IRLAB Therapeutics — Looking beyond mesdopetam

Despite focus increasingly shifting onto the rest of the pipeline, mesdopetam remains the most advanced asset in IRLAB’s pipeline and the most important near-term value driver in our view. As a quick reminder, mesdopetam is a D3 receptor antagonist being investigated in an ongoing Phase IIb trial for levodopa-induced dyskinesia (PD-LIDs). These are the troublesome, involuntary movements associated with levodopa therapy, which is the mainstay for treating the cardinal motor symptoms of Parkinson’s disease. Global rights to mesdopetam were successfully licensed to Ipsen in July 2021, with IRLAB receiving $28m upfront and remaining eligible for up to $335m in additional milestones plus low double-digit royalties on sales.

During the CMD, based on its assessment management believes the addressable PD-LIDs market to be worth c $12bn, which is broadly in line with our model albeit we only assume 10% penetration or $1.2bn peak sales. Top-line data from the ongoing Phase IIb trial are expected in H222 and will be key to defining the strategy for a subsequent registrational Phase III study, which we note will be solely led and fully funded by Ipsen. The CMD was attended by representatives from Ipsen, who reiterated the company’s intentions additionally to pursue psychosis in Parkinson’s disease (PD-Psychosis) as part of the lifecycle management, with IRLAB informing that a Phase II trial start is a decision to be made by Ipsen.

The Ipsen deal has been transformative for IRLAB and ultimately de-risked its strategy, with the upfront payment alone providing it with a cash runway into 2024 and enabling it to focus on progressing the rest of the pipeline (Exhibit 1).

Impaired balance and the increased risk of falls are motor symptoms of PD which are incredibly debilitating for patients. These represent a significant unmet medical need, are highly prevalent and not addressed by current PD treatments. Pirepemat is an innovative, first-in-class drug discovered through IRLAB’s Integrative Screening Process (ISP) and developed in house. Pirepemat is primarily an antagonist of the 5-HT7 and alpha-2 receptors, which potentially has cognitive-enhancing effects and can restore the normal function of the cerebral cortex by selectively increasing extracellular levels of the neurotransmitters, norepinephrine and dopamine. To the best of our knowledge, there are no other treatments in development with a similar mechanism of action and IRLAB estimates that it is four to five years ahead of potentially similar competitors.

The planned Phase IIb PD-Falls study is expected to start enrolling patients imminently. This will enrol c 150 patients at sites in the EU and US and will focus on recurrent fallers, which represent c 40–50% of the patient population. Pirepemat will be given orally t.i.d as an add-on therapy at one of two dose levels for 12 weeks. The primary endpoint will look at the change in frequency of falls versus placebo. Based on discussions at the CMD, a c 25% reduction in fall frequency can be considered clinically meaningful and could be considered the bar for success. The study is expected to take c 18 months to complete with top-line data becoming available in H223, after which we anticipate a licensing partner will be sought. IRLAB has guided that a pivotal Phase III study could start in 2024, which we believe could enable approval and launch in 2027, in line with our previous assumptions.

Two new assets from the preclinical P001 programme have now been nominated as clinical candidates. These are undergoing the requisite preclinical work to enable regulatory clearance to start Phase I clinical trials, both of which are expected to start in 2023. IRL942 is being developed for cognitive dysfunction, which has potential use in a range of neurological disorders and dementias. This would expand the company’s therapeutic scope beyond PD into other indications, such as Alzheimer’s disease. The US Centers for Disease Control and Prevention (CDC) estimates that c 12% of all adults ≥65 years old have reported experiencing some level of cognitive decline, so this potentially represents a significant market opportunity. The exact mechanism and therapeutic target(s) of IRL942 have not yet been disclosed, but in animal models this drug has been shown to improve cognition function through activating frontal-subcortical circuits, which IRLAB believes is unique and could potentially have both symptomatic and disease-modifying benefits.

Also from its P001 programme, IRL757 was nominated as a candidate molecule for the treatment of apathy in March. Again, no mechanism or target(s) have been disclosed, but IRLAB has guided that IRL757 increases neuronal activity in frontal neurocircuits, disruption of which is associated with apathy. As highlighted in Exhibit 2, apathy is a common symptom in various neurocognitive disorders and the company believes that c 10 million people in the US, and a similar number in the EU, may be affected, with no specifically approved drug treatments. IRLAB intends to initiate Phase I trials in early Q323.

The company also provided an update on its preclinical P003 programme at the CMD. This is focused on the discovery of an oral, long-acting dopaminergic-based alternative to levodopa therapy for PD. Although levodopa regimens are efficacious and broadly used, in the long term their use is complicated by motor fluctuations caused by the intermittent stimulation of dopamine receptors with oral dose regimes. These become progressively harder to control as the disease progresses and the therapeutic response to levodopa can vary over time, with periods of excessive responses (including LIDs) and absent responses observed as dosing and metabolism take place.

The P003 programme aims to address these complications by producing a prolonged, optimal response over the same period, which should reduce the severity of the motor fluctuations patients experience through intermittent oral dosing (Exhibit 3). Lead optimisation work is currently ongoing in this programme and candidate nomination can be expected in 2022. The company has guided that it intends to start to a Phase I trial in 2023 that will include PD patients (in parallel to healthy volunteers), which could potentially enable some initial clinical proof-of-concept data and partnering options to become available sooner.

Our risk-adjusted net present value (NPV) model is virtually unchanged, and we value IRLAB at SEK5.5bn or SEK106/share (SEK5.4bn or SEK105/share previously). We have rolled forward our model in time. We forecast c $1.9bn peak sales for mesdopetam for its potential use in PD-LIDs and PD-Psychosis, contributing SEK49.1/share and SEK16.3 /share respectively. We forecast c $1bn peak sales for pirepemat in PD-Falls for SEK32.9/share. We do not currently include preclinical assets (IRL942 and IRL757), early-stage programmes (P003) or its proprietary ISP platform technology, but see potential for uplift as assets move into clinical development.

R&D costs associated with mesdopetam’s development will begin winding up over the near term with completion of the ongoing Phase IIb/III in 2022, but we expect these will be largely offset by the planned Phase IIb trial for pirepemat and progression of preclinical assets into the clinic. Based on foreseeable R&D plans, we forecast a cash runway into 2024, which will take the company through multiple value infections (Exhibit 5). We also highlight subsequent milestone payments from Ipsen (up to $335m due), which could potentially alleviate additional financing needs.