BioPorto Diagnostics — Making headway towards commercialisation

BioPorto is a diagnostic company focused on the development and commercialisation of biomarker-based assays. The company is revenue generating and its portfolio includes The NGAL Test, an antibody library, ELISA kits, and other laboratory-use products. Its core commercial strategy is to launch The NGAL Test, a diagnostic for the rapid prediction of AKI risk, in the US. NGAL is a biomarker for AKI that increases in concentration in urine and blood plasma in a matter of hours following kidney injury, allowing for intervention before permanent damage occurs. The current standard of care biomarker, serum creatinine (sCr), can take over 24 hours to increase following AKI, at which point intervention is limited since substantial loss in renal function has occurred.

We have not changed our valuation, which sits at DKK993m (DKK5.67 per basic share). We no longer anticipate a paediatric timeline delay, so we removed the clinical trial and associated expenses. Our expected commercialisation timeline has been pushed back by six months and we project that the company will need to raise DKK35m to reach sustainable profitability in 2021. Following product clearance, the immediate market is the ICU and it remains our main value driver at DKK694m. We assign a 50% probability of success in the ICU environment and a 30% probability of success in the emergency department and cardiothoracic surgery settings. The majority of test sales are expected to be through the company’s distribution partners, Roche and Siemens, who are also the major providers of clinical chemistry platforms on which The NGAL Test runs. Our valuation also includes continued sales of The NGAL Test and the company’s other products for research purposes.

The company is revenue generating with sales of DKK26m in 2018. In Q219, the company revised full-year sales guidance to DKK32m for 2019, down from DKK40m. It is currently awaiting FDA feedback for the paediatric 510(k) application and continuing patient enrolment for the adult AKI clinical study, both of which require limited R&D costs and are offset by incoming revenue. We also increased administrative costs in line with current trends. In June 2019, BioPorto raised DKK36.7m by issuing 9.3m new shares at market price in a private placement. The proceeds were designated to support ongoing studies, product clearance of The NGAL Test, preparation for The NGAL Test US commercialisation, and strengthening overall liquidity. We forecast that BioPorto will need DKK35m in additional capital (up from our previous assumption of DKK10m), to reach sustained profitability in 2021. The increase is largely attributable to reduced revenue guidance for 2019.

The company has previously sought approval for The NGAL Test from the FDA and been rejected, and although it has been in communication with the agency regarding the AI request for the paediatric indication, there is no guarantee reviewers will be satisfied with BioPorto’s response to the request. The measurement of NGAL is potentially confounded by a number of other conditions, including sepsis, which is the leading cause of AKI in the ICU setting and can partially explain the significant variability seen in NGAL studies. The company also faces commercial hurdles associated with changing longstanding clinical practices in that sCr measurement is embedded into the AKI diagnosis despite its limitations. To this end, BioPorto is targeting inclusion into clinical guidelines, which will depend largely on the strength of clinical data and widespread support from the medical community.

BioPorto was founded in 2000 in Copenhagen and publicly listed on NASDAQ Copenhagen in 2004. The company was initially founded to commercialise intellectual property licensed from the Statens Serum Institut, although it expanded its portfolio to include several important proprietary assets. The company’s primary focus is on the development and commercialisation of The NGAL Test for the risk assessment of AKI, while another noteworthy asset is the generic rapid assay device (gRAD), which is a generalisable point-of-care lateral flow device. NGAL is a biomarker secreted by the kidney shortly following injury and has been studied as a potential replacement for the standard of care, sCr. The benefit of NGAL is that it has the potential to deliver a more accurate assessment in a matter of hours, enabling interventions to preserve function, whereas sCr can take over 24 hours to reach detectable levels among other limitations. The test is commercially available in the US for research purposes and approved in Europe and some APAC countries, but the company’s primary goal is approval in the US as a clinical diagnostic. It has completed clinical trials (although it has not released this data) and submitted an application to the FDA for approval for the prediction of AKI risk. We expect the product to initially be targeted to the intensive care setting. Potential future markets include the emergency department setting and continuous monitoring of AKI following surgery. The product is currently developed for use in high throughput systems, and the company has already established distribution contracts with the major commercial players in this space: Roche and Siemens.

AKI is a major risk to human health and wellbeing given the range of different causative factors and the potential for it to progress to long-term renal dysfunction. It is defined as the rapid deterioration in kidney function over hours or days. However, the damage associated with the condition is frequently reversible if the injury is identified quickly and patients are treated. There is therefore significant incentive to develop diagnostics that can quickly identify AKI in at-risk individuals.

There are a wide range of causes for AKI. The single largest contributing comorbidity to these rates of AKI is sepsis, which is responsible for 26% to 50% of all cases of AKI.1 The aetiology of sepsis-induced AKI is complex and includes both direct damage to the kidneys as well as a reduction in blood flow (hypoperfusion). Hypoperfusion is a general causative factor for AKI and conditions or procedures that reduce blood flow to the kidney increase the risk of AKI. These include surgical procedures, in particular cardiac surgery, which is associated with exceptionally high rates. As many as 30% of patients undergoing cardiac surgery have complications associated with AKI.2 AKI is responsible for a fivefold increase in mortality associated with these procedures. Due to the well understood and predictable nature of the risks in this population, these patients are routinely followed for AKI during their recovery period. Other major surgeries also carry a risk of AKI, albeit at lower rates. Other conditions that can cause a severe drop in blood pressure or fluid loss and thus hypoperfusion can cause AKI, such as bleeding, diarrhoea, overdoses on NSAIDs, allergic reactions and shock associated with trauma, although this list is by no means exhaustive.

Given the range of conditions that can lead to AKI, the condition is relatively common. Based on measurement of sCr (more on this test below), the rate of AKI in the US is over 0.5% per year in the general population.3 Approximately 2% of hospital inpatients and 40% of those in intensive care have AKI.4 It is difficult to separate the prognosis of AKI from the underlying disorders, but AKI significantly increases the risk of death in a stage specific manner: odds ratio (OR) of 2.2 for stage 1, 6.1 for stage 2 and 8.6 for stage 3.5 Among patients with AKI severe enough to require renal replacement, mortality has been observed as high as 60%.6 Moreover, there is increasing evidence that even after resolution of AKI, the event is correlated with increased risk of developing chronic kidney disease.7

AKI is classically diagnosed and staged based on the concentration of creatinine in serum and urine output. Both measurements are proxies for the glomerular filtration rate (GFR), or the rate at which the kidney can process liquid. Creatinine is the metabolic product of creatine degradation in muscle that is typically filtered from the blood by the kidney. Given that its production is relatively constant, an increase in serum levels can be indicative of renal dysfunction. The Kidney Disease International Global Organization (KDIGO) provides the criteria for staging AKI (Exhibit 2).

Despite its widespread use, there are significant limitations in the use of sCr as a tool to diagnose AKI. The primary limitation is that changes in GFR are indicative of kidney damage, and therefore some injury and loss of function has already occurred by the time a change is measurable. This is exacerbated because creatinine must build up in the serum and it can take significant time for changes in GFR to manifest as measurable changes in creatinine. These measurements are typically taken over several days to provide adequate time to detect changes from baseline. This substantially increases the burden on providers and increases the probability that marginal cases of AKI will go undetected under a reasonable timeframe.

Baseline rates of creatinine can differ significantly between individuals and within the same individual due to a range of factors. Therefore, to be used as a biomarker, multiple measurements are required to establish a baseline and changes from this baseline. Patients of unknown status may already have elevated creatinine when they are initially tested, confounding the detection of issues. Moreover, the clearance of other substances such as medication can significantly affect the rate of creatinine clearance.

A problem in evaluating the utility of sCr as a diagnostic tool is that historically AKI has been defined in terms of sCr and little corroborative evidence has been available. One study, however, used biopsy data from deceased kidney donors to retrospectively evaluate the performance of sCr as a diagnostic.8 Biopsies from these patients were examined for evidence of acute tubular injury (ATI) and compared to sCr measurements. It should be noted that ATI is a subtype of AKI and is the leading cause of AKI in a hospital setting (approximately 50%).9 The results from this study suggest that sCr is a very poor indicator of ATI (Exhibit 3). The area under the curve (AUC) for sCr to identify any grade ATI was 0.52. This value increased marginally to 0.58 when the test was evaluated for the detection of severe ATI. AUC is a measure of the strength of a diagnostic irrespective of the particular cut-off value used for diagnosis, where 1.00 is a perfect test and 0.50 indicates no diagnostic value. So in this case sCr performed poorly.

As an alternative to sCr, urine output can be used. However, monitoring of urine is unwieldy in clinical practice and is generally limited to patients with a catheter. Moreover, this measurement is rendered ineffective by diuretics. There is not as much clinical data to support urine output, because retrospective data are generally unavailable and clinical studies have had mixed results.10

Due to the limitations of sCr, there has been an effort to identify other biomarkers with improved performance. The most concerted effort has been focused on the investigation of NGAL. It was first identified as a marker for AKI in 2003 and has subsequently been the subject of multiple studies. Perhaps the clearest benefit of NGAL over sCr is evident in the time course of its elevation following kidney injury (Exhibit 4). NGAL is elevated within hours of the damage that results in AKI, as opposed to sCr, which requires a prolonged period of impaired GFR. Moreover, there is increasing evidence that patients that are identified by NGAL carry an increased risk for adverse events such as need for replacement therapy and death even when they are sCr negative.11 NGAL is elevated before major loss of function, which should enable earlier intervention to halt progressive deterioration.

NGAL is a member of the lipocalin family, a class of proteins that bind hydrophobic molecules. It binds specifically to siderophores, proteins that bind to iron and aid in its metabolism. The protein was first discovered for its role in the innate immune system. Neutrophils secrete NGAL in response to the presence of bacteria, and the NGAL will then bind to bacterial siderophores to limit iron metabolism in the bacteria and limit their growth. However, expression of NGAL is not limited to the immune system. A range of different tissues, including but not limited to the kidney, secrete NGAL in response to cellular damage. Due to this, an increase in serum concentrations of the protein is associated with a range of indications including infection, inflammatory disorders, cancer and obesity. NGAL can be isolated from either the urine or plasma, with differing results. Urine NGAL provides a more direct readout of protein released in the kidney, but is affected by urine production and complicated by common conditions such as urinary tract infection. Plasma NGAL provides a less variable baseline but can be complicated by injury or inflammation in other tissues. Whether urine or plasma NGAL is a better indicator is an unsettled question in the space, although BioPorto is advancing a plasma-based test, initially citing better reproducibility.

Two products have previously been developed for use as a NGAL test in the clinical setting, although neither was approved in the US for diagnosis of AKI. Abbott developed a urine NGAL test for use with its Architect clinical chemistry platform. It was submitted to the FDA in 2010 but did not receive approval. Alere also developed a point-of-care plasma NGAL test for use with its Triage MeterPro platform. However, it was not submitted for FDA approval. Alere was subsequently purchased by Abbott in 2017, and as the Triage NGAL test was one of many products, it was likely not a motivating factor. BioPorto launched its first NGAL-based bioassay in 2006. This was the first commercially available NGAL ELISA kit available worldwide, albeit limited to research purposes. The company subsequently launched in 2010 a new version of the assay prepared for use in a high-throughput clinical chemistry analyser branded The NGAL Test.

NGAL has been investigated in a large number of clinical studies, both in urine and in plasma, and significant variability between results has been observed. A recent meta-analysis was performed that examined the capacity of biomarkers to predict the initiation of renal replacement therapy, an intervention to limit the damage from AKI.12 Urine NGAL was evaluated in 12 studies and showed a pooled AUC of 0.720, and plasma NGAL was evaluated in 16 studies with a pooled AUC of 0.787. AUCs in the meta-analysis for NGAL ranged from 0.260 to 0.884. A consistent factor that has been cited as a source of this variability has been the differing response of patients with sepsis. As mentioned above, sepsis is the most common cause of AKI in intensive care patients, but the systemic inflammation associated with the condition results in the release of NGAL from neutrophils. Although the test retains utility in sepsis patients, the AUC for predicting renal replacement therapy can drop significantly, 0.700 in one targeted study.13 NGAL may be a better biomarker in patient populations outside the ICU with lower rates of confounding factors such as sepsis. For instance, one study using BioPorto’s NGAL antibodies (although not performed by the company) that examined 635 patients presenting in an emergency department (instead of an ICU) showed dramatically better statistics: 90.0% sensitivity, 99.5% specificity and an AUC of 0.948.14

Another issue that has limited the interpretation of NGAL studies is that frequently the readout used to evaluate the test is the presence of AKI, as evaluated under the standard diagnostic criteria, ie sCr. This is a problem intrinsic to this field, and has been highlighted in research.15 Even a perfect test (100% sensitivity and specificity) will have substantially lower apparent statistics when measured against an imperfect gold standard. The fact that NGAL can identify patients at increased risk of major intervention or death that are sCr negative is also supportive of this fact.11

A significant factor that can be difficult to capture in these statistical studies is the improvement in care NGAL can provide. In particular, the ability to identify patients sooner and before significant loss of function can translate into improved outcomes and the associated reduction in costs. Even if NGAL were unable to provide a statistical improvement in AKI prediction rates, there are still significant benefits from earlier assessment. One study modelled these factors and estimated costs savings in the range of $408–522 per patient admitted to an emergency department.16 The models in the study were using real world outcomes data from two emergency departments in New York tested for urine NGAL and sCr.

BioPorto conducted its first US registration trial in 2014 and 2015 across four clinical centres. The purpose of the trial was to identify the correct parameters, such as NGAL thresholds for the clinical identification of AKI using both plasma and urine. It enrolled 245 patients from ICUs and AKI was determined using the KDIGO guidelines by a panel of physician adjudicators. The data reported by the investigators segregated the patients into two populations: those with stage 2 or 3 AKI, and those with stage 1 AKI or no AKI. Samples were taken from the patients daily.

The statistics from the study were positive. AUC measurements were 0.76 and above, and sensitivity and specificity measurements were approximately 70% or higher. These results are largely in line or better than those previously presented in the literature on NGAL, although it should be noted that they represent the identification of just stages 2 and 3 AKI. When the investigators examined patients with persistent (two days or more) stage 2/3 AKI, the results were further improved to a maximum AUC of 0.85 with the use of EDTA plasma.

The FDA rejected the company’s application package including these data. There are limited details on the reason behind the FDA’s decision in this case, although the company has stated that the rejection was “primarily because the dataset for mild cases of AKI did not support approval”. When explaining the decision to exclude patients with stage 1 AKI from the primary end point, the investigators cited the observation from prior studies that many patients classified in this category are subject to transient sCr elevations without parenchymal AKI. In other words, the stated reason for this exclusion was aforementioned variability in the sCr gold standard.

In July 2018, the company submitted its second 510(k) application to the FDA for clearance of The NGAL Test in adults. This application was made based on a clinical trial that the company initiated in 2017. The endpoint for the 2017 clinical trial was was the prediction of stage 2 or 3 AKI, with a secondary endpoint as an aid in the prediction of persistent (two days or more) grade 2 or 3 AKI. This clinical trial enrolled over 500 patients from intensive care patients across 17 clinical sites in the US and only enrolled hypotensive patients within the first 24 hours of their admission to the ICU. Four blood samples were collected from each patient and AKI was subsequently graded based on KDIGO guidelines by an independent adjudication panel. Results from the study have not been released, although they may be in the future at a medical conference or publication to support commercialisation. The purpose of the registration study was to test the clinical validity of the test, ie does The NGAL Test (specifically the 140ng/mL cut off) predict AKI outcomes. Although we have limited detail on the study, notable changes from the previous clinical trial are the increased enrolment and number of clinical sites, as well as the prospective diagnostic threshold. The previous clinical trial did not have a predefined cut-off for prediction of AKI risk, which is a statistically weaker approach that may have affected the FDA assessment.

In October 2018, the FDA requested additional information (AI) in order to continue the application process citing further data was needed to support the AKI rule-out claim. In response to the AI, BioPorto is actively enrolling an additional 150–200 patients to complement the original prevalence data collected in 2017 and 2018 leading up to its submission of a revised application to the FDA expected in Q419. It is difficult to assess the specific area of data deficiency for which the FDA required more data, but the rule-out claim that was cited was contingent on the negative predictive value (NPV) of the test. This statistic depends upon both the sensitivity and specificity of the test, as well as the underlying rate of the disorder (AKI). The latter is further complicated by the fact that AKI is defined in terms of serum creatinine levels, on which NGAL is aiming to improve. Any of these factors could be elements on which the agency requires clarification, albeit not limited to these.

The current FDA application is for ‘risk use with AKI’, as stated by the company. An important consideration for the FDA (as well as the eventual marketing of the test) is the test’s positive and negative predictive value (PPV and NPV). The PPV measures the fraction of positive tests in which the patient truly has AKI, and conversely for NPV. Importantly, both of these statistics depend on the incidence rate of AKI in the particular setting in which they are measured. The company has stated that it hopes its application supports the use of The NGAL Test to ‘rule out AKI within 48 hours in ICU populations’. Ruling out AKI is a proposition centred on the NPV of the test. The company may expand the approved indications for The NGAL Test through further clinical testing. These include approval for risk assessment in the emergency department setting and the monitoring of AKI risk following surgery. We will have better insight into the potential of these programmes following FDA approval and potentially upon the release of details of the most recent clinical trial.

Although the ultimate hope is that physicians will be able to intervene to prevent kidney damage, they were not provided with test results in this study to accurately assess the test’s validity. The company may perform future clinical trials to measure if its use can alter outcomes, although it has not made any announcements to this effect.

The company is also studying the analytical performance of The NGAL Test in a series of 10 studies in the US, Denmark and Japan. These studies were performed in parallel with the registration study and provided additional support for the safety, reproducibility and other parameters for the FDA application.

There is also a clinical trial that has been registered by Cincinnati Children’s Hospital to examine The NGAL Test for paediatric AKI. Unlike in the registration trial, this study will specifically examine AKI as a result of nephrotoxic medications and it will use testing urine as opposed to plasma. In July 2019, the FDA requested additional information relating to ‘the clinical study data and collection of retrospective samples’, which could have been due to underrepresentation of certain subgroups, the manner of sample collection, or a number of other possibilities. The company initially guided that it would need to withdraw and resubmit its application following the AI request; however, after conducting a thorough review and a productive dialogue with the FDA, BioPorto decided to respond to the FDA’s questions allowing for the 510(k)-clearance process to continue. The original collection of samples had previously been tested with the NGAL ELISA test, so the results were roughly known in advance, although now this will not be the case. Thankfully, given guidance that the new data the company is gathering will also use retrospective samples, we know the request was not for a prospective trial, which would be prohibitively difficult given the indication.

Finally, FDA approval only represents the first milestone toward commercial adoption of the test. The company will have to alter clinical practice to achieve market share. We expect as part of this effort that the company will seek the inclusion of the test into medical guidelines published by physician organisations. The company has stated its intent to engage KDIGO for inclusion in its guidelines, and continues to meet with KDIGO officials. However, the actual adoption of NGAL as a standard by KDIGO or any other organisation will take time and depend on the strength of the clinical data.

The NGAL Test is already commercially available for research purposes and North American sales were DKK12.2m in 2018, as compared to DKK10.9m in 2017, showing 30% growth year-over-year. In Q219, North American sales were DKK4.0m, as compared to Q119 sales of DKK2.8m, with 43% quarter-over-quarter growth. The majority of North American sales are sourced from the US and we expect the ramp in sales to progress once the product is cleared by the FDA.

The company has global distribution agreements with both Roche and Siemens, as well as a small direct sales channel that provides the test. We expect these distributors to be the primary sales channels following FDA approval, although we expect the company to hire a small sales team dedicated to the promotion of The NGAL Test. The primary commercial hurdle will be altering the longstanding clinical practice regarding the use of sCr for AKI, which will take physician outreach and education, which we expect the internal sales team to perform. Other aspects of the launch should be smooth considering it seamlessly integrates into the existing workflow and is billable under existing DRG codes.

The company entered into an arrangement with Abbott in 2014 to cross-license their respective intellectual property. The company has also in-licensed additional patents from Columbia University regarding the NGAL technology. The company’s proprietary and in-licensed patent families cover a range of aspects of the NGAL technology and its applications including the use of urine and plasma, the use of serial sampling and the diagnostic threshold, among others. The test is not without some degree of intellectual property risk: patents begin to expire in 2025, although we expect the portfolio as it stands to provide a decent commercial runway through approximately 2028.

In addition to NGAL, a number of other biomarkers have been investigated as alternatives to sCr (Exhibit 6). The most prominent research (other than into NGAL) has been into KIM-1 (kidney injury molecule 1) and IL-18. KIM-1 is a protein that is upregulated in the kidney following reperfusion injury in renal tubules and is a direct measure of injury (although not as the name would suggest exclusively kidney injury). IL-18 on the other hand is a pro-inflammatory cytokine secreted by macrophages that are released in response to various inflammatory conditions, including AKI. The performance of these biomarkers has generally underperformed NGAL in the clinic (AUC of 0.68 and 0.63 respectively compared to 0.74 for NGAL in one study).17 However, the performance of these markers tends to improve with more severe AKI, and one study demonstrated superior results for the use in combination: AUC of 0.93 for KIM-1 + IL-18 compared to 0.89 for NGAL + sCr for the ability to predict stage 3 AKI or death.18

The only commercially available alternative test is NephroCheck, marketed by Astute Medical. Astute Medical was a private healthcare company that was acquired by BioMérieux in April 2018 for approximately $90m. NephroCheck and associated systems are its sole products, but there is limited visibility on sales.

The test combines readouts of two biomarkers, TIMP-2 and IGFBP-7, in the company’s proprietary linear flow devices to be used in a dedicated testing platform (the Astute140 device). These proteins were discovered in a longitudinal study of 300 biomarkers in 2013, and thus have a shorter history of study compared to other biomarkers.19 The test is intended for use in patients following major cardiac or pulmonary events for AKI monitoring. NephroCheck was evaluated in two clinical studies. The first clinical study enrolled 408 patients and found a sensitivity of 90–93% and a specificity of 45–49% (with values varying based on the laboratory used). However, in the second clinical study of 126 patients, sensitivity dropped significantly to 76% with a specificity of 51%. This implies a negative predictive value of only 88% in the second study, meaning that 12% of patients that were ruled as AKI free in the study really had kidney injury. However, in spite of these limitations, given the low bar set by sCr, the test has been shown to improve outcomes following cardiac surgery,20, 21 and the test (or more accurately TIMP-2 and IGFBP-7 testing) was recently included in the consensus guidelines from the ERAS Cardiac Surgery group presented to the American Association for Thoracic Surgery (moderate level of recommendation).

Although the company’s primary focus is the FDA approval of The NGAL Test and commercialisation in the US, it has an extensive portfolio of antibodies that generate recurring revenue through sales for research (Exhibit 7). In addition to the antibodies and ELISA kits derived from them, the company sells a small number of proteins (predominantly NGAL standards) and sera for research use. The company had sales of DKK26.0m in 2018 (including NGAL products).

One highlight of this portfolio includes the animal NGAL tests. The company provides antibodies and standards for a range of non-human mammalian species. These may provide a more sensitive measure of kidney injury for use in detecting renal toxicity in preclinical drug development. The company is also the only provider of monoclonal human IgE, an antibody of naturally low abundance in the body that is the primary mediator of allergic reaction. In addition to antibodies and ELISA kits, the company also sells test for mannan binding lectin (MBL) in a clinical chemistry format similar to The NGAL Test. MBL is a protein important for the innate immune system and low levels are indicative of a compromised immune system. The expansion of the MBL test into a clinical diagnostic along the same lines of The NGAL Test is a potential future avenue of development, although we do not include it in our model.

The company’s customers for the antibody portfolio span the healthcare space and include almost every large pharma company, such as Pfizer, Eli Lilly, Merck, GSK, etc. Additionally, it counts large academic institutions and research institutes as clients, such as the Karolinska Institutet and the La Jolla Institute.

Aside from BioPorto’s biologic products, it has developed a generalisable lateral flow device called the gRAD (Exhibit 8). The device consists of a paper test strip similar to that used for at-home diagnostics such as urine glucose strips, ovulation tests, etc. However, unlike these products, the gRAD does not come pre-loaded with detection antibodies. Instead, it can be arbitrarily used in any detection system consisting of a biotinylated antibody and a gold conjugated antibody. The strip contains a biotin binding region (presumably with some type of avidin) that captures the biotinylated antibody and immobilises the analyte, which is subsequently detected by the gold conjugated antibody. The product can therefore be used to assay biomarkers that otherwise lack a point-of-care test, without the need for high-cost capital equipment such as clinical chemistry instruments. The product has potential in segments of healthcare where capital equipment is unavailable, such as in field work, at the bedside and in the office of general practitioners. The gRAD was launched in 2015, but only constitutes a small portion of the company’s revenues to date. The product could potentially be used as a platform to develop tests using the company’s antibodies for the point-of-care setting, although this would require additional clinical studies and is hypothetical at this stage.

The biggest hurdle faced by BioPorto is the regulatory risk associated with the upcoming FDA decision on The NGAL Test. NGAL is heavily studied and, despite variability in the reported results, there is substantial benefit over the sCr standard of care even in the worst-case scenario. The barrier in this case is in communicating these benefits to the FDA and satisfying its internal standards. We have limited insight into what criteria will be used to evaluate The NGAL Test, but we can say that previous evaluations of this technology have been stringent.

The FDA has previously rejected all applications for NGAL products, including from BioPorto. Relating to the company’s adult indication, a second 510(k) application was submitted in July 2018 and the FDA subsequently requested additional information (AI) citing further data was needed to support the AKI rule-out claim. BioPorto is currently enrolling an additional 150–200 patients in response to the FDA’s request and plans to resubmit a revised application by year end. Separately, the company submitted a 510(k) application for a paediatric indication in May 2019 and the FDA requested AI in July 2019 citing an issue with ‘the clinical data and collection of retrospective samples’. BioPorto bypassed having to withdraw and resubmit the application by responding to the information request and a response from the FDA is expected by year end. The company has had numerous discussions with the agency regarding a pathway to approval, but these are by no means a guarantee. However, the approval of NephroCheck in 2014 indicates the agency recognises the need for innovation in this area. An FDA dismissal would not necessarily mean the product is not approvable, but it will likely necessitate additional clinical studies and delay the product’s commercialisation. Finally, if the company does receive FDA approval, we expect it to continue to perform clinical trials in additional clinical settings to expand the market for the product, each of which will carry its individual clinical and regulatory risk.

The company’s commercial strategy is to leverage its existing relationships with distributers supported by a small internal sales team. This will allow it to achieve substantial commercial reach with limited overheads, but it does leave the company at the mercy of the distributers. We believe this arrangement is optimal, given that Roche and Siemens are major suppliers of the capital equipment needed to run the test and have existing relationships with the hospital customer base. However, there is the unavoidable risk these companies will not act in the best interests of The NGAL Test or BioPorto.

BioPorto is a commercial-stage company with growing revenue streams, which significantly reduces the financial burden of its development programmes. However, we do expect the company to require additional capital to bring The NGAL Test to market, which carries associated risks. However, given the potential near-term approval and commercialisation in the US, we expect this amount to be limited. We forecast the company will need DKK35m in additional capital to reach profitability in 2021, contingent on receiving FDA approval.

We have not changed our valuation, which sits at DKK993m (DKK5.67 per basic share). Our valuation is based on a series of assumptions about the company’s products and their commercialisation. We have modelled three target markets for The NGAL Test:

This list of potential indications is not exhaustive. However, we believe expansion beyond this will be predicated on success in these areas first, although we may add other indications if the company is successful in these areas. We assign a 50% probability of success for the ICU market given the advanced nature of the programme, the results released to date and the applicability to this patient population. We are also encouraged by the FDA’s approval of NephroCheck in 2014, which signals an openness to and need for innovation in this area. Consequently, emergency department and post-surgery markets have lower probabilities of success at 30%. We expect each of these indications will require new clinical studies, which we model costing approximately DKK13m each. The company is engaged in a study of paediatric AKI patients following nephrotoxic medications, which we do not explicitly include in our valuation as we expect the sales to be incremental. However, we do believe expanding into the paediatric market will provide goodwill surrounding the test that can potentially boost other indications.

We model commercialisation in both the US (strategically the main focus) and Europe for these clinical populations. The US market is more attractive given that we expect adoption to be quicker following FDA approval, with first sales expected in 2020. The product is already CE marked and commercially available in Europe. However, widespread adoption in the clinical setting will need published clinical studies to support marketing. Additionally, we expect adoption in Europe to be slower than the US because of the greater control of central regulators over the implementation of new clinical methodologies. We forecast limited costs of selling (modelled as 10% of revenue), because we expect most sales to go through distributor channels and for the company’s internal salesforce to be small. We expect COGS, including royalties, to be small at approximately 5% of the list price.

Our valuations continue to be based on a $20 list price per assay for The NGAL Test. This corresponds to approximately $2,000 for a 100-assay kit, which is in line with current pricing, although we forecast a modest 2% increase in price per year. We model the price to distributors at approximately 50% the list price ($10 per assay). Our valuation for the pre-commercial indications is based on a risk adjusted NPV model at a 12.5% discount rate (our standard for pre-commercial products). We do not expect a significant tail on revenue after the company’s IP expires in 2028 as we expect it to be replaced in distributor channels.

We model the company’s research products (including The NGAL Test for the research market) using a DCF model at a 10% discount rate (our standard for commercial products) and a -5% terminal growth rate. We conservatively expect sales of DKK31.5m for 2019, a 21% growth rate year-on-year, primarily driven by the company’s focus on getting The NGAL Test approved and subsequent commercialisation. We do not include the gRAD in our valuation, but we may do so at a later point if the product is more widely adopted. Unallocated costs in our model include administrative costs and exploratory research.

The major inflection point for the valuation will be the FDA approval decision, expected by end of 2019. We may adjust our valuation if data from the registration trial are released because the statistics from this study should illuminate the potential of the product in future indications. Finally, we may adjust our valuation following feedback on The NGAL Test from medical associations, which will provide a barometer for physician perceptions and rates of adoption. The inclusion of the test into any medical guidelines such as KDIGOs will represent a best-case scenario.

BioPorto has generated consistent revenue from the sale of its research products. The company reported sales of DKK26m in 2018 and is expecting DKK32m in sales for 2019, a growth rate of 23% over 2018. BioPorto’s revenue guidance for 2019 was revised down in Q219 from approximately DKK40m. Revenue guidance is in line with our expectations due to the increased spending associated with the anticipated NGAL product launch. Revenue in Q219 was DKK7.8m compared to DKK7.2m in 2017, growing by 10%, driven by increased US revenues from The NGAL Test for research use and large bulk orders of antibodies. We have adjusted our 2019 estimated sales to DKK31.5m from DKK38.6m due to the paediatric programme delay, which has increased our expected financing requirement. We now forecast that BioPorto will need DKK35m in additional capital, an increase from DKK10m, to reach sustained profitability in 2021. This increase is driven by the lower revenue expectations carried forward.

In July 2019, BioPorto concluded a fund-raise yielding gross proceeds of DKK36.7m by issuing 9.3m new shares at market price in a private placement. The proceeds were designated to support ongoing studies, product clearance of The NGAL Test, preparation for The NGAL Test US commercialisation and strengthen overall liquidity. The company analysed retrospective samples as part of the response to the FDA’s AI request regarding the paediatric 510(k) submission and is continuing patient enrolment for the adult AKI clinical study, both of which require limited R&D costs and are offset by incoming revenue.