Intec Pharma — Bolstering the case for AP-CDLD

Intec Pharma

Bolstering the case for AP-CDLD

Clinical update

Pharma & biotech

21 May 2018

Price*	NIS16.99
Market cap	NIS564m
NIS3.60/US$
*Priced at 16 May 2018
Net cash ($m) at 31 March 2018 + offering		77.8

Shares in issue	33.2m
Free float	69%
Code	NTEC

Primary exchange	TASE
Secondary exchange	NASDAQ

Share price performance

%	1m	3m	12m
Abs	(8.2)	(16.2)	(12.2)
Rel (local)	(9.0)	(15.6)	(15.2)

52-week high/low

NIS34.1

NIS17.0

Business description

Intec Pharma is a drug delivery company that has developed the accordion pill, a novel gastroretentive controlled release formulation. The company is using this technology to develop AP-CDLD for Parkinson’s disease (in Phase III) and AP formulations of cannabinoids (Phase I for pain indications).

Next events

AP-CDLD TID PK study results	H218
AP-CDLD Phase III enrolment complete	H218
Cannabinoid PK studies initiate	H218

Analysts

Maxim Jacobs	+1 646 653 7027
Nathaniel Calloway	+1 646 653 7036

healthcare@edisongroup.com

Edison profile page

Intec Pharma recently released the results from two pharmacokinetic (PK) studies of AP-CDLD (n=18 and n=30). The data showed trends towards lower peak serum concentrations (Cmax) and a longer half-life (T1/2, although there was some inconsistency), which should reduce dyskinesia and off-time, respectively. Additionally, one study measured food effect, which was present but did not delay onset of effects, unlike the approved extended-release carbidopa/levodopa formulation, Rytary.

Year end	Revenue ($m)	PBT* ($m)	EPS* ($)	DPS ($)	P/E (x)	Yield (%)
12/16	0.0	(13.4)	(1.17)	0.0	N/A	N/A
12/17	0.0	(29.1)	(1.65)	0.0	N/A	N/A
12/18e	0.0	(29.5)	(0.93)	0.0	N/A	N/A
12/19e	0.0	(22.8)	(0.68)	0.0	N/A	N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

PK determines success

PK is of particular importance for the AP-CDLD clinical programme, as its main goal is to provide a formulation of carbidopa and levodopa that is less limited by the exceptionally difficult PK of the levodopa molecule. Many of the adverse effects associated with the treatment of Parkinson’s, such as off-time and troublesome dyskinesia, are directly associated with this PK profile; reduction in these effects are the primary and secondary end points for the ongoing Phase III clinical study.

PK profile supports the reduction of unwanted effects

The volunteers in these studies did not experience the dramatic spike in serum concentrations (Cmax 1288–2544 ng/mL) associated with an immediate release formulation (Cmax 4062 ng/mL). Additionally, there was a trend towards a longer half-life (although there was variability between arms, 1.70–5.15 hours), which should provide more stable serum levels and reduce off-time.

Food does not delay drug onset

One of the limitations of the currently available extended-release formulation of levodopa/carbidopa, Rytary, is that its onset time is significantly affected by food. Its label carries a warning that food can delay onset by two hours or more, and this delay was as much as 5.5 hours in one study. Although a food effect was observed in AP-CDLD (reduced T1/2, increased Cmax), food did not delay onset of the drug.

Valuation: Underlying up, per share held at NIS22.9

We have increased our valuation of Intec to NIS761m ($211m) from NIS597m ($174m), although it has remained roughly steady on a per-share basis (NIS22.91/$6.36 from NIS22.91/$6.68 per basic share). We have increased the probability of success for the AP-CDLD programme to 65% (from 60%) based on the recent PK data. This adds NIS43m to our valuation. We have additionally included cash from the recent offering ($34.9m gross, 6.75m shares at $5.25). We expect the company to have sufficient cash to reach profitability in 2020.

PK is everything

On 23 April 2018, Intec presented the results from two Phase I studies examining the PK of AP-CDLD. Despite the early stage of these studies and their limited scope, they are very important for understanding the potential utility of AP-CDLD, given that the limitations of current medications are centred on the poor PK profile of levodopa. The goal of the accordion pill (AP) technology is to improve this profile to provide a more steady release of the drug. This is of exceptional importance for Parkinson’s disease because poor control of serum drug levels directly results in off-time and on-time with uncomfortable dyskinesia.

The first study (IN 11 005) was a randomised, two-way crossover study comparing AP-CDLD and immediate release carbidopa/levodopa (IR-CDLD, at t=0h and 4h) in fasted individuals (n=18). The second study examined the food effect of AP-CDLD in a three-way crossover (n=30).

Exhibit 1: PK profile of AP-CDLD vs 2x IR-CDLD from IN 11 005 trial	Exhibit 2: Food effect of AP-CDLD from IN 14 001 trial

Source: Intec	Source: Intec

Exhibit 1: PK profile of AP-CDLD vs 2x IR-CDLD from IN 11 005 trial

Source: Intec

Exhibit 2: Food effect of AP-CDLD from IN 14 001 trial

Source: Intec

The PK profile AP-CDLD presented in these studies had a number of attractive features that speak for the viability of the drug in practice (Exhibit 3). The peak concentration of levodopa (Cmax) was significantly lower for AP-CDLD compared to IR-CDLD in both studies. In the case of this drug, this is a desirable feature because these high serum concentrations can result in troublesome dyskinesia. The AP formulation was similar in this respect to previous reports of the competing extended-release CDLD formulation, Rytary.1

Yao HM, et al (2016) Clinical Pharmacokinetics of IPX066: Evaluation of dose proportionality and effect of food in healthy volunteers. Clin Neuropharmacol 39, 10-17.

An important measure for understanding how long the AP can maintain an effective dose (and thereby avoid off-states) is the elimination half-life (T1/2). There was a degree of variability in this statistic for AP-CDLD between the two trials: it was 5.15 hours in the IN 11 005 trial, but significantly lower under similar fasted conditions (1.70h) in the IN 14 001 trial. The latter is similar to what has been seen with IR-CDLD as well as Rytary in the fasted state. In the fed state, the half-life was approximately three hours, which significantly outperforms Rytary under similar fed conditions. A major limitation to the use of Rytary is that the drug can take significantly longer to reach peak blood levels (Tmax) in the presence of food: a delay of 5.5 hours in the Yao study and two hours or more according to the label. This was not seen with AP-CDLD, which showed a Tmax of around four hours, regardless of food. We should note that a limitation of this Tmax is that patients may need to supplement with IR-CDLD in the morning while waiting for the AP-CDLD to take effect.

Exhibit 3: PK profile of AP-CDLD and other formulations

Study	IN 11 005		IN 14 001			Yao et al1
Drug	AP-CDLD	IR-CDLD	AP-CDLD			Rytary
LD dose	500mg	2x 250mg	500mg			2x 245mg
CD dose	50mg	2x 25mg	50mg			2x 61.25mg
Food	Fasted		1000 cal	500 cal	Fasted	High-cal	Fasted
Cmax (ng/mL)	1951	4062	1288	1362	2544	1341	1659
Tmax (h)	4.67	4.83*	3.50	4.00	4.00	7.0	1.5
T1/2 (h)	5.15	1.76	3.05	2.99	1.70	2.0	1.7

Source: Intec, Yao et al. Note: *Following second dose at t=4h.

We believe that this profile is supportive of the current clinical development programme. Despite the inconsistency in half-life, the trend towards longer retention supports the results from Phase II that the drug significantly reduced off-time (from 4.3 hours to 2.4 hours per day compared to previous treatment). The ongoing Phase II clinical trial has reduction in off-time and troublesome dyskinesia as primary and secondary end points, respectively. It is also important that the drug has demonstrated a tolerable food effect, which may, among other factors, contribute to its competitive advantage.

Valuation

We have increased our valuation of Intec to NIS761m ($211m) from NIS597m ($174m), although it has remained steady on a per-share basis (NIS22.91/$6.36 from NIS22.91/$6.68 per basic share). This incorporates a NIS43m increase, driven by our probability of success for AP-CDLD from 60% to 65% based on the recently released PK data. We would have increased this value more had it not been for inconsistency in the T1/2 measurements between arms. We may further increase this value with the release of data from the ongoing thrice-daily dosing PK study (expected to read out in H218). Additionally, our valuation has increased as a result of higher net cash following the April 2018 offering, rolling forward our NPVs and exchange rate effects. These effects are offset by an increase in R&D costs. Despite the share dilution, the increases to our total valuation have offset this effect and our value per share remains largely unchanged. We expect to update our valuation with the release of data from the Phase III study of AP-CDLD in 2019.

Exhibit 4: Valuation of Intec

Development programme	Clinical stage	Prob. of success	Launch year	Launch pricing ($)	Peak sales ($m)	Patent/exclusivity protection	Royalty/ margin	rNPV (NISm)
AP-CDLD, US	Phase III	65%	2020	8,200	140	2029	47%	352
AP-CDLD, Europe	Phase III	65%	2020	4,900	107	2029	40%	225
AP-CDLD development costs	Phase III							-20
Unallocated costs (administrative costs, etc.)								-76

Total								481
Net cash and equivalents (Q118 + offering) (NISm)								280
Total firm value (NISm)								761
Total basic shares (m)								33.2
Value per basic share (NIS)								22.91
Options (m)								3.0
Total diluted shares (m)								36.2
Value per diluted share (NIS)								22.45

Source: Intec reports, Edison Investment Research

Financials

Intec reported an operating loss of $10.9m for Q118, driven by R&D spending of $8.9m. This spending is largely associated with the ongoing Phase III trial, although total costs are coming in a bit higher than our expectations. This is at least partially in response to scaling production capacity, as reflected by $2m in capex during the period. Additionally, a lower proportion of R&D spending is being offset by grants than during previous periods. We have increased our expected R&D spend for 2018 to $24.2m from $18.3m. In April 2018, Intec carried out an offering of $37.5m (7.15m shares at $5.25), with net proceeds of $34.9m. We expect that this and prior net cash should be sufficient to bring the company to profitability in 2020, following the approval of AP-CDLD.

Exhibit 5: Financial summary

	$'000s	2016	2017	2018e	2019e
Year end 31 December		IFRS	IFRS	IFRS	IFRS
PROFIT & LOSS
Revenue		0	0	0	0
Cost of Sales		0	0	0	0
Gross Profit		0	0	0	0
Research and development		(10,749)	(24,295)	(24,233)	(16,943)
Selling, general & administrative		(3,097)	(5,144)	(6,173)	(6,790)
EBITDA		(14,513)	(30,050)	(31,214)	(24,970)
Operating Profit (before amort. and except.)		(13,812)	(29,221)	(30,188)	(23,515)
Intangible Amortisation		0	0	0	0
Exceptionals/Other		0	0	0	0
Operating Profit		(13,812)	(29,221)	(30,188)	(23,515)
Net Interest		450	157	663	725
Other (change in fair value of warrants)		0	0	0	0
Profit Before Tax (norm)		(13,362)	(29,064)	(29,525)	(22,790)
Profit Before Tax (IFRS)		(13,362)	(29,064)	(29,525)	(22,790)
Tax		0	(29)	(252)	0
Deferred tax		0	0	0	0
Profit After Tax (norm)		(13,362)	(29,093)	(29,777)	(22,790)
Profit After Tax (IFRS)		(13,362)	(29,093)	(29,777)	(22,790)

Average Number of Shares Outstanding (m)		11.4	17.7	31.9	33.5
EPS - normalised (c)		(116.72)	(164.74)	(93.22)	(67.94)
EPS - IFRS ($)		(1.17)	(1.65)	(0.93)	(0.68)
Dividend per share (c)		0.0	0.0	0.0	0.0

BALANCE SHEET
Fixed Assets		4,047	8,206	11,635	14,814
Intangible Assets		0	0	0	0
Tangible Assets		4,047	8,206	11,635	14,814
Other		0	0	0	0
Current Assets		20,674	56,343	58,428	35,138
Stocks		0	0	0	0
Debtors		2,384	1,125	1,223	1,223
Cash		18,228	55,149	57,137	33,847
Other		62	69	68	68
Current Liabilities		(1,152)	(1,854)	(2,166)	(1,966)
Creditors		(1,152)	(1,854)	(2,166)	(1,966)
Short term borrowings		0	0	0	0
Long Term Liabilities		(97)	0	0	0
Long term borrowings		0	0	0	0
Other long term liabilities		(97)	0	0	0
Net Assets		23,472	62,695	67,897	47,986

CASH FLOW
Operating Cash Flow		(12,005)	(22,132)	(28,425)	(18,658)
Net Interest		0	0	0	0
Tax		0	0	0	0
Capex		(482)	(4,994)	(4,455)	(4,633)
Acquisitions/disposals		206	247	46	0
Financing		0	63,707	34,900	0
Dividends		0	0	0	0
Other		0	0	0	0
Net Cash Flow		(12,281)	36,828	2,066	(23,291)
Opening net debt/(cash)		(30,673)	(18,228)	(55,149)	(57,174)
HP finance leases initiated		0	0	0	0
Exchange rate movements		8	(120)	(41)	0
Other		(172)	213	0	0
Closing net debt/(cash)		(18,228)	(55,149)	(57,174)	(33,884)
Source: Company accounts, Edison Investment Research

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