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Moving to an inhaled formulation

AdAlta 22 July 2021 Update
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AdAlta

Moving to an inhaled formulation

Development update

Pharma & biotech

22 July 2021

Price

A$0.14

Market cap

A$33m

A$1.36/US$

Net cash (A$m) at 31 March 2021

6.0

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

(11.5)

(28.1)

26.2

Rel (local)

(10.4)

(30.5)

2.5

52-week high/low

A$0.20

A$0.09

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.

Next events

Second co-development deal

H2 CY21

Analysts

Maxim Jacobs

+1 646 653 7027

Jyoti Prakash

+91 981 880 393

AdAlta is a research client of Edison Investment Research Limited

AdAlta has announced it will be moving forward with an inhaled formulation of AD-214 into efficacy studies in patients with idiopathic pulmonary fibrosis (IPF) rather than the original intravenous (IV) formulation. Preclinical studies with a radiolabelled version of AD-214 have indicated that IV dosing leads to much of the administered drug being rapidly distributed through the liver and cleared, rendering it unavailable to deliver a therapeutic effect. The company believes the advantages of an inhaled formulation will include a more direct form of administrations for lung diseases, potentially lower drug doses required for efficacy, and lower costs to manufacture and administer.

Year end

Revenue (A$m)

PBT*
(A$m)

EPS*
(A$)

DPS
(A$)

P/E
(x)

Yield
(%)

06/19

3.5

(5.9)

(0.05)

0.0

N/A

N/A

06/20

3.8

(5.9)

(0.04)

0.0

N/A

N/A

06/21e

3.2

(6.1)

(0.02)

0.0

N/A

N/A

06/22e

3.3

(6.2)

(0.02)

0.0

N/A

N/A

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

Next steps for inhaled formulation development

With the new inhaled formulation, the company will need to conduct additional preclinical toxicology (with a focus on lung toxicity) and efficacy studies. Short bridging studies in healthy volunteers will also be needed. The company believes all these can be done with minimal delay to previously announced development timelines (i.e. time to Phase II efficacy data is largely unchanged).

Current Phase I study concluding

With the decision to move to an inhaled formulation, the company is concluding its Phase I programme for the IV formulation, which recently completed dosing of its first multiple dose cohort of eight subjects (six on drug and two on placebo) at 5mg/kg. After just two doses of AD-214, receptor occupancy was 100% and no drug induced tolerance occurred. Adverse events were mild (grade one) except for infusion-related reactions in two patients receiving AD-214, and one receiving placebo, which were grade two.

GE collaboration and internal pipeline on track

In May, AdAlta announced GE Healthcare is moving forward with multiple i-bodies that target granzyme B, a known marker of T-cell activation and hence an early biomarker for immunotherapy response in tumours. The collaboration on granzyme B remains on track. AdAlta is also expected to initiate discovery on two additional i-body targets by the end of CY21.

Valuation: A$68m or A$0.28 per basic share

We are maintaining our valuation of A$68m or A$0.28 per basic share as we continue to expect a launch of AD-214 in 2028 and the formulation change does not materially affect this forecast.

Investment summary

AdAlta has announced the decision to move forward with an inhaled formulation of AD-214 in IPF rather than the original IV formulation. Preclinical studies with a radiolabelled version of AD-214 have indicated that IV dosing leads to much of the drug that is administered being rapidly distributed through the liver and cleared, rendering it unavailable to deliver a therapeutic effect at the tested dose. Importantly, the company believes this rapid liver clearance is specific to the anti-CXCR4 i-body and will not apply to other i-bodies.

The company believes the advantages of an inhaled formulation will include a more direct form of administrations for lung diseases, potentially lower drug doses required for treatment effect, and lower costs to manufacture and administer. However, this may potentially 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 due to their lung disease although IPF patients frequently inhale salbutamol and steroids for relief of symptoms. It is worth noting there are three development programmes for inhaled treatments for IPF in clinical development and one in preclinical (see Exhibit 1) and AdAlta reports significant clinical interest in inhaled administration.

Exhibit 1: Inhaled development programmes for IPF

Drug

Company

Administration

Status

Tyvaso (Inhaled treprostinil)

United Therapeutics

3 breaths four times daily

Phase III

TD-139/GB-0139

Galecto/PharmAkea

Inhaled, 10mg once a day

Phase IIb

AP01 (aerosolized pirfenidone)

Avalyn Pharma

Inhaled, 100mg twice daily

Phase I/II

PRS-220

Pieris Pharmaceuticals

Inhaled

Preclinical

Source: AdAlta, company websites, clinicaltrials.gov

AdAlta has initiated discussions with contract research organisations to assist in selecting an approved delivery device and executing preclinical inhalation studies in appropriate toxicology (with a focus on lung toxicity) and efficacy models. The company will also need to run short bridging studies in healthy volunteers. Management believes all these can be done with minimal delay to previously announced timelines for development as much of the data needed to progress the inhaled version (such as systemic toxicity studies) have been already collected in the IV programme, which has been conducted at what will likely be much higher doses of the drug than needed for inhalation delivery, according to the company.

With the decision to move to an inhaled formulation, the company is concluding its current Phase I programme for the IV formulation, which recently completed dosing of its first multiple dose cohort of eight subjects (six on drug and two on placebo) at 5mg/kg. Originally, this Phase I study was intended to assess doses up to 15mg/kg and the company did receive approval to move to the 10mg/kg level by the Human Research Ethics Committee before the decision to conclude the trial early. At the 5mg/kg level, there were no dose-limiting toxicities, serious adverse events or concerning clinical laboratory results. After just two doses of AD-214, receptor occupancy was 100% and no drug induced tolerance occurred. Adverse events were mild (grade one) except for infusion-related reactions in two patients receiving AD-214, and one receiving placebo, which were grade two and resolved rapidly once the infusions ended. These infusion reactions were mainly characterised by flushing, tingling and pain, were likely specifically related to the IV formulation and may not be an issue for an inhaled version.

Valuation

We are maintaining our valuation of A$68m or A$0.28 per basic share as we continue to expect a launch of AD-214 in 2028 and the formulation change does not materially affect this forecast. Note that the value per diluted share increased from A$0.25 to A$0.27 as 23.3m options expired on 30 June 2021 (7.9m remain).

Exhibit 2: AdAlta valuation

Product

Main Indication

Status

Probability of successful commercialization

Approval year

Peak sales (A$m)

Economics

rNPV (A$m)

AD-214

IPF

Phase I

15%

2028

718

100.0%

62.4

Total

 

 

 

 

 

 

62.4

Net Cash (as of 31 March 2021)

6.0

Total firm value (A$)

68

Total basic shares (m)

245.2

Value per basic share (A$)

0.28

Options (m)

7.9

Total number of shares (m)

253.1

Diluted value per share (A$)

0.27

Source: Edison Investment Research

Financials

The company reported A$6.0m in net cash at 31 March 2021, burning A$2.0m during the most recent quarter. In June the company announced a loan facility with Radium capital in which it will borrow funds roughly equivalent to the accrued R&D tax incentive rebate, which will be repaid once the rebate is received. Due to the facility, the company received A$1.68m before the end of FY21 on 30 June 2021 and will repay that amount by 31 October 2021, which is when the rebate is expected to be paid by the Australian government. The annualised interest on this facility is 14%. We estimate that AdAlta will likely need to raise an additional A$11m through the end of FY23, barring additional licensing deals.

Exhibit 3: Financial summary

A$'000s

2019

2020

2021e

2022e

Year end 30 June

AIFRS

AIFRS

AIFRS

AIFRS

PROFIT & LOSS

Revenue

 

 

3,539

3,828

3,244

3,276

Cost of Sales (including R&D)

(7,354)

(7,012)

(7,082)

(7,153)

Gross Profit

(3,815)

(3,185)

(3,838)

(3,877)

Sales, General and Administrative Expenses

(1,315)

(1,265)

(1,316)

(1,368)

EBITDA

 

 

(5,957)

(5,798)

(5,920)

(6,011)

Operating Profit (before amort. and except.)

 

 

(5,989)

(5,840)

(5,961)

(6,052)

Intangible Amortisation

0

0

0

0

Other

(827)

(1,348)

(766)

(766)

Exceptionals

20

(70)

0

0

Operating Profit

(5,969)

(5,910)

(5,961)

(6,052)

Net Interest

51

(96)

(178)

(98)

Other

0

0

0

0

Profit Before Tax (norm)

 

 

(5,938)

(5,936)

(6,139)

(6,150)

Profit Before Tax (FRS 3)

 

 

(5,918)

(6,006)

(6,139)

(6,150)

Tax

0

0

0

0

Deferred tax

(0)

(0)

(0)

(0)

Profit After Tax (norm)

(5,938)

(5,936)

(6,139)

(6,150)

Profit After Tax (FRS 3)

(5,918)

(6,006)

(6,139)

(6,150)

Average Number of Shares Outstanding (m)

118.4

164.0

250.0

252.5

EPS - normalised (c)

 

 

(5.02)

(3.62)

(2.45)

(2.43)

EPS - Reported ($)

 

 

(0.05)

(0.04)

(0.02)

(0.02)

Dividend per share (c)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

141

177

164

166

Intangible Assets

0

0

0

0

Tangible Assets

138

99

86

88

Other

3

78

78

78

Current Assets

 

 

9,169

6,731

8,547

6,395

Stocks

0

0

0

0

Debtors

3,613

3,364

3,364

3,364

Cash

5,556

3,367

5,183

3,030

Other

0

0

0

0

Current Liabilities

 

 

(1,819)

(3,205)

(2,805)

(1,125)

Creditors

(1,819)

(1,014)

(1,125)

(1,125)

Short term borrowings

0

(2,191)

(1,680)

0

Long Term Liabilities

 

 

0

0

0

(5,000)

Long term borrowings

0

0

0

(5,000)

Other long term liabilities

0

0

0

0

Net Assets

 

 

7,491

3,702

5,906

435

CASH FLOW

Operating Cash Flow

 

 

(5,816)

(5,889)

(5,372)

(5,470)

Net Interest

0

0

0

0

Tax

0

0

0

0

Capex

(171)

(2)

(2)

(3)

Acquisitions/disposals

0

0

0

0

Financing

9,237

1,626

7,796

0

Dividends

0

0

0

0

Other

0

0

0

0

Net Cash Flow

3,250

(4,265)

2,421

(5,472)

Opening net debt/(cash)

 

 

(2,306)

(5,556)

(1,175)

(3,503)

HP finance leases initiated

0

0

0

0

Exchange rate movements

0

0

0

0

Other

0

-116

-93

0

Closing net debt/(cash)

 

 

(5,556)

(1,175)

(3,503)

1,970

Source: company reports, 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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