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Moving into CAR-T

AdAlta 31 August 2021 Update
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AdAlta

Moving into CAR-T

Development update

Pharma & biotech

31 August 2021

Price

A$0.10

Market cap

A$24m

A$1.38/US

Net cash (A$m) at 30 June 2021

4.1

Shares in issue

245.2m

Free float

78.6%

Code

1AD

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

4.3

(28.1)

(3.0)

Rel (local)

3.0

(32.2)

(21.4)

52-week high/low

A$0.20

A$0.08

Business description

AdAlta is an Australian healthcare company 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 for the treatment of idiopathic pulmonary fibrosis, currently in Phase I. AdAlta has also licensed its platform to GE Healthcare for the purpose of diagnostic imaging. The company has recently announced a CAR-T collaboration with Carina Biotech.

Next events

Addition of two more internal products to pipeline

H2 CY21

Analysts

Maxim Jacobs

+1 646 653 7027

Jyoti Prakash

+91 981 880 393

AdAlta has announced a collaboration with Carina Biotech, a private Australian company, in which the two companies will work together to develop chimeric antigen receptor T cell (CAR-T) therapies for solid tumours. Under the agreement, AdAlta will discover and optimise proprietary i-bodies on up to five undisclosed tumour antigen targets, from which Carina will generate bi-specific CAR-T cells and identify optimal candidates. We believe the CAR-Ts will be autologous, generated from a patient’s own cells. The two companies will jointly fund pre-clinical proof of concept studies in mouse tumour models and jointly own the products developed under the collaboration. We believe it will likely be several years before a candidate enters the clinic and AdAlta does not expect this collaboration to have a material impact on its current cash runway.

Year end

Revenue (A$m)

PBT*
(A$m)

EPS*
(A$)

DPS
(A$)

P/E
(x)

Yield
(%)

06/20

3.8

(5.9)

(0.04)

0.0

N/A

N/A

06/21e

4.0

(5.5)

(0.02)

0.0

N/A

N/A

06/22e

3.2

(7.6)

(0.03)

0.0

N/A

N/A

06/23e

3.2

(7.7)

(0.03)

0.0

N/A

N/A

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

CAR-T therapies revolutionised cancer treatment

CAR-T therapies work by engineering the body’s immune T-cells to recognise cancer cells as they would invading or diseased cells. There are currently five approved CAR-T therapies, all for blood cancers. The first two, Kymriah from Novartis and Yescarta from Gilead, were approved in 2017 and had combined sales of over US$1bn in 2020.

Solid tumours remain a major unmet need

There are currently no approved CAR-T therapies for solid tumours, mainly due to toxicity. If the target antigen is also found in normal cells, catastrophic toxicities can result. AdAlta and Carina believe that bi-specific CAR-Ts that target two tumour antigens could reduce the chance of damaging healthy tissue and could also reduce the probability that tumour cells are missed.

Products in collaboration jointly owned

Under the terms of the collaboration, AdAlta and Carina will jointly own the products developed under it. On an individual product basis, the companies may decide to co-develop any product, out-license it to third parties or either party may license the other company’s share in the product.

Valuation: A$75m or A$0.30 per basic share

We are increasing our valuation to A$75m or A$0.30 per basic share, from A$68m or A$0.28 per basic share, mainly due to rolling forward our net present valuation (NPV). This was partially offset by lower net cash. We do not currently value the Carina collaboration due to its early stage.

AdAlta is a research client of Edison Investment Research Limited

AdAlta collaboration with Carina Biotech

Under the announced agreement, AdAlta will discover and optimise proprietary i-bodies on up to five undisclosed tumour antigen targets, from which Carina will generate CAR-T cells, including bi-specific and dual CAR-T cells, and identify optimal candidates. The first two targets have been selected for the collaboration with in vitro proof of principle having been established for one of them.

CAR-T therapies have helped revolutionise the treatment of blood cancers and work by engineering the body’s immune T-cells to recognise cancer cells as they would invading or diseased cells. Novartis’s Kymriah was the first CAR-T therapy approved in the United States (in 2017) and was approved for relapsing B-cell acute lymphoblastic leukaemia in children and young adults. Kymriah consists of a one-time treatment that had an 83% complete response rate in clinical trials with patients who did not respond to standard treatments. Due to these results and a costly manufacturing process, Kymriah was priced at a premium of US$475,000 for the treatment. Kymriah sales in 2020 were US$474m with current consensus expectations for 2025 sales at US$1.2bn according to Evaluate Pharma. A second therapy, Yescarta, was approved later in 2017 in patients with large-B-cell lymphomas whose cancer has progressed after receiving at least two prior treatment regimens. The therapy demonstrated a 51% complete response rate and has a price of US$373,000 per treatment. Sales in 2020 for Yescarta were US$563m with consensus expectations for US$1.3bn in sales in 2025 according to Evaluate Pharma. It is important to note that Gilead acquired Yescarta through its purchase of Kite Pharmaceuticals for US$11.9bn. In total there are currently five approved CAR-T therapies (see Exhibit 1), all for blood cancers.

Exhibit 1: Currently approved CAR-T therapies

Product

Manufacturer

Indication

FDA approval date

2020 sales (US$m)

Consensus 2025 sales (US$m)

Kymriah

Novartis

Acute lymphoblastic leukaemia, large B cell lymphoma

August 2017

474

1,156

Yescarta

Gilead

Large B cell lymphoma

October 2017

563

1,294

Tecartus

Gilead

Mantle cell lymphoma

July 2020

44

547

Breyanzi

Bristol Myers Squibb

Large B cell lymphoma

February 2021

N/A

1,120

Abecma

Bristol Myers Squibb

Multiple myeloma

March 2021

N/A

1,366

Source: AdAlta, EvaluatePharma

The focus of the collaboration will be solid tumours that have no approved CAR-T therapies. The main concern with CAR-T is that if the target antigen is also found in normal cells, catastrophic toxicities can result. In one case involving a breast cancer patient who received an HER2 targeting CAR-T, just 15 minutes after cell infusion the patient started experiencing respiratory distress and then died five days after treatment from multi-organ failure due to systematic microangiopathic injury.1 Of course, there are other issues that have hampered solid tumour CAR-T development, including suboptimal infiltration into tumour tissue and the immunosuppressive tumour microenvironment affecting efficacy.2 AdAlta and Carina believe that bi-specific and dual CAR-T cells that target two tumour antigens could reduce the chance of damaging healthy tissue and/or reduce the probability that tumour cells are missed.

  Morgan et al., Case Report of a Serious Adverse Event Following the Administration of T Cells Transduced With a Chimeric Antigen Receptor Recognizing ErbB2. Molecular Therapy vol. 18 no. 4, 843–851 Apr. 2010

  Marofi et al., CAR T cells in solid tumors: challenges and opportunities. Stem Cell Research and Therapy (2021) 12:81

Valuation

We are increasing our valuation to A$75m or A$0.30 per basic share, from A$68m or A$0.28 per basic share, mainly due to rolling forward our NPV. This was partially offset by lower net cash. We do not currently value the Carina collaboration due to its early stage. This may change as the collaboration advances and we receive more information on the targets and specific indications.

Exhibit 2: AdAlta valuation table

Product

Main indication

Status

Probability of successful commercialisation

Approval year

Peak sales (A$m)

Economics

rNPV
(A$m)

AD-214

IPF

Phase I

15%

2028

718

100.0%

70.4

Total

 

 

 

 

 

 

70.4

Net cash (as of 30 June 2021)

4.1

Total firm value (A$)

75

Total basic shares (m)

245.2

Value per basic share (A$)

0.30

Options (m)

7.9

Total number of shares (m)

253.1

Diluted value per share (A$)

0.29

Source: Edison Investment Research

Financials

The company recently reported FY21 results. Operating cash burn was A$4.8m for the year (vs A$5.9m in FY20) and the company reported A$4.1m in net cash (A$5.8m in gross cash and A$1.7m in short-term debt) at 30 June 2021. Following the annual results we have increased our estimate for FY22 SG&A expense by A$1.4m due to a higher run rate, but left everything else largely unchanged. We have introduced FY23 estimates, which feature an operating cash burn of A$7.1m. We estimate that AdAlta will likely need to raise an additional A$12m through the end of FY23 (up from A$11m previously), barring additional cash received from licensing deals.

Exhibit 3: Financial summary

A$'000s

2020

2021

2022e

2023e

Year end 30 June

AIFRS

AIFRS

AIFRS

AIFRS

PROFIT & LOSS

Revenue

 

 

3,828

3,984

3,168

3,199

Cost of Sales (including R&D)

(7,012)

(6,234)

(7,169)

(7,240)

Gross Profit

(3,185)

(2,249)

(4,001)

(4,041)

Sales, General and Administrative Expenses

(1,265)

(2,623)

(2,728)

(2,837)

EBITDA

 

 

(5,798)

(5,389)

(7,494)

(7,644)

Operating Profit (before amort. and except.)

 

 

(5,840)

(5,418)

(7,524)

(7,673)

Intangible Amortisation

0

0

0

0

Exceptionals

(70)

(115)

0

0

Operating Profit

(5,910)

(5,534)

(7,524)

(7,673)

Net Interest

(96)

(95)

(56)

(58)

Other

0

0

0

0

Profit Before Tax (norm)

 

 

(5,936)

(5,513)

(7,579)

(7,730)

Profit Before Tax (FRS 3)

 

 

(6,006)

(5,628)

(7,579)

(7,730)

Tax

0

0

0

0

Deferred tax

(0)

(0)

(0)

(0)

Profit After Tax (norm)

(5,936)

(5,513)

(7,579)

(7,730)

Profit After Tax (FRS 3)

(6,006)

(5,628)

(7,579)

(7,730)

Average Number of Shares Outstanding (m)

164.0

234.3

250.0

252.5

EPS - normalised (c)

 

 

(3.62)

(2.35)

(3.03)

(3.06)

EPS - Reported ($)

 

 

(0.04)

(0.02)

(0.03)

(0.03)

Dividend per share (c)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

177

72

73

75

Intangible Assets

0

0

0

0

Tangible Assets

99

72

73

75

Other

78

0

0

0

Current Assets

 

 

6,731

8,978

5,241

5,097

Stocks

0

0

0

0

Debtors

3,364

3,108

3,108

3,108

Cash

3,367

5,791

2,055

1,911

Other

0

78

78

78

Current Liabilities

 

 

(3,205)

(2,663)

(937)

(937)

Creditors

(1,014)

(976)

(937)

(937)

Short term borrowings

(2,191)

(1,687)

0

0

Long Term Liabilities

 

 

0

0

(5,000)

(12,000)

Long term borrowings

0

0

(5,000)

(12,000)

Other long term liabilities

0

0

0

0

Net Assets

 

 

3,702

6,386

(622)

(7,765)

CASH FLOW

Operating Cash Flow

 

 

(5,889)

(4,782)

(7,051)

(7,142)

Net Interest

0

0

0

0

Tax

0

0

0

0

Capex

(2)

(2)

(2)

(2)

Acquisitions/disposals

0

0

0

0

Financing

1,626

8,123

0

0

Dividends

0

0

0

0

Other

0

0

0

0

Net Cash Flow

(4,265)

3,339

(7,053)

(7,144)

Opening net debt/(cash)

 

 

(5,556)

(1,175)

(4,104)

2,945

HP finance leases initiated

0

0

0

0

Exchange rate movements

0

(15)

0

0

Other

(116)

(396)

5

0

Closing net debt/(cash)

 

 

(1,175)

(4,104)

2,945

10,089

Source: company accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by AdAlta and prepared and issued by Edison, in consideration of a fee payable by AdAlta. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by AdAlta and prepared and issued by Edison, in consideration of a fee payable by AdAlta. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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