On track for PQ912 data mid-2016

Probiodrug 22 September 2015

Probiodrug

On track for PQ912 data mid-2016

H115 results and update

Pharma & biotech

23 September 2015

Price

€19.51

Market cap

€133m

Net cash (€m) at 30 June 2015

14.8

Shares in issue

6.8m

Free float

51%

Code

PBD

Primary exchange

Euronext Amsterdam

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(13.3)

(9.3)

0.0

Rel (local)

(8.6)

5.8

0.0

52-week high/low

€25.00

€15.25

Business description

Probiodrug is a German biopharmaceutical company developing its clinical pipeline for the treatment of Alzheimer’s disease. Lead product candidate, PQ912, has entered 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 detailed Phase I data

Q415

Phase I data from Lilly’s LY3002813 (read-across to PBD-C06)

Q415

PQ912 first Phase IIa data

Mid-2016

Analysts

Dr Lucy Codrington

+44 (0)20 3681 2527

Dr Philippa Gardner

+44 (0)20 3681 2521

Probiodrug is a research client of Edison Investment Research Limited

Probiodrug continues to expect data from the Phase IIa study of lead product candidate PQ912 around mid-2016. In the meantime, Eli Lilly is expected to announce initial data from the Phase I trial of its antibody-targeting pGlu-Abeta in Q415. This will have read-across to PBD-C06, Probiodrug’s preclinical pGlu-Abeta antibody. Current cash should provide sufficient funding until the PQ912 data readout, when Probiodrug may seek to partner PQ912. We value Probiodrug at €217.5m or €32.1/share.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/13

0.0

(9.8)

(2.30)

0.0

N/A

N/A

12/14

0.0

(11.4)

(2.35)

0.0

N/A

N/A

12/15e

0.0

(11.7)

(1.73)

0.0

N/A

N/A

12/16e

0.0

(12.1)

(1.79)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items

Phase II SAPHIR recruiting as planned

PQ912 is in SAPHIR, a Phase IIa clinical trial in patients with early Alzheimer’s disease (n=110). Probiodrug reports that recruitment is continuing as planned. Although the trial is primarily a safety and tolerability study, data from exploratory readouts should provide important insights into the drug’s potential interference with AD pathology resulting in cognitive benefits. The trial is on track to deliver first data in mid-2016, and if positive, this could trigger a partnership.

Planning for extended study

Probiodrug is currently evaluating options to assess efficacy of PQ912 over a longer-term treatment period (at least one year). This may either be an extension of the SAPHIR study or a separate study. The numbers, timings and costs of the study have yet to be decided. The rationale for this is clear: with AD being a chronic disease, it will be necessary to evaluate long-term treatment to demonstrate sustained disease modification. However, Probiodrug also remains confident that a treatment effect will be seen in the shorter treatment period of SAPHIR, due to a decrease in hypertoxic pGlu-Abeta oligomers.

LY3002813 data has read-across to PBD-C06

Initial data from the 100-pt Phase I single- and multiple-dose, dose-escalation study of Lilly’s LY3002813 in mild-moderate AD are expected in Q415. Although primarily a safety study, the data will have direct read-across to Probiodrug’s preclinical PBD-C06, also an antibody targeting pGlu-Abeta. Positive data could also lend support to Probiodrug’s fundamental pGlu-Abeta targeted approach.

Valuation: Risk-adjusted NPV of €217.5m

Our Probiodrug valuation is largely unchanged at €217.5m (from €216m) or €32.1/share, including net cash and PQ912 in mild AD. Our model continues to suggest net cash of €14.8m at end-H115 should be sufficient to fund operations to mid-2016, around the time initial data from the Phase IIa study are expected.

Alzheimer’s Association conference update

The much hoped-for definitive breakthrough in Alzheimer’s disease (AD) was not quite delivered at the July Alzheimer’s Association conference, which saw updates on various antibodies tackling amyloid-beta (Abeta).

As a reminder, in March Biogen reported that in the Phase Ia trial of aducanumab in early AD, there was a dose-dependent reduction in Abeta burden, and also a dose-dependent, statistically significant effect of slowing cognitive decline (as measured by CDR-SB and MMSE). These improvements in cognitive decline were statistically significant in the high-dose (10mg) arm, but not in the lower-dose (3mg) arm. However, the 10mg arm also had a higher rate of ARIA-E (brain swelling) in a dose-dependent fashion. It was therefore hoped that the 6mg dose would also slow disease progression, while reducing the incidence of ARIA-E. At 12 months, while the 6mg dose also led to a statistically significant reduction in Abeta burden, it fell short of significance on two key efficacy measures (CDR-SB and MMSE), and actually performed worse than the 3mg arm on the MMSE rating, raising questions over the dose-dependent response in disease modification. Further, the incidence of ARIA-E increased compared to the six-month data. There remains optimism, however, as a pre-specified analysis across placebo and all doses of aducanumab did show the slowing of clinical decline was dose-dependent, and this dose-dependence achieved statistical significance for both cognitive scales. Enrolment has begun for the Phase III programme.

Lilly’s solanezumab update from the EXPEDITION-EXT trial at best offered some support to a disease-modifying effect. The trial involved pooling the patients who had completed the placebo-controlled EXPEDITION I and EXPEDITION 2 studies into an extension trial in which all patients received solanezumab. This created two treatment groups: an ‘early-start’ group, which had received solanezumab throughout, and a ‘delayed-start’ group, which only received solanezumab in the extension phase. The finding that the delayed-start group continued to lag behind the early-start group, and the fact that the two groups declined on parallel tracks, may well illustrate a disease-modifying effect. It is also worth noting that the study failed to track significant results for MMSE and CDR-SB. A larger, ongoing delayed-start trial, EXPEDITION 3, is ongoing.

Roche also announced plans for a new Phase III study using a higher dose of gantenerumab (which failed a Phase III study last year), and for a Phase III study for crenezumab.

Continued confidence in differentiated approach

Probiodrug remains confident in its more specific approach: targeting a toxic variant of Abeta,
pGlu-Abeta, implicated as an initiating and sustaining factor in the AD pathological cascade. Additionally, while the ability of some Abeta antibodies to cross the blood-brain barrier and thus exert their effects has been questioned, PQ912 (a small molecule) has been shown to engage with its target, QC, in the CSF with >90% inhibition demonstrated in Phase I trials and maximum tolerated dose not reached. Taken together, Probiodrug is confident that its differentiated approach will succeed.

Lilly data lend further support to combination rationale

The conference saw Lilly report further preclinical data supporting its combination approach of a BACE inhibitor and LY3002813. Various dose combinations have been assessed in 700 mice, and have shown synergistic effects on Abeta clearance, demonstrating significant dose-response and time-dependent effects. This lends support to Probiodrug’s planned preclinical work to assess combinations of PQ912 and PBD-C06, and also PBD-C06 in combination with a BACE inhibitor.

Valuation

Our updated Probiodrug valuation is €217.5m (from €216m) or €32.1/share, as a result of rolling our model forwards in time, and updating for the last reported net cash. Our assumptions for PQ912 are unchanged. Our valuation is based on a risk-adjusted NPV analysis of PQ912, which includes end-H115 net cash of €14.8m, with no value assigned to the preclinical pipeline given its earlier stage of development. The breakdown of our rNPV valuation, which uses a discount rate of 12.5%, is shown in Exhibit 1.

Exhibit 1: Probiodrug rNPV valuation

Product

Indication

Launch

Peak sales (€m)

Value (€m)

Probability

rNPV (€m)

NPV/Share (€/share)

PQ912

Alzheimer's disease

2022

6,200

1013.0

20%

202.7

30.0

Net cash

14.8

100%

14.8

2.2

Valuation

 

 

 

1,027.8

 

217.5

32.1

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

Our valuation assumes that Probiodrug will partner PQ912 once top-line data from SAPHIR are available in mid-2016. Our partnering assumptions are maintained and include a 15% royalty on global sales. We maintain our assumptions of peak sales of c €6.2bn in 2028, assuming launch in 2022, for the treatment of mild AD only. Our peak sales are based on the assumption that PQ912 proves to be disease-modifying, and therefore able to command a premium price. We assign a 20% probability of success, based on the risks associated with AD drug development.

Financials

Probiodrug reported cash of €14.8m at end-June 2015 and has no debt. Our model continues to suggest that this should be sufficient to fund operations through to the initial Phase IIa data readout in mid-2016.

R&D spend in H115 increased to €4.5m (vs €2.8m in H114) as a result of initiating and conducting the SAPHIR study. G&A also increased to €1.9m (vs €0.96m in H114) reflecting expenses post-listing. Accordingly, net loss increased to €6.2m in H115 (vs €3.4m in H114). We maintain our R&D and G&A forecasts for FY15 and FY16, which are broadly in-line with the H115 trends. Beyond 2016 we assume that future PQ912-related R&D spend will be borne by a partner.

We have made minor adjustments to net interest for FY15 in-line with the H115 trend, resulting in a slight adjustment to net loss to €11.7m, which remains in-line with retained company guidance for net loss similar to 2014 (€11.4m). Although our valuation includes risk-adjusted milestones from a partner for PQ912, our financial forecasts do not include any such income. Hence, our forecasts continue to comprise €3.7m of illustrative financing included as long-term debt on the balance sheet in 2016. This is based on the cash need that we estimate is required to run the business through to the end of 2016.

Exhibit 2: Financial summary

€000s

2011

2012

2013

2014

2015e

2016e

Year-end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

21

6

0

0

0

0

Cost of Sales

0

0

0

0

0

0

Gross Profit

21

6

0

0

0

0

Research and development

(13,229)

(9,255)

(8,004)

(8,087)

(8,296)

(8,410)

EBITDA

 

 

(13,856)

(10,206)

(9,387)

(11,173)

(11,613)

(12,115)

Operating Profit (before amort. and except.)

(14,225)

(10,521)

(9,675)

(11,241)

(11,646)

(12,149)

Intangible Amortisation

(44)

(37)

(26)

(26)

(25)

(25)

Exceptionals

0

0

0

0

0

0

Other

0

0

0

0

0

0

Operating Profit

(14,269)

(10,558)

(9,701)

(11,267)

(11,671)

(12,174)

Net Interest

8

(314)

(106)

(170)

(50)

60

Profit Before Tax (norm)

 

 

(14,217)

(10,835)

(9,781)

(11,411)

(11,696)

(12,088)

Profit Before Tax (FRS 3)

 

 

(14,261)

(10,872)

(9,807)

(11,437)

(11,721)

(12,114)

Tax

6

(656)

0

0

0

0

Profit After Tax (norm)

(14,211)

(11,491)

(9,781)

(11,411)

(11,696)

(12,088)

Profit After Tax (FRS 3)

(14,255)

(11,528)

(9,807)

(11,437)

(11,721)

(12,114)

Average Number of Shares Outstanding (m)

3.5

4.1

4.3

4.9

6.8

6.8

EPS - normalised (€)

 

 

(4.09)

(2.84)

(2.30)

(2.35)

(1.73)

(1.79)

EPS - normalised and fully diluted (€)

 

(4.09)

(2.84)

(2.30)

(2.35)

(1.73)

(1.79)

EPS - (IFRS) (€)

 

 

(4.10)

(2.85)

(2.30)

(2.35)

(1.73)

(1.79)

Dividend per share ()

0.0

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

100.0

100.0

N/A

N/A

N/A

N/A

EBITDA Margin (%)

-65981.0

-170100.0

N/A

N/A

N/A

N/A

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

-67738.1

-175350.0

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

8,061

996

425

186

131

72

Intangible Assets

6,794

67

101

82

57

31

Tangible Assets

1,264

926

321

101

71

38

Investments

3

3

3

3

3

3

Current Assets

 

 

11,032

9,009

5,856

21,294

10,735

3,374

Stocks

18

18

0

0

0

0

Debtors

1

5

0

0

0

0

Cash

10,314

7,726

4,421

20,920

10,361

3,000

Other

699

1,260

1,435

374

374

374

Current Liabilities

 

 

(3,136)

(3,570)

(9,320)

(4,580)

(4,679)

(4,707)

Creditors

(3,136)

(3,570)

(3,974)

(4,580)

(4,679)

(4,707)

Short term borrowings

0

0

(5,346)

0

0

0

Long Term Liabilities

 

 

(1,012)

(1,070)

(1,265)

(929)

(929)

(4,587)

Long term borrowings

0

0

0

0

0

(3,658)

Other long term liabilities

(1,012)

(1,070)

(1,265)

(929)

(929)

(929)

Net Assets

 

 

14,945

5,365

(4,304)

15,971

5,258

(5,848)

CASH FLOW

Operating Cash Flow

 

 

(14,404)

(12,090)

(8,477)

(10,540)

(10,505)

(11,079)

Net Interest

39

22

9

(54)

(50)

60

Tax

44

28

9

5

0

0

Capex

(84)

(64)

(4)

(2)

(4)

0

Acquisitions/disposals

0

0

0

0

0

0

Financing

18,658

9,516

(188)

32,436

0

0

Dividends

0

0

0

0

0

0

Net Cash Flow

4,253

(2,588)

(8,651)

21,845

(10,559)

(11,019)

Opening net debt/(cash)

 

 

(6,061)

(10,314)

(7,726)

925

(20,920)

(10,361)

HP finance leases initiated

0

0

0

0

0

0

Other

0

0

0

0

0

0

Closing net debt/(cash)

 

 

(10,314)

(7,726)

925

(20,920)

(10,361)

658

Source: Edison Investment Research, Probiodrug accounts. Note: The negative net interest in 2015e relates to interest on potential late payment obligations of back taxes (relating to 2004); the company has filed a lawsuit contesting the back taxes.

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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 9258 1161

Level 25, Aurora Place

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