As expected, Genkyotex has initiated enrolment in the Phase II trial of GKT831 in patients with primary biliary cholangitis (PBC) in the first clinical trial site in the US. The trial plans to test GKT831 in 102 patients over 24 weeks. Interim data are expected in H118 and full data in H218. Moreover, the company has announced a Phase II investigator-sponsored trial in patients with Type 1 diabetes (T1D) and kidney disease. The trial will start in Australia in H217 and will be entirely funded and run by public bodies. These new trials demonstrate that Genkyotex is executing on its clinical development plan. Our valuation is €268m.
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Genkyotex |
GKT831 clinical development on track |
Clinical update |
Pharma & biotech |
6 July 2017 |
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As expected, Genkyotex has initiated enrolment in the Phase II trial of GKT831 in patients with primary biliary cholangitis (PBC) in the first clinical trial site in the US. The trial plans to test GKT831 in 102 patients over 24 weeks. Interim data are expected in H118 and full data in H218. Moreover, the company has announced a Phase II investigator-sponsored trial in patients with Type 1 diabetes (T1D) and kidney disease. The trial will start in Australia in H217 and will be entirely funded and run by public bodies. These new trials demonstrate that Genkyotex is executing on its clinical development plan. Our valuation is €268m.
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16e |
1.3 |
(21.7) |
(27.8) |
N/A |
N/A |
N/A |
12/17e |
0.0 |
(12.0) |
(15.4) |
N/A |
N/A |
N/A |
12/18e |
0.0 |
(13.0) |
(16.7) |
N/A |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments. 2016e is our pro forma estimate, based on available data.
Phase II PBC trial starts patient enrolment
Shortly after announcing that the FDA had accepted the Investigational New Drug Application, the company commenced enrolment in the US in the Phase II trial of GKT831 in PBC. The first patient will be dosed soon. The study will enrol 102 patients with PBC in over 50 centres in the US, Canada and Europe. Interim top-line data are expected in H118 and full results in H218. PBC is a rare autoimmune disease that causes liver fibrosis, cirrhosis and, eventually, liver failure. We estimate there are c 46,000 diagnosed patients in the US and EU and forecast peak sales for GKT831 of c $1.1bn. A successful clinical outcome would support development in larger liver fibrosis indications such as non-alcoholic steatohepatitis (NASH). Prevalence data suggest c 60m patients could be affected in the EU and US, and there are no approved products for NASH.
Phase II study in diabetic kidney disease planned
Furthermore, Genkyotex announced that an investigator-sponsored trial of GKT831 in T1D patients with diabetic kidney disease (DKD) will start enrolling patients in H217. The trial will be conducted at up to 15 centres in Australia led by two world renowned experts in the field, Prof Mark Cooper and Prof Jonathan Shaw. Moreover, it will be funded by the Juvenile Diabetes Research Foundation Australia and the Baker Institute; therefore, it will not represent a financial burden for Genkyotex, which will provide GKT831 under Good Manufacturing Practices (GMP). DKD is the most common cause of end-stage renal disease; it is estimated that in 2015 there were 20.2m cases of DKD in the US, Japan and EU-5.
Valuation: maintain risk-adjusted NPV of €268m
Our valuation of Genkyotex is €268m based on an rNPV and includes the PBC indication, the deal with the Serum Institute of India (SIIL) and net cash of €20.8m at 31 March 2017. As described in our initiation report, should the company pursue NASH, we estimate this could add €30m to €90m. We look to add the DKD indication to our valuation once the clinical trial has commenced.
Focus on GKT831 clinical development
Phase II in PBC starts enrolment
Genkyotex has initiated patient enrolment in the US in the Phase II trial of GKT831 in PBC. The study will enrol 102 patients with PBC in over 50 investigational centres in the US, Canada and Europe. The first patient will be dosed soon. Patients will be administered placebo or two doses of GKT831, 400mg once a day or 400mg twice daily, during 24 weeks. The primary end point will be the change in serum gamma-glutamyl transferase (GGT), a marker of liver injury. Secondary end points will explore other markers of cholestasis and liver injury, inflammation and liver fibrosis. The company anticipates interim data in H118 and full data in H218.
We estimate the number of PBC patients that could be eligible for treatment with GKT831 at c 46,000 and project peak sales of $1.1bn in this indication, with launch in 2023. We believe that the PBC trial, if successful, could also support development of GKT831 in the larger liver fibrosis opportunity, in particular NASH, which could target c 60 million people in the EU and US. Patent protection for GKT831 in the US, Europe and Japan extends until 2029.
Phase II in diabetic nephropathy: higher dose for longer time
The company has announced an investigator-sponsored Phase II study in patients with T1D and DKD (also known as diabetic nephropathy). The study is planned to start in H217 and will be conducted at up to 15 centres in Australia led by Prof Mark Cooper, head of the department of diabetes at Monash University and Prof Jonathan Shaw, deputy director at the Baker Heart and Diabetes Institute in Melbourne. Importantly, the study will be entirely funded by the Juvenile Diabetes Research Foundation and the Baker Institute. Genkyotex will provide GMP-produced GKT831. The primary end point of the study will be the change from baseline in urine albumin-to-creatinine ratio (UACR) after 48 weeks. A key secondary end point of the study will be changes in estimated glomerular filtration rate, which measure the effect of GKT831 on renal function. Patients will receive 200mg of oral GKT831 or placebo twice a day for 48 weeks.
A previous Phase II study run by Genkyotex of GKT831 in diabetic nephropathy did not meet the primary efficacy end point of reduction of proteinuria at 12 weeks, but results were statistically significant (p<0.05) in the pre-defined secondary end points of changes in liver enzymes such as GGT and markers of inflammation. We note that the new trial is testing a higher dose (200mg twice/day vs the previous 100mg/day for six weeks followed by 200mg/day for six weeks) during a longer duration of treatment (48 weeks vs 12 weeks previously). This provides rationale for an improved effect in the new trial.
DKD is one of the long-term complications of diabetes that leads to damage of the kidneys' filtering system. It is characterised by persistent albuminuria, progressive decline in the glomerular filtration rate and elevated arterial blood pressure. It is the most common cause of end-stage renal disease. According to Datamonitor Healthcare in 2015, there were 20.2m prevalent cases of DKD in the adult diabetic population in the US, EU-5, and Japan.
GKT831 has proven safe in four Phase I studies in a total of 117 healthy subjects in a single ascending dose, in multiple ascending doses as well as the food effect and drug interaction. In these studies, GKT831 showed no safety issues and there were no dose-limiting toxicities. Moreover, adverse events in the previous DKD Phase II trial were significantly lower in the GKT831 arm vs placebo.
Financials and valuation
We estimate Genkyotex had c €20.8m net cash at 31 March 2017, which should be sufficient to fund clinical development of GKT831 and GKT771 over the next two years, according to our forecasts. The company expects to receive an additional €3m in tax credits. Currently, our forecasts remain unchanged. On 27 July 2017, the company will provide a business and cash update for Q217. H117 financial results will be released on 21 September.
Taking conservative market share and pricing assumptions and using our standard 12.5% discount rate produces a risk-adjusted NPV of €268m or €3.5 per share, based on 77.85m shares. Our valuation of Genkyotex is based on GKT831 in the PBC indication and the SIIL deal, leaving all other product development opportunities and additional indications as upside. We do not typically include any contribution for indications until clinical development commences; therefore, our GKT831 estimates do not include any potential in DKD or NASH. However, a sensitivity analysis suggests NASH could add between c €30m and €90m, excluding milestones or upfront payments, depending on the commercial strategy.
Exhibit 1: Financial summary
€ 000 |
2016e |
2017e |
2018e |
||
Year End December |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|
|
|
||
Revenue |
|
|
1,304 |
0 |
0 |
Cost of Sales |
0 |
0 |
0 |
||
Gross Profit |
1,304 |
0 |
0 |
||
R&D expenses |
(12,687) |
(7,000) |
(10,000) |
||
G&A expenses |
(14,324) |
(5,500) |
(5,000) |
||
EBITDA |
|
|
(21,698) |
(12,000) |
(13,000) |
Operating Profit (before amort. and except.) |
|
(21,698) |
(12,000) |
(13,000) |
|
Intangible Amortisation |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
||
Operating Profit |
(21,698) |
(12,000) |
(13,000) |
||
Net Interest |
23 |
13 |
2 |
||
Profit Before Tax (norm) |
|
|
(21,675) |
(11,987) |
(12,998) |
Profit Before Tax (FRS 3) |
|
|
(21,675) |
(11,987) |
(12,998) |
Tax |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(21,675) |
(11,987) |
(12,996) |
||
Profit After Tax (FRS 3) |
(21,675) |
(11,987) |
(12,997) |
||
Average Number of Shares Outstanding (m) |
77.9 |
77.9 |
77.9 |
||
EPS - normalised (c) |
|
|
(27.8) |
(15.4) |
(16.7) |
EPS - (IFRS) (c) |
|
|
(27.8) |
(15.4) |
(16.7) |
Dividend per share (p) |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
NA |
NA |
NA |
||
EBITDA Margin (%) |
NA |
NA |
NA |
||
Operating Margin (before GW and except.) (%) |
NA |
NA |
NA |
||
BALANCE SHEET |
|||||
Fixed Assets |
|
|
11,995 |
11,995 |
11,995 |
Intangible Assets |
11,829 |
11,829 |
11,829 |
||
Tangible Assets |
167 |
167 |
167 |
||
Fixed term investments |
155 |
155 |
155 |
||
Other |
0 |
0 |
0 |
||
Current Assets |
|
|
30,383 |
18,397 |
5,398 |
Stocks |
0 |
0 |
0 |
||
Debtors |
3,512 |
3,512 |
3,512 |
||
Cash |
26,871 |
14,884 |
1,886 |
||
Other |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(4,901) |
(4,901) |
(4,901) |
Creditors |
(4,303) |
(4,303) |
(4,303) |
||
Short term borrowings |
(598) |
(598) |
(598) |
||
Long Term Liabilities |
|
|
(1,384) |
(1,384) |
(1,384) |
Long term borrowings |
(336) |
(336) |
(336) |
||
Other long term liabilities |
(1,049) |
(1,049) |
(1,049) |
||
Net Assets |
|
|
36,093 |
24,106 |
11,108 |
CASH FLOW |
|||||
Operating Cash Flow |
|
|
(22,693) |
(12,000) |
(13,001) |
Net Interest |
23 |
13 |
2 |
||
Tax |
0 |
0 |
0 |
||
Capex |
(13) |
0 |
0 |
||
Acquisitions/disposals |
0 |
0 |
0 |
||
Equity Financing |
13,776 |
0 |
0 |
||
Other items |
(345) |
(600) |
(601) |
||
Net Cash Flow |
(9,252) |
(12,587) |
(13,600) |
||
Opening net debt/(cash) |
|
|
N/A |
(25,938) |
(13,951) |
HP finance leases initiated |
0 |
0 |
0 |
||
Other |
0 |
600 |
600 |
||
Closing net debt/(cash) |
|
|
(25,938) |
(13,951) |
(950) |
Source: Edison Investment Research, Genticel and Genkyotex accounts. Note: 2016e relates to our pro forma estimates for the combined entity as described above.
|
|
Research: Healthcare
Oxford BioMedica has today announced a significant agreement with Novartis for the ongoing commercial and clinical supply of lentiviral vectors used to produce CTL019, confirming its status as a major component of Novartis’ future CAR-T plans. The agreement is an extension of the October 2014 collaboration and comes in anticipation of the launch of CTL019 in H217. In deal terms, OXB will receive a $10m upfront payment and could potentially receive $100m+ from Novartis over the next three years. Our forecasts and valuation are under review (in our last published outlook we noted peak royalties of £12.4m). We await the outcome of CTL019’s FDA advisory committee meeting (12 July) to shed more light on its path to approval and likely commercial success.