Scancell

SCIB1 SCOPE study shows a striking 82% ORR

Lighthouse | 19 September 2023

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  • The top-line data from the first stage of the Phase II SCOPE study of SCIB1 in combination with checkpoint inhibitors (CPIs) in advanced melanoma are highly impressive, with an objective response rate (ORR) of 82% (with the target nine responses achieved in only 11 patients). The tumour reduction at 13 weeks is 31-94%, with four patients reaching week 25 achieving a tumour reduction of 69-94%, and two patients reaching the 37-week evaluation achieving 87-94% tumour reduction.
  • The rationale underlying SCOPE is that the SCIB1 ImmunoBody vaccine primes an immune response against the tumour, whilst the CPIs reduce the immune-suppressant effect in the tumour microenvironment. As we recently outlined (September 2023 Update), doublet therapy response rates are around 48-58%, which to date have been the highest observed in advanced melanoma. Hence, with the caveat of cross trial comparisons, SCIB1 plus CPIs appears to increase the number of patients who respond.
  • The SCOPE study examines SCIB1 in combination with CPIs, with a focus on the combination with doublet therapy, Yervoy (ipilimumab) plus Opdivo (nivolumab). The study has now moved to the second stage, which will recruit a further 27 patients (for a total of up to 43 patients across both stages). The aim is to achieve 18 responses (ie 27 responses in total), in order to demonstrate that SCIB1 can exceed currently achievable ORRs. Data from the second stage are expected during H124.
  • The plan is to transition the SCOPE study to the enhanced, second-generation iSCIB1+, which has been enhanced with Scancell’s AvidiMab platform. This could potentially broaden the target market by addressing 100% of melanoma patients, and is also more potent. Top-line data with iSCIB1+ in combination with doublet therapy could become available H124.

Trinity Delta view: Although a small patient population, these highly impressive data from the SCOPE study effectively demonstrate the concept of using the SCIB vaccine in combination with CPIs. The strength of the results mean the second stage of the study, treating a further 27 patients (bringing the total to 43), has a 90% probability of success. In parallel, a new patient cohort will examine the same CPI doublet in combination with iSCIB1+, which offers broader patient applicability and greater potency. Data from these is expected during H124 and, subject to funding, will guide a pivotal Phase II/III registration programme. The Phase II part of this study should take 18 months and the power of these results suggest industry interest will be significant. The ImmunoBody therapeutic vaccine is one of Scancell’s four platforms, with the Moditope vaccine expected to deliver top-line Modi-1 CPI combination results during 2024 and the antibody platforms, GlyMab (anti-glycan mAbs) and AvidiMab, likely to see out-licencing deals too. Our Scancell rNPV valuation is £300.1m, or 36.7p/share.

Lighthouse

19 September 2023

Price13.13p
Market Cap£107.4m
Primary exchangeAIM London
SectorHealthcare
Company CodeSCLP
Corporate clientYes

Company description

Scancell is a clinical-stage immuno-oncology specialist that has four technology platforms. Two flexible therapeutic vaccine platforms are progressing through development. ImmunoBody and Moditope induce high avidity cytotoxic CD8 and CD4 responses, respectively, with the potential to treat various cancers.

Analysts

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

Franc Gregori
fgregori@trinitydelta.org
+44 (0) 20 3637 5041

Disclaimer

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Futura Medical

Significant achievements position MED3000 for success

Outlook | 18 September 2023

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An impressive stage has been set by Futura Medical for successful commercialisation of MED3000 (Eroxon in Europe), with consumer healthcare giant Haleon now secured as the ideal US commercial partner. Initial European launches via partner Cooper Consumer Health in the UK and Belgium have exceeded expectations, providing confidence in Eroxon’s potential, with the focus now on expansion of retailers, new launches, and repeat orders. Whilst there are no details on US launch timings, we believe preparations will take some time, and hence conservatively do not expect US launch until 2025. However, precise timings do not impact our overall investment case, with the sales potential for MED3000 more critical. The market for erectile dysfunction (ED) treatments remains significant, and as outlined by ED key opinion leaders, MED3000 is ideally placed to overcome the limitations of mainstay PDE5s. Our Futura Medical valuation is increased to £363m, equivalent to 121p per share.

Year-end: December 31202120222023E2024E
Revenues (£m)0.00.03.48.7
Adj. PBT (£m)(5.9)(6.9)(5.3)(1.5)
Net Income (£m)(5.0)(5.8)(4.7)(1.2)
EPS (p)(1.8)(2.0)(1.6)(0.4)
Cash (£m)10.44.06.52.6
EBITDA (£m)(5.8)(6.8)(5.3)(1.4)
Source: Trinity Delta Note: Adjusted PBT excludes exceptionals, Cash includes short-term investments.
  • Significant achievements should crystallise MED3000 value Following approval of MED3000 in the US as an OTC product for ED, Futura has secured a major US partner in its deal with Haleon, a leader in consumer health. We believe Haleon and EU partner Cooper are well placed to deliver successful MED3000 launches in these key regions, with pilot UK/Belgium launches having exceeded expectations. Additional EU launches are planned, plus first launches in the Middle East.
  • Success in the US or EU could be transformational MED3000 is the first clinically proven topical ED treatment available OTC in both the US and Europe. Given its rapid onset, limited side effects and lack of drug interactions, it presents a unique opportunity for ED patients. Key Opinion Leaders believe that MED3000 can overcome the limitations of PDE5s (eg Viagra & Cialis), including adverse events & lack of spontaneity, which lead to c 50% discontinuing PDE5s within a year.
  • Uniquely positioned within UK healthcare All clinical and regulatory hurdles typically associated with drug development have now largely been navigated, and key commercial deals for MED3000 are in place. Maiden revenues should grow, and whilst forecasting revenues is challenging owing to differing and undisclosed deal terms, we believe profitability is possible from 2025 given tightly controlled costs.
  • Updated valuation of £363m (121p/share) Our updated model reflects recent events, notably the US approval and deal with Haleon, leading to a valuation of £363m or 121p/share (from £270m and 94p/share). We conservatively do not assume US launch until 2025e, albeit we note the key driver of our valuation is the peak overall opportunity for MED3000 rather than precise launch timings.(60.9p/share).

Outlook

18 September 2023

Price52.20p
Market Cap£157.0m
Enterprise Value£149.1m
Shares in issue300.7m
12 month range34.4-67.0p
Free float39%
ExchangeAIM London
SectorHealthcare
Company CodeFUM.L
Corporate clientYes

Company description

Futura Medical is an R&D driven small pharma company, with a novel DermaSys transdermal delivery platform. The lead programme, a topically applied gel (MED3000), has been approved as an OTC product for ED (erectile dysfunction) in Europe and the US.

Analysts

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

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

Investment case

Futura Medical has developed a proprietary transdermal delivery platform known as DermaSys. The lead product is MED3000, a topical gel for erectile dysfunction (ED). It is the first clinically proven, fast-acting topical ED treatment that is available over-the-counter (OTC) ie without a prescription. MED3000 received CE Mark approval in Europe in April 2021, UKCA mark approval in the UK in April 2022, and FDA marketing authorisation in June 2023. The commercial partner in Europe, the UK and Switzerland is Cooper Consumer Health, where MED3000 is branded as Eroxon. In the US, a commercial partnership with Haleon was executed in July 2023. Eroxon was launched in the UK and Belgium in April, is now available online in France, Italy and Spain, and launches in an additional ten countries are expected over the next six to nine months. This includes first launches from Q423 in the Middle East (Saudia Arabia and the United Arab Emirates) through partner Labatec Pharma.

Valuation

We value Futura Medical using a DCF model, with MED3000 the key value driver. For the main commercial regions we calculate a net present value which is then risk-adjusted (rNPV) to reflect the stage of development, ie 100% in regions where MED3000 is approved. These are then summed and netted against core operating costs and net cash. We always seek to adopt conservative assumptions, as seen in our US peak sales forecast of c $350m (we believe this is the most significant commercial region), which is below the >$400m forecast independently from market research and despite the commercial prowess of US partner Haleon. Our model results in a current valuation of £363m, or 121p per share.

Financials

Futura Medical had net cash of £7.8m at end-June 2023, which was boosted to £9.4m at end-August 2023 following receipt of the $4m (£3.2m) upfront payment from Haleon. We forecast end-December 2023 cash of £6.5m, which we believe should be sufficient to fund current operations through to sustainable profitability, which should be possible based on EU and Middle East sales alone.

Sensitivities

The main sensitivities for most innovative healthcare companies relate to development and regulatory aspects, execution of commercialisation plans, and the financial resources required to accomplish these. With MED3000 key approvals secured in Europe and the US, and no near-term cash needs, the focus is on commercial execution, which is largely in the hands of experienced partners. The commercial partners provide confidence in the likelihood of successful launches, with the UK launch exceeding all of partner Cooper’s expectations. However, given it is almost impossible to accurately track MED3000’s launch and hence forecasting near-term revenues is particularly challenging, investors will have to rely on management commentary to reassure on the launch dynamics.

Futura Medical: Success breeds success

Futura Medical has had an exceptional 2023, delivering on all main final elements to position MED3000 (Eroxon in Europe), a topical gel treatment for erectile dysfunction (ED), for successful launches and uptake in the key EU and US markets. This includes the initial European launches in Belgium and the UK by partner Cooper in March/April, the much-anticipated US FDA approval in June, and culminating most recently in the US commercial deal with Haleon in July, perhaps the ideal US partner for MED3000. Success in the US or EU could be transformational, and Futura Medical is on the path towards sustainable and growing profitability. First revenues have now been reported, and with estimated YE23e cash of £6.5m and a likely relatively stable cost base with limited significant future spend requirements, we estimate there are no near-term cash needs. In addition, development and regulatory risks are now largely removed, and commercial execution is in the hands of knowledgeable and experienced partners. This is fairly unique amongst small-cap UK healthcare peers. Our updated Futura Medical valuation is £363m (121p/share).

During 2023, Futura has successfully delivered on all strategic priorities towards MED3000 commercialisation, and in all instances, these have resulted in perhaps the best hoped for outcomes. Following highly positive clinical data in August 2022, MED3000 was granted marketing authorisation in the US in June 2023. Importantly, the FDA clearance was for MED3000 to be available without a prescription, the first US ED treatment to achieve this milestone, and with the major differentiating claim that it has a 10-minute onset of action. It is therefore not surprising that Futura was able to secure a commercial deal with Haleon in the US, who we believe are best-placed to execute on MED3000’s potential in this significant market. EU launches are also going well with partner Cooper Consumer Health, with pilot launches, notably the UK, exceeding expectations, and further launches on the horizon. With maiden revenues set to grow, and tightly controlled costs, we believe Futura is well on the way to sustainable and growing profits.

MED3000 is a topical gel for the treatment of ED developed by Futura. It has demonstrated clinically relevant and consistent benefits across a broad spectrum of ED sufferers. In contrast to mainstay prescription ED treatments, MED3000 has a rapid onset of action, few side effects, no drug interactions, and is available over-the-counter (OTC) ie without a prescription. Given these unique features, MED3000 should be a suitable treatment for a wide range of ED patients.

We believe the biggest sensitivity will be around revenue expectations. In-market product sales, especially in the early stages of launch, are generally closely tracked as these can give an indicator of likely peak potential. This, however, will be almost impossible owing to limited disclosure from partners, coupled with differing and unknown precise deal terms in various regions. Whilst royalty income should correlate fairly directly with in-market sales, other components of Futura’s revenues, such as non-recurring and unpredictable milestone income, manufacturing fees, and supply of initial launch stocks, will not. Hence in-market sales will be almost impossible to deduce from Futura’s net revenues, especially in the near-term. In addition, without the ability to track prescription data as MED3000 is available OTC, all of these elements together mean that deducing current in-market sales and then forecasting revenues is particularly challenging.

MED3000: Main commercial elements are all in place

MED3000 is Futura Medical’s proprietary gel for erectile dysfunction (ED) and it is the first clinically proven, fast-acting topical ED treatment that is available over-the-counter (OTC) ie without a prescription. It received CE Mark approval in Europe in April 2021, UKCA mark approval in the UK in April 2022, and FDA marketing authorisation in June 2023. The commercial partner in Europe, the UK and Switzerland is Cooper Consumer Health, where MED3000 is branded as Eroxon, and initial launches are already underway in retailers in Belgium and the UK, with recent online availability in Italy, France and Spain. In the US, a commercial partnership with Haleon was executed in July 2023. Further EU launches by partner Cooper and via distributors are planned, and first launches via partners in Other Regions, including the UAE, are expected in Q423, for at least ten new country launches over the next six to nine months.

The mainstay treatments for ED are the oral PDE5 (phosphodiesterase-5) inhibitors, such as Viagra (sildenafil) and Cialis (tadalafil), which transformed ED treatment when they became available in the 1990s. Whilst they are likely to remain a popular ED treatment, MED3000 offers a number of advantages over, and is differentiated from, the PDE5 class, outlined in Exhibit 1 and discussed in more detail throughout this report. Market research discussed later in this report highlights that MED3000 is cost effective, even vs the cheaper generic PDE5s that are available in various markets.

Exhibit 1: MED3000 offers a differentiated approach vs PDE5s for the treatment of ED
Source: Trinity Delta. Note: * In some EU countries, including the UK, some PDE5s are available without prescription

Data package supports attractive market positioning

Data from two Phase III clinical trials provide consistent evidence of MED3000’s benefits, summarised in Exhibit 2 and outlined later in this report, with two-thirds of men experiencing a clinically relevant improvement. These support attractive market positioning with the unique selling points of: (1) rapid time to onset; (2) few side effects; (3) no drug interactions; and (4) no prescription required.

Exhibit 2: User benefits of MED3000
Source: Trinity Delta, Futura Medical

The pack size in Europe, with four tubes per pack, has been specifically selected to encourage subsequent use of Eroxon, given that clinical data suggest it can take a few attempts before achieving the optimum effect, similar to Viagra. This is also consistent with real-world experience outlined by Key Opinion Leaders, who commented that initial feedback is that subsequent use can lead to improved erectile function as performance anxiety diminishes and confidence improves.

Given MED3000’s availability without a prescription, the rapid onset of action, low side effects and lack of interaction with other drugs, it could be suitable for most men suffering from ED, in our view, including:

  • Those that do not seek medical treatment for their ED;
  • Patients where PDE5 use is contraindicated or limited due to other health conditions and/or medications;
  • ED patients that have discontinued PDE5 use owing to side effects; and
  • Unsatisfied PDE5 users, particularly where this is connected to the lack of spontaneity.

Compelling case for Eroxon outlined by UK experts

Recent comments by UK Key Opinion Leaders (KOLs) at the 22 June 2023 Investor Seminar provided confidence in Eroxon’s positioning and potential within the treatment armamentarium for erectile dysfunction (ED). The KOLs, Dr Jeff Foster and Dr Janine David FECSM, explained that the prevalence of ED is increasing, particularly amongst younger males but also in older males, and that PDE5s (eg Viagra and Cialis) have limitations and drawbacks. They outlined where Eroxon could be used today, and in addition highlighted potential areas for future innovation and development. A summary is provided below.

Erectile dysfunction, also known as impotence, is a common condition that can affect men of all ages, and according to the KOLs, around 50% of men will experience at least one episode of ED in their lifetime. Whilst ED generally becomes more prevalent with age (Exhibit 3), it was noted that it is becoming more common in younger males, with studies showing that 26% of men with newly diagnosed ED were under the age of 40; a more recent study in 18-31 year old sexually active men in the US found that c 11% reported mild ED and c 3% reported moderate-to-severe ED. In addition, the prevalence can vary owing to factors including health status (eg cardiovascular disease, high cholesterol, high blood pressure and diabetes) and lifestyle (eg smoking). Rising rates of obesity and increasing lifespans are also driving an increase in ED.

Exhibit 3: ED prevalence increases with age
Source: Adapted from www.nature.com/articles/3900622

The underlying cause(s) of ED can be wide ranging, with at least 37 different risk factors. The major one is cardiovascular disease (CVD), with others including hormonal imbalances, neurological conditions and obesity. In addition, ED can also be an early warning sign of other health problems; for example ED patients have a 43% increased risk of CVD compared to patients without ED, a 59% increased risk of coronary heart disease, a 34% increased risk of stroke and a 33% increased risk of death. Hence, understanding the underlying cause of ED is important, not only to offer appropriate treatment, but also to establish and treat other potentially undiagnosed conditions that could have longer-term health implications.

Whilst establishing and treating the underlying cause of ED is important, the availability of oral PDE5 inhibitors in the 1990s, such as Viagra and Cialis, have transformed the treatment of ED. However, despite ED being widespread and potentially having longer-term health implications, there are still around 27% of men with ED that have not tried any treatment. There are also certain medications and health problems that can limit use of PDE5s. Both of these groups could be suitable populations for Eroxon, in our view. Of the patients that do try PDE5s, around one third do not respond to initial treatment. Furthermore, around 49% discontinue treatment within a year, often owing to the frequent side effects and due to the lack of spontaneity, which we believe could be another potential target population for Eroxon.

The KOLs outlined that the limitations and drawbacks of PDE5s include:

  • High prevalence of adverse events, including headaches (which affects one in ten), flushing, indigestion, visual disturbances, back pain, low blood pressure, dizziness and nasal congestion;
  • Contraindicated in patients using nitrates, a class of cardiovascular drug used to treat chest pain (angina), as concomitant use can lead to drops in blood pressure;
  • Unsuitability in patients with a history of heart or liver disease; and
  • the 30-60 minute onset, which is even longer when taken with food, leading to a lack of spontaneity, a key issue.

The KOLs agreed that given the above PDE5 limitations, Eroxon can provide a very useful ED treatment addition for a number of different groups, particularly given the rapid onset and its availability OTC (without a prescription). For patients that do seek medical treatment, they highlighted that Eroxon could be suggested to patients as symptomatic treatment following an initial consultation and whilst awaiting test results to confirm the underlying ED cause. In addition, research suggests that 70% of partners would consider purchasing an ED treatment, which is possible with Eroxon given it is available OTC, and partner involvement is cited as a key component of ED treatment.

Furthermore, the KOLs outlined that initial feedback from their ED patients trying Eroxon has been positive, and noted that subsequent use can lead to improved erectile function as performance anxiety diminishes and confidence improves; this is consistent with observations from Futura Medical’s clinical trials. Finally, the KOLs were enthusiastic about the potential for Eroxon to have synergistic effects with other treatments, particularly those that treat the underlying ED cause, as an area for future investigation.

Europe: Successful early launches with Cooper

In May 2022, Futura Medical signed a deal with Cooper Consumer Health to commercialise MED3000 across Europe, including the UK and Switzerland. Cooper is the largest independent self-care (OTC) specialist in Europe, with sales of over €500m. It has a leading position in France, the Netherlands, Belgium, Italy, Spain and Portugal via a direct presence and has distributors in remaining geographies. Pre-launch activities for Eroxon were started in the UK and Belgium in March, where it is now available online and in retailers, and online launches via Amazon in Italy, France, and Spain were recently initiated. The main recurring financial element of the deal (more details in our May 2022 Lighthouse) is that Futura receives an agreed, undisclosed manufacture and supply price paid by Cooper on delivery of MED3000 orders (not on in-market sales). Futura Medical does not manufacture MED3000 itself, but has an external third-party contract manufacturer (CMO) in place, and has recently added a second CMO in order to meet projected demand.

Cooper’s marketing strategy is focused on Eroxon’s key unique selling points (USPs), which include the rapid onset, low side effects, no drug interactions, and no prescription. With these, Cooper believes that Eroxon can overcome both the entry barriers that prevent patients from seeking ED treatment, and the drivers and causes of discontinuation with current mainstay PDE5 treatment. Based on this, the key focus is on aware non-treaters, which is also anticipated to have a halo effect on dissatisfied current treaters.

At the Investor Seminar (available to view here), Mark Berkhout, the International Marketing Director at Cooper, outlined that in the UK, where some PDE5s are already available OTC, the aware non-treaters represent about 50% of all ED sufferers, whereas in Belgium, where ED treatment is only via prescription, the aware non-treaters represent a much higher 84% of ED sufferers. In both markets, drop-outs are around 50% of aware treaters, consistent with the UK KOL comments. The three pillars of success to drive Eroxon uptake are:

  • HCP (healthcare professional) credibility: Cooper is aiming to build credibility of the Eroxon brand with HCPs through attending medical conferences, engaging leading urologist KOLs, hosting specialist events and via online education programmes for specialists, GPs and pharmacists;
  • Focused access: The aim is to create easy access and visibility in stores, and to drive awareness and purchase; and
  • Consumer demand: Cooper is aiming to create consumer awareness and sales conversion through TV and online video advertising and assets (for example search ads on google, an Eroxon website etc), and via other touchpoints on the consumer journey.

Cooper are seeing early signs of success in Belgium and the UK, and Eroxon is on track to gain at least a 20% market share of clinically proven ED treatments, with initial sales being incremental to the category. Feedback is reported as being positive, with a low level of complaints regarding efficacy and side effects, and with initial positive signs of repeat orders. The first launches are being evaluated to optimise future roll-outs.

We believe that Futura’s initial revenues from Cooper for the manufacture of MED3000 for Europe have largely been for launch stocks. One of the key metrics of interest going forwards will be regarding repeat orders, with positive signs already noted, as this will give a better indication of the true underlying market demand and Eroxon’s potential. These will likely take at least a few months post wider EU launch to become apparent.

Initial UK sales have exceeded all expectations

In the UK, where Cooper does not have a direct presence, Ceuta Healthcare, an outsourced marketing business focused on building effective health and personal care brands in the UK, have been appointed to handle the UK marketing. Jon Connolly, the Marketing Director at Ceuta Healthcare, outlined the UK launch strategy and provided feedback and some details on the initial launch so far at the recent Investor Seminar (available to view here).

The “physical” UK launch (where patients can purchase Eroxon directly in store) was initially exclusively via Boots (both in store and online), with Eroxon also available via Amazon to provide additional ease of purchase channels. Mirroring the Cooper success pillars, Boots was selected as it is one of the most trusted brands in the UK, helping to provide credibility. In addition, Boots stores are generally readily and easily accessible to most UK consumers. Eroxon is available in >1,000 Boots stores and together with other retailers, there is a target to be available in over 2,500 stores in the UK by the end of 2023, representing a distribution reach of c 70%. Within Boots stores, Eroxon can currently be found in dual locations, both within sexual health products, and also behind the counter alongside PDE5s for those patients seeking the advice of a pharmacist. In order to drive demand, the initial launch in Boots in April coincided with a targeted PR campaign, resulting in positive headlines in national newspapers and TV coverage. Adverts have also been shown on national TV.

Exhibit 4: Eroxon units sold via Boots following UK launch
Source: Futura Medical

According to Ceuta, the Eroxon launch has exceeded all targets, including both Cooper’s and Ceuta’s expectations. Following the PR campaign, there was an initial spike in units sold (Exhibit 4) and Boots were out of stock within five days. During this initial launch, Eroxon was the number two product sold on Boots.com and there were occasions where one pack was sold every 30 seconds. During the TV advert phase, there was a 500% uplift in units sold, with Eroxon the fastest selling product on Boots.com. Sales of Eroxon have been predominantly incremental to the ED category, with little decline in sales of other ED products at Boots. Eroxon generated c £1m of retail sales after 42 days, with retail sales approaching £2m at the time of the Investor Seminar on 22 June 2023. According to Ceuta, Boots are pleased with the launch and remain enthusiastic, and the interim financial results note that this was the most successful OTC launch Boots had seen in long time.

US: In good hands with Haleon

In July 2023, Futura Medical licenced US marketing rights for MED3000 to Haleon, a world-leading consumer health company which was formed through the combination of consumer health businesses from GSK, Novartis and Pfizer over the last decade, and was spun out of GSK in July 2022. Haleon is focused on developing leading brands (eg Voltaren, Advil, Nexium, Flonase, Sensodyne) that are built on science and innovation. Revenues in 2022 were £10.9bn, with £4.1bn (38%) from North America; Haleon holds a leadership position in the US OTC market. Given Haleon’s breadth, depth, and singular focus and expertise in consumer health, notably developing leading OTC brands, particularly for “scientific” products such as MED3000, we believe this is the ideal partner to maximise MED3000’s potential in the key US market.

The deal grants Haleon exclusive commercial rights to MED3000 in the US, with Haleon responsible for all investment and marketing activities related to the future US launch, and for all ongoing regulatory, development, marketing and commercialisation activities. Futura will provide ongoing technical support. In exchange, Futura has received a $4m upfront payment, and will receive undisclosed royalties on MED3000 US sales, and milestones of between $5m and $45m linked to commercial sales thresholds over the coming “several years”.

Whilst no details on the potential timing of the US launch have been disclosed, we note that it took EU partner Cooper Consumer Health almost a year from licencing Eroxon in Europe in May 2022 to first launches in March/April 2023. The US supply chain still needs to be established, and preparations will need to be made to optimally target the broad and multiple channels in consumer health in the US, and to develop messaging that will resonate with target audiences. All of these elements take time, but especially for a new brand and product where an initial successful launch is key to driving continued long-term momentum. Hence, we conservatively do not anticipate any US product-related revenues until 2025.

In terms of the manufacture and supply of MED3000 in the US, at this stage it is unclear if Futura Medical will be involved in the US. If Haleon is taking responsibility for this element, this would be in contrast to Futura’s deals in other markets, where Futura has a third-party contract manufacturer in place. Establishing and managing a US supply chain is a costly and time-consuming process, especially for a UK-based “virtual” company with limited footprint in the US. Hence, if Haleon is taking the lead on this, which would make sense given its size and scale in the US, then we believe this would be a sensible outcome for Futura as this will limit near-term cash outflows to initial tech transfer support.

In the US, no PDE5 is yet available OTC. Sanofi has been working with Eli Lilly since 2014 to switch Cialis (tadalafil) to OTC availability, however, in May 2022, the FDA halted a prescription-to-OTC study citing concerns with the protocol design. Sanofi continues to work with the FDA to lift the clinical hold. At this stage, it is unclear if a PDE5 will ever become available OTC in the US, providing Futura and Haleon with a unique opportunity given MED3000 is approved OTC. Even if a PDE5 were to become available OTC in the US, we believe that the market opportunity will remain intact, given the limitations with PDE5s, and that initial MED3000 sales have largely been incremental to the category.

Updated market data suggest >$400m US peak sales

In 2022 Futura Medical commissioned market data firm Ipsos to update previously collected ED market data from 2017 in order to understand the changing dynamics of the ED market, particularly given the availability of cheaper generic PDE5s. The work also included an analysis of the perception of MED3000 amongst doctors, men and women, and explored the potential commercial opportunity. The 2022 survey responses largely mimicked the earlier 2017 survey, and also echoed many of the UK KOL comments outlined earlier in this report. The online survey was conducted in June/July 2022 and included 500 participants (400 males and 100 females) in the following groups:

  • 100 satisfied PDE5 users
  • 100 dissatisfied PDE5 users
  • 100 diagnosed ED but not treating
  • 100 undiagnosed but suspected ED
  • 100 women with a partner diagnosed/suspected ED

The survey responses highlighted that the main reasons for dissatisfaction with PDE5s were that they do not work as well as liked, and that they take too long to work/require planning. In addition, side effects were noted as a concern, particularly amongst Viagra users. Echoing the planning/lack of spontaneity issue with PDE5s, it was found that intercourse was not attempted one out of four times (25%) after taking a PDE5.

Ipsos also did an analysis of MED3000’s concept (branded as Eroxon for the survey) compared to their internal database of survey metrics. Using this approach, it was found that Eroxon came in the top 10% of concepts compared to the normative database, and in the top 3% for uniqueness.

When assessing MED3000’s features, the “works within 10 minutes” was the most appealing, with 46% of consumers picking this as the top benefit, and 84% of consumers ranking this within the top four benefits. Other highlights in terms of MED3000’s perception was that 81% of females were definitely or probably likely to purchase, and that 90% of males definitely or probably would use if purchased by a female, indicating the importance of partner engagement.

In terms of cost effectiveness, whilst the cost per dose of a generic PDE5 is <$1, when including all of the various peripheral costs in the US (out of pocket costs, doctor visits etc) the cost per annum for a generic PDE5 is around $600 (based on an average 7.2 uses per month, equivalent to 86 uses per annum), whilst for daily use of a branded PDE5 it is around $3,500. If MED3000 were priced in the US at $5 per dose/tube, this would equate to an annual cost of $432, based on similar average monthly usage. Hence, this is cheaper than even the low cost generic PDE5s. We note that, according to Futura Medical, a monthly ED treatment cost via men’s health telemedicine/digital clinic in the US, such as Roman and Forhims, is around $50/month ie $600 per annum.

A market forecast analysis was also conducted by Ipsos, where it was concluded that sales in the US could reach $409m five-years after launch. This assumed a $5/tube price and was based on average usage of 55 tubes per annum. We note this is below the average 86 doses per year used in the cost effectiveness analysis; hence, if usage is closer to this then, all else being equal, a simplistic calculation suggests peak sales could be closer to $640m. The price was also stress tested, with sales dropping slightly at prices up to $10/tube, with the higher price likely to reduce some volumes. We expect partner Haleon will perform additional market research in order to pick the optimal US price.

Other regions: First launches in 2023

Outside of the US and Europe, MED3000 has received approval in Australia, and has also received approvals in six Middle Eastern countries, including the UAE and most recently in Saudi Arabia. Partner Labatec Pharma is already in place in the Middle East and first production orders were received at the end of 2022, with initial launches in the Middle East planned in Q423. Existing MED3000 data used for the US and EU regulatory filings, summarised later in this report, should also be sufficient to secure approvals in other western countries. However, approvals in China and Japan may require additional trials to be completed, which will likely be driven by any partners, although these are yet to be secured in these regions. Futura has received significant interest for geographies that are unlicensed.

In order to maximise MED3000’s potential outside of the US and Europe, Futura Medical is building a growing network of partners, which are summarised below. More details are provided in previous notes (November 2022 Update):

  • South Korea executed in March 2022, is with Menarini Korea, a wholly owned subsidiary of Menarini Group;
  • Brazil and Mexico with m8 Pharmaceuticals (also known as moksha8) was secured in August 2021; and
  • Gulf and Middle East with Labatec Pharma, a Swiss based specialty pharma business, was signed in September 2021 and covers the Gulf countries (Saudi Arabia, United Arab Emirates, Kuwait, Qatar, Oman, and Bahrain) as well as Jordan, Lebanon and Iraq.

We note that in China and South-East Asia, Futura Medical has terminated the Joint Collaboration with Co-high, which has been unable to deliver on key development and regulatory milestones agreed as part of the March 2021 deal, owing to an internal change of strategy at Co-high.

Summary of key MED3000 data

Across a number of studies, including two Phase III clinical trials, MED3000 has been shown to work consistently and has been very safe and well tolerated. MED3000 has demonstrated benefits across all three classifications of ED (mild, moderate and severe). It works in psychogenic impotence (caused by issues such as anxiety and depression), organic impotence (caused by physical issues such as hardening of the arteries) and mixed ED, and works across a broad age range (trials included 18-70 year olds). MED3000’s key characteristics are:

  • Clinically proven and consistent benefits across a wide range of ED;
  • Fast-acting, within 10 minutes, allowing spontaneity;
  • Safe and well tolerated, with low side effects in males and partners, and no drug interactions; and
  • Available OTC (without a prescription).

Best hoped for US label supported by positive FM71 data

FM71 was a clinical study which was specifically requested by the US FDA to support marketing clearance as an OTC treatment for ED. The trial was conducted over 24 weeks in order to satisfy FDA concerns that the efficacy of MED3000 may diminish over a longer period compared to the 12 weeks examined in the previous FM57 trial. Endpoints were agreed with the FDA and were the same as prior studies, albeit over 24 weeks, and also included speed of onset. The trial included 96 patients, which included a mix of mild, moderate, and severe ED patients (including African Americans). A representative half (n=47) used MED3000 topically, with the remainder using the lowest dose (5mg) of tadalafil (Cialis) orally in a randomised, open-label, at home study.

FM71 data were highly positive and met all FDA agreed primary and secondary endpoints. The results of FM71 were consistent with those seen in the previous 12-week FM57 Phase III study, with the improvements in erectile function sustained throughout the longer 24-week period explicitly requested by the FDA. Data from both studies suggest that around two-thirds of men experienced a clinically relevant benefit. In addition, MED3000 was shown to have a rapid onset of action, within 10-minutes, which has resulted in this key claim being included on the label in the US, an important commercial differentiator. MED3000 was clinically effective at all timepoints, and met both of the co-primary endpoints (Exhibit 5). These were based on the gold standard and internationally recognised IIEF score (international index of erectile function):

  • The first showed a highly statistically significant improvement in erectile function (p<0.001) against baseline at 24 weeks across ‘pooled’ severities of ED (mild, moderate and severe);
  • The second showed that on average, patients experienced a 5.73 unit change in IIEF-EF score versus baseline at 24 weeks, comfortably exceeding the four unit difference agreed with the FDA and defined as the Minimal Clinical Important Difference (MCID), an outcome measure that is noticeable to a patient.
Exhibit 5: FM71 primary endpoints achieved
Source: Futura Medical

As can be seen in Exhibit 5, there was no decline in efficacy after week 12, with the effects continuing to improve. In addition, the MCID was exceeded consistently at all timepoints from week four. This is consistent with commentary that around three to four attempts with MED3000 are required to reach the optimum effect. Additional results from FM71 include: over the 24 weeks the MCID was also exceeded for each of the mild, moderate and severe ED subgroups; and, using the SEAR (Self Esteem and Relationship) questionnaire, at week 24, 85.4% of MED3000 users felt sex could be spontaneous.

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

FM71 data consistent with FM57

The original FM57 study was conducted in Eastern Europe and was for approval in Europe. It included 250 subjects and was conducted over 12 weeks. As can be seen in Exhibit 6, efficacy data in terms of the IIEF-EF change from baseline were remarkably consistent across FM71 and FM57. In addition, data from both studies suggest that around two-thirds of men experienced a clinically relevant improvement at 12-weeks (MCID of four units), shown in Exhibit 7.

Exhibit 6: FM71 efficacy data were consistent with FM57
Source: Futura Medical
Exhibit 7: Around 63% of users achieve MCID at 12 weeks
Source: Futura Medical

Home use study provides consistent real-world evidence

As part of its due diligence, Cooper Consumer Health also undertook a consumer marketing home use test (HUT) in the UK, France, and the Netherlands. The size of the HUT has not been disclosed but would typically involve c 200 consumers. In this case men with self-diagnosed ED were supplied with a four-pack sample of MED3000 and the appropriate packaging leaflet. The results were in-line with data from both FM71 and FM57 where over two-thirds of patients saw a clinically meaningful benefit (Exhibit 7). In the HUT the majority of men with ED, other than men suffering from severe ED with significant co-morbidities, saw an improvement in erectile performance.

Sensitivities

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

We believe the biggest sensitivity will be around revenue expectations. In-market product sales, especially in the early stages of launch, are generally closely tracked as these can give an indicator of likely peak potential. This, however, will be almost impossible owing to limited disclosure from partners, coupled with differing and unknown precise deal terms in various regions. Whilst royalty income should correlate fairly directly with in-market sales, other components of Futura’s future revenues, such as non-recurring and unpredictable milestone income or manufacturing fees, will not. Hence in-market sales will be almost impossible to deduce from Futura’s net revenues, especially in the near-term. In addition, without the ability to track prescription data, as MED3000 is available OTC, all of these elements together mean that deducing current in-market sales and then forecasting revenues is particularly challenging.

Whilst approvals have been secured in the key markets of Europe and the US, limiting significant development and regulatory risks, there are regions where MED3000 is not yet approved or partnered. In some regions, approval(s) may be possible based on existing data, whereas in other areas, additional trials will likely be needed. In both scenarios, we believe Futura will seek to execute partnership deals. We do not expect Futura to conduct additional trials alone, instead seeking commercial partners with the resources and expertise to complete any necessary studies, and experience to successfully launch MED3000 once approval(s) are eventually granted. We expect Futural will play an active support role, either for regulatory filings or for manufacture and supply, albeit at limited “at risk” cost to Futura. Whilst we believe deals will be forthcoming, we have limited visibility on the timings and possible deal terms.

Notwithstanding the uncertainties around future revenues from existing and potential new partners, we do not believe Futura has any significant cash needs. Futura’s well controlled core operating costs are likely to remain at around £5-6m per annum in the absence of any new significant development projects. Our model suggests a narrowing net loss in FY24e, in part driven by recognition of the Haleon $4m (£3.2m) upfront payment, with break-even possible if any additional milestones are received (from Haleon or other partners), or if US launch comes sooner than our conservative 2025 expectation. Assuming US launch in FY25e, and that in-market sales in EU and Other Regions grow, then we believe Futura is on-track for sustainable profitability and positive cash flow generation from 2025.

Patents to protect MED3000 have been filed in all major jurisdictions, and if granted, would provide patent protection until 2040. These formulation patents should make it challenging for any other similar style of product(s) to receive regulatory approvals, unless they can demonstrate that any differences in formulation (which would be needed to not infringe the patents) are substantially equivalent to MED3000; this is not a straightforward process.

Valuation

We value Futura Medical using a DCF model, with MED3000 the key value driver. The key changes to our valuation model include the US approval (unwinding the risk adjustment) and incorporation of the deal with Haleon. These updates lead to a Futura Medical valuation of £363m, or 121p per share (Exhibit 8).

We continue to view the US market opportunity as the most significant, and we now forecast US peak MED3000 sales of c $350m (from c $250m). The uptick in peak sales reflects the partnership with Haleon, who we believe are well placed to maximise the potential of MED3000 in the US. In-line with our typical conservative stance, our US peak sales are below the >$400m forecast by Ipsos outlined earlier in this report (and well below the upside scenario of $640m). Our peak sales forecasts in Europe and in Other Regions are unchanged and conservatively remain at $100-130m in each geography. These factor in the distinct commercial models in different countries. Our sales forecasts are summed and netted against the costs of running the operation and net cash.

Exhibit 8: Futura Medical risk-adjusted DCF model
Source: Trinity Delta  Note: Assumptions include a 10% discount rate; a 1.2 $/£ FX rate, and 10% tax rate from 2026 with the benefit of the UK patent box

For the purposes of modelling and given limited disclosure of precise deal terms in Europe with Cooper (which includes multiple revenue layers), for simplicity we assume Futura receives payments that are equivalent to a royalty rate of c 20% on in-market sales. In the US, Futura will receive a royalty on in-market sales from Haleon and is eligible to receive potential sales-related milestone payments; we have made various assumptions, based on industry standards, for these components. In Other Regions (which includes South Korea, China & South-East Asia, Brazil and Mexico, and the Gulf and Middle East) we continue to model half of profits accruing to Futura (equivalent to a 12.5% royalty based on a 25% net margin assumption); we have increased the risk adjustment to 80% in Other Regions following the US approval, as we believe this de-risks global approvals.

Whilst our forecasts are based on a number of assumptions, the key variable in our valuation is the peak opportunity for MED3000, rather than the precise deal terms or planned launch timelines. For example, if we either bring forward US launch, or postpone it, by one year vs our base case (launch in 2025e), this is only worth about ±10p/share on our 121p base case valuation (c 8%). However, if we increase our WW peak MED3000 sales to c $700m (from current <$600m), which would not seem unreasonable if Haleon can exceed the Ipsos $400m forecast, if Europe continues its strong initial launches, and Other Regions similarly follow on the back of strong US and EU brands, then this would be worth an incremental >20p/share on our 121p base case valuation (c 17%).

Financials

Our model and forecasts have been updated to reflect financial results and the recent Haleon deal. With maiden revenues reported, we do now include future revenue forecasts, which we previously did not. In our published forecast periods of FY23e and FY24e, these are from orders in Europe from partner Cooper, plus from partners in Other Regions. We do not include any US product-related forecasts in FY23e and FY24e revenues given we conservatively do not anticipate US launch until at least 2025, nor do we include any uncertain milestones. Hence there could be upside if any milestones are received from Haleon (or others), or if US launch comes sooner than we expect. With the challenges in forecasting revenues, as previously outlined, we caveat that our FY24e forecasts in particular will likely be subject to revisions, although we have taken a conservative stance.

For FY23e we conservatively forecast revenues of £3.4m, based on achieving similar revenues of £1.7m in H223 (H123: £1.7; H122: £0.0m). For FY24e we forecast product revenues of £5.5m as we assume growth in existing regions from repeat orders, and an expansion in revenues from additional launches. We also include full recognition of the $4m (£3.2m) upfront from Haleon in FY24e (a non-cash P&L item as this is already received and included in end-August 2023 cash of £9.4m), for total FY24e revenues of £8.7m. We do not include any other unknown milestone income from any partners in our forecasts, which could all be upside.

Costs continue to be tightly controlled, with total H123 Operating Expenses (R&D and SG&A) of £2.9m (H122: £2.8m); we note that H123 OpEx included non-cash share-based payments charges in SG&A of £645k (H122: £131k), hence underlying core costs actually decreased. As Futura has now transitioned to commercial execution, the balance of spend has shifted from R&D to SG&A, with H123 R&D declining to £0.8m (H122: £1.9m), reflecting completion of the FM71 study, whilst SG&A increased to £2.0m (H122: £0.9m), reflecting increasing commercial partner support for Eroxon launches. Given most of the MED3000 clinical development work is now complete, we anticipate a continued decline in R&D spend to £1.6m in FY23e and to £1.5m in FY24e (FY22: £4.1m). We expect SG&A to increase to £5.6m in FY23e and to £6.4m in FY24e (FY22: £2.7m).

The H123 net loss was £1.8m (H122: £2.5m), and given declining R&D spend coupled with initial revenues from MED3000, we expect the net loss to narrow to £4.7m in FY23e, and even further to £1.2m in FY24e, with break-even possible if any additional milestones are received, or if US launch comes sooner than 2025 (FY22: net loss of £5.9m). If we assume that Futura can maintain a stable core cost base (excluding non-cash items) of around £5-6m per annum, assuming no new development projects, then sustainable profitability is possible from 2025, in our view, even based on conservative revenue forecasts. This could come sooner if revenues exceed our expectations, if Haleon launches in the US before 2025, and/or if costs decline more rapidly.

Cash at end-June 2023 was £7.8m (end-December 2022: £4.0m), owing to the cash inflow of £4.4m via the warrant exercise by Lombard Odier AM (10.4m shares at 40p per share) which more than offset underlying cash burn. Cash at end-August 2023 was £9.4m, which was boosted by the $4m (£3.2m) upfront payment from Haleon. We believe cash should be sufficient to fund current operations through to sustainable profitability and cash generation from 2025.

Exhibit 9: Summary of financials
Source: Company, Trinity Delta    Note: Adjusted numbers exclude exceptionals. FY24e revenues include full recognition of the $4m (£3.2m) upfront payment from Haleon, which has been received.

Company information

Contact details

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

Tel: +44 (0) 330 023 7300

www.futuramedical.com

Top shareholdings

% holding
Lombard Odier Asset Management (Europe) Ltd28.50
T Adams6.89
WT Lamb Investments Ltd4.51
RA Lamb3.28
Chelverton Asset Management3.01
Disclosable shareholdings (>3%) 46.19
Other shareholders53.81
Total shareholders100.00
Source: Futura Medical at 30 June 2023

Key personnel

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

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Arecor Therapeutics

Growth plans starting to stack up

Update | 14 September 2023

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Arecor’s innovative and lower risk pipeline is making tangible progress; at partners where assets are under licence, and internal in-house development of the proprietary diabetes and specialty hospital programmes. The growth potential is becoming better defined as the first partnered asset approaches commercialisation. While near-term revenues will continue to include a variable milestone element, over the medium-to-longer term, income streams will be comprised of success-based milestones coupled with recurring sales-based royalties or equivalent. Upcoming catalysts include key Phase I data in Type II diabetes for AT278 (ultra-concentrated rapid insulin), anticipated milestones from partners, and the prospect of further licensing agreements for its proprietary assets as well as technology partnerships. Ahead of these catalysts our Arecor valuation remains £176m, or 575p 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
  • Investment case centres on diabetes franchise Clinical data to date from Arecor’s two key 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 demographics 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 by early 2024.
  • Partnering prospects look rosy Recent progress with licenced assets includes: (1) potential for first sales of undisclosed biosimilar AT220 in late 2023/early 2024, subject to approval(s); (2) imminent dosing of the first patient in Inhibrx’s AT292 pivotal ElevAATe study; and (3) confirmation of FDA 505(b)(2) regulatory pathway for Hikma’s AT307. New technology partnerships (with potential for conversion to licences) as well as licensing deals for the in-house specialty hospital products portfolio could expand the partnered pipeline. So far in 2023, three new revenue-generating collaborations have been signed, bringing the total to eleven since IPO.
  • Growing revenues with cash to execute current plans H123 revenues were driven by Ogluo sales, which should continue to grow. Future revenues will also be boosted by first recurring AT220 royalties once launched, and from non-recurring milestones from licenced assets (AT220, AT292), albeit the timing is dependent on partners. Cash should be sufficient to execute on current strategic plans.
  • Valuation of £176m, or 575p per share  Our unchanged Arecor pipeline rNPV valuation is £176m (575p per share). Continued clinical progress notably with AT278 and AT247, disclosure around AT220, and execution of further partnerships, could result in material upside revisions to our model.

Update

14 September 2023

Price187.50p
Market Cap£57.4m
Enterprise Value£49.2m
Shares in issue30.6m
12-month range180p-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: low-risk innovation

Arecor is leveraging its proprietary Arestat platform and formulation expertise to create a portfolio of internal and partnered clinical assets with enhanced properties that would otherwise be unachievable. This has created a broad and well-balanced pipeline of innovative products that offer similar milestone and royalty streams to classic drug discovery companies, yet with lower development risks and in a less costly and more rapid manner. A mix of in-house assets and partnered products provide an attractive blend of value inflection points. We view the emerging diabetes franchise as particularly interesting, with the most upside potential within our valuation. The two lead compounds are AT278, an ultra-concentrated, ultra-rapid insulin, and AT247, an ultra-rapid pump-optimised insulin. If successful, these could be ideally placed for the notable shifts underway in diabetes therapy. Our Arecor valuation is £176m, equivalent to 575p a share.

Arecor’s lead in-house assets are the Phase I diabetes programmes AT278 and AT247, while the three most advanced partnered programmes are: (1) AT220, an undisclosed partnered biosimilar which is likely to be the first product employing the Arestat technology to launch pending regulatory approval(s) expected this year; (2) a specialty hospital product licenced to Hikma (AT307); and (3) a late stage clinical orphan disease drug with Inhibrx (AT292/INBRX-101). An overview of Arecor’s pipeline is shown in Exhibit 1.

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

In-house programmes address diabetes

Arecor’s two key in-house clinical stage programmes are the ultra-rapid insulins AT278 and AT247, both of which are innovative formulations of insulin aspart, the active ingredient in Novo Nordisk’s well-characterised, proven and now off patent Novolog (US)/NovoRapid (ex-US). AT278 is well positioned for the demographic and technology shifts that are underway within diabetes (outlined in our April 2023 Update) and AT247 has an ideal profile for “artificial pancreas” pumps. AT278 and AT247 Phase I data to date show highly promising, differentiated profiles that could capture larger market shares and open new market opportunities (discussed in detail in previous reports including December 2022 Outlook). There are also two further diabetes assets: Ogluo, a ready-to-use glucagon auto-injector pen, which is commercially available in select European countries; and AT299, a preclinical stage co-formulation of pramlintide and insulin.

AT278 is currently in a second Phase I trial in patients with Type II diabetes. Recruitment is progressing well and Arecor is evaluating the opportunity to increase the powering of the study (enrolling 42 subjects instead of the planned 32) for a modest increase in investment. This would increase the robustness and value of the data generated from a highly variable Type II diabetes population, and would shift the data read out into early 2024 (from Q423). AT278 has the potential to be a disruptive insulin as an ultra-concentrated U-500 (500 units/ml) and ultra-fast acting insulin formulation. Such high concentration insulins are expected to become increasingly in demand, reflecting the rising number of people with Type II and refractory Type I diabetes that require higher daily dosing. The increase in incidence of both Type I and Type II diabetics is being driven by rising obesity rates across most geographies, which result in a greater incidence of obesity-related insulin resistance, such that average usage for Type II diabetes patients is now 97 units of insulin daily, with a growing number needing 200 units or more. For context, the average adult needs between 0.5 and 1.0 units/kg daily. The challenges in formulating a higher concentration (>200 U/ml) rapid or ultra-rapid acting insulin mean there are no such options commercially available, nor do we know of any in clinical development.

AT247 is a next-generation ultra-rapid prandial insulin analogue of U-100 insulin aspart. It has been specifically formulated to materially accelerate absorption after injection, achieving a profile that closely approximates healthy (non-diabetic) physiological insulin secretion. The goal is to improve control of postprandial glucose and increase time in range (the percentage of time spent in the target glucose range). It is suitable for both Type I and Type II diabetes patients who self-administer insulin either via pen devices (also known as multiple daily injections, MDI) or any insulin pump system. Importantly, AT247’s attractive PK/PD profile suggests it has the potential to be an ideal pump insulin, enabling optimal use of automated continuous subcutaneous insulin infusion (CSII) devices, and ultimately a fully closed loop artificial pancreas system.

First commercial Arestat-based product in sight

Arecor has three partnered programmes with future milestone and recurring royalty potential: one internally generated specialty hospital product (AT307), and two from technology partnerships (AT220 and AT292).

The most advanced partnered asset, AT220, is likely to be the first product incorporating the Arestat technology to launch. It is an undisclosed biosimilar product under development with a global pharmaceutical company for a multi-billion market. Regulatory approval(s) continue to be expected this year, with potential for first sales in 2023/4. A further milestone is expected to be triggered prior to the receipt of royalties on sales, although none of the financial terms have been made public. Disclosure of the underlying reference biologic and partner would enable a review and refinement of our current conservative forecasts and assumptions.

Further progress has been made by partner Hikma with AT307, a ready-to-use (RTU) injectable of an undisclosed already marketed specialty hospital product. Following a recent FDA pre-IND meeting, Hikma has confirmed that AT307 development in the US will continue under the abbreviated 505(b)(2) approval pathway. As this references the originator drug for evidence of clinical efficacy and safety, no major clinical trials are expected to be required, allowing for significantly more rapid development than a typical new drug, in-line with our 2025/6 launch expectations. In addition, this further supports the likelihood that the 505(b)(2) pathway will apply across Arecor’s internal specialty hospital pipeline of enhanced RTU and RTA (ready-to-administer) formulations of existing drugs.

AT292, partnered with Inhibrx as part of a multi-product collaboration, is a novel, enhanced formulation of INBRX-101, a recombinant Alpha-1 Antitrypsin Fc-fusion Protein. It was recently granted Fast Track Designation in the treatment of emphysema due to alpha-1 antitrypsin deficiency (AATD), and a registration-enabling trial, ElevAAte, in this indication was initiated in April. Dosing of the first patient in this trial will trigger the next milestone to Arecor under the terms of the licencing agreement. Top line data from ElevAAte are expected in late-2024.

Additional revenue generating deals are expected

Since IPO, Arecor has secured eleven revenue-generating collaborations with major pharmaceutical and biotechnology companies, including technology partnerships (typically formulation development using the Arestat platform to develop novel formulations of partner proprietary products) and licence agreements (either through the conversion of technology partnerships, or the out-licensing of internally developed products). These agreements provide near-term revenue via research fees, with upside potential from licencing (clinical/commercial milestones and royalties or equivalent). Three new deals have already been signed during 2023, and further collaborations are expected:

  • an additional formulation agreement with an existing top five pharma partner, building on a 2022 collaboration to develop stable injectable high concentration formulations of the partner’s proprietary products; the partner will fund initial development work and has the option to acquire new formulations under a typical technology licensing model;
  • an additional agreement with a leading biopharma supporting biosimilar development following an earlier technology partnership; and
  • a collaboration with a top 10 pharma company to develop a novel, stable formulation of a liquid, high concentration antibody.

Valuation and Financials

We continue to value Arecor using an rNPV model, explicitly valuing the diabetes franchise, partnered assets, and the in-house specialty hospital product research programme(s). More details on our valuation methodology and key assumptions are available in previous notes (December 2022 Outlook and April 2023 Update). Our valuation is £176m, equivalent to 575p per share. An overview of our valuation is provided in Exhibit 2.

Exhibit 2: Arecor rNPV valuation
Source: Trinity Delta   Note: AATD = Alpha-1 antitrypsin deficiency; assumptions include a 12.5% discount factor, £/$ FX rate of 1.20, and 10% taxation from 2026 (UK patent box).

Revenues in H123 were £1.7m (H122: £0.7m) comprising £0.3m of formulation development (H122: £0.7m), milestones of £0.1m (H122: nil), and product sales of £1.2m (H122: nil). The latter largely relate to Ogluo sales in select EU countries, following the Tetris Pharma acquisition. This was incorporated from August 2022, hence no product sales were recorded in the prior period. For reference, product sales during H222 for the five months post-acquisition (4 August to 31 December 2022) were £1.0m. Arecor also recorded £0.6m (H122: £0.4m) of other operating income as part of a £2.8m grant awarded from Innovate UK in March 2021. We note that sales and EBITDA targets to trigger the first contingent Tetris Pharma earn-out of £1m were not deemed achieved, and hence this is not payable.

R&D investment decreased to £2.9m in H123 (H122: £4.8m) following completion of the US Phase I trial of AT247 in October 2022. The main clinical trial costs now relate to the ongoing European Phase I trial of AT278, which was initiated in December 2022. SG&A spend increased to £4.4m (H122: £1.6m), as this now includes Tetris Pharma related costs, which were not included in the prior period. When adjusting for Tetris Pharma SG&A, like-for-like underlying H123 Arecor SG&A was £1.9m (H122: £1.6m), suggesting core costs remain controlled. Pre-tax loss was £4.8m (H122: £5.2m), and net loss was largely unchanged at £4.5m (H122: £4.4m).

We have made minor adjustments to our FY23e revenue forecast and now forecast £4.8m (from £4.9m) based on the H123 trends. Our FY24e revenue forecast remains £7.1m. Following H123, we have decreased our R&D spend forecasts to £5.9m in FY23e (from £6.3m) and to £6.2m in FY24e (from £6.6m) to reflect H123 trends, albeit the latter is largely illustrative and future R&D investment will depend on clinical trial plans, likely to be refined as data become available. We have increased SG&A forecasts reflecting higher Tetris Pharma spend in H123; we now forecast SG&A of £9.0m in FY23e (from £7.1m), rising to £9.5m in FY24e (from £7.9m).

Arecor had cash and equivalents (including short-term investments) at end-June 2023 of £8.2m (end-June 2022: £13.7m; end-December 2022: £12.8m). Post period end, Arecor also received £0.4m in grants and £1.3m in R&D tax credits. Our updated forecasts (Exhibit 3) indicate 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 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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HUTCHMED

Surfing the ‘waves’ towards profitability

Outlook | 7 September 2023

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HUTCHMED’s clearly articulated strategy is delivering, with consistent clinical and commercial execution marking its continuing transition from a development stage company into a profitable commercial organisation. Growth in Oncology/Immunology revenues, defined investment priorities, and a global partnering strategy should all contribute to achieving a FY25 breakeven target. HUTCHMED aims to expand its marketed portfolio of oncology drugs in China from three to six or seven by FY25, addressing blood disorders as well as solid tumours. First global launch of an in-house product, by partner Takeda, could occur in 2024, subject to a positive FDA approval decision in November. Our updated HUTCHMED valuation is $5.74bn ($32.95 per ADS), £4.78bn and HK$44.75n (549p or HK$51.40 per share).

Year-end: December 31202120222023E2024E
Revenues (US$m)356.1426.4798.0 618.0
Adj. PBT (US$m)(337.1)(410.4)(34.4)(196.1)
Net Income (US$m)(194.6)(360.8)14.6 (140.1)
Earnings per ADS (US$)(1.23)(2.13)0.09 (0.82)
Cash (US$m)1,011.7631.0712.1 536.9
Adj. EBITDA (US$m)(260.5)(349.3)14.2 (120.4)
Source: Trinity Delta  Note: Adjusted PBT excludes exceptionals, Cash includes short-term investments, Adjusted EBITDA includes equity in earnings of equity investees, $ refers to USD unless otherwise specified
  • Growing revenues, optimising costs  HUTCHMED’s core Oncology/Immunology revenues continue to grow, as seen with H123 financial results. These revenues, derived from growing in-market sales in China of its oncology assets, plus potential new launches, will be one of the key drivers towards achieving sustainable profits. The other element is cost control, and pipeline prioritisation has already delivered an impressive 20% cut in R&D spend in H123, whilst SG&A is also being optimised. We expect further reductions, notably in R&D, over the next few years. Together, these elements position HUTCHMED on the path to sustainable profits from 2025.
  • Heading into a catalyst rich H223  Investor focus is on the 30 November PDUFA goal date for fruquintinib in advanced mCRC in the US; the European filing has also been accepted for review and the Japan submission should be filed by end-2023. Other anticipated H223 pipeline news flow includes read out of amdizalisib’s China registration study following recent positive sovleplenib data (supporting first China NDA submissions in haematology) and completion of recruitment of registration-intent studies for savolitinib (SAVANNAH global NSCLC trial), tazemetostat (China bridging trial, 3L follicular lymphoma) and fruquintinib (China sintilimab combo study, 2L renal cancer). The Q423 Capital Markets Day should further update on strategic delivery, detailing pipeline progress and the significant prospects.
  • Valuation of $32.95/ADS or 549p/HK$51.40 per share  Our DCF-based sum-of-the-parts model of HUTCHMED includes a detailed pipeline rNPV model. Reviewing our assumptions post-H123 results generates an updated valuation of $74bn/ £4.78bn/ HK$44.75bn, or $32.95/ADS and 549p/HK$51.40 per share. Further value should be unlocked with clinical, regulatory, and commercial execution, including through existing and new strategic partnerships.

Outlook

7 September 2023

Price (US ADS)
(UK share)
(SEHK share)
US$14.30
229p
HK$22.85
Market Cap
 
US$2.47bn
£2.00bn
HK$19.90bn
Enterprise Value
 
US$1.67bn
£1.31bn
HK$13.53bn
Shares in issue (ADS)
(shares)
174.1m
870.6m
12-month range
 
$7.39-$21.28
130p-337p
HK$11.36-33.20
Free float59.65%
Primary exchange
 
NASDAQ
AIM
SEHK
SectorHealthcare
Company Code
 
HCM
HCM.L
00.13HK
Corporate clientYes

Company description

HUTCHMED is a Hong Kong headquartered biopharma focused on discovering, developing and commercialising 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

Investment case

HUTCHMED is a triple-listed China-based, globally focused, biopharmaceutical company, active in discovery, development, manufacturing, and commercialisation of novel, highly selective, small molecule TKI (tyrosine kinase inhibitor) drugs, and more recently biologics. The investment case centres on leveraging its pipeline, China commercial infrastructure, and ex-China partnerships (current partners are Takeda and AstraZeneca) to build a self-sustaining business that turns profitable in FY25, and then benefits from operational leverage and growing revenues from its diverse portfolio of potential blockbuster therapies. HUTCHMED was founded in 2000 by Hutchison Whampoa (a wholly owned subsidiary of Hong Kong-listed multinational conglomerate, CK Hutchison Holdings, which remains the largest shareholder with a c 39% stake). In May 2006, HUTCHMED went public with a £40m (gross) AIM IPO; the NASDAQ IPO followed in March 2016 raising $110m ($96m net), with a $585m net IPO on the Main Board of the HKEX in June 2021.

Valuation

We use a SOTP approach to value HUTCHMED. The Oncology/Immunology business is a classic drug discovery, development, and commercialisation play, and a DCF-based model is particularly suitable. We calculate an rNPV of the various clinical projects (adjusted for success probabilities), sum them, and net this against costs, adopting conservative assumptions throughout. Other Ventures generates meaningful sales and profits, so earnings-based metrics are appropriate. Our valuation is $5.74bn, £4.78bn or HK$44.75bn, equivalent to $32.95/ADS or 549p/HK$51.40 per share (1 ADS = 5 shares; all listings are fungible).

Financials

HUTCHMED’s cash and equivalents at end-June 2023 were $856m (including receipt of the $400m Takeda upfront payment), with another $65.3m in unused bank facilities, and $43.6m at the SHPL JVs. Strategic prioritisation of registration studies and the late-stage pipeline resulted in 20% lower R&D spend in H123 vs H122, while restructuring of US operations contributed to a 14% reduction in  SG&A costs. Prudent cost management, coupled with anticipated revenue growth and the potential to extend the current cash runway through the achievement of milestones from existing partners or securing additional partnerships means that HUTCHMED remains well-funded. China revenues from the approved products (Elunate, Sulanda, Orpathys), plus partial recognition of the Takeda upfront, underpin FY23 Oncology/Immunology revenue guidance of $450-550m.

Sensitivities

As a fully integrated biopharma company, typical industry risks (clinical, regulatory, funding, partnering, competition, commercialisation, pricing and reimbursement) apply. However, the TKI pipeline’s breadth and scope reduces technical risk, covering various mechanisms of action, with potential across a range of cancers. Investor concerns about China (economic, political, regulatory) are mitigated by regulatory reforms that favour innovation, strong domestic management, and increasingly global operations. Key sensitivities are detailed later, but in summary we believe the issues are well known and containable, with a strong investment case more than offsetting any macro-related investor concerns.

HUTCHMED: ticking important strategic boxes

HUTCHMED is steadily executing on its strategy to accelerate its path to sustainable profitability from FY25. This remains centred around commercial delivery and near-term value creation from the most advanced in-house pipeline assets as the company transitions from a China-based R&D-focused biopharma to a fully integrated commercial enterprise addressing the significant global market opportunity with its Oncology/Immunology products. Commercial traction in China is building for first wave products and key pipeline programmes (including the haematology focused second wave) are progressing with multiple near-term clinical and regulatory catalysts. The most significant of these is the 30 November 2023 FDA PDUFA goal date for fruquintinib in mCRC; subject to a positive approval decision, partner Takeda is set for the first international launch of a HUTCHMED product as soon as practicable post-approval. Beyond this, HUTCHMED presents a unique biopharma opportunity, in our view, with a broad pipeline of largely de-risked late-stage assets, global ambitions supported by large pharma partners, proven commercial execution in China supporting a growing top line, together balanced with shrewd investment. Our HUTCHMED valuation is $5.74bn/£4.78bn/ HK$44.75bn, equivalent to $32.95/ADS or 549p/HK$51.40 per share.

The HUTCHMED investment case is progressively shifting from being solely pipeline-based to one driven by financials, as its revenues and marketed product portfolio in China grow from three currently (Elunate, Sulanda, Orpathys) to potentially six or seven in the next two years. Meaningful revenues are starting to come through, with management guiding to FY23 Oncology/Immunology revenue of $450-550m from marketed products including partial recognition of the Takeda upfront ($280m of the $400m received). H123 results confirm that HUTCHMED is well-funded with ample cash resources ($856m at end-June 2023) to support its clinical and commercial plans, with recent strategic cost cutting streamlining and focusing the business to ensure that breakeven in FY25 is an achievable target.

Aside from the forthcoming US and European fruquintinib approval decisions, and potential international launch(es) by Takeda, progressing priority late-stage assets towards registration and securing additional strategic ex-China global partnerships should unlock further near-term value. Over 15 registrational or registration-intent studies are ongoing for seven drug candidates, potentially supporting China (and ex-China) NDA filings over 2024-2026. Key programmes include wholly owned haematology assets, amdizalisib and sovleplenib, where clinical data (expected in H223 for the former; the latter has already read out positively) could form the basis of subsequent China NDA submissions.

This Outlook note provides an overview of HUTCHMED’s strategy and recent achievements commercially, clinically, and financially. Alongside continued commercial execution, HUTCHMED’s diverse and balanced pipeline is central to the long-term investment case and a Capital Markets Day (CMD) showcasing these assets is planned for Q423. We intend to use that as an opportunity to update our September 2022 Pipeline Review to reflect the progress over the past twelve months and prospects for the key pipeline programmes.

A clear strategy towards sustainable profitability

HUTCHMED has an established reputation for discovering, developing, and commercialising best or first-in-class small molecule TKIs (tyrosine kinase inhibitors). Since its foundation in 2000, the company has evolved from a China-based R&D-focused company and is now firmly on the path to maturing into a fully integrated commercial-stage global biopharmaceutical company. Breakeven is targeted in FY25, after which management expects the company will be sustainably profitable and benefit from significant operating leverage (Exhibit 1).

Exhibit 1: The path to sustainable profitability
Source: HUTCHMED

A focus on innovation and in-house discovery and development of internationally competitive TKIs, and its objective of expanding their penetration into global ex-China markets through multi-national blue-chip pharma partners, provides important differentiation for HUTCHMED vs its domestic Chinese biopharma peers. This global partnering approach has proved successful so far. Takeda, through the global ex-China deal for fruquintinib rights (January 2023 Lighthouse), joined long-time savolitinib partner AstraZeneca, as a strategic licensing partner. Such partnerships with large pharma players should maximise global development and commercial potential of the respective assets, while allowing HUTCHMED to direct internal resources towards advancing its internal late-stage R&D pipeline.

HUTCHMED’s in-house oncology-focused China commercial infrastructure has a broad geographic reach and currently supports the direct marketing of two products, Elunate (fruquintinib) and Sulanda (surufatinib). It is considered by management to be at optimal scale with a 900+ person oncology commercial team covering >33k physicians and >3k hospitals across 328 cities in China. Commercial delivery in China is a priority for HUTCHMED and recent initiatives have focused on widening patient access and encouraging physician adoption of existing launched products, including through digital marketing and education programmes. Sales have also been boosted by continued National Reimbursement Drug List (NRDL) inclusion. The near-term plan is to grow Oncology/Immunology revenues from the first wave of marketed products, leveraging the sales infrastructure as follow-on indications are approved and/or further NDA-stage assets are in-licenced. By 2025, the aim is to have launched a portfolio of six or seven products in China, including the second wave haematology assets.

Exhibit 2: HUTCHMED registration/potential registration studies
Source: HUTCHMED   Note: * = in collaboration with AstraZeneca, ᴧ = in collaboration with Ipsen

Addressing its global ambitions with partners frees up internal bandwidth and allows HUTCHMED to prioritise resources into advancing its later-stage Oncology/Immunology assets into registration trials (Exhibit 2) that can potentially support near-term China NDA filings or facilitate the execution of further strategic global partnerships. The Oncology/Immunology business (previously known as Hutchison MediPharma, including China Oncology and Global Innovation) consists of the R&D, manufacturing, and commercialisation activities of HUTCHMED’s marketed and pipeline therapies. With >15 registrational or registration-intent studies ongoing for seven drug candidates, the next six to 18 months will be a critical period, with significant development and regulatory progress anticipated (Exhibit 3).

Exhibit 3: Clinical deliverables in 2023-24
Source: HUTCHMED   Note: *Based on bridging study, Phase II registration study, or Phase II/III study design

Pipeline prioritisation to unlock near-term value

HUTCHMED’s broad, and increasingly diverse, pipeline has compelling prospects in China and beyond. It can be split into various waves of development (Exhibit 4). These successive waves underpin our view that HUTCHMED’s proven discovery and development expertise will generate sustainable new product flow to support the creation of a global biopharma business.

The global partnering strategy, with near-term ex-China commercialisation by multinational pharma partners,  means that the internal global development of several earlier-stage assets was de-prioritised in late-2022 in favour of expediting the clinical development pathway of programmes for the domestic China market. As a result, pending the read out of the respective registrational studies, the most advanced of the second wave drug candidates are approaching first China NDA filings within the next twelve months.

Exhibit 4: HUTCHMED pipeline consists of several product waves
Source: HUTCHMED

First wave: marketed in China, partnered globally…

HUTCHMED’s first wave comprises the solid tumour products that are already approved and marketed in China in their initial monotherapy indications: fruquintinib (Elunate), a VEGFR inhibitor for 3L mCRC (metastatic colorectal cancer), savolitinib (Orpathys), a c-MET inhibitor in a subset of non-small cell lung cancer patients (MET ex14 NSCLC) marketed by AstraZeneca; and surufatinib (Sulanda), a VEGFR/FGFR1/CSF-1R inhibitor therapy for neuroendocrine tumours (NETs). These three drugs posted FY22 consolidated revenues of $124.5m on in-market China sales of $167m (despite COVID-19 headwinds) and $79.7m consolidated revenues in H123 on in-market China sales of $100.9m (Exhibit 5).

The strategy for the first wave is for HUTCHMED and its partners to maximise the value of each asset by pursuing label extensions into additional indications – including as part of combination regimes with PD-1/PD-L1 checkpoint inhibitors through multiple collaborations – and, for fruquintinib and savolitinib, potential NDA approvals in ex-China territories.

Exhibit 5: Growing Oncology product sales
Source: HUTCHMED    Note: [1] Total sales to third parties by Lilly (Elunate) and AstraZeneca (Orpathys), and their sales to other third parties as invoiced by HCM. [2] Elunate manufacturing fees, commercial service fees and royalties paid by Lilly, to HCM, and sales to other third parties invoiced by HCM; Orpathys manufacturing fees and royalties paid by AstraZeneca and sales to other third parties invoiced by HCM; HCM sales of Sulanda and Tazverik to third parties.

Clinical data to date have shown how HUTCHMED’s pipeline of highly selective TKIs can offer significant advantages in terms of targeted efficacy and cleaner toxicity profiles with fewer on-target/off-tumour effects. Importantly, as the safety profile is often the limiting factor that restricts potential combinations, HUTCHMED’s programmes are ideal candidates for various combination approaches. Key combinations under evaluation with the first wave assets include:

  • Chemotherapies: eg fruquintinib + paclitaxel in 2L gastric cancer which is under regulatory review in China;
  • Other TKIs: eg savolitinib + osimertinib under evaluation in registration studies both in China [SACHI, SANOVO] and globally [SAVANNAH, SAFFRON] in various EGFRm+ MET+ NSCLC settings, and
  • Various PD-1/PD-L1 checkpoint inhibitors: eg fruquintinib + sintilimab currently being evaluated in a China study with a registration-intent cohort in advanced endometrial cancer and in a China Phase II/III study in 2L metastatic renal cell carcinoma, RCC; and surufatinib + toripalimab in the China Phase III SURTORI-01 study in neuroendocrine carcinomas.

The global relevance of these first wave assets, in particular fruquintinib and savolitinib, is supported by the clinical data to date and the external validation provided by their large pharma partners. While the major value driver for HUTCHMED over the near-term will be its China Oncology/Immunology operations, over time it is expected that royalties on ex-China sales will make an increasing contribution to the top line, completing HUTCHMED’s transition into an international commercial business, with a strong commercial presence in China.

Fruquintinib is on track to become the first HUTCHMED discovered and developed drug to be launched outside China. Commercial partner Takeda is preparing for first launch, potentially in early 2024, subject to a positive US FDA approval decision on or by the PDUFA goal date of 30 November 2023. Our September 2022 and June 2023 Updates summarise the supporting data from the multi-regional Phase III FRESCO-2 study in advanced mCRC which, with the China FRESCO trial and US Phase Ib bridging study, formed part of the regulatory submissions to the US FDA and European EMA (the latter filing was validated in June 2023). The NDA submission with the Japan PDMA is expected to be completed by end-2023.

The global NDA filings for savolitinib could occur in 2024, subject to data read outs from the ongoing registrational trials. Savolitinib, under a development and commercialisation partnership with AstraZeneca globally, plays a central role in the lifecycle management plans for AstraZeneca’s Tagrisso (osimertinib) and Imfinzi (durvalumab). Three global registration trials are underway, two in combination with Tagrisso for 2L/3L EGFRm+ Tagrisso-refractory MET+ NSCLC (SAVANNAH, a Phase II registration-intent trial which might support an accelerated approval, and SAFFRON, a confirmatory Phase III study) and one with Imfinzi (SAMETA) for MET-driven unresectable advanced PRCC (papillary renal cell carcinoma).

…an aside on deal economics

We highlight that HUTCHMED could receive significant downstream economics from its current partners. The Takeda ex-China global licence included a $400m upfront (received in March 2023), with potential for up to $730m in potential future regulatory, development, and commercial milestones, plus tiered royalties on annual net sales. While undisclosed, we assume that these royalties start from mid-teens, as they are known to be commensurate with commercial launch-stage licencing deals, and this would also be consistent with the starting royalty from fruquintinib partner Eli Lilly in China (where HUTCHMED receives tiered 15-29% royalties). Note that under the terms of the July 2020 amendment to the Lilly licence, HUTCHMED consolidates around 70-80% of fruquintinib in-market sales from manufacturing fees, commercial service fees, and royalties paid by Lilly.

Under the long-standing AstraZeneca deal, first signed in 2011 and subsequently amended, HUTCHMED is eligible for up to $140m in upfront, development and regulatory milestones as well as royalties on sales, of which milestones totalling $85m have been received to date. In China, HUTCHMED bears responsibility for R&D and regulatory aspects, and benefits from a 30% royalty on all sales. Ex-China, AstraZeneca is responsible for development and regulatory filings and will pay HUTCHMED tiered royalties of 9-13% until approval in PRCC (papillary renal cell carcinoma), when these will increase to c 14-18% on ex-China sales up to $5bn, before stepping down over two years to between 10.5-14.5%.

Second wave: in registration studies, with filings in sight

The second wave of programmes, which target haematological indications, is set to maintain the growing momentum at HUTCHMED. Two in-house assets have reached China registration-enabling monotherapy trials: PI3Kδ inhibitor amdizalisib (previously HMPL-689) currently in a Phase IIb 3L follicular lymphoma (FL) study and Syk inhibitor sovleplenib (HMPL-523) which recently met the primary endpoint and all secondary endpoints in the pivotal ESLIM-01 trial in relapsed/refractory 2L ITP (immune thrombocytopenia). The amdizalisib trial is anticipated to read out in H223 and, if it renders positive results, China NDA filings for both assets could be submitted around year-end.

Sovleplenib is the first of HUTCHMED’s haematology programmes to deliver pivotal data and has also been granted Breakthrough Therapy Designation for ITP by the China NMPA, which means that the sovleplenib NDA may be considered for priority review in this indication. The 188-patient Phase III ESLIM-01 study met its primary endpoint of a clinically meaningful and statistically significant increase in durable response rate in adult ITP patients, and met all secondary endpoints (including response rate and safety and tolerability). Full results will be presented at a future scientific conference.

In addition to the two in-house programmes, Greater China rights to a third asset, EZH2 inhibitor Tazverik (tazemetostat), were in-licenced from Ipsen (August 2021 Lighthouse) in a deal that includes up to $110m in clinical/regulatory milestones (across up to eight oncology indications), up to $175m in commercial milestones, and mid-teen to low twenties percentage royalties on net sales. This transaction is the first example of HUTCHMED’s business development strategy to externally bolster and expand the potential of its in-house pipeline.

Tazverik fits with this strategy in two key ways as a late-stage targeted oncology programme with potential clinical and commercial synergies with HUTCHMED’s in-house assets. Two important China trials of tazemetostat monotherapy are underway, a bridging study in FL (which could support conditional registration based on existing FDA accelerated approval) and the China portion of the global Phase III SYMPHONY trial in combination with rituximab and lenalidomide (R2) in 2L relapsed/refractory FL. However, tazemetostat may also synergistically combine with existing HUTCHMED assets, and is being evaluated in a China Phase II study in combination with amdizalisib in relapsed/refractory lymphoma.

The China Oncology/Immunology commercial team is currently focused on solid tumours; however, the potential regulatory approvals of these three programmes will both leverage the existing infrastructure and prompt selective investment into establishing a haematology-focused sales team, further accelerating growth in revenues. We note that Tazverik is already commercially available on a restricted basis for relapsed/refractory FL but, as this is only in the Hainan Medical Zone and Macau Special Administrative Region, sales to date have been modest.

Building on solid operational foundations

Underpinning the commercial and R&D activities is a robust operations infrastructure and quality CMC (chemistry, manufacturing, and controls), both of which are central to HUTCHMED’s strategy. The current infrastructure includes discovery and development facilities, commercial operations, and a new flagship manufacturing facility in Shanghai (China), sizeable GMP-certified manufacturing in Suzhou (China), and regional clinical development and regulatory representation in Beijing, Australia, the US, EU, and Japan.

HUTCHMED utilises contract manufacturing organisations (CMOs) in China to produce the active pharmaceutical ingredients (APIs) for its products, and a combination of CMOs and its Suzhou facility to manufacture drug products. The new Shanghai facility, which is expected to complete qualification in H223, will expand HUTCHMED’s in-house manufacturing capacity five-fold. It is on track to start manufacturing of clinical supplies in 2023, with commercial manufacturing anticipated to begin during 2025, in line with prior guidance.

In preparation for potential NDA filings of amdizalisib and sovleplenib, and the global launch of fruquintinib, the respective technology transfer and process validations have been completed for API and drug product manufacture at the relevant facilities.

Other Ventures are now largely non-core

HUTCHMED also reports operational and financial results for its legacy joint ventures (JV) which are termed Other Ventures. As the Oncology/Immunology part of its business expands, these are increasingly viewed as less relevant despite representing considerable value. Other Ventures consists of two subsidiaries:

  • Hutchison Sinopharm, a 51% JV with Sinopharm Group for prescription (Rx) drug commercialisation services to third parties;
  • Shanghai Hutchison Pharmaceuticals (SHPL), a 50% owned JV with Shanghai Pharma for Rx drug manufacture and commercialisation.

Collectively these businesses employ around 3,000 FTEs, mainly in manufacturing and commercial roles, selling directly into c 290 cities across China. H123 consolidated revenues were $173.7m, up 57% (67 % at CER) vs $110.9m in H122, with attributable net income of $37.2m (up 5%, 12% at CER vs $35.4m). SHPL is the main contributor, generating non-consolidated JV revenues of $235.3m (up 11%, 19% at CER, H122: $212.4m) and contributing net income of $35.1m (vs $33.6m). Based solely on recurring incomes and multiples of similar domestically quoted peers, and not attributing any form of intrinsic value, we value Other Ventures at $889m (£741m, HK$6.93bn).

Since HUTCHMED’s inception, the Other Ventures businesses have contributed over $500m in net income, c $75m as one-time property gains, which have helped fund the Oncology/Immunology R&D pipeline. Aggregated dividends of >$300m have been received from SHPL, including receipt of $14.6m in H123 (H122: $22.7m). Additionally, the September 2021 divestment of HUTCHMED’s entire indirect 40% stake in Hutchison BYS (HBYS), the over-the-counter (OTC) medicines joint-venture with Guangzhou Pharma, to GL Capital Group, for $127m in cash and a payment of $42m related to undistributed profit, represented a 22x multiple on the $7.7m attributable FY20 net income.

As the scale of the Oncology/Immunology business expands and management focus is increasingly on the development and commercialisation of its innovative pipelines, we expect further realisation of value from non-core assets. Divestment and equity capital market opportunities for SHPL are being explored.

Sensitivities

As a fully integrated biopharmaceutical company, HUTCHMED is subject to the typical risks associated with drug R&D and commercialisation. These include failure or delay in clinical development or the regulatory process, patent litigation, partnering, financing, commercial implementation/risks (eg competition), and pricing and reimbursement decisions. More specifically, the major near-term risks relate to outcomes of clinical trials and regulatory decisions for key late-stage assets (savolitinib and fruquintinib) in global markets, and their commercial execution both in China and through partners in ex-China territories, with both influencing the likelihood that HUTCHMED is able to achieve sustainable profitability from 2025 onwards.

In our view, the key near-term sensitivity is the outcome of the FDA review of the fruquintinib NDA in advanced mCRC. An approval on or before the 30 November PDUFA goal date means that US fruquintinib revenues from 2024 onwards could make a significant contribution towards HUTCHMED’s FY25 breakeven target. Conversely, a delayed decision or a negative outcome may mean that this target is missed. This same sensitivity surrounds the outcome of the EMA review process.

Overall, HUTCHMED’s TKI pipeline breadth helps to technically de-risk the company; it covers a variety of mechanisms of action with potential across a range of cancer indications. Its best-in-class assets have been de-risked as the mechanisms of action are known, while first-in-class TKIs – with an expected clean safety profile and potential for use in combination settings – should prove to be commercially attractive (both to potential partners and payors). We highlight that HUTCHMED’s global ex-China commercialisation strategy rests on execution under deals with existing partners and securing further partnerships for the timely development and launch of the next wave(s) of assets ex-China.

HUTCHMED’s sustained commercial success in China is due to the established infrastructure, which has significant national and regional expertise. Management is expanding its China manufacturing capabilities and capacity to support later-stage development and the future commercialisation of products emerging from its R&D pipeline, which may also bring about an evolution in its commercial footprint especially as haematology programmes progress towards approvals. Increased competition for quality staff from existing domestic and multinational players, as well as emerging Chinese companies, may hinder the scale-up required.

Political/economic concerns are inevitable with such a large and influential market as China, and as HUTCHMED’s operations become increasingly global. Regulatory risks are relevant as HUTCHMED’s activities are subject to extensive oversight from a variety of international, national, and regional bodies. In this context, the strong domestic management helps mitigate many of these sensitivities with a more nuanced approach, supplemented by ex-China expertise developed in-house and at large pharma partners.

HUTCHMED’s largest shareholder, CK Hutchison, reduced its stake in 2019 (from c 60% to c 39%) to enable the deconsolidation of HUTCHMED from its financial accounts, and has stated that following the two ADS placings in June and September 2019 it has no intention of further secondary offerings in the foreseeable future.

Valuation

We continue to value HUTCHMED using a sum-of-the-parts methodology, with an rNPV model for the Oncology/Immunology portfolio, an earnings-based multiple for the established Other Ventures commercial platforms and net cash. Our company valuation is $5.74bn (equivalent to $32.95 per ADS), £4.78bn (549p per share), or HK$44.75bn (HK$51.40 per share).

For the Oncology/Immunology business we calculate a net present value (NPV) for each major clinical programme, which is then adjusted with success probabilities that reflect the nature of the compound (eg novel or proven mechanism of action) and stage of development (eg early or late-stage, approved and marketed) to derive a risk-adjusted NPV (rNPV). Our peak sales forecasts reflect the proposed indication(s) in development, based on a top-down model which includes patient numbers, potential pricing, likely rate of adoption, and degree of expected competition. We factor in related costs (eg CoGS, R&D, S&M) in addition to any deal terms, known or assumed (eg royalties, milestones, service and/or R&D fees). We strive to employ conservative assumptions throughout.

Other Ventures consists of the JV operations in China that are revenue generating and profitable, so earnings-based metrics are appropriate. We base our various multiples on the averages of suitable Chinese-based peers, excluding companies where the multiples appear to be distorted by non-recurring events (such as property profits) or are outliers. We also exclude companies where the multiples appear too high, suggesting an element of speculation within the share prices rather than simply reflecting the operating businesses. While there is an element of subjectivity in this peer group selection, the logic driving the decisions is to maintain our cautious approach throughout.

A valuation summary is shown in Exhibit 6. The importance of the Oncology/Immunology business is shown in its relative contribution, with this accounting for 70% of our company valuation. Other Ventures is worth 16%, with net cash representing the 14% balance.

Exhibit 6: HUTCHMED valuation summary
Source: Trinity Delta   Note: 12.5% discount rate for development stage products and 10% for commercial products; taxation at 20%; FX rates of 1.2 USD:GBP and 7.8 USD:HKD

The contributions of the various Oncology/Immunology assets are shown in Exhibits 7 and 8. We have made no major changes to any of our peak sales forecasts. The main changes are to our risk-adjustments, where we have increased the probability of success for sovleplenib (to 80% in China and 50% ex-China) following the positive Phase III ITP data in China, whereas for surufatinib ex-China we now take a more cautious stance (now 50%) as additional trials are needed in most regions, which will likely be pending a partner, on which we have limited visibility. The most valuable asset remains fruquintinib which comprises 37% of the value of the Oncology/Immunology portfolio and 26% of the company valuation. The next most valuable assets are savolitinib (26% and 18%, respectively) and surufatinib (22% and 16%, respectively). The earlier-stage clinical assets which have not yet launched and hence carry lower success probabilities collectively represent 15% and 10% respectively, but we expect these to unlock significant additional value as they progress through clinical development (subject to positive trial results). We do not include any third-wave or other development projects in our Oncology/Immunology valuation.

Exhibit 7: HUTCHMED Oncology/Immunology portfolio valuation summary
Source: Trinity Delta   Note: 12.5% discount rate for development stage products and 10% for commercial products; taxation at 20%; FX rates of 1.2 USD:GBP and 7.8 USD:HKD
Exhibit 8: Relative contributions of HUTCHMED programmes to valuation
Source: Trinity Delta

We note that clinical progress, better than expected commercial sales/greater patient uptake, launch of new indications, or the addition of new later-stage programmes could result in uplifts to our valuation. In addition, we expect visibility to increase on the commercial potential of the second wave assets, particularly as clinical data become available, which could lead to refined forecasts. Similarly, as we do not ascribe a valuation for the emerging discovery assets, the Inmagene immunology partnership, nor the discovery platform, these also remain as upside to our valuation. Hence, there is significant upside potential, and multiple catalysts over the next six to 18 months. We intend to review our model regularly to reflect clinical, regulatory, and commercial progress.

Financials

Our financial forecasts have been updated to reflect the interim H123 financial results and an overview of our key forecasts are shown in Exhibit 13. We review interim results, provide an outline of our forecasts, and discuss profitability below.

Review of interim H123 results

HUTCHMED revenues are split into two reporting segments: Oncology/Immunology covers all activities relating to new products including research and development, manufacture, sales, and marketing; and Other Ventures, which includes all other activities such as the consolidated JVs (eg Hutchison Sinopharm). HUTCHMED’s H123 consolidated group revenues were $533m (+173% at CER; H122: $202m), consisting of revenue contribution from the Oncology/Immunology segment of $359m (+301% at CER; H122: $91m) and $174m (+67% at CER; H122: $111m) from Other Ventures.

Within Oncology/Immunology, consolidated revenue derived from sales of marketed oncology products in China was $80m (+35% at CER; H122: $64m), R&D service fees from partners AstraZeneca, Eli Lilly and now Takeda were $20m (+66% at CER; H122: $13m), and milestone income was $259m (H122: $15m). The latter represented the revenue recognised in H123 from the $400m Takeda upfront payment, while in 2022, a $15m milestone was received from AstraZeneca on initiation of the global savolitinib Phase III SAFFRON trial.

Elunate, Sulanda and Orpathys generated the bulk of product sales as Tazverik is currently only available in the Hainan Medical Zone and Macau Special Administrative Region. For H123, HUTCHMED booked:

  • Elunate consolidated revenues of $42m (+25% at CER; H122: $36m) on in-market sales of $56m (+20% at CER; H122: $50m);
  • Sulanda in-market sales of $23m (+79% at CER; H122: $14m); and
  • Orpathys generated $15m (+17% CER; H122: $14m) from manufacturing fees and a 30% royalty from AstraZeneca on in-market sales of $22m (+2% CER; H122: $23m).

All three products are now included on the NRDL and together have shown solid in-market sales growth of 25% at CER to $101m (H122: $87m), with volume growth offsetting any pricing discounts. We highlight the significant growth in Sulanda revenue which reflected the increasing number of patients on a drug with a long-term treatment duration, while channel fluctuations in Q123 ahead of NRDL inclusion from 1 March 2023 impacted Orpathys sales, although these recovered during Q223 as volumes increased (volumes up 84% vs Q222).

Cost of sales were $208m (H122: $137m), due to growing sales of third-party prescription drug products marketed via through Other Ventures and of the marketed China Oncology products. We note that the gross margin spiked in H123 to c 61% (compared to the trailing two-year average of c 27%) owing to recognition of $259m from the Takeda upfront, which is essentially pure profit. Implementation of strategic initiatives meant reduced operating expenses with restructuring of US operations contributing to decreased SG&A costs of $68m (H122: $80m) and pipeline prioritisation resulting in a 20% reduction in R&D spend to $145m (H122: $182m). The shift to a global partnering strategy significantly reduced US/European R&D expenses (to $56m vs $84m for H122), with a more modest decrease in China R&D costs ($89m vs $98m in H122). Net income from Other Items of $57m (H122: $34m) reflected higher interest income earned following receipt of the Takeda upfront and FX gains.

HUTCHMED’s H123 net profit was $169m (H122 net loss: $259m). Oncology/ Immunology generated a temporary segment operating profit of $134m (H122: loss of $186m), boosted by partial recognition of the Takeda upfront, with Other Ventures delivering a segment operating profit of $37m (H122: $36.1m).

At end-June 2023, HUTCHMED had cash resources of $856m (end-FY22: $631m) consisting of cash and equivalents, which includes the $400m Takeda upfront, and short-term investments. The company also has unutilised bank facilities of $65m (FY22: $140m) and a 50% stake in the $44m of cash held at the SHPL JV. We note that HUTCHMED had bank borrowings of $40m at end-June 2023 related to its manufacturing plant and drawn under its secured ten-year fixed asset loan facility with Bank of China. Management indicated in March 2023 that FY22 was a peak year for cash burn and with a target of breakeven in 2025, we do not anticipate any near-term financing requirements.

Updated forecasts

Oncology/Immunology FY23 revenue guidance of $450-550m is unchanged, driven by momentum from the three marketed oncology products in China, coupled with $280m as partial recognition of the Takeda upfront. Our updated FY23e revenue forecast is for $496m (from $503m) with the slight decrease owing to adjusting the estimate for the amount of the Takeda upfront that will be recognised in FY23e to $280m (from $300m), largely offset by an increase in R&D services income to $43m (from $28m) based on the H123 trend, and some adjustments to our in-market sales forecasts, notably for Orpathys given the volume fluctuations in Q123. A breakdown of our key forecasts for Oncology/Immunology revenues are shown in Exhibit 9. Together with our updated Other Ventures FY23e revenue forecast of $302m (from $223m) based on H123 growth, our total FY23e revenue forecast is now $798m (from $726m).

Exhibit 9: FY23e forecasts underpinning Oncology/Immunology revenues
Source: HUTCHMED and Trinity Delta

Further detail on how revenue recognised by HUTCHMED (including a mix of royalties on sales, fees from product manufacture and supply, and commercial service income received from partners) can be reconciled to in-market sales is presented in our April 2023 Update.

HUTCHMED’s pipeline prioritisation, the completion of several large and late-stage trials, and the strategy to pursue global development through partners means that R&D costs will reduce over 2023-2024. Given H123 trends, we now forecast FY23e R&D spend of $320m (from $378m and vs FY22: $387m), and $292m in FY24e (from $330m). We have made only minor adjustments to our SG&A forecasts as within S&M we expect continued investment into the China commercial infrastructure to support existing and new product launches (including potentially the first haematology products from 2024 onwards). For G&A we continue to expect a slight decrease in FY23 as existing US operations are reduced given the strategy to partner ex-China; from this new base we then expect modest G&A growth. Our updated S&M forecasts are for $58m in FY23e (from $54m and vs FY22: $44m) and $65m in FY24e (from $64m), whilst for G&A our forecasts of $83m in FY23e (vs FY22: $92m) and $85m in FY24e are unchanged. We anticipate a temporary profit in FY23e due to the Takeda upfront partial recognition. Changes to our key estimates are shown in Exhibit 10.

Exhibit 10: Summary of changes to estimates
Source: Trinity Delta

On the path to profitability

HUTCHMED is targeting sustainable profitability from 2025, and we believe this is achievable given the growing revenues from in-market sales, and from the reduced cost base, notably R&D prioritisation. Whilst non-recurring milestone income is a large component of FY23e revenues, from 2024 we expect that consolidated revenues derived from sales of marketed products, plus new product launches, will represent the largest, and growing component of the revenue mix (Exhibit 11). We also expect a continuous improvement in underlying gross margins through scale and efficiencies and due to the changing product mix.

Exhibit 11: Growing revenues driven by in-market sales
Source: Trinity Delta   Note: Cons Revs = Consolidated Revenues; MS = milestones

Meanwhile, the cost base, notably R&D, has already seen a sizeable reduction in 2023 (a 20% decrease in H123) and SG&A has also been optimised. We expect these costs to become more stable over the coming years. Hence, if HUTCHMED can continue to deliver on revenue growth from in-market sales, and if costs remain controlled, then we believe sustainable profitability is possible from 2025, as shown in Exhibit 12.

Exhibit 12: Growing revenues and declining costs drive 2025 profitability
Source: Trinity Delta

 

 

Exhibit 13: Summary of financials
Source: Company, Trinity Delta  Note: Adjusted PBT excludes exceptionals, Cash includes short-term investments

Company information

Contact details

Level 18, The Metropolis Tower,
10 Metropolis Drive,
Hung Hom, Kowloon,
Hong Kong
Tel: +852 2121 8200

www.hutch-med.com

Top shareholdings

% holding
CK Hutchison Holdings Ltd38.46
The Goldman Sachs Group4.92
CA Fern Parent*4.72
The Capital Group Companies4.71
M&G3.78
Top institutional investors 56.59
Directors1.88
Other shareholders41.53
Total shareholders100.00
Source: HUTCHMED Note: * ultimately controlled by The Carlyle Group Inc

Key personnel

PersonPositionBiography
Simon ToChairmanDirector since 2000 and Chairman since 2006. Managing Director and founder of Hutchison Whampoa (China) Ltd, with >40 yrs service. He built the business from a small trading company to a multi-billion dollar investment group with diverse interests, negotiating major transactions with various multinationals (including P&G, Lockheed, Pirelli, Beiersdorf, United Airlines and British Airways). Currently a director of Gama Aviation Plc. Holds a BSc (Hons) Mechanical Engineering (Imperial College London) and an MBA (Stanford).
Dr Weiguo SuChief Executive Officer / Chief Scientific OfficerJoined in 2005; became CEO in March 2022; EVP and CSO (since 2012); and Executive Director (since 2017). As CSO he is responsible for all R&D and R&D strategy, and created the Innovation Platform, leading all the small molecule pipeline discovery activities. Prior roles include 15 yrs with Pfizer’s US R&D department (most recently as Director of Medicinal Chemistry). Holds a BSc in Chemistry (Fudan University, Shanghai) and completed a PhD and Post-Doctoral Fellowship in Chemistry at Harvard University under Nobel Laureate, EJ Corey.
Johnny ChengChief Financial OfficerCFO since 2008 and Executive Director since 2011. Previously VP, Finance of Bristol Myers Squibb in China and a director of Sino-American Shanghai Squibb Pharmaceuticals and BMS (China) Investment Co (2006-2008). He also spent eight years with Nestle China in various finance and control functions, and was an auditor at Price Waterhouse (Australia) and KPMG (Beijing). Holds a Bachelor of Economics, Accounting Major (University of Adelaide) and is a member of the Institute of Chartered Accountants in Australia.
Dr Michael ShiHead of R&D and Chief Medical OfficerJoined in 2022; EVP, Head of R&D and CMO overseeing discovery and development from strategy to execution. Prior roles include CMO at Transcenta and >15 yrs at Novartis holding various senior leadership positions in clinical development. A member of numerous societies, including American Society of Clinical Oncology, European Society of Medical Oncology, American Society of Hematology, and Sino-American Pharmaceutical Association. Holds a PhD in Molecular Pharmacology and Toxicology from the University of Southern California, and received his medical education from Peking Union Medical College.
Dr Karen AtkinChief Operating OfficerJoined in 2021; EVP, and COO. Prior to this spent 24 yrs at AstraZeneca in senior Medical, Regulatory, Pharmacovigilance, R&D and Commercial leadership roles. Also a registered physician and holds three Bachelor’s degrees in Physiology, Medicine and Surgery from University College London. Also holds an MBA from the Open University, is a Member of the Royal College of Physicians and a fellow of the Faculty of Pharmaceutical Medicine in the UK.

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

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Copyright 2023 Trinity Delta Research Limited. All rights reserved.

ANGLE plc

Revenue building & growth opportunities are developing

Lighthouse | 7 September 2023

Share this note

  • 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 is solid, with £2.5m of future revenues already sold, and revenues are on-track to meet FY23 expectations (TD FY23e: £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 Dec 2022: £31.9m), and the cash runway has been extended into Q125 (from H224) through deferral of some spend and some cost cutting, which is expected to save c £5m by end-2024, without impacting near-term revenue opportunities.
  • Following the new pharma services contract with Crescendo Biologics (April 2023 Lighthouse), a contract for clinical trial services was executed in May 2023 with existing customer Artios Pharma. This was on the back of a bespoke assay development contract which successfully delivered two DDR (DNA damage response) assays. These assays will now be used in a Phase I clinical trial that is expected to complete around end-2024. New pharma services contracts, including with large pharma, are expected to be signed during H223, which will contribute to future growth.
  • In terms of Parsortix menu content, the Portrait Flex CTC (circulating tumour cell) assay was recently launched as a service from ANGLE’s laboratories (for research use by pharma services customers). Portrait Flex is an assay used to enumerate and characterise CTCs, and can include a customer’s therapeutic biomarker of interest. ANGLE is developing a number of imaging (“Portrait”) assays, including PD-L1 and HER2, as well as molecular (“Landscape”) assays for multiple clinically relevant biomarkers using third-party platforms which are currently being evaluated, to analyse CTCs harvested by Parsortix.
  • ANGLE is also conducting various clinical studies towards establishing the Parsortix system as a tool in patient management, including prostate cancer (DOMINO), ovarian cancer (EMBER) and INFORM (1000 patients in four different cancers of which >200 have been recruited). Patient samples processed with Parsortix have been stored for future molecular analysis via third-party systems. Meaningful clinical data are expected by year-end.

Trinity Delta view: Realising the significant commercial potential of Parsortix requires a number of elements to drive uptake. These include developing both “content” (menus of assays using CTCs harvested by Parsortix) to support both the products and services businesses, and on generating clinical data with Parsortix to demonstrate utility in patient management. ANGLE is growing the assay pipeline and clinical studies are ongoing, with data expected by YE23. Once protocols are developed on third-party molecular systems, this should open up a large installed base that could adopt Parsortix. Together with new pharma services contracts, this will be key for future growth. Whilst commercialisation of Parsortix is still at an early stage, momentum is clearly building and ANGLE is continuing to make progress in developing potentially sizeable revenue opportunities. Our DCF-based valuation is £253m, equivalent to 97p/share.

Lighthouse

7 September 2023

Price11.50p
Market Cap£34.8m
Primary exchangeAIM London
SectorHealthcare
Company CodeAGL
Corporate clientYes

Company description

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

Analysts

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

Franc Gregori
fgregori@trinitydelta.org
+44 (0) 20 3637 5041

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.

Scancell

Upcoming SCIB1 data could provide first proof of concept

Update | 5 September 2023

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Scancell has several key clinical data points due through to end-2024. First data will be from the Phase II trial of SCIB1 in combination with checkpoint inhibitors (CPIs) in advanced skin cancer. If successful the study will transition to the enhanced iSCIB1+ formulation that offers greater potency and broader applicability. If SCIB1 promising early data mature as hoped, then this programme could improve current outcomes. Top-line Modi-1 CPI combination data in multiple tumours are expected in 2024. The antibody platforms, GlyMab and AvidiMab, provide attractive out-licensing opportunities. Our Scancell rNPV valuation remains £300.1m, or 36.7p/share.

Year-end: April 30202120222023E2024E
Revenues (£m)0.0 0.0 5.3 0.0
Adj. PBT (£m)(17.7)(11.9)(17.6)(24.0)
Net Income (£m)(15.5)(2.1)(15.7)(21.9)
EPS (p)(2.28)(0.25)(1.93)(2.68)
Cash (£m)41.1 28.7 17.8 20.2
EBITDA (£m)(8.6)(12.6)(13.8)(20.2)
Source: Trinity Delta Note: Adjusted numbers exclude exceptionals
  • Initial SCIB1 combo data could provide first important insights Initial data from the first stage (Cohort 1 in up to 15 patients) of the Phase II SCOPE trial of SCIB1 in combination with checkpoint inhibitors (CPIs) in advanced melanoma are expected during Q423. To validate the hypothesis that SCIB1 could have synergistic effects with doublet therapy (nivolumab + ipilimumab) nine responses are required (>55% response rate). If nine responses are achieved in fewer than 15 patients, for a higher response rate, this would suggest that SCIB1 + doublet therapy could meaningfully improve current outcomes, which would be a significant achievement, in our view.
  • Second-generation iSCIB1+ could broaden the addressable market Scancell’s AvidiMab platform has been used to enhance SCIB1, with SCIB1 limited to the c 30-40% of patients that have the appropriate human leukocyte antigen type. The enhanced second-generation programme, iSCIB1+, can address 100% of melanoma patients, broadening the target market, and is also more potent. Scancell intends to transition the SCOPE study to iSCIB1+ in combination with doublet therapy in Q423 for initial data H124. Preclinical data suggest the benefits of iSCIB1+ (performance, efficacy, and ease of admin) are a significant advance over SCIB1.
  • Data for lead Moditope vaccine, Modi-1, are 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. Initial early signals of efficacy have already been observed in various monotherapy cohorts and further data are expected in 2024. The CPI combination data will be particularly important for understanding Modi-1’s positioning and potential, and will be a key de-risking event.
  • Multiple catalysts could drive significant upside Catalysts include: (1) Stage one SCIB1 doublet combination data in Q423 (9 responses from up to n=15) with stage two data (28 responses from up to n=43) expected in H124; (2) iSCIB1+ doublet combination top-line data in H124; (3) Modi-1 CPI combination data in 2024 from various cohorts; (4) partnering optionality with the GlyMab antibody platform.

Update

5 September 2023

Price8.06p
Market Cap£71.7m
Enterprise Value£58.9m
Shares in issue818.4m
12 month range8.05p-29.4p
Free float55.0%
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 programmes and catalysts

Scancell is a clinical stage immunology specialist. It has two promising oncology vaccine platforms, Moditope and ImmunoBody, and two antibody technologies, GlyMab (anti-glycans) and AvidiMab, with the potential to treat many solid cancers, either as monotherapy or in combination. Modi-1, the first Moditope programme, is progressing in a Phase I/II trial targeting hard-to-treat tumours with further efficacy data due 2024. The lead ImmunoBody programme, currently SCIB1, is in a Phase II study in metastatic melanoma, with a transition to the next-generation iSCIB1+ expected later this year. The broad acting GlyMab antibodies are generating exciting preclinical data, and a first partnering deal with Genmab is already in place and further deals are possible. AvidiMab technology will be increasingly employed to enhance avidity and potency. Our risk adjusted NPV valuation for Scancell is currently £300.1m, or 36.7p/share, with significant upside from multiple upcoming catalysts.

Scancell has four proprietary technology platforms, which can be classified into Vaccines (Moditope and ImmunoBody) and Antibodies (GlyMab and AvidiMab). More details on each are available in our February 2023 Outlook. Scancell’s pipeline of newsflow is summarised in Exhibit 1.

Exhibit 1: Scancell pipeline key newsflow over the next three years
Source: Scancell

SCIB1: upcoming melanoma doublet data

The lead ImmunoBody programme is currently SCIB1, which is being developed for the treatment of advanced melanoma. The open label Phase II SCOPE study is ongoing, which is examining SCIB1 in combination with checkpoint inhibitors (CPIs). Reflecting the changes in the treatment regimen for advanced metastatic melanoma, the focus is on the combination with doublet therapy, which consists of Bristol Myers Squibb’s Yervoy (ipilimumab) plus Opdivo (nivolumab).

The study rationale is that the SCIB1 ImmunoBody vaccine primes an immune response against the tumour, whilst the CPI reduces the immune-suppressant effect seen in the tumour microenvironment, which together could increase the number of patients who respond to treatment. Preclinical studies show a strong synergistic effect when SCIB1 is combined with a relevant CPI (c 85% response rates in animal models).

For context, and with the caveat of cross trial comparison limitations, the FDA approved label for Opdivo in combination with Yervoy, based on the CHECKMATE-067 study, cites an overall response rate (ORR) of 50% for the combination (based on a primary analysis with nine months of follow-up) vs 40% for Opdivo monotherapy and 14% for Yervoy alone. The ORR for the combination is 58% in longer-term CHECKMATE-067 data at both five and 6.5 years. Real-world data (at median follow-up of 12 months) reports an ORR of 48%. The ORRs achieved with doublet therapy are the highest observed in advanced melanoma.

Top-line data from the first stage (Cohort 1) of the SCOPE study, examining SCIB1 in combination with doublet therapy, are expected during Q423. This cohort will recruit up to 15 patients and a >55% response rate (ie nine responses) is required to validate the study hypothesis before progressing to the second stage. If nine responses are achieved in fewer than 15 patients, this would represent an ORR that appears higher than ORRs observed with doublet therapy alone, as described above. Hence, this could translate to improved outcomes for patients which would be a significant achievement, in our view.

The second stage will recruit up to a further 28 patients (for a total of up to 43 patients across both stages). The aim is to achieve 19 responses (ie 28 responses in total), which would represent at least a 65% response rate (28/43). This would demonstrate that SCIB1 in combination with doublet therapy exceeds currently achievable ORRs. Recruitment is expected to be complete by the end of 2023 with data around three months later ie during H124. If response rates of these magnitudes are achieved, then this could generate partnering interest, in our view.

The plan is to transition the SCOPE study to the enhanced, second-generation iSCIB1+. A repeat of Cohort 1 using iSCIB1+ in combination with doublet therapy could start by YE23 for top-line data H124e. If expanded data from these cohorts are positive, then a potentially registrational Phase II/III trial could be initiated.

Modi-1: combination data in challenging cancers in 2024

The Phase I/II ModiFY study of Modi-1 is a two stage trial with an initial dose escalation and safety phase, already successfully completed, followed by a number of specific expansion cohorts that explore Modi-1 in a variety of hard-to-treat solid tumours as monotherapy, in combination with CPIs, as well as in the neoadjuvant (pre-surgical) setting. These include triple-negative breast cancer (TNBC), ovarian cancer, head & neck cancer, and renal cancer. A total of up to 138 patients across up to 20 UK sites will be treated. An overview of the trial design is shown in Exhibit 2.

The initial dose escalation and safety phase has been successfully completed with Modi-1 injections well tolerated at both low and high doses as monotherapy and in combination with a CPI. Recruitment into the ovarian cancer monotherapy cohort is complete, whilst recruitment into other expansion cohorts (monotherapy, combination with CPI, and neoadjuvant settings) is ongoing.

Exhibit 2: Modi-1 Phase I/II clinical trial design
Source: Scancell  Note: CPI = checkpoint inhibitor

The ovarian cancer monotherapy expansion cohort has completed recruitment of 16 patients. All patients had failed prior treatment and had actively progressing disease. The disease control rate was 44% (7/16) following treatment with Modi-1 (stable disease for at least eight weeks), with some patients experiencing disease stabilisation for four or more months. In other monotherapy expansion cohorts, eight patients have received a full dose of Modi-1, with the following results:

  • One TNBC patient remains on trial with stable disease beyond 8 weeks
  • One head & neck patient achieved a partial response and remains on study at week 37.

Recruitment into the key CPI combination expansion cohorts has been approved and is underway, with data expected during 2024. These are focused on Modi-1 in combination with a CPI in head & neck and renal cancers, and in the neoadjuvant (pre-surgery) setting in head & neck cancer.

GlyMabs: partnering optionality

Scancell has built a pipeline of differentiated broad acting anticancer GlyMab antibodies, and currently has five in early-stage development. In October 2022 Genmab effectively validated the GlyMab platform when it acquired the rights to develop one of these preclinical antibodies, SC129, into multiple novel therapeutic product modalities for all disease areas, excluding cell therapy applications (which are retained by Scancell). The Genmab deal, which could generate up to a maximum of $624m in milestones if all the modalities were to be progressed, plus royalties, is an example of the partnering optionality within the GlyMab pipeline. We expect the remaining programmes, and other undisclosed ones in earlier stages of preclinical development, will be progressed to preclinical validation points and then also be partnered for further clinical development.

Exhibit 3: 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.

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.

HUTCHMED

Delivering on sharpened goals and priorities

Lighthouse | 1 August 2023

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  • HUTCHMED remains focused on its goal of near-term value creation and building a self-sustaining business that achieves profitability in FY25. H123 results show the twin impacts of revenue growth driven by commercial execution in China and cost reduction due to late-stage portfolio and registration study prioritisation. HUTCHMED’s global partnering approach, which included the up to $1.13bn Takeda deal for global ex-China rights to fruquintinib (January 2023 Lighthouse), boosted both top and bottom lines.
  • The focus Oncology/Immunology segment reported consolidated revenues of $359m (+294%, $91.1m) consisting of $100.5m (H122: $76.1m) from product sales/R&D services and $258.7m (H122: $15m) from partnering income. Total H123 revenues were $533m (+164%, H122: $202m), including Other Ventures of $173.7m (+57%, $110.9m). Portfolio optimisation reduced R&D spend by 20% to $144.6m (H122: $181.7m), while the restructuring of US operations contributed to lower SG&A of $68.3m (H122: $79.7m). Net income from Other Items of $56.9m (vs $33.9m) reflected higher interest income and FX gains. Net Income was $168.6m vs a Net Loss in H122 of $258.7m. End-H123 cash of $856m (end-FY22: $631m) includes the $400m Takeda upfront payment.
  • Revenue from oncology products in China, coupled with partial recognition ($280m) of the Takeda upfront, contribute to unchanged FY23 revenue guidance of $450-550m. HUTCHMED’s three approved China products – Elunate (fruquintinib), Sulanda (surufatinib), Orpathys (savolitinib) – are now all included on the NRDL and together have shown solid in-market sales growth of 16% (25% at CER), with volume growth offsetting any pricing discounts.
  • HUTCHMED is also driving its pipeline, with 15+ registration/registration-intent studies in progress with seven drug candidates. Key H223 catalysts include the outcome of the FDA review of fruquintinib in advanced metastatic colorectal cancer (June 2023 Update) by or on the 30 November PDUFA goal date, and potential China NDA filings of the first haem-oncology assets, sovleplenib (a Syk inhibitor) for 2L immune thrombocytopenia (ITP) and PI3Kδ inhibitor amdizalisib in 3L follicular lymphoma, subject to positive results from ongoing registration-intent studies during H223.

Trinity Delta view: HUTCHMED’s path to profitability is supported by growing traction and market share capture of its China oncology products, potential launch (by partner Takeda) of the first HUTCHMED discovered and developed drug ex-China, and a solid balance sheet. As fruquintinib is a material near-term opportunity ex-China, investors are understandably focused on its November PDUFA date, this should be followed by a European EMA decision in 2024 (Japan PDMA submission is expected this year). A second global asset, savolitinib, is completing multiple pivotal trials with potential for filing(s) in 2024. HUTCHMED is also on the cusp of first China filing(s) for its second-wave haem-oncology assets and we expect these to feature in the Q423 Capital Markets Day. Our last published valuation of US$5.5bn (US$32.01 per ADS), £4.6bn and HK$43.2bn (534p or HK$49.94 per share), does not yet reflect the interim results and business update.

Lighthouse

1 August 2023

Price (US ADS)
(UK share)
(SEHK share)
US$14.07
223.25p
HK$23.75
Market Cap
 
US$2.43bn
£1.93bn
HK$20.57bn
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 2023 Trinity Delta Research Limited. All rights reserved.

Arecor Therapeutics

Pipeline and partnership progress plus upcoming catalysts

Lighthouse | 20 July 2023

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  • Arecor’s H123 business update outlines strong progress across both the in-house and partnered pipelines, and with the roll-out of Ogluo in key European territories. Unaudited cash at end-June 2023 was £8.2m; interim results will report mid-September. H223 is expected to deliver additional AT278 Phase I data, plus potential catalysts in the licenced product portfolio, including an approval decision for the first Arestat-enabled product, AT220, and additional technology partnerships.
  • Since IPO, Arecor has secured ten revenue-generating collaborations with major pharma/biotech companies. Two new deals were signed in H123: an additional formulation agreement with an existing top five pharma partner and one with a leading biopharma supporting biosimilar development following an earlier technology partnership. Further deals are expected during H223 and beyond. These agreements provide near-term revenue via research fees, with upside potential from licencing (clinical/commercial milestones and royalties or equivalent).
  • Arecor’s licenced portfolio also has future milestone and recurring royalty potential. AT220, an undisclosed biosimilar for a multi-billion market, should become the first commercial product incorporating the Arestat technology, with an FDA approval decision pending in H223. The next most advanced asset, Inhibrx’s INHBRX-101 is in registration-enabling trials for emphysema due to alpha-1 antitrypsin deficiency (AATD), while a milestone was received on transfer of RTU injectable AT307 to Hikma for further development (January 2023 Update).
  • Clinical progress in the proprietary diabetes portfolio means that the second Phase I study of AT278, ultra-rapid ultra-concentrated insulin, in Type II diabetes patients should complete in Q423. AT278 was designed to address Type II and refractory Type I diabetics that require higher daily dosing and could also facilitate development of next generation miniaturised insulin delivery devices. Data from the second Phase I trial of AT247, ultra-rapid pump-optimised insulin, were presented in June at the ADA (American Diabetes Association) 2023 meeting and showed faster insulin absorption vs current gold standard rapid acting insulins and thus an ideal profile for fully closed loop “artificial pancreas” pumps.

Trinity Delta view: Arecor continues to advance across its multi-faceted business as it builds a self-sustaining biopharma company. Demonstrable clinical progress with its Diabetes and Specialty Hospital pipeline and growing revenue potential from existing (and future) partnerships as well as from its commercial arm, Tetris Pharma, all contribute momentum. Data, regulatory decisions, and business development activity are expected in H223; the latter demonstrating the applicability of the proprietary Arestat platforms in developing novel and differentiated formulations of existing drugs with enhanced properties. We value Arecor, using conservative assumptions, at £176m, or 575p per share.

Lighthouse

20 July 2023

Price205p
Market Cap£68.76m
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 2023 Trinity Delta Research Limited. All rights reserved.

Futura Medical

Haleon to commercialise MED3000 in the US

Lighthouse | 17 July 2023

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  • Futura Medical has licenced US marketing rights for MED3000 to Haleon, an acknowledged global leader in consumer health that was recently spun out of GSK. The deal grants Haleon exclusive rights to commercialise MED3000 (Eroxon in Europe) across the USA, with Haleon responsible for the launch (although no detail on likely timing is provided) and then all ongoing regulatory, development, marketing, and commercialisation activities.
  • Disclosed terms include an initial $4m upfront payment, royalties on sales, and milestones of between $5m and $45m linked to commercial and performance-driven sales thresholds over the coming “several years”. Haleon has responsibility for all investment and activities related to US launch and marketing, Interestingly, while Futura will provide ongoing technical support there is no mention of its involvement in MED3000 manufacture and supply in contrast to the deals for other markets (eg Cooper Health May 2022). This suggests Futura will not have to manage the US supply chain, a costly and time-consuming exercise for a small (relatively) company.
  • Haleon is an ideal partner for a “scientific” product such as MED3000, with unparalleled expertise in switching prescription products to OTC (over-the-counter) across complex markets. It has proven ability in addressing the broad and multiple channels that now exist in consumer health, with messaging that resonates with the target audiences and so creates strong and enduring brands. We are curious to see how Haleon will brand MED3000 in the commercially important US market.
  • Understandably, Haleon is currently minimising public disclosure of its plans, but the positioning strategy will clearly major on MED3000 as an FDA approved effective and clinically proven treatment for Erectile Dysfunction (ED) that, uniquely, can be bought OTC (ie without prescription). The other major differentiator is MED3000’s demonstrable 10-minute onset of action, unlike oral PDE5i’s (ie Cialis and Viagra), which typically take ≥ 30 minutes.
  • Previously, we have discussed the challenges in forecasting FY23 and FY24 sales of Eroxon/MED3000 until there is visibility on repeat orders in initial European markets and on US launch plans. With this caveat, we expect the $4m upfront to extend the cash runway from FY25 into FY26. It is worth noting that if we are correct regarding the responsibility for establishing the US supply chain, then under many revenue scenarios profitability is in sight.

Trinity Delta view: We knew 2023 was going to be pivotal for Futura Medical, and this earlier than expected US commercialisation partnership is the third major event so far (following Eroxon’s successful maiden launch in Europe, as confirmed at the June investor event, and FDA clearance of MED3000 as a unique OTC treatment for ED). The quality of Haleon as a commercial partner is beyond doubt and, in our view, validates the entire MED3000 investment case. Our valuation, once seemingly ambitious, is £270m, equivalent to 94p per share; however, we expect to review this as soon as forecasting visibility improves.

Lighthouse

17 July 2023

Price51.60p
Market Cap£154.32m
Primary exchangeAIM
SectorHealthcare
Company CodeFUM
Corporate clientYes

Company description

Futura Medical is an R&D driven small pharma company, with a novel DermaSys transdermal delivery platform. The lead programme, a topically applied gel (MED3000), has been 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 2023 Trinity Delta Research Limited. All rights reserved.

Futura Medical

Key takeaways from Investor Seminar

Lighthouse | 26 June 2023

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  • The Investor Seminar on 22 June provided useful insights into Eroxon, Futura Medical’s OTC (over-the-counter) treatment for ED (erectile dysfunction). UK key opinion leaders (KOLs) in sexual health explained that despite PDE5is (eg Cialis and Viagra) having transformed ED treatment, they have drawbacks. These include: (1) adverse events often leading to discontinuation; (2) potential for drug interactions limiting which patients can use a PDE5i; and (3) the 30-60 minute onset leading to a lack of spontaneity, one of the major issues. KOLs agreed that Eroxon provides a useful treatment addition, that initial feedback is positive and that subsequent attempts with Eroxon can improve benefits, and that Eroxon could potentially have synergistic effects with other treatments that would merit further exploration.
  • Cooper Consumer Healthcare, the EU and UK distribution partner, outlined their Eroxon marketing strategy, aiming to build a credible brand by educating and working with healthcare professionals, to focus distribution to ensure accessibility, and to drive consumer demand. There are early signs of success with the pilot launches in Belgium and the UK, and there are plans to roll out via Amazon in other EU countries from July. Ceuta (Cooper’s UK partner) provided details on the UK launch via Boots, with Eroxon exceeding all targets, generating £1m of retail sales after 42 days, now approaching £2m. Boots are pleased with the launch, noting there have been occasions where one has been sold every 30 seconds, and Boots remain enthusiastic.
  • US market research by Ipsos echoed many of the KOL comments in terms of current treatment limitations, with MED3000’s rapid 10-minute onset of action seen as a key benefit and differentiator. The research highlighted that sales in the US could reach >$400m by 2028, substantially above our $250-300m peak forecast. Interestingly, despite the availability of generics, costs for ED treatment remain high in the US. Hence if pricing in the US is similar to Europe, this seems unlikely to be a barrier to uptake, in our view.
  • Futura recently guided to net Eroxon revenues of ≥£1.5m for H123; however, we note that these and future net reported revenues are unlikely to directly correlate with retail sales given Futura receives an undisclosed transfer price on delivery of orders to Cooper, rather than on in-market sales.

Trinity Delta view: The Investor Seminar provided confidence in the launch and potential of Futura Medical’s Eroxon. Clinicians highlighted that Eroxon provides a useful addition to current ED treatment options, particularly given issues with PDE5is, notably the lack of spontaneity. This was echoed by US market research where the rapid 10-minute onset of action was seen as a key benefit. These unique attributes of Eroxon, coupled with its OTC status (without a prescription) appear to be translating into a successful early launch, with commercial partners outlining that UK sales have so far exceeded all expectations. The next key step for Futura Medical is to secure a US commercial deal(s). Our last valuation was £270m, equivalent to 94p per share (published before the US FDA authorisation); we expect to review this once there is clarity on plans for launching in the US.

Lighthouse

26 June 2023

Price59.00p
Market Cap£176.45m
Primary exchangeAIM
SectorHealthcare
Company CodeFUM
Corporate clientYes

Company description

Futura Medical is an R&D driven small pharma company, with a novel DermaSys transdermal delivery platform. The lead programme, a topically applied gel (MED3000), has been 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 2023 Trinity Delta Research Limited. All rights reserved.