Suda Pharmaceuticals — Improving delivery of existing drug products

SUDA Pharmaceuticals is an Australia-headquartered healthcare company formed in 1999 that has historically focused on its innovative drug delivery platform (OroMist). Its lead commercial product on the drug delivery side is ZolpiMist, an oro-mucosal spray version of Ambien for the treatment of insomnia that is partnered in certain regions with Teva and Mitsubishi Tanabe. It is also developing formulations of anagrelide for the treatment of solid tumours in patients who have elevated platelet levels, sumatriptan for the treatment of migraine (partnered with Strides Pharma Global for the US market) and cannabinoids for various indications. Additionally, there are projects on undisclosed targets being funded by Sanofi and Ordesa.

We are initiating coverage of SUDA Pharmaceuticals at A$18m or A$0.13 per basic share (A$0.09 per diluted share) using a risk-adjusted NPV model focusing strictly on the ZolpiMist programme. We attribute a 70% chance of success to ZolpiMist as it has already been approved in the United States (though not yet in the SUDA territories) by the FDA, one of the most stringent regulators in the world. Additionally, we are modelling peak sales across all currently licensed territories conservatively at US$11.7m (A$19.5m). We are not yet including SUDA’s other programmes as they are still being formulated, but will include them once they advance.

SUDA reported A$1.5m in net cash on its balance sheet at the end of March 2020. Historically the company has had a relatively low burn rate in terms of operating cash flow of about A$2.5m in both FY18 and FY19. However, as programmes such as anagrelide advance we expect the burn rate to increase. We estimate a need to raise A$10m in FY21 (A$22.5m total over the next three years) to fund operations based on the current business plan. The company is currently conducting a A$3.6m entitlement offer and is expecting to announce the results of the offer on 27 July 2020.

Given the current market capitalisation, share issuance over the next few years may be multiples of the current shares outstanding in order to fund SUDA’s programmes (shares outstanding will double if the current entitlement offer is fully subscribed). However, some of this could be mitigated by future business development deals. Additionally, ZolpiMist will be launched into a very competitive and genericised insomnia market with little pricing power, hence we only project ZolpiMist peak sales of A$19.5m in the regions with existing partnership arrangements. Also a number of pipeline programmes are still in the formulation stages, including anagrelide and sumatriptan (though none of these are included in our valuation) and there is no guarantee that a formulation will be developed that has an attractive profile in competitive genericised markets. For anagrelide, the company has stated that early animal results indicated that it had a formulation that increased bioavailability and decreased exposure to the cardio stimulatory metabolite. We await full results and it is currently unclear how clinically meaningful that reduced exposure would be. Sumatriptan has a variety of oral, injectable, needle-free, patch and intranasal formulations for patients to choose from and it may be difficult to achieve the target profile of a fast onset of action (as observed with the injectables) but with the convenience of an oro-mucosal spray.

SUDA Pharmaceuticals has historically been a drug delivery company focusing on reformulating established drugs into oro-mucosal spray (via its OroMist platform) formulations for better bioavailability. Its lead commercial-stage product is ZolpiMist, an oro-mucosal spray version of Ambien for the treatment of insomnia that it has partnered in certain regions with Teva and Mitsubishi Tanabe (SUDA obtained the rights outside of North America). It is also working on a number of other projects using OroMist including anagrelide (for the treatment of high platelet counts in cancer patients), sumatriptan (migraine), cannabinoids and others.

ZolpiMist is the oro-mucosal spray version of the blockbuster insomnia drug Ambien (zolpidem tartrate), which has 30m prescriptions written for it in the United States annually. Approximately 2.5m prescriptions are written for novel formulations, such as controlled release and sublingual tablets. SUDA has the rights to ZolpiMist in all regions outside of the United States and Canada, while Aytu BioScience has the rights to both countries and receives a portion of the royalties/milestones received by SUDA (SUDA originally obtained the rights outside of the Americas and South Africa from Amherst Pharmaceuticals in January 2015 and signed a new agreement with Aytu in March 2019, obtaining full rights outside of North America).

The main benefit of ZolpiMist is the fast onset of action. Therapeutic levels were reached within 15 minutes following administration of the 10mg dose of ZolpiMist in 79% of patients compared to only 26% with the tablet version.1

ZolpiMist has been approved in the United States since 2008 (by the original developer, NovaDel) though sales have been limited (Aytu does not disclose ZolpiMist sales but it had four products on the market in 2019 and product sales for all of them totalled US$7.3m) partially due to the high price (US$798 retail for a 30-day supply package, or US$26.60 per day vs under US$20 for a 30-day supply of the generic oral tablet) and focus of marketing on high-end business travellers.

SUDA has licensed ZolpiMist to Teva for Mexico, Chile and Brazil, and to two separate divisions of Mitsubishi Tanabe for Singapore, Malaysia, the Philippines and Korea. While the upfront payments have been small, the royalty rates are all double digits and SUDA will also receive a handling fee. Additionally, SUDA submitted a marketing authorisation application (MAA) to the Therapeutic Goods Administration (TGA) for ZolpiMist in Australia. The review is currently expected to be completed in the fourth quarter of calendar 2020. The company has stated that it is in discussion for licensing deals for additional territories, in line with the strategy of commercialising the product globally. European deals are possible, but no licensing deals have been announced yet for any European countries.

According to the American Academy of Sleep Medicine, 30% of adults experience symptoms of insomnia and about 10% have insomnia that is severe enough to cause daytime consequences. There is no reliable international incidence data for insomnia, but based on the fact that SUDA has licensed ZolpiMist in countries with total populations of around 550 million people, the addressable market is likely quite large. And while expected pricing has not been disclosed, we believe average pricing will likely be closer to US$30 per month, making it more competitive and reasonably priced than in the US.

We are modelling peak sales across all currently licensed territories conservatively at US$11.7m (A$19.5m) but with a high probability of success (70%) as ZolpiMist has already been approved by the US FDA, which is one of the most stringent regulators in the world. Please note that we are not modelling any milestone payments or additional countries, so there is upside to our valuation as milestones are collected and additional partners are signed.

SUDA is also developing an oro-mucosal spray formulation of anagrelide for the treatment of solid tumours in patients who have elevated platelet levels. Anagrelide is currently used as an anti-thrombotic agent to reduce elevated levels of platelets in essential thrombocythemia (a rare chronic blood cancer where the bone marrow produces too many platelets). The oral version of the drug was developed by Shire and received FDA approval in essential thrombocythemia in 1997 under the brand name Agrylin. While Anagrelide is effective (see Exhibit 3) it is known to have cardiotoxicity, which has limited its uptake. In clinical trials, 26% of patients reported heart palpitations, 8% reported tachycardia and 8% reported chest pain (though in the real-world setting post approval, palpitations were as high as 70% in some studies2).

Due to these cardiotoxicity issues, Agrylin only had sales of US$153m in 2004, the year before the drug went generic. SUDA believes that an oro-mucosal spray version could minimise these issues by reducing first-pass generation of a highly potent cardio-excitatory metabolite of the drug in the liver, 3-hydroxy anagrelide. The effect of anagrelide in reducing platelet counts has been clearly demonstrated. Given the active role that platelets play in the proliferation and protection of cancer cells, anagrelide could play a key role in the treatment of a number of different solid tumours. Furthermore, with an improved pharmacokinetic profile, an oral spray version of anagrelide may also improve its use for the treatment of essential thrombocythemia, for which it was originally approved. Platelets can assist in the spread of cancer by supporting cancer stem cells, sustaining proliferative signals, resisting cell death, metastasis, evading immune detection and inducing angiogenesis.3

A large portion of cancer patients suffer from high platelet counts, which data indicate is a negative prognostic factor (see Exhibit 4). In a study in ovarian cancer patients, the 31% with high platelet counts were significantly more likely to have advanced disease, and vascular thromboembolic complications, than patients with normal platelets. Hence, their median overall survival was two years shorter (2.62 years vs 5.65 years) than those with normal platelets.4 In another study of patients with pancreatic cancer, the 18% with high platelet counts had significantly shorter median overall survival (10.2 months vs 19 months) and shorter progression-free survival (7.8 months vs 11.1 months).5 Correlation does not mean causation, but in this case there does seem to be a mechanistic reason for the differences.

We have not included anagrelide in our valuation as it is still in the formulation stage and the exact timing of entry to the clinic is uncertain. However, once the programme enters the clinic, we will include it in our model and it may have a meaningful valuation associated with it given its potential applicability across cancers (though the initial focus may be ovarian, lung and pancreatic). If we assume a 20% market share in ovarian and pancreatic patients with high platelets and 10% market share in lung cancer patients with high platelets as well as a US$50,000 per patient price, peak sales in the US alone could reach US$470m (A$785m).

This will all depend however on SUDA being able to formulate a version with significantly less cardiotoxicity while providing efficacy. The company has stated that early animal results indicated that it had a formulation that increased bioavailability and decreased exposure to the cardio stimulatory metabolite. We await full results and it is currently unclear how clinically meaningful that reduced exposure would be.

Achieving these potential peak sales estimates will also depend on funding as SUDA will be seeking a different label from anagrelide (both with regards to safety as well as additional indications specifically including cancer) and therefore will likely have to run a traditional clinical trial programme rather than a shorter 505(b)2 version (this had been the pathway for ZolpiMist, which did not require a full clinical trial programme as it was simply a reformulation that was going after the same indication as zolpidem).

SUDA is also developing an oro-mucosal spray version of sumatriptan for the treatment of migraines. Migraines are a very common and debilitating ailment often lasting between four and 72 hours, with prevalence of around 13% in the US6 and around 15%7 in the EU, totalling over 100 million sufferers across the two regions. Sumatriptan was the first drug within the triptan class available for the treatment of migraines and has been the standard of care since. There are a number of different dosage forms available, including traditional injectable, needle-free, nasal, patch, oral tablet and oral melt (see Exhibit 5). The oral forms together dominate the market, accounting for over 95% of all doses according to Symphony Health. Injectable forms (both traditional and needle-free) are less than 3% of the market despite having a much faster onset of action, with migraine relief coming in a matter of minutes instead of a matter of hours.

SUDA is developing a version of sumatriptan under the 505(b)2 pathway that would have a faster onset of action compared to the oral formulations (ideally one similar to that of injectables) while using a non-invasive method. The company has licensed the US market rights to Indian specialty pharmaceutical company Strides. Under the terms of the agreement, SUDA received US$400,000 upfront and is eligible for US$600,000 in milestones, a double-digit royalty and a handling fee. As with anagrelide, we are not currently including sumatriptan in our model as it is still in development. Additionally, as this is an especially competitive market with so many formulations, it may be challenging to develop a product with a commercially successful profile. For example, Sumavel DosePro, the needle-free injection version of sumatriptan, was only able to achieve US$36m in peak sales in 2012 despite a fast onset (mainly due to a high rate of injection site reactions as it would propel the drug through the skin).

SUDA also has deals to develop oro-mucosal spray version of cannabinoids. There is a feasibility and option agreement with Zelira (formerly Zelda) Therapeutics to develop an oral spray of pharmaceutical-grade cannabinoid derivatives. Zelira paid an A$100,000 upfront fee (with an additional A$100,000 in development milestone payments) and is covering the cost of formulation work. Also, in October, SUDA signed an agreement with Cann Pharma Australia to develop oral spray versions of pharmaceutical-grade cannabinoid derivatives to treat drug-resistant epilepsy (note that Epidiolex, a cannabinoid approved for drug-resistant epilepsy, had sales of around US$300m in 2019, its first year of launch, and is expected to have US$1.6bn in peak sales according to EvaluatePharma), melanoma and motion sickness. Terms of the agreement include a A$200,000 upfront fee, A$650,000 in potential development milestones, an additional A$650,000 in commercial milestones, a 10% royalty rate and a 10% handling fee for arranging the manufacture and supply of the product.

Additionally, SUDA has two partnerships regarding undisclosed molecules. In December, SUDA signed a deal with Spanish pharmaceutical company Ordesa to develop a spray version of a ‘major consumer product for the paediatric market’. Ordesa paid an upfront fee of US$100,000 and will fund the feasibility study, after which a definitive agreement will be negotiated. That same month, SUDA announced a deal in which Sanofi will fund a feasibility study regarding an undisclosed active ingredient. A new agreement may be negotiated if the feasibility study is positive.

We do not include the cannabinoid or undisclosed molecule programmes in our model as the timing for further development or commercial launch is unclear.

With such a low market capitalisation, the primary risk is dilution. Share issuance over the next few years may be multiples of the current shares outstanding in order to fund its programmes (shares outstanding will double if the current entitlement offer is fully subscribed). However, some of this could be mitigated by future business development deals. Also a number of pipeline programmes are still in the formulation stages, including anagrelide and sumatriptan (though none of these are included in our valuation) and there is no assurance that a formulation will be developed that has an attractive profile in competitive genericised markets. For anagrelide, the company has stated that early animal results indicated that it had a formulation that increased bioavailability and decreased exposure to the cardio stimulatory metabolite. We await full results and it is currently unclear how clinically meaningful that reduced exposure would be. Sumatriptan has a variety of oral, injectable, needle-free, patch and intranasal formulations for patients to choose from and it may be difficult to achieve the target profile of a fast onset of action (as observed with the injectables) but with the convenience of an oro-mucosal spray. With regards to commercial risk, the markets being entered are very competitive and genericised though our projections for these are very conservative. We only project ZolpiMist peak sales of A$19.5m in the SUDA Pharmaceuticals regions and do not include any revenue for ZolpiMist from areas it has not yet currently licensed (although negotiations for additional licensing deals are ongoing). Additionally, while there should be little regulatory risk with the reformulated compounds, it is still present. SUDA had previously attempted to gain approval for its artemisinin spray, ArTiMist, for malaria, but it was denied in 2019 for various reasons though they seem to be mostly related to the use of artemisinin monotherapy as well as risks from patient non-compliance to treatment guidelines, rather than an issue with the formulation itself. However, in our view similar issues are unlikely with the current set of pipeline products.

We are initiating coverage of SUDA Pharmaceuticals with a valuation of A$18m or A$0.13 per basic share (A$0.09 per diluted share) using a risk-adjusted NPV model focusing strictly on the ZolpiMist programme (see Exhibit 6). We do not include the six other programmes as they are still being formulated. We will likely include them in our valuation once the formulations have been finalised and they have entered human clinical trials. For anagrelide, if we assume a 20% market share in ovarian and pancreatic patients with high platelets and 10% market share in lung cancer patients with high platelets as well as a US$50,000 per patient price, peak sales in the US alone could reach US$470m (A$785m). Using a 10% probability of success once the programme achieves human clinical trial status and a 2029 launch year, our illustrative NPV value for anagrelide would be around US$28m (A$47m).

Note that we list 54.1m options for the company. Of those, approximately 28.0m will expire on 31 July 2020 and 20.7m will expire on 30 June 2021. Both of these are well out of the money (with exercise prices at over A$0.36).

SUDA is currently conducting an entitlement offer in which eligible shareholders can subscribe for one new share for each share currently held and one option for each three shares subscribed for. If fully subscribed, the company would raise A$3.6m, total shares outstanding would increase to 284.5m and there would be 101.6m options. Under this scenario, our valuation for the company would be A$22m or A$0.08 per basic share (A$0.06 per diluted share), taking into account both the increase in cash and dilution.

SUDA reported A$1.5m in net cash on its balance sheet at the end of March 2020. Historically, the company has had a relatively low burn rate in terms of operating cash flow, of about A$2.5m in both FY18 and FY19 as development has typically been partner-funded. The firm also reported a A$2.8m cash burn rate in the nine months ending 31 March 2020 (9M20) in its most recent Appendix 4C financial statement. However, as programmes such as anagrelide advance we expect the burn rate to increase. We estimate a need to raise A$10m in FY21 (A$22.5m total over the next three years) to fund operations based on the current business plan. As mentioned, the company is conducting an entitlement offer which, if fully subscribed, would raise $3.6m through the issuance of an additional 142.3m shares at A$0.025 per share. Subscribing shareholders would also receive one option for every three shares subscribed for, and those options would have an exercise price of A$0.05 and expire in two years. If all options are exercised, it could potentially provide A$2.4m in additional funding. The company expects to announce the results of the entitlement offer on 27 July 2020.