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Pipeline delivery key to future outlook

Midatech Pharma 25 May 2022 Update
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Midatech Pharma

Pipeline delivery key to future outlook

Pharma and biotech

Spotlight - Update

25 May 2022

Price

9.8p

Market cap

£10m

Share price graph

Share details

Code

MTPH

Listing

AIM

Shares in issue

98.5m

Net cash at end December 2021

£10.1m

Business description

Midatech Pharma is platform-based drug delivery specialist founded in 2000 and listed on AIM in 2014. Its three technology platforms, Q-Sphera (for sustained release of drugs), MidaSolve (nano inclusion for local delivery) and MidaCore (gold nanoparticles for targeted delivery), are designed to re-engineer and reformulate existing therapeutic drugs with the aim of improving biodistribution and delivery. The realigned focus is on the Q-Sphera development pipeline and the clinical asset MTX110 (for brain cancer).

Bull

Scalable technology platforms with a broad product pipeline.

First-in-class potential in aggressive brain cancers.

Early success in encapsulating a mAb.

Bear

Challenges in finding partners/out-licensing opportunities.

Requirement for additional funding and potential equity dilution risk.

Earlier-stage product out-licensing strategy may limit upside potential of partnership deals.

Analysts

Jyoti Prakash, CFA

+44 (0)20 3077 5700

Soo Romanoff

+44 (0)20 3077 5700

Midatech Pharma is a research client of Edison Investment Research Limited

Midatech’s FY21 results continued to reflect financial prudence (following the March 2020 business realignment), with normalised operating loss improving to £7m (£10.7m in FY20) despite a much broader R&D pipeline. Clinical asset MTX110 (MidaSolve platform), already in Phase I for orphan DIPG and medulloblastoma brain cancers, is expected to commence a Phase I study in mid-2022 for recurrent glioblastoma, an opportunity more than 30 times the size of the other two combined. We believe visibility from the Q-Sphera pipeline will improve investor confidence. With the current cash balance (£10.1m at the end of FY21) only sufficient to fund operations to early 2023, we anticipate that potential partnerships and/or licensing deals will de-risk the near-term outlook.

Historical financials

Year
end

Revenue
(£m)

PBT
(£m)

EPS
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/18

1.94

(11.8)

(339)

0.0

N/A

N/A

12/19

0.67

(10.9)

(50)

0.0

N/A

N/A

12/20

0.34

(11.1)

(23)

0.0

N/A

N/A

12/21

0.58

(6.1)

(6.8)

0.0

N/A

N/A

Source: Midatech Pharma company filings. Note: PBT and EPS are normalised.

MTX110 moves closer to the clinic in GBM

Following the December 2021 FDA clearance, MTX110 is expected to commence a Phase I study in recurrent glioblastoma (rGBM) in mid-2022. These dose-escalation studies (enrolling 10–12 patients with GBM) will take place across two sites in the United States with early progression-free survival data expected by Q422. We assume that following this pivot, clinical efforts with diffuse intrinsic pontine glioma (DIPG) will transition to a more ‘post-marketing’ endeavour. rGBM is a materially larger opportunity ($3–5bn market potential globally versus $100m for DIPG), although we note that time to market is likely longer/more expensive given the requirement for larger, randomised studies. However, positive data should open up opportunities to partner MTX110 for rGBM (and ultimately GBM).

Greater visibility will underpin value of Q-Sphera pipeline

The Q-Sphera platform is Midatech’s core technology focus and currently encompasses two in-house and two partnered assets (in collaboration with Janssen). While the FY21 report broadly discussed this pipeline, we believe a clearer roadmap and better visibility in terms of progress is required to assuage the current cautious market sentiment. In particular, traction with the in-house assets MTD211 (long-acting brexpiprazole) and/or MTD219 (long-acting tacrolimus) would be important, as will any upcoming plans for further asset development under the platform.

Midatech’s pipeline update

Midatech’s FY21 results summarised the developmental status of its asset pipeline, reiterating its ‘multiple shots on goal’ strategy as a lever for future growth. As a refresher, the company specialises in improving the biodelivery and biodistribution of existing medicines by leveraging its three technology platforms: Q-Sphera, MidaSolve and MidaCore. Following a strategic review in early 2020, Midatech has pivoted its focus from a narrow, targeted pipeline to a broader, albeit early-stage asset portfolio (both in house and partnered), with the intention of partnering following proof-of-concept (PoC). The goal is multifold: to diversify pipeline risk, generate multiple partnering opportunities to monetise Midatech’s technologies and alleviate the financing obligations on the company. Legacy asset MTX110 (solubilised panobinostat) is the company’s only clinical-stage programme and is targeting the high unmet need in the aggressive brain cancers space. Q-sphera (long-acting formulations of existing drugs) is the near-term focus and where we expect the bulk of near-term R&D activities to be focused, although clinical data will come from MTX110 (MidaSolve) first. The platform encompasses four assets, including two in-house (MTD211 and MTD219) and two partnered assets (MTD213 and MTD223) (Exhibit 1).

Exhibit 1: Midatech’s therapeutic’s pipeline

Source: Midatech

MTX110 to commence Phase I studies in GBM in mid-2022

In December 2021, Midatech received FDA clearance to commence a clinical trial for its most clinically advanced programme, MTX110 in recurrent GBM (rGBM). MTX110 uses the company’s proprietary MidaSolve technology to solubilise the chemotherapy drug Panobinostat, which is then delivered through a convection-enhanced delivery system directly to the site of the tumour. The planned Phase I pilot study is expected to commence by mid-2022 across two clinical centres in the US (Duke University and MD Anderson Cancer Center). The primary objectives will be to assess safety and tolerability in patients with rGBM (dose-escalation study estimated to recruit between 10 and 12 patients), but the study will also track preliminary efficacy signals such as PFS. Midatech expects to release preliminary data from the study by Q422. We expect this to be a key upcoming catalyst for the company.

We note that MTX110’s primary focus thus far has been on the ultra-rare childhood brain cancer DIPG, for which Midatech had received the orphan drug designation from the FDA in October 2019. In October 2020, the company reported exceptionally positive interim survival data from a Phase I study – median overall survival of 26.06 months versus 10 months following standard-of-care radiation therapy in historical cohorts. This pivot is therefore surprising, although the larger market potential ($3–5bn versus $100m for DIPG) and possible greater attractiveness to future partners may have been a factor in driving this decision. This strategy does hold some merit in our view given the significantly larger patient population and lack of treatment options despite significant R&D efforts – only three drugs are currently approved for the treatment of GBM: Temozolomide (chemotherapy), bevacizumab (anti-VEGF monoclonal antibody; not approved in Europe) and Nitrosourea/gliadel wafer (chemotherapy). On the flip side, however, we also anticipate materially higher competition in the space, with a likely longer time to the market and the need for more rigorous clinical trials (with higher associated expenses). In addition, the company may lose the market exclusivity benefit which came along with the orphan drug designation in DIPG as well as favourable regulatory policies around paediatric conditions. For the longer term, we are encouraged by Midatech’s plans to develop MTX110 as a combination therapy for brain cancers given that therapeutic challenges surrounding brain cancers can, at least partly, be attributed to their molecular heterogeneity, which can arguably be targeted using a combination treatment regime.

Greater traction with Q-Sphera could trigger stock re-rating

Q-Sphera, Midatech’s patented sustained-release drug delivery platform, is the key near-term focus for the company. The Q-Sphera pipeline currently comprises four distinct assets – two in-house small molecule assets MTD211 (long-acting brexpiprazole) and/or MTD219 (long-acting tacrolimus) and two large-molecule assets under development as part of an R&D collaboration with Janssen. Midatech delivered PoC in MTD211 in H221 and has been actively seeking out-licensing opportunities. We highlight that brexpiprazole is the only marketed antipsychotic that does not have an approved long-acting version and comes with a sizeable market opportunity (see our initiation note for more detail). Management had indicated recent interest in MTD211 in the US market and we await further updates on possible partnering successes. Positive newsflow on this front could potentially trigger a re-rating of the stock, in our view.

For the two partnered assets, Midatech is currently working on maximising the drug loading (drug as a proportion of the total microsphere mass) and optimising the dissolution profile (in vitro duration of drug depot release) of Janssen’s exemplar mAbs. This follows the early success the company has had in encapsulating a biologic using the Q-Sphera technology. While the current collaboration terms involve reimbursing Midatech at a multiple of its direct development costs (3–4x), the goal is to optimise the partnership by entering into a technology transfer/out-licensing agreement for an income stream consisting of upfront and milestone payments, as well as royalties on sales. We expect the company to continue to adopt this dual strategy in the near future. For 2022, Midatech has indicated plans to add up to two additional candidates to its internal Q-Sphera pipeline as well as targeting R&D collaborations specifically in the areas of peptides and proteins.

FY21 financials

Midatech’s FY21 financial performance was in line with the recent ‘post-restructuring’ trend. Revenue increased to £0.58m (£0.34m in FY20 including £0.16m in a Spanish government grant), primarily attributed to the company’s R&D collaboration with Janssen. With the extension of the collaboration agreement in early 2022, we expect the company to report higher revenues for FY22 (c £2m as guided by management). Normalised operating loss for the year improved to £7m (£10.7m in FY20) due to the removal of R&D costs associated with legacy asset MTD201. The H221 operating loss of £3.9m was broadly in line with the H121 figure of £3.1m, reflecting a more sustainable financial matrix, post restructuring. R&D costs, which make up the bulk of operating expenses (c 60%) went down from £6.1m to £4.7m due to £1.8m lower clinical development costs on legacy asset MTD201, partially offset by higher expenses on ongoing R&D. With MTX110 set to enter the clinic and plans to expand the Q-Sphera pipeline, we expect a steady ramp-up in R&D expenses in the next few years.

Following the £10m equity raise in July 2021, Midatech ended the year with a cash balance of £10.1m, which management expects to be sufficient to fund operations into Q123. With MTX110 data expected by Q422 and in anticipation of better visibility on the Q-Sphera portfolio, we expect the company to focus on seeking non-dilutive options (partnerships/licensing) to fund further development in favour of further equity raises.

General disclaimer and copyright

This report has been commissioned by Midatech Pharma and prepared and issued by Edison, in consideration of a fee payable by Midatech Pharma. Edison Investment Research standard fees are £60,000 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.

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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 2022 Edison Investment Research Limited (Edison).

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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.

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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

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

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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

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 Midatech Pharma and prepared and issued by Edison, in consideration of a fee payable by Midatech Pharma. Edison Investment Research standard fees are £60,000 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 2022 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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