Actinogen Medical — Funding in place to complete XanaMIA Phase IIb

Actinogen announced a capital increase of up to A$11.1m on 18 September, consisting of the successful completion of an A$8.1m (gross) share placement to existing shareholders and new institutional investors, along with a A$3.0m SPP offer to existing shareholders at the same financial terms as the placement. The share placement includes the subscription for A$1m by Actinogen’s CEO, Dr Steven Gourlay, as well as the subscription of A$0.13m from other directors of the company. The participation by the company’s CEO can be perceived as a vote of confidence in the prospects of the company and its lead pipeline molecule, Xanamem.

The placement calls for the issuance of 270m new shares at A$0.03 per share, reflecting an 18% discount to the five-day volume-weighted average price prior to the announcement of A$0.0375 per share. Under the SPP, existing and eligible Actinogen shareholders will receive share purchase rights to purchase one new common share at a similar purchase price of A$0.03 per share, resulting in the issuance of up to 100m new shares (A$3.0m). In total, the combination of the placement and the SPP, if fully subscribed, would lead to the issuance of 370m new shares, or A$11.1m (before issuance costs), resulting in a 13.6% increase in shares outstanding (to 3.08bn), excluding considerations for the attached 36-month share purchase options to be issued as part of this financing. In effect, for both the placement and the SPP, subscribers would receive three new 36-month share purchase options for every four new shares issued, at an exercise price of A$0.05 per share. Hence, up to a maximum of 277.5m share purchase options would be issued as part of this financing and their exercise in full would generate an additional A$13.9m in gross proceeds for Actinogen.

The closing date of the SPP offer is 8 October. We note that 232.5m shares (c 86%) of the now-completed share placement have listed on the Australian Securities Exchange, with the remaining c 37.7m (c A$1.13m) allotted to Actinogen’s CEO and certain directors requiring shareholder approval at an upcoming extraordinary general meeting (EGM) prior to final issuance. Given that Actinogen shares are currently trading below the SPP issue price of A$0.03 per share, our model does not assume that the A$3m SPP will be subscribed, but it does assume the full allotment (A$8.1m and 270m shares) under the placement in H125 (H2 CY24).

The proceeds are primarily being directed towards advancement of the ongoing 36-week XanaMIA Phase IIb/III study assessing Xanamem in patients with biomarker-positive AD (as determined through elevated levels of p-Tau 181 biomarker at baseline). Actinogen estimates that c A$9.5m will be directed towards additional site and patient costs, supporting full enrolment for the trial. Furthermore, c A$1.0m will be directed towards increased quality-related activities (including more site and vendor audits) and additional data management and data monitoring committee and statistical costs. Notably, Actinogen expects these added data management and quality-related activities to enable the trial to meet the statistical and quality standards required to achieve ‘pivotal’ status with US regulators (the FDA), thus permitting the study potentially to serve as one of the two anticipated trials required for marketing approval in the US (and other regions, such as Europe) for the treatment of AD. As a result, Actinogen now refers to this trial as a Phase IIb/III study, whereas it was previously termed a Phase IIb study. The remaining c A$0.6m from the financing will be directed towards offer costs.

This Phase IIb/III study is designed to enrol c 220 patients with biomarker-positive mild-to-moderate AD, as confirmed through an elevated level of phosphorylated Tau-181 (pTau-181) protein in their blood at baseline. Study patients are being randomised to take Xanamem 10mg or placebo once daily for 36 weeks.

The XanaMIA Phase IIb/III study will enrol subjects from the US and Australia, and we assume that close to 50% of the subjects will be from US study sites. Actinogen aims to perform an interim study analysis on the first c 100 subjects. Initial efficacy and safety results will be analysed when these patients reach 24 weeks of treatment, and the company expects to report these results in mid-CY25. Actinogen expects to report final results in mid-CY26 (our model continues to assume these results will be reported in CY26).

The company has also modified the XanaMIA Phase IIb study analysis design so that the FDA-recognised Clinical Dementia Rating – Sum of Boxes (CDR-SB), a comprehensive scale of functional capacities, is now the primary endpoint, versus the proprietary global cognitive test battery proposed previously. We note that the CDR-SB scale was used as the primary endpoint to support lecanemab’s FDA approval in AD, and that a subset analysis reported in Q422 among patients with elevated p-Tau 181 biomarker at baseline from Actinogen’s XanADu AD study showed statistically significant improvements versus placebo on the CDR-SB scale.

The design of the XanaMIA Phase IIb/III study is informed by a subset analysis, discussed above, in 34 patients with elevated pTau-181 blood levels from the previous 185-patient XanADu trial in mild AD. This subset of patients (16 on Xanamem 10mg daily, 18 on placebo) with biomarker-positive AD (pTau of at least 6.74pg/mL) showed clinical activity and a relatively large effect size at 12 weeks on the CDR-SB scale.

Prior to the announced financing, Actinogen had reported that its funds on hand were sufficient to maintain operations into H2 CY25, or past the interim results for XanaMIA (expected after the first c 100 patients recruited into the trial reach 24 weeks of treatment). Provided it completes the full (A$11.1m) funding, including the SPP, the company expects it would have sufficient liquidity and cash resources to reach the study’s primary endpoint readout (on all c 220 planned subjects), which it continues to guide for mid-CY26. Notably, as Actinogen’s prior runway was to the interim XanaMIA readout (on c 100 patients), there was previously the possibility of an undesired pause during study enrolment (ie to complete recruitment of the full c 220 patients) to secure the funding needed to continue the study. The completion of the placement and the SPP would therefore eliminate the possibility of funding-related delays to recruitment.

We assume that Actinogen’s latest funding runway guidance excludes the financing requirements of any potential future additional Xanamem clinical trials, such as for the depression indication following the XanaCIDD study results described in our previous note, and the possibility of starting an additional Phase III AD study in late CY25 or H1 CY26 (as suggested in a recent corporate presentation).

Hence, if Actinogen starts a Phase IIb study in depression, which could be in H2 CY25 as per current guidance, or an additional AD study, the company may need to raise additional funds to maintain its mid-CY26 cash runway. As a reminder, Actinogen is assessing the path towards potentially starting a Phase IIb study in major depressive disorder (MDD), which it expects to serve as one of the two pivotal studies required for registration, in H2 of CY25. We expect this Phase IIb MDD study to include US study sites.

We believe Actinogen would seek partnerships or other forms of non-dilutive funding for this next MDD study, although it is also possible the company could seek to fund this programme internally (contingent on a subsequent financing initiative). We currently model that the company’s Phase IIb study in MDD will start in H2 CY25 and a larger Phase III study in MDD will start in CY26 (consistent with our prior estimates). We continue to assume that Actinogen obtains market approval in MDD in CY28, and in AD in CY29.

As Actinogen now expects the XanaMIA Phase IIb/III study to potentially serve as one of the two ‘pivotal’ studies to enable market registration, we are modestly adjusting our general framework for the steps required for registration, although our overall timeline for potential US market approval (CY29) remains unchanged.

Previously, we assumed that if the XanaMIA results were positive, the company would conduct two additional Phase III studies prior to obtaining regulatory approval. Given that XanaMIA may serve as one of the two studies supporting registration, we now assume that only one additional trial (beyond XanaMIA) would be required for potential approval, in line with company guidance. However, we note that it is the overall size (in terms of numbers of patients enrolled) in a registration-enabling trial (or trials) that is more pertinent, rather than the actual number of Phase III trials undertaken, when considering the approval pathway in a chronic neurodegenerative condition such as AD.

Hence, our potential timeline to regulatory approval (CY29) remains unchanged and we have only modestly reduced our total Xanamem AD programme R&D expenditure forecasts, given that we believe the size of the subsequent (post-XanaMIA) single Phase III Xanamem study would need to be significantly larger than XanaMIA (which has an enrolment target of c 220) to support a regulatory approval application in AD without further clinical trials. We arrive at this conclusion based on the recent FDA approval history of donanemab and lecanemab:

If XanaMIA Phase IIb/III results are positive, which would unequivocally be a substantial positive catalyst that could unlock material value-enhancing partnerships and/or licensing-type transactions for Actinogen, we would still estimate that an additional 500–1,500 patients would need to be treated in a Phase III programme to support a US regulatory approval application.

Actinogen’s FY24 results (for the year ending 30 June 2024) are generally in line with the financials reported in its prior 4C quarterly update (for the three months ending 30 June 2024). The company reported an FY24 net operating cash burn rate of A$16.95m (+95% y-o-y), driven by increased R&D expenditure (A$15.54m, up 75% y-o-y), higher costs for the XanaCIDD study (which ended in early Q125) and the preparation and start of the XanaMIA Phase IIb/III study. The reported loss was A$13.0m (up from A$10.8m in FY23). The company ended the fiscal year with A$9.45m in net cash.

As stated above, our financial model now includes an assumption for the full exercise of the A$8.1m placement in H125 (H2 CY24), but we do not include potential proceeds from the SPP at this time. We will revisit our assumptions following the completion of the SPP, if applicable.

We now model that Actinogen’s funds on hand (A$17.0m pro forma as at 30 June 2024 including the September 2024 placement and offer costs), along with anticipated R&D tax credit proceeds (c A$9m proceeds expected in or around November CY24), should be sufficient to fund Actinogen’s operations into H1 CY26 (H226). The c A$9m in proceeds that we expect Actinogen to receive from the Australian government in late CY24 correspond to the R&D tax credits the company booked as revenue in FY24 and consist of the bulk of the accounts receivable reported on the company’s FY24 balance sheet.

Our funding projections assume, as stated previously, that in addition to the ongoing XanaMIA study, Actinogen will commence a Phase IIb study in MDD in H2 CY25 and that a larger Phase III trial in MDD will start in CY26.

Given that we now assume Actinogen will only need to pursue a single additional Phase III study in AD (albeit still significantly larger than XanaMIA), we have reduced our AD R&D programme spending requirements. After also considering the completion of the September 2024 share placement, we now assume the total projected future funding needed to launch Xanamem in AD and MDD and obtain recurring operating profitability will be A$285m (vs A$360m previously).

Below is a summary of the adjustments to our FY25 forecasts and the introduction of our FY26 estimates. Note, we expect FY26 R&D expenditure to rise sharply from FY25, as we anticipate the company will ramp up activities for the conclusion of the XanaMIA Phase IIb/III study and for the running the upcoming MDD Phase IIb study (compared to running a single clinical trial, XanaMIA, in FY25).

We continue to project that the company will receive R&D research tax credits (which correspond to up to 48.5% of R&D and related costs incurred in the prior fiscal year) from the Australian government.

We continue to forecast a potential launch timeline for Xanamem in patients with AD in CY29 and assume commercialisation of the drug for patients with MDD in CY28. Our base-case projection assumes that Actinogen will independently fund all studies needed for regulatory approval in these indications.

Our valuation is based on a risk-adjusted net present value (rNPV) analysis, which includes A$17.0m in pro forma net cash at end-June 2024 (and inclusive of the A$8.1m September 2024 placement net of offering costs). We apply a discount rate of 12.5% and include Xanamem in the two lead indications. We continue to use a probability of success of 10% for Xanamem to reach the market in the AD indication and 12.5% in the MDD indication. We have rolled forward our estimates by one quarter and have adjusted our forex estimates to US$0.68/A$ (vs US$0.67/A$ previously) and now obtain a total equity valuation of A$616.8m (vs A$602.9m previously), or A$0.21 per share (vs A$0.22 per share previously). Our total valuation has increased mildly due to the reduction in the anticipated total R&D costs required for the AD programme, offset slightly by the translation effects of a stronger Australian dollar. The per-share valuation has decreased as we have adjusted the share count in our valuation to reflect the effects of the placement.

In terms of upcoming catalysts and milestones for Actinogen, we believe that further analysis of the XanaCIDD study data and developments for the next Phase IIb study in MDD (including regulatory feedback and/or developments on funding for this study) could provoke investor interest over the next six to 12 months.

The largest potential catalyst, which we expect market participants will be keen to observe, is the interim analysis (mid-CY25) of the Phase IIb XanaMIA study, which prospectively enrols patients with elevated pTau-181. Investors will be looking to see whether these data confirm the positive efficacy findings shown in the XanADu subset biomarker analysis. Given the widespread economic and social costs of AD and the limitations of current approved treatments, we anticipate positive Phase IIb data, even at the interim readout (in mid-CY25), could introduce the possibility of material out-licensing or value realisation opportunities.

As stated earlier, we forecast A$285m in additional financing will be required before FY29 to fund Actinogen’s activities and the development of both the MDD and AD programmes, after which, provided it receives regulatory approval, Actinogen should be able to generate sufficient operating revenues to reach recurring profitability. Our model assumes all financing will be raised through illustrative debt, as per the usual Edison methodology. If our projected funding need of A$285m is raised through equity issuances at the prevailing market price of c A$0.028, our effective valuation would decrease to c A$0.063 per share.

The amount of fund-raising estimated to be necessary for Actinogen to independently bring Xanamem to commercialisation in these indications is larger than the company’s current market capitalisation. However, we note that the funding intervals may be staggered over the next several years, which may alleviate potential challenges associated with raising funds in excess of a company’s market capitalisation. We also believe Actinogen will seek non-dilutive funding arrangements and/or partnership arrangements, which may reduce the overall funding need, but such scenarios are not included in our forecasts. Hence, while our base case modelling scenario assumes internal Xanamem development for the AD and MDD programmes, if the company is successful in securing a licensing deal (or deals) for Xanamem with an established biopharma company (or companies), our R&D expenditure requirements for Actinogen and, consequently, our overall funding need projections would likely be significantly reduced.

Considering that AD pivotal trials are reported to cost more per patient than studies in nearly any other therapeutic area, we believe Actinogen will likely accelerate efforts to attain partnerships or non-dilutive funding strategies if the XanaCIDD data (expected in early Q3 CY24) or interim XanaMIA Phase IIb data (expected in mid-CY25) are supportive.