Actinogen Medical — Getting ready for the next Alzheimer’s study

Actinogen’s H123 update confirmed that the company is on track to start US recruitment in Q2 CY23 for the six-month, placebo-controlled Phase IIb portion of the XanaMIA study. This study will assess the company’s lead drug candidate Xanamem in patients with biomarker-positive AD, as determined through an elevated level of pTau-181 (phosphorylated Tau-181) protein in the blood. The company has completed initial development of a new tablet formulation that will be more convenient for patients to use, and Actinogen expects this formulation to be ready to be used in the Part IIb portion of XanaMIA and all subsequent Xanamem trials. Actinogen in December 2022 announced that the first patient was randomised and treated in its XanaCIDD Phase II study in MDD, assessing the effects of Xanamem (using the original drug formulation) on cognitive performance and depression.

The Phase IIb portion of XanaMIA is designed to assess the safety and efficacy of Xanamem in a population of patients with mild CI and/or mild AD, who at baseline will have been confirmed as biomarker-positive for progressive disease, as determined through the presence of an elevated level of pTau-181 protein in the blood. This study is designed to enrol 330 patients with mild AD and progressive disease. Patients will be randomised to treatment with 5mg, 10mg or placebo once a day, over a six-month period. The study’s key efficacy endpoints will be the FDA-recognised Clinical Dementia Rating – Sum of Boxes (CDR-SB) scale and the Cogstate computerised test battery of attention and working memory. In Q422, the company received the necessary approvals from the FDA to proceed with US enrolment for the Phase IIb portion of XanaMIA.

The premise behind the planned Phase IIb portion of XanaMIA was discussed in our initiation report. While the initial results reported in 2019 from the earlier 185-patient XanADu study in patients with suspected AD did not meet the primary endpoint (when all per-protocol patients were included), the company subsequently explored the effect and dynamics of blood 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 diagnosis was not confirmed by any biomarkers. In October 2022, the company reported positive biomarker data whereby a subset of patients from the XanADu study with elevated pTau (a recognised AD diagnostic biomarker) at baseline taking Xanamem demonstrated clinical activity and a relatively large effect size at 12 weeks using the CDR-SB scale.

Patients with pTau at or above 6.74pg/mL, 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.

This difference in CDR-SB versus placebo exceeded the level of CDR-SB improvements shown for Aduhelm in its EMERGE study and for Leqembi as shown in the Clarity AD study (both at 78 weeks). We note that the XanADu biomarker analysis sample size is relatively small and recognise 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. The objective of the Phase IIb portion of XanaMIA is to confirm whether Xanamem can reproduce a similar treatment effect in a prospectively designed study that enrols patients with elevated pTau (such as the Phase IIb portion of XanaMIA).

Top-line results from the Phase IIb portion of XanaMIA, which we anticipate in late CY24 or in H1 CY25, could, if positive, introduce the possibility of material out-licensing or value realisation opportunities, in our view. Given that AD pivotal trials are reported to cost more per patient than studies in nearly any other therapeutic area, we believe the company will likely explore partnerships or non-dilutive funding strategies if the data are positive, given the high amount of funding likely to be needed to fund AD registration studies through to completion. We expect the AD programme would require two separate Phase III studies 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 assumptions once the Phase IIb study is completed and/or further information on the AD development plan becomes available).

The AD market remains substantial, in our view, and the recent FDA accelerated approval of Biogen/Eisai’s Leqembi may raise investor awareness of the sector. We note that the Centers for Medicare & Medicaid Services (CMS) has decided against expanding reimbursement coverage for the drug until it can obtain an approval through the traditional FDA pathway, which could occur in July 2023 given the PDUFA date for Eisai’s supplemental Biologics License Application (sBLA) seeking traditional approval for the drug. The US Veterans Health Administration recently announced it will provide coverage for Leqembi. Nonetheless, potential advantages of Xanamem are its oral mode of administration and its favourable safety record thus far, as shown in multiple Phase I and II studies to date.

The XanaCIDD study started in late 2022 and aims to enrol about 160 patients across Australia and the UK who have persistent depressive symptoms and CI despite taking standard-of-care anti-depression therapy. Having demonstrated the ability to improve cognition in two trials (XanaHES and the Phase Ib portion of XanaMIA) in healthy adults, Actinogen is confident that Xanamem can exert similar cognitive improvement effects in MDD patients; this study will also explore whether the drug can have effects on depression as well.

Xanamem 10mg daily or placebo will be added to patients’ existing anti-depressant therapy and effects on cognition (using the Cogstate Cognitive Test Battery) and depression (using the Montgomery Asberg Depression Rating Scale) will be evaluated.

MDD is a common disorder, with a c 5% prevalence globally. CI is a feature in most MDD patients and commonly persists even when depression symptoms subside. Elevated cortisol levels have been associated with depression and modification of brain cell cortisol levels has been proposed as a strategy to treat both depression and its associated CI. As Xanamem targets excess brain cortisol, and 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. If the XanaCIDD study is successful in showing CI improvement, the company may then move to advance it into pivotal studies. 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 an improvement in CI in this population. Study results are expected in late CY23 or early CY24.

The company recently appointed Dr Dana Hilt as its chief medical officer (CMO). Dr Hilt is based in the United States and has over 25 years of drug development experience, largely focused on treatments targeting central nervous system diseases, notably including AD. Actinogen also recently appointed US-based Dr Nicki Vasquez as an independent non-executive director. Dr Vasquez, currently chief portfolio strategy & alliance officer at Sutro Biopharma, is an immunologist and biopharmaceutical executive with over 25 years of drug discovery research and development experience. Previously, Dr Vasquez was vice president of program & portfolio management at StemCells, where she established project management functions for research and clinical stage programs in indications including AD. We view the appointment of US-based executives as supportive of the company’s planned entrance in H1 CY23 into US clinical AD drug development and US study sites through the XanaMIA Phase IIb study.

Actinogen reported an H123 operating cash burn rate of A$2.8m, which was dampened by the company’s receipt in October 2022 of an A$4.2m R&D tax rebate, leading the company to finish CY22 with a cash balance of A$14.5m. After adjusting for the R&D tax rebate, the company’s H123 operating cash outflows trended mildly above our prior forecast for A$8.4m in net FY23 operating cash outflow. Following the H123 results, we have adjusted our forex assumptions (to A$0.66/US$ vs A$0.69/US$ previously) and also mildly increased our FY23 R&D and G&A cost assumptions, while modestly reducing FY24e R&D expenses to reflect the pushing back of a portion of future AD study costs into FY25. Altogether, we now model FY23e and FY24e free cash outflow rates of A$9.6m and A$38.4m, versus our prior assumptions of A$9.5m and A$39.4m, respectively. We expect the burn rate to ramp up significantly in FY24 to fund the bulk of the XanaMIA Phase IIb portion and XanaCIDD study costs.

Our valuation continues to be based on a risk adjusted NPV analysis, which includes A$14.5m in net cash at the end of December 2022. 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 10.0% for Xanamem to reach the market in the AD project and 12.5% in the MDD project. We note the company has expressed potential interest in expanding Xanamem development to CI related to schizophrenia and/or bipolar disorders, which may offer upside potential, but we will await the commencement of clinical studies in such programmes prior to including such initiatives in our valuation.

Our local-currency sales forecasts and timing estimates are unchanged from our initiation report, but we have rolled forward our estimates and updated our forex assumptions to reflect a stronger US dollar versus the Australian dollar. The effect of these changes, notably the increased strength of the US dollar, increases our total equity valuation to A$702m (vs A$651m previously), or A$0.39 per share (vs A$0.36 previously). Our valuation is sensitive to the A$/US$ exchange rates, given that the majority of our expected future potential revenue for Xanamem will come from the US market. Had the forex rate been unchanged (compared to our initiation note) at A$0.69/US$, our valuation would now be A$670m, or A$0.37 per share. Hence, every 1 cent change in the A$/US$ exchange rate would result in a c A$10.5m change in our equity valuation, or about c A$0.0058 per share, with a strengthening US dollar causing appreciation in our Actinogen valuation, and a weakening US dollar doing the reverse.

While the company’s share price has decreased c 40% since our initiation report on 18 October 2022, there have been no fundamental adverse developments affecting Xanamem’s commercial prospects or potential market launch timing, in our view. If fact, we view the FDA acceptance in December 2022 of the company’s request to enrol US patients the Phase IIb portion of XanaMIA as a positive event. Altogether, we believe recent market performance is primarily due to macroeconomic factors and increased investor caution in an environment of rising interest rates amid general concerns of an economic recession. We estimate this level of risk-aversion is affecting development-stage biopharmaceutical companies, and particularly those expected to require additional capital within approximately 12–18 months given market expectations of challenges associated with raising funds in the current environment.

We estimate the company’s funds on hand will last into Q4 CY23 (Q224). We continue to model the company will raise A$20m in FY23 (now H223) and A$40m in FY24. In total, we forecast A$410m in additional financings (up from A$390m previously) will be required before FY29 to fund the development of both the CI-MDD and AD programmes, after which, provided it receives regulatory approval, the company should be able to generate sufficient operating revenues to reach recurring profitability. Our model assumes all financings will be raised through illustrative debt, as per usual Edison methodology. If our projected funding need of A$410m is raised through equity issuances at the prevailing market price of c A$0.07, our effective value per share would decrease to A$0.14 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, although we note that the funding intervals may be staggered over the next several years, which may alleviate potential challenges associated with raising amounts of funds in excess of a company’s market capitalisation. We also believe the company will be seeking non-dilutive funding arrangements and/or partnership arrangements (actions towards the latter would likely particularly increase after the XanaMIA Phase IIb portion is completed), which may reduce the overall funding need, but such scenarios are not included in our forecasts.