Probiodrug — Update 9 January 2017

Probiodrug

Phase IIa SAPHIR fully recruited; data in Q217

Company update

Pharma & biotech

9 January 2017

Price	€18.50
Market cap	€152m

Net cash (€m) at end Q316, incl. capital raise of €14.9m in October		26.5

Shares in issue	8.2m
Free float	50%
Code	PBD

Primary exchange	Euronext Amsterdam
Secondary exchange	N/A

Share price performance

%	1m	3m	12m
Abs	(0.5)	(8.4)	(30.2)
Rel (local)	(6.2)	(14.5)	(38.5)

52-week high/low

€26.5

€17.6

Business description

Probiodrug is a German biopharmaceutical company developing its clinical pipeline for the treatment of Alzheimer’s disease. Lead product candidate PQ912 is in Phase IIa. PQ912 is a small molecule inhibitor of glutaminyl cyclase (QC), which is essential for the formation of pGlu-Abeta. Two further products are in preclinical stages.

Next event

PQ912 Phase IIa data

Q217

Analysts

Jonas Peciulis	+44 (0)20 3077 5728
Lala Gregorek	+44 (0)20 3681 2527

healthcare@edisongroup.com

Edison profile page

Probiodrug is a research client of Edison Investment Research Limited

Probiodrug announced today that the Phase IIa trial with its lead product PQ912 is now fully enrolled with 120 patients surpassing the initial target of 110 and the data will be released in Q217. The trial is investigating the effects of first-in-class PQ912, a small molecule glutaminyl cyclase (QC) inhibitor, on Alzheimer’s disease (AD) patients. Although primarily a safety and tolerability study, a set of exploratory readouts should provide a glimpse of the effect PQ912 has on the pathology of the disease. Following the successful fundraise of €14.9m via the issue of new shares (10% of the existing) in October 2016, our valuation of Probiodrug is €337m or €41.2/share.

Year end	Revenue (€m)	PBT* (€m)	EPS* (€)	DPS (€)	P/E (x)	Yield (%)
12/14	0.0	(11.4)	(2.35)	0.0	N/A	N/A
12/15	0.0	(13.5)	(1.96)	0.0	N/A	N/A
12/16e	0.0	(14.2)	(1.82)	0.0	N/A	N/A
12/17e	0.0	(11.0)	(1.35)	0.0	N/A	N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Baseline mean MMSE indicates high quality data

Probiodrug mentioned that at baseline the mean Mini-Mental State Examination (MMSE) score of all patients was 25.3 (out maximum of 30) with low variability. Such high score implies a very mild dementia and is well in line with inclusion criteria of MMSE scores being in the range 21-30. Low variability of the scores allows us to expect high quality data and fewer outliers that can skew the findings. The final results should be reported in Q217.

Eli Lilly’s solanezumab did not meet expectations

In November 2016, Eli Lilly announced that solanezumab failed to meet the primary endpoint in the Phase III EXPEDITION3 trial with more than 2,000 mild AD patients. This was a second attempt after the failed large trial in general AD population. The primary endpoint was cognitive decline as measured by ADAS-Cog14, which came in statistically insignificant at p = 0.095. Although some of the secondary endpoints reached significance, the improvements were small and Lilly decided not to pursue the regulatory filing. While this was another blow to general beta amyloid theory, we see PQ912 as clearly differentiated with no negative read-across. Solanezumab, like many Abeta theory products, focuses on steps in the Abeta cascade, while PQ912 inhibits the production of a specific subtype of Abeta – toxic pyroglutamate-Abeta (pGlu-Abeta, more detailed analysis in our outlook report).

Valuation: €337m or €41.2/share post fundraise

Our absolute valuation of Probiodrug has increased from €309m to €337m. However, on a relative basis it remains flat at €41.2/share due to a combination of rolling our model forward, an increased cash position, but also an increased number of shares. Our product assumptions are unchanged. The outcome of the Phase IIa trial is the main catalyst in the near term.

SAPHIR trial

Probiodrug’s Phase IIa SAPHIR trial is primarily a safety and tolerability study, but the effect on the pathology of the disease will be assessed by a set of exploratory readouts comprising:

■

assessment of short-term memory and verbal function (neuropsychological test battery, NTB);

■

functional assessments by EEG and functional MRI, which will be indicative of changes in synaptic plasticity and neuronal connectivity respectively; and

■

molecular biomarkers in cerebrospinal fluid (CSF), such as pGlu-Abeta, Abeta oligomers and inflammatory markers.

More details about the trial design are provided in Exhibit 1.

Exhibit 1: SAPHIR clinical study design

Aim	To determine the safety, tolerability and preliminary efficacy of PQ912 in patients with early/mild AD. Exploratory readouts will be used to look for an efficacy signal to justify advancing to pivotal study.
Summary design	Multicentre (20 sites, seven EU countries), randomised, double-blind, placebo-controlled, parallel-group study.
Design details	n=110 planned, 120 enrolled. Treatment-naïve patients with mild cognitive impairment due to AD or mild dementia due to AD. MMSE score of 21-30 inclusive, CSF Abeta concentration of < 638 ng/L AND total tau >375 ng/L OR p-tau > 52 ng/L; Tau/Abeta ratio in CSF >0.52; positive amyloid PET if available. Half will receive PQ912, 800mg, twice a day (with an option to decrease the dose if necessary), the other half will receive placebo.
Primary endpoints	Frequency of adverse events and serious adverse events (timeframe: 12 weeks, four weeks follow-up).
Exploratory readouts	Assessments of cognitive function and change from baseline in brain functional assessments as brain functional connectivity and synaptic plasticity and molecular biomarker levels in CSF.
Start date	March 2015
Completion dates	Full results in Q217.

Source: Probiodrug, Edison Investment Research; clinicaltrials.gov. Note: MMSE = mini mental state examination.

Next steps

Probiodrug’s strategy is to establish a partnership to develop PQ912 through late stage studies. If the Phase IIa shows cognition improvements with a treatment time of just three months, in our view the company would be in an excellent position to negotiate an attractive partnership deal. Nevertheless, we believe that cognition improvement is not a prerequisite for a partnership and that a partnership will depend on the data readout. Probiodrug is the only company developing a QC inhibitor as far as we are aware, so we expect a number of players will pay close attention to the outcome of the SAPHIR trial.

Envisaging PQ912’s further development, the strategy after Phase IIa will depend on the results of the trial. Probiodrug could go directly to a pivotal Phase III study if the Phase IIa trial shows clear positive signs of PQ912 clinically improving cognition and neuronal connectivity (measured by EEG, fMRI) or molecular biomarkers. A Phase IIb study to evaluate the efficacy over a longer treatment period is another option if the exploratory readout shows a less clear signal after the three-month treatment.

Phase I details laid ground for SAPHIR

The ongoing SAPHIR study builds on the Phase I trial, which was a first-in-man, single and multiple ascending dose study that tested PQ912 in over 200 young and elderly healthy volunteers and assessed the safety, PK and PD of PQ912. Notably, this study was the first to quantify QC (enzyme that catalyses pGlu-Abeta formation) activity in human plasma and cerebrospinal fluid (CSF). The key findings include:

■

Importantly, the study established a PK/PD correlation between plasma and CSF, which allows for estimation of the target QC inhibition in CSF from blood plasma without the need for CSF collection with lumbar puncture, which requires specialist intervention.

■

Absorption was rapid with maximum plasma concentration reached in 0.5-1.5 hours. The half-life for the concentration decline from maximum concentration to 12 hours post-dose was between two and three hours, but around six hours in CSF (clinically relevant compartment) allowing for a convenient dosing for the patient, while maintaining constant inhibition of QC (the target).

■

Concentrations of PQ912 in the blood and in CSF correlated well with respective QC inhibition. The CSF QC inhibition was estimated at 70% after dosing of 400mg (received in two doses daily) and 90% at 800mg, therefore the latter was selected for the Phase IIa study.

■

PQ912 was safe and well tolerated with most adverse events mild or moderate (GI symptoms, headache) and the maximum tolerated dose was not reached.

Financials

Our operational forecasts remain unchanged and we have only amended the financials to reflect the recent equity fundraise. We estimated FY16 R&D costs at €11.1m (€10.2m in 2015) and G&A at €3.3m (flat y-o-y). In October 2016, Probiodrug raised €14.9m gross by issuing new shares (10% of the existing) at €20.00, while the cash position was €11.6m at the end of Q316 (Probiodrug has no debt). The existing cash is sufficient to reach the data readout from the SAPHIR trial. We continue to expect that if the trial results are positive a licensing deal in 2017 is likely given the high profile of Probiodrug’s R&D programme among the larger players in the AD field. Although our valuation includes risk-adjusted milestones from a partner for PQ912 that could be triggered by licensing (more details in our initiation report), we do not include this in our financial forecasts in line with our research principles. Our valuation currently includes a risk-adjusted €25m in potential upfront payments in 2017 upon licensing, which could secure the company’s operations without the need for a further fundraising in the near term.

Exhibit 2: Financial summary

	€'000s	2012	2013	2014	2015	2016e	2017e
Year end 31 December		IFRS	IFRS	IFRS	IFRS	IFRS	IFRS
PROFIT & LOSS
Revenue		6	0	0	0	0	0
Cost of Sales		0	0	0	0	0	0
Gross Profit		6	0	0	0	0	0
Research and development		(9,255)	(8,004)	(8,008)	(10,158)	(11,105)	(7,669)
EBITDA		(10,206)	(9,387)	(11,173)	(13,337)	(14,285)	(11,018)
Operating Profit (before amort. and except.)		(10,521)	(9,675)	(11,241)	(13,363)	(14,311)	(11,044)
Intangible Amortisation		(37)	(26)	(26)	(30)	(30)	(26)
Exceptionals		0	0	0	0	0	0
Other		0	0	0	0	0	0
Operating Profit		(10,558)	(9,701)	(11,267)	(13,393)	(14,342)	(11,070)
Net Interest		(314)	(106)	(170)	(112)	122	17
Profit Before Tax (norm)		(10,835)	(9,781)	(11,411)	(13,475)	(14,190)	(11,027)
Profit Before Tax (FRS 3)		(10,872)	(9,807)	(11,437)	(13,505)	(14,220)	(11,053)
Tax		(656)	0	0	0	0	0
Profit After Tax (norm)		(11,491)	(9,781)	(11,411)	(13,475)	(14,190)	(11,027)
Profit After Tax (FRS 3)		(11,528)	(9,807)	(11,437)	(13,505)	(14,220)	(11,053)

Average Number of Shares Outstanding (m)		4.1	4.3	4.9	6.9	7.8	8.2
EPS - normalised (EUR)		(2.84)	(2.30)	(2.35)	(1.96)	(1.82)	(1.35)
EPS - normalised and fully diluted (EUR)		(2.84)	(2.30)	(2.35)	(1.96)	(1.82)	(1.35)
EPS - (IFRS) (EUR)		(2.85)	(2.30)	(2.35)	(1.97)	(1.82)	(1.35)
Dividend per share (EUR)		0.0	0.0	0.0	0.0	0.0	0.0

Gross Margin (%)		100.0	n/a	n/a	n/a	n/a	n/a
EBITDA Margin (%)		n/m	n/a	n/a	n/a	n/a	n/a
Operating Margin (before GW and except.) (%)		n/m	n/a	n/a	n/a	n/a	n/a

BALANCE SHEET
Fixed Assets		996	425	186	140	84	32
Intangible Assets		67	101	82	56	26	0
Tangible Assets		926	321	101	81	55	29
Investments		3	3	3	3	3	3
Current Assets		9,009	5,856	21,294	21,726	23,156	12,806
Stocks		18	0	0	0	422	422
Debtors		5	0	0	0	0	0
Cash		7,726	4,421	20,920	21,361	22,369	12,019
Other		1,260	1,435	374	365	365	365
Current Liabilities		(3,570)	(9,320)	(4,580)	(4,911)	(4,656)	(4,343)
Creditors		(3,570)	(3,974)	(4,580)	(4,911)	(4,656)	(4,343)
Short term borrowings		0	(5,346)	0	0	0	0
Long Term Liabilities		(1,070)	(1,265)	(929)	(822)	(822)	(822)
Long term borrowings		0	0	0	0	0	0
Other long term liabilities		(1,070)	(1,265)	(929)	(822)	(822)	(822)
Net Assets		5,365	(4,304)	15,971	16,133	17,762	7,673

CASH FLOW
Operating Cash Flow		(12,090)	(8,477)	(10,540)	(12,149)	(13,998)	(10,367)
Net Interest		22	9	(54)	0	122	17
Tax		28	9	5	2	0	0
Capex		(64)	(4)	(2)	(6)	0	0
Acquisitions/disposals		0	0	0	0	0	0
Financing		9,516	(188)	32,436	12,594	14,885	0
Dividends		0	0	0	0	0	0
Net Cash Flow		(2,588)	(8,651)	21,845	441	1,008	(10,351)
Opening net debt/(cash)		(10,314)	(7,726)	925	(20,920)	(21,361)	(22,369)
HP finance leases initiated		0	0	0	0	0	0
Other		0	0	0	(0)	(0)	0
Closing net debt/(cash)		(7,726)	925	(20,920)	(21,361)	(22,369)	(12,019)

Source: Probiodrug accounts, Edison Investment Research

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

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Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

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Germany

London +44 (0)20 3077 5700

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New York +1 646 653 7026

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