IRLAB Therapeutics — Don’t count mesdopetam out

Following the top-line results from the Phase IIb mesdopetam study in PD-LIDs, we await further communication of the full clinical data package from the trial before understanding Ipsen’s future clinical development strategy for the drug. This may include Ipsen continuing to progress mesdopetam through clinical studies or potentially handing the drug back to IRLAB, which may internally develop mesdopetam or seek alternative partnering opportunities. Pirepemat now becomes IRLAB’s most advanced candidate for internal development, as a potential treatment to improve balance and reduce falls in PD patients (PD-Falls). Following a recent update, top-line Phase IIb data are now expected in H124 (previously H223). IRLAB is also looking to re-stock its clinical pipeline and is preparing its preclinical assets, IRL757 in apathy and IRL942 in cognitive function, to be Phase I ready by end-2023 and in H124, respectively. The newly nominated candidate IRL1117 (for the hallmark symptoms of PD) will continue to progress through in-house R&D activities during 2023.

As a reminder, the Phase IIb study for mesdopetam in PD-LIDs was a randomised, double-blind, placebo-controlled study conducted at 46 trial sites across Europe, the United States and Israel that comprised 154 patients. The primary outcome from the study assessed the change in daily hours of good ON time without troublesome dyskinesia (uncontrolled involuntary movements) based on Hauser standardised 24-hour patient-reported diaries over 12 weeks. ON time represents the time that patients experience the benefits of levodopa to treat the symptoms of PD and is further characterised by good ON time (time without levodopa-induced dyskinesias) and bad ON time (time with levodopa-induced dyskinesias). While management reported that results from the Phase IIb trial confirmed the safety and tolerability of mesdopetam, the study failed to meet its primary objective of change in daily hours of good ON time compared to placebo.

However, the study did meet a secondary efficacy endpoint, demonstrating significant dose dependent anti-dyskinetic effects as measured by the Unified Dyskinesia Rating Scale (UDysRS), a clinically recognised scale for measuring dyskinesias versus placebo. Anti-dyskinetic effects were observed across the entire 12-week study period and may be interpreted as being of statistical significance (nominal p-value = 0.026 at 7.5mg bid at 12 weeks). Additionally, the secondary endpoint (MDS-Unified Parkinson’s Disease Rating Scale (MDS-UPDRS) part II), used to measure the motor aspects of experiences of daily living, was unchanged by mesdopetam treatment versus placebo, demonstrating that the drug does not impair normal motor function. Notably, a decrease in daily hours spent in OFF time was dose-dependent and a decrease compared to placebo was observed at the 7.5mg dose of mesdopetam. OFF time is when patients experience PD motor/non-motor symptoms between doses of levodopa treatment. OFF time may occur before the first daily dose of medication or during the day between treatment doses. The decrease in OFF time observed through mesdopetam treatment is therefore indicative of the drug’s ability to alleviate the symptoms of parkinsonism. IRLAB intends to present further comprehensive data from the Phase IIb mesdopetam study during 2023.

While the Phase IIb study failing to meet its primary endpoint may be seen as disappointing, we believe encouragement can be taken from the trial meeting the UDysRS secondary efficacy measure. As measured by the UDysRS, mesdopetam (7.5mg) displayed positive dose dependent anti-dyskinetic effects with onset of action after four weeks, at eight weeks and then continuing for the duration of the 12-week study. Importantly, the clear dose response pattern observed versus placebo from the study, in our view, further strengthens the argument that mesdopetam has an anti-dyskinetic effect during the ON phases for PD treatment. Notably, the approval for amantadine (Gocovri), currently the only FDA-approved treatment for PD-LIDs, was based on the results of two pivotal Phase III studies (EASE LID and EASE LID 3), both of which used the UDysRS measure as the primary efficacy endpoint. Additionally, unlike mesdopetam, amantadine is associated with severe side effects including peripheral edema, falls, suicidality and depression.

However, we caution against direct read-across between clinical trials and note that in IRLAB’s previous Phase IIa trial of mesdopetam no improvement in PD-LIDs was observed using the UDysRS measurement as the primary outcome of the study. Management had attributed this to technical shortcomings of the Phase IIa study (many patients were not in the required ON state during UDysRS assessment), indicating that for the Phase IIb study sites had been carefully selected based on their experience in assessing subjects using the UDysRS scale. Additionally, as the results of the Phase IIb study were underpinned by patient reported outcomes, IRLAB had put additional effort into educating patients on the differences between impairments due to dyskinesias as opposed to impairments due to parkinsonism.

In our view, these latest results highlight the challenges associated in measuring endpoints to assess improvements in PD and LIDs in clinical trials. Patient- and clinician-completed rating scales such as UDysRS, MDS-UPDRS and patient diaries are somewhat subjective in comparison to more definitive clinical objective endpoints and can be less accurate and subject to recall bias. Furthermore, an actual reduction in the frequency of LIDs may not reflect a patient’s perception of the severity of dyskinesia or their level of disability. However, the use of multiple clinical trial endpoints, such as those utilised in IRLAB’s studies, may help mitigate some of the challenges associated with subjective measurements.

In July 2021, IRLAB licensed mesdopetam’s global rights to Ipsen for an upfront payment of US$28m, up to US$335m in potential milestones and low double-digit royalties on sales. As part of the agreement, IRLAB was to fund development of mesdopetam until the top-line results of the Phase IIb after which Ipsen would assume responsibility for all further clinical development and global commercialisation of mesdopetam in PD-LIDs. The latest results from the Phase IIb study will undoubtedly have an impact on Ipsen’s development strategy for mesdopetam as well as the timing and receipt of potential milestone payments to IRLAB. Ipsen had begun preparatory Phase III activities with the initiation of pharmacological studies; however, we await further communication from the company as to its future plans for the drug.

While we caution against read across between drug clinical outcomes, particularly across indications, a notable therapy in the CNS space that recently received FDA approval (using the accelerated approval pathway) was Biogen and Eisai’s (originator BioArctic) anti-amyloid Alzheimer’s disease (AD) therapy, lecanemab. The drug is being widely regarded as one of the most significant clinical breakthroughs in the AD treatment landscape. However, lecanemab had previously missed its primary efficacy endpoint measurement of 12-month clinical change on the Alzheimer’s Disease Composite Score (ADCOMS) as part of a Phase IIb study. However, the trial did meet a key secondary endpoint as measured by the Clinical Dementia Rating-Sum-of-Boxes (CDR-SB) exhibiting cognitive and functional performance. The secondary CDR-SB measure was subsequently used as the primary endpoint in the pivotal Clarity AD study, which formed the basis of the FDA’s approval for the drug.

Based upon the results of the Phase IIb mesdopetam study, in our view, mesdopetam is in a strong position to potentially progress into pivotal Phase III trials without additional clinical studies, having hit its key, clinically recognised secondary endpoint, a dose dependent anti-dyskinetic effect as measured by the UDysRS scale. Supporting this, mesdopetam has also demonstrated safety and tolerability throughout clinical studies, while also meeting an additional key secondary endpoint with an unchanged measurement in the MDS-UPDRS part II scale.

Following the readout of the Phase IIb mesdopetam study, pirepemat becomes IRLAB’s most advanced, active, internally developed clinical asset. Pirepemat is currently being investigated in clinical trials as the first potential treatment in a new drug class designed to improve balance and reduce falls in PD patients (PD-Falls). The Phase IIb study is a randomised, double-blind, placebo-controlled study that aims to recruit 165 patients across five European countries, and the trial is currently active at 28 of the planned 39 trial sites. The primary outcome measure is a change in the frequency of falls with pirepemat (assessing two different dose levels) when compared to placebo, assessed with the fall diary from the baseline period to the end of the planned 12 weeks of treatment.

As a reminder, pirepemat demonstrated early signs of efficacy in PD-Falls in the randomised, double-blind, placebo-controlled, multi-centre Phase IIa study (n=32) evaluating safety and tolerability as the primary endpoint. In addition to the trial meeting its primary outcome of safety, the study also demonstrated preliminary signs of efficacy with a 50% reduction in fall frequency of patients with PD and was well tolerated at clinically relevant doses (600mg). In a recent update on upcoming development milestones, IRLAB reported that patient enrolment for the Phase IIb pirepemat study has been slower than anticipated. The company now expects recruitment to be completed by end-2023, with top-line results in H124 (previously H223).

In addition to its lead assets, IRLAB also intends to fill its clinical pipeline with the initiation of a further two Phase I studies. The candidates, IRL757 for the treatment of apathy and IRL942 for the improvement of cognitive function, are expected to be Phase I ready by end-2023 and in H124, respectively. Apathy is a common neuropsychiatric symptom in patients with degenerative neurological disorders that can affect up to 70% of patients with PD and up to 90% of patients with AD disease. There are currently no FDA-approved drugs for the treatment of apathy. Additionally, management has stated that IRL942 may potentially have both symptomatic and disease-modifying effects to improve cognitive function in neurological disorders. In our view, there remains a need for the development of novel disease-modifying therapies in central nervous system indications, and those drugs that can demonstrate such properties will offer significant differentiation in the market.

IRLAB also intends to progress development of its newly nominated clinical candidate IRL117 in 2023. The drug is being developed as a once-daily therapy for the hallmark symptoms of PD and intends to overcome side effects associated with levodopa, which include short duration of drug action and motor fluctuations. Preclinical studies have demonstrated that IRL117 induces a sustained response (10 hours) with no reported treatment-related complications. Such attributes would offer significant differentiation over existing levodopa treatment if replicated in human trials. Management has communicated that it expects Phase I studies to commence in 2024.

In February 2023, IRLAB announced a change in management, with the company’s CEO, Richard Godfrey, stepping down with immediate effect. Gunnar Olsson, who was chairman of the board for IRLAB, will act as interim CEO. Gunnar is a licenced physician who has acquired over 30 years of experience in senior leadership positions within the life sciences sector. IRLAB has communicated that it has started the recruitment process for a permanent CEO. We do not anticipate the changes to have an impact on any of IRLAB’s clinical development timelines.

Considering the latest data from the mesdopetam Phase IIb study, we have adjusted our valuation of IRLAB to SEK4.84bn or SEK93.3per share (previously SEK6.72bn or SEK129.8 per share). Our valuation is based on a risk-adjusted NPV calculation for the company’s lead clinical assets mesdopetam and pirepemat (applying a 12.5% discount rate) and reflects a net cash position of SEK252.8m at end-December 2022. A breakdown of our rNPV valuation is shown in Exhibit 2.

The company’s value is reduced as we lower the probability of success for mesdopetam in PD-LIDs to 40% (previously 50%). We maintain the probability of success for mesdopetam in PD-Psychosis and pirepemat in PD-Falls at 30%; however, this is subject to change depending on clinical updates. Ipsen has yet to communicate its plans for mesdopetam’s future development in PD-LIDs; however, we anticipate that mesdopetam’s existing data package could potentially mean the drug is a Phase III ready asset that has some measure of statistically significant efficacy, based on the Phase IIb study, and is likely suitable to progress into pivotal, registrational trials at this stage. Additionally, Ipsen has acquired the rights to mesdopetam in PD-Psychosis. However, there has been little commentary on Ipsen’s clinical development strategy for mesdopetam in this indication, for which we had previously anticipated the initiation of Phase II studies in 2022 or 2023. Altogether, we have therefore delayed our estimated potential launch dates for mesdopetam in PD-LIDs to 2028 (previously 2026) and in PD-Psychosis to 2029 (previously 2027). These changes to our assumptions have also pushed out the potential receipt of developmental and commercial milestone payments attributed to the Ipsen deal, which are factored into our model.

Following IRLAB’s announcement that patient enrolment in the Phase IIb pirepemat study in PD-Falls has been slower than anticipated, we have also delayed our estimated launch date for pirepemat to 2028 (previously 2027). We have not included IRL757, IRL942 or IRL117 in our model; however, once clinical studies have been initiated, this may provide additional value uplift.

In 2022 IRLAB reported operating losses of SEK113m, which contrasts with the operating profit the company reported in FY21 of SEK53m. This difference is attributed to IRLAB’s licensing agreement with Ipsen in July 2021, which included an upfront payment of SEK239.6m. IRLAB recognised revenue of SEK61.2m in FY22, consisting of SEK42.6m of deferred income as part of the Ipsen deal and SEK18.6m in other services provided to Ipsen. The company’s operating expenses for FY22 were SEK174.4m, a 12.2% increase from FY21’s figure of SEK155.3m due to the increased clinical activities of the Phase IIb trials for mesdopetam and pirepemat. IRLAB’s operational costs remained relatively stable between Q222 and Q422, at c SEK40m per quarter. Due to the winding down of the Phase IIb mesdopetam study, we expect R&D costs to reduce slightly in FY23, to SEK132m, while the Phase IIb pirepemat trial continues to enrol patients and the company invests in preclinical development and progressing IRL757, IRL942 and IRL117 towards clinical studies. We then estimate R&D costs to rise again in FY24, to SEK141m, with the anticipated initiation of the Phase I trials of IRL757 and IRL942.

Operating cash outflows for 2022 amounted to SEK142.6m and IRLAB ended 2022 with a net cash position of SEK252.8m, which we estimate should fund operations into H224. We estimate operating cash outflows of SEK155.9m in FY23, which will increase to SEK165.3m in FY24. We estimate that IRLAB will need to raise SEK750m before becoming self-sustainable in FY28 with the projected launches of mesdopetam and pirepemat. We account for this funding as illustrative debt in our model and have distributed the raise (SEK250m per year) across three consecutive years from FY24 to FY26. Alternatively, if funding is realised through an equity issue instead (assuming at the current trading price of SEK10.38/share), IRLAB would have to issue 82.9m shares, resulting in our per share valuation decreasing to SEK35.9 from SEK93.3 currently (shares outstanding would increase from 51.9m to 134.8m). As part of IRLAB’s licensing agreement with Ipsen for mesdopetam, the company could potentially receive up to US$335m in development, regulatory and sales-based milestones, which would have an impact on such financing requirements. However, due to the Phase IIb mesdopetam study missing its primary endpoint, the timings of such payments are uncertain.