Investment case

ANGLE is a liquid biopsy company, developing tests and assays on its proprietary Parsortix cell capture platform. This elegant, versatile and simple system employs microfluidics to physically separate viable cells from a standard blood sample. Applications could be broad, but ANGLE is focused on harvesting circulating tumour cells (CTCs). FDA clearance was secured for Parsortix in May 2022 as the first ever tool to harvest CTCs from patients with metastatic breast cancer for subsequent downstream analysis. A multi-pronged strategy is in place to capture a number of distinct diagnostic market segments, with near-, mid- and longer-term prospects. ANGLE is listed on the LSE AIM and employs c 150 people across the group with headquarters at the Surrey Research Park in Guildford, UK, and with operations also in the US. To date, ANGLE has raised c £148m, including c £20m (gross) in July 2022 in order to develop the technology and commercial activities.

Valuation

Our three-phase DCF model is based on detailed medium-term forecasts to 2032, followed by a five-year trending period, and a 2.0% terminal growth rate. These income streams are discounted back and netted against the net cash position, resulting in a valuation of £253m, or 97p per share. FDA approval of the first clinical indication reduces development risks, but some still remain (LDTs for prostate and ovarian cancers). Nonetheless, the emphasis has clearly shifted from development activities to commercial execution. The market opportunities are sizeable and even modest success in any one area could be transformational.

Financials

January’s business update confirmed December 2022 cash resources would be c £32m in-line with consensus (June 2022: £20.5m, December 2021: £31.8m), being boosted by the £20.1m gross (£18.9m net) share placing in July 2022. FY22 revenues are expected to be just above £1m, with c £0.5m of anticipated revenues having been delayed into 2023. FY23 revenues are expected to grow significantly but be materially lower than prior consensus of c £5m owing to adverse market conditions. Existing cash, coupled with the revised revenue streams, R&D tax credits, and expected cost savings from the closure of Canadian operations, suggests a cash runway into H224.

Sensitivities

In common with most innovative healthcare companies, ANGLE’s three main sensitivities relate to development/regulatory aspects, execution of commercialisation plans, and the financial resources required to accomplish these. With the important first FDA clearance secured, the focus has shifted to successfully delivering on Parsortix’s commercial potential. Adoption of a novel medical device technology can take time and significant investment. Hence the onus is on management to effectively capitalise on Parsortix’s first mover advantage in order to drive future clinical uptake by securing new partners, expanding Pharma services and launching LDTs (laboratory developed tests).

ANGLE: Delivering on Parsortix’s potential is key

ANGLE’s focus since the pivotal FDA product clearance of its proprietary Parsortix cell capture system is to deliver on Parsortix’s commercial promise. ANGLE has identified several potentially significant opportunities to make Parsortix broadly available to the healthcare industry and patients via a multi-pronged strategy, which should provide multiple layers of revenue growth over the near-, mid-, and longer-term. These include the Pharma services business, already displaying positive momentum, continued progression in the development of laboratory developed tests (LDTs), and securing corporate partnerships to drive Parsortix use in the clinic. The long-awaited FDA product clearance should expedite these opportunities by providing gold standard external validation, reducing the perceived novel technology risk for potential new customers, whilst also facilitating clearance for future uses. Broad adoption of a novel medical device can require a paradigm shift, with sales subsequently taking time to materialise. Hence, the challenge will be for ANGLE to capture these opportunities in an effective and systematic manner. Our updated DCF-based valuation is £253m ($304m), or 97p/share, which could rise as visibility on commercialisation initiatives and Parsortix’s positioning become clearer.

ANGLE’s primary focus in recent years has been securing first FDA product clearance for its Parsortix cell capture system. Parsortix is an elegant and versatile technology platform for capturing circulating tumour cells (CTCs) from a simple blood sample. CTCs can provide unique diagnostic information, giving a complete picture of a cancer, hence enabling optimal treatment specific to the cancer’s profile. CTCs also allow longitudinal monitoring that can prompt treatment adjustments as the cancer evolves, a level of insight that is not usually possible with current cancer diagnosis and analysis. The combination of innovative targeted cancer therapies, together with novel diagnostic solutions such as Parsortix, could revolutionise future cancer treatment. With FDA clearance granted, ANGLE has first mover advantage in CTC liquid biopsies.

Given the promise that Parsortix holds in cancer diagnosis and treatment, the focus has shifted to executing on the multitude of opportunities, ranging from Pharma services for cancer drug trials, to clinical tests to support patient management. Without unlimited resources, the challenge will be to appropriately prioritise and target these opportunities to crystallise value in an effective manner.

ANGLE has made first strides in the potentially lucrative Pharma services business, which provides tools for oncology trials. This is expected to be the near-term growth driver, with the FDA clearance potentially facilitating the onboarding of new customers. The establishment of accredited laboratories and availability of in-house LDTs (laboratory developed tests) will provide future layers of growth. The most significant opportunity will be from future broad clinical uptake, albeit this will likely take time. Even a relatively small share of any of these opportunities would be transformative for ANGLE.

End-December 2022 cash is expected to be c £32m, which should provide a runway into H224. Funds will be used to capitalise on momentum from the FDA clearance, specifically to expand the Pharma services business, continue development of the prostate and ovarian cancer LDTs, and to secure corporate partnerships to drive clinical uptake.

Unlocking value from Parsortix

The Parsortix system is a practical and straightforward platform to harvest circulating tumour cells (CTCs) from a blood sample. CTCs originate from a solid tumour and are shed into the bloodstream. CTCs harvested using the Parsortix system are intact living cancer cells which can provide unique, relevant, and up-to-date insights into the properties and characteristics of the underlying solid tumour, helping to guide treatment. Given that only a blood sample is required, Parsortix can be employed at multiple points in emerging cancer treatment pathways, providing actionable decision-making information. This can range from the initial diagnosis through to therapy selection, plus monitoring, recurrence monitoring and potentially, in the longer-term, patient screening. This versatility, coupled with Parsortix’s ability to be used with almost any downstream assays, means there are a wide range of potential commercial opportunities over the near-, mid-, and longer-term.

Aiming to make Parsortix broadly available

Management’s aim is to make Parsortix broadly available to the healthcare industry and for it to eventually form part of routine patient care in order to transform cancer treatment. A strategy is in place to maximise the uptake of Parsortix, which is focused on three key business areas:

• Pharma services: notably in oncology trials for patient targeting and monitoring, with the goal of Parsortix developed assays becoming embedded as companion diagnostics (CDx), fully funded by customers;
• Partnerships: for downstream analysis technologies, focused on medtech companies, and with a view to leveraging sales channels; and
• Product business: supplying equipment and consumables to clinical labs, either directly or via distributors.

CTCs harvested with Parsortix can have nucleic acids and proteins analysed via a variety of downstream analysis platforms. ANGLE had been developing an in-house molecular analysis platform, HyCEAD Ziplex, but made a recent decision to instead focus on the use of third-party platforms for DNA and RNA sequencing. This is due to several factors, including the increased sensitivity and reduced cost of external technologies, such as digital PCR and NGS (next-generation sequencing), respectively, coupled with the increasing availability of these external technologies. This contrasts with the likely significant costs required to fully develop HyCEAD Ziplex for use outside of ANGLE’s own laboratories as part of a Parsortix product solution. Although an internally developed complete “sample-to-answer” approach would retain more value, in order to realise the commercial potential a meaningful installed base would need to be established, which would take time and require substantial additional investment. Third-party platforms provide an existing large installed base that ANGLE can more rapidly leverage by providing content, leading to a more pragmatic commercial approach.

There are five key components which are expected to drive uptake in the targeted business areas:

• regulatory approvals, with FDA product clearance achieved in the US in metastatic breast cancer and CE mark granted in Europe;
• clinical studies and published evidence to drive awareness of Parsortix and demonstrate its value in real world settings;
• in-house accredited laboratories which will have a crucial role as demonstrators and accelerators of Parsortix’s potential;
• product development, for example laboratory developed tests (LDTs); and
• securing reimbursement codes to allow for widespread uptake.

Together these elements are expected to deliver multiple, staged layers of revenue growth. As shown in Exhibit 1 some are already generating revenues including from existing Research Use sales to translational researchers and the growing Pharma services business. From 2024, modest first sales from LDTs currently in development are anticipated, with these expected to grow in the mid-term as reimbursement codes and payor coverage is achieved and use becomes more entrenched. Longer-term, we expect broader clinical uptake and use, potentially as a companion diagnostic, which should be the culmination of a number of near- and mid-term endeavours.

Exhibit 1: Stages of Parsortix commercialisation

Source: ANGLE   Note: CDx = companion diagnostic; LDT = laboratory developed test; IVD = in vitro diagnostic

The May 2022 FDA product clearance has already driven an acceleration in discussions with potential partners for Parsortix, in particular with medtech companies, whilst in Pharma services, discussions with >20 potential customers are ongoing, including with large Pharma companies. Achieving a gold standard regulatory clearance is also expected to bring awareness of Parsortix to a wider audience, which could potentially broaden existing Research Use Only (RUO) and in turn, generate further original papers and applications helping to cement Parsortix’s position as a leading CTC harvesting platform. Whilst RUO is not a major revenue source, in our view, it should help to identify new applications for the technology, and to leverage published study data to access a broader physician market that could incorporate Parsortix-based analysis into treatment decisions, which should be a much larger commercial opportunity.

Published evidence, often via collaborations with leading academic centres and physician Key Opinion Leaders (KOLs), on clinical studies utilising Parsortix provides ANGLE with an efficient and economical route towards identifying and refining potential clinical applications, whilst also raising awareness of the Parsortix system. The publication of peer-reviewed papers should provide the larger patient treating physician community with a greater understanding and appreciation of Parsortix.

Research use, together with the Pharma services business, discussed in more detail later in this report, comprise the underlying translational research revenues. Pharma services offers clinical trial tools to pharmaceutical and biotech companies, notably in oncology, for patient targeting and monitoring. Four customers are already secured, two of which have already expanded contracts to include new trials. Pharma services revenues could reach $50m-$100m, based on an average $1,000-$2,000 test price and the number of samples that can be processed each year within the existing laboratory capacity, and is expected to be the main driver of near-term revenue growth, through a combination of:

• new customers, with four already secured;
• current contracts successfully progressing to later development stages, hence larger and longer clinical trials; and
• existing customers expanding contracts to other products and trials.

As Parsortix becomes more established as an exploratory tool in clinical trials via the Pharma services offering, this could also lead to development of companion diagnostic tests for new drugs. Availability of a companion diagnostic is likely to become more important for securing regulatory approvals of novel targeted therapies in order to ensure that patients most likely to benefit receive the most appropriate treatment. Whilst development of a companion diagnostic could take several years, this should come at limited direct expense to ANGLE as efforts will be largely funded by the drug developers running the clinical trials. The FDA clearance of the Parsortix platform should facilitate the regulatory review of any novel drugs using a Parsortix-based companion diagnostic, likely making Parsortix more attractive to potential new customers.

ANGLE is also developing a pipeline of Laboratory Developed Tests (LDTs), which it plans to offer to physicians to aid in patient management. Once development is complete, these LDTs will be available from ANGLE’s own laboratories in the UK and US. Both laboratories have completed all the necessary administrative steps towards achieving the relevant accreditations, with availability of the first LDT needed to secure formal CLIA accreditation in the US, permitting provision of commercial services. The first LDTs could become available during 2024: (1) a prostate cancer LDT to assess the presence and severity of prostate cancer; and (2) an ovarian cancer pelvic mass triage LDT. The commercial opportunity for each of these LDTs could be substantial, as outlined later.

Availability of LDTs through ANGLE’s own labs is key to accessing broader clinical use sales. Firstly, the clinical laboratories in the UK and US would act as demonstrators of the services that can be offered, providing important proof of concept for the larger CLIA laboratory networks. Secondly, these will allow discussions with US payors, ahead of formal FDA IVD (in vitro diagnostic) product clearance, to establish dedicated reimbursement codes, which are an essential step in driving widespread adoption and becoming established clinical practice.

In parallel with these activities, ANGLE is aiming to work with a wide range of industry partners in order to make Parsortix broadly available to physicians and patients, and to capture various revenue opportunities without the need for a large in-house patient-centric commercial infrastructure. These include medtech companies, pharma and biotech companies, clinical laboratories, CROs (contract research organisations), reference labs, and screening companies. In addition, ANGLE is seeking to establish a global sales and distribution network to expand Parsortix’s reach through agreements with regional distribution partners. The first such agreement was executed in the Czech Republic in October 2022 with Promedeus, a specialist medical equipment distributor with a focus on oncology. ANGLE has since signed similar distribution agreements covering territories in Europe, the Middle East, China, and India.

Discussions have been held with major diagnostic players such as Abbott, Philips, and Qiagen to explore the development of clinical products. For example, Abbott’s PathVysion HER-2 FISH Probe kit was used in the metastatic breast cancer studies required for FDA clearance. ANGLE continues to discuss potential commercial options with Abbott, alongside other potential partners, to offer a Parsortix-based HER-2 test from a routine blood draw.

Flexible solutions are available to potential customers

To make Parsortix available to as many potential end-users as possible, ranging from hospitals, through to Pharma and/or various industry partners, ANGLE offers Parsortix to customers both as a product/equipment supplier, and as a service provider, with these allowing access to various market opportunities:

• Product-led, with ANGLE as an equipment supplier, whereby the Parsortix instrument can be sold as a stand-alone unit direct to customers eg hospitals, with customers purchasing consumables (single use cartridges) to harvest cancer cells for analysis via existing well-established downstream analysis techniques eg PCR, next generation sequencing; or
• Service-led, with ANGLE as a diagnostic test provider with its own assays and LDTs, and as part of a “sample-to-answer” workflow with ANGLE providing CTC samples to a partner that provides the desired analysis.

A key component of the service-led approach is ANGLE’s clinical laboratory offerings, with laboratories opened in the UK (Guildford, Surrey) and in the US (Plymouth Meeting, Pennsylvania) in Q121. These are already supporting the Pharma services business. The aim is also to offer validated clinical tests, including the market relevant LDTs that ANGLE is currently developing for ovarian and prostate cancer. Processing of patient samples for clinical purposes requires appropriate laboratory accreditations, which are essentially a regulatory approval that the laboratory has the technical competence to produce reliable, accurate, and precise results for specific patient tests. Laboratory accreditation in the UK is via UKAS and in the US it is CMS (Centers for Medicare & Medicaid Services) that regulates all laboratory testing (excluding research testing) through CLIA (Clinical Laboratory Improvement Amendments).

In both the US and the UK, all elements towards securing accreditations have been completed and ISO 15189 accreditation has been received in the US and is expected shortly in the UK. This accreditation, which involves an independent lab assessment, is the gold standard for medical labs and ensures international quality and competence standards and is highly regarded by Pharma services customers. In the US, the additional CLIA accreditation required for patient management can only be received once the first LDT is being offered from the labs.

First FDA clearance a key de-risking event

ANGLE received the first ever FDA clearance of the Parsortix system in May 2022, specifically as a De Novo Class II medical device for harvesting CTCs for subsequent user validated downstream analysis in metastatic breast cancer (mBC). This was a long-awaited event and an area of considerable focus for ANGLE over recent years, with the original regulatory package submitted in September 2020 and a full response to the FDA’s Additional Information Request announced in early June 2021. Given there was no predicate device to benchmark, the outcome and timings were uncertain, hence receipt of formal clearance was a key de-risking event, in our view. The FDA clearance is important for several reasons, all of which should help to drive future potential revenues, including:

• Providing external gold standard validation of the Parsortix platform, which could be important for securing agreements with prospective new customers across the healthcare industry (pharma, medtech etc);
• Reducing the risk and regulatory burden for future clearances in other indications and applications; and
• Allowing the sale of Parsortix in the US to hospitals and clinics, specifically for the harvest of CTCs in mBC for user validated subsequent analysis.

The FDA clearance for use in mBC enables ANGLE to sell Parsortix for this specific indication. However, large scale future sales will be dependent on downstream assays to interrogate the CTCs and reimbursement being in place to pay for the tests, both aspects now key areas of focus for management. ANGLE is seeking to capitalise on this opportunity through partnerships with medtech companies, for example with Abbott or other partner(s) for a Parsortix-based HER-2 test. According to ANGLE, the number of discussions with potential industry partners have expanded since the FDA clearance and from new therapies to treat low HER-2 as well as HER-2 positive breast cancer patients.

Hence, mBC represents only one aspect of a multi-faceted approach to address the various opportunities that should drive growth across multiple revenue streams. As outlined earlier, Pharma services is likely to be the near-term revenue growth driver, with sales of in-house LDTs via the accredited laboratory facilities likely to be the next layer of growth. Nevertheless, whilst sales in mBC may not be immediate, the commercial opportunity could be substantial, particularly if ANGLE, together with a partner, can develop an assay for mBC.

Pharma services: Gaining momentum

Near-term revenue growth is likely to be driven by the Pharma services offering. This business was only established during 2021 and has already completed work for one customer for a bespoke assay, and has ongoing contracts with four customers, two of which have expanded contracts to include further clinical trials. Multiple new customers and projects are in the pipeline, including with major pharma companies, with expanded discussions and opportunities coming to the fore following the FDA clearance.

Pharma services offers clinical trial tools, including assay development and clinical trial support, to oncology focused pharmaceutical companies for patient targeting and monitoring. Over time this could be a sizeable revenue stream, in our view, with growth not only from new potential customers, but also from existing customers, firstly as current contracts for clinical trials progress to a later stage, but also as existing customers expand to other trials. While the FDA clearance has facilitated discussions, the cost-focused environment and challenging financial markets have prolonged already lengthy sales processes, particularly among the earlier stage biotech companies, which are often the drug discovery engine room for large pharma. Nevertheless, the overall opportunity remains intact.

Pharma services revenues are currently small, less than c £0.3m per annum, which is unsurprising given the business is relatively new. However, over time and assuming a robust and useful service is delivered, we believe these will grow, both from new customers, and as existing contracts progress and customers expand into new opportunities. In addition, once Parsortix is better entrenched within clinical trials, which could lead to it becoming established as a companion diagnostic, these revenues are likely to be relatively sustainable, providing a long-term solid base.

Pharmaceutical companies developing cancer therapies are seeking better liquid biopsy biomarkers for use in their clinical trials. The growing understanding of how genetically targeted immunotherapies work means the appropriate selection of patients that are expected to respond to the drugs under evaluation is a critical determinant of a trial’s likely success. For instance, knowing the PD-L1 status of a tumour is an increasingly common requirement that is typically established by tissue biopsy. However, accessing the primary tumour is often difficult and becomes even more so when dealing with metastatic disease. The tumour’s status often changes materially during the course of the disease, and solid tumour biopsies seldom allow for the longitudinal monitoring that is increasingly desired.

Parsortix can offer exactly these sorts of unique insights, with the clinical laboratories ANGLE has established in the UK and US well placed to provide these types of services. The tools and services on offer include custom assay development (detecting proteins of interest expressed by CTCs), through to longitudinal monitoring during clinical trials, allowing analysis at multiple time points ie before, during and after investigational drug treatment to monitor and analyse responses. If this sort of analysis is employed in Phase I studies, it seems likely that liquid biopsies would be utilised through to the later clinical stages, with the number of samples growing to reflect the greater patient numbers and longer trial durations. Longer term, assuming successful clinical trial outcomes, these could help establish Parsortix as a routine test for patients, or as a companion diagnostic to aid in therapy selection once the drug candidate has been approved.

Management is flexible in how these clinical trial CTC analyses are delivered; it can be either a direct service or as white label for the CROs to offer and bill. The creation of bespoke assays appears to be a particularly attractive proposition, with the opportunity of selecting the protein targets on a CTC that correspond with a drug’s mechanism of action is a valuable differentiator for ANGLE’s offering. Importantly, any such bespoke assays that are developed remain ANGLE’s intellectual property.

If a service is employed, blood samples from study patients are sent to either lab, with the analyses ranging from simple enumeration, to imaging and/or gene expression. As these services are research use only, no external accreditation or regulatory approval is required. Given the potential importance of the service to customers, the sales process requires extensive validation of the testing chain and evidence of the consistency and reproducibility of the diagnostic results. ANGLE has already secured four customers, of which two have already generated “repeat” business with additional contracts. Work to date includes:

• In April 2021 the first large-scale services contract covering a clinical trial programme. An unnamed but sizeable pharmaceutical company with revenues >$1bn is employing ANGLE and Parsortix to perform patient longitudinal monitoring in a large Phase III prostate cancer trial. The contract, worth up to $1.2m in total, also covers two Phase I studies that, if successful, would also involve longitudinal monitoring in later Phase II and Phase III trials. One of these Phase I trials successfully progressed in June 2022 to a Phase Ib dose escalation and expansion study, leading to a new contract for up to $1.2m over a multi-year period.
• In July 2021, a contract for the development of bespoke immunofluorescence (IF) assays to detect two specific target proteins implicated in DNA damage repair. The first phase of the contract covering initial assay development was worth c $400k over 12-months and the assay has now been successfully developed. The undisclosed customer, a well-funded clinical development company, intends to use the assay in a US/European clinical trial that is expected to begin in H123.

Discussions are progressing with >20 additional potential customers, including several global pharmaceutical companies, and external enquiries have increased following the May 2022 FDA approval, according to management. The majority of discussions are focused on bespoke assay development. We believe there could be an acceleration over time, as once a number of pharma companies have access to these additional insights, other companies operating in related research fields may also seek to include similar analyses in their trials in order to remain competitive. Business development activities are also targeting companies involved in the oncology programmes, including the CROs running the trials.

The commercial opportunity could be sizeable as oncology trials are set to remain one of the most prolific areas of clinical activity. Capacity within ANGLE’s labs is for 50,000 samples per annum, with a baseline price of $1,000, and the potential for this to reach up to $2,000 per sample, depending on the level of complexity and the degree of evaluation desired. This equates to total potential revenues, assuming full utilisation of capacity, of $50-100m. Capacity could be easily increased through shift working. This alone could be transformational for ANGLE and represents only a proportion of even just a subset of oncology trials, with a potential multi-blockbuster opportunity for just a handful of cancers, as shown in Exhibit 2.

Exhibit 2: Pharma services multi-blockbuster opportunity in just a few cancers

Source: ANGLE

LDTs: The next layers of growth

ANGLE is developing a pipeline of Laboratory Developed Tests (LDTs) which it plans to offer to physicians to aid in patient management. These LDTs will be available as a service from ANGLE’s own laboratories in the UK and US once the development work is complete. LDTs are in vitro diagnostic tests that are designed, manufactured, and used within a single laboratory. Availability of an LDT will allow dialogue with US payors, ahead of formal product clearance, to establish dedicated reimbursement codes (CPT codes), which are an essential step in driving widespread adoption and becoming established clinical practice.

The Parsortix system is agnostic as to the cancer type the CTCs originate from; however, management has carefully selected the indications for its initial clinical development. All the principal programmes pursued are in areas where there is a specific need that cannot be easily addressed by potential alternative technologies. The criteria employed to select which clinical indications to progress are broad and comprehensive, including factors such as:

• Clear differentiation from other detection methods such as ctDNA, antibody- and label-based CTC assays, and any known emerging tests;
• Good access to current Key Opinion Leaders (KOLs) in the disease area (for expertise, relationships, patients, etc) and successful pilot data;
• A poor existing standard of care with significant problems (high unmet medical need); or
• A recognised existing test or current standard of care available for benchmark comparison;
• Required studies are easy to organise, recruit patients, have well-defined endpoints, and shorter timelines to results; and
• For the US, an existing CPT code to act as an administrative precedent and aid with reimbursement discussions; also
• Other considerations including barriers to market entry such as established clinical practice, cost, and vested interests.

A prostate cancer LDT to assess the presence and severity of prostate cancer is currently in clinical trials, whilst the ovarian cancer pelvic mass triage LDT has completed clinical trials and a suitable third-party molecular analysis platform is being sought. Both of these LDTs could be available during 2024, with the opportunity for each outlined below.

Prostate cancer trial ongoing and clear path to patients

ANGLE has identified prostate cancer as a commercially important and patient relevant opportunity for Parsortix and is pursuing a LDT as a triage test. There is currently a significant male population that undergoes invasive biopsies as part of the prostate cancer diagnosis paradigm. These are often unnecessary and are associated with complications, which could potentially be avoided with a blood test that can detect the presence and severity of the prostate cancer. The commercial potential could be vast, with ANGLE estimating that the addressable market in the US alone is c $6.8bn. A clinical study was recently initiated and is expected to complete in 2023. This is being conducted in partnership with a US-based urology group, which is particularly powerful as it also allows a rapid and economical potential first route to market.

Prostate cancer is the most common cancer in males in the developed world, with the American Cancer Society estimating c 288k new cases of prostate cancer in the US in 2023. It is the second leading cause of cancer death (behind lung cancer), with around 34,700 deaths annually in the US. It generally affects older males, with 60% of cases in men older than 65, whilst it is rare in males under 40 years of age; around one in eight men will be diagnosed with prostate cancer during their lifetime.

In most diagnosed cases, prostate cancer is a slow-growing disease (indolent) that often does not require immediate treatment. On average, prostate cancer has a five-year relative survival of 96.8%. However, the difference in five-year survival rates between local (or regional) prostate cancer (confined to the prostate and nearby organs), and metastatic prostate cancer (which has spread to other organs), is vast, with nearly 100% for local/regional vs only 31% for metastatic cancer.

Given this disparity, while it is important to establish whether a patient has prostate cancer, it is also important to stage and grade the cancer in order to determine appropriate treatment options, which could include watchful waiting for indolent cancers. Current common diagnostic tests are not even definitive in establishing if a patient has prostate cancer, and therefore suspected cases require additional invasive procedures to confirm the presence of cancer and to stage and grade the cancer. The two most common tests for prostate cancer are:

• PSA blood test: Prostate specific antigen (PSA) is a protein made by the prostate. A high PSA level can be indicative of prostate cancer, but can also be associated with other conditions including inflammation of the prostate. Equally, a low or normal PSA level does not necessarily exclude prostate cancer.
• Digital Rectal Exam (DRE): A physician will try to feel for abnormalities, such as bumps or hard areas, which could be indicative of the presence of prostate cancer.

If a PSA test and/or DRE are abnormal, then further tests are needed to confirm if a patient has prostate cancer. Whilst medical imaging may be used, this is often done in conjunction with a biopsy. A biopsy is the gold standard diagnosis and the only current way to confirm the presence of cancer, although it cannot reliably distinguish aggressive from indolent tumours. Other limitations are a high c 35% incidence of false-negatives (missing the cancer), which occur if the needles miss the tumour. In addition, biopsies are invasive procedures that can have complications, ranging from pain, discomfort, bleeding, and erectile dysfunction, through to serious infections, which can require hospitalisation.

There are more than one million prostate cancer biopsies in the US each year to confirm a suspected case of prostate cancer. Of these, only 20-25% diagnose a prostate cancer reflecting ‘overuse’. Hence there is a large pool of patients undergoing invasive biopsies that are not necessary and could be avoided if a blood test could accurately confirm the presence of cancer and assess severity.

Exhibit 3 provides an overview of ANGLE’s assessment of the addressable US market. This includes use beyond initial screening and diagnosis to include watchful waiting (active surveillance) in males where indolent cancer has been diagnosed to monitor for any clinically relevant change in status, therapeutic decision making and, more materially, remission monitoring for those that have had prostate cancer and where there is a risk of recurrence.

Exhibit 3: Prostate cancer test market opportunity

Source: ANGLE

In order to advance towards the availability of a prostate cancer LDT, ANGLE has partnered with MidLantic Urology in the US to conduct the initial assay development study investigating Parsortix in the detection of prostate cancer and to predict severity. MidLantic Urology is an affiliate of Solaris Health Partners, one of the largest urology providers in the US.

The study, which was recently initiated, is funded by ANGLE, and includes 100 males scheduled for a prostate biopsy, based on an elevated PSA and/or an abnormal DRE. The study aims to assess the potential to predict the presence of a clinically significant prostate cancer and to correlate assessed disease severity with the Gleason score (the generally accepted grading for prostate cancer). The trial is expected to complete during 2023. Blood samples will be collected and sent to ANGLE’s US laboratory for processing by Parsortix and then evaluation by imaging and molecular analysis. We note that molecular analysis for the trial was always planned to be conducted on a third-party platform, hence timelines are not impacted by the decision regarding HyCEAD Ziplex, outlined earlier in this report.

Data from this study could form the basis of a prostate cancer LDT, which ANGLE could then offer from its laboratories in both the US and UK. The partnership with MidLantic Urology also includes an agreement with Solaris Health for a potential rapid first route to market. Solaris Health is a national healthcare platform that offers access to specialty healthcare through 600+ providers that treat >850,000 patients annually. Hence this agreement could deliver not only the data needed for an LDT, but also immediate access to a significant patient group, without the need for a new commercial infrastructure. In the longer-term, pursuit of an approval as a clinical product would require a larger clinical verification study.

Supporting evidence for the utility of Parsortix in prostate cancer is available from the pilot study run by Barts Cancer Institute, published in Clinical Cancer Research. This demonstrated that CTCs can be used to detect the presence of prostate cancer and also risk stratify patients for intervention or further surveillance. The Barts study was in 81 prostate cancer patients and included 34 with castration-resistant prostate cancer (CRPC) and 38 with localised cancer. CTCs were found in all CRPC cases and in 79% of localised patients.

Ovarian cancer assay being refined post positive data

The aim of the ovarian cancer LDT is to triage women set to undergo surgery for an abnormal pelvic mass. It has the potential to be a best-in-class test for discriminating between benign pelvic masses and ovarian cancer and informing next surgical steps. Following highly positive data from the ovarian cancer clinical validation study, ANGLE is now seeking to optimise the assay using a third-party molecular analysis platform. This is expected to provide access to a large installed base in order to maximise the commercial potential, with ANGLE estimating that the addressable market in the US alone is c $1.3bn.

Approximately one in five women will develop a pelvic mass sometime in their life, yet only one in 72 will have ovarian cancer (Siegel R et al). In the US, a woman has a 5-10% lifetime risk of undergoing surgery for suspected ovarian cancer, of which 13-21% are found to have ovarian cancer (ACOG Practice Bulletin); other Western countries are similar. Hence there is a need to accurately differentiate between a benign vs a malignant mass, to avoid unnecessary surgery.

Women with benign masses can generally be treated in local non-specialist units with conservative surgery (typically laparoscopy) which is associated with lower morbidities and shorter hospital stays. However, for those patients with a malignant mass, the most important prognostic factors are accurate surgical staging, cytoreductive surgery, and the expertise of the gynaecological oncologist who performs the operation. Hence, these women should be referred directly to specialist centres.

Early diagnosis can improve survival, with a diagnosis at Stage I having a 93% five-year survival, decreasing to 68% for Stage II, whilst Stage III and Stage IV drop to 27% and 13%, respectively. Hence, a diagnostic test that could allow for early detection could be key for transforming patient outcomes. A cost effective, simple, and non-invasive test could also be particularly valuable for screening programmes, notably if it can correctly identify women with ovarian cancer (true positives) and is also able to avoid incorrectly identifying the presence of cancer (false positives), with the latter a particular limitation of currently available tests.

Recent headline data from the Wilmot ovarian cancer clinical validation study suggest that ANGLE’s test has the potential to be best-in-class, with both a high sensitivity (correctly detecting cancer) and a high specificity (correctly detecting no cancer). In this study, the EMBER trial, 144 women with a diagnosed pelvic mass and scheduled to undergo a pathological evaluation of the mass (imaging guided biopsy, surgical biopsy, or surgical excision) had a blood sample sent to ANGLE for processing and evaluation. Cells were captured and harvested with Parsortix, which then underwent multiplexed gene expression analysis using ANGLE’s Landscape+ (molecular analysis) ovarian assay. This was combined with clinical information, including the physician’s initial cancer risk assessment and the patient’s age, into an algorithm for the prediction of benign vs malignant disease.

Data are summarised in Exhibit 4, clearly demonstrating that the Parsortix Landscape+ ovarian assay has both a high sensitivity and high specificity, and a 95.4% ROC-AUC (area under the receiver operating characteristic curve, a measure of accuracy) which is classified as “Excellent”. This is in-line with the prior study of 95.1%. The test was more accurate than physician assessment, reducing both the false positive and false negative rate by at least 50%.

Exhibit 4: Headline EMBER ovarian cancer data

Source: Trinity Delta, ANGLE

For context, the most useful comparator is the OVA1 commercial test, which combines CA-125, transthyretin, transferrin, β-microglobulin, and apolipoprotein A1 and generates a single-number result. According to published data, the combination of OVA1 test and physical assessment had a sensitivity of 96% in predicting malignancy, compared to only 75% for physical assessment alone and 93% for OVA1 test alone. However, specificity was lower, at between 35% and 55% for OVA1 and combined OVA1 test and physical assessment.

Various approaches have been tried to make an effective differential diagnosis, with physical examination, CA 125 and HE4 levels (ROCA scores), OVA1 testing, and ultrasound examination (trans-vaginal and colour Doppler sonography) most commonly used. All have limitations and no system, or combination of approaches, performs to the desired standards in terms of specificity and/or sensitivity. Hence, there is a need for an accurate pre-operative assessment in order to avoid unnecessary operations in a specialist centre in those women with a benign mass, and to ensure patients with a malignant tumour are sent to specialist centres to receive optimum treatment with a likely better prognosis.

ANGLE is now in the process of assessing several third-party molecular analysis platforms on which to optimise the Landscape+ ovarian assay. Stored samples from the clinical study will be used to validate the platform. Once this work is complete, this will provide ANGLE with access to a potentially large installed base of the third-party platform(s) onto which ANGLE can supply content. This could be important for maximising the commercial potential, given the size of the addressable market.

Exhibit 5 provides an overview of ANGLE’s assessment of the addressable US market. The market opportunity increases materially beyond the initial triage diagnostic testing (notably for the watchful waiting monitoring, where the numbers of test opportunities are significantly larger). These estimates are broadly in-line with those provided by Aspira Women’s Health regarding the opportunity outlined for their OVA ovarian cancer test products. There were around 17k OVA1 tests performed in 2021 and around 21k in 2022. The CPT reimbursement price for OVA1 is set at $897 (the related OVERA test is $950).

Exhibit 5: Ovarian cancer clinical tests addressable market

Source: ANGLE

Regardless of the choice of third-party molecular analysis system(s), ANGLE plans to initially offer the ovarian cancer triage test as an LDT to private payers via clinicians. This could follow a similar model to the Solaris agreement for the prostate cancer LDT, but with a suitable gynaecology-focused partner. Data generated via ANGLE’s own laboratories will act as a demonstrator to other larger labs and clinics and will be leveraged to obtain reimbursement codes for Parsortix clinical applications. Subject to supportive clinical verification studies, the LDT could also be applied to monitoring in watchful waiting (of pre-surgical pelvic masses) or disease remission monitoring.

Background: Simple solution with broad applicability

The Parsortix system is an elegantly simple system that effectively and affordably solves the challenges of harvesting CTCs (circulating tumour cells) typical of membrane- and antibody-based systems. Historically, CTC capture technologies have been limited by complex sample processing, poor scalability, low sample purity, reliance on cell surface proteins for isolation, and dilute output volumes that require additional cell concentration steps. The ability of Parsortix to isolate CTCs without damaging the cells in the process is increasingly important, notably for personalised medicine applications when detailed genomic analysis may be desirable. These developments underpin the shifts that should see cancers treated according to tumour status rather than tissue location.

CTCs can offer unique levels of insight over other liquid biopsies, such as circulating tumour DNA (ctDNA, fragments of DNA from dead cancer cells), as shown in Exhibit 6. Whilst both ctDNA and CTCs can provide mutation analysis, CTCs can also be used to allow RNA and protein expression and hence can give a more complete picture of the cancer to make appropriate treatment decisions, for example if patients are responding to therapy or resisting treatment, insights which cannot be gleaned from ctDNA. For a more detailed overview of CTCs and their utility, and the potential role of liquid biopsies in cancer diagnoses please see our May 2021 Initiation report.

Exhibit 6: CTCs offer advantages over ctDNA fragments

Source: ANGLE

Liquid biopsies offer several advantages over more traditional solid tumour biopsies (Exhibit 7), which are invasive, often painful, procedures, with risks attached. Solid tumour biopsies can provide a single snapshot, with analysis limited to the cells collected, and therefore can miss mutations. Liquid biopsies use a standard blood sample, the simplicity of which should not be underestimated, as evidenced during the COVID-19 pandemic. Lockdowns and restrictions on movement caused delays in cancer diagnosis and treatment as patients were reluctant or unable to attend medical facilities.

Exhibit 7: Benefits of Parsortix

Source: ANGLE.   Note: 1 CTCs (circulating tumour cells) are live cancer cells circulating in the blood; 2 ctDNA is cell-free circulating tumour fragments of DNA from dead cells, which may be found in the plasma component of the blood; 3 Sample obtained from simple peripheral blood draw; 4 Access to CTCs from blood is technically challenging given the low number of CTCs present and historically has been very difficult. ANGLE’s Parsortix system has been specially designed to address this issue; 5 Solid tissue biopsy information is a one-time snapshot and rapidly becomes outdated and does not reflect response to treatment and current mutational status. Liquid biopsy information is dynamic as tests can be repeated to provide real time information to monitor changes over time

Parsortix employs a standardised cassette, intentionally sized to be the same as a routine microscope slide, to separate circulating cells from a blood sample. The process has been engineered to rapidly collect highly enriched CTCs, undamaged by labels or reagents. At its heart is a disposable plastic casing enclosing a series of three-dimensional steps through which blood is channelled. The patented technology uses microfluidics to capture and then harvest CTCs based on their larger size and less deformable nature compared to other blood components.

Exhibit 8: Parsortix platform overview

Source: ANGLE

The system consists of a compact, fully automated benchtop machine that processes a blood sample, ranging from >1ml to 50ml, without any additional reagents or stages. A standard 10ml sample takes 60 to 90 minutes to process. The CTCs can be harvested with a simple reverse flush into any external container. There is extensive patent protection around key elements.

The process has been deliberately designed to be straightforward so that limited technical expertise is required for routine operation. Although Parsortix can be used in central laboratories, the system is intended to be easily placed alongside other analytical equipment in a hospital laboratory. This offers the potential to retain the diagnostic test reimbursement within the clinic.

The Parsortix platform can capture all types of CTCs, including mesenchymal and cell clusters, which has challenged other microfluid-based systems. The harvested CTCs tend to be of high purity, with minimal white blood or other cellular contamination, and ready for further downstream processing (eg morphological and cytological examination, immunofluorescence, FISH, DNA, RNA, and protein expression). Importantly, the recovered CTCs are intact, undamaged, and viable and so allow for great flexibility in subsequent testing.

The Parsortix CTC capture process has already been the subject of 77 peer reviewed publications from independent cancer centres, as well as numerous posters, articles, and presentations. These highlight the breadth of potential applications and demonstrate how harvesting viable CTCs can provide invaluable information about even remote tumours and guide treatments. The most recent report states a current installed base of more than 230 Parsortix systems in active use and >155k samples have been processed (to end June 2022).

Sensitivities

In common with most innovative healthcare companies, the three main sensitivities relate to development and regulatory aspects, execution of commercialisation plans, and the financial resources required to accomplish these. With the first FDA clearance now secured, the emphasis shifts to commercial execution, albeit development risks remain for individual programmes.

The specific sensitivities, both on the upside and downside, are as follows:

In our view ANGLE has a noteworthy advantage over other CTC players; however, the liquid biopsy space in general is a complex, crowded, and competitive arena and there is a material risk that advances in technology could leapfrog Parsortix and bypass or reduce the need for a CTC capture platform.

Whilst Parsortix has been the subject of many positive publications, posters, articles and KOL endorsements, its true commercial value lies in its adoption in clinical practice. FDA approval does provide invaluable validation of the platform and should facilitate future use in routine clinical settings (where even a small overall share represents sizeable volumes). However, adoption of a novel technology can take time before meaningful revenues and profits are realised.

Accessing the clinical setting requires a multi-faceted approach. A critical step in the important US healthcare system is obtaining suitable reimbursement codes. Whilst some applications and LDTs may be initially reimbursed under existing codes, the novel and likely more fruitful applications will likely require new codes. This can be a lengthy process, possibly requiring economic models that demonstrate compelling benefit. Although the clinical outcomes are, in our view, clear, the administrative processes will need to be navigated.

Parsortix’s mode of action is elegantly simple and effective. ANGLE has employed a multi-layer IP strategy, having filed numerous patents covering the cassette and key elements of the platform and with some in the process of being granted. Nevertheless, as is common in this field, IP and litigation risk remains a sensitivity.

Addressing large and competitive markets with novel technologies requires relevant clinical programmes to validate and support the technology, together with sizeable commercial teams to perform initial launches and indication roll outs. Such efforts are time consuming and expensive, with competitors often being larger and well-funded. The concern is that unless rapidly partnered, Parsortix may struggle to gain traction in its varied applications.

However, these risks, whilst tangible, are in our view containable. Importantly, the commercial opportunity, even if capturing only a small fraction of the overall market potential, is sufficiently attractive to merit attention.

Valuation

As ANGLE transitions from development of the Parsortix platform to execution of its commercial strategy, our preferred valuation methodology shifts from an rNPV approach to a DCF model. We employ a three-stage DCF based on comprehensive cash flow forecasts to 2032, followed by a five-year trending period, and a modest 2.0% terminal growth rate. We separately forecast revenues for the main business lines (Research use, Pharma services, LDTs, and broader clinical products) to reflect the differing markets, revenue potential and growth profiles. These are summed and netted against the central costs of running the business in terms of R&D and S&M spend, and netted against current net cash/debt. Using conservative assumptions throughout, our model generates a valuation of £253m, equivalent to 97p per share (Exhibit 9).

Exhibit 9: Three-phase DCF valuation of ANGLE

Source: Trinity Delta   Note: PV = present value, 10% discount rate, 2% terminal growth rate, 20% tax rate, and $1.2/£ FX rate

CTC-based diagnostics are likely to be employed across multiple clinical segments including as non-invasive assays for early detection of cancer; as prognostic tools for cancer survival and the prediction and monitoring of response to therapies; and in the development of new drugs for cancer. These are broad indications and large market opportunities but, as discussed earlier, the field is still immature, crowded, and no industry standard has yet emerged. As the clear leader, Parsortix should be well placed to capture meaningful share of these indications, however, in line with our conservative philosophy, we employ modest assumptions throughout our modelling.

Our forecasts include revenue potential from ANGLE’s existing capacity within its own laboratories, and also includes undemanding longer-term broader clinical uptake likely via partners. The latter opportunity could be particularly significant if ANGLE and potential future partners can establish Parsortix as routine in cancer care. If this transpires, then our forecasts are arguably overly cautious, however, this does leave scope for significant potential valuation upside as visibility increases with the execution of the commercialisation and partnering strategy.

Financials

ANGLE’s FY21 revenues of £1.0m (FY20: £0.76m) consisted mainly of Research-Use Only product sales (Parsortix systems and disposables) coupled with nascent, albeit rising, Pharma services income from both clinical trial services and bespoke assay development. FY21 operating costs of £18.0m (FY21: £14.4m) reflected the continued investment in development and validation of Parsortix’s clinical application and commercial uses as well as phased investment into the new clinical laboratories and capacity for the Pharma services business. Net loss for the full year FY21 was £15.0m (FY20: £11.6m).

For H122, ANGLE delivered revenues of £0.4m (H121: £0.3m) which, with operating costs of £10.6m (H121: £8.9m) translated into a net loss of £9.2m (H121: net loss of £7.7m). Cash and short-term deposits of £20.5m at end-June 2022 (end-December 2021: £31.8m) were further boosted by the £20.1m gross (£18.9m net) share placing to new and existing UK and US institutional investors post-period (July 2022 Lighthouse).

In line with the company’s tight focus on growing revenues, controlling costs, and maximising the cash runway while seeking to deliver on key commercial milestones, ANGLE announced the closure of its Canadian operations in October 2022. The orderly closure of its Toronto facility and transfer of certain operations to the UK was expected to incur additional one-off cash costs of c £0.5m vs the FY22 operating costs budgeted. For FY23 net savings of c £2.6m are anticipated, rising to £4.0m in subsequent years.

The January 2023 business update confirmed ANGLE’s end-December 2022 cash is expected to be c £32m, which provides funding into H224. FY22 revenues are expected to be just above £1m, with c £0.5m of previously anticipated revenues delayed into 2023. FY22 loss is estimated to be around £22m. FY23 revenues are expected to grow significantly but are likely to be materially lower than the £5m consensus at the time, reflecting adverse market conditions and later than expected FDA clearance. Updated forecasts are presented in Exhibit 10.

ANGLE’s positioning as both an equipment supplier and a service provider mean that it is well placed to exploit multiple segments of the liquid biopsy market. The Parsortix platform is highly attractive and has already been significantly de-risked; the company is now focused on commercialisation with the goal of building a sizeable business.

Exhibit 10: Summary of financials

Source: ANGLE, Trinity Delta. Note: Adjusted numbers exclude exceptionals, * FY19 has been restated

Contact details

10 Nugent Road
The Surrey Research Park
Guildford
Surrey
GU2 7AF
United Kingdom

www.angleplc.com

Top institutional shareholdings

Source: ANGLE

Contact details

Scancell,
Unit 202 Bellhouse Building,
Sanders Road,
Oxford Science Park,
Oxford, OX4 4GD
United Kingdom

Tel: +44 (0) 1865 582 066

www.scancell.co.uk

Source: Scancell

Redx Pharma: All eyes on pipeline data this year

Redx Pharma’s differentiated medicinal chemistry expertise has been proven by its consistent track record, having discovered and developed five molecules which are now in the clinic, including two wholly-owned assets in Phase II trials. The strategy is to partner certain assets, sometimes as early as preclinical, and deals are already in place with AstraZeneca and Jazz Pharmaceuticals; meanwhile, selected in-house programmes are being developed to key value-inflection points. This has led to a well-balanced and diverse pipeline. The proprietary lead assets focus on selected oncology indications, with RXC004 in development in solid tumours, and broader fibrosis diseases, and with RXC007 being examined in lung fibrosis (IPF) and with potential to be expanded to the broader immune mediated interstitial lung diseases (ILDs). These lead compounds are progressing through Phase II clinical trials, with data due to be released throughout the coming 12-24 months and key insights expected during H223. Our Redx Pharma rNPV based valuation is £461m ($553m) equivalent to 138p per share.

Redx Pharma has two wholly-owned assets in Phase II trials: RXC004 in Wnt-dependent solid tumours, and RXC007 in IPF, a fibrotic lung disorder. Key data for both are expected during 2023, notably during H223, with details outlined below. In addition, gastro-intestinal pan-ROCK inhibitor RXC008, potentially for fibrostenotic Crohn’s disease, is expected to be submitted for IND/CTA clearance for progression into the clinic by end-2023, with patient enrolment starting in 2024. Redx Pharma is aiming to generate three INDs, including RXC008, by the end of 2025. A summary of Redx Pharma’s pipeline is shown in Exhibit 1.

Exhibit 1: Redx Pharma pipeline

Source: Redx Pharma   Note: DDR = discoidin domain receptor; GI = gastrointestinal; IND = investigational new drug application; IPF = idiopathic pulmonary fibrosis; MAPK = mitogen-activated protein kinase; MSS mCRC = microsatellite stable metastatic colorectal cancer; RAF = rapidly accelerated fibrosarcoma; ROCK = Rho associated protein kinase

RXC004: Combination data will be key

RXC004 is an innovative porcupine inhibitor for Wnt-ligand dependent cancers. Two Phase II trials are ongoing (Exhibit 2): PORCUPINE in genetically selected microsatellite stable metastatic colorectal cancer (MSS mCRC) and PORCUPINE2 in genetically selected pancreatic and unselected biliary cancer. For a detailed overview of RXC004, including the role of Wnt signalling and prior Phase I data, please refer to our February 2022 Outlook.

Exhibit 2: RXC004 Phase II programme and timings for top-line data

Source: Redx Pharma   Note: DCR = disease control rate; DoR = duration of response; ORR = overall response rate; OS = overall survival; PFS = progression free survival

The first data expected during 2023 from the Phase II RXC004 programme are top-line results from the monotherapy biliary cancer arm of PORCUPINE2, which are anticipated during H123. Other RXC004 monotherapy data include from the genetically selected pancreatic cancer arm of PORCUPINE2 and from PORCUPINE, both of which are expected during H223.

Key data from the monotherapy arms of the Phase II programme will be toxicity and tolerance, rather than efficacy, in our view. This is owing to patients having advanced, hard-to-treat disease, in addition to RXC004’s mechanism which, on its own, is cytostatic (slows cell growth) rather than cytotoxic (kills tumours). Hence, at best we expect to see evidence of disease stabilisation rather than improving outcomes (as measured by responses). A similar outcome was observed in the Phase I study of Novartis’ Wnt inhibitor WNT974, where 16% of patients had stable disease but there were no responses. Therefore, we only expect responses in the monotherapy arms (partial or complete) if there is some residual synergistic effect from prior treatment regimens, notably checkpoint inhibitors (CPIs).

The true indication of RXC004’s potential efficacy, and likely the biggest commercial opportunity, will therefore arise from combination studies with CPIs, with data expected H223 from both PORCUPINE2 in biliary cancer (+ Keytruda, Merck) and PORCUPINE (+ Opdivo, Bristol Myers Squibb). The combination with CPIs is important as RXC004 also has an immune-enhancing effect which turns non-responsive “cold” tumours to “hot”, and hence could act synergistically with PD-1/PD-L1 inhibitors, such as Keytruda and Opdivo, which are generally ineffective in “cold” tumours. We note that Keytruda is on-track to deliver >$20bn in global sales in 2022, even though only around 15-20% of patients achieve durable responses with immunotherapy. Thus, there could be significant commercial potential for any agent(s) that can improve immunotherapy outcomes.

RXC007: Initial focus on IPF with plans to expand to ILD

RXC007 is a novel and highly specific small molecule that targets the ROCK2 (Rho Associated Coiled-Coil Containing Protein Kinase 2) receptor. A Phase IIa trial (Exhibit 3) in idiopathic pulmonary fibrosis (IPF) started in October 2022. For more details on RXC007, its mechanism, previous preclinical data which suggest the potential to be disease modifying, and prior Phase I results, please see our October 2022 Update.

Exhibit 3: RXC007 Phase IIa study design

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

The ongoing Phase IIa trial will investigate escalating doses of RXC007, both with and without standard of care (SoC) in IPF (nintedanib or pirfenidone) over 12 weeks, and will assess early efficacy signals, safety, and tolerability. Initial top-line data are expected during H223. If positive, these data will inform dosing and the design of a larger 12-month Phase IIb trial, which will likely explore RXC007 plus SoC over 12 months in IPF with lung function (FVC) as a primary endpoint.

Pending initial Phase IIa data, the future Phase IIb trial could also expand development to include interstitial lung diseases (ILD). This is a much broader indication, with IPF representing only around 20-50% of ILDs. This is supported by preclinical data in models of GVHD (Graft vs Host disease) which suggest RXC007 could have an impact on immune-mediated fibrotic diseases such as ILD, in addition to systemic sclerosis.

Valuation

We value Redx Pharma as a classic drug discovery and development play, with our sum of the parts rNPV-based model generating a valuation of £461m ($553m), equivalent to 138p per share. Exhibit 4 summarises the outputs and underlying assumptions of our valuation model. Our February 2022 Outlook provides a detailed overview of our valuation methodology.

Exhibit 4: rNPV-based valuation of Redx Pharma

Source: Trinity Delta   Note: The rNPV of RXC004 and RXC007 includes a deal success factor of 80%, and of 75% for GI-targeted ROCK; other valuation assumptions include a 12.5% discount factor, £/$ FX rate of 1.20, and 10% taxation from 2028 (UK patent box).

Our Redx valuation comprises a sum of the parts that includes a pipeline rNPV and a discovery platform valuation, with the latter based on Redx’s output/track record and benchmarked against similarly successful discovery peers. As always, we employ conservative assumptions throughout our modelling, particularly regarding market sizes and growth rates, net pricing, adoption curves, and peak market penetration.

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

Financials

End-September 2022 cash was £53.9m (31 March 2022: £31.6m; 30 September 2021: £29.6m), which includes proceeds from the June 2022 £34.3m (gross) equity placement and a total of $24m (£18.1m) in milestones received during the fiscal period to end-September 2022, including a $5m milestone from partner Jazz Pharmaceuticals in June 2022. Management has outlined that these funds, plus modest risk-adjusted milestones, should be sufficient to fund planned operations through key data points across the clinical pipeline into 2024, which includes the focus data readouts for RXC004 and RXC007 during H223.

FY22 revenues increased to £18.7m (FY21: £10.0m) owing to both higher milestone related revenue of £10.7m (FY21: £5.0m) and research collaboration income of £6.9m (FY21: £2.8m). During FY22 Redx Pharma received $24m (£18.1m) of cash as milestones, including: (1) $10m (£7.4m) from Jazz Pharmaceuticals in December 2021 for progress in the MAPK collaboration; (2) $9m (£6.7m) from AstraZeneca in December 2021 on Phase I initiation for RXC006 (AZD5055); and (3) $5m (£4m) from Jazz Pharmaceuticals in June 2022 for IND clearance for JPZ815, with a Phase I trial subsequently initiated in November 2022. AstraZeneca milestones (eg the $9m in December 2021) are recognised on receipt as they relate to contingent consideration on the license previously granted, whereas payments from the Jazz collaborations (predominantly related to the underlying development services) have a deferred recognition element and are recognised as each stage is completed. Future milestone receipts are not expected to be as frequent as partnered candidates advance to later, and therefore longer, studies.

R&D costs remained tightly controlled at £28.6m (FY21: £24.4m) despite continued pipeline progress and advancement. We anticipate a material increase in R&D spend given Phase II programmes are now ongoing for two candidates and forecast £40.0m in FY23e and £42m in FY24e. G&A also increased to £10.2m (FY21: £6.5m). This led to a FY22 operating loss of £16.3m (FY21: loss of £19.7m) and a net loss of £18.0m (FY21: loss of £21.6m).

Our future revenue forecasts do not include any unknown and/or uncertain milestones, hence we only include remaining deferred revenue recognition of previously received milestones of £3.9m in FY23e and £973k in FY24e, which relate to the Jazz Pharmaceuticals collaboration. While future potential milestone receipts are significant (c $800m in aggregate) there is limited visibility on timings as they are linked to the clinical development progress of AZD5055 and JZP815 which are under the control of their respective licensors.

Exhibit 5: Summary of financials

Source: Company, Trinity Delta    Note: Short-term debt in CY23/FY24e is indicative of our view of Redx Pharma’s funding requirement. Redmile/Sofinnova Convertible Loan Note has August 2023 conversion date, with a 15.5p conversion price, equating to a potential 110.3m of new shares. Revenue forecasts do not include any contribution from milestone payments yet to be received.