Investment case

ANGLE is a specialist diagnostics company developing its proprietary Parsortix cell capture platform. This elegant system employs microfluidics to physically separate viable cells from a simple blood sample. Although it can be tuned to capture other rare circulating cells, for instance foetal, it is being developed mainly to harvest circulating tumour cells (CTCs). The key clinical programme, in metastatic breast cancer, has been filed with the FDA, with approval expected later in 2021. Continuing research applications have provided invaluable external validation, which coupled with FDA approval and the establishment of clinical service laboratories, sets the stage for multiple commercialisation opportunities. ANGLE is listed on the LSE AIM (AGL), though an eventual NASDAQ listing is possible. It is headquartered at the Surrey Research Park in Guildford, with operations in Canada and the US and employs over 100 people across the group. To date, ANGLE has raised c £60m, including £18.5m (net) in Q420, most of which has been directed to research and development activities.

Valuation

We use a three-phase DCF-based model with detailed medium-term forecast revenues to 2031, followed by a ten-year trending period, and a 2.5% terminal growth rate. These income streams are discounted back and netted against the net cash position, resulting in a valuation of £549m, or 255p per share. In line with our policy, we employ conservative assumptions throughout. A clear value inflection point is FDA approval of the first clinical indication, currently anticipated during H221. As the emphasis shifts from development activities to commercial execution, we expect several value-inflection points in the coming 18-24 months.

Financials

ANGLE had £28.6m in liquid funds at end-December 2020, with the receipt of a £2.1m R&D Tax Credit expected during FY21. Planned investment in establishing the CLIA/ISO accredited laboratories and creating LDTs, together with continued support of studies that expand the Parsortix system’s utility, suggests, on our forecasts, a cash runway that extends to at least mid-FY22. There are multiple value-inflection points expected over the near-term and we believe there will be ample support for any equity raise from existing and new investors.

Sensitivities

In common with most innovative healthcare companies, ANGLE’s three main sensitivities relate to development and regulatory timelines, execution of the commercialisation plans, and the financial resources required to accomplish these. Impressively, considering the limited resources available, the key near-term sensitivity is the likelihood of FDA approval, the first in this field. Such de novo applications often encounter obstacles, but commercialisation plans are not dependent on a rapid approval. The development of the pharma services business line and the launch of its first LDT from the newly established clinical laboratories should mitigate this risk through nearer term revenue generation.

ANGLE: at the centre of CTC liquid biopsies

ANGLE is approaching a defining moment as its proprietary Parsortix platform is set to gain FDA clearance. This would be the first CTC harvesting system approved and only the third product authorisation for any liquid biopsy. CTCs carry vital information on a tumour’s status and Parsortix allows their easy, reliable, and consistent capture. Commercialisation initiatives are already underway, with the development of a pharma services business and the expected launch of LDTs (Laboratory Developed Tests) from newly established clinical services laboratories in the US and UK. These act as invaluable demonstrators of how the Parsortix system enables targeted treatments, monitoring of responses, and improved patient outcomes. These activities are even now bearing fruit, with the first sizeable pharma services contract announced in April. Our DCF-based valuation is £549m (255p/share), which should rise materially as visibility on commercialisation initiatives and Parsortix’s positioning becomes clearer.

ANGLE is well placed to benefit from the changes impacting many aspects of cancer care across the world. The greater understanding of the causes and drivers of cancer demonstrates clearly that it is a complex, dynamic, and, importantly, a heterogeneous disease. The multiple gene and environment interactions, and the involvement of numerous and variable biological pathways, means that any drug therapy needs to be targeted precisely to maximise efficacy. To achieve the goal of such precision medicines, reliable, robust, and affordable non-invasive diagnostic testing will be required. This clear need has led to the development of numerous liquid biopsy approaches.

The Parsortix system is a simple, elegant, and versatile technology platform that can capture circulating tumour cells (CTCs). A compact benchtop system separates and collects the cells; these are easily harvested, and appropriate downstream tests are then used to identify the nature, status, and susceptibility of the tumour. Unlike competing technologies, such as ctDNA, the CTCs allow RNA and protein expression, giving a complete and accurate picture of the cancer, whether primary or metastatic. The entire process has been validated extensively by numerous leading cancer research institutions across a variety of tumour types, with the results published in respected peer-reviewed journals. The expected FDA clearance should transform awareness and help drive adoption into the various sizeable market segments, ranging from pharmaceutical services for cancer drug trials to clinical tests to support patient management.

However, management is aware that realising the opportunities presented by liquid biopsies requires more than being the first- or best-in-class technology. The supporting research and clinical evidence for the Parsortix system are now compelling and mounting. Regulatory approval will accelerate ANGLE’s ability to form collaborations and partnerships with leading diagnostic players; but it is the establishment of CLIA and ISO accredited laboratories and LDTs (Laboratory Developed Tests) that demonstrate the Parsortix system’s utility and facilitate the receipt of essential reimbursement codes in the important US market. We believe the successful interplay of these initiatives will determine the Parsortix system’s positioning and scale of commercial success. It should be noted that even a relatively small share of such large opportunities would be transformative for ANGLE.

Right at the heart of the cancer revolution

The revolution in cancer treatment has taken decades to come to fruition but finally we are on the cusp of a shift from “carpet bombing” with aggressive cytotoxic regimens to targeted therapies that reflect the current status of an individual cancer. This is driven by the wealth of knowledge unleashed by increasingly accessible genomic data, which has led to genuine insights into how tumours differ from each other and how they themselves evolve over time. Although it is the potential of novel therapies that harness the body’s immune system that are making the headlines, equally important progress is being made across other fronts that enable these changes to clinical practice.

Targeted therapies, such as immune checkpoint inhibitors (CPIs), have already started to transform the cancer treatment landscape and offer the hope of greater efficacy with fewer toxicities and side-effects. However, to truly realise their clinical value such selective drug regimens require a more thorough understanding of the nature of the tumour (and its metastatic offspring). It is now evident no two cancers are precisely the same and as a cancer can change over time susceptibility to treatment differs across patients (heterogeneity) and over time (longitudinally)[1]. This means a detailed initial appraisal and regular follow-up testing is a prerequisite for the effective deployment of this new era of precision medicines, both clinically and in terms of cost-benefit.

Exhibit 1: Comparison of solid and liquid biopsy properties

Source: ANGLE

For the majority of solid tumours, a tissue biopsy remains the “gold standard” and is the first step in confirming a diagnosis and obtaining a genomic profile to guide treatment. However, for some tumours (eg lung and brain) performing a biopsy can be challenging and in some cases impossible. Even where access is practicable, the incidence of complications can be an issue. More pertinently, where possible, the goal in most solid cancers is to surgically remove the primary tumour which hampers the repeat sampling that is required to monitor treatment efficacy.

Similarly, where metastatic disease is present it can be difficult to identify the distal tumour sites, let alone access them.

Aside from the practical difficulties, procedural risks, and patient discomfort, obtaining a tissue biopsy can be time consuming and costly. A straightforward biopsy can range from $500 to $2,000 in direct costs alone (Value in Health Journal, 2016). Hence the widespread pursuit for viable alternatives that are relevant, accurate, reproducible, accessible, relatively rapid, and cost effective.

The search for non-invasive assessment methods have led to a variety of “liquid biopsy” techniques, with over 50 companies known to be developing novel products and technologies. Typically, these centre on blood samples, but could include any appropriate and easily attainable bodily fluid. These exploit the fact that cancers tend to shed many elements ranging from intact circulating tumour cells (CTCs) through cell-free DNA (cfDNA) to RNA and exosomes. Consequently, these can be grouped into three main categories:

• ctDNA (circulating tumour DNA): Cancer patients have significantly higher levels of cell-free DNA compared with healthy individuals (up to three times) because tumours tend to have elevated cell turnover rates (due to apoptosis) and many more necrotic cells relative to normal tissue. The relative levels of ctDNA have been shown to correlate with tumour burden and the fragmentation pattern of ctDNA reflects its biology. Analysis of a blood sample can yield large amounts of important genetic information about the tumour, particularly using NGS (Next Generation Sequencing). Their high relative frequency and ease of detection has made cfDNA a popular method for testing mutation status (eg for KRAS).
• CTCs (circulating tumour cells): Simplistically CTCs are cancer cells that are shed into blood vessels from tumours which have the potential to develop metastases. As more is known about them, their complexity and roles suggest their biological signatures may be invaluable sources of clinical information. Initially collection was performed by chemical means, but since these tend to alter a cell’s signature the consensus is shifting towards physical separation methods that leave a cell’s biology intact. Subsequent downstream analysis, employing any preferred methodology, can then be performed as desired.
• Exosomes and other extracellular particles: Exosomes are small membrane-enveloped vesicles containing functional particles such as proteins, RNA, and DNA. Their role is still being elucidated but they are known to act in intracellular communication. Tumour-derived exosomes are thought to help prepare a favourable microenvironment at future sites of metastasis (called the premetastatic niche). Exosomes and other extracellular particles (including circulating RNA and proteins) are viewed as potentially attractive biomarkers due to their high stability in fluids. Whilst these may eventually become important diagnostic tools, their early stage means their biological significance is not fully understood and their clinical relevance is unproven.

A host of novel tumour detection technologies have appeared over the last few years, with the field becoming increasingly crowded, but none has yet emerged as a conclusive preferred methodology.

Circulating Tumour Cells hold the key to so much

Circulating Tumour Cells (CTCs) are extremely rare; they are outnumbered by normal, healthy blood cells by between one million and one billion to one[2]. Understandably, the challenge of locating a single CTC has been described as repeatedly searching for the proverbial needle in a haystack and finding it consistently and reliably. Although their relative number has been shown to be predictive of prognosis in breast cancer patients[3], it is the more recent advances in understanding a tumour’s genetic make-up that has now brought them to the fore. Their real value lies in the amount of critical information they hold, particularly the information on RNA and protein expression that drive tumour growth, therapeutic sensitivity, forecast resistance mechanisms, and predicted aggression.

The existence of CTCs has been known for some time, with their role in metastasis first postulated by the Australian pathologist Thomas Ashworth in 1869[4]. An increasing variety of CTCs are being identified, with extensive heterogeneous sub-populations. These include viable cells that have been shed from a primary tumour into the blood circulation that can initiate and sustain metastases[5]. Another important group is the CTCs going through epithelial-mesenchymal transition (EMT) which are associated with heightened resistance and malignancy.

Similarly, the cancer stem cells and cell clusters that are also present may have important diagnostic and clinical roles. Work at the University of Basel suggests cell clusters are 50 times more likely to generate metastasis than individual CTCs and these are linked to the state of hypoxia in the original tumour. The findings[6] suggests that intra-tumour hypoxia creates conditions that stimulate formation of an increased size and number of CTC clusters, which may increase (rather than decrease) metastatic spread. This is clinically important as c 90% of patients that die of cancer die of metastatic spread, not due to the primary tumour.

Over the past two decades an impressive array of imaginative strategies has been developed to capture CTCs. These employ selection methods based on physical characteristics (such as size, density, deformability, and electrical charge) or cell-specific factors (such as cell surface marker expression), with varying degrees of efficacy. Many technologies have focussed on explicit markers (or sets) which proved to be exquisitely precise; however, growing understanding of the substantial heterogeneity of CTCs means their probable clinical utility has diminished. Increasingly capture methods are required that are able to collect pure and viable cells that are representative of the CTC subpopulations.

The various techniques for CTC capture include:

• positive capture: antibodies against CTC surface markers;
• negative capture: usually antibodies against leukocyte cell surface markers;
• cell size separation or exclusion filtration: smaller blood cells filtered out using membranes or novel nanostructures;
• density gradient separation;
• dielectrophoresis: separation via an electric field; and
• spiral microchannels (separation via drag forces).

Unfortunately, these methods often suffer from a lack of sensitivity[7] or poor specificity[8]. Notably, antibody-based separation can be problematic due to non-specific binding to non-tumour non-epithelial cells or binding to naturally circulating epithelial cells unrelated to the cancer.

The key metrics[9] for CTC detection platforms are that they must be repeatable, reliable, rapid, cost-effective, and suited to large-scale production and clinical use. In addition, they need to capture extremely rare cells from clinically relevant blood volumes, usually 7.5ml to 10.0ml. These requirements have formed the basis for standardised performance criteria used to evaluate and compare the various CTC technologies: capture efficiency, purity, enrichment, throughput, cell viability, and release efficiency. It is worth noting that the Parsortix system scores highly on all six of these parameters.

Parsortix platform is proven and well documented

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

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

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

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

Exhibit 2: Parsortix platform overview

Source: ANGLE

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

No single liquid biopsy approach set to dominate

Effective liquid biopsies will clearly play a central role in future diagnoses and their impact will affect several disciplines across the spectrum from drug development (as clinical trials are optimised through improved patient recruitment), to diagnostics (with faster and more accurate screening), and treatment (as earlier diagnosis and targeted treatment improves outcomes). The attractions, both clinical and commercial, of a practical and reliable liquid biopsy has understandably drawn numerous players to the space. As discussed earlier, these employ a multitude of differing technologies that compete either directly (eg other CTC capture systems such as antibodies) or indirectly (eg analysing the genetic make-up through ctDNA). Exhibit 3 summarises how Parsortix is differentiated from other existing CTC platforms.

Exhibit 3: Parsortix compared to selected competitive platforms

Source: ANGLE

The clinical market is expected to grow both horizontally (more cancer types tested) and longitudinally (patients monitored more frequently) as liquid biopsies become better validated and their utility demonstrated. Initially the drivers will be the identification of proven biomarkers in selected solid tumour types to better guide treatment decisions. Over time this will broaden into exploring drug resistance and monitoring therapy response, as well as expanding into other cancer types. In the longer-term, liquid biopsy has the potential to improve the early detection of cancer overall and, as early diagnosis is usually closely linked to better survival, to dramatically alter mortality rates.

We expect the liquid biopsy segment to continue to evolve rapidly as results from large well-run studies help shape clinical practice. The decreasing cost of analysing genomic information, which appears to be following Moore’s Law, should allow personalised diagnostics to be affordable, even by cash-strapped health systems, and greatly assist the rate of adoption of precision medicine. While possible, the emergence of one technology to dominate above all others is, in our view, unlikely. The diversity of clinical need means that we foresee certain applications becoming the choice in some segments but not others. For instance, we can see highly automated ctDNA being employed widely in the initial patient profiling, but the greater information available with CTCs means their role would be to provide a larger and more complete picture.

A key point, in our view, is the Parsortix CTC harvesting system should be viewed as complementary to the emerging platforms, such as ctDNA, since the two can be easily performed from the same blood draw. The amount of clinically relevant information generated is materially greater and would support better economics (typically reimbursement codes in the US) than either test in isolation. Realistically, the question from an investment perspective is how does Parsortix stack up against alternative CTC harvesting systems? The wealth of published data, coupled with key opinion leader support and forthcoming FDA approval suggests the Parsortix system is the acknowledged leader in its field.

The market opportunity is sizeable and growing

The cancer market is large, being the leading cause of mortality in economically developed countries and the second leading cause of death in developing countries, and growing, with incidence rising due mainly to ageing populations and environmental/life style factors. This is despite valiant sustained efforts to curtail known risk factors, notably smoking but also programmes such as HPV vaccination for cervical cancers. The incidence of 19.2m new cancer cases worldwide in 2020 is projected to rise by 43.2% to reach 27.5m cases by 2040. It is estimated that over one in three people in Western countries will be diagnosed with a form of cancer during their lifetime. Understandably, the costs of treatment and to society in general are huge. For instance, in the UK the direct cost to the NHS is over £5bn and the societal costs are over £18bn.

Against this backdrop the opportunity for liquid biopsy diagnostics is substantial. Multiple market research companies have published reports examining the current situation and forecasting likely sales for the various technologies. For instance, Verified Market Research estimates a 23.1% CAGR to a $5.03bn value between 2020 and 2027; Adroit Market Research sees the market growing at 33.4% CAGR to reach $6.01bn by 2025; Report Linker forecasts it reaching $12.9bn by 2030; and Research and Markets expects a $4.02bn increase between 2020-2024 alone. Interestingly, several earlier market research reports are, with the benefit of hindsight, seen to have been too conservative despite what were deemed aggressive forecasts at the time.

Although methodologies differ, a number of common themes emerge: the US is expected to be the largest market with rapid adoption once regulatory approvals help reimbursement clearance; lung cancer is a key target due to the difficulties with tissue biopsies, followed by metastatic breast cancer; CTCs will over time become the largest category as their flexibility and high amount of clinical data overtakes the rapidity and ease of ctDNA tests; vesicles and other promising technologies (including RNA testing and platelets) are likely to become important only later in the forecast periods; and the larger players will seek to claim a slice of this either through internal development or M&A.

Leading liquid biopsy players are committed

Market research forecasts may appear ambitious, but they are reasoned. Guardant Health expects the current c 700k patients undergoing systemic treatment for advanced cancers to generate around $6bn/year in the US alone; with a further c $15bn over the medium term once the c 15m patients with neoadjuvant/adjuvant and recurrence monitoring indications are included; and over $30bn when, in the longer term, early-stage detection in the over 65m “at-risk” individuals is also factored in. Similarly, when Illumina sought to (re)acquire Grail in September 2020 (for $8bn) the accompanying presentation highlighted how the oncology testing market is expected to reach $75bn/year by 2035; driven by c 7m tests for therapy selection, c 20m tests for monitoring therapeutic response or disease recurrence, and over 150m to screen the asymptomatic “at risk” populations. It is worth noting that, in April 2021, the FTC challenged the proposed acquisition on competition grounds.

Guardant Health management sees the following four steps as critical prerequisites to the widespread adoption of liquid biopsy:

• the generation of compelling clinical evidence;
• gaining FDA regulatory approvals;
• establishing attractive reimbursement; and
• ensuring widespread oncologist adoption is achieved.

These key steps are reassuringly similar to the activities that ANGLE management has been working through over the past decade.

First key enablers for commercialisation are in place

With such a disruptive device and, at the time, novel approach the creation of an extensive and powerful series of research evaluations was an essential external validation of Parsortix’s utility. This has been fruitful with a number of very supportive publications from prestigious cancer research centres, such as MD Anderson Cancer Center and Barts Cancer Institute, and tie-ups for research use with renowned organisations such as Cancer Research UK (CRUK) Manchester Institute. To date, 42 papers from 26 leading cancer centres and across 24 differing cancer types have been published in peer-reviewed journals.

ANGLE has generated modest revenues from the sale of instruments and disposable cassettes for these research programmes; however, the real value has been in creating a compelling (and growing) body of evidence, generating proof of concepts across various cancer types, optimisation and standardisation of workflows, and reproducibility of results across multiple centres. Management calls this “leveraged research”, as it generates far more valuable results than it could have funded directly. CTC clusters provide a pertinent example as the Parsortix platform has been a critical enabler in their identification and understanding of the roles they play in metastatic disease.

Examining the “in-house” work, ANGLE’s management has followed a pragmatic approach in preparing for commercialisation:

• The first phase saw numerous pilot studies carried out in various clinical applications to assess the Parsortix system’s performance, which was used to guide development in the most promising areas;
• Larger, and more comprehensive, patient studies were initiated to document and validate how Parsortix works in a clinical setting, providing supporting evidence for the important regulatory process;
• Finally, after extensive dialogue with the FDA to prepare for the de novo regulatory submission, a successful 400 subject trial in metastatic breast cancer was undertaken with four prominent US cancer centres.

FDA approval will be a major achievement

Parsortix is set to be the first system for harvesting CTCs from a blood sample to be approved by the FDA. The lead indication is metastatic breast cancer (MBC) but, once the initial data package has been reviewed, the subsequent indications will be more straightforward to process. The regulatory package for Class II clearance was made in September 2020 and followed a Q-Submission process to clarify the expected requirements for an uneventful review. The package included a review of over 15,000 samples and over 400 technical documents and reports. The analytical studies had to demonstrate that parameters such as precision, reproducibility, sensitivity, specificity, accuracy, and linearity, were all in place and robust when performed across multiple systems and centres.

A key element was a 400-subject (200-patient) blinded clinical study performed by the University of Rochester Wilmot Cancer Center, together with the University of Texas MD Anderson Cancer Center, University of Southern California Norris Cancer Center, and Robert H Lurie Cancer Center Northwestern University. The primary objective was demonstrating the capture and harvesting of CTCs from MBS patient blood and demonstration of downstream analysis of the CTCs using cytopathological evaluations, FISH testing for HER-2 status, and RT-qPCR and cDNA libraries for RNA-seq assays.

Assuming smooth progress, the FDA clearance could be granted as early as H221. The Q-Submission process identified and addressed many known regulatory requirements; in March 2021 ANGLE announced that the FDA had issued an Additional Information Request (AIR) asking for some targeted additional analytical studies. Management believes these can be completed and the response submitted in May 2021. We note that the FDA has stated, in response to COVID pressures, it is extending the timelines in which it is processing certain submissions including de novo applications.

It should be remembered this is the first ever submission for the harvesting of CTC cells for subsequent analysis and we believe only the third product-based liquid biopsy that the FDA has cleared. Hence, over and above any COVID-related pressures, there is an inherent uncertainty as to the actual timings; although subsequent filings for additional cancer indications will be able to follow the 510(k) predicate device route, which should be more rapid and predictable. The importance of achieving FDA approval should not be underestimated as it validates the Parsortix system as a clinical device, opening up larger commercial opportunities.

Focus shifts from development to execution

As mentioned earlier, Parsortix can be employed at multiple points in the emerging cancer treatment pathways, providing actionable decision-making information. This can range from the initial diagnosis to therapy selection and monitoring, recurrence monitoring and potentially, in the longer term, patient screening. This versatility, coupled with its ability to be used in conjunction with most downstream assays, means the commercial opportunities are significant, varied, and numerous. The challenge is to focus on the prospects that have the highest likelihood of rapid adoption and gaining of market traction, rather than simply those with the greatest theoretical revenue potential.

Exhibit 4: Four commercial streams targeted by Parsortix

Source: ANGLE

Management is aiming to capture meaningful revenues through four streams:

• Research use (RUO);
• Pharma services, offering CTC analysis in clinical trials;
• Laboratory Developed Tests, offered from the clinical laboratories; and
• Clinical products, including through partners.

The flexible approach adopted makes this possible; for instance, the Parsortix system (instrument and disposables) can be bought as a stand-alone unit and integrated into a client’s workstreams or a “sample to answer” approach can be provided, where ANGLE’s own HyCEAD diagnostic platform provides the desired analysis, as both a product and as a service.

Research use – academic and industry

Grant of FDA approval would be expected to broaden the existing research use only (RUO) to a wider audience and, in turn, generate further original papers and applications that would help cement the Parsortix system’s position as a leading CTC harvest platform. To our minds, the value of RUO is to broaden awareness of the Parsortix system among the academic and research community and, through the publication of peer-reviewed papers, extend its utility and applicability. Hence, whilst being invaluable for credibility and validation, we do not view this as a major revenue stream when viewed in the context of the other commercial opportunities.

Pharmaceutical services

In contrast, use in oncology clinical trials could be a sizeable revenue stream. All pharmaceutical companies developing cancer therapies are seeking better biopsy tools, notably for patient targeting and monitoring, for use in their clinical trials. The clinical laboratories established in the UK (Guildford, Surrey) and USA (Plymouth Meeting, Pennsylvania) are well placed to provide these services. Blood samples from study patients would be sent to either location (the ability to maintain sample integrity for 96 hours means a global service can be provided), with the analyses ranging from simple enumeration to imaging to gene expression. This is priced between $1,000 to $2,000 per sample, reflecting the degree of evaluation desired. Importantly, as this is deemed a RUO application, no external accreditation or regulatory approval is required.

These business development efforts have already begun to bear fruit. In April 2021 the first large-scale services contract covering a clinical trial programme was announced. Reflecting the clear market need, an unnamed but sizeable pharmaceutical company is employing ANGLE and Parsortix to perform patient longitudinal monitoring in a large Phase III prostate cancer trial. The contract, worth c $1.2m over 18 months, also covers two Phase I studies that, if successful, would also involve longitudinal monitoring in later Phase II and Phase III trials. A key factor in the customer’s selection criteria was the ability to also capture mesenchymal cancer cells and CTC clusters; since these may have important roles in the progression of disease, metastasis, and drug resistance.

Business development activities target companies developing the relevant oncology programmes and, pertinently, the CROs running the trials. Management is flexible in how these clinical trial CTC analyses are delivered; it can be either a direct service or a white label for the CROs to offer and bill. The commercial opportunity is sizeable as oncology trials are set to remain one of the most numerous clinical activities. Longer term, assuming successful clinical trial outcomes, these could help establish Parsortix as a routine test for patient and therapy selection once the drug candidate has been approved.

We have modelled this revenue stream conservatively. We expect the initial typical contracts would address the earlier stages of clinical development, where patient numbers are smaller, with revenues becoming more significant when used in Phase III trials and beyond. It can be argued that FDA approval will be the gateway to widespread adoption by drug developers, but there is a need that ANGLE is already seeking to address. We expect these high-profile applications will be a valuable shop window and provide real-world evidence of the value-add a Parsortix analysis brings, Additionally, the revenues generated should provide a useful income stream to bridge across to the larger, but later, opportunities.

Laboratory Developed Tests for the clinical market

We view the development of a clinical laboratory presence as a key element in the establishment of the Parsortix system as a liquid biopsy of choice. Given the clinical value is, arguably, easily demonstrated, we believe there are two critical steps that need to be addressed if Parsortix is to become adopted widely for the treatment and management of patients. The first is the establishment of economically attractive US reimbursement codes and the second is demonstration of commercial demand. Both are best addressed by developing and providing tests that are patient-relevant and market-ready.

The clinical laboratories in the UK and US would act as demonstrators of the services that can be offered, including complete workflows, and help accelerate the development and uptake of integrated diagnostic testing. Accreditation by CLIA (Clinical Laboratory Improvement Amendments) and ISO15189 is planned by year-end. This will allow the provision of commercial services and provide an important proof of concept for the larger CLIA laboratory networks. Once fully established, these sites will each have capacity to process around 2,000 tests per month; they will initially service the expected clinical trial work mentioned earlier but will also provide the patient management tests once they are established (eg pelvic mass triage).

Development of in-house Laboratory Developed Tests (LDT) will allow dialogue with US clinical payors to establish dedicated reimbursement codes (CPT codes), which are an essential step in driving widespread adoption and becoming established clinical practice. Assays for several of the more common diagnostic procedures are being developed, first as part of the pharma services offering and, once clinical studies have been successfully completed, as LDTs. These include enumeration of epithelial and mesenchymal CTCs and CTC clusters (features Menarini’s Cellsearch cannot perform), monitoring PD-L1 status, and, when employed with its proprietary HyCEAD technology, multiplex expression profiling of up to 100 genes. Importantly, a pelvic mass assay to differentiate between a benign mass and ovarian cancer is also in late-stage development (see later).

Clinical products through partners

In parallel with these activities, ANGLE has been cultivating relationships with major diagnostic players such as Abbott, Philips, and Qiagen to develop clinical products. The Abbott collaboration is an apt example, with the PathVysion HER-2 FISH Probe kit being used in the metastatic breast cancer studies. Between 20-25% of the 1.2m women diagnosed with breast cancer globally each year have amplification of the HER-2 gene. Treatment guidelines, such as National Comprehensive Cancer Network (NCCN) and American Society of Clinical Oncology (ASCO), recommend HER-2 assessment for all invasive breast cancers. PathVysion is the leading global HER-2 test and, once FDA approval is gained, both parties will be exploring how to optimise the routine testing of HER-2 status throughout treatment. For context, current thinking suggests the availability of a simple blood test would allow a four-fold increase in testing.

Parsortix development programmes

The Parsortix system is agnostic as to the cancer type the CTCs originate from; however, management has carefully selected the indications for its initial clinical development. The primary goal was to achieve FDA approval of the platform and the metastatic breast cancer indication was ideal, but all the principal programmes being pursued are in areas where there is a specific need that cannot be easily addressed by potential alternative technologies. The criteria employed to select which clinical indications to progress was broad and comprehensive, including factors such as:

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

These criteria are showcased by the ovarian cancer test in development to triage women set to undergo surgery for an abnormal pelvic mass. The intention is to distinguish between a benign and malignant growth ahead of surgery and so direct the patient to the appropriate treatment option. Most women have benign masses and can be treated in local non-specialist units with conservative surgery (typically laparoscopy, since this is associated with lower morbidities and shorter hospital stays). However, for ovarian cancer patients the most important prognostic factors are accurate surgical staging, cytoreductive surgery, and the expertise of the gynaecological oncologist who performs the operation. Hence, these women should be referred directly to specialist centres.

However, the difficulty of an accurate pre-operative assessment means that many end up in non-specialist centres, resulting in a poorer prognosis, or, conversely, many women are operated on unnecessarily in a specialist centre, with longer recoveries, wasted resources, and higher costs. Various approaches have been tried to make an effective differential diagnosis, with physical examination, CA 125 and HE4 levels (ROCA scores), OVA1 testing, and ultrasound examination (trans-vaginal and colour Doppler sonography) being most commonly used. All have limitations and no system, or combination of approaches, performs to the desired standards in terms of specificity and/or sensitivity.

Two 200-patient clinical trials, ANG-001 in Europe and ANG-003 in the US, have reported positive results. ANG-001 was led by the Medical University of Vienna, with Vivantes and Charité, and ANG-003 was led by the University of Rochester Medical Center, Wilmot Cancer Institute. Parsortix showed a high degree of sensitivity (correctly identifying cancer) of up to 95% whilst at the same time achieving a higher specificity (low false positive rate) than existing tests (CA-125).

The performance of the test has been optimised, with a larger number of RNA markers, and a 200-patient clinical verification study is underway with the University of Rochester Wilmot Cancer Center. Patient enrolment has completed, and patient status will remain blinded until the analysis is concluded. Headline results are expected during Q421. The test will be developed as an LDT that can be performed in an accredited laboratory, using the HyCEAD platform at ANGLE laboratories or third-party laboratories. If the study delivers as expected, management is hoping to launch an LDT around the end of 2021. The pelvic mass triage application is one of the three key commercial indications targeted by management.

The three priority addressable markets

The creation of CLIA and ISO-accredited clinical laboratories allows management to have direct control over a number of its commercialisation activities. Three priority applications have been identified and marketing plans are in place, with the provision of PD-L1 testing for immunotherapy clinical trials across multiple solid tumours the closest to fruition. Exhibit 5 details the size of the opportunity and management’s assessment of its addressable market.

Exhibit 5: Pharma services PD-L1 addressable market

Source: ANGLE

The PD-L1 status of a tumour is a critical determinant in selecting the appropriate immunotherapy regimens and, conversely, for clinical trials it is essential for selecting patients that will likely respond to the drugs under evaluation. PD-L1 status is typically established by tissue biopsy but, as discussed earlier, accessing the primary tumour is often difficult and, importantly, the tumour’s status often changes materially over time. The importance of selecting appropriate and relevant patients for these studies, especially at the earlier stages when patient numbers are small and a single “rogue” result can significantly skew the data, means the benefits of a liquid biopsy are better understood and the barriers to adoption are lower.

Once chosen for Phase I studies it would be expected that liquid biopsies would be employed through to the later clinical stages, with the number of samples growing to reflect the greater patient numbers and longer trial durations. Management is targeting the key development companies and CROs, with terms and scope for the first such service contract being negotiated.

The second area is clinical testing for breast cancer, where the benefits of a liquid biopsy are clear, which will follow the FDA approval. ASCO (American Society of Clinical Oncology) guidelines on the use of biomarkers in treatment decisions for metastatic breast cancer reflect the growing understanding that a cancer’s sensitivities will likely have altered during disease progression so treatment must change to reflect this. The two main issues are that many metastatic sites are not suitable for routine (and regular) biopsy and that the biomarkers currently examined (eg oestrogen [ER], progesterone [PR], and HER2) may not provide a sufficiently complete picture of a tumour’s current sensitivities to direct effective treatment.

An effective and validated liquid biopsy would make a significant difference to the outcomes of many women. Around 2.3m women are diagnosed with breast cancer annually, which now represents 11.7% of all cancers and has overtaken lung cancer (11.4%). Although the statistics are, arguably, not robust, around 6-10% of new breast cancer cases are initially Stage IV or metastatic and a further 20-30% of women with earlier stage disease become metastatic. A study by the National Cancer Institute (NCI) found that these numbers are rising as a combination of greater incidence and more women living longer with metastatic disease, concluding there is a consequent need for more resources and effort to be directed to their continuing diagnosis and treatment.

Exhibit 6: Breast cancer clinical tests addressable market

Source: ANGLE

Exhibit 6 details the size of the opportunity and management’s assessment of the addressable market. It should be noted that in all these assessments the revenues indicated would be shared with the actual test providers.

The third area is ovarian cancer testing, where the initial application would be triage of abnormal pelvic masses. Placing the magnitude of the issue into context: approximately one in five women will develop a pelvic mass sometime in their lives; yet only one in 72 will have ovarian cancer[10]. In the US, and other Western countries are similar, a woman has a 5-10% lifetime risk of undergoing surgery for suspected ovarian cancer, of which 13-21% are found to have ovarian cancer[11]. It is also worth noting that early diagnosis improves survival tremendously; a diagnosis at Stage I has a 90% survival, whilst at Stage III or Stage IV it drops to 19% and 3% respectively.

Various approaches have been tried to make an effective differential diagnosis; all of which have limitations. No system, or combination of approaches, performs to the desired standards in terms of specificity and/or sensitivity. One of these, the OVA1 commercial test combines CA-125, transthyretin, transferrin, β-microglobulin, and apolipoprotein A1 and generates a single-number result. The combination of OVA1 test and physical assessment had a sensitivity of 96% in predicting malignancy, compared to only 75% for physical assessment alone and 93% for OVA1 test alone. However, specificity was lower, at between 35% and 55% for OVA1 and combined OVA1 test and physical assessment.[12]

As a useful peer comparator, OVA1 is Aspira Women’s Health’s largest product, with 12,898 tests performed in 2019 and 3,849 in Q420 (COVID dampened testing during 2020/1). The CPT reimbursement price for OVA1 is set at $897 (the related OVERA test is $950) and over half of all US women now have positive coverage. Aspira Women’s Health is NASDAQ listed (ticker AWH), with a market cap of $566m. Their latest investor presentation presents a convincing overview of the US commercial opportunity for an effective ovarian cancer diagnostic.

Exhibit 7: Ovarian cancer clinical tests addressable market

Source: ANGLE

Exhibit 7 shows ANGLE’s assessment of the addressable market. As with Aspira Woman’s Health’s experience, the market opportunity increases materially beyond the initial triage diagnostic testing (notably for the “watchful waiting” monitoring, where the numbers of test opportunities are significantly larger).

For our modelling we have focussed on these three applications as the main elements of the clinical services and products offered (since they reflect management priorities), although other revenue streams, such as research use, will continue to accrue.

Sensitivities

In common with most innovative healthcare companies, the three main sensitivities relate to development and regulatory aspects, execution of commercialisation plans, and the financial resources required to accomplish these. The key near-term focus is on the likely timelines for FDA approval but, importantly, the emphasis is shifting from development to commercialisation.

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

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

Whilst Parsortix has been the subject of many positive publications, posters, articles and KOL endorsements, its true commercial value lies in its adoption in clinical practice. FDA approval does provide invaluable validation of the platform, but it will be its use in routine clinical settings (where even a small overall share represents sizeable volumes) that will drive meaningful revenue and profit growth.

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

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

Much planning and effort has gone into commercialisation but addressing such large and competitive markets with novel technologies requires relevant clinical programmes to validate and support the technology and sizeable commercial teams to perform initial launches and indication roll outs. Such efforts are time consuming and expensive, with competitors being larger and well-funded. The concern is that unless rapidly partnered, Parsortix may struggle to gain traction.

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

Valuation

As ANGLE transitions from development of the Parsortix platform to execution of its commercial strategy so our preferred valuation methodology shifts from an rNPV approach to a DCF model. We employ a three-stage DCF based on comprehensive forecast cash flows to 2031, followed by a ten-year trending period, and a modest 2.5% terminal growth rate. We separately forecast cash flows for three business lines (research use, pharma services and LDTs, and clinical products) to reflect the differing markets, revenue potential, growth profiles, and R&D investment requirements that these represent. These are summed and netted against the central costs of running the business and current net cash/debt. Using conservative assumptions throughout, our model generates a valuation of £549m, equivalent to 255p per share (Exhibit 8).

Exhibit 8: Three-phase DCF 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

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

For instance, we base our revenue assumptions on the three target areas detailed by management: PD-L1 testing as a service for immunotherapy clinical trials; liquid biopsy clinical testing for breast cancer, initially for the presence of metastatic disease then rolling out increasingly into monitoring and therapy selection; and ovarian cancer clinical testing, with the initial focus on pelvic mass triage and expanding into monitoring of the various resulting groups. Sales from RUO (Research Use Only) are also included but, as previously detailed, we do not assume these to be substantial in the context of the clinical revenue potentials.

Whilst we are arguably being overly cautious, it does leave scope for significant potential upside in our valuation as visibility increases with the execution of the commercialisation and partnering strategy

Financials

ANGLE’s FY20 results cover the 12 months to 31 December 2020, following the decision in January 2020 to change from the previous April year-end. The restated FY19 period covers the eight months to 31 December 2019.

FY20 revenues of £0.8m (FY19: £0.6m) consisted mainly of Research-Use Only sales (Parsortix systems and disposables), in line with management expectations as COVID restrictions limited work at customer sites. Operating costs of £14.4m (FY19: £9.5m) reflect the continuing spend on the development and validation of Parsortix’s clinical application and commercial uses as well as the phasing in of investment required in its new clinical laboratories and pharma services business. Net loss for the full year was £11.6m (FY19: £7.6m loss).

ANGLE’s cash and short-term deposits of £28.6m at end-FY20 (FY19: £18.8m) were strengthened by the £19.6m gross (£18.5m net) share placing to new and existing US and UK institutional investors in November. FY20 R&D tax credits of £2.1m (FY19: £3.4m) are due to be received in FY21.

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

• £7m to complete the FDA approval process in metastatic breast cancer, to finish the ovarian cancer LDT programme, and general working capital;
• £5m, in addition to a previous £2m investment, to establish the two clinical laboratories in the UK and US that will develop and perform the LDTs and clinical services that underpin near-term commercial plans;
• £6m to develop new assays and clinical studies to expand Parsortix’s utility and applications; and
• £2m to support the measures to establish US reimbursement codes, expand sales, marketing, and business development activities, and to encourage further partnerships agreements.

The importance of the investment in the clinical laboratories should not be under-estimated. Pharma services and LDTs, which will be delivered through ANGLE’s facilities, represent key near-term revenue opportunities; however, they also have a crucial role as demonstrators and accelerators for the more ambitious proposals to capture broader indications and applications, and the development and expansion of a product-based offering in parallel.

The liquid biopsy market is diverse and offers a multitude of opportunities. ANGLE’s planned investments will help to position it as both an attractive service provider and/or enabling partner for players across the sector. Potential partners span medtech (downstream analysis), pharma (companion diagnostics), Clinical Research Organisations (drug trials) and/or reference laboratories (Laboratory Developed Tests). Securing future corporate parentship deals such as these will further catalyse and transform ANGLE’s financial prospects.

Exhibit 9: 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. £15m need to finance shown as illustrative short-term debt in FY22e.

[1] Molecular profiling for precision cancer therapies. Malone et al. Genomic Medicine 12 art 8 (14.1.2020)

[2] Circulating tumour cells: will they be clinically useful? J Natl Cancer Inst,102, 146-148 (2010) Nelson NJ et al

[3] Circulating tumour cells, disease progression, and survival in metastatic breast cancer. N Engl J Med 351(8):781-791 (2004) Christofanilli M et al

[4] A case of cancer in which cells similar to those in the tumours were seen in the blood after death. Aust Med J 14: 146–149 (1869) Ashworth T

[5] Molecular analysis of circulating tumour cells – biology and biomarkers. Nat Rev Clin Onc 11:129-144 (2014) Krebs MG et al

[6] Hypoxia Triggers the Intravasation of Clustered Circulating Tumor Cells Cell Reports 32 108105 Sept 2020 Donato et al

[7] Sensitivity (also called the true positive rate) measures the proportion of positives that are correctly identified. Put another way, if a disease test is highly sensitive and the test result is negative you can be nearly certain that disease is not present.

[8] Specificity (also known as the true negative rate) measures the proportion of negatives that are correctly identified. In other terms, if the disease test result for a highly specific test is positive you can be nearly certain that disease is present.

[9] Clinical and biological significance of circulating tumour cells in cancer. Molecular Oncology Vol 10 Iss 3 pp 408-417 (2016). Takaaki Masuda et al

[10] Siegel R et al. Cancer statistics, 2013. CA Cancer J Clin. 2013;63: 11-30

[11] ACOG Practice Bulletin. Management of adnexal masses. Obstet Gynecol 2007;110: 201–214

[12] Ueland FR et al. Effectiveness of a multivariate index assay in the preoperative assessment of ovarian tumors. Obstet Gynecol 2011;117:1289–1297

Contact details

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The Surrey Research Park
Guildford
Surrey
GU2 7AF
United Kingdom

www.angleplc.com

Top institutional shareholdings

Source: ANGLE