HUTCHMED

Fruquintinib clinical and commercial updates

Lighthouse | 12 February 2024

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  • Data from the Phase III FRUTIGA trial of fruquintinib in combination with paclitaxel for the treatment of 2L (second-line) advanced gastric cancer (GC) or gastro-esophageal junction adenocarcinoma (GEJ) in China were presented at the American Society of Clinical Oncology (ASCO) Plenary Series Session. These data supported the China NDA submission for fruquintinib in this setting, which was accepted for review in April 2023.
  • FRUTIGA was a 1:1 randomised, double-blind, 703 patient Phase III study carried out at 35 sites in China evaluating fruquintinib in combination with paclitaxel vs paclitaxel monotherapy for treatment of advanced GC or GEJ. It met one of the dual primary endpoints: progression-free survival (PFS) with median PFS of 5.6 months for combination therapy vs 2.7 months for paclitaxel monotherapy (HR = 0.569; p<0.0001). Improvement in overall survival (OS), the other primary endpoint, was numerically but not statistically significant; pre-specified sensitivity analyses indicated this was likely due to an imbalance of patients receiving subsequent antitumour therapies across both arms. Improvements in secondary endpoints included objective response rate (ORR: 42.5% vs 22.4%), disease control rate (DCR: 77.2% vs 56.3%) and duration of response (DoR: 5.5 vs 3.7 months). Fruquintinib plus paclitaxel was well tolerated, with a safety profile consistent with prior studies.
  • Assuming a positive approval decision in 2024, 2L GC/GEJ would be the second indication for fruquintinib in China. It is already approved in advanced metastatic colorectal cancer (mCRC) as a monotherapy in China and the US, and is currently under review for advanced mCRC in Europe and Japan, with approval decisions anticipated in 2024.
  • Separately, global ex-China partner Takeda provided first insights into the US launch of fruquintinib (FRUZAQLA) for previously treated mCRC. Given the unmet need, it was made commercially available in November 2023 within 24 hours of FDA approval, and initial uptake has been strong. We note that FRUZAQLA is not yet a separate revenue line item but is included in ‘Oncology Others’; Takeda reported Oncology Others sales of JPY3.3bn for Q324 (October-December 2023) vs JPY0.9bn for Q224.

Trinity Delta view: Fruquintinib’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, additional potential approvals and launches (by partner Takeda) of fruquintinib in international markets, and a solid balance sheet. Fruquintinib’s potential approval in a second indication in China (2L gastric cancer) as well as tiered royalties on annual net sales in Takeda’s markets (undisclosed but assumed to start from mid-teens) should drive significant future revenues. Nearer-term, the revenues from HUTCHMED’s three marketed oncology products in China, coupled with partial recognition ($280m) of the Takeda licence upfront contribute to FY23 revenue guidance of $450-550m. FY23 results will report on February 28. Our last published valuation is $5.74bn/ £4.78bn/ HK$44.75bn, or $32.95/ADS and 549p/HK$51.40 per share.

Lighthouse

12 February 2024

Price (US ADS)
(UK share)
(SEHK share)
US$14.01
221.0p
HK$21.80
Market Cap
 
US$2.42bn
£1.93bn
HK$19.12bn
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.

Redx Pharma

Up to $870m KRAS deal marks third Jazz collaboration

Lighthouse | 7 February 2024

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  • Jazz Pharmaceuticals is acquiring global rights to Redx Pharma’s proprietary preclinical-stage KRAS inhibitor programme, in exchange for a $10m upfront payment, potential cumulative development, regulatory, and commercial milestones of up to $870m, and tiered mid-single digit percentage royalties on future net sales. A separate collaboration agreement has been signed under which Jazz will pay Redx to carry out research and preclinical development to support IND-enabling studies. FDA IND application clearance, in around two years in our view, would trigger the first development milestone. Subsequent clinical development, regulatory, manufacturing and commercialisation activities will be Jazz’s responsibility.
  • KRAS (Kirsten rat sarcoma virus) is a well-validated oncology target and is one of the most frequently mutated oncogenes across many different cancer types. To date, targeting specific KRAS mutations, with the exception of G12C, has proved challenging. Developing oral molecules with optimised target coverage and therapeutic windows is a focus area given this unmet need. The Jazz/Redx KRAS programme includes both G12D selective and pan-KRAS candidate molecules.
  • Blue-chip partnerships are a key aspect of Redx’s strategy. Its impressive track record of deal execution has enabled the continued progress of its well-balanced pipeline of unencumbered and partnered assets, also providing non-dilutive funding to advance priority assets such as the wholly-owned ROCK portfolio. The $10m Jazz upfront augments November’s c £14.1m (gross) equity raise, extending the cash runway into 2025 (from Q324 previously).
  • Redx and Jazz have a longstanding collaborative relationship: prior targeted oncology deals cover JZP815, a precision pan-RAF inhibitor now in Phase I, and a MAPK pathway collaboration. Under these three deals, Redx could be eligible for remaining potential milestones of up to c $1.2bn. Separately, Redx has a fibrosis partnership with AstraZeneca.

Trinity Delta view: The Jazz KRAS deal covers an under the radar programme only recently disclosed by Redx, further underscoring the strength of its medicinal chemistry expertise in discovering differentiated small molecules that address hard to drug targets in oncology and fibrosis. Business development activities also contribute non-dilutive funding, in this case extending the cash runway into 2025, beyond 2024 catalysts, thus allowing optionality around value creation from the highly attractive ROCK portfolio. Key H124 catalysts include: (1) zelasudil Phase IIa idiopathic pulmonary fibrosis data, and potential lift of the FDA partial clinical hold; (2) initiation of the first RXC008 Phase I fibrostenotic Crohn’s disease trial; and (3) topline Phase II PORCUPINE and PORCUPINE2 data for RXC004 in combination with checkpoint inhibitors in Wnt-ligand dependent cancers. Our last published valuation was £367m/$441m, or 94p per share, which does not include this latest KRAS deal with Jazz.

Lighthouse

7 February 2024

Price20.0p
Market Cap£77.8m
Primary exchangeAIM London
SectorHealthcare
Company CodeREDX
Corporate clientYes

Company description

Redx Pharma specialises in the discovery and development of small molecule therapeutics, with an emphasis on oncology and fibrotic diseases. It aims to initially progress them through proof-of-concept studies, before evaluating options for further development and value creation.

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 continues to build, further new launches expected

Lighthouse | 6 February 2024

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  • Futura Medical expects to report FY23 revenues of c £3.1m (FY22: nil), which together with >£0.5m of orders delivered in January that had been planned for December, exceed our £3.4m forecast. Recall that we have previously highlighted the challenges in forecasting near-term revenues. This is owing to unpredictable launch dynamics including stocking effects, timing of batch release, limited disclosure from partners, and differing and unknown precise deal terms in various regions. We expect revenues to become more predictable as additional launches are executed in various countries, and once there is visibility on repeat orders as launches are more advanced.
  • The FY23 gross margin of 58%, surpassing our 53%, suggests an improvement in H223 to >63% (from 53% in H123). Cash at end-December 2023 of £7.7m, above our forecast £6.5m, should be more than sufficient to fund current operations given well controlled operating costs.
  • Eroxon has successfully taken a >20% share of approved ED (erectile dysfunction) treatments since launches by partner Cooper Consumer Healthcare in the UK and Belgium in March 2023. Full launches into retailers in France, Italy, and Spain (where Eroxon is currently available through on-line channels) are expected to take place before April 2024. The original five-year agreement with Cooper, executed in May 2022, was recently extended until January 2029, which we believe is a signal of Cooper’s commitment to and enthusiasm around Eroxon’s potential.
  • Across other partnerships, Eroxon was launched in the UAE in October. The partnership with M8 Pharmaceuticals (recently acquired by Acino) was expanded beyond existing rights in Brazil and Mexico to include an additional 14 countries in Central and South America. Importantly, preparations for US launch continue with partner Haleon, although visibility on US launch timing remains limited; note that we do not currently forecast US launch until 2025e. We continue to view the US opportunity as the most significant.

Trinity Delta view: Revenues appear to be broadly tracking just ahead of our expectations, even with the challenges of forecasting first launches. Re-ordering patterns will be a key determinant of longer-term success, and whilst visibility is not unexpectedly limited given the early stage of launch, we believe the commitment shown by Cooper through extension of the existing agreement is an encouraging sign and likely reflects initial in-market success and trends, in our view. We continue to believe Futura is uniquely placed within UK healthcare, with a better-than-expected cash position and a clear pathway to profitability and sustainable cash generation from 2025. Our valuation of £363m, equivalent to 121p per share, suggests that the Eroxon opportunity is not reflected in the current share price. Our model includes peak US sales of $350m with partner Haleon and $100-130m in each of Europe and in Other Regions, with the key valuation driver being the peak overall opportunity rather than precise launch timings. Preliminary FY23 results will be released in April.

Lighthouse

6 February 2024

Price27.70p
Market Cap£83.5m
Primary exchangeAIM
SectorHealthcare
Company CodeFUM
Corporate clientYes

Company description

Futura Medical is the developer of innovative sexual health products; its core strength is 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

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

New deals and first royalties to aid growth; key data H124

Lighthouse | 1 February 2024

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  • Arecor’s FY23 trading update is a reminder of the significant progress made by and with partners, with the roll-out of Ogluo, and with the in-house portfolio during 2023. These have driven FY23 revenues to £4.6m (FY22: £2.4m), including £2.9m of Tetris sales driven by Ogluo (FY22: £1.0m for five months post the 4 August acquisition). Total income is £5.6m (FY22: £3.5m), which includes the Innovate UK grant. Cash at end-December 2023 is £6.8m (end-June: £8.2m; end-Dec 2022: £12.8m), just ahead of our £5.8m forecast, suggesting good cost control..
  • With partners, a key milestone was achieved with the launch of AT220 (believed to be Fresenius Kabi’s tocilizumab) in Europe, the first commercial product incorporating the Arestat technology. This triggered an undisclosed milestone, and is now generating recurring royalties. We believe these will be a near-term growth driver, particularly once the product is approved and launched in the US. Milestones were also received from both Hikma on AT307, and from Inhibrx on INBRX-101, which is being acquired by Sanofi for >$1.7bn, providing external validation of the value-add of Arecor’s formulation expertise.
  • A new Specialty Hospital deal was also struck for a high value, Arestat-enabled, ready-to-dilute (RTD) formulation of a blockbuster oncology product. Four new technology partnerships were executed in 2023, with a further deal also signed in January 2024. Such collaborations are revenue generating from day one through research fees and represent upside potential should they convert to licences.
  • The diabetes franchise, consisting of the in-house ultra rapid insulins AT278 (ultra-rapid, ultra-concentrated) and AT247 (ultra-rapid), remains the main investor focus given the upside potential. Recruitment is now complete in the second Phase I study of AT278 in Type II diabetes patients, and data are on-track for H124. Diabetes remains a huge and growing global problem and advances in insulin pumps require specialist insulins, such as Arecor’s products, to capitalise on their benefits.

Trinity Delta view: Investor attention is focused on the diabetes franchise, hence the upcoming AT278 Phase I data are eagerly anticipated. However, an interesting growth story is emerging as Arecor continues to execute on new deals, with further partnerships expected. These have the potential to drive meaningful future royalties from multiple partners, building on the continued momentum from existing assets and partners. The second Specialty Hospital deal, commercial validation of Arecor’s formulation expertise with the launch of AT220, plus further endorsement of the value-add of Arestat via the Sanofi acquisition of INBRX-101 have all been significant, yet underappreciated catalysts, in our view. Our valuation is £179m, equivalent to 583p per share.

Lighthouse

1 February 2024

Price166p
Market Cap£50.8m
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.

Scancell

Heading into important 2024 clinical catalysts

Update | 31 January 2024

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Scancell has a number of important clinical catalysts upcoming in 2024 for its lead cancer vaccines, which are the strategic focus. Readouts include further Phase II data for SCIB1 in advanced skin cancer, first clinical data with second-generation iSCIB1+, and key CPI combination data for Modi-1 in multiple solid tumours. Commercial prospects for these will likely be maximised through partnerships, and positive data could catalyse interest and discussions, in our view. In addition, Scancell’s antibody platforms, GlyMab and AvidiMab, provide attractive out-licensing opportunities. Cash has been boosted through the December fundraise, with a runway now comfortably into late 2025. Our updated Scancell rNPV valuation is £304m, or 33p per share.

Year-end: April 30202220232024E2025E
Revenues (£m)0.0 5.3 0.0 0.0
Adj. PBT (£m)(7.2)(14.3)(11.8)(15.3)
Net Income (£m)(4.6)(11.9)(10.2)(13.8)
EPS (p)(0.56)(1.46)(1.16)(1.49)
Cash (£m)28.7 19.9 17.8 7.5
EBITDA (£m)(12.6)(11.0)(14.7)(13.5)
Source: Trinity Delta Note: Adjusted numbers exclude exceptionals
  • Further SCIB1 data expected Q324  Data from the second stage of the Phase II SCOPE study of SCIB1 in combination with checkpoint inhibitors (CPIs) in advanced melanoma are now expected in Q324, based on current recruitment. The aim is to show that the SCIB1 combination can exceed currently achievable response rates (c 50%). Following positive first stage data, where the objective response rate was 85%, this second stage has a 90% probability of success. Initiation of a third study cohort with the improved second-generation iSCIB1+, which is more potent and capable of addressing all melanoma patients, was recently approved and is expected to start in Q124 with first data in Q324. A potentially registrational adaptive Phase II/III trial is currently being planned, assuming Q324 data are positive.
  • Moditope platform continues to progress, with Modi-1 data expected 2024  The Phase I/II ModiFY trial of Modi-1 as monotherapy and in combination with CPIs in various challenging solid tumours is ongoing. A new cohort in renal cell carcinoma with double CPI therapy is also being added. Initial early signals of efficacy have already been observed in various monotherapy cohorts and further data are expected in 2024, with the CPI combination data particularly important.
  • Cash runway extends into late 2025  The £11.9m (gross) upsized placing and open offer completed in December 2023, coupled with existing cash, provides a cash runway into late 2025. This is beyond upcoming clinical data for SCIB1/iSCIB1+ and Modi-1 in 2024, and also provides flexibility to prepare future development plans. The runway could be extended further through the partnering or out-licensing of selected programmes from the GlyMab and AvidiMab antibody platforms.
  • Updated valuation of £304m, equivalent to 33p per share  Our valuation has been updated to reflect the passage of time, revised forecasts following FY23 and interim financial results, and incorporation of the December fundraise. These changes result in a valuation of £304m (from £300m), equivalent to 33p per share.

Update

31 January 2024

Price11.30p
Market Cap£104.8m
Enterprise Value£92.6m
Shares in issue927.8m
12 month range7.59-21.49p
Free float57.0%
Primary exchangeAIM London
Other exchangesN/A
SectorHealthcare
Company CodeSCLP.L
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 20 3637 5042

Scancell: multiple platforms and opportunities

Scancell is a clinical stage biotechnology company focused on the adaptive immune system, with four distinct technology platforms: two promising oncology vaccine platforms (Moditope and ImmunoBody), and two antibody technologies (GlyMab and AvidiMab). These have the potential to treat many solid cancers, either as monotherapy or in combination with other agents. Modi-1, the first Moditope programme, is progressing in a Phase I/II trial targeting hard-to-treat solid tumours, and further efficacy data, notably in combination regimens, are due during 2024. The lead ImmunoBody programme, currently SCIB1, has already demonstrated impressive response data in the ongoing Phase II study in metastatic melanoma, with a transition to the next-generation iSCIB1+ expected in coming months. The broad acting GlyMab antibodies are generating exciting preclinical data; a first partnering deal with antibody expert Genmab was executed in October 2022, and further deals are possible. AvidiMab technology could be increasingly employed to enhance avidity and potency. Our risk adjusted NPV valuation for Scancell is £304m, or 33p per share, with significant upside from multiple upcoming catalysts.

Scancell has four distinct technology platforms that address oncology vaccines and antibodies: (1) Moditope vaccine effects are mediated via CD4 pathways; (2) ImmunoBody vaccines employ CD8 T cell pathways; (3) the GlyMab platform generates high affinity anti-glycan antibodies; and (4) AvidiMab can enhance the avidity of most antibodies. Scancell’s pipeline is summarised in Exhibit 1 and more details on each platform are available in our February 2023 Outlook.

Exhibit 1: Scancell pipeline overview
Source: Scancell

The near-term focus is on progressing the clinical development of SCIB1/iSCIB1+ and Modi-1, with data for both expected during 2024. Meanwhile, for the GlyMab platform, the Genmab deal is an example of the partnering optionality, and we expect other programmes could also be partnered for future clinical development. The recent December £11.9m (gross) fundraise has provided Scancell with a runway into late 2025, beyond key near-term inflection points. We provide a summary of recent data and upcoming catalysts for the focus programmes below.

More SCIB1 data in Q324 following initial positive results

The lead ImmunoBody programme is currently SCIB1, which is being developed for the treatment of advanced unresectable melanoma. The open label Phase II SCOPE study is ongoing, which is examining SCIB1 in combination with checkpoint inhibitor (CPI) doublet therapy, consisting of Yervoy (ipilimumab) plus Opdivo (nivolumab). Based on preclinical data which suggest a synergistic effect when SCIB1 is combined with a relevant CPI, the SCOPE study rationale is that such a combination could improve efficacy, based on the SCIB1 ImmunoBody vaccine priming an immune response against the tumour, with the CPI reducing the immune-suppressant effect seen in the tumour microenvironment.

In September, initial top-line data from the first stage of the SCOPE trial demonstrated that SCIB1 plus doublet therapy achieved an objective response rate (ORR) of 82%, based on nine responses in 11 patients (September 2023 Lighthouse), with no increase in toxicity. At this timepoint, the tumour reduction at 13 weeks was 31-94%, with four patients reaching week 25 achieving 69-94%, and two patients at 37-weeks achieving 87-94%. In November, a further two responses were recorded (11 out of 13 patients), bringing the ORR to 85%. Importantly, this included one complete response, plus nine confirmed partial responses (waterfall plots shown in Exhibit 2).

Exhibit 2: SCOPE study initial results
Source: Scancell

The 85% ORR observed in SCOPE is higher than the planned study assumption of 70% for the SCIB1/doublet therapy combination (and the assumed 50% response rate for doublet therapy alone). As we have previously outlined (September 2023 Update), doublet therapy response rates are around 48-58%, which to date have been the highest observed in advanced melanoma.

SCOPE is now in the second stage, and will recruit up to a total of 43 patients (including those already recruited in the first stage), with data now expected in Q324 based on the current recruitment rate. The aim is to achieve at least 27 responses in total to demonstrate SCIB1 can exceed currently achievable ORRs. The strength of the initial top-line data mean this second stage has a 90% probability of success. SCOPE will also transition in Q124 to the improved second-generation iSCIB1+ construct, which is enhanced with AvidiMab with first data expected Q324. This could broaden the target market by addressing 100% of melanoma patients, and is also more potent. A potentially registrational Phase II/III trial is currently being planned, assuming Q324 data are positive.

Modi-1 combination data in 2024 will be key

The Phase I/II ModiFY study of Modi-1 is multi-cohort, adaptive trial, which has already completed the initial dose escalation and safety phase, and is ongoing in a number of specific expansion cohorts that explore Modi-1 in four different hard-to-treat solid tumours (triple-negative breast cancer (TNBC), ovarian cancer, head & neck cancer, and renal cancer) as monotherapy, in combination with CPIs, as well as in the neoadjuvant (pre-surgical) setting. A new cohort including renal cell carcinoma in combination with double CPI therapy (Yervoy+ Opdivo) is also being added. The trial design is in Exhibit 3.

Exhibit 3: Modi-1 Phase I/II clinical trial design
Source: Scancell  Note: CPI = checkpoint inhibitor

Modi-1 was well tolerated at both low and high doses as monotherapy and in combination with a CPI in the initial dose escalation and safety phase. There has also been encouraging early efficacy as monotherapy in various hard-to-treat cancers, including head and neck, ovarian and breast cancer. Despite failing prior treatments, 60% of patients receiving Modi-1 achieved stable disease for at least eight weeks, and some patients experienced longer periods of stabilisation.

The combination of Modi-1 with CPIs could potentially improve these observed response rates, and data are expected during 2024. Recruitment is focused on Modi-1 in combination with a CPI in head & neck and renal cancers, and will now also include a new cohort in renal cell carcinoma in combination with double CPI therapy, and in the neoadjuvant (pre-surgery) setting in head & neck cancer. Together, these will provide supporting data for use of Modi-1 in combination with CPIs, particularly with double CPI treatment.

Valuation

We value Scancell as a classic drug discovery and development play, using a sum of the parts rNPV-based model for the key platforms, with each incorporating associated costs. These are summed together with cash. As is usual, we have rolled forwards our valuation in time, have updated for FY23 and interim results including cash, and have incorporated the £11.9m (gross) December fundraise. These result in a valuation of £304m (from £300m), which has been diluted to 33p per share (from prior 37p) owing to the increased number of shares issued as part of the fundraise. Our updated valuation is shown in Exhibit 4.

Exhibit 4: Sum of the parts rNPV-based valuation of Scancell
Source: Trinity Delta   Note: Include a 12.5% discount factor, £/$ FX rate of 1.20, and 10% taxation from 2029 (UK patent box)

Our ImmunoBody valuation combines a placeholder for the platform, where we assume peak sales of $1bn at 5% probability, and also includes a standalone valuation for SCIB1/iSCIB1+ at 10% probability (as it is more advanced in development) with peak sales of $1bn; SCIB1/iSCIB1+ is worth c £36m in rNPV, representing c 70% of the entire ImmunoBody valuation. We maintain a blended royalty rate of 17.5% for the product-based elements (apart from for the Genmab deal where we include more specific deal terms), reflecting the typical upfronts and progress milestones that could form part of any future partnering deals. For AvidiMab we use a more modest 8% blended rate, which reflects the lower relative value-add, but offset to a degree by a broader applicability.

The current limited visibility means we have adopted conservative assumptions, arguably overly so, regarding market sizes and growth rates, net pricing, adoption curves, and peak market penetration. This leaves the potential for future upside if progress materialises as management expects. There are a number of likely catalysts expected over the next 12-18 months, notably data for both SCIB1/iSCIB1+ and Modi-1, with successful outcomes likely leading to upward revisions to our valuation.

Financials

Scancell did not report any H124 revenues (6 months to 31 October 2023), whilst H123 revenues of £5.3m related entirely to the non-recurring $6m upfront received from partner Genmab for the October 2022 GlyMab deal (October 2022 Lighthouse), which was recognised in full at the time of the deal. Scancell is entitled to future potential development, regulatory and commercial milestones of up to $624m for development across all modalities, with $208m for each product, plus single digit royalties on net sales. Despite the potential for future milestones, either from Genmab or from new partnering agreements, we conservatively do not include any near-term significant income in our financial forecasts.

R&D spend in H124 increased to £5.7m (H123: £4.3m) reflecting clinical trial progression, notably the ModiFY and SCOPE trials, whilst G&A was largely unchanged at £2.4m (H123: £2.4m). These led to an operating loss of £8.1m (H123: £2.0m). Development beyond current trials will depend on clinical data, potential partnering interest, and sufficient resources being available to reach value inflection points. Hence for now our R&D spend forecasts, which are largely illustrative pending data and future plans, are based on current trials which will be completing. Therefore we forecast small declines from £11.6m in FY23 to £10.5m in FY24e and to £9.2m in FY25e. For G&A we forecast very modest rises from £5.0m in FY23 to £5.1m in FY24e and £5.2m in FY25e.

Financial income in H124 was £4.5m (H123: loss of £4.0m), which included a non-cash finance gain of £4.9m (H123: expense of £3.5m) for revaluation of the derivative financial liability relating to the convertible loan notes. Altogether, this plus other elements led to a net loss in H124 of £2.5m (H123: £5.0m).

Cash at end October was £13.1m (end April 2023: £19.9m) and in December Scancell successfully raised £11.9m (gross) via a capital raise consisting of: (1) £10.7m (gross) through an upsized placing to new and existing institutional shareholders; and (2) £1.2m (gross) through an Open Offer to qualifying shareholders. A total of 108.2m new shares were issued at 11p per share, representing a discount of 10.2% to the middle market closing price on 29 November 2023, before the raise was announced. According to our updated forecasts (Exhibit 5) and outlined above, this should be sufficient to fund operations into late 2025.

Exhibit 5: Summary of financials
Source: Scancell, 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.

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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.

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ANGLE plc

Building content to drive widespread adoption

Update | 30 January 2024

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ANGLE’s investment case rests on where Parsortix’s position in mainstream cancer diagnostics eventually lands. The place of liquid biopsies is now established and, increasingly, the additional clinical value that CTC (circulating tumour cells) assays bring is becoming clear. Addressing the many, varied opportunities directly is challenging and time consuming, with numerous barriers to overcome. Management is creating industry awareness through its demonstration and acceleration activities, which should drive near- and medium-term revenues. Similarly, a progressively robust bank of clinical data across multiple common tumours is building credibility. We view the ability to perform ctDNA and CTC DNA analysis concurrently, from a single blood draw, on third-party NGS and PCR platforms as providing a major driver for adoption. Our updated valuation is £174m, equivalent to 67p per 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.
  • Focus on the commercial priorities Parsortix commercialisation is at an early stage, with momentum building, and management is focused on progressing the potentially sizeable revenue streams through both Product and Service offerings. The reality of current market conditions has driven difficult decisions to streamline infrastructure whilst still enabling investment into developing protocols on third-party molecular systems, establishing products and services that are relevant to customers, and creating a robust body of supportive clinical data.
  • Third-party molecular platforms are key It is increasingly recognised that CTCs provide invaluable additional clinical insights over current tumour diagnostics. The Parsortix system is uniquely placed, being proven, well validated, and, following FDA clearance, materially de-risked. However, addressing the myriad clinical opportunities will be a lengthy and costly process. Management focus has been on ensuring near-term revenues are optimised whilst reducing the barriers to widespread adoption. The ability to run concurrent ctDNA and CTC DNA analysis on third-party NGS and dPCR systems, such as Illumina’s, is a major step forward.
  • Financials revised to reflect recent updates We now forecast FY23e revenues of £2.2m, in-line with the most recent business update, growing to £6.3m in FY24e, just below the expected trebling of revenues. Cash is sufficient into H125.
  • Valuation now £174m, or 67p a share We update our valuation to reflect the planned closure of the US clinical lab, which reduces potential internal capacity to perform revenue-generating tests, plus slightly slower near-term sales momentum. We have also incorporated H123 financials and rolled forwards in time. Our new valuation, based on a three-phase DCF model, is £174m (from our last published £253m prior to the business update), equivalent to 67p/share.

Update

30 January 2024

Price16.0p
Market Cap£41.7m
Enterprise Value£26.6m
Shares in issue260.6m
12 month range9.07-37.4p
Free float80.96%
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: focus on near-term commercial activities

The streamlining of ANGLE’s operations sharpens the focus onto near-term commercialisation opportunities for Parsortix. This unique platform differs from other liquid biopsy approaches by capturing and harvesting CTCs (circulating tumour cells) for subsequent downstream analyses. Such CTC-driven diagnostics could provide invaluable clinical insights that current systems cannot deliver. However, achieving broad adoption across all potential uses requires a lengthy, complex, and costly, development programme. Pragmatically, management is concentrating its efforts into driving revenues from its Product and Services operations through developing market-relevant “content” (menus of assays), while continuing to generate robust clinical data to highlight its potential in multiple solid tumour treatment regimens. These “demonstration” and “acceleration” activities should provide near-term revenues and help drive wider industry recognition and partnering opportunities. Our updated DCF-based valuation is £174m ($209m), or 67p/share, which should rise as visibility on the commercialisation initiatives and Parsortix’s positioning become clearer.

The significant clinical information gleaned through the analysis of CTCs is increasingly recognised by KOLs (key opinion leaders) and industry interest is rising. The Parsortix platform is highly attractive and has already been significantly de-risked, most notably by the FDA’s examination of the diagnostic data in mBC (metastatic breast cancer) and subsequent clearance. The opportunities are many and sizeable. Although addressing all these is beyond the scope, and means, of a small company, there are clear pathways to achieving meaningful revenues over the near-, medium-, and longer-term with the goal of building a sizeable business.

Liquid biopsies are becoming mainstream cancer assays

Over the past decade liquid biopsies, typically from minimally invasive blood draws, have finally emerged into mainstream clinical practice as viable alternatives to traditional invasive tissue biopsies. While improved convenience and tolerability are cited as a major boost for patients, clinicians, and payors, the bigger benefits arise from the ability to easily monitor a tumour’s status with repeat testing.

Repeated sampling allows not only appropriate real-time therapy selection, but identification of genetic mutations, spotting treatment resistance, and determining disease progression long before it would trigger clinical symptoms or appear on imaging scans. There are a wide array of tumour derived elements circulating in the peripheral blood, including circulating tumour DNA (ctDNA), extracellular vesicles (EVs), tumour educated platelets (TEPs), and circulating cell-free RNA (cfRNA). Although significantly better than previous testing methods, these analytes are known to provide only a partial picture of a tumour’s evolution. In contrast, CTCs are intact, living cancer cells and the subsequent downstream analyses can provide a complete picture of a tumour’s status and development.

Academic and industry progress with CTCs (circulating tumour cells) has been slower than ctDNA approaches. CTCs are initially shed from the primary tumour but, in the later stages of disease, also from secondary and metastatic sites. Their existence has been known for over a century, but their relative infrequency and difficulty in isolating them has held back their study. A number of enrichment techniques, broadly divided into antigen-dependent (targeting CTC-specific markers such as EpCAM) and antigen-agnostic (typically exploiting physical characteristics such as size, deformability, and charge) have been developed.

Exhibit 1 Comparison of CTCs, ctDNA, and mRNA
Source: : The Oncologist 21 (1); Circulating Tumor Cells, ctDNA, and mRNA: Potential for Clinical Utility

Parsortix is an elegant and versatile technology that physically separates and captures intact, living CTCs through a microfluidic cascade chamber. Uniquely, it is the only CTC harvesting platform cleared for use by the FDA (May 2022). A simple blood draw, usually 10ml, can be taken as often as required to obtain timely and clinically relevant CTCs. These can then be examined through any selected downstream assay. Notably, the same blood draw can be used for both a ctDNA assay (or similar) and CTC enrichment for subsequent analysis of choice.

Parsortix has been used extensively in academic and research settings, with over 90 peer-reviewed papers published in respected journals. These have shown consistent and reproducible enrichment and harvesting of high-quality CTCs. Importantly, they also demonstrate the breadth of potential applications, ranging from routine diagnosis and monitoring in common solid cancers, such as breast, lung, and prostate, to specific applications, such as predicting therapy responses and identifying likely treatment failures.

Rising to the challenge of gaining widespread acceptance

Unlocking value from these myriad clinical opportunities in such a regulated and structured setting is neither straightforward nor rapid. ANGLE’s focus since the pivotal FDA product clearance of its proprietary Parsortix cell capture system is to begin to deliver on Parsortix’s commercial promise. The ultimate aim is to make Parsortix broadly available to the healthcare industry and for it to eventually form part of routine patient care in order to transform cancer treatment. However, such broad adoption of a novel medical device can require a paradigm shift in appreciation, understanding, behaviours, and processes, with sales subsequently taking time to materialise. Hence, the challenge will be for ANGLE to capture these opportunities in an effective and systematic manner.

A comprehensive strategy, which should provide multiple layers of revenue growth over the near-, mid-, and longer-term, has been developed. The various elements can be grouped into two business areas: Product-led and Service-led. These tend to have differing regulatory pathways, routes to market, speed of adoption, and near- and long-term revenue potential.

  • Product business: the supply of equipment, separation cassettes, reagents and consumables to third-party clinical labs, for their use in research, pharmaceutical development, or clinical applications. These sales are made either directly (in the UK and US) or via a growing network of distributors in other key regions. Management is expanding the product offering through developing a menu of relevant assay kits and related protocols for the subsequent downstream analysis of the harvested CTCs. These are designed to be easily integrated with existing equipment and offer as seamless a workflow as possible.
  • Pharma services: these are provided through a dedicated UK-based certified laboratory. In November 2023 it was decided improved sample stability and reliable logistics allowed the centralisation of all services onto one site, with the consequent closure of the US facility. The services are primarily for pharmaceutical and biotech companies undertaking clinical trials in oncology indications to help target appropriate patients and monitor treatment response.

Albeit from a currently small base, Pharma services is likely to be a key revenue growth driver over the near- and medium-term. The recently announced agreement with Eisai (January 2024) demonstrates how a pilot study, worth $0.25m, with HER2 CTC analysis for longitudinal patient monitoring in a Phase II study could provide valuable validation of CTCs as diagnostic tools and, over time, lead to a roll-out across major clinical trial programmes, both within Eisai and with other partners.

Developing a menu of clinically relevant assays

Management is creating a broad array of assays to support both Product and Service applications (Exhibit 2).

Exhibit 2: Portrait and Landscape assay development
Source: ANGLE

The Portrait+ range are imaging assays based on the immunofluorescent staining of CTCs. Recently introduced tests include Portrait Flex for mesenchymal and epithelial CTCs enumeration and offers the addition of a selected custom protein biomarker. This is used in the Pharma Services contract with Crescendo Biologics for their Phase I prostate cancer clinical trial studying their CR307 bispecific. Other Portrait assays include a PD-L1 test for the evaluation of PD-L1 protein expression on CTCs, DNA Damage Response (DDR) tests that were developed initially for Artios Pharma, and a HER2 test developed with BioView for optimising treatment for low HER2 as well as HER2 positive patients.

Landscape+ are molecular assays that can be tailored to run on PCR systems or next-generation sequencers. These employ commercially available third-party cancer gene panels and can be run on commonly used instrumentation, such as the Illumina platforms. Assays are available for the detection of key mutations, such as EGFR, KRAS and PIK3CA, with additional tests, including custom panels, addressing multiple clinically relevant biomarkers are under development. These will initially be provided through ANGLE’s clinical laboratory but will roll-out for use across all appropriate third-party laboratories.

ctDNA assays have become the most popular form of liquid biopsy profiling but, as mentioned earlier, no one approach can currently provide a complete picture of the tumour or its progression. ANGLE has examined how next-generation sequencing (NGS) DNA analysis of both ctDNA (fragments of DNA released mainly by dying cells) and CTCs (living cancer cells) across multiple solid cancer types (including breast, lung, prostate, and ovarian) compare.

Results from 47 patient samples (January 2024), analysed on a pan-cancer assay undertaken on an standard Illumina NGS, showed that in 60% to 70% of cases further clinically valuable mutations were identified through the addition of downstream CTC analysis. Importantly, management has developed a validated protocol that allows molecular profiling of CTC-DNA alongside ctDNA from the same patient 10ml blood sample within a straightforward workstream.

Collectively these developments help position Parsortix within the still emerging liquid biopsy landscape. The breadth of additional actionable insights that are generated easily compensate for the increased workflows and costs involved. Although an internally developed complete “sample-to-answer” approach would arguably retain more value, we believe that in order to realise the commercial potential a meaningful installed base would need to be established, which would take time and require substantial additional investment. Encouraging compatibility with leading third-party platforms provides an existing large installed base that ANGLE can more rapidly leverage by providing truly value-adding content.

Creating robust clinical data for major applications

Compelling clinical data is a vital element of the various processes needed to establish the Parsortix system as a key tool in routine patient management. ANGLE is conducting various clinical studies, including ovarian cancer (EMBER), prostate cancer (DOMINO), and INFORM (1000 patients in four metastatic different cancers), with a pilot study (PRECISE) in lung cancer planned.

The EMBER trial, performed with the Wilmot Cancer Institute, saw 200 women with a diagnosed pelvic mass and scheduled to undergo a pathological evaluation of the mass (imaging guided biopsy, surgical biopsy, or surgical excision) have a blood sample sent to ANGLE for processing and evaluation. Cells were harvested with Parsortix, which then underwent multiplexed gene expression analysis using ANGLE’s in-house molecular ovarian assay. This was combined with clinical information, including the physician’s initial cancer risk assessment and the patient’s age, into an algorithm for the prediction of benign vs malignant disease.

The results showed the Parsortix assay has a high sensitivity and high specificity, and a 95.4% ROC-AUC (area under the receiver operating characteristic curve, a measure of accuracy) which is classified as “Excellent”. This is in-line with the prior study of 95.1%. The test was more accurate than physician assessment, reducing both the false positive and false negative rate by at least 50%. A follow-on study, EMBER2, has enrolled a further 200 women and over 1,000 samples are stored. These samples will be analysed with a third-party molecular platform once the optimal assay has been identified.

Exhibit 3: Portrait and Landscape assay development
Source: ANGLE

The DOMINO study, partnered with MidLantic Urology, investigates Parsortix in the detection of prostate cancer and to predict severity. MidLantic Urology is an affiliate of Solaris Health Partners, one of the largest urology providers in the US. The aim is to assess 100 males scheduled for a prostate biopsy to predict the presence of a clinically significant prostate cancer and to correlate assessed disease severity with the Gleason score (the generally accepted grading for prostate cancer). The partnership with MidLantic Urology offers the potential for Solaris Health’s network of clinics to be a rapid first route to market. Solaris Health is a national healthcare platform that offers access to specialty healthcare through 600+ providers that treat >850,000 patients annually. In the longer-term, pursuit of an approval as a clinical product would require a larger clinical verification study.

ANGLE’s largest study is the INFORM study, which targets c 1,000 patients with advanced disease over a five-year period in four different cancers (breast, prostate, ovarian and lung) involving six NHS Trusts. This longitudinal study will follow patients over up to six different points over the course of their treatments. Over 300 patients have been enrolled and over 2,000 blood samples taken.

A key element of the FDA clearance for use in metastatic breast cancer (mBC) was a 400-subject (200 mBC and 200 healthy patients) blinded clinical study (HOMING). The primary objective was demonstrating the capture and harvesting of CTCs from mBC patient blood and demonstration of downstream analysis of the CTCs using cytopathological evaluations, FISH testing for HER-2 status, and RT-qPCR and cDNA libraries for RNA-seq assays.

Patient samples from the various clinical trials that were processed with Parsortix have been stored and are available for establishing and validating future molecular analyses via existing and well-characterised third-party systems. The data generated by these study samples should be able to demonstrate and support the value of Parsortix in identifying key genetic mutations to guide therapy choices, the monitoring and evaluating of treatments, and screening for and establishing the severity of disease in currently undiagnosed patients.

 

Valuation and Financials

Our ANGLE valuation is based on a three-stage DCF, including revenues for the main business lines to reflect the differing markets, revenue potential and growth profiles. These are summed and netted against the central costs of running the business in terms of R&D and S&M spend, and in turn netted against current net cash/debt. Our valuation has been updated to reflect closure of the US clinical lab, which has reduced potential internal capacity to perform revenue-generating tests, plus slightly slower near-term sales momentum. This, together with incorporation of H123 financials and revised forecasts, plus rolling forwards in time, leads to an updated valuation of £174m, or 67p per share (Exhibit 4).

Exhibit 4: Three-phase DCF valuation of ANGLE
Source: Trinity Delta   Note: PV = present value, 10% discount rate, 2% terminal growth rate, 20% tax rate, and $1.2/£ FX rate

ANGLE’s H123 revenues trebled YoY to £1.2m (H122: £0.4m), with growth in both pharma services and in product sales. The order book was solid, with £2.5m of future revenues already sold, and at the time, revenues were seen as on-track to meet FY23 expectations (which were c £3.0m). Operating costs increased slightly to £11.4m (H122: £10.6m). Together, these led to a net loss of £9.8m (H122: £9.2m). End-June 2023 cash was £22.2m (31 December 2022: £31.9m). The cash runway at this time (September 2023) was extended into Q125 (from H224) through deferral of some spend and some cost cutting, which was expected to save c £5m by end-2024, without impacting near-term revenue opportunities.

In November 2023 a trading and business update provided revised FY23 revenue expectations of c £2.2m, which although doubling year-on-year were below market consensus (at the time) of c £3.0m. This was due to some of the c £3.3m in sales secured in 2023 being recognised in FY24. Revenues in FY24 are anticipated to treble vs FY23, driven by growth in sales from the newly established distributor network, and planned launches of new Parsortix-based products and services. Our updated revenue forecasts are for £2.2m in FY23e, in-line with the trading update, but a slightly more conservative £6.3m in FY24e.

The Services business is being streamlined through closure of the US clinical laboratory. This is in response to the ongoing investment required in molecular capabilities across multiple platforms and the current adverse market conditions. Customers across multiple geographies will now be serviced from the single UK-based centre of excellence. The financial impact of this is an expected c £0.7m of non-recurring cash costs and c £0.5m of non-cash impairments, translating into an Operating Loss for FY23 of c £21m (updated TD FY23e £21.3m). The closure will contribute to cost savings of c £3m per annum from 2024. Year-end cash is expected to be c £15m (TD FY23e £15.1m), providing a runway into Q2 2025.

Exhibit 5: 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.

Arecor Therapeutics

Sanofi deal for INBRX-101 validates Arestat technology

Lighthouse | 24 January 2024

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  • Sanofi is acquiring Inhibrx for its Arecor-partnered asset INBRX-101 in a $2.2bn deal (non-INBRX-101 assets will be spun off into a new Inhibrx). For each Inhibrx share, shareholders will receive (1) $30 in cash ($1.7bn, fully diluted), (2) one non-transferable CVR (contingent value right) of $5, conditional on receiving FDA approval by June 30, 2027 (a potential $296m additional cash consideration), and (3) 0.25 shares of a new publicly traded company ‘New Inhibrx’, that will retain the non-INBRX-101 assets, in which Sanofi will hold an 8% equity stake. Deal closure is expected in Q224.
  • In December 2020, Inhibrx exercised its option to licence AT292, a novel enhanced formulation of INBRX-101 enabled by Arecor’s Arestat platform. Under the terms of the licence deal, Arecor received an upfront payment and is entitled to further payments on achieving development, regulatory, and commercial milestones, plus annual technology access fees post-launch. The most recent undisclosed milestone was triggered in November 2023, following dosing of the first patient in the registration-enabling ElevAAte trial for the treatment of emphysema due to alpha-1 antitrypsin deficiency (AATD). INBRX-101 was granted FDA Fast Track Designation in this indication in May 2022. Topline ElevAAte data are expected late-2024. Assuming these are positive, we have modelled a potential 2026 launch.
  • INBRX-101 is a recombinant human Alpha-1 Antitrypsin Fc-fusion Protein in development for the treatment of AATD, AATD is an inherited orphan genetic disease characterised by low levels of the AAT enzyme (neutrophil elastase inhibitor), that predominantly affects the lung (but also the liver in c 15% of cases) resulting in progressive tissue deterioration. INBRX-101 has the potential to help AATD patients normalise their serum AAT levels with less frequent dosing (monthly vs weekly), helping reduce inflammation, preventing further decline in lung function, and improving quality of life vs the current standard of care.

Trinity Delta view: Sanofi’s acquisition of INBRX-101 fits in with its portfolio growth strategy and its focus and reputation in rare diseases, and the $1.7bn+ deal value underscores INBRX-101’s attractiveness. For Arecor this is further commercial validation for its formulation expertise and ability to create clearly differentiated assets. INBRX-101 is Arecor’s second most advanced partnered asset, behind biosimilar AT220 (believed to be Fresenius Kabi’s tocilizumab) which launched in Europe in H223; both emerged from a technology formulation partnership. Such partnerships are a low-risk business model generating near-term revenues; Arecor receives research fees from day one of any formulation development collaboration under which it reformulates and develops optimised versions of a partner’s own products or product candidates. Should these convert to licences, as with AT220 and INBRX-101, there is potential for meaningful financial upside via milestones and future commercialisation income (royalties or similar). For more detail on Arecor’s investment case see our November 2023 Outlook. Our valuation remains £179m, equivalent to 583p per share.

Lighthouse

24 January 2024

Price167.5p
Market Cap£51.3m
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 platforms result 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.

Redx Pharma

Anticipating clinical momentum and catalysts in 2024

Update | 19 December 2023

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Redx Pharma’s pipeline focus is on its differentiated ROCK portfolio targeting serious and debilitating fibrotic diseases. The c £14m October fund raise extended the cash runway beyond key H124 catalysts, providing greater optionality around value creation from these assets. Topline Phase IIa data expected in H124 from lead compound zelasudil (RXC007), a next-generation selective ROCK2 inhibitor under evaluation for IPF (idiopathic pulmonary fibrosis), coupled with the potential to lift the FDA partial clinical hold for a longer dosing duration, could support further development and indication expansion given the role of ROCK2 inhibition in multiple fibrosis-associated diseases. Initiation of the first clinical trial for RXC008, a novel GI-targeted ROCK inhibitor for fibrostenotic Crohn’s disease, adds further momentum to the fibrosis pipeline, while other assets, including RXC004 and earlier-stage discovery programmes, offer interesting business development prospects. Our updated rNPV-based valuation is £367m, or 94p per share.

Year-end: September 30202220232024E2025E
Revenues (£m)18.74.25.80.0
Adj. PBT (£m)(17.3)(28.8)(31.2)(38.7)
Net Income (£m)(18.0)(33.2)(33.0)(40.5)
Adj. EPS (p)(5.9)(8.7)(7.5)(7.8)
Cash (£m)53.918.140.610.5
EBITDA (£m)(15.4)(32.9)(30.4)(37.4)
Source: Trinity Delta   Note: : Adjusted numbers exclude share-based payments and exceptionals. Our cash forecasts assume receipt of £40m in additional funding during CY24
  • Data from lead ROCK asset in H124 Redx’s ROCK assets are central to its investment case given their promise in the treatment of a variety of serious and intractable fibrotic conditions, and the rising industry interest in fibrosis. Topline Phase IIa data for zelasudil in IPF in H124 should confirm safety and tolerability, with the potential for early efficacy insights. These will inform the design of a Phase IIb programme which is expected to include broader interstitial lung diseases (ILDs).
  • Second ROCK programme to enter the clinic in 2024 RXC008 is a first-in-class GI-targeted pan-ROCK inhibitor for the treatment of fibrostenotic Crohn’s disease. IND-enabling studies are complete, and the CTA filed, with a Phase I trial on-track to start in early-2024. Again, this indication is gaining increasing investor attention.
  • Cash runway beyond key catalysts The £14.1m gross (£13.6m net) raised from existing institutional investors coupled with end-September 2023 cash of £18.1m extends the cash runway into Q3 2024, through key clinical data points (ie Phase II readouts for zelasudil and RXC004). Longer-term funding options to advance and maximise pipeline potential include further equity financing(s), potential for additional milestones from existing partners (AstraZeneca, Jazz Pharmaceuticals), and business development, where RXC004 is a key prospect. Hence H124 clinical data for RXC004 in combination with checkpoint inhibitors will be important.
  • rNPV valuation of £367m or 94p/share We have updated our rNPV valuation for Redx Pharma following FY23 results and the recent equity raise, which results in a valuation of £367m/$441m (from £363m/$436m previously), or 94p per share.

Update

19 December 2023

Price22.0p
Market Cap£85.6m
Enterprise Value£83.2m
Shares in issue389.0m
12 month range21.0-70.0p
Free float15.4%
Primary exchangeAIM London
Other exchangesN/A
SectorHealthcare
Company codesREDX
Corporate clientYes

Company description

Redx Pharma specialises in the discovery and development of small molecule therapeutics, with an emphasis on oncology and fibrotic diseases. It aims to progress them through proof-of-concept studies, before evaluating options for further development and value creation.

Analysts

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

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

Redx Pharma: heading into a catalyst rich year

Redx Pharma’s unique and differentiated ROCK portfolio, targeting diverse and underserved fibrosis indications, is central to its investment case. The Phase IIa trial of lead asset, selective ROCK2 inhibitor zelasudil (RXC007), in idiopathic pulmonary fibrosis (IPF) is due to read out top-line data in H124 and will inform subsequent clinical development plans. This potentially includes expansion into broader immune mediated interstitial lung diseases (ILDs) and cancer-associated fibrosis. Its second ROCK asset, GI-targeted ROCK inhibitor RXC008, is on track to initiate its first Phase I study in early-2024, following the recent CTA submission, for development in fibrostenotic Crohn’s disease. Other H124 events include Phase II checkpoint inhibitor combination data for porcupine inhibitor RXC004 in Wnt-ligand dependent tumours, which will be a prelude to partnership discussions. The c £14m (gross) October raise extends the cash runway into Q3 2024, covering these important inflection points. Our updated rNPV-based valuation is £367m ($441m), equivalent to 94p per share.

Redx Pharma’s pipeline prioritisation review earlier this year has put the focus firmly on advancing its differentiated ROCK inhibitor portfolio, where significant clinical and regulatory progress has been achieved to date. The lead fibrosis asset, selective ROCK2 inhibitor zelasudil (RXC007), is in a Phase IIa trial for idiopathic pulmonary fibrosis (IPF) with topline data expected in H1 2024. Second fibrosis candidate, RXC008, a first-in-class GI-targeted pan-ROCK inhibitor for the treatment of fibrostenotic Crohn’s disease, is on the cusp of entering the clinic with a Clinical Trial Application (CTA) submitted during Q423.

Another outcome of the pipeline review was the decision to partner lead oncology asset, porcupine inhibitor RXC004, for future development. RXC004 is currently in development as a targeted therapy for Wnt-ligand dependent cancers and is also expected to report Phase II data in combination with a checkpoint inhibitor (CPI) in H124, after which a partner will be sought. Redx’s solid track record of executing strategic transactions is evidenced by its partnerships with AstraZeneca (fibrosis) and Jazz Pharmaceuticals (oncology), which collectively represent aggregate milestone potential of $755m ($15m of which could be triggered near-term), as well as the sale of BTK inhibitor Jaypirca (pirtobrutinib) to Loxo Oncology (now part of Eli Lilly) in 2017.

Earlier-stage work leveraging Redx’s core medicinal chemistry expertise to discover novel drug candidates may also be fertile ground for pipeline expansion or future partnerships. This year, selective DDR1 inhibitor RXC009 was nominated as a development candidate in kidney fibrosis, and an oral KRAS inhibitor programme for cancers, currently in lead optimisation, was disclosed.

With two programmes in Phase II studies, a third in-house asset due to enter the clinic shortly, and the recent nomination of the next development candidate, Redx is making significant progress in advancing its pipeline. The recent financing raising £14.1m gross (£13.6m net) from existing institutional investors (Redmile, Sofinnova, Polar and Invus) augments end-September 2023 cash of £18.1m and extends Redx’s cash runway into Q3 2024, beyond key near-term value inflection points. These include the Phase IIa IPF data for zelasudil, Phase II CPI combination data for RXC004, and the start of the RXC008 Phase I healthy volunteer study.

Zelasudil (RXC007): top-line Phase IIa IPF results in H124

Redx’s lead fibrosis programme, zelasudil (RXC007), is a novel highly selective small molecule ROCK2 inhibitor (Rho Associated Coiled-Coil Containing Protein Kinase 2) initially in development for idiopathic pulmonary fibrosis (IPF). Topline data from the randomised, double-blind, placebo-controlled Phase IIa dose ranging study in IPF is anticipated in H124. These data are expected to provide early indications of efficacy and to confirm the safety/tolerability profile of zelasudil in IPF patients with or without standard of care (SoC, ie nintedanib or pirfenidone), as well as the dose that will be taken into Phase IIb trials. Planning is underway for a larger 12-month Phase IIb trial, which will likely explore zelasudil plus SoC over 12 months in IPF and chronic fibrosing interstitial lung disease (CF-ILD) with lung function (forced vital capacity, FVC) as a primary endpoint.

To date the Phase IIa IPF study (Exhibit 1) has recruited two cohorts of 16 patients each, randomised 3:1 between zelasudil and placebo. Each cohort has a 12-week dosing duration with an option to continue for a further 12-weeks in an open label extension. The first dose cohort (20mg twice daily, bid) has completed with no adverse safety/tolerability signals. Dosing is ongoing in the second cohort (50mg bid), with the next data review in Q124 set to determine the dose level for a potential third cohort. On confirmation of the recommended Phase II dose, an 8-16 patient 28-day translational science sub-study will follow, evaluating target engagement and fibrosis modification through key translational science endpoints.

Exhibit 1: Zelasudil Phase IIa study design
Source: Redx Pharma   Note: DLCO = carbon monoxide diffusion coefficient; FVC = forced vital capacity; HRCT = high resolution computerised tomography; Pbo = placebo; RP2D = recommended Phase II dose; *Sub-study to follow main study

Alongside the Phase IIa study, which is approved in nine European countries (including the UK) and has 31 active study sites open, preclinical work has been ongoing to address the FDA partial clinical hold. As a reminder, in the US under the open IND, dosing of zelasudil for longer than 28-days is subject to this partial hold based on skeletal muscle findings in dog toxicology studies. We note that no similar findings have been observed in humans or other species at any dose. An FDA Type A meeting in September 2023 confirmed that the ongoing 13-week investigative dog study, designed to show that the skeletal muscle findings seen in the dogs are monitorable and reversible, is suitable to meet the requirements for potential lift of the partial clinical hold. Redx intends to submit the complete response to the FDA in Q224 and confirmation of lifting the partial hold will permit dosing durations of >28 days in the US in future clinical studies.

Assuming positive Phase IIa outcomes, the next steps for zelasudil include a planned 12-month Phase IIb study in IPF and CF-ILD. Progressive fibrotic interstitial lung diseases (ILD) are a larger opportunity for zelasudil, with IPF representing only 20-50% of ILDs. Zelasudil has FDA Orphan Drug Designation in IPF, which was selected as the initial indication given the high unmet need for better treatment options. A number of high profile late-stage failures in IPF, notably Roche’s zinpentraxin alfa (recombinant human serum amyloid P) and Fibrogen’s pamrevlumab (anti-CTGF antibody), means the focus has turned to Boehringer Ingelheim’s BI 1015550 (phosphodiesterase 4 inhibitor), which is in Phase III, and Pliant Therapeutics’ bexotegrast (dual selective inhibitor of αvβ6 /αvβ1), that is completing Phase IIb trials after a mixed Phase IIa result. Bexotegrast is Pliant’s lead programme, with two other programmes (PLN-1474 for NASH-associated liver fibrosis and PLN-101085 for solid tumours) in earlier clinical stages. Pliant is a US listed company (NASDAQ: PLRX) with a market capitalisation of c $970m.

Outside of lung fibrosis, Redx has wider plans to expand future development of zelasudil as a potential best-in-class fibrosis therapy, subject to funding. ROCK is a biologically and clinically validated target which sits at a pivotal nodal point for pro-fibrotic cell signalling in a broad range of fibrotic conditions. Potential opportunities for zelasudil, supported by encouraging preclinical data, include cancer-associated fibrosis (or treatment of highly fibrotic tumours such as pancreatic cancer), and widespread multi-organ fibrosis, such as chronic Graft versus Host Disease (cGvHD) and systemic sclerosis. Thus, clinical development plans include a potential Phase Ib study of zelasudil in combination with SoC chemotherapy (gemcitabine/abraxane) in first line pancreatic cancer, and a Phase IIa study in cGvHD, an indication where Sanofi’s (Kadmon) ROCK2 inhibitor belumosudil was FDA approved as Rezurock in 2021.

RXC008: on track to start Phase I in early-2024

RXC008 is a novel GI-targeted pan-ROCK inhibitor designed to only act locally at the site of fibrosis associated with Crohn’s disease. It is a potent oral small molecule inhibitor of both ROCK1 and ROCK2 pathways, with impressive preclinical data showing strong suppression of fibrosis, powerful attenuation of villi erosion and ulceration, and effective promotion of mucosal healing. Systemic inhibition of ROCK1 is associated with cardiovascular side-effects (ie hypotension); with RXC008 this is avoided as it is restricted to the gut by physio-chemical properties and should any residual be absorbed, it undergoes deliberate rapid degradation by plasma enzymes (paraoxanase). No systemic exposure to RXC008 has been seen in any animal model despite greater than required GI tissue concentrations. Our October 2022 Update provides more detail. IND enabling studies have completed, with the regulatory clinical trial application (CTA) submitted in November 2023.

A Phase I study in healthy volunteers is expected to start in early-2024 (Exhibit 2). This will consist of three parts: the first two will be single and multiple ascending doses over 14 days, with safety as the primary endpoint, evaluating pharmacokinetics (PK) to confirm the target profile (including data on faeces, plasma and tissue in the highest multi-ascending dose cohort); the third part involves a one-month dosing period of patients with fibrostenotic Crohn’s disease to examine safety, confirm minimal systemic exposure in patients (as absorption may differ from healthy volunteers), determine the degree of target engagement, and examine biomarkers in paired biopsies from the terminal ileum and colon.

Exhibit 2: RXC008 Phase I protocol
Source: Redx Pharma

Intestinal fibrosis is a common complication of inflammatory bowel disease (IBD), affecting both ulcerative colitis (UC) and Crohn’s disease (CD). Although until recently viewed as an inevitable and irreversible process, a greater understanding of the myriad pathways involved, and their roles, means it is now viewed as a dynamic and, potentially, reversible condition. The problem is significant; CD is a chronic-relapsing immune-mediated disorder with a constantly increasing incidence worldwide, especially in Western countries. Potent anti-inflammatories may suppress the inflammation seen episodically, but fibrosis continues to build unabated. Such fibrosis occurs in a third to a half of patients and over time leads to intestinal obstruction due to strictures. These will typically require invasive hospital interventions such as surgical resection and endoscopic dilation.

The need for more effective treatments is clear, with several researchers progressing programmes. One of the most advanced is AGMB-129 (Agomab), a small molecule GI-acting inhibitor of ALK5 (TGFβR1) that has successfully completed Phase I studies, showing good tolerability and a favourable safety profile. AGMB-129 recently began a Phase IIa trial (STENOVA), designed to evaluate two active arms (low and high dose) with placebo, which is expected to complete early-2025. In October 2023, Agomab raised $100m in a Series C round led by Fidelity Investments. AGMB-129 is its lead programme and it has a second clinical asset, AGMB-447, an inhaled small molecule lung-restricted inhibitor of ALK5, in Phase I studies for IPF.

RXC004: poised for partnering post-Phase II read out

Redx’s lead oncology programme, RXC004, is a highly potent and selective once-daily porcupine inhibitor in development for Wnt-ligand dependent cancers in combination with immunotherapies. Following the pipeline review, RXC004 has been earmarked for partnering for further development post-Phase II.

Recruitment has closed in the two ongoing Phase II studies in combination with a checkpoint inhibitor, CPI (Exhibit 3) – PORCUPINE in genetically selected microsatellite stable metastatic colorectal cancer (MSS mCRC) in combination with nivolumab, and PORCUPINE2 in genetically selected pancreatic and unselected biliary cancer in combination with pembrolizumab – which are expected to read out in H124. These data will be key in confirming RXC004’s primary efficacy hypothesis, that RXC004 has an immune-enhancing effect and is able to reverse Wnt-driven immune evasion, turning previously non-responsive “cold” tumours into “hot” tumours that can then be treated with CPI therapy.

Exhibit 3: RXC004 Phase II combination programme
Source: Redx Pharma   Note: DCR = disease control rate; DoR = duration of response; ORR = overall response rate; OS = overall survival; PFS = progression free survival

Part of the rationale for seeking a partner is that the preclinical data suggest that there is a wider opportunity for RXC004 to be combined synergistically with other therapeutic agents, including chemotherapies and MAPK inhibitors. Evaluating the broader potential is beyond the scope of Redx’s current resources, and outside its priority focus on progressing its ROCK portfolio in fibrosis indications. However, it could be an attractive proposition for a larger partner.

Valuation

We value Redx Pharma as a classic drug discovery and development play, using a sum of the parts rNPV-based model that includes a pipeline rNPV (risk-adjusted net present value) and a discovery platform valuation based on Redx’s output/track record and benchmarked against discovery peers. These are summed and netted against central costs and cash. We have rolled forwards our valuation in time, and have updated cash post FY23 results and to include the £14.1m (gross)/£13.6m (net) October fundraise, as well as making a number of other adjustments to assumptions, as outlined below. These result in a valuation of £367m/$441m (from £363m/$436m), which is diluted to 94p per share (from 109p) by the increased number of shares issued as part of the fundraise. An overview of our valuation and key assumptions are summarised in Exhibit 4.

Exhibit 4: rNPV-based valuation of Redx Pharma
Source: Trinity Delta   Note: The rNPVs of RXC004 includes a deal success factor of 65%, with 80% for zelasudil, and of 75% for GI-targeted ROCK; other valuation assumptions include a 12.5% discount factor, £/$ FX rate of 1.20, and 10% taxation from 2030 (UK patent box).

Our valuation is based on conservative assumptions, particularly regarding market sizes and growth rates, net pricing, adoption curves, and peak market penetration. Given this stance, for zelasudil we have slightly delayed potential launch due to the ongoing FDA partial clinical hold, although this is almost entirely offset by rolling forwards in time, for a minor 3% impact on rNPV. With partner programmes AZD5055 and JZP815 both in Phase I trials, we conservatively align launches in 2029, pending visibility on potential timelines.

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

Financials

Redx Pharma’s FY23 revenues (12 months to 30 September 2023) of £4.2m (FY22: £18.7m) were solely derived from research collaboration income (FY22: £6.9m) as part of the collaboration with Jazz Pharmaceuticals; this is largely non-cash recognition of previously received milestones. No milestones were received in FY23, whereas in FY22 Redx Pharma received $24m (£18.1m) in cash milestones, of which £10.7m was recognised as revenue on receipt, with the remainder deferred to be recognised as contractual obligations complete.

R&D costs continue to remain tightly controlled at £29.1m (FY22: £28.6m) despite Phase II trials ongoing for two candidates (zelasudil and RXC004), plus preparations for the first clinical study with RXC008. Underlying G&A spend decreased to £8.1m (FY22: £10.2m), whilst one-off exceptional costs for the lapsed reverse merger were £2.4m (FY22: nil). This translated to a FY23 operating loss of £33.8m (FY22: loss of £16.3m), and together with other elements, including a £1.6m non-cash revaluation gain on the convertible loan following the 12-month extension, led to a net loss of £33.2m (FY22: loss of £18.0m).

Our future revenue forecasts include £844k of remaining deferred revenue from previously received milestones relating to the Jazz Pharmaceuticals collaboration, which we recognise in full in revenues in FY24e (none in FY25e). In addition, we also include illustrative placeholder milestones totalling £5m in FY24e (none in FY25e) given Redx has highlighted that there could be near-term potential milestones of $15m (c £12m) due under existing collaborations (of the up to $755m in milestones that could be received under these agreements). If the $15m are achieved in full, this would represent upside to our current forecasts.

For R&D we forecast a slight increase to £30.6m in FY24e and to £31.5m in FY25e, although these are largely illustrative placeholders pending data and future development plans. We note that the Phase II trial for RXC004 will be winding down in H124, and no significant future spend is likely given the plans to pursue a partnership(s). Meanwhile the Phase IIa trial with lead asset zelasudil is ongoing with data expected in H124, beyond which we assume continuing spend to advance this asset further, and the Phase I trial for RXC008 is expected to start in early-2024. For G&A, we forecast minor increases from the now lower c £8m core base to c £8.2m in FY24e and FY25e.

End-September 2023 cash was £18.1m (31 March 2023: £34.6m), which was boosted post period end through the £14.1m (gross)/£13.6m (net) financing in October, via the issuance of 54.1m new shares at 26p per share (October 2023 Lighthouse). These funds are expected to provide a cash runway to September 2024, and hence through the H124 value inflection points, most notably zelasudil Phase IIa IPF data, plus the RXC004 Phase II combination data, which could trigger and accelerate partnering discussions. Potential receipt of milestones from existing partners, business development activity/partnering of portfolio assets, or other options including equity financing(s), could extend the runway further. Our forecasts include a placeholder £40m financing (in short-term debt) in FY24e.

Exhibit 5: Summary of financials
Source: Company, Trinity Delta    Note: Note: Short-term debt in CY23/FY24e is indicative of our view of Redx Pharma’s funding requirement. The Redmile/Sofinnova Convertible Loan Note revised conversion date is 4 August 2024, with a conversion price of 15.5p, equating to a potential 110.3m of new shares.

 

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 2023 Trinity Delta Research Limited. All rights reserved.

Avacta

Tailored tumour targetting with pre|CISION

Update | 14 December 2023

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Avacta’s proprietary pre|CISION platform is key to the investment case, and further details on lead programme AVA6000, a tumour targeted form of the chemotherapy doxorubicin, continue to support key hypotheses. Data show that AVA6000 is selectively activated at the target tumour site, resulting in lower toxicities, improved tolerability, and greater potency. This has translated into promising, albeit early, signs of clinical activity. AVA6000’s clinical success will help to validate pre|CISION, and could unlock an extensive opportunity to repurpose a range of proven, but currently sub-optimal, therapies, and alongside the Affimer platform, could be used in novel diagnostic and therapeutic applications. AVA6000 has now completed the seventh, and final, cohort of the Phase Ia three-weekly arm, with patient screening started in the two-weekly arm in the US. Data will direct the format of a potentially pivotal Phase II trial. News over the next 18-24 months should offer multiple value-inflection points. Our updated valuation including the Coris acquisition is £672m (237p/share).

Year-end: December 31202120222023E2024E
Revenue (£m)2.99.722.125.9
Adj. PBT (£m)(24.1)(27.0)(31.4)(41.8)
Net Income (£m)(26.3)(39.2)(34.3)(43.3)
Adj. EPS (p)(8.7)(10.1)(10.8)(13.6)
Cash (£m)26.241.812.3(13.5)
EBITDA (£m)(26.7)(24.4)(25.9)(34.1)
Source: Trinity Delta Note: Adjusted numbers exclude share-based payments and exceptionals.
  • pre|CISION tumour targeting supported by clinical data   Preliminary results with AVA6000 following completion of the seventh and final dose cohort in the first arm of the Phase Ia safety study suggest that the potential seen in preclinical models has been replicated in humans. Systemically dosed AVA6000 was shown to be selectively activated in FAPα-rich tumours, with no activation in normal tissues. This localised release of doxorubicin results in lower systemic toxicities, improved tolerability, and offers the prospect of longer dosing than standard doxorubicin and greater anti-tumour potency. Although designed as a safety study, there were encouraging, albeit early, signs of clinical efficacy in defined FAPα-rich tumours.
  • Second arm, with improved dosing, being prepared The improved safety profile seen to date means a two-weekly dosing regimen will replace the existing three-weekly dosing in the US arm of this Phase Ia trial. Patients with suitable FAPα-rich tumours are already being screened, with first enrolment expected shortly. The results will guide the format and scope of a potentially pivotal Phase II trial, which could commence as early as end-2024. Success would validate the whole approach and could unlock the development of a portfolio of pre|CISION enabled products. The breadth and scale of potential programmes would be beyond the scope of Avacta’s capabilities, suggesting out-licensing opportunities would ensue.
  • Valuation of £672m, or 237p per share (209p fully diluted)   Our valuation is increased to £672m (from £641m), or 237p/share, with incorporation of the Coris acquisition, plus updating for H123 interim financials. AVA6000 efficacy data, progress with the proprietary platforms or earlier stage products, and/or higher growth or margins in the Diagnostics business offer upside potential.

Update

14 December 2023

Price119.00p
Market Cap£337.5m
Enterprise Value£325.2m
Shares in issue283.6m
12 month range88.0p-187.9p
Free float90.4%
Primary exchangeAIM London
Other exchangesN/A
SectorHealthcare
Company codesAVCT.L
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

Avacta: delivering Therapeutics with pre|CISION

Avacta continues to make notable progress on executing its strategy to exploit its proprietary technology platforms across both Therapeutic and Diagnostic applications. The pre|CISION platform underpins the near- and medium-term prospects of Avacta’s investment case, and as such the progress of lead programme AVA6000 through clinical trials attracts understandable investor attention. Success would effectively validate the pre|CISION platform’s ability to target tumours selectivity and provides the template for a broader pipeline of differentiated products. Recently announced Phase I data following conclusion of Cohort 7 dosing suggests that AVA6000 releases doxorubicin at the tumour site but not healthy tissues, with this selectivity resulting in fewer toxicities, and there are early indications of tumour responses. Recruitment of suitable FAPα rich patients for the US arm of the study is underway. These results will inform the proposed Phase II trial format, which could start in H224.

Prior Trinity Delta research notes have extensively covered the rationale, and prospects, of Avacta’s now cash generative Diagnostics business (December 2022 Update), as well as the potential of the two proprietary technology platforms, pre|CISION and Affimer proteins, in creating novel therapeutic products (May 2023 Update). The latter Update report addressed the principles underlying pre|CISION’s mechanism of action, its role in selectively targeting FAPα-rich TMEs (Tumour Micro-Environment), and how it offers the potential to transform the clinical profiles of existing chemotherapies, enhancing efficacy and reducing systemic toxicities. Here we present further supporting data on the lead pre|CISION programme, AVA6000, a FAPα activated doxorubicin chemotherapy, which has now completed the seventh dose cohort in its Phase Ia dose escalation study (ALS-6000-101).

The importance of AVA6000 lies in its role as effectively demonstrating proof of concept for FAPα (Fibroblast Activation Protein-α) tumour targeting, with success opening an extensive opportunity to repurpose existing well characterised chemotherapies (where clinical utility is usually constrained by treatment-limiting systemic toxicities). pre|CISION uses a substrate, that is specifically cleaved by FAPα, to link to a known chemotoxin and so creates an inert prodrug that remains inactive until it reaches the TME. In a FAPα-rich environment the substrate is cleaved and the active form of the chemotoxin is released, with the increased local concentration resulting in greater potency and limiting systemic toxicities.

Recent data from the AVA6000 Phase Ia trial, following completion of the seventh and final cohort in the three-weekly dosing arm, showed encouraging evidence that pre|CISION does cleave as expected within FAPα-rich solid tumours – with active doxorubicin released within the TME at concentrations materially higher than seen elsewhere in the body. Despite using doses equivalent to c 3.5x the normal doxorubicin dose, the seventh cohort did not reach MTD (maximum tolerated dose). This improved safety profile and tolerability means a new two weekly dosing regimen will be evaluated in the US arm of the trial. Even though it was designed as a safety study, there were also promising early signs of activity in a number of tumour types, which is noteworthy as most patients were previously treated, unsuccessfully, with several rounds of various therapies.

AVA6000 Phase Ia study highlights to date

The AVA6000 Phase Ia study population included patients diagnosed with a solid tumour known to be high in FAPα, including soft tissue sarcoma (20%), pancreatic cancer (20%), colorectal cancer (27.5%), and head & neck cancers. Most patients had been heavily pretreated (median of three rounds) with various regimens, but any prior therapy with any anthracycline was limited to a total cumulative dose of less than 350mg/m2 doxorubicin or equivalent. Life-threatening cardiotoxicity is a major limitation with doxorubicin, and is correlated with cumulative doxorubicin dose, effectively limiting treatment to only six cycles (typically 60-75mg/m² every three weeks until 450mg/m2 is reached). Exhibit 1 outlines the study design and progression of AVA6000 dose escalation in the first arm (three weekly dosing).

Exhibit 1: Phase I study design for AVA6000
Source: Avacta

PK and tumour biopsy data also support AVA6000’s mechanism of action, with the reduced side-effect profile reflecting the lower doxorubicin levels measured in plasma (a proxy for healthy tissues) vs within the tumour (Exhibit 2). While these data are from a relatively small number of patients, the concentration of activated (cleaved) doxorubicin within the tumour, relative to the equivalent plasma concentration, appears to indicate preferential release of the active chemotherapy in tumour tissue. Thus, the pre|CISION technology, using FAP specificity, does selectively target tumours, delivering the active drug in the manner predicted by preclinical models.

Exhibit 2: Doxorubicin levels in plasma and tumour post AVA6000 cleavage
Source: Avacta

The key outcome measure of the Phase Ia study was safety. There was a low incidence of Grade 3 and 4 treatment-related adverse events (AEs) with AVA6000 treatment (<10%) compared to doxorubicin alone. Grade 3 or 4 AEs were seen in Cohort 3 (one Grade 3), Cohort 4 (two Grade 3; one Grade 4), Cohort 5 (two Grade 3 and one Grade 4), and Cohort 6 (three Grade 3). As Cohorts 5, 6, and 7 all have patients still under treatment these data will continue to mature.

Exhibit 3: AVA6000 toxicities compared to standard doxorubicin
Source: Avacta

With our usual caveat about comparing data across different studies, Exhibit 3 provides insight into the reduced toxicity profile of AVA6000 compared with the toxicities seen in other trials for doxorubicin alone. The reduction in severe toxicities enables optimisation of the dosing schedule to every two weeks for the second arm. The lead investigators of the US Phase I arm, Dr William Tap (Memorial Sloan Kettering Cancer Center) and Dr Lee Cranmer (Fred Hutchinson Cancer Research Center), will explore the safety of the optimised two-weekly dosing regimen in selected FAPα-rich tumours. Screening for suitable patients has begun in the US, with the planned 12-week cumulative dosing expected to exceed that in Cohort 7. Although timings are uncertain, topline data from this arm could be available as early as end-Q224, and should inform the format and recommended dose for a potentially pivotal US Phase II study planned for 2024.

The US arm of the Phase I should also contribute to a better understanding of AVA6000’s clinical potential. While the Phase Ia study is primarily evaluating safety and toxicity, Avacta has presented three clinical observations (Exhibit 4) in which promising responses were seen in tumours with high FAPα expression.

Exhibit 4: AVA6000 clinical observations from Phase Ia study
Source: 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 (Affimer proteins and pre|CISION), and a DCF valuation for the Diagnostics business, which are netted against operating costs. We include last reported net cash excluding the Convertible Bond (CB), as we assume this will be settled in shares. We have incorporated the Coris acquisition, outlined in more detail below, plus we have rolled forwards in time and updated net cash post interim financial results. With these changes, our valuation rises to £672m, equivalent to 237p per share, or 209p fully diluted for future shares to settle the CB (from £641m, equivalent to 228p/share, or 199p fully diluted). An overview of our valuation is in Exhibit 5 and more details on the methodology are in our December 2022 Update.

Exhibit 5: Avacta sum of the parts valuation
Source: Trinity Delta   Note: assumptions include a 12.5% discount factor, £/$ FX rate of 1.20

Incorporation of the Coris acquisition (June 2023 Lighthouse) has led to an uptick in our Diagnostics DCF (over and above rolling forwards in time) largely owing to the higher revenues from the combined businesses, plus from future operational synergies. Recall Coris’ FY22 revenues were £4.6m (unaudited), with a c 50% gross margin, an EBITDA of £0.35m, and a £0.02m net loss. Hence, together with Launch Diagnostics (fully consolidated FY23e revenues of £17m), we expect combined fully consolidated FY24e Diagnostics revenues of c £23-24m; more details on our Coris forecasts follow in the next section of this note.

The pre|CISION platform remains an important component of our valuation and the lead programme, on which we have the most visibility, is AVA6000. Our key underlying assumptions for AVA6000 are unchanged, with significant potential upside on material positive outcomes for AVA6000 (including meaningful efficacy from a proof-of-concept study). This could also act as validation for, and help to de-risk, the pre|CISION platform. Our pre|CISION platform valuation is based on an indicative value, with progress therefore resulting in sizeable upside potential. For example, preclinical asset AVA3996 is currently incorporated within the pre|CISION platform valuation, and as it advances into clinical development, this could lead to a refining of forecasts. Finally, as the Affimer technology is incorporated, the inherent value in this platform should unlock and be realised.

Financials

Avacta’s H123 revenues increased to £11.9m (H122: £5.5m), largely owing to the Launch Diagnostics acquisition; Diagnostic revenues of £9.9m (H122: £0.1m) included six-months from Launch Diagnostics and one month for Coris Bioconcept. The Therapeutics division contributed revenues of £2.0m (H122: £5.5m) which reflected achievement of a further AffyXell milestone.

H123 R&D spend was unchanged at £6.0m (H122: £6.0m), while SG&A increased to £8.6m (H122: £4.7m), due to incorporation of costs related to the diagnostic acquisitions. Operating loss was £11.9m (H122: £9.6m), and adjusted EBITDA loss (before non-recurring and non-cash items) was £7.9m (H122: £5.4m).

End-June 2023 cash and equivalents were £26.0m (end-December 2022 £41.8m) and were c £24.5m at 31 August following receipt of a £2.3m R&D tax credit. At-end June 2023 the £55m senior, unsecured Convertible Bond (CB) issued in October 2022 was held on the balance sheet with a value of £44.6m, including a debt component of £15.7m and a derivative fair value of £28.9m; the changes in these elements resulted in an H123 non-cash gain on revaluation in the P&L of £5.9m and a non-cash interest expense of £6.8m. Following the post period end amortisations (in July, September and October 2023), the CB principal remaining is £40.8m. For the purposes of our model, we assume the CB and coupon are repaid over five years from issuance, in shares priced at 118.75p ie. non-cash movements, resulting in total repayment by October 2027; for more details on the CB see our December 2022 Update.

Our FY23e revenue forecast has been increased slightly to £22.1m (from £21.2m) following the Coris acquisition, where we now include £2.2m of revenues from Coris (assuming seven months will be consolidated in FY23e). For FY24e we forecast increased revenues of £25.9m (from £22.1m), which includes a full year of Coris. Our R&D and SG&A forecasts have been updated to reflect H123 trends, and to incorporate SG&A related to Coris. Together, these changes drive slightly narrower Operating Losses of £29.2m in FY23e and £34.1m in FY24e, and Net Losses of £34.3m in FY23e and £43.3m in FY24e.

Our updated forecasts, shown in Exhibit 6, suggest that Avacta has sufficient cash well into 2024. This should be more than sufficient to reach key value inflection points, notably data from the AVA6000 two-weekly dosing study, which will inform dosing for a future potentially pivotal Phase II study, subject to funding.

Exhibit 6: 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.

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 2023 Trinity Delta Research Limited. All rights reserved.

Arecor Therapeutics

Second in-house Specialty Hospital deal

Update | 7 December 2023

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Arecor’s co-development and exclusive licence option agreement with a leading global medical products company demonstrates further strategic execution in securing revenue generating partnerships for its proprietary portfolio of Specialty Hospital products. It also further validates the attractiveness and relevance of its Arestat formulation expertise in developing novel products, the first of which (biosimilar AT220) was launched earlier this year. Specialty Hospital licensing agreements form a key part of Arecor’s mid-term growth prospects, and while these are typically associated with limited disclosure, prior Trinity Delta analysis provides a framework for assessing the potential value. Near-term, Arecor’s investment case remains centred on its diabetes franchise, with further AT278 Phase I data anticipated during H124. Our valuation is updated to £179m, or 583p per share.

Year-end: December 31202120222023E2024E
Revenues (£m)1.22.44.87.1
Adj. PBT (£m)(7.1)(11.7)(10.3)(9.1)
Net Income (£m)(6.2)(9.1)(8.3)(7.9)
EPS (p)(0.3)(0.3)(0.3)(0.3)
Cash (£m)18.312.85.81.0
EBITDA (£m)(6.3)(10.2)(8.5)(8.0)
Source: Trinity Delta Note: Adjusted numbers exclude share-based payments and exceptionals
  • Specialty Hospital deal with unnamed global player This licensing deal covers a high value, Arestat-enabled ready-to-dilute (RTD) formulation of a blockbuster oncology product. Deal economics are also undisclosed, although Arecor is eligible for potential milestones in connection with further co-development and regulatory work, plus milestones and royalties should the unnamed partner exercise its option to an exclusive worldwide development and commercialisation licence.
  • Formulation expertise provides value-add A key challenge with Specialty Hospital products is the lack of stable liquid formulations. Many injectable products used within hospitals require some form of preparation (eg reconstitution or dilution) which has time, cost, and safety implications for patients, physicians, and payers. Formulation improvements can include ready-to-administer (RTA), ready-to-use (RTU), and RTD versions. Arecor’s first Specialty Products licence covered Hikma’s AT307, an undisclosed RTU formulation. This second deal is for a stable liquid RTD formulation of a lyophilised powder product with a complex reconstitution process.
  • Growth prospects becoming clearer Our November 2023 Outlook provided a framework for assessing the cash flows from existing, and new, Specialty Hospital product licences. Upfront payments and pre-commercial milestones should limit Arecor’s at-risk spend, with a profitable return from downstream commercial payments/royalties. While not from a Specialty Hospital product, first royalties will be recorded in FY23, following the European launch of biosimilar AT220.
  • Valuation updated to £179m, or 583p per share Our Arecor valuation has been raised to £179m, or 583p per share (from £176m and 575p) with incorporation of this deal. Continued clinical progress, notably with AT278 and AT247, and execution of further partnerships, could result in material upside revisions.

Update

7 December 2023

Price190.00p
Market Cap£58.2m
Enterprise Value£52.4m
Shares in issue30.6m
12-month range175p-322p
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: Specialty Hospital deal momentum builds

Arecor’s track record in overcoming complex formulation challenges is becoming more widely appreciated as it secures licencing deals and technology partnerships with leading global companies. Through exploiting its proprietary Arestat platform and formulation expertise Arecor has created a portfolio of in-house and partnered programmes with otherwise unachievable enhanced clinical properties. This broad and well-balanced pipeline of innovative products offers similar milestone and royalty streams to classic drug discovery plays yet has lower development risks, and a less costly and more rapid route to market. We continue to view the emerging diabetes franchise as having the most valuation upside potential, with the competitive profiles of lead assets AT278 (ultra-concentrated, ultra-rapid insulin) and AT247 (ultra-rapid pump-optimised insulin) well suited to the changing diabetes landscape. Mid-term, the in-house Specialty Hospital portfolio could generate meaningful future income streams as further deals and partnerships are signed, with each product requiring limited at-risk spend. Pre-commercial deal milestones should offset these costs, with a return on investment from subsequent royalties (or other payments). Our updated Arecor valuation is £179m, equivalent to 583p a share.

Arecor’s co-development and exclusive licence option agreement with a leading global medical products company is the second licensing deal it has signed on a proprietary Specialty Hospital programme. In this case, the Arestat technology and expertise has been applied to develop a stable liquid ready-to-dilute (RTD) formulation of a lyophilised powder with a complex reconstitution process. The identity of the partner, product, and precise deal terms are undisclosed. However, as the valuation framework detailed in our November 2023 Outlook shows, while undoubtedly helpful, these details are not strictly necessary in modelling nor ascribing a valuation to the cash flows from such deals (discussed below).

Arecor’s in-house formulation work on its proprietary Specialty Hospital pipeline has focused on creating stable liquid formulations of existing hospital-based injectable products that require preparation (eg reconstitution or dilution) before use. These formulations may be ready-to-administer (RTA), ready-to-use (RTU), or ready-to-dilute (RTD) versions, which all have the potential to confer time, cost, quality, ease of use, and safety benefits for patients, physicians, and payers. The product underlying this latest deal is a RTD reformulation of an undisclosed blockbuster oncology product that requires lengthy and complex reconstitution.

Our base case assumptions for a typical product (Exhibit 1) are for Arecor’s R&D investment pre-deal (typically over two to three years) to be at least fully recouped via upfronts and milestones by product launch (around three years post deal), with royalties on sales then generating a profitable return. We assume peak sales are achieved around three years post-launch, with peak royalties ranging from c £1m to c £11m per annum (based on market sizes up to $300m, peak sales of $20-80m and a 5-15% royalty). While we assume that Arecor will seek to develop the more commercially relevant opportunities, for the purposes of assessing the unpartnered Specialty Hospital products, our base case is that most will be around $40-50m in peak sales for peak royalties of £4m per annum, in-line with our typical conservative stance.

Exhibit 1: Illustrative Specialty Hospital product
Source: Trinity Delta. Note: Arecor investment and milestone income estimates are cumulative over time; royalty range is based on royalties of 5-15% on peak sales of $20-80m

We note that several large companies are active in the hospital products market and have indicated that they are interested in collaborations to improve and extend their product portfolios. These include Baxter, Fresenius Kabi, Hikma, Pfizer, Sandoz, and Teva which together encompass a wide range of products/areas including biosimilars, complex biologics and generics. Indeed, Arecor’s first Specialty Products licence was with Hikma for AT307, an undisclosed RTU formulation of a marketed injectable.

As also covered in our November 2023 Outlook, due to Arecor’s greater value contribution translating into more meaningful milestones and higher royalty rates, the licensing deals for proprietary programmes should prove more lucrative than technology partnerships which centre on reformulation of the partner’s own product. The first commercial Arestat-enabled product to launch, biosimilar AT220 (November 2023 Lighthouse), is an example of the latter. Pre-commercial technology partnerships are also in place with several other undisclosed and named companies, including Intas, Par Pharmaceuticals and Eli Lilly. We note that Arecor recently signed a further collaboration agreement with Lilly.

The additional validation provided by the latest Specialty Hospital product deal provides us with increasing comfort around Arecor’s ability to continue to identify, formulate, and develop internal programmes that are attractive to larger partners. Arecor’s focus is on serious infections, cancer, and emergency care, with likely around three to five under active development at any one time. Thus, we believe that the partnering strategy for Specialty Hospital products should be sustainable and develop into a potential fruitful source of future income.

Near-term, we continue to view the in-house diabetes programmes as the main value driver for Arecor, with the greatest upside potential. The clinical data to date (December 2022 Outlook) from the two lead diabetes assets, AT278 (ultra-concentrated rapid insulin) and AT247 (ultra-rapid insulin), suggest competitive profiles well suited to the changing diabetes landscape in terms of demography and the technological advances in treatment. Specifically, this includes addressing the needs of novel insulin pump delivery systems which require precise absorption profiles that are more rapid and highly consistent. Further AT278 Phase I clinical data are anticipated during H124.

Valuation and Financials

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. More details on our valuation methodology are available in our recent note (November 2023 Outlook). Following incorporation of the latest Specialty Hospital deal, outlined below, plus rolling forwards in time and updating net cash, our valuation is increased to £179m, equivalent to 583p per share (from £176m and 575p/share). An overview of our valuation and key assumptions is summarised in Exhibit 2.

Exhibit 2: 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.

Within our updated valuation, we have broken out the RTD oncology formulation as a standalone contribution, separate to the Specialty Hospital rNPV, as this is now being developed with a partner. As information is limited, we apply our Specialty Hospital framework, including launch at least three years post deal ie 2027+, and a rapid three-year ramp to peak sales. We conservatively estimate these at $65m (above our typical base case) based on the blockbuster nature of the reference product. However, we assume this will be off-patent by the time of launch, therefore reducing the market value through price discounting, while also increasing competition. We include flat royalties of c 10%, and only include a limited number of modest future milestones.

There could be upside to both our peak sales and royalties/downstream payments, particularly on the former if the partner is able to drive higher market share and/or more of the market size is maintained, whilst the co-development nature of the deal may confer higher royalties and/or downstream milestones than our current assumptions. As the product is now partnered, we assign a 60% probability of success. The higher-than-average peak sales, plus the increased probability on the standalone asset, means the rNPV is higher than it had been within the previous Specialty Hospital rNPV ie the Specialty Hospital rNPV has decreased by less than the value of the standalone asset.

The remaining Specialty Hospital rNPV of £12m, which is largely a conservative placeholder, consists of a blend of assets based on the framework outlined in our November 2023 Outlook, with various launch timelines and probabilities. We assume a steady flow of new assets into the portfolio, and as seen with the latest deal, there is upside as partnerships are executed.

As a reminder, 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 launch in the US, as the royalty builds and/or the partner/product is disclosed/identified. We do not attribute a value to the technology formulation development collaborations, nor do we provide an indicative valuation of the Arestat technology platform.

Our financial forecasts, which are unchanged, are shown in Exhibit 3. As a reminder, Arecor had cash and equivalents (including short-term investments) at end-June 2023 of £8.2m, and post period end also received £0.4m in grants and £1.3m in R&D tax credits. Our model suggests that Arecor has sufficient funds to execute on current strategic plans, including the ongoing Phase I trial of AT278, and to provide optionality into 2024 to prepare for potential future development plans as these are refined. Our forecasts do not assume any potential conversion(s) of pre-licence technology partnerships to longer-term licence agreements, nor any significant uncertain milestones. Hence partnering and/or licence income from upfront payments, development milestones, or higher revenues from product sales and royalties, could all extend the runway.

Exhibit 3: Summary of financials
Source: Company, Trinity Delta. Note: FY24e R&D is largely illustrative pending development plans.

 

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