Arecor: well-positioned for diabetes innovations

Arecor’s investment case centres on its proven Arestat formulation platform and the ability to create a portfolio of proprietary and partnered clinical assets. Whilst the specialty hospital programmes (both through collaboration and in-house development) should provide an attractive blend of near- and longer-term revenue streams, it is the diabetes programmes, AT247 (ultra-rapid insulin) and AT278 (ultra-rapid ultra-concentrated insulin), that have the near-term potential to add further significant value. Results from the first of a series of Phase I studies suggest they offer competitive and differentiated profiles that may be ideally suited for use in integrated insulin delivery systems (“artificial pancreas”) and address the emerging needs of high dose insulin users. The recent KOL event, coupled with AT278 data publication, underpin our view that the clinical benefits and commercial potential of these assets are yet to be fully appreciated. Updating our Arecor rNPV model to reflect increased AT278 potential sees our valuation raised to £159.8m (574p per share) from £140.9m (506p per share).

Arecor’s diabetes assets were developed using its proprietary Arestat platform. Arestat is a suite of technologies which can be employed to develop novel formulations of existing products. These are specifically created to offer improved attributes, ranging from better shelf life and stability, easier patient administration, and superior therapeutic profiles through tailored absorption characteristics.

Exhibit 1: A broad portfolio of de-risked and innovative assets

Source: Arecor Therapeutics

Arecor’s strategy aims to diversify risk through combining partnered projects with selected in-house development (Exhibit 1). Technology partnerships bring in near-term revenues, and licensing deals involve better success-based economics, including clinical and commercial milestones and net sales royalties or equivalent. The in-house portfolio is focussed on diabetes and specialty hospital products, with this note detailing the results of the AT278 Phase I study and the diabetes KOL (Key Opinion Leader) event.

Key takeaways from the Key Opinion Leader event

Arecor hosted a Key Opinion Leader (KOL) event where a panel of diabetes experts discussed the limitations of current treatment options and the need for new ultra-concentrated, rapid-acting insulins. The discussion focussed on the treatment challenges and covered various aspects of the clinical and patient need for improved glucose control, particularly for high insulin users, as well as providing a detailed overview of the recent Phase I AT278 clinical data.

The session was moderated by Jay Skyler, Professor of Medicine, Pediatrics and Psychology, Division of Endocrinology, Diabetes and Metabolism, University of Miami, USA. Professor Skyler was joined by three experts in diabetes care:

• Wendy Lane, Clinical Endocrinologist, Director of Clinical Research, Mountain Diabetes and Endocrine Center, Asheville, USA: discussed the rising need for rapid-acting concentrated insulin products in treatment of Type 2 diabetes from a clinical perspective;
• Davida Kruger, Certified Diabetes Nurse Practitioner, Henry Ford Health System, Division of Endocrinology, Detroit, USA: provided a patient and caregiver viewpoint, reviewing several case studies demonstrating real world challenges and the benefits of concentrated insulin; and
• Thomas Pieber, Head of the Division of Endocrinology and Metabolism at the Medical University of Graz, Austria: presented results from Arecor’s Phase I trial of AT278, its ultra-rapid, ultra-concentrated insulin.

Several important themes emerged from the discussion. Firstly, that an increase in the numbers of both Type 1 and Type 2 diabetic patients is being driven by the obesity crisis, which is also leading to increasing insulin requirements and the amount of insulin use on average per patient. Secondly, currently available insulins do not meet the needs of patients with high daily insulin requirements. The only available concentrated insulin (Eli Lilly’s Humulin R U-500) does not act rapidly enough, and the next most concentrated insulins (Humalog U200 and Lyumjev) are often used off-label in pumps as clinicians seek “creative” approaches to help control glucose levels in their high insulin using patients. All session participants emphasised a desire to be able to provide better care for patients and the demand for a rapidly acting highly concentrated insulin, which could provide more optimal glucose control and would allow small volumes of high dose insulin to be used, ideally in a specifically designed prefilled pump.

Availability of an ultra-rapid ultra-concentrated insulin would bring several advantages, extending from clinical (improved blood glucose control and clinical outcomes), to comfort and convenience (reduction in pen or pump injection volumes and development of miniaturised pumps), to cost (via fewer cartridge changes, more insulin per co-pay). Importantly, AT278 was seen as potentially fulfilling both basal and bolus insulin needs in the same device, which could also simplify co-pay issues; these were described as “huge” given patients are often on multiple medications to treat their diabetes and comorbidities. The panel discussion concluded that patients and caregivers have been waiting for decades for the sort of formulations Arecor is developing, which offer the prospect of absorption profiles that closely match emerging clinical needs.

Clinically relevant and commercially attractive

Diabetes care is evolving rapidly, reflecting changing patient demographics and technological advances. The causes and drivers, as well as the opportunities and prospects, for Arecor’s diabetes franchise were covered in our September 2021 Initiation report, with greater detail given in our January 2022 Update note. It is clear that diabetes is a growing problem, with rising patient numbers, while advances in delivery devices create a need for specifically formulated insulins. Such trends underpin the commercial attractiveness of the two ultra-rapid insulins in clinical development: AT247 and AT278 (an ultra-concentrated formulation).

The latest International Diabetes Federation (IDF) Diabetes Atlas fact sheets show there are currently 537m people with diabetes globally, and this is expected to grow by 19.7% to 643m in 2030 and 46.0% to 784m in 2045. Type 2 diabetes accounts for around 90% of diagnosed diabetes globally, although the accuracy of incidence (the rate of new cases, usually annually) and prevalence (the number of cases per defined population) statistics are limited due to the difficulty in, and hence differing rates of, accurate diagnoses across geographies. Type 1 diabetes affects c 9.5% of the global population, with 15 such diabetics per 100,000 people and growing by 2% to 5% per annum.

Type 1 diabetes is an autoimmune process that results in the body’s immune system attacking the insulin producing beta-cells of the pancreas so that very little or no insulin is produced. This means Type 1 diabetics need daily insulin injections to keep their blood glucose level within an appropriate range and a lack of insulin would result in death. Although it was originally known as juvenile diabetes, over half of patients are between 19 and 40 years at diagnosis and will need daily insulin for the remainder of their lives.

Type 2 diabetes is associated with older populations, with a strong link to obesity. Here the pancreas continues to produce insulin, but the body’s cells begin to respond less well (insulin resistance) and, over time, fail to maintain blood glucose levels in the normal range. Most Type 2 diabetics can control their disease adequately through a combination of improved diet, more exercise, and the appropriate use of oral hypoglycaemics.

However, as beta cell production wanes, an increasing number of patients (currently 7% to 8%) need to add in injected insulin. It is estimated that better diagnosis and greater access would see this rise to over 15% of Type 2 diabetics. The size of this population means there are three to four times as many Type 2 diabetics using insulin than there are Type 1 insulin dependent diabetics and, importantly, they tend to require larger doses of insulin than the equivalent Type 1 diabetic.

Striving to achieve the physiological insulin profile

We have covered the clinical landmarks in diabetes care in previous notes, with arguably the single greatest advance being the appreciation of the need to tailor individual insulin therapy to maintain tight glycaemic control (see the DCCT study). Keeping blood sugar levels as close to normal throughout the day (known as time in range) helps prevent common, debilitating, and expensive, complications such as retinopathy, neuropathy, nephropathy, and cardiovascular diseases.

In his presentation, Thomas Pieber of the Medical University of Graz, Austria, highlighted the importance of striving to mimic the physiological profile of endogenous insulin. The use of regular human insulin, whilst a clear advance over prior animal-sourced products, is associated with a significant mismatch in postprandial activity with high glycaemia after a meal and hypoglycaemia later. The fast-acting insulin analogs (such as lispro, aspart, glulisine) have a better profile, with tighter postprandial control and less nocturnal hypoglycaemia. However, there is still a sizeable gap (Exhibit 2) to the endogenous insulin profile and that is the driver for the development of ultra-rapid insulin formulations.

Exhibit 2: Striving to achieve a closer to physiological insulin profile

Source: Adapted from Diabetes Obes Metab 2015;17:1011–20  *Schematic representation

Arecor is progressing two ultra-rapid insulins through a series of Phase I trials. AT247 is a novel formulation of an existing insulin (100U aspart) that aims to materially accelerate absorption after injection, achieving a profile that very closely approximates healthy (non-diabetic) physiological insulin secretion, giving the desired tighter and more effective management of blood glucose levels. AT278 is a novel formulation of insulin aspart with the focus on creating a highly concentrated, 500 units/ml, ultra-fast insulin. AT278 recently reported Phase I data that exceeded our expectations (see later), this prompts us to raise its contribution within our valuation model. Discussions with KOLs has strengthened our belief in the potential of the franchise, most notably the prospects for AT278.

AT247: the leading ultra-rapid insulin programme

AT247 is a second-generation ultra-rapid prandial insulin analogue that was examined in a Phase I clinical trial that compared it against Novo Nordisk’s NovoRapid (IAsp) and Fiasp (faster IAsp). The double-blind study tested 19 Type 1 diabetics using a standard glucose clamp setting to determine the pharmacokinetic (PK), pharmacodynamic (PD), and safety characteristics of AT247. The full results were published in Diabetes Care February 2021, with AT247 having successfully met all study endpoints and suggesting a best-in-class profile. The relevant profiles and data were discussed at the KOL event and are shown in the graphics and table (Exhibits 3 and 4).

Exhibit 3: AT247 Phase I clinical study PK/PD results

Source: Svehlikova et al. Diabetes Care 2021: 44: 448-455

These data (Exhibit 4) show that AT247 has a superior onset of action and activity throughout the important 120 minutes after dosing vs both NovoRapid and Fiasp. For instance, AT247 was nine minutes faster than Fiasp for onset of action, achieved a three-fold increase in glucose lowering in the first 30 minutes and a two-fold increase in the first 60 minutes, yet was comparable over 480 minutes. As expected, AT247 was well tolerated with no safety concerns seen.

Exhibit 4: Phase I data on onset, offset and overall exposure and glucose-lowering effect

Source: Svehlikova et al. Diabetes Care 2021: 44: 448-455

The importance of such a profile is not simply in improving outcomes in diabetics who are using pen devices (also known as MDI – multiple daily injections) but in enabling the use of fully automated continuous pump devices. Advances in miniaturisation and computing power have seen the introduction of viable continuous glucose monitors (CGM). These allow patients, and clinicians, to assess trends, patterns, and time spent in range in real time. The sensor tests glucose every few minutes and sends an alarm if hypo- or hyper-glycaemia is threatened. Such devices have been transformative for some patients. In parallel, similar technological advances saw sophisticated, and reliable, wearable pumps developed. These pumps, known as continuous subcutaneous insulin infusion (CSII) therapy, have evolved rapidly and offer near-normal glucose control in previously uncontrolled diabetics.

Exhibit 5: Key milestones towards a truly artificial pancreas

Source: New closed loop insulin systems Boughton & Hovorka Diabetologia 1007-1015 (2021)

As these devices approach reality, the remaining obstacles to be addressed are shifting from the physical and software aspects to the characteristics of the insulins that are now required. For instance, the inherent delays in absorption of subcutaneous injected insulin compared with endogenous insulin production means postprandial hyperglycaemia is still a challenge for these closed-loop systems. As the clinicians at the KOL event noted, the pharmacokinetics and pharmacodynamics of current rapid-acting insulins are known to be suboptimal. The new ultra-rapid acting insulins, which have faster onset and offset of action, have the potential to address this issue. Small studies with Fiasp (faster aspart) and Lyumjev (ultra-rapid lispro) have not shown the hoped-for conclusive results. It is for this clear clinical need that AT247 (ultra-rapid insulin) and, increasingly, AT278 (ultra-rapid and ultra-concentrated) appear particularly well suited.

AT278: ultra-rapid and ultra-concentrated insulin

AT278 is a novel formulation of insulin aspart with the focus on creating a highly concentrated, 500 units/ml (U500), ultra-rapid insulin. There has always been a need for concentrated insulins (eg for insulin control post operatively or post-infection) but the use is now much more mainstream. Such high concentration insulins are expected to become increasingly in demand, reflecting the rising number of Type 2 and refractory Type 1 diabetics requiring higher daily dosing.

A key element driving this is the growing rate of obesity across most geographies, with a BMI of 30 or greater said to contribute 80-85% of the risk of developing Type 2 diabetes. Although the reasons remain unclear, excess abdominal fat is thought to release pro-inflammatory signals that create insulin resistance (and relative insulin insufficiency). In the UK 28.1% of adults are classified as obese, rising to 63.4% when the overweight are included ; forecasts suggest 26m people will be classified as obese by 2040. In the US the figures are even more dramatic, with obesity prevalence rising from 30.5% in 2000 to 41.9% in 2022. The expectation is that half of all US adults will be obese by 2030.

Dr Wendy Lane, a diabetes specialist from North Carolina, highlighted how obesity-related insulin resistance is driving increases in daily insulin requirements, pointing out how in 2012 some 35% of Type 2 diabetics needed a daily maintenance of 60U (units), whilst in 2022 the average daily dose has risen to 97U. Similar trends were also seen in Type 1 diabetes, despite the younger demographics and stricter attention to dietary intakes, with 25% having a BMI greater than 30 and 64% with a BMI greater than 25. Yet, even with this growing population, there are only three concentrated bolus insulins available: U500 regular insulin (which has a profile similar to a basal insulin), U200 Humalog, and U200 Lyumjev (all manufactured by Eli Lilly).

The results from the AT278 Phase I study in Type 1 diabetics were first presented at the Advanced Technologies and Treatments for Diabetes (ATTD) meeting on Thursday 28 April. Dr Thomas Pieber described the results at the KOL seminar (Exhibits 6 and 7). The trial met all primary and secondary endpoints, demonstrating a superior pharmacokinetic (PK) and pharmacodynamic (PD) profile to a comparable dose of lower concentration of NovoRapid (NovoNordisk’s gold standard rapid acting insulin). The trial evaluated 38 adults with Type 1 diabetes in an euglycemic clamp setting aiming to establish PK/PD equivalence between a subcutaneous dose of AT278 0.3 U/Kg (500 U/mL) that was five-fold more concentrated than the comparator 0.3 U/Kg NovoRapid (100 U/mL). AT278 matched or exceeded key measures such as glucose lowering, onset of action, and absorption profile, and there were no safety signals.

Exhibit 6: AT278 Phase I clinical study PK/PD results

Source: ATTD April 2022 Pharmacokinetics is the upper pair, Pharmacodynamics the lower

We have stated before how the outcomes are highly impressive and better than we expected. The top-line results showed AT278 has, despite the five-fold greater concentration, an absorption profile that does not simply match the rapid insulin criteria. Instead, the PK/PD data justifies AT278 classification as an ultra-rapid insulin. AT278 showed enhanced early insulin exposure compared to IAsp, with a six-minute earlier insulin appearance, a 23-minute faster t_Early50%Cmax (time to 50% of maximum insulin concentration in the early part of the PK profile), and a four-fold higher insulin exposure within the first 30 minutes. Looking at accelerated glucose lowering properties compared to IAsp there is a ten-minute earlier onset of action, a 20-minute faster t_{Early50%GIRmax} (time to early 50% of maximum glucose infusion rate), and a two-fold higher glucose-lowering effect within the first 60 minutes. The overall insulin exposure and glucose-lowering properties were comparable and AT278 was, as expected, well tolerated and safe.

Exhibit 7: AT278 Phase I study: early exposure and glucose-lowering effect

Source: ATTD April 2022

Interestingly, all the seminar participants viewed these results as “fantastic” and felt AT278 offers a step-change in the treatment, management, and dosing of the rising number of patients with high insulin needs. They also expressed the view that AT278 precisely meets the needs of the next generation of more compact insulin devices currently in development. Such positive endorsement from leading industry experts has led us to review our expectations for AT247 and, materially, AT278. Typically, we employ conservative assumptions in our valuation modelling but these discussions with practicing clinicians have raised our confidence that Arecor’s emerging diabetes franchise has greater clinical, and commercial, potential than we had originally expected.

Exhibit 8: Arecor diabetes franchise development timelines

Source: Arecor Therapeutics

Valuation

We value Arecor using an rNPV model, explicitly valuing the diabetes franchise, four partnered assets, and the in-house specialty hospital products research programme(s). We have updated our valuation to reflect recent detailed AT278 Phase I data and highly positive KOL commentary that clearly outlined the unmet medical need for a rapid-acting ultra-concentrated insulin. This has resulted in valuation uplift to £159.8m, or 574p per share (from £140.9m and 506p), largely on an increased contribution for AT278. Exhibit 9 summarises the model outputs and underlying assumptions.

Exhibit 9: Arecor rNPV valuation

Source: Trinity Delta   Note: AATD = Alpha-1 antitrypsin deficiency; assumptions include a 12.5% discount factor, £/$ FX rate of 1.30, and 10% taxation from 2026 (UK patent box).

Under this methodology, the rNPVs of the individual R&D projects are assessed and success probabilities adjusted for the clinical, commercial, and execution risks carried. These are summed and netted against operational costs and cash. Success probabilities, based on standard industry criteria for development stage, are flexed to reflect the inherent risks of the individual asset, indication, and development and regulatory pathway. Although the current strategy envisages out-licensing most of Arecor’s assets before the later costlier stages of clinical development, we allow for commercial and execution risks which are integral to any asset’s intrinsic value. We continue to apply conservative assumptions throughout.

For AT278 we have increased peak sales to $516m (from $424m) given a likely larger market of patients that could benefit from a rapid-acting ultra-concentrated insulin, as outlined during the KOL event and discussed earlier in this report. This is still conservative, given the significant and growing size of the diabetes market. AT278 now contributes c 29% of our risk-adjusted NPV and, together with AT247, the in-house diabetes franchise is now c 52% of our overall valuation. There could also be upside to AT247, notably with top-line data from the ongoing US Phase I pump study of AT247, expected in H222. Underlying assumptions for other programmes are largely unchanged, albeit we have rolled our valuation forward in time. There could be upside to all of these as progress and updates are made available in due course.

Key areas which could represent valuation upside include progress of the current pipeline and earlier-stage formulation development collaborations, while the Arestat technology platforms are a source of intangible value underpinning Arecor’s business model. Not only will development progress de-risk the pipeline further but it is also likely to reveal more about the commercial terms of partnered programmes. Sensitivities around the terms of these inevitably mean visibility is limited until later in the development process. For in-house assets that are yet to be partnered, more information on their profile could have a positive impact on the deal terms achieved. Hence, until our knowledge improves (especially with respect to the identity of some of the underlying programmes), we employ modest assumptions for launch timings, pricing, and market shares.

In addition, we only include very modest risk-adjusted development milestone assumptions for actual and potential licensing deals, with assumed royalty rates at the lower end of management guidance. Limited visibility on the formulation development collaborations means these are not included in our valuation until they convert to longer-term licence partnerships, and hopefully further disclosures are made with respect to key factors such as the identity of the underlying assets, indications to be pursued and likely development timeline. Management expectations for the licencing of one formulation development programme each year therefore provides upside.

Exhibit 10: Summary of financials

Source: Company, Trinity Delta  Note: Due to subsequent restatement of accounts FY19 relates to the 12 month period ending 31 May 2019.