Intec Pharma announced on 3 August 2017 that it had completed the Phase I clinical trial of AP-CBD/THC in 21 healthy volunteers. AP-CBD/THC is a formulation of cannabidiol and tetrahydrocannabinol using Intec’s proprietary accordion pill technology. The trial compared its safety, tolerability, and pharmacokinetics to the buccal cannabis extract, Sativex. AP-CBD/THC showed improved exposure, time at peak, and metabolism compared to Sativex without any safety or tolerability concerns.
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Intec Pharma |
AP-CDB/THC performs in Phase I |
Clinical update |
Pharma & biotech |
29 August 2017 |
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Intec Pharma announced on 3 August 2017 that it had completed the Phase I clinical trial of AP-CBD/THC in 21 healthy volunteers. AP-CBD/THC is a formulation of cannabidiol and tetrahydrocannabinol using Intec’s proprietary accordion pill technology. The trial compared its safety, tolerability, and pharmacokinetics to the buccal cannabis extract, Sativex. AP-CBD/THC showed improved exposure, time at peak, and metabolism compared to Sativex without any safety or tolerability concerns.
Year end |
Revenue ($m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/15 |
0.0 |
(7.2) |
(0.92) |
0.0 |
N/A |
N/A |
12/16 |
0.0 |
(13.4) |
(1.17) |
0.0 |
N/A |
N/A |
12/17e |
0.0 |
(20.8) |
(0.78) |
0.0 |
N/A |
N/A |
12/18e |
0.0 |
(17.3) |
(0.62) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Exposure and time at peak increased over Sativex
Intec announced that AP-CBD/THC improved the exposure of CBD by 290% to 330% and THC by 25% to 50% compared to Sativex. This demonstrates that the AP formulation of these molecules can deliver these molecules to patients at pharmacologically relevant concentrations. Additionally, the time at peak concentration was 2-3x longer, suggesting that the gastroretentive properties of the AP formulation are effective at prolonging the dissolution of the drug.
No safety or tolerability issues raised
Intec reported that the clinical trial did not raise any safety or tolerability issues for AP-CBD/THC. No serious adverse effects were observed on the trial. These molecules have a well understood safety profile, although it is encouraging that this formulation can deliver a sufficient quantity of drug while maintaining tolerability.
Proposed indications: Back pain or fibromyalgia
The company stated that it will announce details regarding the future of the AP-CBD/THC program by YE17. It previously proposed two potential indications, neuropathic low back pain and fibromyalgia, both of which could potentially leverage the effect of cannabinoids in neuropathic pain. They are major indications with an estimated 5.5 million and 4 million adults, respectively, in the US.
Valuation: NIS737m ($205m), NIS28.39/share ($7.91)
We have increased our valuation to NIS737m ($205m) from NIS606m (~$166m), but reduced our per share valuation to NIS28.39 ($7.91) from NIS44.02 (~$12.04) per basic share largely as a result of the August 2017 offering of approximately $57.5m (12.2m shares at $4.70). The increase was partially offset by an increase in current and forecasted R&D spending because the company did not secure assistance from the Israel Innovation Authority (IIA). Following the offering, we do not believe the company will require any more cash to be able to reach profitability in 2020.
AP-CBD/THC outperforms Sativex in Phase I
Intec announced on 3 August 2017 that it had completed the Phase I study of the cannabidiol/tetrahydrocannabinol accordion pill (AP-CBD/THC). The goal of the study was to investigate the safety and pharmacokinetics of two AP-CBD-THC formulations compared to Sativex (GW Pharmaceuticals), a cannabis extract formulated for buccal delivery that contains both CBD and THC. It had a three-way crossover design and enrolled 21 healthy volunteers.
Intec reported that AP-CBD/THC had significant improvements in the pharmacokinetics compared to Sativex. Exposure of CBD was improved by 290% to 330% and exposure of THC was improved by 25% to 50% over Sativex. It is difficult to speculate as to the reason for the increased exposure as there are multiple factors involved including different route of administration and different doses, but these data demonstrate the AP-CBD/THC had more than sufficient exposure of these molecules to reach pharmacologically relevant concentrations. According to the Sativex prescribing information, the drug had an area under the curve (AUC) for THC (at 21.6mg administered) of 1,362 ng/mL/min, compared to 5,987.9 ng/mL/min for vaporized THC extract (8mg).
Although Sativex is formally a buccal formulation, there is significant evidence to suggest that a large portion of it is being administered orally in practice. There is a pronounced food effect, and when taken at the same time as food the AUC for THC can increase 1.6 to 2.8 fold and CBD can increase 3.3 to 5.1 fold. This highlights some of the issues that have been encountered with orally administered cannabinoids. Although AP-CBD/THC is an oral formulation, the specific gastroretentive properties of the AP should improve the consistency of its absorption. These specific details have not been released yet, however, the company did announce that AP-CDB/THC showed a 2-3x improvement in the “time of peak concentration” over Sativex according to the release, which indicates that gastroretention is effectively extending the dissolution of drugs and can potentially improve the oral profile of these molecules.
A particularly interesting finding from the study was that the AP-CBD/THC formulation showed a reduction in formation of THC metabolites of 25% or greater, which suggests that the rate of THC metabolism is reduced compared to Sativex. This is interesting considering that any THC delivered buccally will avoid first pass metabolism in the liver, whereas AP-CBD/THC is purely oral and cannot avoid hepatic exposure. This suggests some degree of non-linearity in the metabolism of THC, although the precise mechanism is unknown at this time.
Finally, the company announced that the drug was safe and well tolerated, with no serious adverse effects. This is not particularly surprising given the well understood safety profile of these molecules, but is reassuring nonetheless. The company stated that it would provide an update on its plans regarding the program by the end of 2017. It previously announced its intent to study AP-CBD/THC for the treatment of pain indications including low back pain or fibromyalgia. These are both exceptionally large markets with a high degree of unmet medical need. Approximately 10% of US adults report chronic lower back pain,1 17% of which is primarily neuropathic in origin,2 corresponding to a target market of approximately 5.5 million people. Fibromyalgia, by comparison, is estimated to affect four million adults in the US according to the CDC.
Freburger JK, et al. (2009) The Rising Prevalence of Chronic Low Back Pain. J. Am. Med. Assoc. Int. Med. 169, 251-258.
Torrance N, et al. (2006) The Epidemiology of Chronic Pain of Predominantly Neuropathic Origin. Results From a General Population Survey. J. Pain 7, 281-289.
Valuation
We have increased our valuation to NIS737m ($205m) from NIS606m (~$166m). This change is largely driven by the recent offering of approximately $57.5m ($53.6m net), although this has reduced our per share valuation to NIS28.39 ($7.91) from NIS44.02 (~$12.04) per basic share. The valuation is negatively affected by changes to the expected R&D spending. We previously accounted for cash from the Israel Innovation Authority (IIA) to offset a portion of R&D spending ($4.5m in 2016), but the company did not report any grants for H117. These factors had a negative impact on cash for the period and R&D spending projections for future periods. Additionally, we have delayed the launch of AP-ZP to 2021 due to the current lack of a partner. These effects were offset by rolling forward our NPVs to H117. We do not include the AP-CBD/THC programme in our valuation as the target indication has not been announced. However, we find the Phase I clinical results to be encouraging and expect to add this program to our valuation shortly. We also expect to update our valuation with the release of data from the Phase III study of AP-CDLD in 2018.
Exhibit 1: Valuation of Intec Pharma
Development Program |
Clinical stage |
Prob. of success |
Launch year |
Launch pricing ($) |
Peak sales ($m) |
Patent/exclusivity protection |
Royalty/ margin |
rNPV (NISm) |
AP-CDLD, US |
Phase III |
60% |
2019 |
7,700 |
111 |
2029 |
47% |
293 |
AP-CDLD, Europe |
Phase III |
60% |
2019 |
4,600 |
85 |
2029 |
40% |
187 |
AP-CDLD development costs |
Phase III |
-22 |
||||||
AP-ZP (US and Europe) |
Phase III ready |
40% |
2021 |
700 |
154 |
2028 |
15% |
51 |
AP-ZP Licensing upfront |
Phase III ready |
30-50% |
2018 |
34 |
||||
Unallocated costs (administrative costs, etc.) |
-63 |
|||||||
Total |
|
|
|
|
|
|
|
480 |
Net cash and equivalents (H117 + offering) (NISm) |
257 |
|||||||
Total firm value (NISm) |
737 |
|||||||
Total basic shares (m) |
26.0 |
|||||||
Value per basic share (NIS) |
28.39 |
|||||||
Options (m) |
0.1 |
|||||||
Total diluted shares (m) |
26.1 |
|||||||
Value per diluted share (NIS) |
28.24 |
|||||||
Source: Intec reports, Edison Investment Research
Financials
Intec reported a loss of $11.2m for H117. This is increased compared to H116 ($6.4m) predominantly due to an increase in R&D expenses. The company did not receive any cash from IIA for the quarter to offset R&D, which it stated was due to the requirement that product be manufactured in Israel. The company may receive assistance from IIA in the future if this requirement is met. Combined with this, there was higher than expected spending on the AP-CDLD clinical trial, although this reflects faster than expected enrolment. These two factors have increased our expected R&D spending for 2017 to $17.1m from $9.9m. The company ended the period with $17.9m in cash following the $10m (gross) private placement in March 2017. This was subsequently further supplemented by the August 2017 public offering of approximately $57.5m (12.2m shares at $4.70, $53.6m net). We believe that this is sufficient capital for the company to reach profitability in 2020. Our previous financing requirement was $10m, so Intec now has a significant funding cushion.
Exhibit 2: Financial summary
$'000s |
2015 |
2016 |
2017e |
2018e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
0 |
0 |
0 |
0 |
Cost of Sales |
0 |
0 |
0 |
0 |
||
Gross Profit |
0 |
0 |
0 |
0 |
||
Research and development |
(4,815) |
(10,749) |
(17,098) |
(13,208) |
||
Selling, general & administrative |
(2,788) |
(3,097) |
(4,172) |
(4,589) |
||
EBITDA |
|
|
(8,330) |
(14,513) |
(21,742) |
(18,269) |
Operating Profit (before amort. and except.) |
(7,584) |
(13,812) |
(21,236) |
(17,763) |
||
Intangible Amortisation |
0 |
0 |
0 |
0 |
||
Exceptionals/Other |
0 |
0 |
0 |
0 |
||
Operating Profit |
(7,584) |
(13,812) |
(21,236) |
(17,763) |
||
Net Interest |
404 |
450 |
450 |
450 |
||
Other (change in fair value of warrants) |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(7,180) |
(13,362) |
(20,786) |
(17,313) |
Profit Before Tax (IFRS) |
|
|
(7,180) |
(13,362) |
(20,786) |
(17,313) |
Tax |
0 |
0 |
0 |
0 |
||
Deferred tax |
0 |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(7,180) |
(13,362) |
(20,786) |
(17,313) |
||
Profit After Tax (IFRS) |
(7,180) |
(13,362) |
(20,786) |
(17,313) |
||
Average Number of Shares Outstanding (m) |
7.8 |
11.4 |
26.5 |
27.8 |
||
EPS - normalised (c) |
|
|
(92.16) |
(116.72) |
(78.49) |
(62.26) |
EPS - IFRS ($) |
|
|
(0.92) |
(1.17) |
(0.78) |
(0.62) |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
4,076 |
4,047 |
4,042 |
4,058 |
Intangible Assets |
0 |
0 |
0 |
0 |
||
Tangible Assets |
4,076 |
4,047 |
4,042 |
4,058 |
||
Other |
0 |
0 |
0 |
0 |
||
Current Assets |
|
|
33,096 |
20,674 |
65,444 |
48,063 |
Stocks |
0 |
0 |
0 |
0 |
||
Debtors |
2,361 |
2,384 |
1,326 |
1,326 |
||
Cash |
30,673 |
18,228 |
64,056 |
46,675 |
||
Other |
62 |
62 |
62 |
62 |
||
Current Liabilities |
|
|
(614) |
(1,152) |
(1,718) |
(1,437) |
Creditors |
(614) |
(1,152) |
(1,718) |
(1,437) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(327) |
(97) |
(97) |
(97) |
Long term borrowings |
0 |
0 |
0 |
0 |
||
Other long term liabilities |
(327) |
(97) |
(97) |
(97) |
||
Net Assets |
|
|
36,231 |
23,472 |
67,671 |
50,588 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(7,931) |
(12,005) |
(16,796) |
(16,859) |
Net Interest |
0 |
0 |
0 |
0 |
||
Tax |
0 |
0 |
0 |
0 |
||
Capex |
(1,384) |
(482) |
(501) |
(521) |
||
Acquisitions/disposals |
0 |
206 |
0 |
0 |
||
Financing |
32,452 |
0 |
63,125 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Other |
13 |
0 |
0 |
0 |
||
Net Cash Flow |
23,150 |
(12,281) |
45,828 |
(17,380) |
||
Opening net debt/(cash) |
|
|
(7,742) |
(30,673) |
(18,228) |
(64,056) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Exchange rate movements |
(232) |
8 |
0 |
0 |
||
Other |
13 |
(172) |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(30,673) |
(18,228) |
(64,056) |
(46,675) |
Source: Intec reports, Edison Investment Research
|
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Jupiter Green Investment Trust (JGC) invests in companies around the world that are providing solutions to environmental challenges. It aims for capital growth from a portfolio of c 60 companies, chosen through a disciplined, bottom-up investment process with a focus on quality and valuation. The trust is managed by a team at Jupiter Asset Management who also run the UK’s first environmentally focused collective investment fund, Jupiter Ecology. The managers report that their investment universe has expanded considerably as environmental issues have become more mainstream and technological advances have made companies in areas such as renewable energy more competitive. JGC’s small size and closed-end structure allow the managers more flexibility to invest in smaller, less liquid and potentially higher-growth companies than in their larger open-ended mandates, including up to 5% in unlisted stocks.