Actinogen Medical — Cognitive enhancer targeting key diseases

Headquartered in Sydney, Australia, and listed in the ASX in 2007, Actinogen is a biotechnology company focused on its lead product Xanamem, a novel cognitive enhancer. Xanamem is being developed for CI in neurodegenerative and neuropsychiatric diseases. The groundwork underpinning the cortisol hypothesis and Xanamem’s discovery was carried out at the University of Edinburgh, UK, in the 1990s and 2000s. In 2014, Actinogen acquired Corticrine, which had a licence to the technological IP that included Xanamem from the University of Edinburgh. Actinogen initially focused Xanamem development on CI relating to AD, but the company has expanded the pipeline to include CI relating to MDD. Currently, Actinogen is focused on proof-of-concept Phase II trial stages. Following positive safety and cognition data reported in April 2022 in healthy patients in the Phase Ib portion of its XinaMIA study and positive data in biomarker-positive AD patients from XanADu, Actinogen plans to start enrolment in patients with early AD in H1 CY23 in the Phase IIb portion of the XanaMIA trial, with top-line data expected in CY24. It is also scheduled to start the XanaCIDD study assessing the drug’s benefit on CI in MDD patients in or around Q422.

We value Actinogen at A$651m or A$0.36 per share, based on an rNPV analysis including Xanamem in the lead indication, AD (10.0% PoS), and a lower contribution from MDD (12.5% probability). Our slightly higher PoS for MDD reflects the fact that Xanamem has already shown cognitive benefit in the XanaHES and XanaMIA (Phase Ib portion) studies in the healthy adult population, and that the MDD population is much less likely to have any cognitive benefits from the drug (Xanamem) to be confounded by an underlying progressive neurodegenerative disease (as in AD). However, we view the peak sales potential for CI in MDD to be lower than in AD patients, given that MDD patients are less likely to experience the severe progressive neurological decline that impairs autonomy and basic function, as AD patients. We forecast FY34 (near-peak) US Xanamem sales of US$2.6bn in MCI due to early AD, and US$860m in CI relating to MDD.

As of 30 June 2022, Actinogen had a cash position of A$16.4m. The company had reported a FY22 net cash burn rate of A$9.5m, up from A$1.7m in FY21, primarily due to costs relating to the XanaMIA clinical trial. We forecast an FY23 cash burn rate of A$9.5m, with costs likely to be higher in H223 as the company will by then start enrolment for both the Phase IIb portion of XanaMIA and the XanaCIDD MDD study. We expect the burn rate to ramp up significantly to A$39m in FY24 to fund the completion of both studies and as Actinogen could then start registration-enabling pivotal studies. We model the company will raise A$20m in FY23 and A$40m in FY24. In total, we forecast A$390m in additional financings will be required before FY29 to fund the development of both programmes, and after which, provided it receives regulatory approval, the company should be able to generate sufficient operating revenues to reach recurring profitability. As per Edison’s usual policy, fundraising requirements are modelled as illustrative debt.

The main sensitivities are in relation to lead drug candidate Xanamem. Although it has shown safety in Phase I/II trials and demonstrated therapeutic efficacy in terms of cognitive benefit in healthy adults (XanaHES and XanaMIA Phase Ib portion) and in biomarker-positive AD patients (following an analysis using retrospective clinical data), it remains to be seen whether this will translate into a clinical benefit in a prospectively designed randomised trial in patients with MCI relating to early AD, or in MDD. While the initial results from the Phase II XanADu study in patients with AD did not meet the primary endpoints, a recent analysis using newly available plasma samples showed the subset of patients with biomarker-positive AD (determined through elevated pTau) demonstrated clinical activity that appears to be quantitatively superior to what has been shown with FDA-approved Aduhelm in its EMERGE Phase III pivotal study and by lecanemab in its Phase III Clarity AD study. Further, the upcoming Phase IIb portion of XanaMIA will study a longer-duration treatment period (six months versus 12 weeks) and will study patients with biomarker-positive AD determined using similar criteria to those in the recent XanADu biomarker analysis. Actinogen is also assessing the drug’s ability to treat CI in the MDD population, with the XanaCIDD study expected to start in late 2022. The company faces significant financing risks as it will require substantial further capital to advance its programmes in the absence of a co-development or licensing deal. While our model accounts for financing(s) as long-term illustrative debt, Actinogen may need to issue equity instead, at pricing that may not be favourable for current shareholders and could lead to significant dilution.

Xanamem is an 11β-HSD (11β-Hydroxysteroid dehydrogenase) type 1 (or, 11β-HSD1) inhibitor designed to reduce excessive cortisol production in the brain. Much scientific literature and existing Xanamem data suggest that excessive cortisol is associated with CI in patients with various chronic conditions.

11β-HSD’s role in cortisol metabolism was discovered in the 1950s and in later years two distinct isoforms, 11β-HSD1 and 11β-HSD2, were characterised (Chapman et al, 2013). The origins of the Xanamem compound discovery date back to the 1990s and early 2000s, with research undertaken at the University of Edinburgh, which explored the effect of cortisol on cognition and possible pharmacological interventions. Carbenoxolone, a non-specific 11β-HSD inhibitor, demonstrated promising results in preclinical and early clinical trials. The University of Edinburgh researchers then developed Xanamem, a specific 11β-HSD1 inhibitor designed to cross the blood-brain barrier (BBB). The inventors’ research and optimisation work was supported by the Wellcome Trust, with a total investment of c $25m. Clinical development of Xanamem started in 2013 and was continued by Actinogen after it acquired the Corticrine assets, including Xanamem, in 2014.

Cortisol, also known as the ‘stress hormone’, is a steroid hormone (glucocorticoid) that is tightly regulated via feedback loops connecting the hypothalamus, pituitary and adrenal glands. This is also known as the hypothalamic pituitary adrenal (HPA) axis. Most cells in the body have cortisol receptors, so this hormone has profound effects on the body’s metabolism. For example, as part of the response to stress, cortisol is a powerful inflammation suppressor, making glucocorticoid anti-inflammatory drugs (eg. prednisone) widely used in many autoimmune or inflammatory diseases.

Chronically elevated cortisol is associated with a variety of conditions characterised by metabolic disturbances. One of the best-recognised syndromes resulting from chronically elevated cortisol is Cushing’s syndrome, the main symptoms being central obesity, dyslipidaemia, hypertension and glucose dysregulation.1

Several studies demonstrate that increased glucocorticoid exposure in the brain is linked to age-related CI and a person’s cortisol level correlates with reduction in hippocampal volumes and memory impairment.1 Corticosteroid receptors are highly expressed in the hippocampus, as well as in the neocortex, including frontal lobes associated with cognition.

Studies showed that in AD, elevated plasma cortisol was associated with accelerated disease progression, while a high cortisol level in cerebrospinal fluid was associated with a more rapid worsening in patients with mild AD (Csernansky et al, 2006; Popp et al, 2015). Animal models showed that if mice are treated with glucocorticoids, this leads to increased amyloid beta formation, reduced degradation and increased tau expression in the brain (Green et al, 2006).

In January 2017, the Australian Imaging, Biomarker & Lifestyle (AIBL) study (RH Pietrzak et al, 2016) was published. The six-year, multicentre, prospective cohort study evaluated the relationship between amyloid-beta, plasma cortisol and CI in 416 healthy older adults. The study found that subjects with higher plasma cortisol had a much greater chance of developing AD. Another major study (J B Echouffo-Tcheugui et al, 2018) published in 2018 in Neurology, analysed data from the Framingham Heart Study, which is a large study that followed the health of residents of Framingham, Massachusetts, and their families since 1948. In this particular publication, the authors evaluated a group of more than 2,000 men and women with an average age of 48 with no sign of dementia. MRI brain scans, together with psychological evaluation of cognition and blood chemistry, including cortisol levels, were performed at the beginning of the study and after eight years. The authors concluded that participants with the highest levels of serum cortisol had the highest levels of impaired memory and that people with higher cortisol levels had lower brain volumes.

Direct manipulation of the HPA axis is unlikely to be an optimal treatment option for CI or AD, as it would likely compromise the stress response in the long term. The action of glucocorticoid on its intracellular receptors is determined not only by circulating steroid levels, but also by target tissue concentrations. The latter is regulated by 11β-HSD, which in effect ‘gates’ the access of these steroids to their nuclear receptors.2 11β-HSD1 is present predominantly in the liver, adipose tissue and brain, and converts inactive cortisone to cortisol, while 11β-HSD2 is expressed mainly in the kidneys and catalyses the reverse reaction. Therefore, tissue-specific modulation of intracellular cortisol in relevant brain areas (including the hippocampus and frontal lobes) can potentially be achieved by inhibiting the 11β-HSD1 enzyme without adversely affecting the normal regulation of circulating cortisol in other bodily areas.

Researchers at the University of Edinburgh showed that in aged rodents the genetic knockout of 11β-HSD1 or its pharmacological inhibition protected against age-associated cognitive decline.1 In the first clinical trials this concept was tested using carbenoxolone, which is a non-specific 11β-HSD inhibitor potently inhibiting both 11β-HSD types. Sandeep et al (2004) showed that in healthy volunteer studies (elderly men and patients with type 2 diabetes), treatment with carbenoxolone led to improved memory. More specifically, in two randomised, double-blind studies, administration of carbenoxolone improved verbal fluency (p=0.006) after four weeks in 10 healthy elderly men and improved verbal memory (P=0.005) after six weeks in 12 patients with type 2 diabetes.

Subsequently, the research team worked on developing a specific, brain-penetrant 11β-HSD1 inhibitor. An animal study using Tg2576 mice (AD model) showed that inhibition of 11β-HSD1 with a Xanamem analog led to improved memory and a reduction in amyloid beta plaques after a relatively short 28-day treatment period. The cognitive improvement effect was sustained for up to 13 months.2

After optimisation, the Xanamem molecule (formerly UE2343) was finalised and the original team of Edinburgh researchers co-founded a company called Corticrine, which in-licensed the rights to Xanamem from the University of Edinburgh. In December 2014, Actinogen acquired Corticrine and continued its development with a number of studies, including a multiple ascending dose Phase I study. No safety issues were detected in the Phase I. Actinogen also confirmed that Xanamem penetrates the BBB and achieves adequate concentration levels in a pharmacokinetics (PK) sub-study.

There have been three subsequent trials studying the drug’s effects on cognition. XanADu was a double-blinded Phase II trial assessing the drug versus placebo in 185 mild AD patients between 2017 and 2019, but as explained below, did not demonstrate adequate efficacy. XanaHES was a single-blinded placebo-controlled Phase I study in healthy elderly volunteers (n=42) that started in early 2019 and showed cognitive improvements with the 20mg daily dose. XanaMIA started in July 2021 and is assessing a lower 5mg and 10mg dose, with positive Phase Ib data in healthy volunteers reported in April 2022, and recruitment of the Phase IIb portion (in patients with CI associated with early AD) expected to H1 CY23.

The Phase II XanADu trial started in March 2017. It was a double-blind, placebo-controlled Phase II trial with mild AD patients (n=185), who received 10mg of Xanamem daily or placebo (1:1) for 12 weeks. Primary endpoints included ADAS-Cog v14 and ADCOMS measures of CI severity. Secondary endpoints included other cognitive measures such as RAVLT, CDR-SB, MMSE, NPI and NTB.

In May 2019, the results of the Phase II XanADu trial showed that Xanamem 10mg daily for 12 weeks was safe and pharmacologically effective, but the efficacy endpoints were missed. Xanamem 10mg daily did effectively inhibit cortisol production, as demonstrated by the expected and maximal increase in adrenocorticotropic hormone (ACTH) and related hormones. ACTH rises as a result of low cortisol and falls as a result of high cortisol. This suggests Xanamem is inhibiting 11β-HSD1.

These pharmacological data were also supported by separate target occupancy studies. Phase I study results (competitive binding with radio-labelled tracer positron emission tomography (PET) imaging assay) showed that Xanamem can achieve 50–85% occupancy, dependent on brain region, dosage and study subject. Based on knockout and enzyme inhibition rodent models, a target inhibition level of 30–60% may provide a therapeutic effect (Sooy et al, 2015).

In XanADu, the co-primary efficacy endpoints of ADAS-Cog and ADCOMS were used, which were based on the earlier development of acetylcholinesterase inhibitors and memantine (approved symptomatic AD drugs for later stages of disease). While some trials of those drugs showed efficacy at 12 weeks of treatment, most were at least 24 weeks long. The 12-week treatment period design of the XanADu trial raised the hurdle needed to show efficacy. The selected endpoints to measure the cognitive effects of 11β-HSD1 inhibition in this study were also unproven in the mild AD population studied in XanADU. We note that various secondary endpoints were studied but not computerised cognitive testing such as Cogstate. Cogstate, and similar tests from the Cambridge Neuropsychological Test Automated Battery in the UK, have been used for many years to detect and define cognitive benefits in drug development. The Cogstate Cognitive Test Battery (CTB) was not used as an endpoint in this trial but is being used in subsequent trials, as discussed below.

Actinogen decided to revisit the patients who were enrolled in the XanADu trial and explore the dynamics of biomarkers. Biomarker analysis was not included in the original trial design, but the company studied stored plasma samples from 72 of the 185 original patients in the study (reflecting data at both baseline and at week 12). At the time top line XanADU results were reported in 2019, blood-based AD biomarker analysis was not available and AD clinical diagnoses was not confirmed by any biomarkers. The recent analysis reported in October 2022 using newly available plasma samples re-ran study analysis in distinct patient subpopulations and found clinical activity and relatively large effect size using the FDA-recognized CDR-SB scale in biomarker-positive AD patients as determined through patients who had elevated phosphorylated Tau (pTau), a recognized AD diagnostic biomarker, at baseline.

Patients with elevated pTau (defined as 6.74pg/mL, the median value among patients in the study), representing 34 patients (16 on Xanamem 10mg daily, 18 on placebo) showed a 0.6 mean difference (effect size) on CDR-SB (representing a 60% relative reduction in disease progression versus placebo) at 12 weeks between the placebo and treatment arms. While the effect size was relatively large, given the small sample size, it did not meet statistical significance (p=0.09). Within this elevated pTau group, 56% of Xanamem-treated patients were stable or improved at 12 weeks versus 28% for placebo. Actinogen also reported that among the patients with the highest levels of pTau at baseline (>10.2 pg/mL, n=9 in each of the placebo and treatment arms) the effect size was as high as 0.7–0.8 in the CDR-SB scores between the two arms.

We note that these differences in CDR-SB versus placebo exceed the level of CDR-SB improvements shown for Aduhelm in its ENGAGE Phase III study at 78 weeks and for lecanemab as shown in the recent Clarity-AD Phase III study at 18 weeks (both discussed further below). However, we add the caveat that the XanADu biomarker analysis sample size is relatively small and recognize that there may be limitations in forecasting future trial outcomes based on study analyses determined using retrospective clinical data. Nonetheless, we view these biomarker results as highly encouraging in that they demonstrate the potential for meaningful Xanamem clinical activity in biomarker-confirmed AD patients, if replicated in a prospective trial.

No change in blood amyloid or pTau was observed over the 12-week treatment period and the company estimates that a longer study would be required to reveal any possible disease-modification effects from the drug based on blood biomarkers. The company plans to use durability of clinical benefit, based on endpoints like CDR-SB, to assess disease-modification. Following the initial XanADu results in 2019, Actinogen showed positive cognitive effects in healthy adults in two prospective separate studies, XanaHES and the Phase Ib portion of XanaMIA.

In parallel to the XanADu study, Actinogen was running another trial, XanaHES, and announced the results in Q419. Primarily, this study was designed as a placebo-controlled trial to investigate a higher dose of Xanamem (20mg), compared to the 10mg dose tested in XanADu. The XanaHES cohort included 42 healthy elderly subjects (n=30 active arm, n=12 in placebo arm), who received Xanamem 20mg daily, or placebo for 12 weeks.

Xanamem’s effect on cognition was measured using the standard Cogstate Battery. The Cogstate Battery evaluated six domains of cognition and the results of the trial showed that an improvement in two domains reached statistical significance (at 5% level) and trended towards significance in one other domain. More specifically:

The XanaMIA Phase Ib portion started in 2021 and was designed to investigate Xanamem in healthy elderly volunteers, similar to the XanaHES study, but using lower doses (5mg and 10mg daily) and by using the same computerised testing endpoints, supplemented with a version of the Digit Symbol Substitution Test (DSST). PET Phase I studies conducted by the company revealed high levels of target occupancy in the brain with doses as low as 5mg daily, which prompted the company to pursue the lower doses (5mg and 10mg) chosen in XanaMIA. With the Phase Ib portion of the XanaMIA study, Actinogen wanted to replicate the positive effects on cognition shown in XanaHES, but using lower doses of Xanamem (10mg or less).

The Phase Ib portion of the XanaMIA study investigated the efficacy of 5mg and 10mg Xanamem doses compared to placebo in 107 older healthy subjects (aged 50–80 years), over six weeks. The primary endpoints were safety, pharmacodynamics of ACTH response and effects on cognition (one or more cognitive domains showing a clinically meaningful effect size defined as Cohen’s d statistic of ≥0.3).

The scales used were Cogstate Neuropsychological Test Battery supplemented by the DSST. The results include:

Actinogen is now pursuing Xanamem development for the treatment of CI in two areas

Actinogen is now planning the Phase IIb portion of the XanaMIA trial, with enrolment planned in H1 CY23.

Following the recent biomarker analysis of XanADU and insights gained from the XanaHES study and the Phase Ib portion of XanaMIA, Actinogen now plans to advance to its next AD study, the Phase IIb portion of XanaMIA. The Phase IIb portion of XanaMIA is designed to demonstrate the safety and efficacy of Xanamem in a population of patients with MCI and mild AD who at baseline will have been confirmed as biomarker-positive for AD (as determined through elevated blood pTau). As a reminder, MCI is an early stage of loss of memory or other cognitive ability that may develop into AD in some individuals, but not in others. The company expect the use of pTau as an entry criteria would select for patients with underlying AD who, in the absence of any treatment, are likely to have disease progression during the trial.

Recruitment is planned to start in H1 CY23 and Actinogen expects to report primary efficacy data in CY24.The XanaMIA Phase IIb study will use the CDR-SB scale as a primary endpoint, in addition to the Cogstate CTB attentional composite. As a reminder, CDR-SB is a validated endpoint that has been used as the basis for Aduhelm FDA approval and in lecanemab pivotal studies.

The Phase IIb portion of XanaMIA is designed to recruit 330 patients with MCI and AD, as confirmed through elevated pTau, across three arms (Xanamem 10mg daily, Xanamem 5mg daily, and placebo). Primary efficacy data are expected to be reported after 24 weeks of treatment (or placebo).

As it relates to study endpoints, CDR-SB has well-established validity and has been the basis for drug approvals in AD, whereas Cogstate has not been a component of regulatory approvals to date. However, the company has received significant guidance from various sources, including from the FDA itself, which suggests that the agency could consider this parameter and/or other endpoint combinations for a possible approval application provided there is adequate validity, ideally showing cognitive and functional improvements versus placebo (although this may not be a factor for Actinogen if it can demonstrate statistical significance in CDR-SB).

The number of people living with dementia worldwide is currently estimated at around 55 million, approximately 60–70% of whom have AD, including about 5.8m persons in the United States. Given the lack of a preventative or curative treatments, this number is set to almost double by 2030 and more than triple by 2050 (World Alzheimer Report 2021). Despite this unmet need, until Aduhelm (approved in 2021, discussed further below), the main available four drugs have been approved by the FDA for AD before 2003 (cholinesterase inhibitors: donepezil, rivastigmine, galantamine; and a NMDA receptor blocker, memantine). However, they provide only symptomatic benefit and do not affect the progression of the disease.

The FDA approved the first-ever disease-modifying drug Aduhelm in Q221 (anti-Aβ antibody, aducanumab, Biogen). The final data set supporting the approval was rather controversial (the EMERGE Phase III study reached a 0.39 effect size or 22% relative reduction on the CDR-SB scale at 78 weeks, but the ENGAGE Phase III trial did not meet the primary endpoint). Despite unmet medical need, the launch of this drug was challenging and after Medicare insurance reimbursement in the US was limited to the clinical trial setting only, the company slashed its commercial infrastructure towards the drug. In September 2022, Biogen and partner Eisai reported positive confirmatory Phase III data of its anti-amyloid beta (Aβ) protofibril antibody, lecanemab, for the treatment of MCI due to AD from the Clarity AD study, showing that lecanemab met the primary endpoint and reduced clinical decline on the CDR-SB cognitive and functional scale at 18 months by 27% (effect size of 0.45 points) versus placebo. Eisai had already filed for accelerated approval with the FDA and expects a decision in early 2023. Compared to aducanumab, lecanemab binds smaller Aβ protofibrils (75–5000kDa) more tightly than the larger fibril macromolecules targeted by the former.

Actinogen’s approach is differentiated from classic anti-Aβ antibodies and is focused mainly on cognitive enhancement (rather than disease modification) at this stage, which may result in shorter future trials. So, although there is no direct read-across from Aduhelm’s story from a technology perspective, we believe the controversial approval from the FDA is a strong indication that regulators are keen to make novel AD treatments available as quickly as possible.

Current treatment practice and AD market

Prior to Aduhelm, Memantine was the last branded therapy approved in 2004. AChEIs are standard first-line therapy and the only approved drugs, although patients with MCI are generally not prescribed these until the disease has progressed to mild or moderate AD. Memantine is approved for moderate to severe AD but is also used off-label in mild disease, usually added to ongoing therapy with AChEIs. Preferences for specific treatment options vary widely across geographies. In addition, the AD drugs have known side effects, especially gastrointestinal (GI)-related.

With regard to market size, currently the trend of ageing populations and the increasing prevalence of AD is mostly offset by the increasing use of lower-priced generics, as branded drug protection expires. However, due to a high unmet need and the vast patient population, any new, effective drug could disrupt the market. In our view, any new disease-modifying drug with uncontested efficacy and US Centers for Medicare & Medicaid Services (CMS) coverage could achieve peak sales well in excess of the current combined sales of all generic AD drugs. Even an effective new branded drug providing symptomatic relief, which adds benefit to the current SoC, could achieve blockbuster status or meaningful sales, as was the case with all four existing symptomatic AD drugs prior to generic competition.

Several Abeta antibodies remain in late-stage studies, but Xanamem is the only 11β-HSD1 inhibitor in clinical development for CI, to our knowledge. There have been many other drugs with different mechanisms of action in clinical trials at various stages targeting the three specific indications that Actinogen has chosen. Below we highlight some of the drug candidates in advanced development stages for the treatment of AD, including lecanemab discussed previously.

Successful development or approval of any of the above drugs could help fulfil much unmet need in AD, as none of the currently approved treatments (except Aduhelm, albeit with caveats described above) have shown disease-modifying properties. Theoretically, Xanamem could be used in combination with many of those therapies, for example with amyloid beta drugs or other cognitive enhancers that are in development. In particular, we note that the oral mode of administration for Xanamem and its favourable safety profile to date, could signal potentially wide commercial reach if approved and successful in XanaMIA Phase IIb and subsequent AD trials.

There have been many attempts in the past to develop ‘cognitive enhancers’, mostly neurotransmitter strategies aiming to replicate the results seen with donepezil etc, but no notable results have been achieved so far. There are multiple ongoing trials investigating potential cognitive enhancers in patients suffering from AD, and some studies have found that noradrenergic drugs can have benefits on global cognition and apathy in AD patients. Of note is guanfacine, a noradrenergic α2A agonist which is currently being studied in a Phase III trial (NorAD) to assess its effect (in addition to standard cholinergic treatment) on the improvement of CI (in particular attention span) in AD patients. Thus far it has not been shown to have statistically significant effects in AD patients, but the NorAD study is expected to be completed in Q422. In a Phase II trial octohydroaminoacridine, an acetylcholinesterase inhibitor, showed statistically significant improvements (p<0.01) in cognitive function in patients suffering from mild-to-moderate AD. It has since been investigated in a Phase III trial, although results are yet to be published.

Two11β-HSD1 inhibitors that did progress into Phase II trials in neurology were AbbVie’s ABT-384 and Astellas’s ASP3662. Astellas was developing its compound ASP3662 for AD (Phase I) in addition to neuropathic pain (Phase I), and painful diabetic peripheral neuropathy (Phase II). The Phase II study for painful diabetic peripheral neuropathy was terminated at the futility analysis for efficacy stage and there appears to be no further update. AbbVie’s ABT-384 did progress into a Phase II study for AD after reporting Phase I safety study results. The Phase II study was conducted in 267 patients with mild-to-moderate AD and results were published in Q414. The study was stopped after futility analysis for efficacy found no benefit from baseline to 12 weeks measured by ADAS-Cog. Webster et al (2017) discussed these results and concluded that ABT-384 had much lower BBB penetration than Xanamem (UE2343). Actinogen has also reported that Xanamem crosses the BBB and has high levels of target inhibition in the brain at doses of 5mg and above.

Announced in November 2021, Actinogen plans to advance Xanamem as a treatment for CI in patients with MDD. Having demonstrated the ability to improve cognition in XanaHES and XanaMIA (Phase Ib portion) in healthy adults, Actinogen is confident that the drug can exert similar cognitive improvement effects in MDD patients, and it will also explore whether the drug can have effects on depression as well.

MDD is a common disorder, with a c 5% prevalence globally and a one in seven lifetime risk (World Health Organisation, Depression; 2021). Its prevalence has grown substantially in the past decade, with the number of MDD diagnoses in adults in the US increasing from 13.7 million in 2005 to 17.5 million in 2018 (28% increase). The COVID-19 pandemic has further escalated global cases, with an estimated additional 53m global cases in the 12 months leading to January 2021. CI is a feature in most MDD patients and commonly persists even when depression symptoms subside. In a three-year study on 267 patients suffering from depression, CI occurred c 90% of the time during depressive episodes and c 40% of the time when depressive symptoms were in remission. Elevated cortisol levels have been associated with depression (Stetler and Miller, 2011) and modification of brain cell cortisol levels has been proposed as a strategy to treat both depression and its associated CI (Block et al, 2018).

The treatment of depression is very accessible with multiple drug classes available, including selective serotonin reuptake inhibitors (SSRIs), serotonin/norepinephrine reuptake inhibitors (SNRIs), atypical antidepressants, serotonin-dopamine activity modulators (SDAMs), tricyclic antidepressants, and others. With treatment, about 70–80% of affected individuals achieve a significant reduction in symptoms. However, a study investigating antidepressant discontinuation rates of 900 patients suffering from MDD found that almost 30% of patients stopped taking their medication within the first month, and almost half within three months.

There is one antidepressant, vortioxetine (Brintellix/Trintellix, Lundbeck/Takeda), with a cognitive benefit claim approved in Europe. Vortioxetine is an SSRI and serotonin receptor modulator antidepressant with a multitarget profile that has several pharmacological actions. To differentiate vortioxetine in what is otherwise a fairly crowded market of antidepressants, Lundbeck conducted a large study on 602 patients with recurrent MDD, which showed significantly improved objective and subjective cognitive function measures in patients with recurrent MDD, which occurred independently of the drug’s effect on depressive symptoms. The drug showed a significant improvement (p<0.001) in the number of correct responses on the DSST compared to placebo, as well as other significant (p<0.05) measures on RAVLT. However, in the US, the largest market for antidepressants, the drug does not have a cognitive benefit claim on its label, although the FDA label does refer to the study cited above and mention that ‘patients in the TRINTELLIX group had a statistically significantly greater improvement in number of correct responses on the DSST’.

The company plans to start XanaCIDD, a six-week proof-of-concept, placebo-controlled Phase II study in c 160 patients with persistent MDD and cognitive difficulties despite taking SoC antidepressant therapy. Xanamem 10mg daily or placebo will be added to enrolled patients’ existing antidepressant therapy, and changes in both cognition and depression will be assessed in the trial. Recruitment will begin in Q422 and top-line results are expected in late 2023 or early 2024. As stated earlier, given the benefits shown in healthy adults in XanaHES and the Phase Ib portion of XanaMIA, we believe it is plausible for cognitive benefits to be shown in patients with persistent MDD.

Exhibit 15 shows a selection of the top selling marketed treatments for MDD with their forecast 2028 sales. Most of these products have a mechanism of action that targets the serotonin (5-HT) transporter, which is distributed throughout the brain. It has been estimated that SSRIs make up c 80% of the antidepressant market.

Our view is that if the XanaCIDD study is successful in showing CI improvement, the company will then move to advance it into pivotal studies, likely starting in CY24. We expect two pivotal studies would be needed to gain market approval. Given that no US-approved antidepressant has a CI label, we believe there is a significant opportunity for Xanamem in this market if it can demonstrate CI in this population, even if the drug itself does not demonstrate much effect on depressive symptoms, given that we would expect it be taken on top of SoC antidepressant therapy.

The main sensitivities surround drug development and regulatory risks relating to lead drug candidate Xanamem. Although it has shown safety in Phase I/II trials and demonstrated therapeutic efficacy in terms of cognitive benefit in working memory and attention in healthy adults (XanaHES and XanaMIA Phase Ib portion) and clinical activity in XanADu (in AD patients with elevated pTau as determined in a recent analysis using newly available biomarker data), it remains to be seen whether this will translate into a clinical benefit in prospectively designed randomised trials in patients with CI related to early AD, or in MDD. For AD, in particular, despite cognitive improvement shown in healthy adults, the complex pathology of AD and degenerative nature of the condition could potentially outweigh or confound any therapeutic benefit from cortisol inhibition resulting from the drug.

While the initial results from the Phase II XanADu study in patients with AD did not meet the primary endpoints, a recent analysis showed that the subset of patients with biomarker-positive AD (as determined through elevated pTau) demonstrated encouraging clinical activity that appears to be quantitatively superior to what has been shown with FDA-approved Aduhelm in its EMERGE Phase III pivotal study and lecanemab in its Clarity AD study. However, we add a caveat about the relatively small sample size and note the limitations in using findings determined using retrospective clinical data as a basis for forecasting future clinical outcomes. The upcoming Phase IIb portion of the XanaMIA study will study a longer-duration treatment period (six months versus 12 weeks) and will study patients with biomarker-positive AD (as determined through elevated pTau at baseline).

Actinogen also faces significant financing risks as it will require substantial further capital to advance its programmes in the absence of a co-development or licensing deal. We expect the burn rate to increase substantially starting in CY24 should any or both of the two CI programmes advance to pivotal studies. We expect that each of the programmes would require two separate Phase III studies in their respective indications, prior to a possible FDA regulatory approval filing. While the Phase IIb portion of XanaMIA may potentially qualify as one of the pivotal studies required for approval in early AD, our base case forecasts assume that two additional AD studies will be required for approval (although we may revisit our forecasts once the Phase IIb study is completed and/or further information on the AD development plan becomes available). While our model accounts for financing(s) as long-term illustrative debt, the company may need to issue equity instead, at pricing that may not be favourable for current shareholders and could lead to significant dilution. Difficulties or challenges in obtaining funds could affect the timing or progression of Actinogen’s programmes. If Actinogen’s expenditures are higher than forecast and/or if revenue is below our expectations, it many need to raise further capital beyond our current expectations.

We value Actinogen at A$651m or A$0.36 per share, based on a rNPV analysis, which includes A$16.5m in net cash at the end of June 2022 (no debt, Actinogen raised net A$12.4m in December 2021). The breakdown of our rNPV valuation, which uses a discount rate of 12.5%, is shown below. Our valuation only includes Xanamem in the two lead indications. We use a PoS of 10.0% for Xanamem to reach the market in the AD project and 12.5% in the MDD project. Our PoS for AD is in the lower range of historical sector averages for Phase II stage level drug candidates in neurological disorders, as we believe a minor discount for AD is warranted given that this is a highly challenging condition (with many historical drug development failures) to treat due to its complex pathophysiology, with very few product approvals in recent years as discussed above.

We view the biomarker-differentiated XanADu results as highly encouraging in that they demonstrate the potential for meaningful Xanamem clinical activity in biomarker-confirmed AD patients. However, we add the caveat that the XanADu biomarker analysis sample size is relatively small (n=34 among the elevated pTau group) and recognize that there may be limitations in forecasting future trial outcomes based on study analyses using retrospective clinical data, as reflected in our PoS assumption. Our current model does not assume that Xanamem would demonstrate any specific disease-modifying effects as we view its usage primarily for improving cognition in the early to mid-stage AD population (rather than decelerating disease progression), and this assumption is reflected in our US gross pricing assumption at launch of US$7,500 per year (we believe a disease-modifying therapy could command a much stronger price), and we assume an average c 30% discount to this price for EU5 and Australia. Our model assumes two Phase III trials will commence in H125 (H2 CY24), which could lead to FDA approval and launch in H2 CY27. Our 2034 US sales estimate of US$2.6bn assumes a 5% market share within the US AD population, which is currently estimated at 5.8 million persons.

For CI related to MDD, our slightly higher PoS of 12.5% for reflects the fact that Xanamem has already shown cognitive benefit in the XanaHES and XanaMIA (Phase Ib portion) studies in the healthy adult population, and that the MDD population is much less likely to have any cognitive benefits from drug (Xanamem) to be confounded by an underlying progressive neurodegenerative disease (as in AD). However, we view the peak sales potential for CI in MDD to be lower than in AD patients, given that MDD patients are less likely to experience the severe progressive neurological decline that impairs autonomy and basic function, as AD patients. We assume similar pricing for the MDD indication as in AD, and while the current US prevalence of MDD is c 21m individuals, we assume the target treatment population as being much smaller (c 5 million), as we assume only 80% of MDD patients have cognitive effects, and that only 30% of these would consider seeking treatment. Within this group we assume a peak US market share of 7.5%, and that the average treated patient will take the drug for three months during the year, resulting in peak US FY34 sales of US$860m in the indication. We model generic erosion in both indications starting in FY37.

As of 30 June 2022, the company had a cash position of A$16.4m, and reported a A$3.6m note corresponding to an annual R&D tax rebate which it expects to receive as payment from the Australian government before end-CY22. Actinogen had reported a FY22 net cash burn rate of A$9.5m, up from A$1.7m in FY21, primarily due to costs relating to the XanaMIA clinical trial. We forecast an FY23 cash burn rate of A$9.5m, with costs likely to be higher in H223 as the company will by then start enrolment for both the Phase IIb portion of the XanaMIA study, and the XanaCIDD MDD study. We expect the burn rate to ramp up significantly to A$39m in FY24 to fund the completion of both studies and as the company could then start registration-enabling pivotal studies. We model the company will raise A$20m in FY23 and A$40m in FY24. In total, we forecast A$390m in additional financings will be required before FY29 to fund the development of both programmes, and after which, provided it receives regulatory approval, the company should be able to generate sufficient operating revenues to reach recurring profitability. We forecast potential approval in both indications (CI related to AD and MDD) in H2 CY27 (or H128). As per Edison’s usual policy, fundraising requirements are modelled as illustrative debt.