Akari Therapeutics — Update 9 January 2017

Akari presented new data at the American Society of Hematology (ASH) meeting in December 2016 on the unique profile of Coversin and provided an update to potential future directions that the company may take. Coversin is being investigated for the treatment of the complement system disorders paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS) as well as for the antibody mediated autoimmune disorder Guillain-Barré syndrome (GBS). The only approved C5 inhibitor is Soliris (eculizumab; Alexion), which is given as a biweekly intravenous injection for the treatment of PNH and aHUS and had sales of $2.59bn in 2015.

Coversin has a series of potential advantages over Soliris and potentially other complement inhibitors in development. First, Coversin binds to a site on the C5 protein different than the Soliris binding site. There is a congenital polymorphism at this site (cysteine 345) that prevents Soliris binding making it ineffective. The prevalence of this polymorphism in the general population is unknown, but a study in Japan identified it in 3.5% of individuals.1 By binding at an alternative site, Coversin can potentially treat these Soliris-resistant patients. One such patient has been successfully treated for over nine months with Coversin (twice-daily self-injection) and has demonstrated complete complement inhibition (as measured by 50% hemolytic complement activity measure, CH50) and reduction in hemolysis to below 1.5 times the upper limit of normal (as measured by serum lactose dehydrogenase LDH, Exhibit 1). The company has reported that a second Soliris-resistant patient has been identified and may begin treatment shortly.

A second advantage of Coversin is its small molecular weight (17kDa). It is substantially smaller than monoclonal antibodies like Soliris (approximately 148kDa), which significantly improves its tissue permeability. Because of this, Coversin can be administered subcutaneously (SC) as opposed to intravenous (IV) injection. An SC treatment would provide numerous quality of life improvements over IV because IV injections must typically be performed by a medical professional, whereas SC injections can be performed by the patient. This frees the patient from numerous office visits, allowing them to miss less work or school and, for instance, plan vacations that are not centered around their next injection. Numerous studies have demonstrated a preference for alternatives to IV for the vast majority of drugs (exceptions being analgesics, vitamin K, and anti-venom).2 A recent survey of aHUS patients confirmed that quality of life issues associated with frequent office visits are the primary complaints with Soliris treatment (Exhibit 2), and that these patients would prefer self-administration (Exhibit 3).

The company released results at the American Society of Hematology (ASH) meeting in December 2016 of a Phase Ib dosing study that supports the use of Coversin in a once a day formulation. These results showed a reduction in complement activity as measured by CH50 Elisa and sheep blood lysis tests to below the limit of quantification with 22.5mg (n=4) or 30mg (n=4) daily dosing (following twice a day dosing for the first 48 hours) compared to placebo (n=5) (Exhibit 4). Patients were also dosed with 15mg of drug, although these patients had detectable complement activity. Akari is pursuing Coversin in a once-daily SC format for the ongoing PNH Phase II clinical trial (30mg daily adjustable to 45mg as needed).

We expect data from the ongoing Phase II clinical trial of Coversin in PNH (non-resistant population) in Q117, and the company has announced that it plans to progress to Phase III in the summer of 2017.

The company has a number of different pathways to further development of the pipeline and its future directions. These can be broadly divided into three categories, roughly in order of their logical development priority:

A differentiating factor of Coversin is that in addition to C5, the protein also binds leukotriene B4 (LTB4). LTB4 is a proinflammatory molecule secreted by leukocytes that recruits other immune cells and activates them, resulting in a cascade of cytokine release and inflammation. This means that Coversin inhibits both of the two main axes of immunity: antibody mediated (via anti-C5 activity) and cell based (via anti-LTB4 activity). Although the current indications being examined were chosen on the basis of Coversin’s complement activity, the clinical programs will monitor LTB4 levels in patients and examine its potential benefits. This may hypothetically improve some aspects of the drug’s profile, such as limiting injection site reactions or reducing hemolysis induced inflammation.3 However, the greatest potential for LTB4 inhibition is that there are a large number of other immune, inflammatory, and thombotic disorders that could potentially be addressed via the combined C5 and LTB4 mechanism (Exhibit 5). Coversin binds LTB4 very strongly (approximately 1nM binding constant), and significantly impact symptoms driven by this mechanism, especially when applied directly to the site of inflammation. This positions the drug well to disorders of the skin, joints, lungs and eyes.

The company is also investigating ways of derivatizing Coversin, which is possible because the protein is easily modified at its N-terminus. The company is developing a PASylated version of the protein, which would have dramatically increased serum residence times. This development program is of a very high priority. PASylation is the addition of a repeating sequence of proline, alanine, and serine amino acid resides (abbreviated PAS), which improves renal retention of the drug and could enable once a week dosing. The company announced at ASH that the estimate human terminal half-life of the molecule was four days based on mouse and rat models, and that it would be moving to first-in man clinical studies in approximately Q417.

Akari also announced at ASH that it is investigating derivatives of Coversin that are targeted to specific tissues. In particular, it is investigating the fusion of Coversin to a peptide that binds laminin ɣ1, a protein specific to the neuromuscular junction. The targeting of Coversin in this way could potentially be used as a treatment for complement disorders that attack the neuromuscular junction such as myasthenia gravis, with significantly lower doses of drug and much more limited systemic exposure and associated infection risk. The company stated that it is targeting initiation of Phase I studies in mid-2018.

And finally, the last new avenue that the company is exploring is investigating other proteins isolated from the tick with biologic activity. Coversin is only one of a number of molecules in tick saliva that have evolved to limit engagement of the host’s immune system. The company has proteins derived from ticks that inhibit leukotrienes and histamine, and other proteins that inhibit the complement system in new ways. The company has identified a different C5 inhibitor of a very small molecular weight that it is investigating for oral activity.

The company has stated that it will announce further details of its preclinical development and future directions following the J.P. Morgan Healthcare Conference in January 2017. We expect any future clinical development programs to incur significant costs, although current forecasts only include preclinical development spending. We expect to update our valuation and forecasts when a lead follow-on development program and path to market is announced.

We have increased our valuation to $398m or $33.78 per basic ADS from $376m or $31.95. This increase is due to rolling over our NPVs to 30 September 2016, and is partially offset by a lower cash balance and an increase in unallocated costs (from an NPV of $36m to $37m) due to higher than expected administrative costs. We expect to update our valuation with top-line data from the Phase II clinical trial examining efficacy in the general PNH population, expected in Q117. The open-label trial will enroll a target of six patients with PNH, and the primary efficacy endpoint will be hemolysis as measured by LDH after 28 days of treatment. Additionally we may update our valuation with the release of more information from the Phase II clinical trial in Soliris resistant patients, which is ongoing.

The company reported operational spending of $7.5m for Q216 and $6.6m for Q316. The increase over Q116 ($3.9m) is associated with the initiation of the PNH clinical program. Our estimates for the total R&D spending for 2016 ($16.2m) remain unchanged. We are, however, increasing our estimates for 2016 SG&A spending from $5.6m to $8.8m, which is carried forward to later years. This increase is primarily due to larger than predicted share-based compensation. However, due to the non-cash nature of the charges, this does not affect our future funding schedule ($180m needed before profitability in 2020, $60m at the end of 2017, $50m in 2018, and $70m in 2019). We have included capex of $5m for 2016 and $5m in 2017 to account for the manufacturing buildout necessary to run a Phase III clinical trial. The company ended the quarter with $50.6m in cash and equivalents.