ANGLE: looking forward to a year of delivery

ANGLE has recently clarified the status and expected progress across the various elements in preparing its proprietary Parsortix liquid biopsy platform for widespread commercialisation. Results of the pivotal ovarian cancer study will now be available in H122 due to delays by a third-party supplier of key sample processing reagents. The Wilmot Cancer Center trial data is an essential element in creating the first of a series of in-house Laboratory Developed Tests (LDT) for the US market. Meanwhile, first submissions to establish CLIA and UKAS-accredited clinical laboratories have been made. An FDA approval decision on the regulatory package for De Novo Class II clearance for Parsortix use in CTC capture for subsequent downstream analysis in metastatic breast cancer (mBC) is pending, but dialogue with the agency continues to be constructive. A highly encouraging study, supporting the use of Parsortix enabled CTC analysis as surrogate markers for mBC, highlights the clinical relevance of the non-invasive liquid biopsy once approved. We have revisited our forecasts, detailed late; our DCF-based valuation is now £506m (215p/share), from £581m (248p/share).

ANGLE has issued a couple of updates, with the first covering progress with accreditation of its clinical laboratories and the timing of the ovarian cancer verification study results. The first submissions for UKAS (UK) and CLIA (US) accreditation have been made, and the CLIA process is underway pending results of the Wilmot Cancer Center ovarian cancer study. These results had been expected to be available before end-2021; however, delays to scheduled delivery of key reagents means the samples could not be processed as planned.

The 200-patient ovarian cancer study, at the University of Rochester Wilmot Cancer Center, is the critical element in supporting the development of the first of a series of in-house Laboratory Developed Tests (LDT) for the US market. The trial aims to demonstrate that a Parsortix based assay can accurately differentiate between a benign mass and ovarian cancer, allowing women with an abnormal pelvic mass to be triaged to the appropriate treatment option. The data are expected to show both high sensitivity (correctly detecting cancer) and high specificity (correctly detecting no cancer with a low false positive rate).

The revised timeline for data read out appears to be due to third-party supply chain issues attributable to COVID-related challenges. An unspecified key supplier was unable to deliver on schedule a number of reagents essential to the sample analysis. Management is closely monitoring the situation and now expects study headline results will be available during H122. Delays to timelines are unfortunate, but we recognise that where reagents are used for manufacturing COVID-19 tests, the market is particularly tight and delivery delays may be unavoidable.

Understandably investor attention is more focussed on Parsortix’s FDA approval, and it would certainly mark a defining moment in ANGLE’s corporate development. However, this represents only one aspect of a multi-faceted approach to address the various opportunities that should drive growth across multiple revenue streams. Arguably, accredited laboratory facilities, coupled with pharma services and innovative in-house LDTs, are at least as important as FDA clearance. It is the laboratory services, and clinically relevant LDTs, that should act as important demonstrators of Parsortix’s clinical utility and accelerators of market awareness, reimbursement codes, and adoption among the target customer base.

Dialogue with FDA is ongoing and constructive

Management has also provided a status update on the FDA approval process for use of Parsortix for CTC (circulating tumour cells) harvest and downstream analysis in metastatic breast cancer (mBC). An ongoing constructive dialogue with the FDA continues and a regulatory decision is awaited. As a reminder, the regulatory package for De Novo Class II clearance was submitted in September 2020 and a full response to FDA’s Additional Information Request announced in early June 2021. With no predicate device to benchmark, the De Novo pathway is inherently more uncertain. FDA clearance would make Parsortix the first CTC harvesting system to be approved and only the third product authorisation for any form of liquid biopsy. We also note the documented COVID-19 related resource constraints at the FDA are still impacting normal activities and means timing of a decision remains unclear.

Interestingly, the Parsortix CTC capture process has already been the subject of 54 peer reviewed publications from independent cancer centres, as well as numerous posters, articles, and presentations. These highlight the breadth of potential applications and demonstrate how harvesting viable CTCs can provide invaluable information about even remote tumours and guide treatments. With the FDA decision awaited, a timely study relating to mBC was published on January 9, 2022 (Circulating Tumor Cell Transcriptomics as Biopsy Surrogates in Metastatic Breast Cancer, Annals of Surgical Oncology 2022 Jan 9). This study highlights how mBC is responsible for virtually all breast cancer deaths and how the metastatic tumours are inherently different to the original primary tumour, hence typically requiring different treatment regimens. Usually, the metastatic tumours cannot be safely biopsied and so therapy is often sub-optimal.

The study evaluated 19 treatment-naïve mBC patients where tissue biopsies of the secondary cancer site were undertaken. These patients had peripheral blood draws (7.5ml) immediately prior to tissue biopsy that were used for CTC isolation using the Parsortix platform, providing ‘matched samples’ for analysis. The simplicity of the procedure meant the time from blood draw to CTC harvest did not exceed two hours. Whole Transcriptome RNA-Seq and Sanger Sequencing was performed on the CTCs using industry standardised workflows for 64 potentially clinically actionable target genes. The results showed a high degree of correlation between the tissue biopsy samples and CTCs. The study also evidenced the longitudinal monitoring of a tumour’s evolving genetic status throughout treatment(s), which is not possible with tissue biopsy.

The key finding was that “RNA-Seq of Parsortix-enriched CTCs could lead to minimally invasive, real-time diagnostic strategies for precision therapeutic decision making for mBC patients” and the “approach could serve as a surrogate liquid biopsy for potentially clinically actionable drug target gene expression and mutations, allowing longitudinal assessment of the evolution of a patient’s cancer”.

The relevance of the study findings is connected to the difficulty of adhering to NCCN (National Comprehensive Cancer Network) treatment guidelines in mBC. These guidelines recommend a tissue biopsy of the secondary tumour site to guide further treatment selection, yet in over half of patients such a biopsy is not possible due to inaccessibility of the metastases or the patients themselves are too ill for such invasive procedures or insufficient tissue is recovered.

Valuation and Financials

We had previously highlighted that our forecasts are sensitive to the timing of FDA approval (assuming a positive recommendation), as well as progress with the development of key LDTs. Hence with delays confirmed, we take the opportunity to make a corresponding shift in the timings of our expected revenue streams.

Reviewing our expectations, we had factored in a revenue uplift in RUO (Research Use Only), TR (Translational Research), and Pharma Services once the FDA approval was received. This is the single largest element in our revised revenue forecast of c £1m, from £2.3m previously. In addition, we expect continued COVID-19 factors affecting demand, with RUO and TR impacted by reduced laboratory working time and lower grant/charitable donation funding. The more recent Pharma Services revenues are expected to still be relatively modest at this stage, but building given the profile of existing sold contracts and ramping up when clinical trial activities return to more normal levels.

As the new services gain traction, we anticipate that gross margins should be a little softer, given introductory pricing, and also expect the revised timings to shift significant elements of planned costs into subsequent years. This means operating costs should be correspondingly lower, with both operating losses and cash burn broadly in line with our prior expectations. We now forecast FY21 operating loss of £20.6m and a cash balance of £27.1m (vs a previous expectation of £20.4m and £27.3m respectively).

For FY22, again reflecting the timing shift, we now expect the revenue line to be c £2.8m, from £5.4m, and the operating loss and cash balance to be £22.0m and £8.5m, from £19.7m and £10.3m.

Exhibit 1 shows our revised valuation, with our new expectations generating a valuation of £506m, equivalent to 215p per share. This compares to £581m, or 248p per share, previously. Whilst we are arguably being overly cautious, our model does leave scope for significant potential upside in our valuation as visibility increases with the execution of the commercialisation and partnering strategy.

Exhibit 1: Three-phase DCF valuation of ANGLE

Source: Trinity Delta  Note: 12.5% discount rate, 2.5% terminal growth rate, 20% tax rate, and $1.3/£ FX rate. mBC = metastatic breast cancer

Exhibit 2: Summary of financials

Source: ANGLE, Trinity Delta.  Note: Adjusted numbers exclude exceptionals. * FY18 relates to 12 month period ending 30 April 2018, ** FY19 relates to 8 month period ending 31 December 2019.