Olema Oncology: Best Contrarian Oncology Play For 2023

Company background

Olema Oncology (NASDAQ:OLMA) is a clinical-stage biopharmaceutical company focused on the development of novel targeted therapies for women's cancers. The company's lead product candidate, OP-1250, is a selective estrogen receptor degrader (SERD) being developed for the treatment of estrogen receptor-positive (ER+) breast cancer. We are a buyer of the company's lead candidate, OP-1250, which is a novel oral therapy with combined activity as both a complete estrogen receptor antagonist (CERAN) and a selective estrogen receptor degrader (SERD). This unique mechanism of action has the potential to drive deeper, more durable responses than existing therapies and overcome resistance to treatment. Additionally, OLMA has a pipeline of other drug candidates that target other key drivers (PIK3CA, CDK4/6i, etc.) of breast cancer and have shown promising preclinical data.

Pipeline overview

OP-1250, the lead value driver for OLMA

OP-1250, Olema Pharmaceuticals' lead candidate, is a novel oral therapy that acts as both a complete estrogen receptor antagonist (CERAN) and a selective estrogen receptor degrader (SERD). It binds to the ER in a unique way that induces a conformational change in the receptor, preventing it from activating downstream signaling pathways.

This mechanism of action is different from traditional ER antagonists, which bind to the ligand-binding domain of the receptor and prevent estrogen from binding. It has shown promising results in preclinical studies and early-phase clinical trials as a potential treatment option for patients with ER+/HER2- metastatic breast cancer.

As shown in the agonist model (+ estrogen) below, CERANs seem to show the most robust inhibition of AF-1 as well as AF-2. However, it is still unclear if this difference is clinically meaningful. But if it is, we suspect OP-1250 to be more effective in fulvestrant or elacestrant (Orserdu) resistant patient population (as other oral SERDs seem to be showing some degree of AF-1 inhibition).

The ability to degrade ER receptors seems comparable to other oral SERDs

Interestingly in terms of degrading capability, most of the CERAN/SERD and partial AF1 agonists, like elacestrant, showed a robust capability to degrade ER receptors, as shown below. We highlight that tamoxifen is a SERM and does not degrade the ER receptor and is hence less effective than SERDs, albeit, it can be effective in patients with aromatase inhibitor resistance (as SERMs also agonize and antagonize the ER receptors). Amongst all the candidates, what stands out is that ARV-471 (from (ARVN)) has shown the highest degree of ER degradation.

One key advantage of OP-1250 over other SERDs currently on the market is its pharmacokinetic (PK) profile; the attractive PK profile of OP-1250 at a steady state maximizes efficacy and minimizes adverse events (AES) and perhaps increases the drug's ability to bind to the estrogen receptor. This means it can achieve high drug exposure levels, resulting in robust antitumor activity while minimizing side effects. In addition, OP-1250 has demonstrated activity against tumors with mutations that confer resistance to other endocrine therapies.

For example, in an ovariectomized mouse model using an estrogen-independent PDX model containing a Y537S mutation, oral OP-1250 QD led to tumor shrinkage in all treated mice. Of note, we highlight that Y537S mutation is the key known driver of fulvestrant resistance, which is the intramuscular SERD approved in 2002.

Furthermore, OP-1250 has shown some degree of activity in the CNS metastasis model as well, which can be a differentiator amongst the wave of oral SERDs that are about to be approved starting from 2024-2027.

Breast cancer background

Breast cancer is a complex disease with various subtypes, each with different molecular characteristics and treatment options. The most common subtype of breast cancer is ER+/HER2-, which accounts for approximately 65% of all cases. Despite advances in treatment, metastatic breast cancer remains incurable, and uncertainty exists due to many patients developing resistance to mutation after starting a hormonal therapy such as an aromatase inhibitor.

Resistance to aromatase inhibitors (AIS) in hormone receptor-positive breast cancer is suspected to occur due to the following:

1. Activation of alternative signaling pathways that bypass estrogen receptor (ER) signaling.
2. Increased estrogen synthesis through intratumoral conversion of androgens to estrogens.
3. Mutations or alterations in the estrogen receptor that reduce responsiveness to AIs.
4. Activation of ER co-regulatory proteins that enhance ER signaling.
5. Changes in the tumor microenvironment that promote survival and drug resistance.
6. Epigenetic modifications affecting gene expression related to estrogen signaling and drug response.

The current treatment paradigm for breast cancer depends on the subtype of the disease. Endocrine therapy is typically used as a first-line treatment for ER+/HER2- breast cancer, which is the most common subtype. Endocrine therapy works by blocking the effects of estrogen on breast cancer cells, which require estrogen to grow and divide. Selective estrogen receptor modulators (SERMs), aromatase inhibitors (AIs), and selective estrogen receptor degraders (SERDs) are commonly used as endocrine therapies. However, despite the effectiveness of these treatments, many patients eventually develop resistance to them. Resistance can occur due to mutations in the estrogen receptor or other signaling pathways that promote tumor growth. In addition, some patients may not respond to endocrine therapy at all.

OP-1250 has shown promising results in preclinical studies and early-phase clinical trials as a potential treatment option for patients with ER+/HER2- metastatic breast cancer. One key advantage of OP-1250 over other SERDs currently on the market is its ability to overcome resistance due to mutations in the estrogen receptor or other signaling pathways. As mentioned earlier, OP-1250 has shown activity against tumors with mutations that confer resistance to other endocrine therapies. In addition, OP-1250 has demonstrated activity against tumors that are resistant to CDK4/6 inhibitors and PI3K inhibitors. This is significant because these drugs are commonly used in combination with endocrine therapy for patients with advanced breast cancer.

In an ongoing Phase 1/2 clinical study, OP-1250 has demonstrated promising clinical activity as a single agent in patients with advanced or metastatic ER+ breast cancer who have progressed on prior endocrine therapy. As of the data cutoff date of September 30, 2020, the overall response rate (ORR) was 25%, with a disease control rate (DCR) of 75%. The median duration of response (DOR) was not reached at the time of data cutoff. Additionally, OP-1250 has shown evidence of activity in patients with brain metastases, which are often difficult to treat and represent a significant unmet medical need.

In combination with other drugs such as palbociclib, ribociclib, and alpelisib, OP-1250 is also being evaluated in Phase 1b/2 clinical studies. On May 11th, the company reported updates on the combo trial.

We find the result compelling, especially around safety, as neutropenia has been the biggest overhang for the combination approach with CDK4/6i. The company noted that neutropenia levels were consistent with palbo + endocrine therapy studies. If the combo trial's safety data holds, we believe OP-1250 can be positioned as a "safe" oral SERD that can be combined with other CDK4/6is.

Additional key takeaway of the trial can be summarized below:

1. Safety and Tolerability: OP-1250 combined with palbociclib was found to be safe and well-tolerated in ER+/HER2- metastatic breast cancer patients with no dose-limiting toxicities or drug-drug interaction.

2. Efficacy: Tumor responses and prolonged disease stabilization were observed, even in patients previously treated with CDK4/6 inhibitors, including palbociclib.

3. Pharmacokinetics: OP-1250 demonstrated favorable pharmacokinetics with high oral bioavailability and a long half-life. No interactions were observed between palbociclib and OP-1250 in the dose range of 30 mg to 120 mg.

4. Results & Enrollment: 29 patients were enrolled as of March 8, 2023. Five showed partial responses with a clinical benefit rate to date of 42%. 59% of patients remain on treatment.

Other ongoing early-stage development

• OP-4130, another drug candidate being developed by Olema Pharmaceuticals, is a SERD that selectively degrades the ER. It has shown promising preclinical data in models of breast cancer and has the potential to overcome resistance to existing therapies.
• OP-101 is an inhibitor of cyclin-dependent kinases 4 and 6 (CDK4/6), which are key regulators of cell cycle progression. It has shown efficacy in preclinical models of breast cancer and has the potential to be used in combination with other therapies to improve patient outcomes.

Overall, Olema Pharmaceuticals' drug candidates are differentiated from their competitors due to their unique mechanisms of action and potential ability to overcome resistance to existing therapies. These candidates have shown promising preclinical data and are currently being evaluated in clinical trials for their safety and efficacy.

Financials and cash runway

OLMA is trading at around $99m enterprise value and holds $185m cash. Looking at the current cash burn, we believe the company has at least 1-2 years of cash runway, which is highly comforting for investors as potential dilution risk (through public offering) is low.

Risks

• As a clinical-stage biopharmaceutical company, OLMA has a limited operating history and has not yet generated any revenue from product sales. This makes it difficult to assess the company's financial performance and predict its future success.
• OLMA's drug candidates are still in the early stages of development, and there is no guarantee that they will be successful in clinical trials or receive regulatory approval. Even if they do receive approval, there is no guarantee that they will be commercially successful or generate significant revenue.
• OLMA is heavily dependent on the success of its lead candidate, OP-1250. If this drug candidate fails to meet expectations or experiences setbacks in clinical trials, it could significantly impact the company's financial performance and stock price.
• As a small-cap company, OLMA may be more susceptible to market volatility and liquidity issues than larger, more established companies. This could result in significant fluctuations in its stock price and make it difficult for investors to buy or sell shares at desirable prices. Additionally, OLMA may have difficulty accessing capital markets or securing financing on favorable terms due to its size and limited operating history.

Conclusion

We initiate Olema Oncology with a speculative buy rating due to a) a modest valuation of ~$100m enterprise value, which is cheap for the novel CERAN platform they hold that addresses multi-billion dollar ER+/HER2- breast cancer, b) promising clinical data so far, well positioning the drug as potential next-generation oral-SERD that can be more effective in overcoming resistance, c) strong cash runway with $185m cash on hand lowers the risk additional public market dilution.

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