Probiodrug — Early PQ912 data for Huntington’s; AD data soon

Probiodrug — Early PQ912 data for Huntington’s; AD data soon

Probiodrug’s new preclinical data showed that PQ912 demonstrated efficacy in Huntington’s disease (HD) in an animal model. Subject to further preclinical work, PQ912 could be fast-tracked to the clinic, which would diversify Probiodrug’s R&D pipeline with a new indication. Much will depend on the outcome of the company’s milestone clinical Phase IIa SAPHIR trial with PQ912 for Alzheimer’s disease (AD) with the data readout shortly. PQ912 is a first-in-class small molecule glutaminyl cyclase (QC) inhibitor and represents a differentiated approach in the AD field. We value Probiodrug at €345m or €42.1/share.

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Probiodrug

Early PQ912 data for Huntington’s; AD data soon

FY16 company results

Pharma & biotech

12 April 2017

Price

€17.99

Market cap

€147m

Net cash (€m) at end Q416

21.9

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

14.3

(2.0)

(20.0)

Rel (local)

12.7

(8.0)

(32.7)

52-week high/low

€23.8

€15.1

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 events

PQ912 Phase IIa data

Q217

Q117 results

12 May 2017

Q217 results

31 August 2017

Analysts

Jonas Peciulis

+44 (0)20 3077 5728

Probiodrug is a research client of Edison Investment Research Limited

Probiodrug’s new preclinical data showed that PQ912 demonstrated efficacy in Huntington’s disease (HD) in an animal model. Subject to further preclinical work, PQ912 could be fast-tracked to the clinic, which would diversify Probiodrug’s R&D pipeline with a new indication. Much will depend on the outcome of the company’s milestone clinical Phase IIa SAPHIR trial with PQ912 for Alzheimer’s disease (AD) with the data readout shortly. PQ912 is a first-in-class small molecule glutaminyl cyclase (QC) inhibitor and represents a differentiated approach in the AD field. We value Probiodrug at €345m or €42.1/share.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(
€)

DPS
(€)

P/E
(x)

Yield
(%)

12/15

0.0

(13.5)

(1.96)

0.0

N/A

N/A

12/16

0.0

(13.8)

(1.81)

0.0

N/A

N/A

12/17e

0.0

(10.5)

(1.28)

0.0

N/A

N/A

12/18e

0.0

(8.7)

(1.06)

0.0

N/A

N/A

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

FY16 results in line with expectations

Probiodrug reported 2016 results in line with our estimates. R&D spend in FY16 was €11.0m, vs our expectation of €11.1m, while G&A expenditure of €2.9m was lower than our €3.3m estimate indicating good cost management. Probiodrug reported cash of €21.9m at end FY16, which included a capital raise of €14.9m in October 2016. The company guided that the net loss in 2017 could be lower than in 2016 (€13.9m) since R&D costs will decrease with the SAPHIR trial winding down.

All eyes on SAPHIR data readout

Probiodrug’s Phase IIa SAPHIR is due to report results before mid-2017. The trial is investigating the effects of PQ912 in AD with safety and tolerability being the primary endpoints; however, secondary endpoints will provide insights into the effect on the pathology of the disease. Since the treatment duration in Phase IIa is a relatively short three months, the R&D strategy after the SAPHIR trial will depend on results. Presuming the safety profile is confirmed, the next goal would be to trial PQ912 for a longer treatment period in the form of a Phase IIb or Phase III study. Obtaining cognition improvement over a three-month period of treatment would be a best-case scenario, but we do not believe this is a prerequisite to establishing an attractive partnership deal before moving into late-stage development.

Valuation: Slightly upped to €345m

Our valuation of Probiodrug is slightly increased, from €337m or €41.2/share, to €345m or €42.1/share due to rolling our model forward, which offsets the lower cash position of €21.9m. Our model suggests cash should be sufficient to fund operations throughout 2018, which gives enough time, post-data readout, to share future development strategy and progress with potential partners depending on the results. The outcome of the Phase IIa trial is the main catalyst in the near term.

Preclinical data support new PQ912 application

Probiodrug’s preclinical data revealed that PQ912 demonstrated efficacy in HD in a well characterised model. BACHD mice with human gene coding mutant protein huntingtin (mHTT), a hallmark of the disease, were used in the study. Probiodrug will present the results at the 12th Annual HD Therapeutics Conference of the CHDI Foundation on 23 April in Malta; the headline findings include:

mHTT levels in the brain were reduced by around 30% after treating the mice for 18 weeks with PQ912.

The mHTT reduction was associated with improvement in the pathophysiology of the disease:

reduction of inflammation marker the GFAP-protein;

normalisation of abnormal body weight gain; and

normalisation of several mRNA markers coding heat shock proteins, which can prevent the accumulation of misfolded mHTT and thus its toxicity.

Probiodrug hypothesised that these effects may result from an inhibition of similar molecular mechanisms that were already well explored in AD. While encouraging, this is still the first preclinical data set released, so it is not clear whether this would translate to clinical efficacy. The company has not revealed further development strategy yet; in our view, much will depend on the outcome of the SAPHIR trial due shortly. Since PQ912 has already established safety data (short term in humans and long-term toxicity data in animals), we believe that the drug candidate could be fast-tracked to studies with HD patients. This means that Probiodrug would not be a single indication company anymore, which we believe would be a welcome diversification. The company also communicated that it is exploring PQ912’s potential in other conditions, such as Down’s syndrome.

HD market potential

HD is an incurable, inherited disorder associated with a loss of neurons in specific locations, resulting in symptoms such as involuntary movements (chorea), dementia and behavioural changes. Estimated prevalence is 4.1-8.4 per 100,000 people, translating to a patient population in the range of 13-27k (source: Huntington Disease, Medscape). HD is a progressive disease with onset in 30-40-year-olds and patients surviving 10-25 years on average. There is currently no disease modifying therapy for this condition, only various treatment options to alleviate symptoms such as chorea or improve patients’ quality of life. Therefore, the progress of the disease cannot be stopped.

According to EvaluatePharma, tetrabenazine (Xenazine) is notable among the branded drugs used to alleviate chorea in HD. Xenazine is a monoamine inhibitor, which depletes neurotransmitters dopamine, noradrenaline and serotonin, altering transmission of electric signals from the brain that control movement. Marketed by Lundbeck in the US, Xenazine had $317m in peak sales in 2015, which then fell to $233m in 2016 after the introduction of the first generic versions. Notably, such sales were achieved with only a symptomatic drug, while a disease modifying drug would very likely achieve much higher levels, in our view.

Financials

R&D spend in FY16 was €11.0m, in line with our €11.1m. G&A expenditure of €2.9m was lower than our €3.3m estimate for FY16, indicating good cost management. We keep our FY17 R&D cost estimate of €7.7m unchanged in line with Probiodrug’s guidance that 2017 net loss may be lower than in 2016, as the SAPHIR trial is winding down. We slightly lower our FY17 G&A costs expectations to €3.1m from €3.4m and subsequently expect the 2017 EPS loss at €1.30, an improvement from our previous loss of €1.35 (Exhibit 1).

Probiodrug reported cash of €21.9m at end FY16, which included a capital raise of €14.9m in October 2016. Our post-FY16 model suggests that this should be sufficient to fund operations into 2019. If the company is required to repay tax provisions of €2.6m (originating from 2002-2005 and with no court decision yet), then the cash reach could be to Q418.

We continue to project that if the Phase IIa 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 a risk-adjusted milestone (€25m) from a partner for PQ912 that could be triggered by licensing (more details in our initiation report) our financial forecasts do not include any such income.

Exhibit 1: Summary of the main changes to our Probiodrug financial forecasts

€m

2016

2017e

2018e

Estimate

Actual

% change

Old

New

% change

New

Revenues

0.000

0.000

N/A

0.000

0.000

N/A

0.000

Gross profit

0.000

0.000

N/A

0.000

0.000

N/A

0.000

Research and development costs

(11.105)

(10.951)

-1%

(7.669)

(7.669)

+0%

(5.669)

Selling, general and administration costs

(3.279)

(2.909)

-11%

(3.443)

(3.054)

-11%

(3.207)

EBITDA

(14.285)

(13.680)

-4%

(11.018)

(10.508)

-5%

(8.632)

Operating profit (reported)

(14.342)

(13.777)

-4%

(11.070)

(10.640)

-4%

(8.793)

Profit before tax (rep)

(14.220)

(13.891)

-2%

(11.053)

(10.623)

-4%

(8.793)

Profit after tax (rep)

(14.220)

(13.891)

-2%

(11.053)

(10.623)

-4%

(8.793)

EPS (€, rep)

(1.82)

(1.82)

+0%

(1.35)

(1.30)

-4%

(1.07)

Source: Edison Investment Research, Probiodrug accounts

Operational update: SAPHIR trial in focus

Probiodrug’s Phase IIa SAPHIR trial is primarily a safety and tolerability study, but a set of exploratory readouts will assess PQ912’s effect on the pathology of the disease. Secondary endpoints include:

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

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, neurogranin and inflammatory markers.

More details about the trial design are provided in Exhibit 2.

Exhibit 2: 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 (21 sites, seven EU countries), randomised, double-blind, placebo-controlled, parallel-group study.

Design details

n=110 planned, 120 enrolled. Treatment-naïve patients (no concomitant symptomatic AD medication) 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.

Probiodrug’s strategy is to establish a partnership to develop PQ912 through late-stage studies. In our view, if the Phase IIa trial shows cognition improvements with a treatment time of just three months, 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. As far as we are aware, Probiodrug is the only company developing a QC inhibitor, 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. A base case scenario could be a Phase IIb study to evaluate the efficacy over a longer treatment period based on encouraging signals in exploratory readouts. In the case of very strong signals in several readout categories, this would allow going directly into a pivotal longer treatment study.

Valuation

We value Probiodrug at €345m or €42.1/share, up from €337m or €41.2/share previously, due to rolling our model forward, which offsets the lower cash position of €21.9m. We are interested to see progress with PQ912 for HD, which we would add to our valuation upon entering clinical development. The breakdown of our rNPV valuation, which uses a discount rate of 12.5%, is shown in Exhibit 3. Our valuation only includes PQ912, with no value assigned to the preclinical pipeline given its earlier stage of development. Full details are discussed in our last outlook report.

Exhibit 3: Probiodrug rNPV valuation

Product

Indication

Launch

Peak sales (€m)

Value (€m)

Probability

rNPV (€m)

NPV/share (€/share)

PQ912

Alzheimer’s disease

2022

6,200

1,240.8

25%

323.1

39.5

Net cash

21.9

100%

21.9

2.7

Valuation

 

 

 

1,262.7

345.0

42.1

Source: Edison Investment Research. Note: peak sales are rounded to the nearest €100m.


Exhibit 4: Financial summary

€'000s

2012

2013

2014

2015

2016

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

6

0

0

0

0

0

0

Cost of Sales

0

0

0

0

0

0

0

Gross Profit

6

0

0

0

0

0

0

Research and development

(9,255)

(8,004)

(8,008)

(10,158)

(10,951)

(7,669)

(5,669)

EBITDA

 

 

(10,206)

(9,387)

(11,173)

(13,337)

(13,680)

(10,508)

(8,632)

Operating Profit (before amort. and except.)

(10,521)

(9,675)

(11,241)

(13,363)

(13,700)

(10,534)

(8,658)

Intangible Amortisation

(37)

(26)

(26)

(30)

(77)

(106)

(134)

Exceptionals

0

0

0

0

0

0

0

Other

0

0

0

0

0

0

0

Operating Profit

(10,558)

(9,701)

(11,267)

(13,393)

(13,777)

(10,640)

(8,793)

Net Interest

(314)

(106)

(170)

(112)

(114)

17

0

Profit Before Tax (norm)

 

 

(10,835)

(9,781)

(11,411)

(13,475)

(13,814)

(10,518)

(8,658)

Profit Before Tax (FRS 3)

 

 

(10,872)

(9,807)

(11,437)

(13,505)

(13,891)

(10,623)

(8,793)

Tax

(656)

0

0

0

0

0

0

Profit After Tax (norm)

(11,491)

(9,781)

(11,411)

(13,475)

(13,814)

(10,518)

(8,658)

Profit After Tax (FRS 3)

(11,528)

(9,807)

(11,437)

(13,505)

(13,891)

(10,623)

(8,793)

Average Number of Shares Outstanding (m)

4.1

4.3

4.9

6.9

7.6

8.2

8.2

EPS - normalised (€)

 

 

(2.84)

(2.30)

(2.35)

(1.96)

(1.81)

(1.28)

(1.06)

EPS - normalised and fully diluted (€)

 

(2.84)

(2.30)

(2.35)

(1.96)

(1.81)

(1.28)

(1.06)

EPS - (IFRS) (€)

 

 

(2.85)

(2.30)

(2.35)

(1.97)

(1.82)

(1.30)

(1.07)

Dividend per share (€)

0.0

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

n/a

EBITDA Margin (%)

n/a

n/a

n/a

n/a

n/a

n/a

n/a

Operating Margin (before GW and except.) (%)

n/a

n/a

n/a

n/a

n/a

n/a

n/a

BALANCE SHEET

Fixed Assets

 

 

996

425

186

140

167

152

109

Intangible Assets

67

101

82

56

96

107

90

Tangible Assets

926

321

101

81

68

42

16

Investments

3

3

3

3

3

3

3

Current Assets

 

 

9,009

5,856

21,294

21,726

22,199

10,963

2,284

Stocks

18

0

0

0

0

0

0

Debtors

5

0

0

0

0

0

0

Cash

7,726

4,421

20,920

21,361

21,897

10,661

1,982

Other

1,260

1,435

374

365

302

302

302

Current Liabilities

 

 

(3,570)

(9,320)

(4,580)

(4,911)

(5,140)

(4,263)

(4,083)

Creditors

(3,570)

(3,974)

(4,580)

(4,911)

(5,140)

(4,263)

(4,083)

Short term borrowings

0

(5,346)

0

0

0

0

0

Long Term Liabilities

 

 

(1,070)

(1,265)

(929)

(822)

(850)

(850)

(850)

Long term borrowings

0

0

0

0

0

0

0

Other long term liabilities

(1,070)

(1,265)

(929)

(822)

(850)

(850)

(850)

Net Assets

 

 

5,365

(4,304)

15,971

16,133

16,376

6,003

(2,540)

CASH FLOW

Operating Cash Flow

 

 

(12,090)

(8,477)

(10,540)

(12,149)

(13,255)

(11,136)

(8,562)

Net Interest

22

9

(54)

0

0

17

0

Tax

28

9

5

2

0

0

0

Capex

(64)

(4)

(2)

(6)

(7)

0

0

Acquisitions/disposals

0

0

0

0

0

0

0

Financing

9,516

(188)

32,436

12,594

13,798

(117)

(117)

Dividends

0

0

0

0

0

0

0

Net Cash Flow

(2,588)

(8,651)

21,845

441

536

(11,236)

(8,679)

Opening net debt/(cash)

 

 

(10,314)

(7,726)

925

(20,920)

(21,361)

(21,897)

(10,661)

HP finance leases initiated

0

0

0

0

0

0

0

Other

0

0

0

(0)

0

0

0

Closing net debt/(cash)

 

 

(7,726)

925

(20,920)

(21,361)

(21,897)

(10,661)

(1,982)

Source: Probiodrug accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

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London +44 (0)20 3077 5700

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New York +1 646 653 7026

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US

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

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

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

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

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Rockhopper Exploration — Sea Lion economics robust in current environment

Rockhopper’s (RKH) full year 2016 results do not reveal any material news, but do help underline the progress the company made in 2016 with the acquisition of production assets in Egypt and the continued lowering of costs at Sea Lion. Net production of 1,350boe/d helps to offset general costs and maintain the substantial cash balance (end of year $81m). Most importantly, perhaps, is that the board considers the Sea Lion development to be “sufficiently robust to be sanctioned in the current environment, assuming the required capital investment can be secured”. Therefore, focus continues on working with the operator (Premier) in getting the project to FID. We point investors to our recent note on the mechanisms that the partnership can follow and the impact on RKH’s value. Our NAV is 73p/share.

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