Biodexa Pharmaceuticals — Foray into T1D expands business scope

In December 2023, Biodexa completed the acquisition of the worldwide licensing rights to tolimidone from Adhera Therapeutics. Tolimidone was originally discovered by Pfizer and was taken through Phase II trials for gastric ulcers by the company before it discontinued development due to lack of efficacy. The rights were subsequently acquired by Melior Pharmaceuticals, which decided to develop tolimidone in type II diabetes (T2D) (Phase II) and non-alcoholic steatohepatitis (Phase I). In 2021, Adhera in-licensed the development and commercialization rights to tolimidone from Melior (with the aim to evaluate it in T1D) covering all territories except for China, South Korea and several smaller Asian territories. Rights to these geographies had been licensed to Bukwang Pharmaceuticals.

As per previously agreed terms, following the closure of the acquisition, Biodexa paid out a cash consideration of $640k to Adhera (in addition to the $60k paid out in the initial agreement) and another $5m in stock consideration to certain secured noteholders in Adhera – by issuing an aggregate of 224,947 American depository shares (ADS) and another 2,275,050 pre-funded warrants. In addition to this, the secured noteholders are entitled to another $4m in stock consideration, contingent on certain milestones being met ($1m on positive Phase II studies and $3m on first commercial sales). We note that Biodexa was also obligated to issue 9.9% of its fully diluted share capital (in ADS) upfront to Melior and partner Bukwang (50% each) for the new tolimidone license, under which the company has issued 354,428 ADS to Melior with an equal number expected to be issued to Bukwang, subject to satisfaction of certain obligations under the license agreement.

The deal closure followed the successful completion of a $6m/c £4.7m (gross proceeds) equity raise by Biodexa. Based on the deal consideration paid for tolimidone, we believe that at least $4m of the total $6m equity issue has been subscribed for by the Adhera secured noteholders. As part of the fund-raise, Biodexa has issued two classes of stock units:

We note that the exercise of pre-funded warrants will be conditional on the shareholders owning not more than a 4.99% or 9.99% stake in the company post exercise at any one time. The exercise of the Series E and F warrants is also subject to the same shareholding conditions. Assuming full exercise of the pre-funded warrants, and taking into account the additional ADS issued as part of the stock consideration for the tolimidone acquisition, including the units to be issued to Bukwang (as detailed in the previous section), we estimate the pro-forma number of ADS outstanding to be 7,160,170 versus the pre-deal shares outstanding of 951k, suggesting a potential dilution of over 85% for current shareholders, before any further fund-raising. Exhibit 1 presents a summary of our calculations. Note that this calculation does not consider the conversion of the Series E or Series F warrants, which are out-of-the-money at the time of writing.

Tolimidone is a selective activator of lyn kinase, an enzyme that modulates insulin sensitivity and regulates blood glucose by potentiating insulin receptor activation and the insulin receptor substrate-phosphatidylinositol-3 (IRS-PI3K) signaling pathway. The enzyme has two important functions – in fat cells it increases the utilization of insulin, resulting in decreased blood sugar levels without affecting insulin production and, more importantly, in pancreatic islets, activation of lyn kinase has been found to promote beta cell survival and proliferation in preclinical models. Tolimidone has been evaluated in over 700 patients across studies undertaken by Pfizer and Melior/Bukwang (Phase I and two Phase II studies in T2D), displaying a good safety and tolerability profile. If proven effective in larger clinical trials, a key advantage of this treatment would be the non-requirement of immunosuppressive agents, a major limitation of current disease-modifying treatments under development (discussed in more detail later in the note).

Tolimidone’s early potential in T1D has been demonstrated in preclinical in vitro studies (ie outside of a biological context) and in vivo studies (ie within a biological context) conducted by Professor Jean Buteau at the University of Alberta and the Alberta Diabetes Institute, which identified lyn kinase as a key factor for beta cell survival and proliferation. Interestingly, tolimidone was shown to not only prevent beta cell degradation but was also able to induce proliferation in beta cells isolated from human cadavers, signaling possible regenerative properties. In a mouse model, tolimidone was shown to increase beta cell mass by promoting their survival, as shown in Exhibit 2. The beta cell function preservation has been attributed to either the direct protective activity of tolimidone on the cells or reduction of glucotoxicity.

The preclinical data also demonstrated improved glucose control and islet health markers, even after treatment completion (Exhibit 3).

Biodexa now plans to explore the drug’s beta cell preserving/regenerative properties in clinical trials in collaboration with the University of Alberta. As per the latest available information, the company has appointed a clinical research organization to conduct experiments and expects to announce data from an in vitro study of beta-cell survival and proliferation in a validated model in Q124. A Phase IIa efficacy dose-confirmation study is expected to commence in Q224, aiming to establish the recommended dose in T1D patients. The trial will be open label and will enroll 12–15 patients across three dose cohorts to select the optimal Phase IIb and III dose(s). The study will also include measurement of c-peptide (a marker of insulin), HbA1c (a measure of plasma glucose levels) and number of hyperglycemic events. The company plans to announce preliminary data before the end of 2024. This will be followed by a double-blinded, placebo-controlled Phase IIb trial, expected to commence in Q424. This subsequent study will aim to enroll c 35 adult patients with T1D, diagnosed for between one and five years at the time of randomization. The study cohort will be selected for patients with adequate c-peptide levels at baseline, meaning that the selected cohort will continue to have some insulin-producing beta cells in the pancreas. The treatment duration will be six months, with a primary endpoint of changes in area under the curve of c-peptide after a two-hour mixed meal tolerance test over the course of the treatment. We see the potential for material commercial opportunity for tolimidone, provided the drug can demonstrate its insulin producing-cell preservation, and/or regeneration, properties in larger, randomized clinical trials.

Following Biodexa’s strategic decision in March 2023 to restructure its business operations and reposition itself as a therapeutic company (from its traditional focus on drug delivery), the company has been focusing on expanding its preclinical and clinical pipeline. In addition to its legacy MTX110 program, Biodexa announced a new preclinical asset, MTD217, in March 2023, targeting leptomeningeal disease (LMD), a secondary metastatic cancer of the central nervous system (CNS) with poor prognosis (average survival of three to six months).

We believe that the acquisition of tolimidone bolsters the company’s therapeutic pipeline and (although outside of Biodexa’s focus on oncology, CNS and rare disease spaces) it does diversify the company’s pipeline in an area with sizeable commercial opportunity, and one that remains underserved despite ongoing clinical development efforts. Following the completion of this acquisition, Biodexa now has three ongoing and planned clinical programs, including two Phase I trials for lead asset MTX110, in recurrent glioblastoma (rGBM) and diffuse midline gliomas (DMG). Progression-free survival data from the Phase I MAGIC-G1 study in rGBM are expected in Q224 and the investigational new drug (IND) submission in DMG is planned for Q324. Exhibit 4 presents a snapshot of the company’s therapeutic pipeline, including the initial focus areas.

MTX110 is in Phase I development for three rare brain cancers – rGBM, DMG and medulloblastoma – and we see the biggest opportunity in rGBM given its sizeable market potential and unmet need. GBM is the most common (accounting for 48% of all primary malignant brain tumours) and aggressive primary intracranial tumor, with poor prognosis – despite treatment, the median survival is less than 15 months. The GBM treatment market was valued at $2.71bn in 2023 and is projected to grow to $5.65bn by 2032, at a compound annual growth rate of 8.5%.

Patient recruitment to the Phase I study in rGBM (MAGIC-G1 study) began in November 2022. The study is an open-label, dose-escalation study, recruiting patients across two cohorts (A and B) with a minimum of four patients each, with one cohort receiving MTX110 as monotherapy and the other receiving MTX110 in combination with lomustine (a cytotoxic chemotherapy drug approved for patients with rGBM). The primary objectives are to assess the feasibility and safety of intermittent infusions of MTX110 delivered through an implantable convection-enhanced delivery system, although the study will likely also track preliminary efficacy signals. In October 2023, the company completed recruitment in Cohort A. The administered dose on the study was increased from 60uM to 90uM (expected to be the target therapeutic dose for MTX110) in January 2023 after the company received the recommendation for dose escalation from the Data Safety Monitoring Board following completion of one month of treatment for the first patient on the lower dose, which was well tolerated. We believe that recruitment for Cohort B was initiated in Q423, with progression-free survival data from Cohort A expected to be reported in mid-2024, a material catalyst for investor attention. In addition to rGBM, the company plans to file an IND application in DMG in Q324.

In March 2023, Biodexa announced a new preclinical program, MTD217 targeting LMD, a secondary metastatic cancer of the CNS with poor prognosis (average survival of three to six months). According to available reports, around 5% of all cancer patients develop LMD, highlighting the sizeable patient population and commensurate market opportunity. MTD217 is being designed to simultaneously target key metabolic pathways – glycolysis/Warburg effect and the oxidative phosphorylation (OXPHOS) pathway, used by cancer cells to generate energy for growth and proliferation. According to the company, under induced stress, cancer cells switch from glycolysis to the OXPHOS pathway for energy, so the inhibition of both should support broader utility and efficacy. While small-molecule drugs can be used to downregulate these pathways, usage has been restricted by off-target toxicity from systemic administration of these drugs. By solubilizing these drugs using the MidaSolve technology and directly delivering the therapeutics to the site of the cancer cells (simultaneously or sequentially), Biodexa is proposing a more effective (higher dose concentrations) and safer (limiting off-target toxicity) alternative to available treatments, for both primary and metastatic cancers. Management plans to announce in vivo data from a preclinical study in Q124, followed by submission of an IND application in Q424.

Unlike T2D, which is a lifestyle disease, T1D is an autoimmune condition where the immune system attacks pancreatic beta cells, destroying their ability to produce insulin (which regulates blood sugar levels) (see Exhibit 5). This requires the afflicted population to take daily insulin injections. While T1D can develop at any age, it is typically first diagnosed in children and young patients, and accounts for 5–10% of all diabetes cases. T1D can be differentiated from T2D by testing for biomarkers, such as the presence of autoantibodies and/or depleted levels of cpeptide, a measure of insulin production by beta cells (c-peptide levels less than 0.2nM are indicative of T1D).

The prevalence of T1D is believed to grow at an annual rate of 0.34%, and it is estimated that the condition afflicts c 8.4 million people worldwide (13.5–17.4 million cases expected by 2040). The T1D market was valued at $7.59bn in 2022 and is expected to grow to $13.6bn by 2030 (a compound annual growth rate of 7.6%), indicating significant commercial opportunity for novel treatments, as well as potentially curative therapies.

While there is currently no curative treatment for T1D, immunotherapy, cell therapy and gene therapy are some of the treatment approaches in development for T1D in a bid to either prevent or reverse the underlying autoimmune process, as well as restore beta cell function. Recent development work has focused on cell replacement therapies – either donor-sourced pancreatic beta cells or stem cell-derived insulin-producing beta-like cells – as a longer-lasting and permanent treatment alternative to daily insulin injections. In June 2023, the FDA approved the first cell therapy for T1D, CellTrans’ Lantidra (donislecel) for the treatment of adults with T1D with poorly managed blood glucose levels (repeated episodes of severe hypoglycemia or low blood sugar) despite intensive diabetes management. The treatment uses allogeneic islet beta cells, extracted from donor pancreatic cells, which are then administered as an infusion into the hepatic (liver) portal vein. The rationale is that in some patients these infused cells can produce enough insulin for the patient to negate the need to take supplementary insulin to control blood sugar levels. While theoretically sound, the utility of this treatment is hindered by difficulties in sourcing sufficient donor-derived beta cells. Another restrictive component of this treatment is the requirement for lifelong immunosuppression to maintain islet cell viability, which comes with its own side effects. Due to these reasons, the treatment may struggle to find broad applicability with usage restricted to only a small population of poorly controlled T1D cases.

To overcome the challenges related to sourcing islet beta cells from donors, other treatments in clinical development are focusing on using stem cell-derived insulin-producing islet cells or beta-like cells as an alternative. The most advanced program in this category is Vertex Pharmaceuticals’ VX-880, currently being tested in a Phase I/II study, although we note that this treatment also requires systemic immunosuppression. Vertex is also developing a second drug, VX-264, for the same condition, wherein it plans to encapsulate the stem cell-derived islet cells in a protective device to be surgically implanted in the body. The aim is for the device to protect the cells from being attacked by the body’s immune system, thereby removing the need for immunosuppression. A Phase I/II clinical trial for VX-264 was initiated in May 2023 with an expected completion date of May 2026. We note that Vertex has recently halted the clinical trial for VX-880 after two unrelated patient deaths. The trial has been paused pending a review of data by an independent data monitoring committee and global regulators. The trial was previously placed on hold by the FDA in November 2022 due to concerns around dose escalation, but the hold was lifted after a few months. Exhibit 6 presents the most advanced cell therapies in development for the treatment of T1D.

Another area with increasing therapeutic focus is more ‘preventative’ treatments for patients with early-stage T1D who still have functioning beta cells producing insulin. The first treatment to be approved in this category is Sanofi/MacroGenics’ CD3-directed monoclonal antibody (approved in November 2022), Tzield (teplizumab-mzwv; developed by Provention Bio and acquired by Sanofi for $2.9Bn in March 2023), which was the first immunotherapy-based treatment to delay the onset of stage 3 T1D in adults and children eight years and older diagnosed with stage 2 T1D. We note that the eligible patient population for this treatment will be limited given that most cases are not diagnosed until stage 3, when clinical symptoms begin to show. Another advanced clinical-stage immunotherapy under development is Diamyd, an antigen-specific immunotherapy for the preservation of endogenous insulin production in recent-onset patients who carry the genetic HLA DR3-DQ2 haplotype (c 34% of all screened patients). A Phase III confirmatory trial, DIAGNODE-3, is ongoing (expected to recruit 330 participants) with an expected completion date in December 2025. Another clinical-stage asset targeting early-onset disease is Precigen ActoBio’s AG019, currently in Phase II trials. The drug works by inducing specific regulatory T-cells (Tregs) that reduce or eliminate the destruction of beta cells, thereby stabilizing or improving insulin production.

Biodexa reported its H123 interim results in September 2023, reporting revenues of £0.3m during the half-year (£0.47m in H122). As with recent periods, the revenues were fully attributed to the company’s R&D collaboration with Janssen. R&D expenses declined c 7% y-o-y to £2.25m (R&D as a percentage of opex declined to 50% from 57% in H122). The decline in R&D was driven by the company’s decision to halt R&D-related activities on its drug delivery platforms as part of its repositioning as a therapeutics company. One-time redundancy-related expenses of £88k were recognised in R&D related expenses during the period. Administrative expenses grew c 34% y-o-y to £2.29m, with the increase primarily attributable to £0.4m in legal and professional fees related to financing transactions and shelved acquisitions during the period. Net cash outflow from operating activities was £3.88m versus £3.54m in H122, mainly attributed to a higher net loss figure (£3.57m vs £3.06m in H122) partially offset by a positive working capital figure of £0.21m (outflow of £0.05m in H122). Biodexa ended H123 with a net cash balance of £5.2m and we expect the additional $6m (£4.7m) in gross proceeds from the latest equity raise to provide improved operational headroom to support the company’s pipeline development plans.