HUTCHMED

A sharper focus on the path to profitability

Lighthouse | 21 November 2022

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  • HUTCHMED has reviewed its strategic and corporate priorities considering the challenging market conditions affecting the global biopharmaceutical sector. The company has outlined a renewed focus on accelerating its path to profitability and ensuring long-term sustainability, with near-term value creation from its most advanced in-house pipeline assets at its centre. HUTCHMED is maintaining its global vision, although the ex-China commercial strategy will now primarily be achieved through partnerships.
  • Fruquintinib represents a valuable ex-China partnering opportunity. Global registrations are being pursued following positive readout of the pivotal FRESCO-2 multi-regional clinical trial (MRCT) in ≥3L refractory metastatic colorectal cancer (mCRC). HUTCHMED intends to initiate a rolling US FDA filing around YE22, followed by EU and Japan filings in H123. Given the size of this indication and the prospect of approvals from H124, we view fruquintinib as a natural candidate for ex-China commercial partnership(s).
  • Fruquintinib is one of three products marketed in China that are collectively expected to deliver China revenue of $160-190m for FY22. Of the other assets, a US/EU deal may also be possible for surufatinib, although regulatory requirements for a Phase III MRCT are yet to be determined and potential approval/launch timelines are further off. AstraZeneca already holds global savolitinib rights, with Phase III development progressing well.
  • HUTCHMED plans to advance its next wave of haem-oncology programmes (sovleplenib, amdizalisib, tazemetostat) through registration studies and regulatory filings. However, pipeline reprioritisation will impact earlier stage assets. We currently ascribe little value to the early-stage pipeline given the limited visibility on development plans, timelines, and indications. A more detailed update on R&D and business development plans for specific assets, as well as on the progress of the organisational streamlining and redeployment is expected in due course.

Trinity Delta view: HUTCHMED has taken a pragmatic and financially disciplined approach to ensuring that the company is well positioned to exploit potential opportunities for near-term value creation despite various challenging external factors. In our view, the fundamentals of the business are sound (September 2022 Outlook) with an attractive pipeline from a partner, as well as patient, physician, and payer perspective (September 2022 Pipeline Review). HUTCHMED’s focus on achieving sustainable profitability could be expedited by leveraging the commercial traction underway in China with ex-China partnerships, given the potential for a first international launch in late-2024. HUTCHMED is well funded with cash resources of c $826m at end-June 2022 and a three-plus year runway which, with these new strategic initiatives, is likely to be extended further through cost savings and potential non-dilutive financing from partners. We intend to revisit our forecasts once management discloses further details on its precise plans. Our HUTCHMED valuation is currently $5.51bn ($31.89 per ADS), £4.6bn and HK$43.1bn (531p or HK$49.83 per share).

Lighthouse

21 November 2022

Price (US ADS)
(UK share)
(SEHK share)
US$10.77
184p
HK$17.36
Market Cap
 
US$1.94bn
£1.63bn
HK$15.0bn
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 2022 Trinity Delta Research Limited. All rights reserved.

HUTCHMED

Fruquintinib should continue to bear fruit

Lighthouse | 21 November 2022

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  • The China Phase III FRUTIGA study of fruquintinib in combination with paclitaxel in second-line (2L) gastric cancer met one of its dual endpoints, demonstrating a statistically significant and clinically meaningful benefit in progression-free survival (PFS). There was an improvement, albeit not statistically significant, in median overall survival (OS), the second dual endpoint. Statistically significant improvements were also shown in several secondary endpoints (objective response rate, disease control rate, and duration of response) and safety was consistent with the known profile.
  • FRUTIGA, a 1:1 randomised double-blind Phase III, evaluated fruquintinib + paclitaxel vs paclitaxel monotherapy in 703 Chinese patients with advanced gastric or gastroesophageal junction (GEJ) adenocarcinoma unresponsive to first-line chemotherapy. Analysis is ongoing, with presentation of detailed data at an upcoming scientific meeting. These data and analyses will also be discussed with the China National Medical Products Administration (NMPA) to determine next steps for possible regulatory filing in 2L gastric cancer.
  • We cannot second guess regulatory decisions, however, we note that the pivotal RAINBOW-Asia study of ramucirumab in 2L gastric cancer, which was the basis for Cymraza’s March 2022 NMPA approval, reported a similar outcome albeit with co-primary endpoints (meeting PFS but not OS).
  • Changes to the China gastric cancer competitive landscape since the start of the FRUTIGA study in 2017 (ie approvals of PD-1 checkpoint inhibitors and other innovative therapies) possibly impacted its outcome in our view. Post-progression therapy in both placebo and fruquintinib arms may have been a confounding factor for OS, as availability of new therapies and standards of care (SoC) provide more options for patients who have progressed. This may also affect fruquintinib’s market potential in 2L gastric cancer, should approval be granted for this second indication in China.
  • Fruquintinib (Elunate) has been marketed in China for 3L mCRC (metastatic colorectal cancer) since 2018. The China partner is Eli Lilly, but global rights are currently unencumbered. Ex-China, HUTCHMED is pursuing first regulatory filings following positive readout of the pivotal FRESCO-2 multi-regional clinical trial (September 2022 Update). Rolling US FDA filing could start around YE22, completing mid-H123, followed by EU and Japan filings.

Trinity Delta view: FRUTIGA was the first China combination trial initiated as part of HUTCHMED’s broad fruquintinib development programme in China and globally as monotherapy and in combinations. The strategy has since evolved to focus on immuno-oncology combinations (detailed in our September 2022 Pipeline Update), reflecting advances in the SoC in several indications and leveraging fruquintinib’s profile as a safe and highly selective potent VEGFR 1/2/3 inhibitor, with potentially synergistic mechanisms of action. Fruquintinib is a key contributor to HUTCHMED FY22 China revenue guidance of $160-$190m and, assuming a positive decision in 2024 from the FDA, EMA, and/or PMDA, could become its first approval ex-China.

Lighthouse

21 November 2022

Price (US ADS)
(UK share)
(SEHK share)
US$10.77
184.2p
HK$17.36
Market Cap
 
US$1.94bn
£1.63bn
HK$15.0bn
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 2022 Trinity Delta Research Limited. All rights reserved.

Arecor Therapeutics

Specialty Hospital products formulation collaboration

Lighthouse | 10 November 2022

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  • Arecor has struck an exclusive Specialty Hospital product formulation study collaboration with a new, but un-named, partner. The deal is with the pharmaceutical division of one of the largest global chemicals and pharmaceuticals companies that, importantly, is focused on the development and commercialisation of such specialty products.
  • Arecor’s proprietary Arestat formulation technology will be used to create a novel, and differentiated, formulation of an intravenous injectable drug. The aim is to create a stable and convenient Ready to Use (RTU) product that eliminates the need for reconstitution prior to administration. RTU products are clinically appealing given the time saving element (numerous studies have shown staff time savings comfortably justify even material price premiums), and, more importantly, the simpler handling which materially reduces dispensing and administration errors.
  • The undisclosed partner will fund the development work and, once the formulation is delivered, it has the option to acquire the rights and associated intellectual property to allow further development and commercialisation of the product. As described in previous notes, such collaborations are immediately revenue generating through research fees. If the option is exercised, the licensing deal will likely, in line with Arecor’s existing pre-licence technology partnerships, include clinical and commercial milestones and net sales royalties or equivalent.
  • Arecor has created a portfolio of partnered and in-house assets with improved properties through application of the Arestat technology to develop novel formulations of existing drugs with enhanced properties that would otherwise be challenging to achieve. These properties range from improved stability (extending the shelf-life of protein products), to altered supply chain requirements (greater temperature stability eliminating the need for cold chains), to conversion of lyophilised powders to stable RTU liquid dose forms (for faster and safer use), to improved therapeutic profiles (impacting patient outcomes and quality of life). Once commercialised, products derived from technology collaborations will provide a stream of recurring royalty-based revenues.

Trinity Delta view: This collaboration is a valuable reminder of the importance of Arecor’s Specialty Hospital products business and the applicability of its Arestat technology platforms in assisting larger, often blue chip, companies in addressing varied formulation challenges. The clinical and commercial potential of its diabetes franchise has focussed investor attention on development progress of AT278 (ultra-rapid ultra-concentrated insulin) and AT247 (ultra-rapid insulin), and so it is easy to overlook the value inherent in such Specialty Hospital products. The current pipeline includes two Specialty Hospital products licensed to Hikma, while disclosed formulation development partners include Lilly, Par Pharma, and Intas. Collectively the known Specialty Hospital product assets represent £75.2m (246.1p per share) of our £177.1m (580.9p per share) rNPV-based valuation.

Lighthouse

10 November 2022

Price235p
Market Cap£71.6m
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 2022 Trinity Delta Research Limited. All rights reserved.

Futura Medical

On the cusp of MED3000 commercialisation

Update | 10 November 2022

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During 2022 Futura Medical successfully delivered on several key MED3000 related events, including the highly positive FM71 longer-term clinical data, which are needed to enter the US market and importantly reinforced MED3000’s differentiated and rapid onset of action. In addition, a number of commercial deals were executed, notably the European and UK deal with Cooper Consumer Health. The next steps are EU launches (due to start during H123), FDA marketing clearance (potentially by end Q123), and securing a US partner. These should be the final elements in converting MED3000 into a revenue generating OTC product for ED, transforming Futura Medical’s prospects. Pending visibility on both US and European launches, our updated model conservatively does not include any near-term MED3000 related revenues. Our Futura Medical valuation is now £270m, equivalent to 94p per share.

Year-end: December 31202020212022E2023E
Revenues (£m)0.00.00.00.0
Adj. PBT (£m)(2.9)(5.9)(6.2)(3.8)
Net Income (£m)(2.4)(5.0)(5.5)(3.0)
EPS (p)(1.0)(1.8)(1.9)(1.1)
Cash (£m)1.010.43.20.2
EBITDA (£m)(2.9)(5.8)(6.2)(3.7)
Source: Trinity Delta Note: Adjusted PBT excludes exceptionals, Cash includes short-term investments.
  • US focus shifts to marketing authorisation and partnering MED3000 was recently filed with the FDA, hence in the US the focus has shifted to commercial aspects, namely successfully executing a deal(s). The search for a US partner recently commenced, albeit visibility is limited, hence timings and deal terms are hard to predict. Granting of US marketing authorisation, hoped for by end Q123, would remove regulatory risk and could accelerate partnering discussions, in our view.
  • Preparing for H123 EU launches with partner Cooper Futura Medical secured a broad EU & UK deal for MED3000/Eroxon with Cooper Consumer, outlined in our May 2022 Lighthouse. The first wave of launches is anticipated during H123, which could potentially include the UK. The next wave will likely include the rest of the key markets of France, Germany, Italy, and Spain, with the third wave being the distributor-led smaller geographies. A contract manufacturer is in place for commercial production and first orders have already been received from Cooper; Futura Medical receives an agreed price for MED3000 manufacture and supply.
  • Success in the US or EU could be transformational MED3000 could be the first erectile dysfunction (ED) treatment available OTC (over-the-counter) in both the US and Europe. Commercial access via partners to these significant markets could transform Futura Medical. Deals are also in place in other regions, including South Korea with Menarini, Co-High covering China and the Far East, m8 Pharmaceuticals (moksha8) for Brazil and Mexico, and Labatec for the Gulf and Middle East.
  • Updated valuation of £270m (94p/share) Our updated model reflects key events in the last year, leading to a valuation of £270m, or 94p per share. Pending launch and partner updates, we do not include any near-term revenues in our financial model. The US opportunity alone more than underpins the current share price.

Update

10 November 2022

Price40.17p
Market Cap£115.6m
Enterprise Value£108.9m
Shares in issue287.8m
12 month range24.0-51.3p
Free float54%
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 is under FDA review in the US.

Analysts

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

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

Futura Medical: Commercial execution is key

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

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

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

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

Positive FM71 data could support differentiated US label

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

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

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

Exhibit 1: FM71 primary endpoints achieved
Source: Futura Medical

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

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

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

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

Home use study provides consistent real-world evidence

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

Data package supports attractive market positioning

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

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

Five commercial deals already secured

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

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

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

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

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

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

Valuation and Financials

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

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

Exhibit 3: Futura Medical risk-adjusted DCF model
Source: Trinity Delta  Note: Assumptions include a 12.5% discount rate; a 1.2 $/£ FX rate, and 10% tax rate from 2026 with the benefit of the UK patent box

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

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

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

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

Exhibit 4: Summary of financials
Source: Company, Trinity Delta    Note: Adjusted numbers exclude exceptionals.

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 2022 Trinity Delta Research Limited. All rights reserved.

Scancell

FY22 results highlight clinical and corporate progress

Lighthouse | 28 October 2022

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  • Scancell reported FY22 results (12 months to 30 April 2022): the key figures are the operating loss of £13.3m (FY21: £8.8m), reflecting the higher costs as three clinical trials progress, and a cash balance of £28.7m (FY21: £41.1m). R&D spend increased to £9.5m (FY21: £6.4m) and G&A costs were £4.8m (FY21: £3.3m). During the period Scancell expanded into new dedicated laboratory space on the Oxford Science Park, with the number of Scancell research staff rising from 21 to 33 and admin staff from four to seven.
  • Scancell’s three clinical programmes are the Modi-1 Phase I/II trial, the SCIB1 Phase II trial, and the COVIDITY Phase I study. Modi-1 is a Moditope cancer vaccine that consists of three citrullinated tumour-associated peptides. The open label study, ModiFY, aims to recruit over 100 patients with solid tumours, including triple negative breast, ovarian, renal and head and neck cancers. The study is flexible, with Modi-1 used alone or in combination with CPIs (checkpoint inhibitors) as appropriate. First safety and immunogenicity results are expected shortly, with early efficacy data during 2023. Preclinical work on the related Modi-2 vaccine is progressing.
  • SCIB1, the lead asset in the ImmunoBody vaccine programme, is in a Phase II trial, SCOPE, for metastatic melanoma. The study was amended to reflect changes in clinical practice and now includes cohorts who receive SCIB1 plus doublet therapy consisting of ipilimumab (Yervoy) and nivolumab (Opdivo) and SCIB1 with pembrolizumab (Keytruda). The updated protocol also included a switch in the SCIB1 vaccine delivery system to the PharmaJet needle-free device. If the study is successful, management intends to develop iSCIB1+, an AvidiMab enhanced version of SCIB1, that should deliver increased potency and also extends patent life.
  • The post-period GlyMab deal with Genmab is the most significant recent news (October 2022 Lighthouse). GlyMab is a novel antibody platform which generates high affinity anti-glycan monoclonal antibodies (mAbs). This licensing agreement provides strong external validation of the potential value of the platform, which is also confirmed by the sizeable financial terms, notable in view of the preclinical status. The milestones, plus royalties, could be material for Scancell if resulting GlyMab-based products are successful.

Trinity Delta view: The four technology platforms split neatly into therapeutic vaccines, ImmunoBody and Moditope, and antibodies, GlyMab (anti-glycan mAbs) and AvidiMab. Vaccines are the most advanced, with clinical efficacy data expected during the next 12 months for both lead Moditope and ImmunoBody programmes. The £46.1m raised in FY21 allowed management to finally progress these novel inter-related technology platforms properly, whilst the deal with Genmab should accelerate progress of the first GlyMab asset towards the clinic. Although investor focus will inevitably fall on progress of the clinical vaccine programmes, we continue to argue that, admittedly much earlier in development, the GlyMabs and AvidiMab antibody platforms are attractive in their own rights.

Lighthouse

28 October 2022

Price15.20p
Market Cap£128.5m
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

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 2022 Trinity Delta Research Limited. All rights reserved.

Allergy Therapeutics

Manufacturing pause takes it toll on revenues

Update | 28 October 2022

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Allergy Therapeutics has quantified the potential near-term revenue impact from the voluntary UK manufacturing pause. Whilst this is only expected to last around six weeks, FY23 revenues are expected to be 13-18% below current consensus expectations. This is unfortunately due to the interruption occurring during the peak production period, which is undoubtedly disappointing given management guidance of a return to near double-digit growth in FY23. This setback puts increasing pressure on the pipeline to deliver next year, with important readouts expected for both VLP Peanut and Grass MATA MPL; both are expected to initiate key clinical trials this year. Our valuation is lowered to £260.8m, or 38.4p/share, with the commercial business DCF reduced to £45.9m or 6.8p/share and our pipeline NPV unchanged.

Year-end: June 30202120222023E2024E
Revenues (£m)84.372.867.873.6
Adj. PBT (£m)2.5(13.9)(36.7)(23.1)
Net Income (£m)2.9(13.8)(37.1)(24.0)
EPS (p)0.5(2.1)(5.6)(3.5)
Cash (£m)40.320.5(2.8)(25.9)
EBITDA (£m)8.2(8.1)(30.7)(16.2)
Source: Trinity Delta Note: Adjusted numbers exclude share-based payments and exceptionals.
  • UK manufacturing set to resume mid-November Manufacturing at Allergy Therapeutics’ UK-based Freeman facility is set to resume on 14 November, following a temporary pause announced 4 October, equating to around six weeks of interrupted production. This pause was voluntarily implemented by management following an internal review, in order to optimise quality systems and accelerate capacity improvements. Whilst the pause was voluntary, the timing is particularly unfortunate, coming during a peak production period ahead of the pollen season.
  • Adverse revenue impact amplified given timing FY23 revenues are now expected to be 13-18% below consensus expectations of £80m, implying revenues of c £66-70m. Based on this we have lowered our FY23 revenue forecast to £67.8m (from £80m), implying a 15.3% YoY decline. We also decrease FY24 revenues to £73.6m (from £85.6m), which assumes slightly higher growth of c 8.6% but from a lower base. However, revenue recovery could be quicker, delivering higher FY24 growth. The reduced revenues are somewhat offset by anticipated cost savings of c £3m, mostly related to S&M, although we no longer expect Allergy Therapeutics to deliver an operating profit pre-R&D in either FY23 or FY24.
  • Pipeline now even more in focus With current uncertainties on the commercial business, the pipeline is now even more critical for the investment case. We expect key data readouts for both VLP Peanut and Grass MATA MPL during summer 2023 and Q4 2023, respectively, assuming trials initiate as planned this year.
  • Valuation reduced to £260.8m or 38.4p/share Our pipeline valuation is unchanged at £190.0m (28.0p/share). However, we now value the commercial business at £45.9m or 6.8p/share (from £112.8m and 16.6p/share) given lower revenues. Progress of key programmes could unlock material upside to our pipeline valuation, while an improved growth trajectory would boost the commercial outlook.

Update

28 October 2022

Price17.00p
Market Cap£115.5m
Enterprise Value£90.6m
Shares in issue679.1m
12 month range15.2-38.5p
Free float20.0%
Primary exchangeAIM London
Other exchangesN/A
SectorHealthcare
Company codesAGY
Corporate clientYes

Company description

Allergy Therapeutics specialises in the diagnosis and treatment of allergy. The existing European business generates > £70m annual sales. Near-term R&D efforts are focused on the Pollinex Quattro platform, whilst in the medium-term the VLP platform is highly promising.

Analysts

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

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

Exhibit 1: Summary of financials
Source: Trinity Delta, Allergy Therapeutics

 

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 2022 Trinity Delta Research Limited. All rights reserved.

Scancell

Optimum partner secured for first antibody deal

Lighthouse | 25 October 2022

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  • Scancell has out-licensed global development and commercialisation rights to one of its in-house preclinical antibodies to antibody specialist Genmab. The product is an anti-glycan monoclonal antibody (mAb) which was generated on Scancell’s proprietary GlyMab platform, and Genmab has acquired the rights to develop the mAb into multiple novel therapeutic products for all disease areas, excluding cell therapy applications. Total potential milestones could reach up to a maximum of $624m for development across all modalities, with Genmab paying Scancell an upfront and potential future milestones of up to $208m for each product. Scancell is also entitled to receive a low single digit royalty on net sales of all commercialised products.
  • GlyMab is a novel antibody platform which generates high affinity anti-glycan monoclonal antibodies (mAbs). Tumour-associated glycans are attractive oncology targets as they are typically exquisitely tumour-specific, but the challenge has been to produce high affinity antibodies. The GlyMab platform has overcome this limitation and is highly flexible, and can thus be employed to produce many differentiated mAbs which can be developed into multiple products, such antibody drug conjugates (ADC), bispecific antibodies, chimeric antigen receptor T cells (CAR-T) etc. Five preclinical compounds with attractive, and promising, anti-tumour activities have been generated.
  • Genmab is a Danish biotechnology company focused on developing innovative and differentiated antibody therapeutics. Its antibody expertise has resulted in five approved products, notably Darzalex for multiple myeloma, which is marketed by partner JNJ and is expected to achieve $7.8-8.2bn in sales this year. In addition, Genmab has a broad pipeline of best- or first-in-class antibodies, which are based on in-house proprietary technology platforms and through strategic partnerships. Genmab aims to become a fully integrated biotech, and recently launched Tivdak for cervical cancer as part of a co-promote with partner Seagen. We note that Genmab is well capitalised, with c $3bn in cash, and is sustainably profitable.

Trinity Delta view: The deal with Genmab for a GlyMab antibody brings a well-regarded, highly experienced antibody expert as a partner. Importantly it is a strong external endorsement of Scancell’s in-house antibody capabilities. The total deal terms of up to $624m in potential milestones, plus royalties, could be material for Scancell if one or more products are developed and commercialised; Genmab has a proven track record of successful clinical development. The deal also reduces the development risks for Scancell and should enable rapid progression towards clinical trials, which Genmab can fully fund to maximise the commercial opportunities. Scancell management can now focus internal resources on advancing other GlyMab programmes, plus the vaccine platforms, Moditope and Immunobody, and on the AvidiMab antibody technology.

Lighthouse

25 October 2022

Price12.75p
Market Cap£107m
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

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 2022 Trinity Delta Research Limited. All rights reserved.

Avacta

Diagnostics M&A-led growth strategy is ready to Launch

Lighthouse | 18 October 2022

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  • Avacta intends to acquire Launch Diagnostics, an in-vitro diagnostics (IVD) distributor based in the UK for £24m in cash, plus a potential future performance based earn-out, capped at £13m, payable if there is a recovery in future COVID test revenues above an agreed base level. The acquisition will be financed by a £7m placing at 95p per share, an open offer of up to £2m, and a convertible bond of £55m (due 2027 at a 25% conversion premium to the offer price, and with a 6.5% annual coupon payable quarterly in cash or shares). The deal, expected to close on 21 October, is contingent on securing >£45m in convertible bonds.
  • Launch Diagnostics is a UK based, profitable, privately held, independent distributor that was established in 1990. It supplies diagnostic reagents and instrumentation from global manufacturers to public and private healthcare systems for pathology applications, predominantly to the NHS in the UK, with a smaller presence in Belgium, Luxembourg, and France. Revenues in 2021 were £32.8m, with 73% from the UK. Gross margin has been consistent at c 44-50% since FY19. FY21 adjusted EBITDA was £8.5m with a Profit Before Tax of £9.4m.
  • Launch Diagnostics’ revenues have benefitted from COVID-19, with this impact diminishing rapidly to a sustainable base level related to symptomatic hospital testing. Non-COVID FY21 sales were £14.2m and are expected to recover to pre-pandemic levels (FY19: £18.5m) as customers return to typical ordering patterns. Customer contracts are relatively ‘sticky’, lasting 3-5 years with 95% repeat business.
  • Avacta’s Diagnostics Division is focused on in-house development to build a broad IVD product portfolio for consumer and professional use while also pursuing a M&A led growth strategy to help scale this and create a profitable diagnostics business longer-term. Avacta’s ambitions across decentralised testing target four key areas: respiratory infections, cardiovascular disease, cancer, and general health and well-being. Through focused M&A, such as with Launch Diagnostics, Avacta could expand its product range, geographical reach, and leverage potential cross-selling opportunities.

Trinity Delta view: The acquisition of Launch Diagnostics, at an undemanding 1.35x sales multiple (based on an 80% discount to COVID revenues), is the first step in Avacta’s M&A-led growth strategy for its Diagnostics Division. Launch Diagnostics will provide Avacta with a commercial infrastructure in the UK and some EU markets, to which complementary products could be added either organically through in-house development or sought externally. The latter potentially provides the opportunity for Avacta to leverage its internal expertise and platform technologies to optimise performance and economics. The proposed up to £64m gross financing would provide the balance sheet flexibility to explore such opportunities. As usual, we suspend our valuation and forecasts until deal completion.

Lighthouse

18 October 2022

Price99p
Market Cap£259.9m
Primary exchangeAIM
SectorHealthcare
Company CodeAVCT
Corporate clientYes

Company description

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

Analysts

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

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

Disclaimer

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

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

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

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

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

Copyright 2022 Trinity Delta Research Limited. All rights reserved.

Arecor Therapeutics

AT247 Phase I pump data confirms promising profile

Lighthouse | 11 October 2022

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  • Arecor has reported top line data from the US Phase I three-day pump study with AT247, its 100U/ml proprietary ultra-rapid insulin. This double-blind, randomised three-way crossover trial compared the pharmacokinetics (PK)/pharmacodynamics (PD), and safety/tolerability profiles for AT247, NovoLog, and Fiasp delivered by continuous subcutaneous infusion in 24 adult Type I diabetic patients.
  • The co-primary endpoints for the study were PK (serum insulin at 0-30 minutes) and PD (glucose infusion rate at 0-60 minutes). On the first measure, AT247 demonstrated a superior PK profile, with statistically accelerated insulin absorption and early exposure compared with both NovoLog and Fiasp. The PD profile did not meet the bar of statistically significant superiority; however, a post-hoc analysis controlling for the variable baseline characteristics showed a statistically superior early glucose lowering effect vs NovoLog and a similar PD profile to Fiasp. Full data will be presented at a future international diabetes conference.
  • These encouraging data, the first from AT247 delivered via a continuous pump, complement the results of the earlier Phase I single injection glucose clamp study. Both studies showed that AT247 has accelerated insulin absorption and a promising glucose lowering effect vs current gold standard rapid-acting and ultra-rapid acting insulins NovoLog and Fiasp, as well as good safety/tolerability profile and flexibility of administration. This growing body of evidence will help inform next steps for the development of AT247, including on its potential for use in a fully closed loop artificial pancreas.
  • We remind that an ultra-rapid acting insulin will be one of several key components of an artificial pancreas, alongside the device itself and associated algorithms, that will work together to enable better clinical outcomes for diabetics. Importantly, while more extensive studies are warranted, AT247’s superior ultra-rapid acting profile is suggestive of a central role in supporting the development of such a system.

Trinity Delta view: Arecor’s diabetes franchise is a prime example of the strength of the Arestat formulation platform. The confirmation of AT247’s ultra-rapid acting profile supports its further evaluation and development. In parallel, AT278, Arecor’s 500U/ml ultra-concentrated ultra-rapid insulin, will initiate its second Phase I study in H222, which unlike the first, will focus on Type II diabetes. Both in-house diabetes assets are key value drivers for the company, given their highly promising and differentiated profiles which, in our view, could be particularly suited to emerging pump applications and high-dose insulin users. We reiterate that Arecor’s formulation expertise is not limited to diabetes; it has an attractive Speciality Hospital Products pipeline in development and multiple ongoing technology partnerships with pharma. Our valuation is £177m (581p per share)..

Lighthouse

11 October 2022

Price255p
Market Cap£77.7m
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 2022 Trinity Delta Research Limited. All rights reserved.

Redx Pharma

New data draws attention to promising fibrosis assets

Update | 7 October 2022

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Redx Pharma has a proven track record of creating innovative and commercially relevant small molecule drugs, with five current in-house and partnered assets in clinical development. The lead in-house programmes, RXC004, a porcupine inhibitor for Wnt-ligand dependent solid tumours, and RXC007, a ROCK2 inhibitor for broad fibrosis indications, are advancing through Phase II trials. Recently presented preclinical data suggest RXC007 can materially inhibit fibrosis in a range of lung fibrosis models. The earlier stage RXC008, a promising preclinical GI targeted ROCK inhibitor for Crohn’s related strictures, expands the fibrosis franchise further. Cash resources, coupled with June’s £34.3m equity raise, provide funding into CY2024. Clinical data from the two lead programmes are expected throughout the coming year. Our rNPV-based valuation remains £458m (vs £434m), or 138p/share. .

Year-end: September 30202020212022E2023E
Revenues (£m)5.710.019.24.0
Adj. PBT (£m)(8.8)(15.0)(21.0)(44.7)
Net Income (£m)(9.2)(21.6)(21.4)(45.0)
Adj. EPS (p)(5.2)(5.9)(6.8)(12.9)
Cash (£m)27.529.643.631.0*
EBITDA (£m)(7.5)(19.1)(19.9)(44.3)
Source: Trinity Delta   Note: Adjusted numbers exclude share-based payments and exceptionals. *Our cash forecast assumes receipt of £25m in additional funding in FY23
  • ROCK inhibitors could have significant potential in fibrosis ROCK inhibition brings the opportunity to alter the outcomes of many fibrotic diseases. RXC007, a ROCK2 inhibitor, will undertake a Phase II trial in idiopathic pulmonary fibrosis (IPF), with plans to expand future development to interstitial lung diseases (ILD). This is based on impressive preclinical data in various lung fibrosis and relevant models that demonstrated marked reductions in collagen deposition and fibrosis. The clean toxicity profile suggests the ability to combine RXC007 with existing treatments. RXC008, a locally acting pan-ROCK inhibitor for fibrostenotic Crohn’s disease, is completing IND/CTA preparations.
  • IPF alone could be a blockbuster opportunity IPF is a chronic lung disease which is often fatal. The two available treatment options together generated >$4bn in 2021 sales. They only slow disease progression, are poorly tolerated, and discontinuation is high. Hence, there is large unmet need for novel IPF therapies. IPF represents only around 20-50% of ILDs, hence there is much broader potential for successful development in ILD. RXC007 is one of only three ROCK2 inhibitors in clinical trials.
  • Clinical data expected during 2023  We expect a stream of clinical results over the coming 12-24 months. The first are Phase II data for RXC004 as monotherapy from H123, albeit key insights into the value of RXC004 in Wnt-ligand dependent cancers will be combination data in H223. H223 will also see RXC007 Phase IIa IPF data and RXC008 IND/CTA submissions.
  • rNPV valuation remains £458m or 138p/share  Our risk-adjusted pipeline NPV model ascribes a valuation, based on conservative assumptions, of £458m or $596m (equivalent to 138p/share).

Update

7 October 2022

Price57.5p
Market Cap£192.57m
Enterprise Value£132.87m
Shares in issue334.9m
12 month range54.0-90.0p
Free float13.6%
Primary exchangeAIM London
Other exchangesN/A
SectorHealthcare
Company codesREDX
Corporate clientYes

Company description

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

Analysts

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

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

Redx Pharma: Fibrosis could prove transformative

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

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

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

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

RXC007: a leading ROCK inhibitor for fibrosis

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

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

RXC007 could potentially be disease altering

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

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

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

Exhibit 1: RXC007 in the Bleomycin-induced Lung Fibrosis Model (BLM)
Source: ICLAF October 2022 Abstract No.66 Redx Pharma

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

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

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

Exhibit 2: RXC007 in the Murine Sclerodermatous chronic Graft versus Host Model
Source: ICLAF October 2022 Abstract Number 66; Redx Pharma

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

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

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

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

Exhibit 3: RXC007 Phase IIa study design
Source: Redx Pharma  Note: DLCO =  carbon monoxide diffusion coefficient; FVC = forced vital capacity; HRCT = high resolution computerised tomography; Pbo = placebo

The roles of ROCK in IPF (and other fibroses)

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

Exhibit 4: ROCK are critical mediators and rational targets for new therapies
Source: The Rho Kinases: Critical Mediators of Multiple Profibrotic Processes and Rational Targets for New Therapies for Pulmonary Fibrosis, Pharmacological Reviews 15, 67 (1) 103-117

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

IPF: significant unmet need for novel therapies

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

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

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

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

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

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

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

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

Exhibit 5: Selected Phase III IPF development programmes
Source: Trinity Delta, company websites & press releases, and clinicaltrials.gov. Note: * from clinicaltrials.gov

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

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

RXC008: pan-ROCK for fibrostenotic Crohn’s disease

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

Exhibit 6: RXC008 a potential novel therapy for fibrostenotic Crohn’s disease
Source: Redx Pharma  Notes: 1 GlobalData Crohn’s Disease Dynamic Market Forecast to 2026 report; 2 Chan et al, 2018

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

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

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

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

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

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

Valuation and Financials

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

Exhibit 7: rNPV-based valuation of Redx Pharma
Source: Trinity Delta   Note: The rNPV of RXC004 and RXC007 includes a deal success factor of 80%, and of 75% for GI-targeted ROCK; other valuation assumptions include a 12.5% discount factor, £/$ FX rate of 1.30, and 10% taxation from 2028 (UK patent box).

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

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

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

Exhibit 8: Multiple – fully funded – potential milestones in 2022-2023
Source: Redx Pharma
Exhibit 9: Summary of financials
Source: Company, Trinity Delta     Note: Short-term debt in FY23E is indicative of our view of Redx’s funding requirement. Redmile/Sofinnova Convertible Loan Note has August 2023 conversion date, with a 15.5p conversion price, equating to a potential 110.3m of new shares. Revenue forecasts do not include any contribution from milestone payments yet to be received.

 

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