Futura Medical: Commercial execution is key

The recent US FDA regulatory filing for MED3000, following highly positive data from the critical FM71 study, paves the way towards US market entry. This will be contingent on Futura Medical successfully securing a US commercial partner. US marketing authorisation is hoped for by end Q123 and, if granted, this could catalyse any ongoing partnering discussions, in our view. Meanwhile in Europe, partner Cooper Consumer Healthcare is preparing for first MED3000/Eroxon launches during H123, with the first commercial orders already received. Futura Medical also has several MED3000 commercial partners in various other territories. With many elements now in place to support successful MED3000 commercialisation, the key remaining task is a deal(s) to address the commercially important US market, and the search is underway. We continue to see the biggest opportunity for MED3000 in the US and in Europe, and successful commercialisation in either of these territories could transform Futura Medical. Cash of £6.7m, together with a £0.9m tax credit expected during H222, should be sufficient to YE23, beyond the anticipated Q123 FDA regulatory decision. We value Futura Medical at £270m, or 94p per share.

Following highly positive data from the FDA required FM71 trial, Futura Medical recently submitted MED3000 for regulatory review in the US, with a decision expected by end Q123. The US regulatory dossier includes data from both FM71, the longer-term 24-week study, and from FM57, the 12-week trial. Together these showed consistent effects, sustained over the longer-term, with excellent safety and tolerability (FM71 details are outlined below), which should pave the way towards formal marketing clearance in the US. Assuming this is granted as expected, the key remaining step for US commercialisation is securing a marketing partner. The search has already commenced, and a number of inquiries have been received. This is encouraging, albeit we have limited visibility on the potential timing and terms, given various structures and options could be considered. Importantly, current cash resources should be sufficient to reach beyond the anticipated US regulatory decision by end Q123, and to secure a US deal, assuming a positive regulatory outcome catalyses discussions.

In Europe and the UK, commercial partner Cooper Consumer Healthcare is preparing to launch MED3000/Eroxon as the first erectile dysfunction (ED) treatment available OTC (over-the-counter, ie without a doctor’s prescription). The first launch wave is expected during H123, which could potentially include the UK. The next wave will likely include the rest of the key markets of France, Germany, Italy, and Spain, with the third wave being the distributor-led smaller geographies. An external third-party contract manufacturer is in place for commercial production and first orders have been received from Cooper.

Futura Medical now has several deals in place for MED3000 commercialisation across a number of territories, including with Cooper, which are summarised later in this report. The market opportunity for the first clinically proven ED product approved for OTC use could be significant. Its rapid onset of effect, undoubted safety, and ease of use suggest MED3000 would offer an attractive, clearly differentiated (not ‘me too’), and competitive clinical profile compared to the market leading class of PDE5 inhibitors.

Positive FM71 data could support differentiated US label

Data from the critical FM71 study conducted over 24 weeks to support the US FDA application for MED3000 were highly positive, meeting FDA agreed primary and secondary endpoints. The results of FM71 were consistent with those seen in the previous 12-week FM57 Phase III study, with the improvements in erectile function sustained throughout the longer 24-week period explicitly requested by the FDA. In addition, MED3000 was shown to have a rapid onset of action, which could be a key differentiator. There were two co-primary endpoints:

• The first showed a highly statistically significant improvement in erectile function (p<0.001) against baseline at 24 weeks (measured by the gold standard, internationally recognised IIEF-EF score) across ‘pooled’ severities of ED (mild, moderate and severe);
• The second showed a 5.73 unit change in IIEF-EF score versus baseline at 24 weeks. This comfortably exceeded the 4 unit difference agreed with the FDA and defined as the Minimal Clinical Important Difference (MCID).

MED3000 was clinically effective at all timepoints, as shown in Exhibit 1. Whilst tadalafil showed greater improvement (at 24 weeks 61% of MED3000 users exceeded the MCID compared to 87% on tadalafil), the OTC approval is not contingent on equivalence being shown.

Exhibit 1: FM71 primary endpoints achieved

Source: Futura Medical

A key secondary endpoint examined speed and onset of action. The data, using FDA agreed criteria where patients experienced an erection, showed a highly statistically significant improvement (p<0.001) at 10 minutes. This endpoint was included to demonstrate a rapid onset, which the oral tadalafil 5mg tablet comparator failed to show. Typically, oral PDE5 treatments take 30-60 minutes to work. This could be important in supporting a differentiating label claim in the US.

Additional results from FM71 include: MED3000 exceeded the 4.0 MCID IIEF-EF score at all timepoints throughout the study; over the 24 weeks the MCID was also exceeded for each of the mild, moderate and severe ED subgroups; and, using the SEAR (Self Esteem and Relationship) questionnaire, at week 24 85.4% of MED3000 users felt sex could be spontaneous.

No serious adverse events were recorded in any patients on MED3000; 19.1% of subjects on tadalafil experienced headache vs 4.3% on MED3000; there were no instances of back pain or ‘non-cardiac’ chest pain on MED3000 vs 4.3% for each on tadalafil, whereas 4.3% on MED3000 noted nausea.

FM71 was a clinical study which was specifically requested by the US FDA to support marketing clearance as an OTC treatment for ED. The trial was conducted over 24 weeks in order to satisfy FDA concerns that the efficacy of MED3000 may diminish over a longer period compared to the 12 weeks examined in the FM57 trial. Endpoints were agreed with the FDA and were the same as prior studies, albeit over 24 weeks, and also included speed of onset. The trial enrolled 100 patients, which included a mix of mild, moderate, and severe ED patients (including African Americans). A representative half used MED3000 topically and half the lowest dose (5mg) of tadalafil (Cialis) orally in a randomised, open-label, at home study.

Home use study provides consistent real-world evidence

As part of its due diligence, Cooper undertook a consumer marketing home use test (HUT) in the UK, France, and the Netherlands. The size of the HUT has not been disclosed but would typically involve c 200 consumers. In this case men with self-diagnosed ED were supplied with a four-pack sample of MED3000 and the appropriate packaging leaflet. The results were in-line with those seen in the FM57 clinical trial, where over two-thirds of patients saw a clinically meaningful benefit. In the HUT the majority of men with ED, other than men suffering from severe ED with significant co-morbidities, saw an improvement in erectile performance. The importance of the HUT lies in the confirmation that MED3000 works as expected in a real-world setting.

Data package supports attractive market positioning

The data from FM71 and from the HUT provide additional, consistent evidence, together with data from the FM57 12-week study, that MED3000’s market positioning, summarised in Exhibit 2, could be very attractive.

Exhibit 2: User benefits of MED3000

Source: Trinity Delta, Futura Medical

Five commercial deals already secured

In May 2022, Futura Medical secured a deal with Cooper Consumer Health to commercialise MED3000 across Europe, including the UK. Cooper is a Paris-based specialist in self-care, with brands spanning from cough syrup to burn treatment. It has sales of over €500m, with a direct presence in the seven largest European markets and via distributors in remaining geographies.

Initial launches are anticipated during H123, which could potentially include the UK. The next wave will likely address the rest of the key markets of France, Germany, Italy, and Spain, with the third wave being the distributor-led smaller geographies.

Futura Medical does not manufacture MED3000 itself, but has an external third-party contract manufacturer in place, ready for commercial production. Scale up has been completed and capacity should be sufficient to meet initial demand and beyond. First orders have already been received from Cooper on which Futura Medical receives an agreed manufacture and supply price.

As previously outlined in our May 2022 Lighthouse, the agreement has four main elements: (1) Futura Medical to receive an upfront payment, assumed to be modest; (2) potential receipt(s) of cumulative undisclosed sales-based milestones; (3) an agreed price paid by Cooper for MED3000 manufacture and supply (by third-party contractors), and (4) Cooper commitment to sizeable, but undisclosed, commercialisation spend to support launch roll outs and continuing marketing and promotional costs.

In addition to the deal with Cooper, Futura Medical has also already successfully secured four deals outside of the Europe and US:

• South Korea (Menarini): The next most recent deal, executed in March 2022, is with Menarini Korea, a wholly owned subsidiary of Menarini Group. The deal has three main elements: (1) Futura Medical receives an initial upfront payment, which we assume to be modest; (2) Menarini Korea pays an agreed price for the manufacture and supply of MED3000, likely to be the key value driver for Futura Medical; and (3) Menarini Korea is responsible for local development, including any clinical bridging studies, regulatory work, and commercialisation costs, which effectively caps Futura Medical’s responsibility to providing reasonable technical support. The South Korea ED market ranks ninth by value (US is largest) and sixth by volume (Brazil is the largest, with the US second).
• Brazil and Mexico (m8 Pharmaceuticals): The deal with m8 Pharmaceuticals (also known as moksha8) was secured in August 2021 and is an exclusive development and commercialisation collaboration. m8 Pharmaceuticals is a specialist company owned by Montreux Equity Partners. The agreement covers Brazil and Mexico and is for an initial 15 years. m8 has responsibility for all local development, regulatory and approval costs, as well as marketing, promotion, and regulatory compliance. For context, Brazil and Mexico account for 63% of the Latin America pharmaceutical market. In return Futura Medical will receive undisclosed sales-related payments, plus four milestones totalling up to $8.5m that are based on agreed cumulative sales volume targets.
• Gulf and Middle East (Labatec Pharma): The deal with Labatec Pharma, a Swiss based specialty pharma business, was signed in September 2021 and covers the Gulf countries (Saudi Arabia, United Arab Emirates, Kuwait, Qatar, Oman, and Bahrain) as well as Jordan, Lebanon and Iraq. The term is for eight years initially, extendable in two-year terms, with an undisclosed upfront payment and milestones on regulatory approvals. Labatec will be responsible for all development and approval costs, which are expected to be minor, and for all marketing, distribution, and compliance costs. Futura Medical will provide finished product, from its contract manufacturer, for an agreed price and will also receive royalties on net sales.
• China and South-East Asia (Atlantis Group): Futura Medical struck its first agreement in March 2021 for commercialisation in China and the South-East Asia region through specialist subsidiaries of Atlantis Group, with details in our March 2021 Update. However, given continued COVID-19 restrictions in China, several development and regulatory milestones agreed as part of the deal have not been delivered, delaying potential launches. Futura Medical is now exploring options in China and South-East Asia, within the terms of the existing agreement, given this remains a significant commercial opportunity.

Valuation and Financials

We continue to value Futura Medical using a DCF model, with MED3000 the key value driver. The effect of updating our model for events over the last year leads to a Futura Medical valuation of £270m, or 94p per share. We view the US market opportunity as the most significant, forecasting conservative peak sales of around $250-300m for MED3000, which we assume are reached around five years post launch. Europe could also have significant potential, albeit given the more fragmented nature of the market, which encompasses distinct commercial models in different countries, we conservatively forecast peak sales of $100-150m in Europe, with similar in Other Regions. These are summed and netted against the costs of running the operation and net cash.

Our forecasts assume a MED3000 price of c $5/dose in the US and similar in EU, and whilst our market penetration rates continue to assume the clinical benefits seen in the trials are replicated consistently in a real-world setting, uptake will largely depend on the marketing experience and expertise of the relevant commercial partners. Motivated and commercially astute partners could result in materially faster adoption curves and higher peak sales. We assume modest penetration rates, hence there could be significant upside if uptake exceeds our expectations.

Exhibit 3: Futura Medical risk-adjusted DCF model

Source: Trinity Delta  Note: Assumptions include a 12.5% discount rate; a 1.2 $/£ FX rate, and 10% tax rate from 2026 with the benefit of the UK patent box

For the purposes of modelling, we assume any deal(s) in the US will largely replicate the deal in Europe, which encompasses a combination of modest upfront payments, sales milestones, and finished product supply agreements. However, pending visibility on the US terms, and given limited disclosure of precise terms in Europe (which includes multiple revenue layers based on various accounting practices) for simplicity we assume Futura Medical receives payments from partners that are equivalent to a royalty rate of 20% on in-market sales. In the US we assign a 90% risk adjustment pending regulatory authorisation.

Other regions, which includes South Korea, China & South-East Asia, Brazil and Mexico, and the Gulf and Middle East, represent the largest potential user group in terms of volume. However, lower pricing vs the US and Europe reduces the monetary value. For simplicity we continue to model half of profits accruing to Futura Medical (equivalent to a 12.5% royalty based on a 25% net margin assumption).

Our financial model has been updated to reflect recent interim H122 results. As previously outlined, given limited visibility on precise launch timings and details on likely revenue and cost recognition in Europe, in addition to as yet unknown and unpredictable US deal terms, we do not currently include any potential MED3000 revenues in our Profit and Loss forecasts. Our forecasts instead focus on the key Operating Expenses, R&D and SG&A, with FY22 forecasts based on the H122 run rate. For R&D we assume a decrease in spend in FY23 given MED3000 clinical trials are complete. For SG&A we assume a small increase in FY23. MED3000 related revenues could allow Futura Medical to expand current R&D efforts beyond MED3000 and hence our forecasts are largely illustrative. Our financial forecasts are shown in Exhibit 4.

Cash at end-June 2022 of £6.7m (FY21: £10.4m; H121: £12.8m), together with a £0.9m tax credit expected during H222, should provide a runway beyond the anticipated US regulatory decision, which is hoped for by end Q123, assuming a fairly standard six-month review, and to secure a US commercial partner, depending on discussions and timing.

Exhibit 4: Summary of financials

Source: Company, Trinity Delta    Note: Adjusted numbers exclude exceptionals.

Exhibit 1: Summary of financials

Source: Trinity Delta, Allergy Therapeutics

Redx Pharma: Fibrosis could prove transformative

Redx Pharma’s medicinal chemistry expertise has been proven by its consistent track record, with five programmes now in the clinic. The strategy is to partner certain assets, sometimes as early as preclinical, and develop selected in-house programmes to key value-inflection points. The proprietary assets focus on selected oncology indications and broader fibrosis diseases. The lead compounds are progressing through clinical trials, with data due to be released throughout the coming 12-24 months. We have covered other aspects of the investment case in previous notes, with this note focusing on the developments in the fibrosis programmes. Multiple lines of evidence show ROCK inhibition has great potential to be a powerful therapeutic tool in the treatment of fibrosis, both in the lung and beyond. RXC007 is a selective ROCK2 inhibitor in Phase IIa for idiopathic pulmonary fibrosis (IPF) and RXC008 is an innovative pan-ROCK inhibitor completing IND/CTA preparation for Crohn’s disease. Our rNPV based valuation remains £458m ($595m) or 138p/share.

Redx Pharma has a demonstrable track record, with its medicinal chemistry expertise proven to solve complex targeting issues. This has resulted in five innovative, and highly differentiated, compounds now in the clinic. Active risk management has resulted in a well-balanced pipeline, with a mix of in-house and partnered programmes, that should provide a stream of news flow over the next 12-24 months. RXC004, an innovative porcupine inhibitor for Wnt-ligand dependent cancers, is in Phase II trials, with monotherapy arms expected to deliver top line data from H123 and checkpoint inhibitor (CPI) combination arms due to report H223. Phase IIa data for RXC007, a ROCK2 inhibitor for various fibrosis indications, in IPF is expected to report H223. Partnered assets, with AstraZeneca and Jazz Pharmaceuticals, are also advancing.

Redx Pharma’s investment case was explored in our extensive February 2022 Outlook, which also covered the key in-house programmes and the expected progress with partnered projects. The Outlook report illustrated how Redx Pharma is differentiated from its peers, the rationale underpinning the strategy pursued, and the importance of managing development risks. In this, and prior notes, we discussed the relevance of the Wnt pathways in selected oncology indications and the design of the RXC004 Phase II proof-of-concept clinical programme, highlighting the major opportunities, especially as combination (CPI) treatments, for Wnt driven tumours such as genetically selected MSS mCRC (microsatellite stable metastatic colorectal cancer) and metastatic pancreatic cancer, and biliary cancer.

This Update focuses on Redx Pharma’s fibrosis programmes, reflecting the greater understanding of the role of ROCK2 inhibition in various fibrosis indications, how the forthcoming RXC007 Phase II trials should provide valuable insights into its eventual clinical positioning, and, importantly, the high clinical need and resultant commercial opportunities that an effective and well-tolerated anti-fibrotic could help address. An additional pan-ROCK inhibitor, RXC008, targeting fibrostenotic Crohn’s disease through localised activity in the gut is preparing for clinical trials. The relatively early stages of these programmes mean they are ascribed little value within our rNPV model; however, if the preclinical promise is replicated in clinical trials, they could be transformative for Redx Pharma.

RXC007: a leading ROCK inhibitor for fibrosis

RXC007 is a novel and highly specific small molecule that targets the ROCK2 (Rho Associated Coiled-Coil Containing Protein Kinase 2) receptor. The ROCK pathways are a biologically and clinically validated target that sit at a nodal point in a cell signalling pathway, where they modulate inflammatory responses and fibrotic processes. They mediate a broad range of cellular responses that involve the actin cytoskeleton and are important regulators of cellular growth, migration, metabolism, and apoptosis. Aberrant downstream signalling has important roles in a range of fibrotic dysfunctions. There are two kinase forms, ROCK1 and ROCK2, which have broadly similar functions (especially in fibrosis) but the simultaneous systemic inhibition of both ROCK1 and ROCK2 appears to be more closely associated with cardiovascular effects (notably hypotension). The pharmacological inhibition of both ROCK isoforms prevents airway remodelling and lung fibrosis, but the chemistry is particularly complex and historically identifying safe and effective selective inhibitors has proved challenging.

Fibrosis is the excessive deposition of connective tissue components and occurs when the normal healing process goes wrong. This formation of excessive scarring can affect virtually every organ system, including the skin, lungs, liver, and kidney. Such fibrotic tissue remodelling severely impairs the function of the affected organ and often leads to organ malfunction. The initial causes of fibrosis are manifold, and while the precise disease process is not fully understood, it typically involves a common series of events, including secretion of cytokines which provoke a pro-fibrotic, chronic inflammatory immune response that leads to production of excessive extracellular matrix (ECM) proteins (eg collagen) and the tissue becoming fibrous in nature. Fibrotic diseases are commonly associated with high morbidity and mortality, and the need for effective anti-fibrotic therapies remains very high. This is particularly the case for pulmonary fibroses.

RXC007 could potentially be disease altering

Despite such clear unmet clinical need, the available treatments offer only a slowing of disease progression, are poorly tolerated by patients (leading to treatment discontinuation), and lung transplants are often the only option. In this context, RXC007 could be a particularly attractive programme, with a preclinical profile that suggests the potential to be disease modifying. RXC007 was chosen from a series of highly selective and orally active ROCK2 inhibitors, with extensive preclinical data showing good ADME profiles and robust anti-fibrotic effects. Results from immune mediated models, together with the encouraging (final) Phase I safety and pharmacokinetic data, were presented at ICLAF (International Colloquium on Lung and Airway Fibrosis) on 2 October 2022.

The preclinical data for RXC007 are impressive, albeit with the caveat that animal models (in isolation) fail to replicate many aspects of human disease, including its progressive and unremitting nature. The challenge is to perform a series of studies that collectively provide a representative insight into fibrosis remodelling, have consistent endpoints, generate reproducible and reliable results, and, importantly, can be subjected to robust analysis and interpretation. The best characterised preclinical model is the murine intratracheal bleomycin challenge (BLM), with appropriate treatment timing, relevant measurements for collagen accumulation, and suitable histologic assessments.

RXC007 and pirfenidone (an approved IPF treatment), were dosed therapeutically from Day 7-21 via oral gavage. The results (Exhibit 1) showed that RXC007 reduced collagen deposition in a dose-dependent manner, materially reduced fibrosis, and successfully suppressed the panel of genes that are typically associated with fibrosis.

Exhibit 1: RXC007 in the Bleomycin-induced Lung Fibrosis Model (BLM)

Source: ICLAF October 2022 Abstract No.66 Redx Pharma

The murine models of GVHD (Graft vs Host disease) are typically employed to assess likely GVHD therapeutic efficacy, however they also provide invaluable clinical insights into the mechanisms that underlie a number of fibrotic diseases. The Murine Sclerodermatous cGVHD model is an immune mediated model that explores associated skin and lung fibrosis. The results here provide additional greater clinical relevance as they employ similar disease mechanisms to those that underlie auto-immune pathologies that result in fibrosis.

To reflect the clinical situation with treatment only upon clinical signs of cGVHD, administration of RXC007 and nintedanib started 21 days after bone marrow transplantation and thus several days after the first clinically detectable manifestations of cGVHD in allogeneically transplanted mice. RXC007 and nintedanib were administered by oral gavage BID for 28 days.

The results (Exhibit 2) showed RXC007 administration resulted in a significant reduction of collagen content and collagen deposition in the skin, a significant reduction of fibrosis score and collagen content in the lungs around the bronchioles, and a similar effect on the cutaneous cGVHD score between nintedanib and RXC007. The strength of this collective data led to RXC007 being progressed into clinical development for lung fibrosis, including idiopathic pulmonary fibrosis (IPF) and auto-immune related interstitial lung disease (ILD).

Exhibit 2: RXC007 in the Murine Sclerodermatous chronic Graft versus Host Model

Source: ICLAF October 2022 Abstract Number 66; Redx Pharma

The ICLAF presentation also discussed the final Phase I data, first presented at the Interstitial Lung Disease (ILD) Summit in March 2022, which confirmed RXC007’s excellent safety and pharmacokinetic profile. This study consisted of a double-blind, placebo-controlled trial in healthy volunteers with two parts:

• a single dose (SAD) with dose escalation cohorts, and
• multiple doses (MD) over 14 days with dose expansion cohorts.

No adverse events were observed in the SAD stage, following single doses of 2-70mg (dosed once or twice in a day), and no serious adverse events were observed in the MD stage (dosed at 50mg twice daily for 14 days), with only transient, reversible, mild adverse events observed. The pharmacokinetics were as predicted from preclinical data, with linear exposure for 2mg QD to 70mg BID, with biologically relevant exposures achieved from 20mg. No significant effect on exposure was seen when dosed with food. The data also showed a mean half-life of approximately 9-11 hours, which suggests it is suitable for once-daily dosing.

These encouraging data clear the path for a staged Phase II trial programme. The first Phase IIa study will be of 12 weeks duration and will assess early efficacy signals, safety, and tolerability in IPF (Exhibit 3). The insights, especially around the suitability of biomarkers and target engagement, both with and without standard of care (SoC) agents, will guide design (and dose selection) of the larger 12-month Phase IIb trial. Top-line data from the Phase IIa study is expected in H223. The Phase IIb study will likely also explore RXC007 plus SoC over 12 months in IPF with lung function (FVC) as primary endpoint. However, other fibrotic indications could also feature as more clinical data becomes available.

Exhibit 3: RXC007 Phase IIa study design

Source: Redx Pharma  Note: DLCO =  carbon monoxide diffusion coefficient; FVC = forced vital capacity; HRCT = high resolution computerised tomography; Pbo = placebo

The roles of ROCK in IPF (and other fibroses)

In IPF (idiopathic pulmonary fibrosis), disease progression is viewed as a consequence of aberrant wound healing responses leading to repetitive lung injury. The responses to this tissue injury, such as vascular leakage, fibroblast recruitment, myofibroblast differentiation, and re-epithelialisation, all fundamentally involve a reorganisation of the actin cytoskeleton of participating cells, including epithelial cells, fibroblasts, and endothelial cells.

Exhibit 4: ROCK are critical mediators and rational targets for new therapies

Source: The Rho Kinases: Critical Mediators of Multiple Profibrotic Processes and Rational Targets for New Therapies for Pulmonary Fibrosis, Pharmacological Reviews 15, 67 (1) 103-117

The actin filament assembly and actomyosin contraction are directed by the Rho-associated coiled-coil forming protein kinase (ROCK) family of serine/threonine kinases, including ROCK1 and ROCK2. ROCK signalling occurs across multiple sites and pathways, acting as nodal points that impact a number of critical downstream functions. ROCK1 is ubiquitously expressed, whereas ROCK2 appears to be more selectively expressed in brain and muscle, particularly smooth muscle. The rationale for a selective ROCK2 inhibitor with pleiotropic effects (ie acting across multiple target pathways) is highly compelling. Exhibit 4 shows the various processes where ROCK inhibition impacts. It is these critical roles that underscore the therapeutic potential of ROCK inhibition for fibrosis.

IPF: significant unmet need for novel therapies

Idiopathic pulmonary fibrosis (IPF) is a severe, chronic, often fatal lung disease which causes scarring (fibrosis) in lungs that worsens over time. Fibrosis occurs when the normal healing process goes awry, with the formation of excessive scarring. The lung scarring leads to difficulty in breathing, shortness of breath, and life-threatening conditions including respiratory failure. IPF belongs to a large group of conditions, referred to as interstitial lung disease (ILD), which are all characterised by progressive inflammation and fibrosis in the lungs, notably around the alveoli (air sacs). According to the American Lung Association, IPF is the most common form of pulmonary fibrosis, and studies suggest IPF represents between 20-50% of all ILDs.

Exposure to certain environmental factors can lead to lung scarring (pulmonary fibrosis, PF) including hazardous dust and fumes, and smoking also increases the risk. Prior viral infection or other medical conditions can also cause PF; for example COVID-19 has been associated with the development of pulmonary fibrosis, and acid reflux (GERD) is thought to increase the risk owing to patients breathing in acid drops that may injure the lungs. Genetic factors are also thought to play a role in the development of pulmonary fibrosis. In the case of IPF, the cause is unknown, hence ‘idiopathic’.

The risk of developing IPF generally increases with age. It rarely affects people aged below 50 and affects more men than women. In the US, around 100,000 people are thought to have IPF, with approximately 50,000 new cases of IPF diagnosed each year. Symptoms are generally similar to other lung conditions, such as a cold or an upper respiratory infection, and include persistent dry cough, shortness of breath, tiredness, and loss of appetite/weight loss. These generally develop gradually and worsen over time. Given the similarity to other respiratory conditions, diagnosing IPF can be a challenge and is generally via a specialist physician through a series of tests which can include:

• Lung function tests, which include spirometry (how much air is inhaled and/or exhaled), pulse oximetry (oxygen in the blood), and exercise stress/capacity tests eg six-minute walk test;
• Imaging, including chest X-rays, CT (computerised tomography) and high-resolution CT (HRCT) scans, in addition to ECGs;
• Bronchoscopy, where a tube with a camera is passed into the airways;
• Tissue sample, either via bronchoscopy to collect cells and fluid from the lungs, or via a surgical lung biopsy.

IPF generally worsens over time, although given it is a complex and heterogenous disease, progression can be highly variable amongst patients. Only limited treatment options exist with the anti-fibrotics Esbriet (pirfenidone) and Ofev (nintedanib) approved. These slow the decline in lung function rather than improving or reversing the fibrosis. Without anti-fibrotic treatment prognosis is generally poor, with a meta-analysis suggesting a five-year overall survival rate of 31% and a pooled mean overall survival of four years.

Roche’s Esbriet (pirfenidone) was approved for the treatment of IPF in Europe in 2011 and in the US in 2014. Revenues in 2021 were CHF1.04bn (c $1.2bn), although this has now gone generic in the US, with Sandoz launching the first fully substitutable equivalent in May 2022. Boehringer Ingelheim’s Ofev (nintedanib) was approved in the US for IPF in 2014 and shortly after in Europe, marketed as Vargatef. Revenues in 2021 were €2.5bn (c $2.9bn). Patent expiry is expected in 2025. Ofev is also approved for chronic ILD in which lung fibrosis continues to worsen and to slow the rate of decline in lung function in adults with systemic sclerosis-associated ILD (SSc-ILD).

According to the FDA approved labels, both Esbriet and Ofev significantly slowed down the rate of lung function decline, as measured by Forced Vital Capacity (FVC), with both showing around a 40-50% relative reduction in FVC decline. In the clinical studies that formed the basis of the FDA approvals, neither demonstrated a statistically significant difference in all-cause mortality (survival), albeit mortality benefits have been observed in various pooled and meta-analyses for both Esbriet and Ofev and in the real-world setting.

Significant gastrointestinal side effects are observed with both, notably high rates of nausea, which affects around a third of patients treated with Esbriet, whilst around two-thirds of patients treated with Ofev experience diarrhoea. These side effects can lead to dose reductions and treatment discontinuations. Overall, treatment discontinuation within 12 months is around 50% for both agents.

Exhibit 5: Selected Phase III IPF development programmes

Source: Trinity Delta, company websites & press releases, and clinicaltrials.gov. Note: * from clinicaltrials.gov

Given the current limited treatment options in IPF, which do not reverse the disease and are associated with poor tolerability, there remains a high unmet need for novel therapies with better patient outcomes. According to Evaluate Pharma there are 336 products in development for IPF, of which 138 are in clinical trials and 198 are at the preclinical and research project stages. There are only two other ROCK2 inhibitors in clinical development globally (Sanofi’s Rezurock and Graviton/Sino Pharmaceutical’s TDI01), to our knowledge, albeit their development status in IPF is uncertain. Select compounds in Phase III development are summarised in Exhibit 5.

With current treatments reaching >$4bn in sales per annum, there could be blockbuster potential for a novel IPF therapy that improves on existing options. We note that Pliant Therapeutics completed a $230m (gross) offering on NASDAQ in July 2022 following positive Phase IIa data in IPF for its lead asset PLN-74809. Pliant Therapeutics has a current market capitalisation of c $1bn.

RXC008: pan-ROCK for fibrostenotic Crohn’s disease

RXC008 is the development candidate in Redx Pharma’s novel GI-targeted ROCK programme. It is a pan-ROCK inhibitor designed to only work locally in the gut wall and, as it is quickly degraded by metabolic enzymes, to have a short systemic half-life once absorbed, thus minimising the unwanted effects (ie hypotension) seen when ROCK1 is also targeted. The preclinical data have been particularly impressive, suggesting a disease modifying potential. IND enabling studies are underway, with a Phase I programme scheduled to start before end-2023.

Exhibit 6: RXC008 a potential novel therapy for fibrostenotic Crohn’s disease

Source: Redx Pharma  Notes: 1 GlobalData Crohn’s Disease Dynamic Market Forecast to 2026 report; 2 Chan et al, 2018

Chronic inflammatory bowel disease (IBD) consists mainly of ulcerative colitis (UC), where the fibrosis is located mainly in rectal mucosa and submucosa, and Crohn’s disease, where it can occur in all regions of the intestinal wall (most commonly the small intestine). Normally the GI tract has a remarkable ability for self-regeneration following short-lived and mild insults, as in peptic ulceration, infectious enteritis, or mild diverticulitis. However, if the inflammation becomes chronic and severe, the inflammatory mechanisms drive an excessive production of extracellular matrix (ECM) components and activate intestinal stromal cells that produce fibrosis. Even in the absence of inflammation, tissue damage and fibrosis continue to progress with increased accumulation and crosslinking of ECM.

Typically Crohn’s disease follows a relapsing and remitting course, with treatments ranging from simple anti-inflammatories (eg steroids) and immune suppressors (eg azathioprine) to targeted biologics such as vedolizumab (Entyvio), ustekinumab (Stelara), and risankizumab (Skyrizi). These can be very effective at providing symptomatic relief, but once fibrosis is established, control of inflammation even with biologics is not sufficient to halt fibrosis progression as matrix stiffness can drive fibrosis independently of intestinal inflammatory activity. Hence anti-inflammatory treatment is best suited for early-stage disease, as fibrosis might become self-perpetuating once ECM activity has become established.

Clinical reviews state more than half of patients with Crohn’s develop stricturing or penetrating complications requiring hospital interventions within the first ten years after diagnosis. The current treatment options for symptomatic fibrotic strictures are surgical resection and endoscopic dilation (EBD). Unfortunately, these are not only highly invasive and fraught with complications but are also associated with high rates of recurrence. Up to 80% of such patients will require at least one surgical resection, with a recurrence rate of up to 70%. The patient, and economic, burden of fibrotic strictures in Crohn’s disease is significant and identified as an area of clinical focus.

The ROCK receptors are expressed in fibroblastic, epithelial, endothelial, and muscle cells of the human intestinal tract and are activated in inflamed and fibrotic tissue. Redx Pharma has evaluated pan-ROCK inhibitors, which address both ROCK1 and ROCK2 pathways, in several preclinical and animal models. These have shown that ROCK inhibition prevented myofibroblast accumulation, expression of pro-fibrotic factors, and accumulation of fibrotic tissue; repeated administration resulted in the prevention and reversal of the fibrotic damage.

Lead candidate RXC008 is designed to be retained locally in the gut wall and, as it is quickly degraded by metabolic enzymes (paraoxonase), to have a very short half-life once absorbed. The local effect allows the targeting of both ROCK receptors while avoiding the systemic side-effects, notably cardiovascular, associated with ROCK1 inhibition. Early preclinical data were presented at ECCO (European Crohn’s and Colitis Organisation) in 2018 which showed the mechanisms by which RXC008 works and how a compound with similar properties to RXC008 reduces tissue damage and fibrosis in various animal models. With the obvious caveat that this is preclinical data, there was also evidence of a reversal of established fibrosis (suggesting a therapeutic role in addition to a preventative function alone).

The preclinical work is continuing, and an IND/CTA submission is planned for end-2023. RXC008 is one of the three new clinical assets Redx Pharma management plan to progress into the clinic by 2025.

Valuation and Financials

We value Redx Pharma as a classic drug discovery and development play, with our sum of the parts rNPV-based model generating a valuation of £458m ($596m), equivalent to 138p per share. Exhibit 7 summarises the outputs and underlying assumptions of our valuation model. Our September 2020 Initiation provides a detailed overview of our valuation methodology.

Exhibit 7: rNPV-based valuation of Redx Pharma

Source: Trinity Delta   Note: The rNPV of RXC004 and RXC007 includes a deal success factor of 80%, and of 75% for GI-targeted ROCK; other valuation assumptions include a 12.5% discount factor, £/$ FX rate of 1.30, and 10% taxation from 2028 (UK patent box).

The clinical progress of the various pipeline assets should unlock upside, as further data would prompt us to adjust the respective success probabilities that reflect the inherent clinical, commercial, and execution risks that each programme carries. Additionally, as these programmes progress, there should be more insight into the specific oncology or fibrosis patient populations that will be addressed, and this in turn would mean that peak sales (pricing, penetration) and timeline assumptions could be revisited.

The news flow over the next 12 months should see RXC004 top line data from the monotherapy element of the Phase II PORCUPINE 2 trial, with biliary cancer results in H123, and the monotherapy genetically selected pancreatic cancer results due in H223. While these data should provide valuable information on toxicities and tolerance, we suspect the true indications of likely efficacy will arise from the combination studies (with CPIs). This should become apparent when the combination arm of PORCUPINE 2 in biliary cancer and the monotherapy and combination arms of PORCUPINE, in MSS mCRC, report in H223. We also expect preliminary results from the RXC007 Phase IIa study in H223, which should provide useful insights into its likely efficacy and positioning in various fibrotic diseases. RXC008 is expected to be granted IND/CTA permission for progression into the clinic by end-2023, with patient enrolment starting in 2024.

Our June 2022 Update provides a summary of Redx Pharma’s financial position and reviews H122 results. At end-March 2022, Redx Pharma had £31.6m in cash (H121: £39.9m), which included $19m in milestone payments from partnered programmes. This was subsequently boosted by the June 2022 equity placement which raised £34.3m, with support from all existing investors and a new specialist healthcare fund, Invus, joining the shareholder list. Additionally, in June 2022, a further milestone, $5m, was received from Jazz Pharmaceuticals. These funds, plus modest risk-adjusted milestones, are sufficient to maintain the development momentum being built and fund planned operations through key data points to end-2023.

Exhibit 8: Multiple – fully funded – potential milestones in 2022-2023

Source: Redx Pharma

Exhibit 9: Summary of financials

Source: Company, Trinity Delta     Note: Short-term debt in FY23E is indicative of our view of Redx’s funding requirement. Redmile/Sofinnova Convertible Loan Note has August 2023 conversion date, with a 15.5p conversion price, equating to a potential 110.3m of new shares. Revenue forecasts do not include any contribution from milestone payments yet to be received.