Scancell

GlyMab evaluation agreement with major biotech player

Lighthouse | 13 June 2024

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  • Scancell has signed an exclusive agreement with an unnamed international biotech company to evaluate a GlyMab antibody. The current investigational anti-glycan antibody will be assessed for its potential to create innovative, highly differentiated, therapeutic products. The agreement allows seven months for the evaluation work to be undertaken in exchange for a $1m non-returnable payment. After this an option to licence the programme, for additional payments (likely including an upfront fee and development milestones), could be triggered.
  • GlyMab is one of Scancell’s four proprietary technology platforms, which can be classified into Vaccines (Moditope and ImmunoBody) and Antibodies (GlyMab and AvidiMab). Unlike antibodies that target proteins, GlyMabs target sugar motifs that result from tumour glycosylation. The clinical potential is increasingly appreciated but the challenge has been to produce high affinity antibodies that recognise these tumour-associated glycans. Scancell has built a pipeline of five differentiated anticancer antibodies that are generating exciting preclinical data. The first partnering deal, with Genmab (a renowned antibody specialist), was struck in October 2022 (October 2022 Lighthouse). Our February 2023 Outlook provides more detail on both the GlyMab platform and the five preclinical assets.
  • This year will also see decisive clinical data reported for both vaccine platforms. Data from the second stage of the Phase II SCOPE study of SCIB1 in combination with checkpoint inhibitors (CPIs) in advanced melanoma are expected shortly. Positive data from the first stage, where the objective response rate was 85%, suggest this second stage has a 90% probability of success. The Phase I/II ModiFY trial of Modi-1 as monotherapy and in combination with CPIs in various challenging solid tumours is progressing. The MHRA also recently approved an expansion cohort in renal cancer which will evaluate Modi-1 in combination with doublet checkpoint inhibitor therapy (ipilimumab plus nivolumab). Initial early signals of efficacy have already been observed in various monotherapy cohorts and further data are expected during 2024.
  • In December 2023 Scancell successfully raised over £10m in an upsized placing that extended the cash runway through to mid-to-late-2025, which covers the key clinical milestones for both SCIB1 and Modi-1 programmes.

Trinity Delta view: 2024 is an important year for Scancell and investor attention is understandably centred on the therapeutic cancer vaccines programmes, with both the SCIB1 and Modi-1 programmes set to deliver important clinical milestones. However, today’s evaluation agreement reminds of the inherent value within the GlyMab and AvidiMab antibody platforms. The $1m upfront payment bolsters the current cash resources, which would be augmented further were a licensing deal struck in the future. Our risk adjusted NPV valuation for Scancell is £304m, or 33p per share. For context, the GlyMab platform (including the Genmab deal) accounts for 17.2% of the value.

Lighthouse

13 June 2024

Price9.75p
Market Cap£92.98m
Primary exchangeAIM London
SectorHealthcare
Company CodeSCLP
Corporate clientYes

Company description

Scancell is a clinical-stage immuno-oncology specialist that has four broadly applicable technology platforms. Two are therapeutic vaccines, Moditope and ImmunoBody, and two are antibody based, GlyMab and AvidiMab.

Analysts

Lala Gregorek
lgregorek@trinitydelta.org
+44 (0) 20 3637 5043

Philippa Gardner
pgardner@trinitydelta.org
+44 (0) 20 3637 5042

Disclaimer

Trinity Delta Research Limited (“TDRL”; firm reference number: 725161), which trades as Trinity Delta, is an appointed representative of Equity Development Limited (“ED”). The contents of this report, which has been prepared by and is the sole responsibility of TDRL, have been reviewed, but not independently verified, by ED which is authorised and regulated by the FCA, and whose reference number is 185325.

ED is acting for TDRL and not for any other person and will not be responsible for providing the protections provided to clients of TDRL nor for advising any other person in connection with the contents of this report and, except to the extent required by applicable law, including the rules of the FCA, owes no duty of care to any other such person. No reliance may be placed on ED for advice or recommendations with respect to the contents of this report and, to the extent it may do so under applicable law, ED makes no representation or warranty to the persons reading this report with regards to the information contained in it.

In the preparation of this report TDRL has used publicly available sources and taken reasonable efforts to ensure that the facts stated herein are clear, fair and not misleading, but make no guarantee or warranty as to the accuracy or completeness of the information or opinions contained herein, nor to provide updates should fresh information become available or opinions change.

Any person who is not a relevant person under section of Section 21(2) of the Financial Services & Markets Act 2000 of the United Kingdom should not act or rely on this document or any of its contents. Research on its client companies produced by TDRL is normally commissioned and paid for by those companies themselves (‘issuer financed research’) and as such is not deemed to be independent, as defined by the FCA, but is ‘objective’ in that the authors are stating their own opinions. The report should be considered a marketing communication for purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. TDRL does not hold any positions in any of the companies mentioned in the report, although directors, employees or consultants of TDRL may hold positions in the companies mentioned. TDRL does impose restrictions on personal dealings. TDRL might also provide services to companies mentioned or solicit business from them.

This report is being provided to relevant persons to provide background information about the subject matter of the note. This document does not constitute, nor form part of, and should not be construed as, any offer for sale or purchase of (or solicitation of, or invitation to make any offer to buy or sell) any Securities (which may rise and fall in value). Nor shall it, or any part of it, form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information that we provide is not intended to be, and should not in any manner whatsoever be, construed as personalised advice. Self-certification by investors can be completed free of charge at www.fisma.org. TDRL, its affiliates, officers, directors and employees, and ED will not be liable for any loss or damage arising from any use of this document, to the maximum extent that the law permits.

Copyright 2024 Trinity Delta Research Limited. All rights reserved.

ANGLE plc

Scaling the business to drive continued momentum

Lighthouse | 6 June 2024

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  • ANGLE management anticipates achieving cashflow breakeven on a monthly basis by end-2025, following completion of its £8.775m gross fundraise (c £8.1m net), alongside its confidence in delivering strong FY24 revenue growth in line with current market expectations (FY24 revenue: £6.45m consensus). This will be driven by product sales growth from the newly established distributor network, expansion of the Pharma Services business, and planned launches of new Parsortix-based products and services. Management has guided to H124 revenue of £1.0m-1.3m, with c £2.5m of revenue (c 40% of consensus FY24e) already contracted to date, and a strong pipeline of opportunities. Three new Pharma Services deals with Eisai (HER2) and AstraZeneca (DDR and androgen receptor), secured in 2024, will contribute to the FY24 topline (May 2024 Update).
  • FY23 revenues grew 120% to £2.2m (FY22: £1.0m), with growth from both products (FY23: £1.4m, +100%) and services (FY23: £0.8m, +67%). Improved gross margins (FY23: 70%; FY22: 59%) reflect the product-service mix. Ongoing cost control and implementation of cost saving initiatives (January 2024 Update) partially offset continued investment to support the utility and commercial uptake of the Parsortix system. Net loss narrowed to £20.1m (FY22: loss of £21.7m), in line with consensus. End-December 2023 cash was £16.2m, with £1.5m of R&D tax credits due (end-FY22: cash of £31.9m).
  • Separately ANGLE raised £8.775m gross through: (1) a £3.75m subscription via the issuance of c 25m ordinary shares (utilising existing allotment authorities); and (2) a c £5m placing (c 33.5m shares) via a “cashbox” structure. The issue price of 15p represents a c 16.7% discount to the closing mid-market price on 4 June; new shares are expected to be admitted to trading on 11 June. There will also be an open offer to qualifying shareholders for up to £2.06m (on the basis of one new share for every 19 shares held), with expected admission around 24 June.
  • The use of proceeds is to support ANGLE’s commercial plan, with £2.8m directed to staff and NGS resources to develop molecular assay content and new applications; £2.2m for commercial business development (salesforce and distributor expansion), product launches/marketing; £1.5m to develop clinical laboratory capability and capacity; and £2m for general working capital, balance sheet strength, and fees associated with the raise.

Trinity Delta view: ANGLE’s start to 2024 has been positive, with the execution of important new Pharma Services contracts with large pharma and securing c £8.8m (gross) in new funding to help widen the adoption of the Parsortix system. The new funds will be directed towards further building the products and service business lines, increasing headcount, and capex to augment laboratory capabilities for molecular applications. These initiatives should help build on the commercial momentum seen in FY23, with management confidence in delivering further revenue growth in FY24 and with cashflow break-even in sight. We suspend our valuation pending the closing of the fundraise; for reference our last published ANGLE valuation was £174m, or 67p/share.

Lighthouse

6 June 2024

Price15.5p
Market Cap£40.4m
Primary exchangeAIM London
SectorHealthcare
Company CodeAGL
Corporate clientYes

Company description

ANGLE is a specialist diagnostics company. Its proprietary Parsortix technology can capture and harvest very rare cells, including CTCs (circulating tumour cells), from a blood sample. The FDA clearance for its clinical use to guide precision cancer care should open up multiple commercial opportunities.

Analysts

Lala Gregorek
lgregorek@trinitydelta.org
+44 (0) 20 3637 5043

Philippa Gardner
pgardner@trinitydelta.org
+44 (0) 20 3637 5042

Disclaimer

Trinity Delta Research Limited (“TDRL”; firm reference number: 725161), which trades as Trinity Delta, is an appointed representative of Equity Development Limited (“ED”). The contents of this report, which has been prepared by and is the sole responsibility of TDRL, have been reviewed, but not independently verified, by ED which is authorised and regulated by the FCA, and whose reference number is 185325.

ED is acting for TDRL and not for any other person and will not be responsible for providing the protections provided to clients of TDRL nor for advising any other person in connection with the contents of this report and, except to the extent required by applicable law, including the rules of the FCA, owes no duty of care to any other such person. No reliance may be placed on ED for advice or recommendations with respect to the contents of this report and, to the extent it may do so under applicable law, ED makes no representation or warranty to the persons reading this report with regards to the information contained in it.

In the preparation of this report TDRL has used publicly available sources and taken reasonable efforts to ensure that the facts stated herein are clear, fair and not misleading, but make no guarantee or warranty as to the accuracy or completeness of the information or opinions contained herein, nor to provide updates should fresh information become available or opinions change.

Any person who is not a relevant person under section of Section 21(2) of the Financial Services & Markets Act 2000 of the United Kingdom should not act or rely on this document or any of its contents. Research on its client companies produced by TDRL is normally commissioned and paid for by those companies themselves (‘issuer financed research’) and as such is not deemed to be independent, as defined by the FCA, but is ‘objective’ in that the authors are stating their own opinions. The report should be considered a marketing communication for purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. TDRL does not hold any positions in any of the companies mentioned in the report, although directors, employees or consultants of TDRL may hold positions in the companies mentioned. TDRL does impose restrictions on personal dealings. TDRL might also provide services to companies mentioned or solicit business from them.

This report is being provided to relevant persons to provide background information about the subject matter of the note. This document does not constitute, nor form part of, and should not be construed as, any offer for sale or purchase of (or solicitation of, or invitation to make any offer to buy or sell) any Securities (which may rise and fall in value). Nor shall it, or any part of it, form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information that we provide is not intended to be, and should not in any manner whatsoever be, construed as personalised advice. Self-certification by investors can be completed free of charge at www.fisma.org. TDRL, its affiliates, officers, directors and employees, and ED will not be liable for any loss or damage arising from any use of this document, to the maximum extent that the law permits.

Copyright 2024 Trinity Delta Research Limited. All rights reserved.

Avacta

Data and clinical progress validate pre|CISION platform

Update | 6 June 2024

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Recent updates on current lead asset AVA6000, a peptide-drug conjugate of doxorubicin, suggest the programme remains on track to move into dose expansion cohorts in H224. Most recently, AACR data confirm that AVA6000 is working as intended, with selective activation at the target tumour site, lower toxicities than standard doxorubicin, and anti-tumour effects in cancers with over-expression of FAP and that are sensitive to doxorubicin monotherapy. In addition, there have been no unexpected safety signals in the first dosing cohort of the optimised two-weekly schedule, important given the more frequent administration. Continued successful clinical progress with AVA6000 also helps to validate the proprietary pre|CISION platform. This could have wide ranging potential in oncology, with the opportunity to develop next-generation targeted cancer treatments. Details on the broader pre|CISION pipeline are expected in H224. Our valuation post FY23 results and the March fundraise is slightly increased to £675m (equivalent to 188p/share).

Year-end: December 31202220232024E2025E
Revenues (£m)9.723.223.926.0
Adj. EBITDA (£m)(15.1)(20.1)(26.2)(26.7)
Adj. PBT (£m)(28.2)(23.6)(41.3)(39.4)
Net Income (£m)(36.6)(24.9)(42.5)(40.5)
EPS (p)(14.3)(9.1)(13.0)(10.8)
Cash (£m)41.816.620.6(4.7)
Source: Trinity Delta Note: Adjusted numbers exclude share-based payments and exceptionals
  • AVA6000 remains on track, with expansion studies in H224 Progress in the ongoing Phase I trial of AVA6000 continues, with completion of the first cohort in the two-weekly dosing arm of the study and no adverse safety signals observed. This is important given the more frequent dosing schedule. Three patients have now been dosed in the second cohort of this arm. This puts AVA6000 on track to move into the planned dose expansions during H224. Recent AACR data, focused on safety and efficacy of AVA6000 when dosed every three weeks, demonstrated that AVA6000 is selectively activated at the target tumour site, resulting in lower toxicities than standard doxorubicin, and leading to anti-tumour effects in cancers with over-expression of FAP and sensitivity to doxorubicin monotherapy.
  • Sub-study could help maximise future potential of pre|CISION A new sub-study has also been initiated as part of the Phase I trial of AVA6000 to examine levels of FAP expression. An investigational, potentially complementary diagnostic, with partner SOFIE’s [18F]FAPI-74 in PET scanning, is being used to characterise disease burden. Diagnostics to optimally select patients that would benefit from FAP activated pre|CISION therapeutics will be important in the future to maximise the value of Avacta’s proprietary platform.
  • Valuation updated to £675m Our valuation is now £675m (from £672m), which reflects updated forecasts post FY23 results, revised AVA6000 launch assumptions and the March £31.1m (gross) fundraise; this is now equivalent to 188p/share based on the higher share count post-fundraise. Key upcoming newsflow includes continued progress with AVA6000, notably into dose expansion studies, and updates on the broader pre|CISION pipeline, both of which are expected during H224.

Update

6 June 2024

Price41.00p
Market Cap£147.6m
Enterprise Value£131.0m
Shares in issue360.0m
12 month range40.0p-167.0p
Free float90.2%
Primary exchangeAIM London
Other exchangesN/A
SectorHealthcare
Company codesAVCT.L
Corporate clientYes

Company description

Avacta owns two novel technology platforms: pre|CISION and Affimer. pre|CISION improves potency and reduces toxicity of cancer drugs by only activating them inside the tumour. Affimer proteins are antibody mimetics being developed as diagnostic reagents and oncology therapeutics. Successful clinical trials would be transformative for Avacta.

Analysts

Lala Gregorek
lgregorek@trinitydelta.org
+44 (0) 20 3637 5043

Philippa Gardner
pgardner@trinitydelta.org
+44 (0) 20 3637 5042

AVA6000 sets the stage for pre|CISION

Avacta’s proprietary pre|CISION platform is central to the investment case and the current lead programme is AVA6000, a peptide-drug conjugate of doxorubicin. A growing dataset demonstrate that AVA6000 is selectively activated at the target tumour site, resulting in lower toxicities than standard doxorubicin, and has improved tolerability. There have also been promising, albeit early, signs of clinical activity, with anti-tumour effects observed. Importantly, data also support key hypotheses for the wider pre|CISION platform, which could unlock an extensive opportunity to develop next-generation targeted cancer treatments through repurposing a range of proven, but currently sub-optimal, therapies. The Phase I trial of AVA6000 is ongoing with a potentially optimised two-weekly dosing schedule, and is on track to complete around mid-2024, before progression into dose expansion cohorts during H224. In addition, details on the broader pre|CISION pipeline are expected during H224. Our updated Avacta valuation is £675m, or 188p/share.

AVA6000 is a key component of Avacta’s investment case, not only as the current lead pre|CISION product, but also as providing proof of concept for the broader pre|CISION platform. This proprietary platform has been designed to deliver a toxic “warhead” specifically in the tumour microenvironment (TME) whilst avoiding normal healthy cells. This is achieved as pre|CISION uses a highly specific substrate that is cleaved by FAPα (Fibroblast Activation Protein-α), a transmembrane protein that is overexpressed in many cancers. In a FAPα-rich environment like the TME, the active form of the warhead is released, enabling targeted delivery to tumours.

Our December 2023 Update covered previously reported data from the ongoing Phase I trial, and included pharmacokinetic and tumour biopsy data which indicate active doxorubicin is released within the TME at concentrations materially higher than in the bloodstream, as predicted by preclinical models. This note includes the most recent safety and preliminary efficacy data presented at AACR from the three-weekly dosing arm, where data reaffirmed three important observations:

  • AVA6000 is selectively activated at the target tumour site;
  • AVA6000 has lower toxicities than standard doxorubicin; and
  • Anti-tumour effects are observed in cancers with over-expression of FAP and which are sensitive to doxorubicin monotherapy, which is noteworthy as most patients were previously treated, unsuccessfully, with several rounds of various therapies.

Based on the encouraging safety profile to date, a two-weekly dosing arm is ongoing, which could optimise AVA6000 dosing to maximise efficacy whilst limiting toxicity. This is on-track to complete around mid-2024, allowing selection of the dosing regimen for the expansion studies in as yet undisclosed indications during H224, before moving into a Phase II efficacy study in a single indication.

These data also provide important validation for pre|CISION platform and its underlying mechanism of action, potentially enabling a broader pipeline of next-generation targeted cancer therapies with further disclosures expected in H224.

AACR adds to the growing body of supportive data

Updated data from the Phase I trial of AVA6000 (shown in Exhibit 1) were presented in a poster at the April 2024 American Association for Cancer Research (AACR) Annual Meeting in San Diego. These are the latest findings in 42 patients (as of the 11 March data cutoff) with solid tumours known to be high in FAPα enrolled in the three-weekly dosing arm. This arm of the trial included soft tissue sarcoma (STS; 33%), colorectal cancer (26%), pancreatic cancer (19%), and biliary tract cancer (7%). Prior therapy with any anthracycline was limited to a total cumulative dose of less than 350mg/m2 doxorubicin or equivalent. Patients had been heavily pretreated (median of three prior regimens). The latest data include some patients from the seventh and final dosing cohort. Previously reported data from the trial have been covered in a prior note (December 2023 Update).

The Phase I trial is ongoing, with patients currently being enrolled in a two-weekly dosing arm, which was initiated earlier this year. The first cohort has been completed with no adverse safety signals, and three patients have been dosed in the second cohort. Importantly, the trial remains on track to complete around mid-2024 before moving into a dose expansion study (in as yet undisclosed indications) during H224. Depending on data, this may be followed by a potentially pivotal Phase II efficacy study, which could support initial regulatory approvals (subject to a confirmatory Phase III trial).

Exhibit 1: AVA6000 Phase I study design
Source: Banerji et al, AACR 2024 poster; Avacta

Updated safety data for AVA6000 continue to show a low incidence of severe (Grade 3 and 4) treatment-related adverse events (AEs), with these being more frequently observed in the higher dosing cohorts (Exhibit 2). With the usual limitations of cross-trial comparisons, there appears to be a marked improvement in the rate of severe AEs that would typically be expected with doxorubicin (based on Phase III data of monotherapy doxorubicin in STS patients).

Notable is the lower incidence of neutropenia (low levels of neutrophils, a white blood cell) which can be dose-limiting with standard doxorubicin, with this occurring in c 17% of patients receiving AVA6000 compared to c 49% with doxorubicin (Exhibit 2). There were no cases of febrile neutropenia (development of a fever and signs of an infection in a patient with neutropenia) versus c 16% in patients who receive doxorubicin. Other typical haematologic toxicities associated with doxorubicin, including leukopenia (low levels of leukocytes, a white blood cell), anaemia (low levels of red blood cells) and thrombocytopenia (low levels of platelets), were also reduced.

Exhibit 2: Grade 3-4 adverse events with AVA6000 by cohort
Source: Banerji et al, AACR 2024 poster; Avacta

Reduced toxicities with AVA6000 vs doxorubicin are also consistent when analysing all AEs, including mild to moderate (shown in Exhibit 3). These milder AEs, including nausea, decreased appetite, pain, and other gastrointestinal toxicities, can often affect quality of life. Life-threatening cardiotoxicity is a major limitation with doxorubicin, and hence is of particular interest for AVA6000. To date there has been one patient with Grade 2 cardiac failure at 120mg/m2; this patient had a significant risk of cardiovascular disease and an expert cardiovascular review concluded it was not anthracycline related. There have been two dose-limiting toxicities (DLTs) at different doses; in each case, after additional patients were added to the cohort (as is typical in a 3+3 study design), the dose was deemed safe and was escalated to the next cohort. Overall, no maximum tolerated dose of AVA6000 (MTD) was established.

Exhibit 3: Adverse events (all grades) with AVA6000 across cohorts
Source: Banerji et al, AACR 2024 poster; Avacta

For the efficacy analysis, patients were stratified by FAP status into high FAP and mid FAP based on a literature review of FAP expression and archival tumour samples. On the basis of this classification, there were 15 patients in the high FAP group (including 14 patients with STS) and 27 patients in the mid FAP group (mostly GI cancers such as pancreatic, colorectal and biliary tract). Responses were only observed in the FAP high group and included:

  • 2 partial responses (≥30% decrease in the sum of diameters of the target lesion); 1 confirmed and 1 unconfirmed; both patients are ongoing; and
  • 3 minor responses (a 10-29% decrease), with two ongoing.

The patient with a confirmed partial response experienced a 74% reduction in the diameter of tumour lesions. This patient, with a grade 3 undifferentiated pleomorphic sarcoma, has been in the trial since February 2023 and remains in the trial. The unconfirmed partial response with a 57% reduction is a salivary gland cancer patient who also remains in the trial. Ongoing patients could potentially see responses improve.

Exhibit 4: Tumour lesion change (sum of the longest diameters)
Source: Banerji et al, AACR 2024 poster; Avacta. Note: *Ongoing in the trial

A summary of the best overall response is summarised in Exhibit 5. The disease control rate (DCR), which includes patients with stable disease for at least 16 weeks, is 67% in the high FAP patients. Although there were no responses in the mid FAP group, the DCR in this group was 37%; patients in this group had cancers that generally would not be expected to respond to single agent doxorubicin.

Exhibit 5: Best overall response
Source: Banerji et al, AACR 2024 poster; Avacta

Valuation

We value Avacta using a sum-of-the-parts, which includes a risk-adjusted net present value (rNPV) of the lead clinical asset AVA6000, an aggregate rNPV for the remainder of the proprietary platforms (pre|CISION and Affimer), and a DCF valuation for the Diagnostics business, which are netted against operating costs. We include current net cash excluding the Convertible Bond (CB), as we assume this will be settled in shares. Our valuation has been updated to reflect the March £31.1m gross (£29.4m net) fundraise (including a revised estimate of current net cash post the fundraise; end-March cash was £38m), preliminary full year results (which includes our updated operating cost forecasts), and has been rolled forwards in time. With the pivotal efficacy study for AVA6000 unlikely to start until at least 2025, and allowing time for study completion and regulatory review, we conservatively now assume a first AVA6000 launch in 2027. Together, these changes result in a small uptick in our valuation to £675m (from £672m), diluted to 188p per share based on the increased share count post the fundraise (or 175p/share fully diluted for future shares to settle the CB). An overview of our valuation is in Exhibit 6.

Exhibit 6: Avacta sum of the parts valuation
Source: Trinity Delta   Note: assumptions include a 12.5% discount factor, £/$ FX rate of 1.20

The pre|CISION platform remains an important component of our valuation and the lead programme, on which we have the most visibility, is AVA6000, with potential upside on future Phase II efficacy data.

Our pre|CISION platform valuation is based on an indicative value that, in the absence of specific details, assumes multiple products are at various stages of preclinical development. We expect an update on Avacta’s pipeline of therapeutic assets during H224, which will provide an opportunity to better understand the future potential of each.

Financials

Avacta’s FY23 revenues increased to £23.2m (FY22: £9.7m), driven by Diagnostics revenues of £21.2m (FY22: £4.2m) which included a full year of Launch Diagnostics and c 7 months of Coris Bioconcept (whereas FY22 only reflected a contribution from Launch Diagnostics from October). On an annualised like-for-like basis, revenues from Launch and Coris together grew c 10%. Therapeutics revenues were £2.1m (FY22: £5.5m), which included a further milestone from AffyXell, whereas the prior year included milestones from both AffyXell and LG Chem. Gross profit was £11.2m (FY22: £7.2m), with Cost of Goods Sold mainly relating to the Diagnostics segment, for a Diagnostics gross margin of 43% (FY22: 45%).

FY23 R&D spend increased to £14.5m (FY22: £11.1m), largely due to higher costs within the Therapeutics segment (£13.1m vs FY22: £8.8m). SG&A also increased to £16.9m (FY22: £11.2m) owing to a full year of costs for Launch (£6.9m) and c 7 months for Coris (£1.1m). The adjusted EBITDA loss was £20.1m (FY22: £15.1m) which, when adding back various non-cash items including depreciation and amortisation, share based compensation, and the share of losses from the AffyXell JV, translated into an operating loss of £28.4m (FY22: £32.6m).

End-December 2023 cash and equivalents were £16.6m (end-December 2022 £41.8m) which were boosted to c £38m at end-March 2024 following the £31.1m gross (£29.4m net) fundraise completed in March. At-end December 2023 the £55m senior, unsecured Convertible Bond (CB) issued in October 2022 was held on the balance sheet with a value of £34.4m (FY22: £57.8m), including a debt component of £16.1m (FY22: £18.7m) and a derivative fair value of £18.3m (FY22: £39.1m); the changes in these elements resulted in a FY23 non-cash gain on revaluation in the P&L of £15.7m and a non-cash interest expense of £14.7m. Following the post period end amortisations (in January and April), the CB principal remaining is £35.7m. For the purposes of our model, we assume the CB and coupon are repaid over five years from issuance, in shares priced at the now reset price of 88.72p ie non-cash movements, resulting in total repayment by October 2027.

Our updated forecasts include FY24e revenues of £23.9m (from our prior £25.9m estimate), and £26.0m in FY25e; these now only include Diagnostic revenues (which are largely unchanged in FY24e versus our last published forecasts) and do not factor in any Therapeutics milestones. Our R&D and SG&A forecasts have been updated to reflect FY23 trends; for R&D we include some spend on the broader Therapeutics pipeline beyond AVA6000. Together, these changes drive a slightly narrower Operating Loss of £33.8m in FY24e (from prior £34.1m) and £33.5m in FY25e (not previously published). Our updated Net Loss forecasts are £42.5m in FY24e (from prior £43.3m forecast) and £40.5m in FY25e.

Exhibit 7 shows our updated forecasts, which suggest a cash shortfall by end-2025. Our forecasts include some R&D spend on the broader pipeline beyond AVA6000; if this spend was excluded then the cash runway would extend into early 2026, in-line with prior management comments. The cash runway should be more than sufficient to reach key value inflection points with AVA6000, notably data from the two-weekly dosing study, and start of the expansion cohorts, plus further details on the pipeline beyond AVA6000 during H224.

Exhibit 7: Summary of financials
Source: Company, Trinity Delta

 

Disclaimer

Trinity Delta Research Limited (“TDRL”; firm reference number: 725161), which trades as Trinity Delta, is an appointed representative of Equity Development Limited (“ED”). The contents of this report, which has been prepared by and is the sole responsibility of TDRL, have been reviewed, but not independently verified, by ED which is authorised and regulated by the FCA, and whose reference number is 185325.

ED is acting for TDRL and not for any other person and will not be responsible for providing the protections provided to clients of TDRL nor for advising any other person in connection with the contents of this report and, except to the extent required by applicable law, including the rules of the FCA, owes no duty of care to any other such person. No reliance may be placed on ED for advice or recommendations with respect to the contents of this report and, to the extent it may do so under applicable law, ED makes no representation or warranty to the persons reading this report with regards to the information contained in it.

In the preparation of this report TDRL has used publicly available sources and taken reasonable efforts to ensure that the facts stated herein are clear, fair and not misleading, but make no guarantee or warranty as to the accuracy or completeness of the information or opinions contained herein, nor to provide updates should fresh information become available or opinions change.

Any person who is not a relevant person under section of Section 21(2) of the Financial Services & Markets Act 2000 of the United Kingdom should not act or rely on this document or any of its contents. Research on its client companies produced by TDRL is normally commissioned and paid for by those companies themselves (‘issuer financed research’) and as such is not deemed to be independent, as defined by the FCA, but is ‘objective’ in that the authors are stating their own opinions. The report should be considered a marketing communication for purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. TDRL does not hold any positions in any of the companies mentioned in the report, although directors, employees or consultants of TDRL may hold positions in the companies mentioned. TDRL does impose restrictions on personal dealings. TDRL might also provide services to companies mentioned or solicit business from them.

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Arecor Therapeutics

AT278 ultra-concentrated insulin superior to benchmarks

Update | 20 May 2024

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Arecor’s lead compound AT278, a unique ultra-rapid and ultra-concentrated insulin, has successfully shown superiority to benchmark fast-acting or concentrated insulins in a Phase I study in Type II diabetes (T2D). This follows a similarly positive outcome in a previous Phase I study in Type I diabetics (T1D). Demonstrating AT278’s clinical efficacy in difficult-to-treat overweight/obese T2D patients confirms the validity of the formulation, shows its profile is attractive for T2D patients with high insulin needs, as well as being ideally suited for the emerging needs of “next generation” insulin pumps. Continued development is strongly supported by the data and unmet patient needs, and the focus will now be on the optimal strategy to further advance AT278. Our updated valuation is largely unchanged at £179m, or 584p/share.

Year-end: December 31202220232024E2025E
Revenues (£m)2.44.66.811.2
Adj. PBT (£m)(12.0)(10.7)(8.2)(5.4)
Net Income (£m)(9.3)(8.6)(7.1)(4.4)
EPS (p)(0.3)(0.3)(0.2)(0.1)
Cash (£m)12.86.80.1(3.7)
EBITDA (£m)(10.2)(8.7)(7.1)(4.4)
Source: Trinity Delta Note: Adjusted numbers exclude share-based payments and exceptionals
  • Positive data from Phase I Type II diabetes study Topline data from a key Phase I trial in overweight and obese T2D patients, who are typically more difficult to treat, show that AT278 is superior to both the benchmark rapid insulin NovoRapid (100IU) and to concentrated Humulin (500IU). AT278 is an ultra-high concentration insulin that also has ultra-fast absorption. These data support the view that AT278 has a unique profile that is ideally suited to the changing diabetes landscape.
  • Ideally positioned to address emerging needs Diabetes is a growing global issue, and patients with high insulin needs are becoming increasingly prevalent. However, this demographic is poorly served by existing insulins and devices (pens/pumps). Whilst there have been impressive technological advances within insulin pump delivery systems (known as AID), miniaturisation and longer wear times will be key to drive uptake from currently low levels, particularly in T2D. This can only be achieved with an ultra-rapid and ultra-concentrated insulin like AT278.
  • Data support continued development Continued future development of AT278 is strongly supported by the positive Phase I data and the growing unmet needs within diabetes. Management will now need to assess the optimal development plan, subject to funding, which could include conducting future studies alone or with a partner. Given the importance of an insulin such as AT278 to enable next generation devices, strong relationships with device manufacturers will be key, in our view; Arecor already has a separate collaboration in place with Medtronic.
  • Valuation of £179m, or 584p per share Our rNPV valuation is updated for a number of factors (described later), albeit the AT278 probability is unchanged as we assumed Phase I success. Our updated rNPV is £179m (584p per share). Continued progress with the diabetes franchise, growing royalties on AT220, and execution of further collaborations and partnerships, could all have significant upside.

Update

20 May 2024

Price131.0p
Market Cap£40.1m
Enterprise Value£52.4m
Shares in issue30.6m
12-month range124.3p-260p
Free float34.2%
Primary exchangeAIM London
Other exchangesN/A
SectorHealthcare
Company codesAREC.L
Corporate clientYes

Company description

Arecor Therapeutics is a revenue-generating clinical stage drug developer, with a well-balanced portfolio of in-house and partnered programmes. Its proprietary Arestat formulation platform results in enhanced products with lower development risks and less onerous regulatory approvals.

Analysts

Lala Gregorek
lgregorek@trinitydelta.org
+44 (0) 20 3637 5043

Philippa Gardner
pgardner@trinitydelta.org
+44 (0) 20 3637 5042

Arecor: Data confirm attractive AT278 profile

Arecor’s near-term investment case centres on its diabetes franchise, notably AT278, an ultra-rapid and ultra-concentrated insulin. AT278’s absorption profile is well suited to the needs of Type II diabetic patients who require higher daily doses of insulin and, importantly, could be a key enabler for the development of “next-generation” insulin pumps. The Phase I study in overweight/obese Type II diabetics, a particularly challenging study population, showed AT278 was superior to the current benchmark insulins. AT278 is a 500IU insulin and, despite its much higher concentration, was able to better the absorption of both 100IU NovoRapid (NovoLog in the US), the gold standard rapid insulin, and high concentration Humulin-R 500. These results, if replicated in Phase II trials, suggest AT278 could be the first disruptor insulin in several decades and is ideally placed for the sizeable shifts underway in the diabetes market. Investor focus should now turn to the format, and cost, of the next development phase to progress AT278 towards approvals, and on potential partnering options. Our updated Arecor valuation is £179m, equivalent to 584p a share.

The success of AT278 in the Phase I study in overweight/obese Type II patients is a significant achievement. Typically, this patient group is challenging, with variable body composition often impacting results. The replication of the findings of the earlier Phase I study in otherwise healthy Type I diabetics confirms the validity, and value, of the Arestat formulation. In this note we summarise the diabetes market dynamics, the size of the opportunities, the treatment shifts that are already happening, and how AT278 could be the disruptive insulin that enables key elements of the evolution. However, Arecor is more than simply AT278; Exhibit 1 shows the broad pipeline of opportunities being progressed.

Exhibit 1: Summary of Arecor’s current pipeline
Source: Arecor Therapeutics

Arecor’s three most advanced partnered assets are: AT220, an undisclosed partnered biosimilar that is the first product employing the Arestat technology to launch; AT307, a specialty hospital product licenced to Hikma; and INBRX-101, a late-stage clinical orphan disease drug with Inhibrx/Sanofi.

The opportunities for Arecor’s diabetes franchise

Arecor’s diabetes franchise centres on two proprietary clinical-stage programmes that address the emerging need of AID (Automated Insulin Delivery) devices: AT278, an ultra-rapid and ultra-concentrated insulin, and AT247, an ultra-rapid insulin that closely approximates physiological insulin. Additionally, Arecor has recently signed a collaboration with Medtronic to develop a high concentration, thermostable insulin for use with their next-generation peritoneal implantable pump (May 2024 Lighthouse). There is also an earlier co-development deal with TRx Biosciences to develop an oral GLP-1 (March 2024 Lighthouse), and the commercial product Ogluo, which is sold in Europe via subsidiary Tetris Pharma.

Several of our prior reports provide an in-depth review of Arecor’s diabetes assets, including detailed clinical data, the current status of the diabetes market, the potential opportunity and prospects (January 2022 Update, May 2022 Update), and importantly, a US market overview (April 2023 Update). Collectively these present a comprehensive picture of the rapid technological changes and clinical developments in progress, detailing how Arecor is poised to potentially disrupt the current insulin market oligopoly. Also, our November 2023 Outlook explains Arecor’s investment case and contextualises its in-house diabetes assets.

In this note, without duplicating previous work, we aim to recap briefly and update on the various device and pump markets, as well as the developing clinical needs. The main message is that AT278 is well positioned to not simply benefit from these technology developments, but actually be one of the key enablers.

Diabetes on the rise globally, driven by Type II

Diabetes is a growing global problem, with patient numbers forecast to rise to 643m by 2030 and to 784m by 2045. For commercially important markets, in North America the cases are expected to rise to 57m in 2030 and 63m by 2045, and in Europe a more modest increase to 67m in 2030 and 69m in 2045.

Exhibit 2: US diabetes market overview by Type and age
Source: Seagrove Partners Blue Diabetes Book. Note: T1D = Type I diabetes, T2D = Type II diabetes, Dx’ed = diagnosed

The US market may not be the largest in terms of cases, or future growth, however its commercial importance remains decisive. The diagnosed diabetic population in the US is thought to be c 27.9m, of which c 1.9m are Type I diabetics and c 26.0m are Type II, with growth rates of 3.0% and 4.0% (five-year CAGR), respectively. Additionally, a further c 7.5m may be undiagnosed, with these typically including early Type II diabetics. Exhibit 2 shows the patient breakdown by age group for Type I and Type II diabetics.

The patient populations reflect their differing causes: Type I diabetes largely results from the pancreas failing to make sufficient insulin, with a typical early onset (thus it was also known as juvenile diabetes); with Type II diabetes, the pancreas may still produce sufficient insulin but blood sugar regulation (insulin resistance) has been disrupted (previously known as adult-onset diabetes). The cause of Type I diabetes remains uncertain, with genetic, viral, and immune factors thought to be involved. Type II diabetes may also involve genetic elements, but the greater components are obesity and inadequate physical exercise. Rising childhood obesity means Type II diabetes is increasingly seen at younger ages.

Insulin essential for Type I, used frequently in Type II

Type I diabetes patients are initiated on insulin therapy from diagnosis, with variations in individual patient treatment centred around achieving and managing time in range. For the majority this is still based on multiple daily injections (MDI), using a single bolus long-acting insulin coupled with more frequent injections of a rapid-acting formulation (typically 3 times a day with meals), although increasing numbers are migrating onto automated insulin delivery (AID). AID uses rapidly acting insulins, without a basal element, delivered by continuous infusion to respond to changes in glucose levels. The advances in miniaturisation and AI-driven algorithms now allow the full integration of continuous glucose monitoring (CGM) systems with sophisticated insulin pumps. The Type I patients selected for pump-based therapy currently are those that are difficult to manage and maintain optimal time in range with MDI, yet the “patient journey” is shifting towards an earlier and broader adoption of AID.

With Type II diabetes the patient journey depends on the point of diagnosis. Lifestyle modifications underlie all interventions. For many (c 38%) a regimen of increased activity coupled with improved diet is sufficient to achieve the target HbA1c (blood sugar) levels. Those able to adhere to these lifestyle changes may remain stable for many years, however experience shows that a large proportion progress and require medication. Normally treatment involves the use of multiple drugs, with the combination selected to best suit a patient’s needs. Exhibit 3 shows the 2023 AACE (American Association of Clinical Endocrinology) glucose-centric algorithm for glycaemic control.

The mainstay is metformin (used in c 61% of newly-diagnosed Type II patients), an oral generic with a proven profile that is well understood. However, we expect the downstream cascade to change materially over time. Improved clinical benefits (including superior HbA1c reductions, cardio-renal protection, and weight loss) seen with newer classes, notably SGLT-2s (Sodium Glucose Transport 2 inhibitors) and, in particular, GLP-1s (Glucagon-Like Peptide-1 Receptor agonists), should result in the complications-centric model gaining importance, with these drug classes being used much earlier and far more widely.

Exhibit 3: AACE Glucose Centric Algorithm for Glycaemic Control 2023
Source: American Association of Clinical Endocrinology Consensus (AACE) 2023

All Type I diabetes patients require insulin injections, but the majority of patients who use insulin daily are Type II (estimates vary by geography but typically 3x to 5x as many). It is in Type II patients that the future role of insulin creates debate. As mentioned, the clinical data supporting improved time in range and consistent HbA1c reductions, coupled with benefits such as weight loss and cardiovascular protection, should see GLP-1s, eg Novo Nordisk’s Ozempic (semaglutide), Eli Lilly’s Trulicity (dulaglutide) and Mounjaro (tirzepatide), effectively supplant long-acting (basal) insulin as next line treatment for many Type II patient groups. Many hope that optimised combination therapy with these newer agents will delay, or even possibly negate, the need to introduce insulin for many Type II diabetics; however, the harsh reality is this patient group will likely remain the largest users of insulin.

Technology advances are driving insulin pump delivery

The past decade has seen one of the major treatment transformations not just for Type I diabetes patients, but also those difficult-to-treat Type II patients. We have previously covered the technological advances driving the pump market in earlier notes. Briefly, insulin pumps are not new (the first true pump devices were made in the 1970s) but improvements in continuous glucose monitoring (CGM) that allow the assessment of trends, patterns, and time spent in range in real time, and the corresponding miniaturisation of pump technologies, coupled with the defining advances in software and controller algorithms that allow genuine real-time responses, have led to the current highly sophisticated “artificial pancreas” (Automated Insulin Delivery is the term preferred by regulators) systems.

We have stated before that we believe these developments are as important a step change in diabetes care as the landmark Diabetes Control and Complications Trial (DCCT) of 1982-93. Just as DCCT showed intensive insulin management reduced long-term complications (despite an increased risk of hypoglycaemia), so the benefits of AID and the transformation in quality of life will be such that clinical practice will change over the coming decade. Despite the widespread use of improved MDI (Multiple Daily Injections) regimens, only a minority of Type I patients currently meet widely accepted glycaemic goals. Extensive clinical data, coupled with rising “real world” evidence, is showing AID systems unequivocally improve glycaemic outcomes across all age groups, in all genders, and regardless of diabetes duration, prior insulin delivery modality, or baseline glycated haemoglobin (HbA1c) levels.

Whilst many of the improvements in clinical outcomes are expected to accrue over the longer term (eg quantifiable reductions in retinopathy, neuropathy, nephropathy, and cardiovascular complications), several extensive studies have shown the reduction in acute complications such as severe hypoglycaemia (SH) and diabetic ketoacidosis (DKA) can make AID therapy cost-effective over the near term too. From a patient’s perspective (and their families) the improvements in quality of life, reduced diabetes burden, decreased fear of hypoglycaemia, and normalisation of daily routines are seen as major drivers of adoption.

Exhibit 4: Key milestones towards a truly “artificial pancreas” (AID)
Source: New closed loop insulin systems Boughton & Hovorka Diabetologia 1007-1015 (2021)

The path to a fully automated closed-loop system (Exhibit 4) has required significant advances in many diverse technologies. The first step was the creation of compact monitors that were able to measure glucose levels consistently without blood draws. This required a great deal of clinical work to ensure glucose measurements in the interstitial fluid were reliable indicators of the levels seen in blood. There is still work to be done to achieve faster response times and that is a development need that is being addressed. The pump manufacturers have also undertaken a substantial amount of work to create compact, reliable pumps that deliver insulin accurately and consistently. Concurrently, the financial investment in software that coordinates these disparate components has been significant, and over a prolonged period, but the incremental improvements have resulted in systems that can genuinely approximate the “artificial pancreas”.

Having achieved these milestones, the development focus is shifting onto the elements that should make a difference in the clinic rather than the laboratory. To date the pumps have been developed with the best available rapid insulins, with Novo Nordisk’s NovoRapid/NovoLog being viewed by many as the gold standard. However, the critical need of the next generation pump is for ultra-rapid insulins that can be absorbed from the sub-cutaneous site in as close a profile to physiological insulin as possible. This need is reflected in Arecor’s development of AT247, an ultra-rapid insulin, whose absorption profile does approximate physiological insulin. Importantly, AT278 has a similar absorption profile yet is also five times as concentrated, a factor that is set to alter the way the pump industry can make more compact devices and still deliver extended wear times.

The goal of the device industry has been to automate the process of managing diabetes completely. Although the vision of what was needed to deliver effective AID systems (a broad term that includes closed-loop systems) was known and well-articulated, its development had to follow a deliberate stepwise process. This reflects the diversity of elements that have to combine seamlessly, consistently, and accurately. Hence individual hardware systems, such as CGM devices and insulin pumps, were refined, tested, and approved first. Once proven, these were connected with the control software that is, arguably, the most critical enabling technology. Several types of algorithms have been developed, including model predictive control (MPC), proportional integral derivative (PID), and fuzzy logic (FL) controllers. The scrutiny and approval of control software for diabetes control was a novel challenge for regulators, which understandably took time to address.

Compact glucose monitors are critical enablers

The CGM and pump suppliers split into two very distinct camps, with the major exception being Medtronic. The CGM field is relatively concentrated and is dominated by a number of well-established players such as: Dexcom, with their G7 sensor; Abbott, with the FreeStyle range; Senseonics, with Eversense (distributed by Ascensia); Roche, with the Accu-check range. Medtronic spans the segments, with the Guardian sensor range, InPen Smart insulin pen, and MiniMed insulin pump and infusion sets. The CGM segment has existed longer than the pump equivalent, and consumer needs have been well articulated for some time. A common theme among patients and clinicians, when asked about current CGMs, is the desire for better accuracy but, significantly, the key demand is longer sensor wear times. This has led manufacturers to develop devices that can last a year before a sensor change is required, with fewer calibrations, and with genuinely compact dimensions. In terms of size, the CGM market is estimated at US$11.6bn in 2024 and forecast to reach US$21.3bn by 2029, growing at 12.8% CAGR.

AID uptake driven by Type I but Type II to push volumes

The insulin pump segment is younger and less consolidated, but with three major players: Medtronic, with their MiniMed range; Tandem Diabetes Care, with the t:slim platform; and Insulet, with the well-regarded Omnipod platform. These have the resources to develop their system platforms and undertake the preparatory work to integrate glucose monitoring and control software effectively. They also have the infrastructure and market presence to drive adoption of their products into what we expect will become a more competitive and mature mass market.

Exhibit 5: Medtronic expects Smart Dosing conversion to drive growth
Source: Source: Medtronic at 42nd JP Morgan Healthcare Conference January 2024

Smaller players have their place, with innovation typically their key differentiator, and these include: Ypsomed, with the mylife brand; Beta Bionics, with the iLet Bionic Pancreas; Eoflow, with the Eopatch; Sooil (arguably the originators of the first commercial pump), with the Dana system; CeQur, with the CeQur Simplicity; and VeCentra with their Kaleido product. Roche is also active in the pump space but despite its considerable resources, has yet to make a sizeable impact, which is not, in our view, typical of their corporate character.

The size of the pump market is defined by the number of patients who require daily insulin; this excludes the Type II population who use insulin as part of IIT (Intermittent Insulin Therapy). The IDF statistics place this as c 64m globally, of which c 11m are in the commercially relevant markets (including the US and Top five Europe). Estimates vary but Insulet sees this 11m split 45% Type I and 55% insulin intensive Type II patients, breaking down into c 1.5m Type I and c 2.5m Type II (basal-bolus) in the US, and c 3.5m Type I and a further c 3.5m insulin intensive Type II patients in the international markets. In value terms, the insulin pump market is estimated at US$5.3bn in 2023, rising to US$6.1bn in 2024, and growing to US$21.7bn by 2032, an increase of 17.2% CAGR.

Currently c 37% of Type I diabetics (c 700k patients) are using some form of insulin pump, with around 70,000 added during the past year. This compares with a far lower c 10% penetration for Type II diabetics. The mainstay of this uptake are the early adopters, who often have specific needs driving their decisions, but this is set to change as the limited market launch activities previously undertaken by most pump players transition to comprehensive marketing programmes that address the wider insulin user community. In a similar way to the more mature CGM segment, over time we expect patient and clinician “needs and wants” will shift decisively towards greater ease of use, more discreet and compact sets, and longer wear times.

Type II pump users have differing needs to Type I

There are some 100k Type II diabetes patients who are already pump users in the US and 175k outside the US, largely due to the difficulties in maintaining their glucose control. As mentioned, the debate about the GLP-1 class and their role in materially altering the Type II treatment journey, especially in delaying the need to introduce insulin, has seen many observers question the likely growth rates for Type II pump adoption. However, even under somewhat pessimistic scenarios, we expect the growth rates for Type II users to exceed the Type I rates.

Exhibit 6: Insulin market overview
Source: BioStrategies May 2022

Estimates do vary but the next five years could see around 425k US Type II diabetes patients on pump therapy. A key differentiator between Type I and Type II pump users is the need for greater insulin quantities, mainly due to the complexities of insulin resistance. As Exhibit 6 shows, c 18% of Type I patients require more than 100 units of insulin per day, compared with c 28% of Type II insulin using patients. Importantly, whilst there is a clear shift towards the adoption of pumps, a significant number of patients, c 63% of Type I and c 90% of Type II, still receive their insulin through injections, mainly via pens.

The reservoir size of most integrated pump systems is between 1.8ml and 3.0ml (equivalent to 180-300 units) of fast-acting 100IU insulin. With half of Type I patients needing 50IU or less, and a further third needing between 50IU and 99IU, these patients have a pump wear time ranging from six days to only two to three days, with four days on average. Whilst this falls below the desired one-week wear time, mentioned earlier, for most Type I patients it does not override the significant benefits that accrue with pump use. In contrast, a meaningful proportion of Type II diabetics require 100IU or more daily. This means a wear time of two, possibly, three days, is the maximum currently achievable. For these patients the benefits of a pump become marginal compared to the inconvenience of replenishing the reservoir.

Ignoring the evolving need for the new pump applications for a moment, high concentration insulins are expected to become increasingly in demand due to the rising number of Type II and refractory Type I diabetics that require higher daily dosing. As Exhibit 6 above shows, the majority of both Type I and, in particular, Type II diabetics use insulin pens and clinical evidence shows they are stable and reasonably well controlled. The currently available high concentration insulins are not prandial insulins, for example Humulin-R 500 is an intermediate acting insulin (an absorption profile that lies between a mealtime prandial insulin, such as NovoRapid and Fiasp, and the basal insulins, such as Lantus and Levemir) and not suited for most “basal-bolus” regimens.

Consequently, high dose requiring patients need to use multiple injections of lower strength insulin, with much higher injection volumes. This brings challenges such as injection site rotation, discomfort, and quality of life. These patient groups have historically been overlooked but their numbers are growing, and they clearly need a high concentration insulin that also has a postprandial rapid absorption profile suitable for standard “basal-bolus” injection regimens.

Clinicians and device industry look to future needs

As mentioned earlier, as AID systems approach mainstream commercial reality, the remaining obstacles to be addressed are moving from the physical and software aspects to the characteristics of the insulins now required. For instance, the inherent delays in absorption of subcutaneous injected insulin compared with endogenous insulin production means postprandial hyperglycaemia is still a challenge for closed-loop systems. Endocrinologists and clinicians in both Europe and the US acknowledge that the pharmacokinetics (PK) and pharmacodynamics (PD) of the current rapid-acting insulins are suboptimal. Newer ultra-rapid acting insulins, with faster onset and offset of action, have the potential to address this issue. However, small studies with Fiasp (faster aspart) and Lyumjev (ultra-rapid lispro) have not shown the hoped-for conclusive results. More importantly, there are no commercially available ultra-rapid insulins that could make the industry drive towards more compact, discreet pumps and the desire for longer wear times a reality. It is against this background that AT278 appears ideally positioned.

AT278 is well placed to address these emerging needs

Arecor’s key in-house clinical stage programme is the ultra-concentrated and ultra-rapid insulin AT278, a novel formulation of insulin aspart, the active ingredient in Novo Nordisk’s NovoLog (US)/NovoRapid (ex-US). As outlined, AT278 is well positioned for the demographic and technology shifts underway within diabetes, especially in addressing the needs of high-dose Type II diabetics and providing the ideal profile for “next generation” AID pump systems.

Phase I data from a 38 patient trial in otherwise healthy Type I diabetics show a very promising and highly differentiated profile (September 2021 Lighthouse). This trial evaluated adults with Type I diabetes in an euglycaemic clamp setting and met all primary and secondary endpoints, demonstrating a superior pharmacokinetic (PK) and pharmacodynamic (PD) profile to a comparable dose of lower concentration of NovoRapid (the gold standard rapid-acting insulin).

The latest topline data relate to a second Phase I trial evaluating 42 patients with Type II diabetes, a population whose overweight/obese nature can result in marked variabilities in outcomes. The study design (Exhibit 7) followed a standard cross-over format but had the added comparator of a high concentration insulin, Humulin-R 500. The trial met the primary endpoint of non-inferiority to NovoRapid in terms of glucose lowering, and also met all secondary endpoints, which importantly included demonstrating superiority to both NovoRapid and to Humulin in terms of faster insulin absorption (PK/PD profile). Detailed data are expected to be presented at a future diabetes conference. This confirms that AT278 has the potential to be a disruptive insulin as an ultra-concentrated U-500 (500 units/ml) and ultra-fast acting insulin formulation, addressing the needs described earlier for both existing high dose insulin patients using pen injectors and the emerging wants of AID system manufacturers.

Exhibit 7: Phase I study in 42 Type II overweight/obese Type II diabetics
Source: Arecor

Following the positive Phase I data, management will now need to assess the optimal future development plan, which will be subject to funding, and could include conducting future studies alone or with a partner. Given the importance of an insulin like AT278 to enable next generation devices, strong relationships with device manufacturers will be key, in our view, with Arecor already having a separate collaboration in place with Medtronic.

Valuation

We value Arecor using a rNPV (risk-adjusted net present value) model, including the diabetes franchise, partnered assets, and the in-house Specialty Hospital research portfolio. Our valuation has been updated to reflect revised launch dates for the diabetes franchise, with this change offset by a more rapid ramp to peak sales for AT220 given it is the first commercial biosimilar of the originator product, plus unwinding of the AT220 risk-adjustment, together with rolling forwards in time. Our updated valuation is essentially unchanged at £179m, equivalent to 584p per share. An overview of our valuation, together with key assumptions, is provided in Exhibit 8.

Exhibit 8: Arecor rNPV valuation
Source: Trinity Delta based on a 12.5% discount factor and £/$ FX rate of 1.20. Note: AATD = Alpha-1 antitrypsin deficiency.

The Specialty Hospital rNPV consists of a blend of assets based on the framework outlined in our November 2023 Outlook, with various launch timelines and probabilities. This also now includes the undisclosed ready-to-dilute formulation of a high-value oncology product, which was under co-development with an unnamed global player (previously broken out as standalone asset) as the option to an exclusive worldwide development and commercialisation licence has not been exercised. Hence the product is now retained within Arecor’s in-house portfolio. We assume a steady flow of new assets into the portfolio, with upside as partnerships are executed.

The diabetes franchise (consisting largely of AT278 and AT247) remains the main value driver for Arecor and there could be material upside as development progresses and data become available. The partnered and commercial assets together could represent a meaningful source of future income with potential upside on AT220 as in-market sales build and the potential peak sales opportunity becomes better understood. We do not attribute a value to the technology formulation development collaborations, nor do we provide an indicative valuation of the Arestat technology platform.

Financials

Arecor’s revenues in FY23 grew to £4.6m (FY22: £2.4m), and continue to diversify, with these now including first royalties following launch of AT220. Revenues now stem from four main sources:

  • Formulation development £0.9m (FY22: £1.4m): this is relatively steady income from various partnerships.
  • Licensing agreements £0.7m (FY22: £nil): this includes non-recurring upfront payments and variable milestones that are contingent on development progress and commercialisation. In FY23 these included: (1) £0.1m on the transfer of AT307 to Hikma; (2) an undisclosed milestone for a novel enhanced formulation of INBRX-101; and (3) an undisclosed milestone on the first commercial sales of AT220.
  • Royalties £26k (FY22: £nil): These are the first recurring royalties on AT220 following EU launch in November. AT220 is believed to be Fresenius Kabi’s Tyenne (biosimilar tocilizumab), with EU launch timing matching disclosures from Fresenius. US approval of Tyenne (both IV and subcutaneous) was received on 5 March 2024, and it was launched on 15 April. According to Fresenius’ Q124 results presentation in May, Tyenne is the first marketed tocilizumab biosimilar, with originator Roche’s Actemra generating CHF2.6bn of sales in FY23. Tyenne has now been launched in 12 European countries and the US, and by February had reached 15% market share in Germany and 12% market share in Spain. Royalties on AT220 should increase in FY24e and beyond, in our view, as in-market sales grow, particularly following US launch.
  • Product sales £2.9m (FY22: £1.0m): these are driven by Tetris Pharma and largely consist of Ogluo sales in the UK and Europe.

We expect revenues to grow in the coming years driven by product sales, mainly Ogluo as commercial roll-out continues in Europe and awareness and access increases, and AT220 royalties (described above). Our forecasts also include modest milestone income (albeit we do not include any income from a potential deal on AT247/AT278) and formulation development revenues, although these are not key to growth. We forecast £6.8m revenues in FY24e, which includes £4.4m from product sales, and £11.2m in FY25e, with £7.6m from product sales.

R&D spend decreased to £6.0m in FY23 (FY22: £8.6m) with the trial of AT278 nearing completion. Beyond this, and pending future development plans, we assume a base level of operating R&D spend, forecasting £4.5m in FY24e, which includes some residual spend on the ongoing AT278 trial, decreasing further to £3.9m in FY25e, albeit these are largely illustrative. SG&A spend increased to £8.9m in FY23 (FY22: £5.6m), which included a full year of Tetris Pharma spend. We forecast a fairly modest increase to £9.8m in FY24e, with a larger uptick to £12.1m in FY25e to support Tetris Pharma sales growth.

Arecor had cash and equivalents (including short-term investments) of £6.8m at end-December 2023. Our updated forecasts (Exhibit 9) indicate that Arecor has sufficient funds to complete the Phase I trial of AT278, and to provide optionality to prepare for potential future development plans as these are refined.

Exhibit 9: Summary of financials
Source: Company, Trinity Delta. Note: R&D forecasts are largely illustrative pending development plans.

 

Disclaimer

Trinity Delta Research Limited (“TDRL”; firm reference number: 725161), which trades as Trinity Delta, is an appointed representative of Equity Development Limited (“ED”). The contents of this report, which has been prepared by and is the sole responsibility of TDRL, have been reviewed, but not independently verified, by ED which is authorised and regulated by the FCA, and whose reference number is 185325.

ED is acting for TDRL and not for any other person and will not be responsible for providing the protections provided to clients of TDRL nor for advising any other person in connection with the contents of this report and, except to the extent required by applicable law, including the rules of the FCA, owes no duty of care to any other such person. No reliance may be placed on ED for advice or recommendations with respect to the contents of this report and, to the extent it may do so under applicable law, ED makes no representation or warranty to the persons reading this report with regards to the information contained in it.

In the preparation of this report TDRL has used publicly available sources and taken reasonable efforts to ensure that the facts stated herein are clear, fair and not misleading, but make no guarantee or warranty as to the accuracy or completeness of the information or opinions contained herein, nor to provide updates should fresh information become available or opinions change.

Any person who is not a relevant person under section of Section 21(2) of the Financial Services & Markets Act 2000 of the United Kingdom should not act or rely on this document or any of its contents. Research on its client companies produced by TDRL is normally commissioned and paid for by those companies themselves (‘issuer financed research’) and as such is not deemed to be independent, as defined by the FCA, but is ‘objective’ in that the authors are stating their own opinions. The report should be considered a marketing communication for purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. TDRL does not hold any positions in any of the companies mentioned in the report, although directors, employees or consultants of TDRL may hold positions in the companies mentioned. TDRL does impose restrictions on personal dealings. TDRL might also provide services to companies mentioned or solicit business from them.

This report is being provided to relevant persons to provide background information about the subject matter of the note. This document does not constitute, nor form part of, and should not be construed as, any offer for sale or purchase of (or solicitation of, or invitation to make any offer to buy or sell) any Securities (which may rise and fall in value). Nor shall it, or any part of it, form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information that we provide is not intended to be, and should not in any manner whatsoever be, construed as personalised advice. Self-certification by investors can be completed free of charge at www.fisma.org. TDRL, its affiliates, officers, directors and employees, and ED will not be liable for any loss or damage arising from any use of this document, to the maximum extent that the law permits.

Copyright 2024 Trinity Delta Research Limited. All rights reserved.

Arecor Therapeutics

FY23 results evidence broader revenue base

Lighthouse | 16 May 2024

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  • Arecor FY23 revenues of £4.6m (+90% on FY22: £2.4m), as disclosed in the Trading Update (February 2024 Lighthouse), included first recurring royalties on AT220 and the EU launch associated milestone. The bulk of revenues came from Tetris Pharma sales of £2.9m, largely from Ogluo (FY22: £1.1m for five months post the August acquisition), in addition to £0.9m (FY22: £1.4m) of revenue recognised under ongoing formulation development projects, and £0.7m from license milestones. Total income of £5.7m (FY22: £3.7m) includes the Innovate UK grant and RDEC income.
  • Lower R&D spend of £6.0m in FY23 (FY22: £8.6m) reflected the timing of AT247 and AT278 clinical studies, while SG&A costs rose to £8.9m (FY22: £5.6m) as they included a full year of Tetris expenses vs five months in FY22. Net loss for the year was £8.6m (FY22: loss of £9.3m). Cash at end-December 2023 was £6.8m (end-June: £8.2m; end-December 2022: £12.8m). Cash needs will be determined by future development plans for the diabetes franchise, which will depend on upcoming data.
  • Several key events were achieved in 2023 with partnered/licenced assets, most notably the launch of AT220 in Europe in late-2023, the first commercial product incorporating the Arestat technology. AT220 is believed to be Fresenius Kabi’s tocilizumab (Tyenne); we note that US approval of Tyenne (both IV and subcutaneous) was received on 5 March 2024, with launch on 15 April. FY23 milestones were also received from Hikma (AT307) and Inhibrx (INBRX-101). Acquisition of the latter, by Sanofi for >$1.7bn (January 2024 Lighthouse), provides external validation of the value-add of Arecor’s formulation expertise.
  • Arecor’s formulation expertise underpins the six new technology partnerships executed in FY23 and post-period, including with Medtronic for a thermostable insulin (May 2024 Lighthouse). In addition, Arecor established a co-development research collaboration with TRx Biosciences to develop an oral GLP-1 (March 2024 Lighthouse). Collaborations are a key aspect of Arecor’s strategy, often generating revenues from day one via research fees, with upside potential should they convert to licences.

Trinity Delta view: Arecor’s revenue base is becoming increasingly diverse with growing contributions from Tetris Pharma product sales and nascent recurring royalties from the first approved Arestat-enabled product, on top of licence milestones and revenues under formulation development contracts. Continued deal execution has the potential to drive meaningful future royalties from multiple partners, building on the continued momentum from existing assets and partners. Topline data in H124 from the AT278 Phase I trial in Type II diabetes patients is an important catalyst, informing next steps for development and partnering/collaboration strategy. This disruptor insulin, which has the potential to address key unmet needs in diabetes, is one asset in the in-house portfolio of Diabetes and Specialty Hospital products, which together have significant upside potential. Our valuation is £179m, equivalent to 583p per share.

Lighthouse

16 May 2024

Price136.5p
Market Cap£41.8m
Primary exchangeAIM London
SectorHealthcare
Company CodeAREC
Corporate clientYes

Company description

Arecor Therapeutics is a revenue-generating clinical stage drug developer, with a well-balanced portfolio of in-house and partnered programmes. Its proprietary Arestat formulation platform results in enhanced products with lower development risks and less onerous regulatory approvals.

Analysts

Lala Gregorek
lgregorek@trinitydelta.org
+44 (0) 20 3637 5043

Philippa Gardner
pgardner@trinitydelta.org
+44 (0) 20 3637 5042

Disclaimer

Trinity Delta Research Limited (“TDRL”; firm reference number: 725161), which trades as Trinity Delta, is an appointed representative of Equity Development Limited (“ED”). The contents of this report, which has been prepared by and is the sole responsibility of TDRL, have been reviewed, but not independently verified, by ED which is authorised and regulated by the FCA, and whose reference number is 185325.

ED is acting for TDRL and not for any other person and will not be responsible for providing the protections provided to clients of TDRL nor for advising any other person in connection with the contents of this report and, except to the extent required by applicable law, including the rules of the FCA, owes no duty of care to any other such person. No reliance may be placed on ED for advice or recommendations with respect to the contents of this report and, to the extent it may do so under applicable law, ED makes no representation or warranty to the persons reading this report with regards to the information contained in it.

In the preparation of this report TDRL has used publicly available sources and taken reasonable efforts to ensure that the facts stated herein are clear, fair and not misleading, but make no guarantee or warranty as to the accuracy or completeness of the information or opinions contained herein, nor to provide updates should fresh information become available or opinions change.

Any person who is not a relevant person under section of Section 21(2) of the Financial Services & Markets Act 2000 of the United Kingdom should not act or rely on this document or any of its contents. Research on its client companies produced by TDRL is normally commissioned and paid for by those companies themselves (‘issuer financed research’) and as such is not deemed to be independent, as defined by the FCA, but is ‘objective’ in that the authors are stating their own opinions. The report should be considered a marketing communication for purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. TDRL does not hold any positions in any of the companies mentioned in the report, although directors, employees or consultants of TDRL may hold positions in the companies mentioned. TDRL does impose restrictions on personal dealings. TDRL might also provide services to companies mentioned or solicit business from them.

This report is being provided to relevant persons to provide background information about the subject matter of the note. This document does not constitute, nor form part of, and should not be construed as, any offer for sale or purchase of (or solicitation of, or invitation to make any offer to buy or sell) any Securities (which may rise and fall in value). Nor shall it, or any part of it, form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information that we provide is not intended to be, and should not in any manner whatsoever be, construed as personalised advice. Self-certification by investors can be completed free of charge at www.fisma.org. TDRL, its affiliates, officers, directors and employees, and ED will not be liable for any loss or damage arising from any use of this document, to the maximum extent that the law permits.

Copyright 2024 Trinity Delta Research Limited. All rights reserved.

ANGLE plc

Gathering momentum in Pharma Services

Update | 14 May 2024

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Three new Pharma Services agreements with large cap pharma in 2024 demonstrate that ANGLE’s business development activities are successfully translating into customer income. These deals will make a valuable contribution to near-term revenues and also have the potential for more sizeable future revenues. Successful development of the underlying Parsortix-based assays could mean a transition into longer-term contracts for larger later-stage clinical studies, perhaps ultimately becoming companion diagnostics for commercial cancer drugs. Furthermore, the external validation provided by large cap pharma partners could facilitate future business development. Equally importantly, the resulting assays will augment ANGLE’s menu that it can offer other customers. ‘Content’ development should support both the products and services business lines, which along with clinical data generated with Parsortix to demonstrate utility in patient management, should help drive adoption. Our DCF-based valuation of ANGLE is £174m, or 67p/share.

Year-end: December 31202120222023E2024E
Revenue (£m)1.01.02.26.3
Adj. PBT (£m)(18.7)(26.7)(21.8)(15.8)
Net Income (£m)(15.0)(21.7)(19.9)(13.0)
Adj. EPS (p)(7.2)(9.6)(7.8)(5.6)
Cash (£m)31.831.915.14.2
EBITDA (£m)(15.7)(21.4)(19.3)(12.3)
Source: Trinity Delta Note: Adjusted numbers exclude exceptionals.
  • Three new Pharma Services agreements Three partnerships have been secured with large pharma so far in 2024, two with AstraZeneca and one with Eisai. The deals have a c £905k aggregate headline value, which will contribute to FY24e revenue expectations. Importantly, there could be substantial future downstream income should any, or all, lead to further contracts for use of the respective Parsortix-based assays in later clinical trials. This could ultimately lead to a future companion diagnostic that could be a significant commercial opportunity.
  • Key near-term revenue driver with upside potential ANGLE’s Pharma Services business offers clinical trial tools to pharmaceutical and biotech companies for oncology patient targeting and monitoring. Oncology trials are set to remain one of the most prolific areas of clinical activity and hence, over time, this could become a sizeable revenue stream. Growth will be driven by new customers and as existing customers progress to later stage and larger trials, potentially expanding to other programmes. The external validation provided by these latest large-cap pharma partners could facilitate and accelerate ongoing partnering discussions.
  • Aiming to drive wider Parsortix industry uptake Alongside Pharma Services, ANGLE’s efforts are also focused on driving Product revenues through developing market-relevant “content” (menus of assays), supported by a growing network of distributors. In addition, continued generation of robust clinical data highlighting Parsortix’s potential in multiple solid tumour treatment regimens should help drive wider industry recognition and partnering opportunities.

Update

14 May 2024

Price21.0p
Market Cap£61.2m
Enterprise Value£26.6m
Shares in issue260.6m
12 month range9.07-37.4p
Free float96.7%
Primary exchangeAIM
Other exchangesOTC QX
SectorHealthcare
Company codesAGL
Corporate clientYes

Company description

ANGLE is a specialist diagnostics company. Its proprietary Parsortix technology can capture and harvest very rare cells, including CTCs (circulating tumour cells), from a blood sample. The FDA product clearance for its clinical use to guide precision cancer care should open up multiple commercial opportunities.

Analysts

Lala Gregorek
lgregorek@trinitydelta.org
+44 (0) 20 3637 5043

Philippa Gardner
pgardner@trinitydelta.org
+44 (0) 20 3637 5042

ANGLE: Three new Pharma Services deals

Pharma Services is likely to be a key revenue growth driver in both the near- and over the longer-term. Securing new partners will be key for future growth, and hence recent deals with large-cap pharma are highly encouraging as these could lead to: (1) future upside from later-stage and larger clinical trials; (2) broader future relationships with these partners; and (3) provide external validation to facilitate deal execution with new partners. The three deals recently signed are:

  • A deal with Eisai for a pilot study in which ANGLE’s Portrait HER2 assay will be used to quantitatively analyse the HER2 (human epidermal growth factor receptor 2) status of CTCs (circulating tumour cells) for breast cancer patients in the Phase II study of Eisai’s HER2 targeting antibody-drug conjugate BB-1701. The pilot phase is worth $250k.
  • A deal with AstraZeneca, initially worth £150k (over six-months), to develop a methodology to detect CTC micronuclei, a measure of DNA damage response (DDR), using ANGLE’s existing Parsortix-based DDR assay for use in pharma R&D.
  • A second deal with AstraZeneca for £550k (into Q125) which involves developing a Parsortix-based Androgen Receptor (AR) detection assay for use in multiple prostate cancer clinical studies.

As with all Pharma Services agreements, successful execution and development could mean adoption in future late-stage clinical trials to monitor patients at multiple timepoints. This could bring significant future revenue potential, as shown in Exhibit 1, especially if this leads to development of a companion diagnostic. Whilst this could take several years, the development path will be fully funded by the drug developers running the clinical trials.

Exhibit 1: Pharma Services potential future revenue opportunities
Source: ANGLE

The Pharma Services business is supported by ANGLE’s dedicated UK-based certified laboratory. According to management, this has capacity to process over 40,000 samples per annum with pricing over $3,000 per sample depending on the level of complexity and the degree of evaluation desired. This could be scaled further to match demand as new contracts are executed.

Exhibit 2: Summary of financials
Source: ANGLE, Trinity Delta. Note: Adjusted numbers exclude exceptionals.

 

 

Disclaimer

Trinity Delta Research Limited (“TDRL”; firm reference number: 725161), which trades as Trinity Delta, is an appointed representative of Equity Development Limited (“ED”). The contents of this report, which has been prepared by and is the sole responsibility of TDRL, have been reviewed, but not independently verified, by ED which is authorised and regulated by the FCA, and whose reference number is 185325.

ED is acting for TDRL and not for any other person and will not be responsible for providing the protections provided to clients of TDRL nor for advising any other person in connection with the contents of this report and, except to the extent required by applicable law, including the rules of the FCA, owes no duty of care to any other such person. No reliance may be placed on ED for advice or recommendations with respect to the contents of this report and, to the extent it may do so under applicable law, ED makes no representation or warranty to the persons reading this report with regards to the information contained in it.

In the preparation of this report TDRL has used publicly available sources and taken reasonable efforts to ensure that the facts stated herein are clear, fair and not misleading, but make no guarantee or warranty as to the accuracy or completeness of the information or opinions contained herein, nor to provide updates should fresh information become available or opinions change.

Any person who is not a relevant person under section of Section 21(2) of the Financial Services & Markets Act 2000 of the United Kingdom should not act or rely on this document or any of its contents. Research on its client companies produced by TDRL is normally commissioned and paid for by those companies themselves (‘issuer financed research’) and as such is not deemed to be independent, as defined by the FCA, but is ‘objective’ in that the authors are stating their own opinions. The report should be considered a marketing communication for purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. TDRL does not hold any positions in any of the companies mentioned in the report, although directors, employees or consultants of TDRL may hold positions in the companies mentioned. TDRL does impose restrictions on personal dealings. TDRL might also provide services to companies mentioned or solicit business from them.

This report is being provided to relevant persons to provide background information about the subject matter of the note. This document does not constitute, nor form part of, and should not be construed as, any offer for sale or purchase of (or solicitation of, or invitation to make any offer to buy or sell) any Securities (which may rise and fall in value). Nor shall it, or any part of it, form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information that we provide is not intended to be, and should not in any manner whatsoever be, construed as personalised advice. Self-certification by investors can be completed free of charge at www.fisma.org. TDRL, its affiliates, officers, directors and employees, and ED will not be liable for any loss or damage arising from any use of this document, to the maximum extent that the law permits.

Copyright 2024 Trinity Delta Research Limited. All rights reserved.

HUTCHMED

Strong US Fruzaqla Q1; EU approval could come soon

Lighthouse | 13 May 2024

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  • Takeda, HUTCHMED’s ex-China partner for fruquintinib, has reported Fruzaqla in-market sales of JPY10.1bn for FY23 (for the 12 months ending March 2024), equating to c $68m (based on FX of JPY148/$). With US launch in November and $15.1m of in-market sales for calendar Q423 (October-December), as previously disclosed by HUTCHMED (February 2024 Lighthouse), this suggests calendar Q124 (January-March) in-market sales of c $53m in the US alone. Assuming some initial stocking, this suggests US sales alone in 2024 could reach $150-200m, ahead of our current $100m forecast (which includes initial EU sales assuming approval this year) and Evaluate Pharma consensus of $52m. Takeda is forecasting >100% growth of Fruzaqla for FY24 (12 months ending March 2025).
  • Takeda received a positive EU CHMP (Committee for Medicinal Products for Human Use) opinion in April, recommending Fruzaqla approval for adult patients with previously treated metastatic colorectal cancer (mCRC). Per EU regulatory procedures, a formal approval decision will be made within 67 days of the CHMP opinion, and whilst not a foregone conclusion, this typically follows the CHMP recommendation. Hence, we expect EU approval by early July 2024. Fruquintinib is also under regulatory review in Japan (submitted in September 2023), with a decision expected later this year.
  • HUTCHMED is entitled to future potential milestones, plus tiered royalties on in-market sales of Fruzaqla, with the latter one of the components underpinning HUTCHMED’s growth targets. Although specific milestone triggering events have not been disclosed, we believe these may become due on events such as approvals and on development of new indications, as would be typical in such a licensing deal. Recall HUTCHMED has already received an upfront of $400m and a US approval milestone of $35m, with a further c $695m of milestones remaining, and recorded $2.1m of royalties on $15.1m of in-market sales (suggesting a starting royalty rate of c14%).
  • Beyond initial fruquintinib approvals in mCRC in Europe and Japan, we also expect China approval decisions for the next indications of 2L gastric cancer and 2L endometrial cancer in combination with PD-1 inhibitor sintilimab, with regulatory reviews for both ongoing.

Trinity Delta view: Partner Takeda has executed an impressive initial launch of Fruzaqla in the US, which provides confidence in future successful launches in Europe and Japan (once regulatory approvals are secured), and for Fruzaqla’s longer-term growth prospects with expansion to additional indications. Fruzaqla’s commercial prospects are a key contributor to HUTCHMED’s path to profitability, which is supported by the growing traction and market share capture of its China oncology products, plus launches of new products. The latter include sovleplenib, where detailed data in 2L immune thrombocytopenia (under Priority Review in China), potentially at the EHA congress in June, are much anticipated. Our last published valuation was $5.81bn/£4.84bn/HK$45.35bn, or $33.36/ADS and 556p/HK$52.05 per share.

Lighthouse

13 May 2024

Price (US ADS)
(UK share)
(SEHK share)
US$21.75
352.0p
HK$34.70
Market Cap
 
US$3.71bn
£3.00bn
HK$29.62bn
ExchangesNASDAQ
AIM London
SEHK
SectorHealthcare
Company CodesHCM
HCM.L
0013.HK
Corporate clientYes

Company description

HUTCHMED is a Hong Kong headquartered biopharma focused on discovering, developing and commercializing innovative targeted therapeutics and immunotherapies to treat cancer and autoimmune diseases. It has a diverse pipeline of first-in-class/best-in-class selective oral TKIs in development for the China and global markets.

Analysts

Lala Gregorek
lgregorek@trinitydelta.org
+44 (0) 20 3637 5043

Philippa Gardner
pgardner@trinitydelta.org
+44 (0) 20 3637 5042

Disclaimer

Trinity Delta Research Limited (“TDRL”; firm reference number: 725161), which trades as Trinity Delta, is an appointed representative of Equity Development Limited (“ED”). The contents of this report, which has been prepared by and is the sole responsibility of TDRL, have been reviewed, but not independently verified, by ED which is authorised and regulated by the FCA, and whose reference number is 185325.

ED is acting for TDRL and not for any other person and will not be responsible for providing the protections provided to clients of TDRL nor for advising any other person in connection with the contents of this report and, except to the extent required by applicable law, including the rules of the FCA, owes no duty of care to any other such person. No reliance may be placed on ED for advice or recommendations with respect to the contents of this report and, to the extent it may do so under applicable law, ED makes no representation or warranty to the persons reading this report with regards to the information contained in it.

In the preparation of this report TDRL has used publicly available sources and taken reasonable efforts to ensure that the facts stated herein are clear, fair and not misleading, but make no guarantee or warranty as to the accuracy or completeness of the information or opinions contained herein, nor to provide updates should fresh information become available or opinions change.

Any person who is not a relevant person under section of Section 21(2) of the Financial Services & Markets Act 2000 of the United Kingdom should not act or rely on this document or any of its contents. Research on its client companies produced by TDRL is normally commissioned and paid for by those companies themselves (‘issuer financed research’) and as such is not deemed to be independent, as defined by the FCA, but is ‘objective’ in that the authors are stating their own opinions. The report should be considered a marketing communication for purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. TDRL does not hold any positions in any of the companies mentioned in the report, although directors, employees or consultants of TDRL may hold positions in the companies mentioned. TDRL does impose restrictions on personal dealings. TDRL might also provide services to companies mentioned or solicit business from them.

This report is being provided to relevant persons to provide background information about the subject matter of the note. This document does not constitute, nor form part of, and should not be construed as, any offer for sale or purchase of (or solicitation of, or invitation to make any offer to buy or sell) any Securities (which may rise and fall in value). Nor shall it, or any part of it, form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information that we provide is not intended to be, and should not in any manner whatsoever be, construed as personalised advice. Self-certification by investors can be completed free of charge at www.fisma.org. TDRL, its affiliates, officers, directors and employees, and ED will not be liable for any loss or damage arising from any use of this document, to the maximum extent that the law permits.

Copyright 2024 Trinity Delta Research Limited. All rights reserved.

Arecor Therapeutics

Novel diabetes drug-device deal inked with Medtronic

Lighthouse | 9 May 2024

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  • Arecor has signed a collaboration with Medtronic, a leading global insulin pump manufacturer, to develop a novel, high concentration, thermostable insulin for use with a next-generation implantable pump. While precise deal economics are not disclosed, Medtronic will fund the formulation and development of an Arestat-enabled insulin. This insulin will be designed specifically with the profile to be delivered via an implantable pump.
  • The deal provides further important external validation of Arecor’s formulation and development expertise, particularly in this case in relation to novel insulins tailored to address specific patient needs. In addition, it demonstrates that, despite its size, larger players are aware of Arecor and recognise its ability to potentially add significant value to their products.
  • Medtronic (NYSE: MDT) is a multinational healthcare technology company active in several market segments (cardiovascular, neuroscience, surgical, and diabetes), with its Diabetes business (FY23 sales: $2.26bn) identified as one of the highest growth In contrast to its peers, Medtronic is investing across a range of technologies, including Smart Dosing systems, eg smart MDI (multiple dose injection) pumps and patches, and AID (automated insulin delivery) devices. The aim is to provide differentiated treatment options for diabetes patients with intensive insulin needs.
  • Current innovation in diabetes treatment options to improve clinical outcomes and/or quality of life for patients is most focused on enhanced insulin delivery, with development of next-generation, miniaturised, devices with longer-wear times. However, to fully capitalise on their benefits, these advances in delivery technologies require novel specialist insulins.
  • Arecor’s diabetes franchise includes two proprietary clinical-stage programmes that fall in the category of specialist device-enabling insulins: ultra-rapid, ultra-concentrated (AT278) and ultra-rapid (AT247). These remain a core focus for investors given the upside potential, with an important catalyst on the horizon: top-line read out of the second Phase I study of AT278 in Type II diabetes patients during H124.

Trinity Delta view: A deal with a major insulin device player such as Medtronic is undoubtedly a coup for Arecor, providing the opportunity to develop a closer relationship as well as broadening its existing diabetes franchise. This expanding franchise, centred on AT278 and AT247, now includes this novel implantable insulin-pump device combination with Medtronic (addressing an underserved niche patient population), an earlier co-development deal with TRx Biosciences to develop an oral GLP-1 (March 2024 Lighthouse), and the commercial product Ogluo, sold in the UK and Europe via Tetris Pharma. However, foremost in investor minds is the upcoming clinical readout from the AT278 Phase I trial, which should inform next steps for development and potentially stimulate interest from possible partners or collaborators. Ahead of data, our valuation remains £179m, equivalent to 583p per share.

Lighthouse

9 May 2024

Price135.0p
Market Cap£41.35m
Primary exchangeAIM London
SectorHealthcare
Company CodeAREC
Corporate clientYes

Company description

Arecor Therapeutics is a revenue-generating clinical stage drug developer, with a well-balanced portfolio of in-house and partnered programmes. Its proprietary Arestat formulation platform results in enhanced products with lower development risks and less onerous regulatory approvals.

Analysts

Lala Gregorek
lgregorek@trinitydelta.org
+44 (0) 20 3637 5043

Philippa Gardner
pgardner@trinitydelta.org
+44 (0) 20 3637 5042

Disclaimer

Trinity Delta Research Limited (“TDRL”; firm reference number: 725161), which trades as Trinity Delta, is an appointed representative of Equity Development Limited (“ED”). The contents of this report, which has been prepared by and is the sole responsibility of TDRL, have been reviewed, but not independently verified, by ED which is authorised and regulated by the FCA, and whose reference number is 185325.

ED is acting for TDRL and not for any other person and will not be responsible for providing the protections provided to clients of TDRL nor for advising any other person in connection with the contents of this report and, except to the extent required by applicable law, including the rules of the FCA, owes no duty of care to any other such person. No reliance may be placed on ED for advice or recommendations with respect to the contents of this report and, to the extent it may do so under applicable law, ED makes no representation or warranty to the persons reading this report with regards to the information contained in it.

In the preparation of this report TDRL has used publicly available sources and taken reasonable efforts to ensure that the facts stated herein are clear, fair and not misleading, but make no guarantee or warranty as to the accuracy or completeness of the information or opinions contained herein, nor to provide updates should fresh information become available or opinions change.

Any person who is not a relevant person under section of Section 21(2) of the Financial Services & Markets Act 2000 of the United Kingdom should not act or rely on this document or any of its contents. Research on its client companies produced by TDRL is normally commissioned and paid for by those companies themselves (‘issuer financed research’) and as such is not deemed to be independent, as defined by the FCA, but is ‘objective’ in that the authors are stating their own opinions. The report should be considered a marketing communication for purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. TDRL does not hold any positions in any of the companies mentioned in the report, although directors, employees or consultants of TDRL may hold positions in the companies mentioned. TDRL does impose restrictions on personal dealings. TDRL might also provide services to companies mentioned or solicit business from them.

This report is being provided to relevant persons to provide background information about the subject matter of the note. This document does not constitute, nor form part of, and should not be construed as, any offer for sale or purchase of (or solicitation of, or invitation to make any offer to buy or sell) any Securities (which may rise and fall in value). Nor shall it, or any part of it, form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information that we provide is not intended to be, and should not in any manner whatsoever be, construed as personalised advice. Self-certification by investors can be completed free of charge at www.fisma.org. TDRL, its affiliates, officers, directors and employees, and ED will not be liable for any loss or damage arising from any use of this document, to the maximum extent that the law permits.

Copyright 2024 Trinity Delta Research Limited. All rights reserved.

Avacta

Therapeutics focus sharpening; cash to key catalysts

Lighthouse | 30 April 2024

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  • Avacta’s FY23 revenues increased to £23.2m (FY22: £9.7m), driven by Diagnostics revenues of £21.2m (FY22: £4.2m) which included a full year of Launch Diagnostics and c 7 months of Coris Bioconcept. Therapeutics revenues were £2.1m (FY22: £5.5m) with the prior year including more milestones. Gross profit was £11.2m (FY22: £7.2m), the operating loss was £28.4m (FY22: loss of £32.6m), which together with non-cash elements relating to the convertible bond led to a £24.9m net loss (FY22: £36.6m loss). End-December 2023 cash of c £16.6m (end-June: £26.0m) was recently boosted by the March £31.1m (gross) fundraise (March 2024 Lighthouse).
  • Avacta’s focus is now primarily on the therapeutics pipeline. Updated Phase I data for lead programme AVA6000 were recently reported at AACR (April 2024 Lighthouse). The data reaffirm prior observations that AVA6000 is selectively activated at the target tumour site, resulting in lower toxicities than standard doxorubicin, and leading to anti-tumour effects in cancers with over-expression of FAP and which are sensitive to doxorubicin monotherapy.
  • An AVA6000 two-weekly dosing arm is currently ongoing, given the favourable safety in the three-weekly arm. Patients can be dosed in parallel in this arm, and it is expected to complete around mid-2024. Data will define the recommended Phase II dose for the planned dose expansion studies (in as yet undisclosed indications), planned to start in the US during H224. Subject to data and trial regulatory approval, this will be followed by a potentially pivotal Phase II efficacy study, which could support initial regulatory approvals (conditional subject to a confirmatory Phase III trial).
  • With the focus on Therapeutics, management continues to explore routes to divest the Diagnostics division in a manner that maximises shareholder value. The integration of Launch Diagnostics, which was acquired for £24m (October 2022 Lighthouse), and Coris Bioconcept, acquired for £7.4m (June 2023 Lighthouse) has resulted in a business that now generates annualised growth of c 10%, is approaching positive EBITDA (FY23 loss of £1.2m; FY22 loss of £5.1m) and is expected to be cash generative in the near future.

Trinity Delta view: Prioritisation of the Therapeutics division continues, with Christina Coughlin’s appointment as CEO (having been on the Board since March 2022 and Head of R&D since February 2024). Once the Diagnostics division has been divested, Avacta will become a fully focused biotech company. This strategy is underpinned by the proprietary pre|CISION platform, and lead peptide drug conjugate AVA6000. Completion of the two-weekly safety study and progression into dose expansion cohorts during H224 will give some idea on the potential indication(s) that may be pursued by Avacta in a subsequent Phase II efficacy study. Current cash, including the £31.1m fundraise, provides a runway into early 2026 to advance the therapeutics pipeline, and should cover a number of value inflection points in AVA6000’s development. Our valuation and forecasts are currently suspended (since the fundraise); our last published valuation was £672m (equivalent to 237p/share).

Lighthouse

30 April 2024

Price48.30p
Market Cap£173.4m
Primary exchangeAIM
SectorHealthcare
Company CodeAVCT
Corporate clientYes

Company description

Avacta owns two novel technology platforms: Affimer and pre|CISION. Affimer proteins are antibody mimetics being developed as diagnostic reagents and oncology therapeutics. pre|CISION improves potency and reduces toxicity of cancer drugs by only activating them inside the tumour. Successful clinical trials would be transformative for Avacta.

Analysts

Lala Gregorek
lgregorek@trinitydelta.org
+44 (0) 20 3637 5043

Philippa Gardner
pgardner@trinitydelta.org
+44 (0) 20 3637 5042

Disclaimer

Trinity Delta Research Limited (“TDRL”; firm reference number: 725161), which trades as Trinity Delta, is an appointed representative of Equity Development Limited (“ED”). The contents of this report, which has been prepared by and is the sole responsibility of TDRL, have been reviewed, but not independently verified, by ED which is authorised and regulated by the FCA, and whose reference number is 185325.

ED is acting for TDRL and not for any other person and will not be responsible for providing the protections provided to clients of TDRL nor for advising any other person in connection with the contents of this report and, except to the extent required by applicable law, including the rules of the FCA, owes no duty of care to any other such person. No reliance may be placed on ED for advice or recommendations with respect to the contents of this report and, to the extent it may do so under applicable law, ED makes no representation or warranty to the persons reading this report with regards to the information contained in it.

In the preparation of this report TDRL has used publicly available sources and taken reasonable efforts to ensure that the facts stated herein are clear, fair and not misleading, but make no guarantee or warranty as to the accuracy or completeness of the information or opinions contained herein, nor to provide updates should fresh information become available or opinions change.

Any person who is not a relevant person under section of Section 21(2) of the Financial Services & Markets Act 2000 of the United Kingdom should not act or rely on this document or any of its contents. Research on its client companies produced by TDRL is normally commissioned and paid for by those companies themselves (‘issuer financed research’) and as such is not deemed to be independent, as defined by the FCA, but is ‘objective’ in that the authors are stating their own opinions. The report should be considered a marketing communication for purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. TDRL does not hold any positions in any of the companies mentioned in the report, although directors, employees or consultants of TDRL may hold positions in the companies mentioned. TDRL does impose restrictions on personal dealings. TDRL might also provide services to companies mentioned or solicit business from them.

This report is being provided to relevant persons to provide background information about the subject matter of the note. This document does not constitute, nor form part of, and should not be construed as, any offer for sale or purchase of (or solicitation of, or invitation to make any offer to buy or sell) any Securities (which may rise and fall in value). Nor shall it, or any part of it, form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information that we provide is not intended to be, and should not in any manner whatsoever be, construed as personalised advice. Self-certification by investors can be completed free of charge at www.fisma.org. TDRL, its affiliates, officers, directors and employees, and ED will not be liable for any loss or damage arising from any use of this document, to the maximum extent that the law permits.

Copyright 2024 Trinity Delta Research Limited. All rights reserved.

Futura Medical

Eroxon poised for launch in key US market

Outlook | 25 April 2024

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Futura Medical’s investment case has shifted firmly onto commercial execution. The highly successful initial launches of Eroxon, its novel topical gel for ED (erectile dysfunction), by partner Cooper Consumer Health in the UK and Belgium are now being followed by roll-outs across the major European markets. The much-anticipated launch in the commercially important US market by consumer healthcare giant Haleon is expected before February 2025. Launches in Other Regions are anticipated  throughout 2024. Eroxon offers a unique proposition, being a clinically proven, fast-acting, and safe product that can be easily bought over-the-counter. The market for ED treatments is significant and Eroxon appears ideally placed to carve a sizeable niche for itself. Our updated Futura valuation is £371m, equivalent to 123p per share.

Year-end: December 31202220232024E2025E
Revenues (£m)0.03.19.215.1
Adj. PBT (£m)(6.2)(4.1)(1.1)4.0
Net Income (£m)(6.2)(4.2)(1.2)3.6
EPS (p)(5.8)(6.5)(3.1)2.5
Cash (£m)(2.0)(2.2)(1.0)0.8
EBITDA (£m)4.07.72.44.3
Source: Trinity Delta Note: Adjusted numbers exclude share-based payments and exceptionals.
  • All eyes on the key US launch  Partner Haleon is working towards US launch and whilst visibility on precise launch timings is limited, and is likely to remain so, this is expected to occur before February 2025, but could potentially come earlier. Haleon has committed significant financial resources and we believe is working on numerous pre-launch activities including market research, messaging and building a robust supply chain to ensure a successful roll-out, all of which take time.
  • Other launches in progress  Successful pilot launches in the UK and Belgium provide a blueprint and important learnings for ongoing and planned additional launches in Europe and Other Regions. Full launches in 16 countries are expected to have occurred by end June 2024, with further launches planned for H224. As an OTC product that can effectively be purchased anonymously and from a variety of sources, until launches are more established, reliable data on uptake and repeat use is not readily available.
  • Profitability in sight, initially driven by US launch  Futura has a clear growth strategy and one of the key near-term priorities is to deliver revenue growth plus profitability within the next 12 months. The former will likely be driven by sales expansion in existing markets where Eroxon is already launched, plus new geographic launches, notably the US. If a US launch milestone is triggered, as we expect, this should propel Futura to profitability.
  • Valuation updated to £371m (123p/share)  Our NPV-based valuation is driven by our Eroxon peak sales forecasts across key markets. We have updated following FY23 financial results, which leads to an updated valuation of £371m (from £363m) or 123p/share. The US, where we forecast launch in early-2025, is the main component of our valuation, worth more than Europe and Other Regions combined.

Outlook

25 April 2024

Price35.80p
Market Cap£107.9m
Enterprise Value£100.2m
Shares in issue301.45m
12 month range23.3-67.0p
Free float61.3%
ExchangeAIM London
SectorHealthcare
Company CodeFUM.L
Corporate clientYes

Company description

Futura Medical is the developer of innovative sexual health products; its core strength lies in its research, development, and commercialisation of topically delivered gel formulations. Lead product Eroxon (MED3000) is approved as an OTC product for ED (erectile dysfunction) in Europe and the US.

Analysts

Lala Gregorek
lgregorek@trinitydelta.org
+44 (0) 20 3637 5043

Philippa Gardner
pgardner@trinitydelta.org
+44 (0) 20 3637 5042

Investment case

Futura Medical has developed a proprietary transdermal delivery platform known as DermaSys. The key product is Eroxon, a topical gel for erectile dysfunction (ED). It is the first clinically proven, fast-acting topical ED treatment that is available over-the-counter (OTC), ie without a prescription. Eroxon received CE Mark approval in Europe in April 2021, UKCA mark approval in the UK in April 2022, and FDA marketing authorisation in June 2023. The commercial partner in Europe, the UK and Switzerland is Cooper Consumer Health. In the US, a commercial partnership with Haleon was executed in July 2023 and launch is anticipated before February 2025. Eroxon was launched in the UK and Belgium in April 2023, and is being rolled-out across mainland Europe (including France, Italy and Spain). Labatec Pharma has launched in Saudi Arabia and the UAE. Further launches are expected through 2024.

Valuation

We value Futura Medical using a sum-of-the-parts NPV (net-present value) model, which includes various assumptions for Eroxon in the main geographies (US, Europe, and Other Regions). These are summed and netted against core costs and cash. The main drivers of our valuation are the peak sales for Eroxon in each geography; we forecast US peak Eroxon sales of c $350m, and $100-130m in each of Europe and Other Regions. Our model generates a current valuation of £371m, equivalent to 123p per share, with the US opportunity alone worth more than Europe and Other Regions combined.

Financials

Futura generated first revenues of £3.1m in FY23 from Eroxon product supply. We expect future revenue growth will be driven by increasing uptake in regions/countries where Eroxon is already launched, and from new geographic launches, including the US (where Futura will earn royalties). US launch is expected before February 2025 and we include a milestone in FY25e, leading to profitability in FY25e; if US launch occurs by YE24 and triggers the expected milestone, then Futura could be profitable in FY24e. Cash at end-December 2023 was £7.7m and is expected to extend beyond the anticipated US Eroxon launch.

Sensitivities

The main sensitivities for innovative healthcare companies relate to development and regulatory aspects, execution of commercialisation plans, and the financial resources required to accomplish these. With Eroxon’s key regulatory approvals secured, and no near-term cash needs, the focus is on commercial execution, which is largely in the hands of experienced partners. The commercial partners provide confidence in the likelihood of successful launches; for instance, the UK launch exceeded Cooper’s (and Ceuta’s) expectations. However, it is almost impossible to accurately track Eroxon’s launch trajectories and hence forecasting near-term revenues is particularly challenging. Therefore, investors have to rely on management commentary to reassure on the post-launch dynamics.

Futura Medical: poised for profitability

Futura Medical has delivered all the critical elements to position Eroxon (MED3000), a topical gel treatment for erectile dysfunction (ED), for successful launches and uptake in the key EU and US markets. The first EU launches in Belgium and UK by partner Cooper in Spring 2023 have demonstrated that the product’s profile clearly resonates well with consumers. These experiences have helped fine-tune the positioning for roll-outs across other major EU markets. Launches by partners across other geographies will similarly tailor promotional activities to local market needs. Exciting as these are, the biggest commercial opportunity lies in the US, where Haleon, the renowned consumer health specialist, is completing its pre-marketing planning. We forecast launch in early-2025, although this could potentially come sooner. Commercial success in the US or EU could be transformational and would put Futura on the path towards sustainable and growing profitability. Our valuation is £371m (123p/share).

Futura Medical is transitioning towards becoming a self-sustaining profitable business. There is a clear growth strategy in place to build a successful Eroxon brand and sexual health franchise in the near-, mid-, and long-term. Having successfully delivered on all its strategic priorities for the commercialisation of Eroxon (achieving outcomes that bettered our expectations in the initial European markets), the focus is now on rolling this out across other major European countries, into the commercially highly attractive US market, and other sizeable international markets (Other Regions).

Eroxon is a topical gel for ED (erectile dysfunction). It has demonstrated clinically relevant and consistent benefits across a broad spectrum of ED sufferers. In contrast to mainstay prescription ED treatments, Eroxon has a rapid onset of action, few side effects, no drug interactions, and most notably is available over-the-counter (OTC), ie without a prescription. Given these unique features, Eroxon should be an attractive treatment option for a wide range of ED patients.

The advent of effective products such as Viagra and Cialis brought ED into the mainstream, yet sizeable commercial opportunities remain. Millions of men globally, c 20% of the ED population, successfully use an oral phosphodiesterase type 5 inhibitor (PDE5i). The remaining 80% are either diagnosed but not treating – often due to side-effects, contraindications, or difficulty (and cost) of seeking treatment – or undiagnosed. Eroxon could address this substantial segment.

Commercialisation has been entrusted to consumer health specialists, with the notable partners being Cooper Consumer Health for Europe and Haleon (formerly part of GSK) for the US. Cooper has proven the positioning and market receptivity in the Belgian and UK test markets, with roll-out across the European markets through the rest of 2024. In the US, Haleon is completing its positioning, pricing, and advertising strategy and, assuming the supply chain progress continues, has confirmed launch will happen before Q125 (although earlier is entirely feasible).

Futura’s strategy is focused on three areas: (1) Address growing needs in the OTC sexual health market; (2) Broaden the product range; and (3) Commit to strong shareholder returns, profitability and financial discipline. In the near-term, these could include exploring range extensions for Eroxon (which is of interest to partners), whilst remaining mindful of costs.

Eroxon: focused on successful commercialisation

Futura Medical has undergone a subtle, yet highly important, transformation of late, with the focus of both management and investors firmly on the execution of its commercial strategy. Its key asset is Eroxon, a proprietary gel for erectile dysfunction (ED) that is the first clinically proven, fast-acting topical ED treatment to be available over-the-counter (OTC), ie without a prescription.

A convincing clinical package, including two Phase III clinical trials, has shown Eroxon works consistently and is very safe and well tolerated. Benefit is seen across all three classifications of ED (mild, moderate, and severe). It works in psychogenic impotence (caused by issues such as anxiety and depression), organic impotence (caused by physical issues such as hardening of the arteries), and mixed ED. It also works across a broad age range (the trials included men spanning 18 to 70 year olds). The comprehensive clinical package supported Eroxon receiving its CE Mark in Europe in April 2021, UKCA mark in the UK in April 2022, and FDA marketing authorisation in June 2023.

The commercial opportunity is sizeable, with ED being the most common sexual health issue reported globally. A fifth of all men experience it and yet half of these will not discuss this with their physician (Exhibit 1), despite the ready availability of proven products such as the PDE5 inhibitors. Although historically thought of as a part of normal ageing, there is mounting evidence that ED is becoming more prevalent among the younger demographic than shown by prior studies. A recent US study found c 14% of young men (18 to 31 years old) experienced ED; similarly, a quarter of all new diagnoses are in men under the age of 40.

Exhibit 1: An overview of the ED market
Source: Futura Medical

The advent of the PDE5is, particularly Viagra and Cialis, transformed the market, yet despite high efficacy (75% to 80% of men saw a benefit) they have limitations. These range from time to onset, through to interactions and side-effects. However, a major factor is consumer access, in our view. Even in the UK, where both Viagra and Cialis are available OTC in pharmacies, a purchase can remain embarrassing. It is into this receptive environment that Eroxon is being launched.

Cooper first launches in Europe surpass expectations

The commercial partner in Europe, the UK and Switzerland is Cooper Consumer Health, the largest independent self-care (OTC) specialist in Europe, with projected sales of over €1.1bn. Cooper is currently a private company with ambitious growth plans; it is backed by CVC Capital Partners Fund VIII. Its leading position in France, the Netherlands, Belgium, Italy, Spain and Portugal has been bolstered through the recent acquisition of almost all of Viatris’s OTC business for c $2.17bn. This transaction is expected to close in Q224. A notable feature is that Viagra OTC (Viatris is the result of a merger of Mylan and selected Pfizer business units) was not part of the purchase and remains with Viatris.

Futura Medical signed a five-year deal with Cooper in May 2022 (extended to 2029 in January 2024) with the first launches, in the UK and Belgium, in March 2023. These countries were selected due to their differing distribution channels: in the UK national pharmacy chains dominate (particularly Boots), whereas in Belgium independents and small pharmacy chains are the norm. Additionally, in the UK some of the PDE5 (phosphodiesterase-5) inhibitors, notably Viagra Connect and more recently Cialis Together, have been available OTC for some time, which has resulted in differing purchasing experiences. In contrast, like most of mainland Europe, the PDE5is remain prescription-only (Rx) products in Belgium and so an additional educational aspect was required within promotional material.

Cooper’s marketing strategy centres on Eroxon’s key properties (summarised in Exhibit 2) and, importantly, its differentiators and advantages over the existing PDE5is (Exhibit 3). Data from two Phase III clinical trials (summarised later in this report) provide consistent evidence of Eroxon’s benefits, with two-thirds of men experiencing a clinically relevant improvement. These support attractive market positioning with the unique selling points of: (1) rapid time to onset; (2) few side effects; (3) no drug interactions; and (4) no prescription required.

Exhibit 2: User benefits of Eroxon
Source: Trinity Delta, Futura Medica
Exhibit 3: Eroxon offers a differentiated approach vs PDE5is for the treatment of ED
Source: Trinity Delta. Note: * In some countries, including the UK, Netherlands and Poland, some PDE5is are available without prescription

The pack size in Europe, with four tubes per pack, has been specifically selected to encourage successive use of Eroxon, given that clinical data suggest it can take a few attempts before achieving the optimum effect, akin to the experience with oral PDE5is. This is also consistent with real-world experience, where clinicians have commented on initial feedback that subsequent use can lead to improved erectile function as performance anxiety diminishes and confidence improves.

Eroxon is the first topically applied gel that is clinically proven for ED. Hence the marketing messages have to establish its scientific credentials; gain supportive clinician endorsement; position it as a validated alternative to, as well as differentiate it from, the PDE5 inhibitor class; and convey its unique OTC availability. Cooper’s initial launch aims, internally known as the “three pillars of success”, for Eroxon addressed three key areas:

  • HCP (healthcare professional) credibility: Cooper wanted to build the credibility of the Eroxon brand with HCPs through attending medical conferences, engaging leading urologist KOLs, hosting specialist events and via online education programmes for specialists, GPs and pharmacists;
  • Focused access: The aim was to create easy access and visibility in stores, and to drive awareness and purchase (Boots was given an initial exclusivity period in exchange for specific promotional activities); and
  • Consumer demand: Creating consumer awareness and sales conversion through TV and online video advertising and assets (for example search ads on Google, an Eroxon website etc), and via other “touchpoints” on the consumer journey.

The messaging was slightly different between the two initial markets. In the UK, where some PDE5is are already available OTC, the aware non-treaters represent about 50% of all who experience ED, whereas in Belgium, where ED treatment is only via prescription, the aware non-treaters represent a much higher 84% of ED cases. This underscores the importance of easy access to treatment as a driver of initial trial and adoption. However, the issues with PDE5is are consistent in both markets, where 12 month drop-outs are around 50% of aware PDE5is treaters, suggesting this target audience is common across geographies.

Given Eroxon’s clinical profile, the promotional messages were chosen to address a broad range of men, and their partners, including:

  • Those that for whatever reason do not seek treatment for their ED;
  • Patients where PDE5i use is contraindicated or limited due to other health conditions and/or medications;
  • ED patients that have discontinued PDE5i use owing to side effects; and
  • Unsatisfied PDE5i users, particularly where this is connected to the lack of spontaneity.

Following the successful launches in the UK and Belgium, full launches in other major European markets are ongoing/planned. These include France, Italy and Spain, with 16 full country launches before end-June 2024 and more planned for H224. Whilst there is limited visibility on launch strategies, it is clear the Belgian experience will drive the messaging in markets with similar characteristics such as France, Germany, and Italy, whereas the Netherlands and Poland will employ the subtleties learned from the UK positioning. In addition, we expect launch strategies will incorporate learnings from the pilot UK and Belgium launches, including education and better management of user expectations.

Cooper does not have a direct presence in the UK so Ceuta Healthcare, an outsourced marketing business focused on building effective health and personal care brands, was appointed to handle the UK marketing. This has provided more granularity on the UK launch, with examples of the educational material for HCPs, the shelf promotional messages, examples of the national TV adverts, and key performance metrics available on its website.

The UK launch was initially exclusively via Boots (both in store and online), with Eroxon also available via Amazon to provide additional ease of purchase channels. Mirroring the Cooper success pillars, Boots was selected as it is one of the most trusted brands in the UK, helping to provide clinical credibility. In addition, Boots stores are generally readily and easily accessible to most UK people. Within Boots stores Eroxon was, and remains, deliberately sited in dual locations, both within sexual health products and behind the counter alongside PDE5is; the latter provides product credibility and the option for consumers to seek the advice of a pharmacist (who have been educated in the benefits). The UK has now been expanded beyond Boots to include other pharmacies, with Eroxon available in more than 5,000 UK stores. Eroxon is also now available on prescription in England and Wales, which should help to raise awareness amongst healthcare professionals.

In order to drive awareness and create sustained demand, the launch in April 2023 coincided with a coordinated PR campaign, that resulted in positive headlines in national newspapers and TV coverage across news and lifestyle programmes. The TV adverts were shown across the country in a targeted campaign that achieved 450% to 500% uplift in enquiries and sales.

The result was a market share of over 20% being achieved within three months and awareness ratings comparable to the leading PDE5is despite materially small spends. Eroxon was also awarded “New Product of the Year, Healthcare” at the Boots Supplier Awards. Interestingly, the share gains appear to not have been at the expense of the PDE5is but were due to incremental sales mainly to consumers who were first-time users, lapsed PDE5i users, or were contraindicated PDE5is. According to Ceuta, the Eroxon launch exceeded all targets, including both Cooper/Ceuta’s and Boots’ expectations.

To date, the initial EU launch successes have been qualified through comments from Futura and partners, and demonstrated through Cooper already extending the licence agreement. There is currently limited quantitative data (it is not possible to infer in-market sales from reported revenues). Going forwards, whilst repeat use data are important to understand the potential longer-term market dynamics, as this is not a prescription product, this is hard to track. As an OTC product, consumers are able to purchase Eroxon from a variety of sources and are effectively anonymous. The only real data that could identify repeat purchases would be via loyalty card schemes; however, not all consumers (and particularly men) will be part of these schemes and there is also no guarantee that a repeat user will purchase Eroxon via the same source each time. Once the launch is more established, it may be possible to get a better idea of repeat use through large consumer surveys, but it is too early to conduct these, in our view.

Haleon is preparing for Eroxon’s US launch

In July 2023, Futura Medical licenced US marketing rights for Eroxon to Haleon, a world-leading consumer health company which was formed through the combination of the consumer health businesses of GSK, Novartis and Pfizer over the last decade, and was spun out of GSK in July 2022. Haleon is focused on developing leading brands (eg Voltaren, Advil, Nexium, Flonase, Sensodyne) that are built on science and innovation. Revenues in 2023 were £11.3bn, with £4.2bn (37%) from North America; Haleon holds a leadership position in the US OTC market. Haleon’s breadth, depth, and its particular focus and expertise in consumer health, notably developing leading OTC brands, means it is particularly suited for “scientific” products such as Eroxon. We continue to believe Haleon is the ideal partner to maximise Eroxon’s potential in the key US market.

The deal grants Haleon exclusive commercial rights to Eroxon in the US, with Haleon responsible for all investment and marketing activities related to the US launch, and for all ongoing regulatory, marketing, commercialisation, and development activities thereafter. Futura will provide ongoing technical support. In exchange, Futura has received a $4m upfront payment, and will receive undisclosed royalties on Eroxon’s US sales, and milestones of between $5m and $45m linked to commercial sales thresholds over the coming “several years”.

The US has a well-established consumer health market, helped by the reassurance of a trusted regulatory framework that ensures the safety, quality, and efficacy of OTC products. This high consumer confidence is bolstered by ready product availability, both through a large and diverse network of retail premises and an increasing variety of online platforms. The relatively high standards of living, coupled with a still rising interest in health, well-being, and “lifestyle” factors, has resulted in knowledgeable and aware consumers that are receptive to novel and relevant products. It is against this backdrop that Eroxon appears to be well-positioned, with a clinically proven product, clearly articulated benefits, easy accessibility, and being markedly differentiated from its PDE5i competitors.

The PDE5i products transformed the ED market, making household names of brands such as Viagra and Cialis which became commercial blockbusters for their makers, and bringing ED out of the social shadows and into mainstream parlance. Unlike certain countries, notably the UK, Netherlands, and Poland, the PDE5i class remains prescription-only in the US. The demand, coupled with an understandable reluctance by many men to visit their physician, has led to an increase in websites claiming they can supply PDE5is with minimal fuss and embarrassment. However, Pfizer’s Global Security team found that of the c 24m online searches for Viagra per annum, some 80% of the products available were counterfeit and contained between 30% and 50% of the stated dose.

Manufacturers have sought to address the access barrier the prescription-only classification poses by exploring a switch to OTC status. Notably, Sanofi has been working with Eli Lilly since 2014 to switch Cialis (tadalafil) to OTC availability; however, in May 2022, the FDA halted a prescription-to-OTC study citing concerns with the protocol design. Sanofi continues to work with the FDA to lift the clinical hold. At this stage, it remains unclear if a PDE5i will ever become available OTC in the US, providing Futura and Haleon with a unique opportunity given Eroxon’s OTC status. Even if a PDE5i were to become available OTC, we believe that the market opportunity for Eroxon will remain intact, given not only the PDE5i limitations, but also the European experience which has shown Eroxon sales to be largely incremental to, rather than cannibalising, PDE5is.

The thriving OTC segment is currently served by a wide, and bewildering, array of products that harness ingredients ranging from traditional (eg Chinese and Ayurvedic) or herbal medicine, such as ginseng and ginkgo biloba, through vitamins and minerals to supplements, such as L-arginine (which is involved in nitric oxide pathways, hence providing a degree of pseudo-scientific credibility). Such products often have a long history of community use, for example horny goat weed preparations have been used for ED for centuries, however all lack proper evaluation in controlled clinical studies. Similarly, market data is scarce, unreliable, and estimates vary widely; even so, for context, a report by ResearchandMarkets estimates the sexual health supplement market was worth $3.52bn in 2023 and is set to rise to $7.02bn by 2030.

Exhibit 4: Key features of the ED market in the US
Source: Futura Medical

As described above, the US has a well-established consumer health market. Addressing this market appropriately is key and is not trivial to accomplish given the size and dynamics. Hence, the launch preparations for a new brand into what is effectively a new category are complex and lengthy. An overview of the some of the key processes involved in launch preparation are shown in Exhibit 5. Getting the timing right is also important as retailers may only refresh product ranges annually. Given there is only one chance to make an initial major impact, and that this could dictate the future success of the product, getting all elements in place to target the broad and multiple channels in US consumer health, and to develop messaging that will resonate with target audiences, is critical.

Haleon has committed significant financial resources to launching Eroxon as part of the deal with Futura. Extensive market research has been undertaken, and preparation of pre-marketing activities ahead of expected launch is ongoing. We believe the messaging has been successfully tested with the appropriate focus groups, which is mindful of some the learnings from pilot launches in EU around managing user expectations, and the promotional materials are being assembled. The advertising channels are expected to be wide ranging, with a targeted presence in print (especially lifestyle magazines), TV (both regional and national), and point-of-sale for the physical outlets (mirroring the successes seen with Boots in the UK). There are many online platforms addressing men’s health and sexual health in the US and they have evolved into powerful promotional tools. These will likely be addressed through a combination of advertorials, reviews and recommendations, and promotional offers. This is where Haleon’s expertise in optimally targeting the broad and multiple channels is expected to pay dividends.

Establishing the supply chain in order to ensure sufficient stock to satisfy the majority of distributors and demand is also critical. Unlike other partnerships, Haleon will be responsible for the manufacture and supply of Eroxon, with technical assistance to achieve this currently being provided by Futura. The supply chain has been expanded by Futura, and two third party contract manufacturers (CMO) are in place; one in Europe and one in the US. Once the technology transfer is complete, Haleon will be able to liaise directly with the US CMO for product, rather than going via Futura, making the process more efficient. This will also reduce working capital requirements and the need to increase operating expenses at Futura.

Exhibit 5: Overview of key pre-launch activities
Source: Adapted from Futura Medical

There has been limited visibility on the much-anticipated US launch of Eroxon since the deal with Haleon was signed. Haleon recently disclosed (with FY23 results in February during analyst Q&A) that US launch was anticipated “within the next 12 months”, ie by Q125. This is in-line with our assumption of a US launch in 2025. An earlier launch may be possible, however we do not expect to get much advance notice of the precise launch timing, as we assume that Haleon will remain tight-lipped given the commercial sensitivities.

Other Regions launch preparations also underway

Outside of the US and Europe, Eroxon has now received approval in Australia, Mexico, and six Middle Eastern countries, including the UAE and Saudi Arabia. Labatec Pharma is the partner for the Middle East and the first launch was in the UAE in October 2023.

In an analogous manner to the US and Europe, Futura Medical is building a growing network of partners, which are summarised below:

  • South Korea executed in March 2022, is with Menarini Korea, a wholly owned subsidiary of Menarini Group. Menarini Korea is responsible for local development, including any clinical bridging studies, regulatory work, and commercialisation costs, which effectively caps Futura’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, Mexico and Central & South America with M8 Pharmaceuticals (which was acquired by Acino in December 2023). The deal was secured in August 2021, initially for Brazil and Mexico, and expanded to include a further 14 countries throughout Central & South America in November 2023. The agreement 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. Approval in Mexico as an OTC product was received in October 2023, with launch on track for 2024.
  • Gulf and Middle East 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. Labatec will be responsible for all development and approval costs, which are expected to be minor, and for all marketing, distribution, and compliance costs.

Following termination of the Joint Collaboration with Co-high (part of the Atlantis group) in China and South-East Asia, Futura has been approached by a number of potential partners for these regions. Whilst the near-term priority is executing on launches where partners are already in place/approvals have been granted, the opportunity in China with a new partner is being evaluated. The key criteria include both consumer marketing credentials and market reach, and importantly, their ability to successfully navigate what is expected to be a nuanced and demanding regulatory process. Existing Eroxon data used for the US and EU regulatory filings should be sufficient to secure approvals in many other countries, however approvals in China (and Japan, although this is not a priority given the size of the market and complexities around the potential regulatory and clinical requirements) may require additional trials to be completed, which will likely be driven by any future partners.

ED is a growing problem across all age groups

Erectile dysfunction, previously known as impotence, is a common condition that can affect men of all ages, with around half of all men experiencing episodes of ED in their lifetime. Prevalence can vary owing to factors including health status (eg cardiovascular disease, high cholesterol, high blood pressure, and diabetes) and lifestyle (eg smoking, obesity, sedentary occupations). The strong association of ED with chronic disease meant that, historically, ED was seen as an ageing issue, generally becoming more prevalent with age, and its importance to quality of life, mental health, and related physical conditions was not appreciated. The arrival of clinically relevant treatments, namely the PDE5is, saw improvements in key health parameters that went beyond original expectations.

Increased discussion among both clinicians and the wider society has seen a greater understanding and awareness of ED, with a corresponding reduction in the perceived stigma and a rise of reported prevalence. Recent studies (based on 2015/16 data) across all men aged over 18, place the prevalence in the UK at 42.6%, similar to other countries such as Italy at 48.6%, France 44.9%, Spain 43.5%, Germany 44.9%, and the US at 42.0%. Whilst there is a 1.6-fold higher prevalence among men older than 40 vs those younger than 40, a key finding is that ED is more common in younger males than expected, with studies showing that 26% of men with newly diagnosed ED were under the age of 40.

Exhibit 6: Evolution of the US Erectile Dysfunction market
Source: Bedbible Research Centre, August 2023

These shifts mean the prevalence of ED is increasing and not simply due to demographic shifts. In the US 18m men had ED in 2022, and that is expected to rise to c 24m by 2030 (Exhibit 6). Similar increases have seen global prevalence rise from 152m men in 1995 to 322m expected by 2025. As mentioned earlier, medical conditions (particularly those that impair blood circulation) and lifestyle factors (including alcohol and drug consumption) have a role in driving the increases, but these alone do not explain the rise in the younger segment. These findings have led clinicians to assess younger ED patients for cardiovascular and metabolic conditions, however the still low degree of physical disease found suggests psychological factors may be a greater factor. Stress, anxiety, depression, and other mental health concerns can play a pivotal role in sexual arousal. These are factors that are ideal for treatment with safe and effective products.

Data package supports attractive market positioning

The various regulatory clearances have been based on a solid data package, which we include here for completeness. A number of studies have been undertaken, including two Phase III clinical trials (FM71 and FM57), in which Eroxon has been shown to work consistently and has been very safe and well tolerated. Eroxon has demonstrated benefits across all three classifications of ED (mild, moderate and severe) and across various types of ED. It works in psychogenic impotence (caused by issues such as anxiety and depression), organic impotence (caused by physical issues such as hardening of the arteries) and mixed ED, as well as working across a broad age range (trials included 18-70 year olds).

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 specific FDA questions that the efficacy of Eroxon may diminish over a longer period compared to the 12 weeks examined in the previous 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 involved 96 patients, which included a mix of mild, moderate, and severe ED patients (including African Americans). A representative half (n=47) used Eroxon topically, with the remainder using the lowest dose (5mg) of tadalafil (Cialis) orally in a randomised, open-label, at home study.

FM71 data were highly positive and met all 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. Data from both studies are consistent and suggest that around two-thirds of men experience a clinically relevant benefit. In addition, Eroxon was shown to have a rapid onset of action, within 10-minutes, which has resulted in the inclusion of this key claim on the label in the US, an important commercial differentiator. Eroxon was clinically effective at all timepoints and met both of the co-primary endpoints (Exhibit 7). These were based on the gold standard and internationally recognised IIEF score (international index of erectile function):

  • The first showed a highly statistically significant improvement in erectile function (p<0.001) against baseline at 24 weeks across ‘pooled’ severities of ED (mild, moderate and severe);
  • The second showed that on average, patients experienced a 5.73 unit change in IIEF-EF score versus baseline at 24 weeks, comfortably exceeding the four unit difference agreed with the FDA and defined as the Minimal Clinical Important Difference (MCID), an outcome measure that is noticeable to a patient.
Exhibit 7: FM71 primary endpoints achieved
Source: Futura Medical

As shown in Exhibit 7, there was no decline in efficacy after week 12, with the effects continuing to improve. In addition, the MCID was exceeded consistently at all timepoints from week four. This is consistent with the clinical experience that around three to four attempts with Eroxon are required to reach the optimum effect. Additional results from FM71 include: 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 Eroxon users felt sex could be spontaneous.

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

Exhibit 8: FM71 efficacy data were consistent with FM57
Source: Futura Medical

The original FM57 study was conducted in Eastern Europe and was for approval in Europe. It included 250 subjects and was conducted over 12 weeks. As can be seen in Exhibit 8, efficacy data in terms of the IIEF-EF change from baseline were remarkably consistent across FM71 and FM57. In addition, data from both studies suggest that around two-thirds of men experienced a clinically relevant improvement at 12-weeks (MCID of four units), shown in Exhibit 9.

Exhibit 9: Around 63% of users achieve MCID at 12 weeks
Source: Futura Medical

As part of its due diligence, Cooper Consumer Health also 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 Eroxon and the appropriate packaging leaflet. The results were in-line with data from both FM71 and FM57 where over two-thirds of patients saw a clinically meaningful benefit (Exhibit 9). 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.

Sensitivities

The three main sensitivities for most innovative healthcare companies relate to development and regulatory aspects, execution of commercialisation plans, and the financial resources required to accomplish these. With key approvals secured in Europe and the US, the focus is on commercial execution, which is now largely in the hands of partners. Nevertheless, a number of sensitivities remain.

The key focus for investors appears to be on the US launch timing. Despite more visibility on this following recent comments from partner Haleon, we believe there will be much discussion and anticipation as the potential launch date approaches. We do not expect precise launch timings to be confirmed, which could be a headwind for the shares into early-2025 if no launch seems apparent, whilst an earlier launch would likely be a sentiment boost. The US launch is also important financially, as it will be a key driver of profitability if this triggers a milestone payment (discussed in the next section).

We believe there remains a sensitivity around revenue expectations. In-market product sales, especially in the early stages of launch, are generally closely tracked as these can give an indicator of likely peak potential. This, however, is almost impossible owing to limited disclosure from partners, coupled with differing and unknown precise deal terms in various regions. Royalty income should correlate fairly directly with in-market sales; however, other components of Futura’s future revenues, such as non-recurring and unpredictable milestone income or manufacturing fees, will not. Hence in-market sales will be almost impossible to determine from Futura’s net revenues, especially in the near-term. In addition, without the ability to track prescription data, as Eroxon is available OTC, all of these elements together mean that deducing current in-market sales and then forecasting revenues is particularly challenging.

Whilst approvals have been secured in the key markets of Europe and the US, limiting significant development and regulatory risks, there are regions where Eroxon is not yet approved or partnered. In some regions, approval(s) may be possible based on existing data, whereas in other areas, additional trials will likely be needed. In both scenarios, we believe Futura will seek to execute partnership deals. We do not expect Futura to conduct additional trials alone, instead seeking commercial partners with the resources and expertise to complete any necessary studies, and experience to successfully launch Eroxon once approval(s) are eventually granted. We expect Futural will play an active support role, either for regulatory filings or for manufacture and supply, albeit at limited “at risk” cost to Futura. We believe deals will be forthcoming, however, we have limited visibility on the timings and possible deal terms.

Patents to protect Eroxon until 2040 have been filed in all major jurisdictions, with the EU patent granted and others pending. These formulation patents should make it challenging for any other similar style of product(s) to receive regulatory approvals, unless they can demonstrate that any differences in formulation (which would be needed to not infringe the patents) are substantially equivalent to Eroxon; this is not a straightforward process.

Valuation

We value Futura Medical using a sum-of-the-parts NPV (net-present value) model, which includes various assumptions for Eroxon in the main geographies (US, Europe, and Other Regions). These are summed and netted against core costs and cash. We have made only minor changes to our valuation, updating for the last reported cash position, rolling forwards in time, and unwinding the risk adjustment in Other Regions as first launches have now occurred. These updates lead to a Futura Medical valuation of £371m, equivalent to 123p per share (Exhibit 10).

The main drivers of our valuation are the peak sales for Eroxon in each geography. We continue to view the US market opportunity as the most significant and forecast unchanged US peak Eroxon sales of c $350m. Our peak sales forecasts in Europe and in Other Regions are also unchanged at $100-130m in each geography, which factor in the distinct commercial models in different countries. The US opportunity alone is worth more than Europe and Other Regions combined, according to our valuation.

Exhibit 10: Futura Medical NPV valuation
Source: Trinity Delta  Note: Assumptions include a 10% discount rate; a 1.2 $/£ FX rate, and 10% tax rate from 2027 with the benefit of the UK patent box

For the purposes of modelling and given limited disclosure of precise deal terms we adopt the following simple assumptions:

  • Europe (Cooper): This deal includes multiple revenue layers, and for simplicity we assume Futura receives payments that are equivalent to a royalty rate of c 20% on in-market sales;
  • US (Haleon): Futura will receive a royalty on in-market sales from Haleon and is eligible to receive between $5m and $45m in milestone payments linked to commercial and performance-driven sales thresholds over the course of several years; and
  • Other Regions (various): This includes regions/countries where Futura has secured a number of distribution agreements; we model half of profits accruing to Futura (equivalent to a 12.5% royalty based on a 25% net margin assumption).

Our forecasts are based on a number of assumptions, although the key variable in our valuation is the peak opportunity for Eroxon, rather than the precise deal terms or launch timelines. As new launches occur and repeat sales become more apparent, leading to more predictable uptake, these could drive revisions to our peak sales forecasts. For context, an extra $100m in peak sales is worth around 15-20p per share to our current valuation.

Financials

Futura’s FY23 revenues were £3.1m (FY22: nil) consisting of £2.7m from Europe/UK and £0.4m from Rest of World. These were largely driven by delivery of Eroxon batches to partners, notably to Cooper for Europe/UK and to support the first launch in the UAE in October. Cost of goods sold (CoGS) were £1.3m (FY22: nil), leading to an overall gross margin of 57%; this improved sequentially from 53% in H1 to 62% in H2.

Operating expenses continue to remain tightly controlled, with FY23 underlying OpEx (R&D and G&A excluding share-based payments) slightly lower at £6.0m (FY22: £6.2m). There has been a shift from R&D to G&A as the focus has moved to Eroxon commercialisation, with FY23 R&D spend of £2.0m (FY22: £4.1m) and G&A (including share-based payments) of £6.7m (FY22: £2.7m); non-cash share-based payments were £2.7m (FY22: £0.7m). The FY23 operating loss was £7.0m (FY22: £6.9m) and the net loss was £6.5m (FY22: £5.8m). Cash at end-December 2023 was £7.7m (FY22: £4.0m; end-June 2023 £7.8m) and is expected to extend beyond the anticipated US Eroxon launch, which Haleon has said will occur within 12 months (from February 2024) ie around Q125.

Our FY24e revenue forecast has been slightly increased to £9.2m (from £8.7m) to reflect the >£0.5m of orders which were delivered in January 2024 that had been planned for December. Our FY24e forecast continues to include full recognition of the £3.2m upfront payment from Haleon (a non-cash P&L item as this was received in FY23). Our FY25e revenue forecast is £15.1m, which comprises product related revenues of £11.1m, with growth driven by existing regions and an expansion in revenues from additional launches, including the US. We also include a $5m (c.£4m) milestone from Haleon on US launch. We typically do not include uncertain/unknown milestones in our forecasts. However, given Haleon has confirmed that launch should occur by Q125 (which we believe will be a milestone triggering event as is typical in licensing deals), it seems appropriate to include one. We know from the disclosed Haleon deal terms (July 2023 Lighthouse) that milestones of between $5m to $45m could become due over several years, and we assume a first $5m will be triggered by US launch. We do not include any other milestone income from partners in our forecasts, which could all be upside. A breakdown of our revenue forecast is shown in Exhibit 11.

Exhibit 11: Revenue forecast breakdown
Source: Trinity Delta

For OpEx, we forecast small R&D declines to £1.9m in FY24e and £1.7m in FY25e. For G&A (excluding share-based payments) we forecast £5.3m in both FY24e and FY25e, for total G&A of £7.6m in FY24e and £6.8m in FY25e (when including non-cash share-based payment charges of £2.3m and £1.5m, respectively). Together, these drive a net loss of £3.1m in FY24e with a swing to a net profit of £2.5m in FY25e. Note that if US launch occurs by YE24 and triggers the expected milestone, then Futura could be profitable in FY24.

Exhibit 12: Summary of financials
Source: Company, Trinity Delta    Note: Adjusted numbers exclude exceptionals. FY24e revenues include full recognition of the $4m (£3.2m) upfront payment from Haleon, which has been received.

Company information

Contact details

Futura Medical PLC,
Surrey Technology Centre,
40 Occam Road,
Guildford, Surrey
GU2 7YG

Tel: +44 (0) 330 023 7300

www.futuramedical.com

Top shareholdings

% holding
Lombard Odier Asset Management (Europe) Ltd28.50
T Adams6.89
WT Lamb Investments Ltd4.51
RA Lamb3.28
Disclosable shareholdings (>3%) 43.18
Other shareholders56.82
Total shareholders100.00
Source: Futura Medical at 22 January 2024

Key personnel

PersonPositionBiography
Jeff Needham Non-Executive ChairmanAppointed Chairman in July 2023 having joined Futura Medical’s board in October 2021. Over 35 years of experience in manufacturing and marketing of consumer healthcare products, with particular expertise in the US market. This includes 36 years at Perrigo and as a board director of the Consumer Healthcare Products Association.
James BarderCEOCEO since 2001. Previously Managing Director of Aon Capital Markets and Non-Exec Director of Lorega Ltd. Extensive experience in striking and managing partnerships and licensing agreements.
Angela HildrethFD and COOJoined in 2018, adding further financial, operational, and strategic experience to the executive team. Previously six years as UK Finance Director at Shield Therapeutics Plc.
Ken JamesHead of R&DJoined in 2016. Previously SVP of R&D for GSK Consumer Healthcare, having spent over 40 years in a variety of roles there and bringing over 200 consumer products to market.

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