AdAlta — Targeting IPF with its i-body platform

AdAlta is an Australia-headquartered healthcare company that went public on the ASX in 2016. AdAlta is focused on using its proprietary i-body discovery platform to target diseases, with an initial focus on conditions involving fibrosis. Its lead programme is AD-214, a CXCR4 inhibitor for the treatment of IPF, which is in the healthy volunteer portion of a Phase I trial. IPF is an orphan disease affecting over 100,000 people in the US and a similar number in Europe. It is progressive and serious with life expectancy after diagnosis estimated to be three to five years. The two approved medications for IPF totalled US$2.9bn in sales in 2019, despite relatively limited efficacy and some safety issues. AdAlta will seek to expand its AD-214 development programme to other fibrotic conditions, chronic kidney disease and cancer. Additionally, the company is seeking to have five internal programmes and three to five external pipeline partnerships by 2023. In 2019, AdAlta licensed the i-body platform to GE Healthcare for the purpose of diagnostic imaging. The goal is to identify molecular markers of activated T cells, which could help in the selection and monitoring of patients who are receiving immunotherapy.

We are initiating coverage of AdAlta at A$60m or A$0.25 per basic share using a risk-adjusted NPV model focused strictly on the AD-214 programme in IPF, as it is the only programme in human clinical trials. We attribute a 12.5% chance of success to AD-214, a premium to our standard 10% probability of success for a Phase I programme, as 42 subjects have already been dosed with no adverse safety events of clinical concern, increasing our confidence in AD-214’s safety profile. We are also modelling peak sales of A$718m and launch in 2028. We will adjust our assumptions as AD-214 advances through clinical studies. Additionally, there is a potential for a valuation inflection point and a validating partnership after the end of Phase I.

AdAlta had A$8.1m in cash at 31 December 2020. The company raised A$8.1m in gross proceeds from a fully subscribed placement and entitlement offer in Q1 FY21. We estimate the company will likely need to raise an additional A$11m for AD-214 through the end of FY23 (at which point AD-214 should be in the midst of Phase II testing), which we model as illustrative long-term debt, barring additional licensing deals.

As the underlying cause of IPF is unknown, current treatments are limited to targeting the symptoms, which historically has led to limited efficacy as the disease continues to progress even with treatment. This also makes the clinical trial programme more costly as large pivotal trials are needed to obtain a statistically significant results from small differences versus placebo. And while IPF has historically been an indication with no or limited choices, there are several potential candidates in clinical trials, all of which can reach the market before AD-214. Additionally, AD-214 will be disadvantaged potentially due to its intravenous (IV) administration (the two marketed products are oral though pirfenidone requires nine pills a day, which is not a convenient dosing schedule), although the two competitive programmes in Phase III are intravenous as well, suggesting this mode of administration is viable. Beyond the branded competition, both the approved products will be generic by the time AD-214 reaches the market, which may delay its usage to later lines of therapy. The company may also face significant dilution if funding needs are met through equity issuances. Share issuance over the next few years may be higher than current shares outstanding, depending on the prevailing stock price at the time of such raise(s).

AdAlta is an Australia-headquartered healthcare company focused on using uses its proprietary ibody discovery platform to target diseases, with an initial focus on conditions involving fibrosis. We believe it is the first fully human single domain antibody platform. I-bodies are proteins generated to mimic the shape of shark antibodies and engineered to create unique compounds. I-bodies are around 10% of the size of a human antibody and are highly stable at high temperatures and low pH environments. Also, the long binding loop in i-bodies enables them to target a diverse range of drug targets, some of which are difficult to access using conventional antibody therapies. Additionally, ibodies can be tailored into a wide variety of formats including mono-specific, bi-specific (two specific targets) and drug conjugate configurations. AdAlta has a library containing billions of i-bodies that may have a plethora of uses and it has proof of principle against over 25 targets, according to the company.

Its lead program is AD-214 for the treatment of IPF, which is in the healthy volunteer portion (Part A) of a three-part Phase I trial. As of late January, 42 participants had received AD-214 or placebo, with doses up to 20mg/kg showing no safety issues (note that preclinical studies indicate a target human therapeutic dose of 10mg/kg given intravenously either weekly or every other week). The results of Part A are expected in early March. Part B of the study, which will include interstitial lung disease (ILD) and IPF patients, is expected to begin in Q2 of CY21. With regards to external partnerships, AdAlta licensed the i-body platform to GE Healthcare for the purpose of diagnostic imaging. licensed the i-body platform to GE Healthcare for the purpose of diagnostic imaging. The objective is to discover and optimise i-bodies against granzyme B, a known marker of T-cell activation. This could help select and monitor patients who are receiving immunotherapy. Lead optimisation is underway and is expected to complete in H1 CY21. The company’s goal is to have five internal programmes and three to five external pipeline partnerships by 2023.

AdAlta’s lead programme is AD-214, which is being developed for the treatment of IPF. It is an i-body that is designed to be a CXCR4 antagonist. CXCR4 is a G-protein coupled receptor, which plays an important role in the maintenance of stem cells in bone marrow (CXCR4 inhibitor plerixafor has been FDA approved since 2008 for stem cell mobilisation), is upregulated in a number of cancers, is a co-receptor for HIV and, importantly, is a key player in fibrosis. Proof of concept has been demonstrated by the company in preclinical models where an anti-CXCR4 i-body was shown to reduce invasion of IPF fibroblasts and collagen secretion.1 AD-214 also demonstrated novel anti-CXCR4 pharmacology in that it does not mobilise stem cells, removing at least one of the key safety concerns that prevent chronic use of plerixafor. It is also highly specific for CXCR4. This combination of features position it for multiple fibrotic indications. Additional proof of concept came from testing AD-214 in the mouse bleomycin model, which is considered the gold standard model for IPF. Statistically significant reductions in the Ashcroft Score (a scale to evaluate lung fibrosis) were seen at dose ranges between 1mg/kg and 30mg/kg every second day and between 10mg/kg and 30mg/kg every fourth day (Exhibit 3).

Also, preclinical toxicology in three non-human primate studies found that AD-214 was well tolerated with no deaths or clinically noticeable side effects. There was no major organ toxicity observed on repeat dosing at high doses or any suggestion of off-target toxicities (which speaks to the specificity of i-bodies). Pharmacokinetics (PK) and pharmacodynamics (PD) seen in the non-human primate studies indicate a target human therapeutic dose of 10mg/kg given intravenously either weekly or every other week.

AD-214 is in a three-part Phase I study that can enrol up to 98 subjects. The primary objective of the Phase I is to assess the safety and tolerability of AD-214 both in healthy volunteers and ILD/IPF patients. Secondary objectives are to understand the PK/PD and immunogenicity of AD-214. The study will also explore whether there is an effect from AD-214 on respiratory function and the drug’s distribution and receptor occupancy as measured through positron emission tomography (PET) tracing.

So far 42 healthy subjects have received a single dose of either AD-214 or placebo at around a 3:1 ratio as part of Part A. Dosing for cohorts up to 20mg/kg have been completed with no concerning findings. Importantly, AD-214 exhibited higher receptor occupancy of 86% at the 10mg/kg dose seven days after dosing, suggesting the potential for prolonged dosing interval. Due to this finding, the company amended the protocol to investigate receptor occupancy at two and three weeks following infusion. Part A dosing has completed with results expected in early March. This will be followed by Part B, a single-dose study in ILD/IPF patients that will then be followed by Part C, which will study weekly dosing in ILD/IPF patients over four weeks. However, the results of Part A may enable Parts B and C to be conducted differently, so these are subject to change.

Over time, AdAlta will seek to expand its AD-214 development programme to other fibrotic conditions, chronic kidney disease and cancer as well. ILDs are a diverse range of pulmonary fibrotic disorders that have been difficult to classify. Estimates suggest that IPF represents between 17% and 86% of ILDs2 though it is likely closer to about a third. As with IPF, patients with ILDs have a short life expectancy after diagnosis of about three years3. As the company is also enrolling ILD patients into the Phase I, any development in this area could leap directly into Phase II if the Phase I portion of the current trial is completed successfully.

In Q4 CY20, the company received encouraging results in a mouse model for fibrosis in chronic kidney disease and these results are being prepared for publication. Chronic kidney disease is a major unmet medical need. According to the US National Institute of Diabetes and Digestive and Kidney Diseases, 14% of the population has chronic kidney disease with an estimated 661,000 in kidney failure. The company also has preclinical data with predecessor molecules to AD-214 in eye fibrosis and other organs such as the liver and skin.

With regards to cancer, CXCR4 is highly expressed in a variety of tumour types and is correlated with poor outcomes (Exhibit 5) as it is associated with tumour immune evasion, angiogenesis and metastasis.4 Importantly, inhibiting CXCR4 has been shown in preclinical experiments to impair tumour migration,5 growth and angiogenesis.6 Although CXCR4 inhibition does not appear to have much of a cytotoxic effect by itself, there does appear to be evidence of an enhanced cytotoxic/chemosensitisation effect per both clinical and preclinical data when combined with chemotherapy. The company has commenced studies in two mouse models of breast cancer to explore the potential for treating/preventing metastatic disease as well as improving the efficacy of checkpoint inhibitors.

IPF is a serious progressive disease that involves the formation of scar tissue in the lung for unknown reasons (hence it is referred to as idiopathic) and is one of the most common ILDs (a group of pulmonary diseases often characterised by inflammation and/or fibrosis). It often starts as shortness of breath and a nonproductive cough, progressing through acute exacerbations with significant respiratory deterioration that leads to acute lung injury and fibrosis. Mean survival is only of three to five years after diagnosis.7 It is estimated that over 100,000 people in the US and a similar number in Europe have the condition, although the exact number is unknown due to a challenging diagnostic process. Additionally, the epidemiologic studies often will have different criteria for IPF. For example, using narrow case definitions, annual incidence for IPF in the US are estimated at 6.8–8.8 per 100,000 population while using broader criteria garners estimates of 16.3–17.4 cases per 100,000 cases (as a reminder, prevalence is a multiple of incidence as people survive multiple years). There are multiple factors that may increase the likelihood of developing IPF, such as age (older), sex (male), smoking and genetics. Also, studies indicate IPF sufferers have disproportionately high levels of pulmonary arterial hypertension, emphysema and gastroesophageal reflux disease.8

There are two approved medications for IPF with a combined US$2.9bn in sales in 2019 but they both have limited efficacy and toxicity issues (Exhibit 6).

Both Ofev and Esbriet have been shown through multiple studies to reduce the rate of decline by up to around half but have not been shown to either stop the progression or improve all-cause mortality (although they both had trends to improving mortality, clinical trials would probably have to be multi-year to show a statistically significant difference). Additionally, they are not without side effects. Patients on either drug may have to deal with diarrhoea, nausea, vomiting, abdominal pain, fatigue and other issues. Liver enzyme elevation is a particular problem for Ofev whereas Esbriet can make patients photosensitive, limiting its use in those that spend a lot of time outside.

It certainly speaks to the seriousness of the disease that medicines with somewhat limited efficacy and with this sort of profile are blockbusters. Hence, this an area of interest for the biopharmaceutical industry with several products being in development.

Pamrevlumab from Fibrogen is viewed as the most promising based on the data from its 103-patient Phase II trial in which there was a 60% reduction in the decline of FVC versus placebo at the 48-week mark.9 It is in two Phase III trials with 340 participants each, with data expected in 2023 (the Zephyrus I and Zephyrus II trials). Unlike Ofev and Esbriet, pamrevlumab is given through intravenous infusion every three weeks.

PRM-151 is being developed by Roche following its acquisition of Promedior in November 2019 for US$390m upfront and an additional $1bn in potential milestones. In a 117-patient Phase II trial, PRM-151 demonstrated a 48% reduction in FVC decline versus placebo at the 24-week point. Roche recently initiated a 658-patient Phase III trial for the programme, with completion expected in 2023. Participants are given IV infusions over 50–70 minutes on days one, three and five followed by infusions every four weeks for 48 weeks.

Galapagos is developing GLPG-1205, which demonstrated a 55% reduction in the rate of FVC decline versus control at the 26-week mark in the Phase II PINTA trial. Patients were allowed to be on Ofev, Esbriet or nothing, on top of GLPG-1205. Galapagos is progressing the programme into a dose-finding Phase IIb, which we expect to be initiated sometime in CY21. In total, Galapagos is developing several molecules for IPF, GLPG-1205, the recently acquired GLPG-4716 (finished Phase I) and the preclinical candidates GLPG-4124 and GLPG-4586. Recently, however, GLPG-1690 from Galapagos failed in Phase III (although the precise reasons were undisclosed) and all clinical trials for this molecule were discontinued. In a Phase IIa trial in 23 patients over a 12-week period, patients receiving GLPG-1690 showed an FVC increase of 8mL while those on placebo had an FVC decrease of 87mL. While the data was from a small trial and of limited duration, the absence of FVC deterioration in the GLPG-1690 arm was considered encouraging.

Other programmes of note are fezagepras/PBI-4050 from Liminal Biosciences. It ran a 41-patient trial with three arms, one with its drug alone and the other two in combination with the marketed products. The results are a little hard to interpret without a placebo arm and there does seem to be a drug interaction with Esbriet; however, the arm in combination with Ofev was promising with a small increase in FVC after 12 weeks.10 Initiation of a Phase IIb is expected in H221. TD-139/GB-0139 by Galecto/PharmAkea is the only inhaled therapy in the pipeline and this may be a troublesome mode of action as it might be difficult to have the patients inhale enough of the drug into their lungs if they are short of breath. Data for this drug are limited to a Phase I/IIa in 36 healthy subjects and 24 IPF patients, with IPF patient data mostly related to biomarkers.11 It is recruiting a 450-patient Phase IIb trial with completion expected by the end of 2021. Bristol Myers is working on CC-90001. Data so far are limited to biomarker data from Phase Ia and Ib in 100 healthy adults and 16 patients with pulmonary fibrosis. A Phase II in 210 participants is recruiting, with the study expected to complete the 24-week treatment phase in mid-2021.

Importantly, as the two approved IPF medications are blockbusters, there is significant pharma industry interest in this area. Besides the Promedior acquisition by Roche in 2019, in the same year Boehringer Ingelheim licensed a Phase I asset from Bridge Biotherapeutics for €45m upfront and over €1.1bn in milestones (but the collaboration has since terminated). More recently, in November 2020, Galapagos signed a deal with the Polish biotech company OncoArendi for OATD-01 (now GLPG-4716), a chitotriosidase/acidic mammalian chitinase (CHIT1/AMCase) inhibitor that has completed Phase I. Galapagos paid €25m upfront and OncoArendi will be eligible for €320m in total potential milestones and tiered royalties up to the low double digits.

Our estimates for AD-214 for the treatment of IPF are based on the assumptions that approximately 65% of IPF patients are diagnosed and 35% of them are treated in the US and 50% of them are treated in the EU5 (recall that the price of current treatments in the EU is substantially less than in the US). We then estimate that at peak the market share for AD-214 will be 5% of those patients in both regions as we expect there will be competition from a number of branded and generic players by the time AD-214 reaches the market. AD-214 will also be an IV therapy in a market with existing oral medication alternatives, potentially limiting its uptake to those who either have failed or cannot tolerate current medications. Our market share estimates may prove conservative if the therapy has a superior efficacy and toxicity profile compared to the currently marketed competitive products. However, as we have no human clinical data, we estimate approval is not likely until 2028 (and hence we do not know what the competitive landscape may look like at that point) and the mode of administration is more inconvenient, we believe conservatism is prudent.

Using a US$125,000 price per patient per course of therapy in the US and US$40,000 in the EU (a premium to the marketed therapies) we arrive at peak sales of US$540m (A$718m) a year for the therapy. We apply a 12.5% chance of success to AD-214, a premium to our standard 10% probability of success for a Phase I programme. This is due to the fact that 42 subjects have already been dosed with no adverse safety events of clinical concern (including at the highest planned dose of 20mg/kg), increasing our confidence in AD-214’s safety profile. We also model revenues to 2040. Granted patents provide protection until 2036, but we do expect additional patents to be filed. Additionally, AD-214 will be eligible for 12-year exclusivity (given that it is a biologics drug) on approval in the US and 10 years in the EU (as it is an orphan drug) as well as up to five years of patent extensions in both jurisdictions.

In September 2019, AdAlta licensed the i-body platform to GE Healthcare for diagnostic purposes in combination with PET tracing. The objective is to identify molecular markers of activated T cells, which could help in the selection and monitoring of patients who are receiving immunotherapy. The initial focus of the collaboration is granzyme B, which has been shown to be a potentially helpful early biomarker for immunotherapy response in tumours.12 Lead optimisation is underway as the collaboration has yielded a panel of i-bodies with affinity, specificity and activity properties against granzyme B that warrant further development. Lead optimisation is expected to complete in H1 CY21 after which GE Healthcare may progress a lead i-body into preclinical development. A$1.15m in milestones and research fees have been earned to 30 September 2020. However, additional financial details of the collaboration have not been disclosed. AdAlta is seeking to license the i-body platform to at least one additional partner by the middle of CY21. We do not currently attribute value to this partnership due to both the lack of financial details related to it and the early stage of development. We expect to add it into our valuation once it reaches human clinical trials.

As the underlying cause of IPF is unknown, companies are limited to targeting the symptoms, which historically has led to limited efficacy as the disease continues to progress even with treatment. This would make the clinical trial programme more costly as large pivotal trials are needed to obtain a statistically significant result from a small treatment effect differences versus placebo or standard-of-care. And while IPF has historically been an indication with no or limited choices, there are several potential candidates in clinical trials, all of which can reach the market before AD-214. Additionally, AD-214 may be disadvantaged potentially due to its intravenous (IV) administration (the two marketed products are oral although pirfenidone requires nine pills a day, which is not a convenient dosing schedule), although the two competitive programmes in Phase III are intravenous as well, suggesting this mode of administration is viable. Considerations from the IV dosing route may be mitigated if the dosing schedule can be reduced to only once every two or three weeks. Beyond the branded competition, both the currently approved products will be generic by the time AD-214 reaches the market (Ofev starting in 2021 in the US and Esbriet in 2026), which may delay AD-214 usage to later lines of therapy unless combination therapy with AD-214 makes treatment more effective. However, some of these competitive issues may be countered if AdAlta is able to sign an effective partner for AD-214, possibly Roche or Boehringer Ingelheim, both of which have extensive experience with IPF and are active on the IPF business development front. The company also faces financing risks, which can lead to potentially significant dilution if funding needs are met through equity issuance. Share issuance over the next few years may be higher than current shares outstanding, depending on the prevailing stock price at the time of such raise(s).

We are initiating coverage of AdAlta at A$60m or A$0.25 per basic share using a risk-adjusted NPV model focused strictly on the AD-214 programme in IPF, as it is the only programme in human clinical trials. We attribute a 12.5% chance of success to AD-214, a premium to our standard 10% probability of success for a Phase I programme. This is due to the fact that 42 subjects have already been dosed with no adverse safety events of clinical concern (including at the highest planned dose of 20mg/kg), increasing our confidence in AD-214’s safety profile. We are also modelling peak sales of A$718m and launch in 2028. We will adjust our assumptions as AD-214 advances through clinical studies. For the sake of illustration of how this might look, based on our current model, by 2023 AD-214 would be worth A$182m if it is at the start of Phase II and if a 30% probability of success is assumed at that time.

Additionally, as some of the recent business development deals in this indication have occurred in Phase I or Phase II, there is a potential for a valuation inflection point and/or a validating partnership after the end of Phase I. Also, we intend to add additional AD-214 indications, such as ILD, additional pipeline products and additional platform deals as necessary. All of which would likely have positive impacts on our valuation.

AdAlta reported A$8.1m in cash on its balance sheet at the end of December 2020. The company owed Radium Capital A$2.2m as part of facility, but repaid it through funds received as part of the Australian Research and Development Tax refund in October 2020. AdAlta raised A$8.1m during the quarter ended September 2020 through a placement and entitlement offer of 81.2m shares at A$0.10 each. Historically, the company has had a relatively low burn rate in terms of operating cash flow, of about A$5.9m in FY20 and A$5.8m in FY19. In H1 FY21, the burn rate was only A$0.8m, benefiting from the receipt of a A$3.1m R&D tax incentive refund for FY20. We estimate AdAlta will likely need to raise an additional A$11m through the end of FY23 (at which point AD-214 should be in the midst of Phase II testing), which we model as illustrative long-term debt, barring additional licensing deals. The financing needs of the company through profitability will greatly depend on its ability to find a partner for AD214 as Phase II and Phase III development will accelerate spending and the pace that it progresses its internal pipeline of products. The Ofev clinical trial programme included two Phase III studies totalling 1,061 patients. Assuming a cost of US$100,000 per patient and a similar size for the pivotal trials, the total cost of Phase III could be US$106m (A$138m). Hence, we anticipate a partner is likely needed for Phase III, although our modelling/valuation is based on the company retaining full economics and developing the product internally.