

●      Need for the development of sales force teams in targeted territories

●      Uncertainties surrounding future partnership plan with co-developers and distributors

To provide a balanced assessment of the value of Xynomic the following valuation methods were used: The risk-adjusted net present value (rNPV) method, the discounted cash flow (DCF) method, the market comparable method and the comparable transactions method.

The figures used for the calculation of the value range are based on information provided by the management of Xynomic, adjusted by Venture Valuation.

Key value inflection points in the product development timeline include:

●     Market entry of Abex targeting FL and targeting DLBCL in China in 2021;

●     Launch of Abex targeting RCC in the US and Europe in 2022;

●     Launch of Abex in the US and Europe targeting FL in 2022;

●     Launch of Abex in the US and Europe targeting DLBCL and targeting MCL in 2025.

Market penetration rates are based on the Tufts Center for Drug Development uptake curve, adjusted by Venture Valuation.

For a full list of assumptions used please see Appendices. 

Venture Valuation was asked by Bison Capital Acquisition Corp. (Bison) to consult on the valuation of Xynomic Pharmaceuticals Inc. (Xynomic). For this valuation, we have considered the value of the lead product, abexinostat, for the treatment of a range of cancers, in the rNPV (risk adjusted Net Present Value) calculation. We have considered the value of the Xynomic pipeline of follow-on products and indications in the DCF (Discounted Cash Flow) calculation. We note that the present is a valuation of Xynomic current assets, and, as such, it represents a snapshot of the company’s value today.

All of the assumptions that were made are set out in the body of this report. If any of these assumptions change, the valuation represented herein may change accordingly.

In certain instances, we have relied on information provided by Bison and Xynomic and have not been able to verify or audit the information received. Wherever possible, we have tried to base the opinion set out in the report on our own research and independent sources.

HISTORICAL PERSPECTIVE

Xynomic Pharmaceuticals is a drug development company headquartered in Shanghai, China. The company is focused on development of therapies targeting cancers. The company’s most advanced product, XP-101 (Abexinostat), is in Phase II/III clinical trials for follicular lymphoma and renal cell carcinoma.

Xynomic was established in 2017, by the three co-founders Y. Mark Xu, W. Jason Wu and Yong Cui. Xynomic is privately funded and currently employs 11.5 full time equivalents (FTEs) and is projecting to expand to 60 employees by the end of 2018.

The company aims to generate revenues by development and marketing of the products in its pipeline including the most advanced drug, XP-101 (Abexinostat), and its other products including XP-102 BI 882370, a RAF inhibitor) for treatment of cancers.

At present, Xynomic and Bison are in discussion about a potential business combination.

The valuation of Xynomic was conducted to obtain a fair company value, which can be used as a basis for negotiations with potential investors and industry partners. As an independent party specializing in valuations of high growth companies, Venture Valuation’s aim is to consult Bison on the assessment of Xynomic, based on figures and information presented by Xynomic’s management.

The calculated figures should always be interpreted as the equity value of the company. The liabilities, if any, have already been considered; therefore, no deduction is necessary. The resulting company worth represents the pre-money value.

Xynomic is focused on developing and commercializing its oncology products. The company strategy is to build a pipeline through the in-licencing of clinical stage oncology products. In addition, it aims to develop a small internal pre-clinical R&D activity.

The company aims to generate revenues by the sale of these drugs.

At present, Xynomic seeks a partner who will provide financial support for the R&D costs and clinical development of their products. In addition, the company are considering either an M&A and/or an IPO.

A summary of the key early R&D partners are indicated below:

●      Prof. Pamela Master (UCSF): Xynomic has a research collaboration with Prof. Pamela Master (University of California, San Francisco, UCSF) whose group is focused on investigating the molecular pathways of HDAC inhibitors. The group works to identify cancer indications in which HDAC inhibitors have the ability to synergize effects of existing marketed cancer therapies. Prof. Master’s group has also identified biomarkers that may stratify patients with renal cell carcinoma (RCC) into those who are prone to developing resistance against VEGF inhibitor therapies. Xynomic hope this collaboration will allow identification of additional cancers for which XP-101 may have utility. The company foresees the biomarker studies will lead to a diagnostic that may identifying patients prone to VEGF inhibitor resistance and thus suitable for early-line XP-101 therapy. We note, UCSF and Prof Master will not receive any revenues for XP-101 for this collaboration.

●      Evol Science and Shanghai Kechow Pharma Inc: Xynomic are exploring an opportunity with research companies to explore the synergistic effects of XP-102 (Evol Science) and MEK inhibitors (Shanghai Kechow Pharma) in cellular and animal models of cancer. These studies aim to identify additional cancer indications for which XP-102 can be utilised.

Renal cell carcinoma (RCC)

(Ph III Pivotal Study; US, EU, Global).

●      Novartis and Pazopanib (Votrient): XP-101 will be tested in combination with Pazopanib. This Novartis drug is a receptor tyrosine kinase inhibitor approved in 2009 for advanced renal cell carcinoma. Novartis and Xynomics will share the costs of the clinical study. Xynomics may share marketing costs and activities, keeping revenue from their own products. Alternatively Xynomics may give marketing rights to Novartis for Renal cell carcinoma for e.g. 20% share of revenues.

●      Parexel, MA, USA: Parexel (www.parexel.com) is a leading global company with strong presence in the US and China. Xynomic aim to use the multi-centre global trial for US (FDA) and China (CDA) registrations. The strong presence of Parexel in China will be helpful in this regard.

Follicular Lymphoma (FL)

(Ph II Pivotal Study; US, EU, Global Study)

●      PPD, NC, USA: Xynomic engaged Pharmaceutical Product Development, LLC (PPD) (www.ppdi.com) to assist in the clinical study as well and in US (FDA) discussions. Xynomic expect to market XP-101 as 4^th line treatment for FL in the US/EU, where PPD could assist in the education of KOL’s in this regard.

●      We note that PPD have also assisted in the technology transfer of XP-102 during in-licencing from Boehringer Ingelheim. PPD have provided a gap analysis (i.e. toxicology, CMC, pharmacology) of IND requirements for XP-102 and will assist in the IND filing in the US.

DLBCL/MCL

(Ph I/II; US)

●      JNJ (Janssen) and Imbruvica (Ibrutinib): XP-101 will be tested in combination with Imbruvica. This JNJ drug is an inhibitor of Bruton’s tyrosine kinase (BTK) which plays a role in B cells and approved to treat B-cell cancers such as mantle cell lymphoma (MCL) in 2013, chronic lymphocytic leukaemia (CLL) in 2014, Waldenström’s macroglobulinemia in 2015 and graft vs host disease in 2017. Xynomic will pay for this trial with JNJ cost sharing and also providing the drug (Imbruvica). The marketing deal terms are likely to be similar to those described for Pazopanib. We note, AbbVie/PCYC own the US rights for Imbruvica while JNJ own ex-US rights; a discussion between AbbVie, JNJ and Xynomic will likely be required to further explore marketing terms of XP-102.

Follicular Lymphoma (FL) & DLBCL

(Ph II Pivotal Studies; China)

●      Quintiles/IQVIA, USA: Xynomic will conduct two Phase II Pivotal Studies in China (FL and DLBCL) and have employed the CRO Quintiles (www.iqvia.com) for this purpose. IMS Health and Quintiles are now IQVIA and provide a number of clinical development services globally.

●      Cancer Hospital Chinese Academy of Medical Sciences: This site is working with Xynomic to assist in the XP-101 clinical studies.

Multiple Solid Tumors

(Ph Ib/II; US)

●      Merck and Keytruda (Pembrolizumab): XP-101 will be tested in combination with Keytruda. This Merck drug is a humanized antibody that targets the programmed cell death 1 (PD-1) receptor of lymphocytes. The drug was approved in 2015 for treatment of metastatic non-small cell lung cancer and in 2017 for metastatic solid tumor. Xynomic are not in specific collaboration with Merck regarding this clinical study. Patients in this trial will be taking Keytruda as part of their treatment (covered by insurance).

●      Prof. Pamela Master (UCSF): The trial will be conducted in collaboration with UCSF (lead by Prof. Pamela Munster). We note, UCSF will have no commercial rights.

Breast Cancer

(Phase Ib/II; US)

●      Novartis and Kisqali (Ribociclib): XP-101 will be tested in combination with Kisqali. This Novartis drug is a cyclin D1/CDK4 and CDK6 inhibitor approved in 2017 for breast cancers. CDK4 and 6 promote cell division in normal and cancer cells, with many cancer cells increased CDK activity, which inactivates tumor suppressor genes. As above, Novartis and Xynomic will share the costs of the clinical study. The marketing deal terms are likely to be similar to those described for pazopanib.

●      Prof. Pamela Master (UCSF): The trial will be conducted in collaboration with UCSF (lead by Prof. Pamela Munster). We assume, UCSF will have no commercial rights.

●      Oril Industrie: Oril Industrie (wholly owned subsidiary of Servicer) (www. servier.com). Bolbec, France, provides Xynomic the API Drug.

●      Rottendorf Pharma: Rottendorf Pharma (www.rottendorf.com). Ennigerloh, Germany assists Xynomic with drug product, placebo, formulation supplies.

●      PCI Pharma Services: PCI Pharma Services (Formerly Penn Pharma) (www.pciservices.com). Tredegar, Gwent, Wales provides packaging, clinical supply support.

●      Bioduro Ltd: This is a Chinese company based in San Diego, US. This is a specialised pharmaceutical provider that can provide API and formulation services.

●      JOINN Laboratories: This company will provide GLP level XP-102 product for toxicology studies, under guidance of PPD. These IND-related studies are expected to be completed by Q4/2018 (please see below for development details).

At present the distribution and marketing partners are not identified. The company have 2-4 years before product launch and thus have significant time to establish a distribution and marketing strategy.

At present, Xynomic consider establishing a marketing team in China and US. The company may also consider co-marketing or providing marketing rights to a co-developing large pharma partner. For EU, Xynomic note this market is fragmented with country and region specific nuances, and will seek partners to assist with distribution and marketing.

The investors and shareholders of Xynomic are provided in the table below. Future investors may come from IPO or M&A activities.

Xynomic has received funds from Series A funding (USD 4.3m) and Series B funding (USD 17m), with the founder Y. Mark Xu providing an additional USD 1.9m.

Xynomic have approximately USD 2.5m cash in the bank with the Series B funds of USD 17m to arrive end Q2 2018.

* Total of Series A and Series B is shown; figures rounded up.

Grant Agency Funding

●     Xynomic indicate they are not in receipt of any governmental finance or grant funding. The company aims not to engage in this type of grant funding in order to keep its IP rights and company ownership within the private sector.

Future Financing

●      Xynomic seek funds for the clinical development of XP-101 and pipeline products XP-102 and others. In order to raise funds, Xynomic expect to conduct an IPO or M&A. The company indicates the lead asset XP-101 as being advanced enough to allow the company to aim for NASDAQ or Taiwan IPO. Alternatively, Xynomic may seek a partner for its acquisition by a large pharma. Estimates of costs for clinical development are provided in the sections below.

Term Sheets

●      We note that no term sheets currently exist between Xynomic and grant agencies, additional investors, potential out-licensors, or collaborative partners that would assist the company with its financing.

Xynomic currently employs 11.5 full time equivalents (FTEs) and is projecting to expand to 60 employees by the end of 2018. For illustrative purposes, an organogram of the company management, relevant boards, employees and partners is shown below:

Xynomic operates from four main locations as outlined below:

●      Headquarters (China). The headquarter office of Xynomic is located in Shanghai, China. This office employs 6 FTEs.

●      Research Center (China). Xynomic are in the process of building a research facility in the outskirts of Shanghai. At present, this facility is being headed by a university professor of which Xynomic have collaborations. The company sees this center employing 10 research staff in the near-mid future, with a maximum number of 30 FTEs as a longer term strategy.

●      Clinical Team (China). Xynomic have 3 FTEs employed in Beijing, China, with 2 persons managing manufacturing and CMO partners and 1 person managing the two clinical pivotal studies (i.e. Follicular Lymphoma and DLBCL) in China.

●      Financial Team (US). Working with Mark Xu, the company has staff (primarily as part time) at a location in San Francisco, US. This team is primarily assisting Mark Xu with finance raising activities (i.e. IPO, fund raising). There are 4 staff in the US (1 FTE, 1/2 FTE, and two 1/8 FTEs).

Xynomic are planning expansion in FTEs over the coming months. They also aim to appoint a CMO to the management board.

The company has plans to develop clinical teams in US and EU as summarized below. These teams will be established by Jason Wu, who has hired a Project Manager to assist in US and will do so similarly for EU. Both US and EU Project Managers will have a reporting line to Jason Xu.

●      Clinical Team (US). The company aim to establish a clinical team in North Carolina, US composed of 10 FTEs to oversee the clinical trials and sites (approximately 40-50 clinical sites). These personnel will also include safety monitoring, regulatory and CMC functions.

●      Clinical Team (EU). Xynomic will likely set-up a clinical team of 7 FTEs to oversee the clinical trials and sites in EU (approximately 40-50 clinical sites). These personnel will also include safety monitoring, regulatory and CMC functions.

Regarding sales and marketing, Xynomic aims to build its own sales teams in US and China, while seeking a partner for marketing in EU countries.

●      Sales Team (China). Xynomic aspires to build a sales team of 70-100 reps to cover sale of XP-101 in Follicular Lymphoma and DLBCL indications across China. The company expects to earn in sales approximately USD 5-10m per rep.

●      Sales Team (US). In the US, Xynomic will target the top KOLs for each indication as well as marketing via key conferences as a strategy for marketing. The company aims to employ 30 sales reps, with 10 FTEs dedicated to renal cell carcinoma and expected sales of USD 20-30m per rep. Xynomic may utilise a distributor in the US, with terms of offering                         to the distributor, for example. For breast cancer Xynomic may co-market with                 

●      Sales Team (EU). Xynomic note the EU market as fragmented with country and region specific nuances. Xynomic will seek partners to assist with distribution and marketing; likely collaborating with mid-size companies and offering                            to local partners. A similar approach will likely be adopted for Japan.

The management and relevant company boards of Xynomic have considerable seniority and expertise, which represents a significant asset to the company.

A list of the management and relevant company boards is provided in the tables below.

Y. Mark

Xu

●      Co-founded Bridge Labs and Pacific Biopharma, which merged with Pharmacyclics.

●      General Manager of Trout Group, investment bank

●      Progressive positions in Schering, McKesson, Stanford Research Institute International, BAS, and UL.

●      MBA (Stanford Uni), MSc Chemistry (Purdue Uni), BA Chemistry (Hanover College).

W. Jason

Wu

●      Over 20 years’ experience in pharma in US and China.

●      Senior management in Lilly, Merck, Hutchison Medi Pharma, and Institute of Materia Medica.

●      PhD (Purdue Uni) and Adjunct Professor at Inst. Materia Medica (IMM) Chinese Acad. of Med. Sci. (CAMS).

●      Consultant for life sciences companies, advising clients on tech transfer, licensing, and M&A.

Yong

Cui

Co-Founder,

VP CMC

●      Has 18 yr experience in pharm in US and China.

●      Obtained his BSc and MSc (China Pharm Uni) and PhD (Ohio State Uni)

●      Formulation scientist (Vertex Pharma and Genentech), Director of Formulation Development (Hisun-Pfizer Pharma) and Vice President R&D (Qilu Pharma).

●      Lead scientist for two NDAs in US, and involved in multiple interactions with the US FDA.

Dirk Reitsma

●      VP and Head Oncology Global Product Develop. at PPD.

●      VP Clinical Develop. AstraZenica’s MedImmune subsidiary.

●      Associate Director and Senior Clinical Research Physician in Oncology at Novartis.

●      MD from Erasmus University in The Netherlands.

Bing

Zhao

●      Received BSc, MSc, and MD (all majored in Oncology) from Xi’an Jiaotong University Health Science Center.

●      Practicing oncologist in Xi’An, China.

●      Joined BMS in clinical affairs department.

●      Clinical trial expert at Beijing H&J CRO Int. (VP & Director Clinical Center), Shanghai Rundo CRO (Director Clinical Center), 3D-HTS (VP), Osmunda (Executive Vice General Manager and Director of Clinical Center).

Chasey Zhang

●      Over 20 yr experience in pharma in US, Singapore, China and other APAC countries.

●      Senior management positions in BMS, Clearstone Central Lab, World Courier, and an international CRO.

●      Pharmacist with BSc in Pharmacy & Pharmacol. (Second Military Medical Uni China), MBA (Drexel Uni). Post MBA certification (Rutgers Uni) in pharmaceutical management.

Xuexun

Fang

●      Professor and PhD Advisor at Key Laboratory for Molecular Enzymology & Engineering at Jilin University.

●      Formerly Vice General Manager of Dual Pharma China.

●      Post-doctoral at Sanford Burnham Prebys Medical Discovery Institute in La Jolla, California, USA.

●      BSc Biochemistry (Jilin Univ.), PhD Molecular Biology and Biochemistry (Univ. West Virginia).

Mark

Zhang

●      Over 6 yr’ experience in pharma.

●      Worked in R&D in Pfizer and PPD. Led generic drug projects (from inception to ANDA).

●      Also an expert in API process development to cGMP.

●      Obtained MSc from East China University of Science and Technology and PhD in Nanyang Technological Univ.

Shuziang

Zhang

●      Director of R&D of Beijing Sunho Pharma.

●      Deputy General Manager of Research Institute (Dr. Jason Wu).

●      Visiting Scholar: School of Medicine, Univ. Toyama, Japan.

●      BSc and MSc, Inner Mongolia Medical University; PhD, Peking Univ.

Shiwen Dong

●      Over 10 years’ experience in pharma.

●      Expertise in R&D and registration to patent filing.

●      Led successful efforts for registration of several CTMs.

●      Completed many patent filings. Received MD and BSc in medicinal chemistry from Peking University School of Pharma Sci, majoring.

Glenn

Rice

●      Founder of several biotech and internet tech companies in US, China, India, Taiwan and Singapore.

●      Companies have led to multiple FDA approved drugs in cancer, autoimmune diseases, cardiovascular, ocular and dermatology.

●      Former COO of Pharmacyclics, Board Director of ILEX Oncology, Founder of Convergence Pharma, Founder of EmergingMed, Co-founder of C-PATH Institute.

●      Professor of Medicine UCSF.

●      Director of the Early Phase Clinical Trials Unit at UCSF.

●      Collaborator in mechanistic, biomarker and clinical studies with Xynomics on XP-101.

●      Chief, Lymphoma Service, Memorial Sloan Kettering Cancer Center

●      Professor, Weill-Cornell Medical College, New York.

●      Led trials that resulted in FDA approval of brentuximab, vedotin and nivolumab for Hodgkin lymphoma.

●      Served as principal investigator of more than 60 clinical trials.

Yuankai

Shi

●      Vice President Cancer Hospital, Chinese Academy of Medical Sciences.

●      Director cancer center, professor, doctoral advisor.

●      Vice President Chinese Society of Hematology, Chinese Medical Association.

●      Director Chinese anti-cancer association, Beijing Association for Medical Education, the CFDA reviewer.

●      Obtained Maitrise of Science et Biologie Médicale in Molecular Biology.

●      Received Diplôme d’Études Approfondies in molecular and cellular pharmacology at the Pierre et Marie Curie (Paris Vl) Univeristy.

●      Obtained Diplôme d’Études Secondaires in Medical Oncology at the Paris Xl Faculty of Medicine.

●      Assistant at oncology centers of Gustave-Roussy lnstitute and Head of early drug program (DITEP) in Gustave Roussy.

The company Chairman, CEO & President, Mark Xu, owns almost 45% of the company. Other members of the management currently have few shares. We note the company has set aside Employee Stock Ownership Plan (ESOP) that comprises approximately 4% of the company.

Xynomic has a pipeline of development products, aimed for treatment of cancers. The two key assets are described, in summary, below:

HDAC inhibitor: XP-101 (Abexinostat, Abex)

●     Abexinostat (XP-101) is an orally bioavailable broad spectrum HDAC inhibitor, which inhibits Class I HDACs including HDAC1,2,3,6,10 and 11. Xynomic in-licensed this drug from Pharmacyclics LLC (currenly a fully owned subsidiary of AbbVie Inc.) in Q1 2017, catalyzing the establishment of Xynomic. To date, a total of 18 Phase I and II clinical trials of Abexinostat have been completed, demonstrating the efficacy and safety profile of this compound in multiple types of cancers. Xynomic is now in the process of completing a number of Phase I-III clinical trials using XP-101, as listed below.

●     In simple terms, XP-101 (as an HDAC inhibitor) modifies DNA allowing cancer drugs to which tumors have become resistant to continue working. XP-101 is thus being developed as a drug used in combination with existing cancer therapies. XP-101 also has potential as a monotherapy in some cancer indications. Please see below for an outline of indications in which XP-101 is being developed.

RAF inhibitor: XP-102 (BI 882370)

●     XP-102 (BI 882370) is a B-RAF inhibitor, that inhibits B-RAF in an ‘inactive’ mode (DFG-out confirmation) and has potential use in the treatment of cancers associated with B-RAF mutations, including malignant melanoma and colorectal cancer. Xynomic acquired exclusive global rights to XP-102 (BI 882370) from Boehringer Ingelheim in Q3 2017. To date XP-102 has demonstrated efficacy and safety in animal models of colorectal cancer (CRC) and melanoma. Xynomic aim to proceed toward Phase I clinical studies examining the utility of XP-102 in melanoma and colorectal cancer.

Preclinical Research and Development

We consider, that early studies for XP-101 and XP-102 to investigate the mechanism of action, preclinical efficacy, and toxicity/safety/ADME have been conducted. Thus, we assume preclinical R&D is not a limiting factor in the development of XP-101 and XP-102. We note Xynomic have two in-house products in early development, namely, XP-103, a TRK/Fra-1 inhibitor, and XP-104, a RET inhibitor for which pre-clinical studies will likely be required.

Clinical Studies

Phase I: Safety Study

●     Phase Ia/b studies utilize typically healthy volunteers of less than 100. These studies aim to determine the safety, tolerability, pharmacokinetics and pharmacodynamics of the drug.

●     For these early studies, Xynomic assume a cost of USD 20,000 per patient, with 40 patients per study.

Phase II: Efficacy & Dose Finding Study

●     Phase II studies generally involve 100-500 patients to assess efficacy, dose effect and short-term side effects of the drug.

●     For the two studies being conducted in China employing Quintiles/IQVIA as the CRO managing this study. Xynomic assume a cost of USD 3m for each study with 70 patients per study.

Phase III: Clinical Efficacy Studies

●     Phase III studies may enroll 1,000-5,000 patients across several clinical trial sites.

●     Xynomic assume a cost of USD 40m for the renal cell carcinoma study (pivotal trial, fast track designation) with an upfront payment of 10% to Parexel as the CRO managing this study. For the Follicular Lymphoma study (pivitol trial, Accelerated approval) they assume a cost of USD 18m, with a similar 10% upfront payment to PPD as the CRO managing this study.

A summary of the product development timeline and costs is provided below and in the Appendices I-III:

Cost

(USD)

Ph III,

Pivotal,

Fast track

4 yr study.

Control arm study. Parexel as managing CRO

260 Patients take XP-101+pazopanib and 130 will take placebo+pazopanib.

40m

(4m upfront)

Ph II,

Pivotal,

Accelerated

2.5 yr study.

Open arm study. PPD as managing CRO

Run Ph IV under accelerated approval.

18m

(2m upfront)

Ph II,

Pivotal

1.5yr study.

Open arm study. Quintiles as managing CRO, employed for China study.

2 yr study.

Kettering Cancer Centre as study site. We assume a follow-on Ph III Pivotal Control arm study of 4 yr with 20m estimated costs.

1m

(+20m Ph III)

Ph II,

Pivotal

1.5 yr study.

Quintiles as managing CRO, employed for China study.

1.5yr study.

UCSF as collaborator. Delay of Keytruda resistance. Possible focus on lung cancer in Ph III Pivotal Control arm 4 yr study of 20m costs.

1m

(+20m Ph III)

+Kisqali,

NVS

2 yr study

UCSF as collaborator. Delay of Kisqali resistance. We assume a follow-on Ph III Pivotal Control arm 4 yr study of 20m costs.

1m

(+20m Ph III)

15

6 mth study (each)

Then Ph Ib/IIa study (40 patients) of 2 yr in either CRC or Melanoma in combination with e.g. Cetuximab.

Xynomic suggest a product price USD                                (with              also available as required per indication and patient). Treatment regime for renal cell carcinoma is expected to be 4 day on / 3 day off. For follicular lymphoma the treatment protocol will likely be 1 week on / 1 week off.

Xynomic are projecting revenues of USD 140,000 per patient per year in the US at the point of peak sales, with an expected 20% discount in China and Europe, representative of oncology based treatments.

We note that, in cases of where XP-101 is provided as a combination therapy, the total price of XP-101 and the partner drug may fall out with the affordability of a certain population and perhaps subject to regulatory scrutiny. This may apply to, for example, DLBCL/MCL with Imbruvica, multiple solid tumors (e.g. non–small cell lung cancer) with Keytruda and ER+ breast cancer with Kisqali.

For DLBCL and MCL in Europe and the US, where XP-101 will be given in combination with Imbruvica, itself a highly priced drug, Xynomic expect to undergo discounts in the reimbursement level and project average revenues of USD 100’000 per patient.

We note that for RCC, where the treatment will be a combination treatment with pazopanib, pazopanib will be out of patent by 2021, which is the earliest the combination will be approved. Thus, it is expected that the treatment cost with pazopanib will undergo significant discounts and allow for the higher reimbursement level of XP-101.

Regarding reimbursement, in China there are three principle systems:

1.     Commercial and state owned company insurance provided by the employer, which applies to approximately 30-40 million people in China. Xynomic will aim to target initially this population;

2.     State and provincial reimbursement systems that list established therapies, which enjoy a 80-90% reimbursement and can be afforded by 40-50% of the population. In this case, Xynomic will have to negotiate the listing of XP-101 and XP-102 once established and will likely be required to reduce their price by 40-50% if listed;

3.     Governmental and army personnel at medium-high ranking for which there are approximately 1 million people and whom receive 100% reimbursement for medical care. These persons will also immediately benefit from Xynomic drugs coming to market.

We note the following matters related to safety:

Supporting Evidence

●     XP-101 (Abexinostat) has been tested on approximately 600 patients worldwide in 18 clinical trials. These include solid tumors, hematological tumors, lymphoma, leukemia, Hodgkin’s disease, non-Hodgkin lymphoma, digestive cancer, nasopharyngeal carcinoma, breast cancer, ovarian cancer, metastatic sarcoma. No safety concerns precluding from further development of XP-101 has been noted. Xynomic notes that the PK profile, tolerability and efficacy data for XP-101 indicate it as best-in-class HDAC inhibitor; safer than 1^st generation and similar to 2^nd generation HDAC inhibitors.

●     XP-102 is an early stage compound with safety studies ongoing. Xynomic report no relevant findings in exploratory toxicology studies, with high efficacy and good tolerability in combination therapy (chemotherapy, targeted agents).

Required Data

●     We consider the safety data for XP-101 not a limiting factor in its further development.

●     For XP-102, PPD have provided a gap analysis (i.e. toxicology, CMC, pharmacology) of IND requirements and will assist in the IND filing in the US.

XP-101 (Abexinostat)

●     The further development of XP-101 is based on earlier clinical studies. XP-101 has been tested in a Ph Ib clinical study, showing efficacy in treating VEGF inhibitor refractory solid tumour in combination with Pazopanib, including renal cell carcinoma. In Follicular Lymphoma XP-101 has been shown to give an Objective Response Rate (ORR) of 44% in Ph I and 56% in Ph II clinical studies. In DLBCL, XP-101 shows an ORR of 23% in Ph I and 31% in Ph II clinical studies. In PTCL, XP1-101 gave an ORR of 22% in Ph I and 40% in Ph II studies.

XP-102

●     XP-102 is at pre-IND stage. Animal studies have demonstrated pre-clinical efficacy of XP-102. In a model of CRC, XP-102 has demonstrated efficacy compared to Vermurafenib (Roche). XP-102 has also demonstrated efficacy in combination with Cetuximab. In Melanoma animal studies, XP-102 is efficacious compared to Vermurafenib, Dabrafenib and Trametinib (Novartis). XP-102 has also been shown to be efficacious after the development of drug resistance to Vermurafenib and Trametinib.

FDA (US)

●     Xynomic has gained Fast Track designation for XP-101 in renal cell carcinoma (RCC) and an Accelerated Approval Program for XP-101 in Follicular Lymphoma, requiring demonstration of clinical benefit in Ph IV confirmatory trials and subject to this data may be withdrawn or approved. Regarding Follicular Lymphoma, we note FDA are unable to allow head-to-head trial with the 3^rd line (3L) drugs copanlisib (Aliqopa, Bayer) and idelalisab (Zydelig, Gilead) given both were approved via fast track and require a Phase IV post-market trial. As such, XP-101 is proposed initially as a 4^th line (4L) treatment in US and 3^rd line in China, with eventual 3L classification worldwide.

●     Xynomic has received indication from the FDA that XP-101 will be approved for Follicular Lymphoma if the drug obtains a clinical efficacy measured by ORR of 45% or more. We note that this will likely increase the overall approval rate and have reflected this in the probability of success outlined below.

CDA (China)

●     A recent change in policy has allowed in parallel drug approval in US and China. While there are drugs in US used for 3^rd line (3L) treatments of Follicular Lymphoma, according to Xynomic, no 3L therapies exist for this illness in China. Thus, in China, Xynomic will be allowed to conduct a pivotal study for 3L treatment in Follicular Lymphoma. The same is held true for DLBCL. This provides a significant competitive advantage for Xynomic in the Chinese market.

Xynomic estimate a COG as   USD per tablet.

The manufacturing partners for XP-101 were pre-established by the licensor Pharmacyclics. Xynomic have audited these partners and will continue to use them.

For XP-102, the company will seek manufacturing partners in China. Details are provided in the section and table above (please see manufacturing partners).

We note that Xynomic have 6,000 bottles of XP-101 tablets ready for the renal cell carcinoma study.

Xynomic have                                                         of XP-101. According to Xynomic, the shelf life/stability of XP-101 in tablet form is   years.

The patents related to XP-101 and XP-102 are outlined below.

XP-101

●     The original inventors of XP-101 were acquisition of Axys Pharmaceuticals who were acquired by Celera Genomics in 2001. Celera Genomics then out-licensed XP-101 to Pharmacyclics in 2005. In 2009 Pharmacyclics entered into an alliance with Servier to develop XP-101; this alliance was terminated in 2014. In 2015, Pharmacyclics was acquired by AbbVie. Xynomic in-licensed this drug from Pharmacyclics LLC (now a company wholly owned by AbbVie) in Q1 2017, catalyzing the establishment of Xynomic.. The details of the license payments from Xynomic to AbbVie are indicated in the table below.

XP-102

●     Regarding XP-102, Xynomic acquired exclusive global rights to XP-102 (BI 882370) from Boehringer Ingelheim in Q3/2017. The details of the license payments from Xynomic to Boehringer are indicated in the table below.

Xynomic employ the patent attorneys, Foley Hoag LLP and Fish & Richardson to maintain the XP-101 patent estate. For XP-102, we note that PPD have assisted in the technology transfer during in-licencing from Boehringer Ingelheim.

Details of the royalties and conditions associated with this license transfer are listed below.

Royalty Payments

Royalty Rate (%)

Royalty Payments

Royalty Rate (%)

The patents pertaining to XP-101 provide protection in states that have adhered to the PCT, essentially worldwide. The original patent has as expiration date of 2024. A further patent exists based on the composition matter, solving the hydroscopic properties of XP-101 allowing a switch to capsule to table. This extends the patent to 2034.

For XP-102, there are two patent applications covering substance and crystalline salts, with provisional application in the USA. The patent filing was in.2012 and we assume an expiration date of 2033.

A list of the patents is provided below:

Xynomic knowhow comes from its knowledge of the Chinese market and networks as well as the from the management knowhow in business & development. Xynomic note that their strategy is to in-licence later staged compounds to reduce attrition rates. Xynomic being one of the front runner pharma companies in China, will benefit from the change in attitudes in China to further open the market to foreign medicines.

Xynomic consider they have a 4-5 year advantage on any future competitor aiming to replicate a XP-101-like product and that their first mover advantage will dissuade competitors. The company considers a further key advantage is their first mover position in China.

Regarding XP-101, Xynomic consider the safety and efficacy profile of this compound to be superior that current HDAC inhibitors. HDAC is a relatively old drug target and Xynomic consider the likelihood of new upcoming drugs to be minimal.

In general terms, ownership risks can come from former employers and employees, contractors and consultants, who (while not named on the patent) may claim a right over the IP. The freedom-to-operate and third-party infringement may also be pursued by competitors, even if low, to instigate patent litigation and derail growth. If the IP of the products listed herein has been derived from an academic setting, where research scientist contracts may be casual, the company may have some risk in ownership claims, freedom-to-operate and third-party infringement. In this regard, additional authors listed on publications related to the products in comparison to those listed on the patents may be present.

Given that Xynomic has collaborations with universities they may seek to confirm any potential ownership claims, freedom-to-operate and third-party infringement.

Xynomic is focused on development of novel therapies for the treatment of a variety of cancers. The company is running a number of clinical trials examining the efficacy of its lead drug XP-101 (Abexinostat) in renal cell carcinoma, follicular lymphoma, diffuse large-B-cell lymphoma and mantle cell lymphoma, multiple solid tumors and breast cancer, as well as its drug XP-102 (BI 882370) in colorectal cancer and melanoma.

A brief outline of Xynomic’s market environment is provided below:

Market Size/Epidemiology

●     The epidemiology for differing cancers, in particular the prevalence, and the estimated number of patients is listed in the table below.

Territories

●     The target patient population in the US, EU and Japan and China is described below, with an upside arising from distribution in other geographies and worldwide.

Customer Segments and Indications

●     We assume the population that receives a prescription in US as a 100% benchmark; with EU being typically 55-75% of this as the sales ratio reported by companies; and in China based on the population eligible for and that can afford expensive treatments. We assume, also a high (80%) compliance for life threatening cancer treatments supervised by specialists. Further assumptions for each of the disease indications for XP-101 are described below (those of XP-102 are not listed):

●    Renal cell carcinoma (RCC): In this case the prevalence rate is based on a 3 year prevalence of kidney cancer, of which 90% is RCC. Sub-population of 30% is based on patient population taking Pazobanib (Votrient) with advanced stage IV RRC. Market share for XP-101 is based on half that of pazobanib estimated share.

●    Follicular Lymphoma (FL): The prevalence rate is based on a 3 year prevalence of NHL, of which 92% being B-cell type and of this 12% being FL. Sub-population of 60% is based on patients having received treatment with rituximab and being in relapsing or refractory stage. Market share for XP-101 is expected to be higher in China based on its use as an earlier treatment line. We note FL patients can have long survival times, allowing for use of 4^th line medication, where XP-101 may be useful.

●    DLBCL/MCL: We base the prevalence rate is based on a 3 year prevalence of NHL, of which 92% being B-cell and of this 22% being DLBCL and 5% MC. Sub-population of 60% is based on patients having received treatment with rituximab, who are relapsing or refractory. Market share for XP-101 is expected to be higher in China based on its use as an earlier treatment line.

●    Multiple Solid Tumors (non–small cell lung cancer): Xynomic have suggested a focus potentially toward lung cancer. A prevalence rate is based on a 3 year prevalence of lung cancer, of which 90% is non–small cell lung cancer (NSCLC). The sub-population of 28% is based on patient population testing positive with more than 50% tumor proportion score (TPS) for PDL1 (programmed death ligand 1), for which Keytruda can be used. Market share for XP-101 is based on half that of PDL1 positive NSCLC patients.

●    Breast cancer: The prevalence rate is based on a 3 year prevalence of breast cancer, of which 80% being ER+ breast cancer. Sub-population, based on assumption that 50% of patient population is taking Kisqali by 2025 at launch of XP-101, as per Novartis estimating Kisqali having blockbuster growth. In 2017 sales for Kisqali was USD 26m compared to Ibrance of USD 643m. Market share of XP-101 based on half that of Kisqali estimated share in 2025.

An illustrative projected target population is provided in the table below (please also see Appendix I-III). We note that, for the purpose of this valuation, we have focused on the lead indications in RCC, FL, DLBCL/MCL in the rNPV calculation, and other indications are considered in the pipeline (see Valuation section below).

Market Entry

●     Given the clinical development timelines outlined above, we assume XP-101 to be ready for market launch in Follicular Lymphoma and DLBCL by 2021 in China, in Follicular Lymphoma by 2022 in US/EU, in Renal cell carcinoma by 2023, and in DLBCL/ML, Multiple Solid Tumors and ER+ Breast Cancer by 2025.

●     XP-102 is an early stage pre-clinical compound. We assume timelines of a 6 mth Ph Ia study (15 patients), then a Ph Ib/IIa study (40 patients) of 2 yr in either CRC or Melanoma in combination with e.g. Cetuximab and thereafter a Ph III Pivotal Control arm study of 4 yr, with 1 yr for NDA registration. Therefore, we estimate a market launch in 2027.

Market Uptake and Market Campaign

●     Regarding sales and marketing, Xynomic aims to build its own sales teams in US and China, while seeking a partner for marketing in EU countries. For details of sales teams, please see above (section on future hires and expansion).

Product Distribution

●     Country Level: Xynomic may utilise local distributors and/or co-market with collaborating large pharma (e.g. Novartis, JNJ) offering of 10-20% in sales to the distributor, local partners, and large pharma partners depending on marketing and distribution assistance.

●     Patient Level: We assume, XP-101 and XP-102 will be administered orally (in tablet form) to patients either hospitalized or to out-patients attending regular clinics. Therefore, we assume these products will be distributed in a hospital or clinic setting under medical supervision.

Positive market drivers in our view include:

●     Improved clinical benefits to existing therapies

●     First mover advantage especially in China

●     Significant market size and unmet medical need in indications being proposed for development

●     Opportunity to extend into a number of indications

●     Opportunity for global growth in various territories

●     Generic versions of pazopanib, Imbruvica, Keytruda, Kisqali and other co-treatments with Abexinostat (XP-101) and XP-102 may drive market share

●     Positive demographics, including aging population, rising disposable incomes and healthcare access and awareness

Negative market drivers include:

●     Possible threat from yet unknown novel technologies

●     Competitive pressure from existing products already marketed

●     High pricing strategies and regulatory/governmental body approval

●     Limits in affordability by patients

●     Lack of diagnostic biomarkers that might assist in identifying and better stratifying patient populations

●     Need to develop distribution networks, sales and marketing

●     Need for significant market investment to launch products

The current therapies for the cancer indications, for which XP-101 and XP-102 are being developed, include surgery, monotherapies, and combination treatments. These approaches tend to represent first, second, and third line treatment methods, with palliative care measures instigated with terminal illness diagnosis.

XP-101

●     XP-101 is an oral HDAC inhibitor which has advantage over the injectable competitors.

●     Given that XP-101 assists in prolonging drug resistance of other cancer therapies, and works by modifying DNA, its levels in the body can be maintained at a constant low level, potentially offering better safety profile. According to Xynomic, the c-max properties of XP-101 allow for a low level maintenance, compared to higher c-max levels of competitor HDAC inhibitors. The tablet form of XP-101 allows for further control, in this regard.

●     XP-101 is a pan-HDAC inhibitor. Xynomic suggest its profile has advantage over other HDAC inhibitors in terms of safety, e.g. compared to those having HDAC8 inhibitor activity.

XP-102

●     XP-102 is a 2^nd generation pan-RAF kinase inhibitor that can block multiple RAF kinases and signaling pathways. Xynomic consider 1^st generation RAF kinase inhibitors develop drug resistance, which will not be the case for the pan-RAF kinase inhibitor XP-102.

●     XP-102 has a unique binding mode, insofar as it binds the RAF kinase in a DFG-out ‘inactive’ confirmation providing high selectivity. For CRC and melanoma this property might help in providing synergistic efficacy with currently used MEK inhibitors.

Direct Competitors

●     With regard to direct competitors, there are first, second and third line therapies for many of the cancer indications for which XP-101 and XP-102 are being developed. Please see table below.

Therapeutic & Mechanistic Based Competition

●     Mechanistically, a number of pan-HDAC and selective HDAC inhibitors are marketed or in development that may compete with XP-101. Similarly, RAF inhibitor marketed drugs or those in development could represent competition to XP-102 (BI 882370) (please see below).

Other & Future Competitors

●     Other competitors, while likely in the distant future, may include novel technologies that target similar therapeutic pathways, as well as those derived from novel molecular approaches, gene therapy and/or cell-based therapies. In this regard, the upcoming CAR-T cell technology appears promising. Chimeric antigen receptor (CAR) T cells are immune cells genetically engineered to target an antigen present on tumor cells. Kite Pharma KTE-C19 (or axicabtagene ciloleucel), Novartis (CTL019, Kymriah tisagenlecleucel), and Juno Therapeutics (JCAR014 and JCAR017) have been leading the development of CAR T-cell products for the treatment of DLBCL or MCL. At present these therapies target CD19 and in the futures, other targeted antigens, e.g. CD30 or CD22, may allow expansion of CAR T-cell therapy possibly for other cancers. Xynomic consider a combination treatment with Imbruvica and XP-101 may provide similar efficacy as reported for CAR-T cell technology in DLBCL or MCL.

Based on our analysis, the number of therapeutic products in different stages of development, as well as marketed products, for the indications targeted by XP101 and XP102 are listed below. We can therefore assume an increasing competition in the future, with new products coming to the market. This risk has been taken into account in the market share.

We note, however that competition may also represent a potential out-licensing and/or collaborative (co-development, distribution and/or marketing) opportunity, as the interest of large partners in the field is pertinent.

The number of products in development as well as key marketed and upcoming competitors are outlined below. These lists are for example purposes and not exhaustive.

RAF inhibitor: XP-102 (BI 882370)

Below is a brief summary of the strengths as we see them:

●     Strong evidence of safety and efficacy from clinical studies

●     Significant market size and unmet medical need

●     Opportunities for indication and territory extension

●     First mover advantage

●     Knowledge to penetrate China market

●     Positive demographics, including aging population, rising disposable incomes, and healthcare awareness

●     Significant expertise of company management as an asset to the company

●     Well defined portfolio strategy and pipeline for sustained product development

Below is a brief summary of the weaknesses as we see them:

●     Need for financial investment for clinical studies and running costs (approximately USD 50-60m)

●     Uncertainties surrounding M&A and/or IPO

●     High dependence on success of Abexinostat

●     Lack of sufficient support staff to assist Senior Management

●     Challenges of staff as company expands

●     Need for the development of sales force teams in targeted territories

●     Uncertainties surrounding future partnership plan with co-developers and distributors

Below we summarize the risk factors as we see them associated with Xynomic and with the company’s lead products. Risks are presented as product-specific risks and non-product specific risks.

We note that product-specific risks are reflected in a direct risk adjustment as part of the rNPV method, whereas non-product specific risks are reflected in the overall discount rate.

The ratings used are designated as low (lower than average as compared to comparable companies/products), medium (average), and high (higher than average).

We see the key product specific risks as follows:

Product Development Risk:

●     Xynomic have a number of clinical studies planned and ongoing. Failure in one or more clinical trial could be leave the company in a vulnerable position. We note, however, this would be the case for all companies in a similar stage. We deem this risk as MEDIUM.

Regulatory/Approval Risk

●     Xynomic and their representative CRO partners are in discussion with regulatory authorities and have ongoing clinical studies. Given the significant experience within the company we consider this risk as MEDIUM.

Manufacturing Risk:

●     Xynomic have in place the manufacturing partners for XP-101 and XP-102. We see no particular hurdles with this activity. We deem the manufacturing risk as LOW.

Non-product specific risks are as follows:

Partnering Risk

●     Xynomic has a well-established set of collaborators and partnerships in place for development of its products, which also include large Pharma such as Novartis and JnJ. We consider this risk as LOW-MEDIUM.

Financing Risk

●     Xynomic has raised approximately USD 25m equity to date in private investments. The company aims to raise funds for the clinical development of its lead and pipeline products, either by IPO or M&A. We are not aware of any future financial incomes secured or term sheets signed. We note however that XP-101 is an attractive asset and we deem this risk as MEDIUM.

Management Risk

●     The management at Xynomic are a key asset to the company and together have extensive expertise to manage the business. We consider this underlying management risk to be LOW. We note; however, that a certain level of challenge exists if the company were to establish a large sales force and if the company were to entry an M&A. Thus, we see this risk as LOW-MEDIUM.

Intellectual Property (IP) Risk:

●     The existing of patents related to XP-101 appears well covered with an expiration date of 2034 and 13 years of patent protection. We deem this risk as MEDIUM.

Market Uptake Risk:

●     Xynomic have a well-established plan with a reasonable timeline to develop a marketing strategy for XP-101 and XP-102. We see this activity on par with other drug development projects at a similar stage of development. We deem the market uptake risk as MEDIUM.

Competitive Risk:

●     There are a number of first, second and third line competitor products currently on the market. A competitive risk is also likely to come from novel products, of which many are in development. Given the current and future competition level, we deem this risk to be MEDIUM-HIGH.

Pricing Risk:

●     We consider the pricing strategy to be as per current therapeutics on the market. However some regulatory scrutiny may occur when summed with the cost of partner drugs. We note that there exists a risk associated with reimbursement listing. Thus, we deem the pricing risk to be MEDIUM-HIGH.

We note that the present is a valuation of Xynomic’s current assets, and, as such it represents a snapshot of the company’s value today.

We have considered the following value drivers for Xynomic:

●     Abexinostat (XP-101) initially for the treatment of NHL and RCC;

●     Abexinostat in follow-on oncology indications in solid tumors including breast cancer;

●     XP-102 in oncology indications;

●     Pipeline of in-house products including XP-103 and XP-104.

An additional potential asset, XP-105 is discussed in Appendix VII.

Market penetration rates are based on the Tufts Center for Drug Development uptake curve, adjusted by Venture Valuation.

For a full list of assumptions used please see Appendices I, II, III, VI.

To provide a balanced assessment of the value of Xynomic the following valuation methods were used:

●      The sum of parts, including:

o     the risk-adjusted net present value (rNPV) method;

o     the discounted cash flow (DCF) method;

●      The market comparable method;

●      The comparable transactions method.

In the sum of parts, the value of the products determined with the rNPV method was summed to the net present value of potential revenues associated with Xynomic’s pipeline calculated with the DCF method to result in the final net present value of Xynomic.

The most appropriate method to value pharmaceutical products in development is the risk-adjusted net present value (rNPV). This method factors in the success rates of therapeutic products in pharmaceutical development and the probability of failure is then used to discount the yearly free cash flows over the entire life cycle of the product.

The rNPV calculation, as well as key assumptions for Xynomic’s lead product in development, are described in the sections below and in Appendices I-III. The analysis takes into account a likely licensing scenario and the generation of future cash flows from potential upfront, milestone and royalty payments as a result of a deal with a pharmaceutical or a specialty pharmaceutical company.

This method was used to value the development candidates, Abexinostat in RCC (worldwide) and NHL (FL worldwide, DLBCL worldwide, MCL in US and Europe).

The discounted cash Flow method uses Xynomic’s future positive and negative free cash flow projections discounted to the present value. The DCF valuation does not consider the lead programs that were valued separately using the rNPV method.

The market comparable method utilizes data from public, peer-group companies to determine multiples which are used for calculating the value of Xynomic. Multiples are determined for key variables such as the ratio of number of employees to market capitalization and R&D investment to market capitalization.

To calculate the discount rate used in the DCF method, a risk- free rate of return of 2.9% was used as a basis. The systematic risk was then determined using the market risk premium, which averages around 3.6%, and the beta, which measures the sensitivity of the company to the stock market.

Using the betas of the comparable companies also used in the market comparables method, a beta of 1.3 is calculated for Xynomic. The systematic risk is subsequently calculated to be 4.5%.

A liquidity premium is applied because, in contrast to publicly listed companies, it would be more difficult and would require more time to sell the equity of Xynomic at this stage. This premium was determined to be 11% to take into account that Xynomic is a private company.

In this case a value added premium of 0.8% is applied. It is expected that a new investor would add value through their reputation, industry contacts and experience.

The last premium added is the cash flow adjustment. Since only one scenario is calculated, we use this premium to take into account the risk of failure. On the one hand, Xynomic is based on established R&D programs. On the other hand, the company is still at an early stage with a pipeline consisting of early stage products in development. Therefore a cash flow adjustment premium of 14.6% is applied.

The rNPV calculation is based on figures provided by the management of Xynomic, adjusted by Venture Valuation. The calculated value of Abexinostat considers a licensing scenario, where Xynomic develops and markets the product worldwide.

Considering that the product is in late stage of development, and that clinical trials protocols have already been agreed with the regulatory authority, we consider the risk of the development plan reduced. There remains however the risk of establishing marketing operations. A median discount rate of 22%, and a range from 18% to 26% for sensitivity analysis were used. The next section describes the breakdown of each of the calculation components.

Taking into consideration the stage of development and the cumulative success rate of Abexinostat for the treatment of DLBCL in the US and Europe, the probability of product launch has been determined to be 15%.

In China, where only a Pivotal Phase II is planned in order to obtain approval for Abexinostat for the treatment of DLBCL, the probability of product launch has been determined to be 37%.