Strong FY21 trading, but pipeline set to drive future
Update | 14 July 2021
Allergy Therapeutics confirmed strong FY21 trading, ahead of market expectations, with revenues up 8% (6% CER) to £84.3m (FY20 £78.2m). Lower spend due to COVID-19 restrictions on travel and conferences, coupled with phasing of planned R&D, means net income will be higher than our prior £6.2m forecast loss. Cash is at a record £40.3m vs £37.0m last year. Robust performance emphasises the resilience of the underlying business, but two development programmes are set to potentially transform medium-term prospects. Key value inflection points are expected over the coming months: the ex vivo peanut allergy biomarker study for the VLP-vaccine will read out in Q3, and data from the G309 Grass MATA MPL exploratory field study is due in H2. Our current valuation is £344.5m,or 53.8p per share.
|Year-end: June 30||2019||2020||2021E||2022E|
|Adj. PBT (£m)||(3.7)||3.5||(0.3)||(12.8)|
|Net Income (£m)||3.5||6.9||(0.2)||(13.0)|
|Adj. EPS (p)||0.5||1.1||(0.0)||(2.0)|
14 July 2021
|Shares in issue||641.5m|
|12 month range||12.4-26.5p|
|Primary exchange||AIM London|
Allergy Therapeutics specialises in the diagnosis and treatment of allergy. The existing European business generates c £80m annual sales. Near-term R&D efforts are focussed on the Pollinex Quattro platform, whilst in the medium-term the VLP platform is highly promising
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Over the next six months Allergy Therapeutics will report data on two key pipeline programmes. The most high-profile is Grass MATA MPL, where results of the G309 exploratory grass allergy field study are expected by calendar year-end. Successful outcomes in this and the G306 pivotal trial will underpin European growth prospects and entry into the commercially important US market. However, the earlier stage VLP-peanut allergy vaccine should not be over-looked. Although yet to enter clinical trials, the preclinical data is highly promising and key ex-vivo biomarker data are expected in Q3. Assuming positive results, IND discussions would start before end-2021 and a US Phase I study initiate in Q122. The pivotal MATA MPL trial and the Phase I VLP study could both report results in H223. Successful outcomes would be transformative for the company. We value Allergy Therapeutics at £344.5m, or 53.8p/share.
The trading update highlights the strategic opportunities over both the near- and medium-term. Allergy Therapeutics has a European commercial business that continues to generate robust and resilient growth despite the well documented COVID-19 setbacks on patient clinic visits. Future growth is expected across all its key allergy products, with consistent market share gains. Management’s strategy seeks to exploit the greater regulatory oversight that is underway across Europe, driven by Germany’s Therapieallergene-Verordnung (TAV), through a focus on producing strong supporting scientific data. The Grass MATA MPL development programmes are an apt example, with the trials currently underway set to demonstrate the clinical benefits of Pollinex Quattro (PQ) ultra-short courses.
Although yet to be formally approved, the PQ range is available across most of Europe on a “named patient” basis. Despite the marketing limitations – named patient treatments cannot be promoted to the medical professions – PQ accounted for 42% of FY20 revenues. Once Grass MATA MPL is approved in Europe we would expect revenues to step up materially as the improved patient outcomes can be communicated more effectively. Interestingly, we value the existing European operations, based on a DCF model employing conservative assumptions, at £87m or 14p per share. This suggests that, even assuming no progress with any of the R&D programmes, over half of the current valuation is underpinned by existing revenue streams.
Allergy Therapeutics’ commercial revenues should be bolstered over the medium term by progress in the development pipeline. Its R&D efforts are centred on the PQ MATA MPL, with Grass as the lead indication and Birch (Europe) and Ragweed (US) the follow ups, and the VLP (virus-like particle) platform where peanut is being progressed through preclinical studies.
Grass MATA MPL (Modified Tyrosine Allergen Adsorbed Monophosphoryl Lipid A) is a short course, aluminium-free, allergen-specific, subcutaneous immunotherapy (SCIT), in seasonal allergic rhinitis and/or rhino conjunctivitis induced by grass pollen.
Patient treatment in the G309 exploratory field study is complete. G309 is a double-blind, placebo controlled, randomised study designed to evaluate the efficacy and safety of an optimized Phase III dose of 27,600 SU Grass MATA MPL. The trial ran for one year, capturing the 2020/21 allergy season, and has recruited c 150 patients over 12 sites in Germany and the US. The primary endpoint is the combined symptom medication score (CSMS) averaged over the peak grass pollen season. The data readout is on track for H221, and the G309 results will help inform and optimise the design of the pivotal Phase III study (G306), required for FDA filing and approval.
G306 will also be run in Europe and the US, and is expected to start in H222, over the 2022/23 allergy season. G306 is expected to recruit 900-1,200 patients over more than 100 trial sites. A successful outcome will support registration of Grass MATA MPL under the TAV (Therapy Allergy Ordinance) process in Germany, and hence over time across Europe, and, importantly, should pave the way for registration via a Biological License Application (BLA) in the US. Assuming G306 starts as expected, we should see top line results in H223.
We expect the results of G309 and, more importantly, the G306 pivotal study to underpin the European business for the foreseeable future. The availability of clinically proven short-course treatments should see further market share gains in existing patient demographics; however, regulatory approvals would unleash the ability to actively promote the attributes of the PQ platform to a wider allergist and physician audience.
The Grass MATA MPL development programme also supports entry into the US market. A potential FDA approval would see this product becoming the first short course, subcutaneous and aluminium-free allergy SCIT introduced into this sizeable market. Although not without its challenges, careful positioning and astute marketing should result in gaining a sizeable, and defensible, share of this large and growing opportunity.
The strategic and commercial importance of Grass MATA MPL for Allergy Therapeutics’ medium-and longer-term outlook is straightforward to recognise; however, we would argue that the scope and potential value of the VLP vaccine platform is yet to be fully appreciated. Although still at early stages of development, the lead VLP vaccine programme, for peanut allergy, is set to report important preclinical biomarker data in Q3. These results will form the basis for an IND submission, with a US Phase I study planned to start in H122. Once the proof of concept for the VLP platform has been demonstrated, other allergy indications such as cat, mould, house dust mite, and venoms are planned. In addition, management has secured exclusive licenses for broader use, including in oncology, respiratory diseases, and dermatological conditions.
VLPs (virus-like particles) are 3D protein structures that mimic the organisation and conformation of real viruses but, crucially, lack the viral genome. Typically, they contain highly repetitive molecular structures on their surfaces and these patterns are a recognised characteristic of pathogenic microorganisms, such as viruses and bacteria, that evoke naturally strong immunologic responses. VLPs have many properties that make them attractive antigen carriers in vaccines, ranging from their small size (c 30nm diameter allows them to drain into lymph nodes and stimulate B-cell activation) to flexibility (the surfaces can be modified to display a wide array of epitopes whilst the interiors can deliver diverse loads).
Such VLP-based vaccines can be easily modified to optimise the immune responses that are induced. In the case of allergy vaccination, they can perform a dual function; firstly, acting as an adjuvant to facilitate antigen presentation and, secondly, helping to dampen the Th2 response by enhancing Th1 polarisation, an important aspect for sustained immunity to the allergen. Allergy Therapeutics is developing a plant-based VLP vaccine for peanut allergy, employing a single allergen that appears to provide a strong protection against all peanut allergens. VLP-based vaccines are known to be well tolerated and immunologically effective, with proven ability to induce long-term protective antibodies; for instance, in prophylactic vaccination against human papillomavirus (Cervarix and Gardasil) and hepatitis B virus (Sci-B-Vac).
The VLP-peanut allergy programme is the first VLP-based vaccine in Allergy Therapeutics’ portfolio and addresses a sizeable and underserved market. Its potency and flexibility mean it could also be developed for uses as diverse as solid tumours (notably melanoma), asthma, atopic dermatitis, and psoriasis. The VLP structure is a vital element in the vaccine’s effectiveness; it is derived from Cucumber Mosaic Virus and includes tetanus toxin epitopes (CuMVtt). In addition to the immunogenic properties due to the repetitive three-dimensional scaffold, which gives B-cell activation, and the RNA content, which stimulates TLR-7 (Toll-like receptor) and TLR-8, it contains the universal T-cell epitope derived from the tetanus toxin. Almost all people have a pre-existing T-cell memory for tetanus toxin, and its incorporation boosts T-cell responses.
Allergy Therapeutics’ VLP candidate vaccine employs a single peanut allergen displayed on immunologically optimized CuMVtt. Preclinical studies have shown that a single recombinantly produced allergen (either Ara h 1 or Ara h 2) confers immunity against a complex allergen mixture, including all the 12 major allergens (and isoforms) found in peanuts. The selected allergens are immunogenic, but not reactogenic, and fail to activate human mast cells. The absence of reactogenicity is a key clinical attraction for any allergy vaccine, as severe allergic reactions are both feared and potentially dangerous. The animal studies showed an attractive safety profile, with no vaccine related allergic reactions, and a highly promising efficacy profile, with reduction of systemic and local allergic effects on challenge with the whole allergen extract.
The preclinical data to date has been encouraging, but it will be the results from the ex vivo biomarker study (P001), undertaken in collaboration with Imperial College London, that will help shape understanding of likely clinical potential. P001 is exploring an extensive array of functional and molecular biomarkers using blood samples from peanut allergy patients to evaluate the hypoallergic potential and the potency of the immune response induced. The preliminary biomarker results are expected during Q3 calendar 2021. This first indication of human reaction to the vaccine will be used to support further clinical development, including establishing the starting dose of the first-in-human Phase I study. A pre-IND meeting with the FDA has been scheduled for mid-2021, and IND filing is planned for autumn 2021. Assuming no regulatory, or COVID-19 related clinical delays, recruitment into the Phase I trial (P101) could begin in early 2022.
The format of these VLP-peanut allergy studies is expected to be disclosed following agreement with the FDA. However, it is known that due to the high allergenicity of peanut the P101 study will use a stepwise protocol, with the first stage involving non-allergic volunteers, then proceeding to skin prick tests in peanut allergy patients, before embarking on subcutaneous injection in peanut allergy sufferers.
The VLP-based peanut vaccine represents a major commercial opportunity. Peanut allergy is a leading cause of anaphylactic reactions and one of the most common food allergies, especially in children. It affects around 1.2% of Western populations, rising to about 2.5% of the paediatric population. The prevalence is rising, with the number of reported peanut allergies in the US more than tripling over a twenty-year period. The economic burden is material, with US hospitalisation costs alone estimated at c $600m pa as some 40% of children have experienced at least one anaphylactic event. Currently, most peanut allergies are managed with strict avoidance, prompt recognition of allergic reactions, and rapid use of intra-muscular epinephrine (better known by the Epipen brand name) and other supportive therapy for anaphylaxis.
Some 134 peanut allergy clinical studies have been listed on clinicaltrials.gov and there is evidence that peanut SLIT oral immunotherapy is effective in reducing the severity, but such approaches require a long treatment and no regulated product is available. The common barriers to wider adoption cited by clinicians include:
Other related oral approaches, such as Aimmune’s Palforza have overcome a number of these issues. Palforza consists of a powder containing peanut allergens. The patient ingests increasing amounts of powder over a period of about six months. Over time, the patient’s immune system becomes desensitized to peanut allergen and can tolerate exposure to larger amounts of peanut protein. After the dose escalation period, the patient continues to take a daily therapeutic dose to maintain desensitization. Palforza was approved by the FDA in January 2020 however its market roll-out as been hampered by COVID-19 issues. In September 2020, Nestlé acquired the remaining shares in the business for $2.8bn.
In contrast, DBV Therapeutics explored using transdermal delivery through its Viaskin platform to deliver desensitising peanut allergens. Following extensive clinical trials it was submitted for FDA review but received a Complete Response Letter in August 2020 that focussed on the patch technology itself, particularly the adhesive properties. The initial reaction suggests a reworking of the device and further clinical trials are required.
A number of injectable vaccines have been tried in early-stage clinical studies, for instance Astellas’ ASP 0892 and Allertein’s EMP123, but systemic reactions and poor long-term tolerance induction means there is no approved vaccine as yet. Various novel approaches are being explored: Sementis, an Australian company, is investigating the use of a modified smallpox vaccine and appears to be ready for clinical development; and Aravax, also an Australian company, is in Phase I with its PVX108 vaccine, which uses peptide fragments to reduce the risk of anaphylactic reactions. Australia has a particularly high prevalence of peanut allergies, with one in 200 adults and almost three in every 100 children affected.
It is against this background that the VLP peanut vaccine could, if successful in clinical trials, be transformative for Allergy Therapeutics’ outlook.
We use a sum of the parts model to value Allergy Therapeutics, coupling a DCF of the base European commercial business with a pipeline rNPV model of the main developmental stage allergy immunotherapy programmes. In line with our philosophy, we use conservative assumptions throughout and have previously detailed our valuation methodology in our September 2020 Initiation.
On this basis we ascribe a valuation of £344.5m (equivalent to 53.8p per share) to Allergy Therapeutics, with the commercial base business contributing £89.7m (14p/share) and the pipeline an additional £210.3m (32.8p/share). Exhibit 2 provides a breakdown of the various components.
Our valuation leaves ample room for upside from various sources. For example, our commercial DCF is based on market growth of 6-7% over the next five years with no market share gains (history would suggest this is arguably over-conservative), coupled with a modest 2% terminal growth rate. However, over the medium term, the registration and approvals of the Pollinex Quattro ranges (currently sold on a ‘named patient basis’) across Europe would remove the current restrictions on promoting these subcutaneous immunotherapy (SCIT) products to a wider physician audience, capturing additional patients. Even modest uptake beyond the traditional prescribers should, especially outside Germany, result in a noticeable uplift in revenue growth.
In a similar timeframe, the US launch of Pollinex Quattro grass would add steadily increasing incremental sales in this new and highly attractive geographic market, boosting revenue growth into double-digits and potentially the high-teens. This would be supported by the broader roll-out of the PQ product range and the VLP peanut vaccine, which could be transformational for Allergy Therapeutics, and represents further upside potential.
The FY21 trading statement indicated that the strong performance seen in H121 continued into H221. Revenues grew by 8% (+6% CER) to £84.3m (FY20 £78.2m), against our forecast of £83.8m, with solid growth across all key products supported by the science-based marketing approach. As in H121, performance varied geographically, largely influenced by COVID-19 impacts. Growth was stronger in Northern Europe (Germany, Austria, Netherlands, and Switzerland) where allergy clinics are largely standalone vs a weaker performance in Italy, Spain and the UK, due to closures of hospital-based allergy clinics as resources were diverted to the emergency setting.
Operating expenses remained lower than originally anticipated as COVID-19 travel restrictions, coupled with no physical presence at the various scientific conferences, resulted in reduced spend. Similarly, the COVID-19 related phasing of patient trial enrolment and delays in some commercial programmes also reduced expenditure. The outcome is a lower than forecast spend and net income better than our expected £6.2m loss. We now estimate a net loss of £0.2m to be reported at the full FY21 results on September 23. The phasing of the R&D programmes, coupled with a commitment to maintain a high scientific and clinical presence at conferences, means we anticipate a bounce back in spending in the years post-pandemic.
Cash and equivalents increased to £40.3m (vs £37.0m at end-June 2020), materially higher than our prior forecast of £30.1m. These financial resources, probably combined with a small amount of additional debt (we believe the existing banking facilities are due to be revisited in August 2021), should be sufficient to fully fund the G306 pivotal Grass MATA MPL Phase III registration study and the planned Phase I trial of the VPL peanut allergy vaccine.
For FY22 we forecast revenues of £86.3m, growth of 2.3%, reflecting the rising emphasis of support for the scientifically validated products and reduced weight given to the older tail products of the portfolio. Non-R&D operating costs should rise broadly in line with sales, albeit also reflecting investment into further market access and regulatory expertise. However, the underlying operating profit will switch to a £11.9m loss as R&D investment increases to £17.0m. Exhibit 3 details our financial forecasts.
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