e-therapeutics — More to come in RNAi therapy discovery

e-therapeutics (LSE: ETX)

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10.03

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Research: Healthcare

e-therapeutics — More to come in RNAi therapy discovery

e-therapeutics reported H1 FY24 results (to end-July 2023), reaffirming its commitment to integrating its computational and hepatocyte biology expertise to develop short interfering RNA (siRNA) therapies. The key half-year development was the proof-of-concept (PoC) data for two preclinical assets for the treatment of cardiometabolic disease and haemophilia, with further updates forthcoming. We view these pipeline updates, especially in segments with increased interest, as positive. Management continues to strengthen its intellectual property (IP) position and has filed new patent applications to protect 11 inventions relating to its novel targets and siRNA constructs. In our view, the company’s cost-effective and flexible approach is a key differentiator, especially in light of the challenging funding environment for drug discovery. In H1 FY24, R&D spend was £5.3m, and the company expects an increase in H2 FY24 with further development of its AI capabilities and progression of its in-house preclinical pipeline. At end-July 2023, e therapeutics had a net cash position of £24.8m.

Soo Romanoff

Written by

Soo Romanoff

Managing Director - Head of Content, Healthcare

e-therapeutics

Healthcare

e-therapeutics

More to come in RNAi therapy discovery

Pharma and biotech

Spotlight – Update

13 November 2023

Price

11.6p

Market cap

£68m

Share price graph

Share details

Primary code
(secondary code)

ETX
(ETXPF)

Primary exchange
(secondary exchange)

LSE
(OTCQX)

Shares in issue

583.8m

Net cash at end-July 2023

£24.8m

Business description

e-therapeutics is a UK biotech using its proprietary computational biology and RNAi platforms to discover novel disease targets and therapies. The company is specifically focused on leveraging its expertise to design treatments targeting one cell type in the liver, hepatocytes. e-therapeutics is currently progressing multiple preclinical programmes in cardiometabolic and metabolic disease, haemophilia and additional undisclosed indications.

Bull

Platform approach has potential to identify novel disease targets with little market competition.

To our knowledge, it is the only platform approach in the market combining hepatocyte focused disease modelling with RNAi discovery.

RNAi therapies have potential to be developed against any disease-associated gene.

Bear

Risk associated with early-stage preclinical pipeline.

Failure to clinically validate the RNAi platform would affect partnering opportunities.

Increased costs associated with clinical development may require additional funding.

Analysts

Soo Romanoff

+44 (0)20 3077 5700

Dr Arron Aatkar

+44 (0)20 3077 5700

Nidhi Singh

+44 (0)20 3077 5700

e-therapeutics is a research client of Edison Investment Research Limited

e-therapeutics reported H1 FY24 results (to end-July 2023), reaffirming its commitment to integrating its computational and hepatocyte biology expertise to develop short interfering RNA (siRNA) therapies. The key half-year development was the proof-of-concept (PoC) data for two preclinical assets for the treatment of cardiometabolic disease and haemophilia, with further updates forthcoming. We view these pipeline updates, especially in segments with increased interest, as positive. Management continues to strengthen its intellectual property (IP) position and has filed new patent applications to protect 11 inventions relating to its novel targets and siRNA constructs. In our view, the company’s cost-effective and flexible approach is a key differentiator, especially in light of the challenging funding environment for drug discovery. In H1 FY24, R&D spend was £5.3m, and the company expects an increase in H2 FY24 with further development of its AI capabilities and progression of its in-house preclinical pipeline. At end-July 2023, etherapeutics had a net cash position of £24.8m.

Historical figures

Year
end

Revenue
(£m)

PBT
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

01/21

0.3

(4.5)

(0.99)

0.0

N/A

N/A

01/22

0.5

(9.5)

(1.65)

0.0

N/A

N/A

01/23

0.5

(9.8)

(1.54)

0.0

N/A

N/A

Source: Company accounts. Note: *EPS is diluted.

GalOmic primed to deliver novel RNAi therapies

In the first half of FY24, e-therapeutics generated PoC data for lead GalOmicTM RNA interference (RNAi) assets ETX-291 and ETX-148 for the treatment of cardiometabolic disease and haemophilia, respectively. The company's preclinical studies with ETX-291 have demonstrated its ability to silence a novel target gene effectively and have an impact on multiple cardiometabolic disease drivers simultaneously to produce a pleiotropic benefit. This means it has the potential to target multiple cardiometabolic indications (eg obesity, type 2 diabetes and cardiovascular disease). We note that this disease area represents a market segment with high levels of interest from large pharmaceutical companies. For ETX-148, histological data from a preclinical joint bleed model suggests that the therapy provides protection against bleed-induced joint damage in haemophilia. Importantly, this has been achieved without an increased risk of thrombosis. While precise details are yet to be revealed, management plans to complete preclinical studies by end-FY24. The progression of its current pipeline and expansion of its capabilities may prompt partnering and out-licensing discussions.

Well-funded with a flexible business model

At end-July 2023, e-therapeutics had £24.8m in net cash. Management emphasises that its lean and efficient computational approach to develop novel medicines (compared to traditional drug development programmes) affords it flexibility and the ability to contain costs. While we note that later-stage discovery efforts will be more capital intensive, the company is sufficiently funded to support its current strategy.

HepNet remains central to company strategy

HepNetTM, e-therapeutics’ proprietary computational biology platform, was built to expedite the identification of high-quality hepatocyte-expressed therapeutic targets. HepNet leverages large and complex datasets, proprietary computational capabilities and a hepatocyte-centric knowledgebase to create and analyse biological network models, providing a novel and mechanistic approach to target identification. Supported by HepNet, e-therapeutics has identified a number of therapeutic targets, giving rise to active preclinical programmes focused on cardiometabolic and metabolic disease, haemophilia and two further undisclosed indications. The ability to expedite effective target discovery is a critical consideration in the current highly inflationary environment, with limited funding for innovation and discovery.

A purely computational approach to RNAi drug design

e-therapeutics takes a completely computational approach to the design of siRNA constructs, using AI to predict siRNA efficacy. The company reports that its data demonstrate that the trained siRNA efficacy prediction model shows high accuracy and enables the identification of lead siRNA sequences at the in silico stage, significantly reducing the number of sequences that need to be screened in vitro. Ultimately, this may enable in vitro screening to be bypassed entirely, with predictions being taken straight to in vivo, dramatically reducing preclinical development timelines and costs. According to management, prior to the use of AI for siRNA efficacy prediction, the company would have identified and screened c 400 potential siRNA sequences for a single target, taking six months and costing $500k, as discussed in our initiation note. With the new AI approach, management aims to reduce timelines for identifying a high-quality clinical candidate to one month, and reduce the associated costs to c $50k, by screening fewer than 10 sequences; however, this is yet to be fully validated (Exhibit 1).

Exhibit 1: e-therapeutics’ AI agent approach claims to expedite siRNA lead identification

Source: e-therapeutics interim presentation: Computing the Future of Medicine

e-therapeutics believes it may offer differentiation within this market with its novel targets identified by HepNet. In the company’s H1 FY24 results, preclinical assets ETX-291 and ETX-148 were introduced. These have been designed to silence genes implicated in cardiometabolic disease and haemophilia, respectively. Management has reported that PoC data have been generated for these assets in H1 FY24 and the company indicated that preclinical studies are on track to be completed by the end of the year:

ETX-291 is being developed for the treatment of cardiometabolic diseases. This comprises a group of related disorders considered to be a leading cause of death globally. According to the World Health Organization, cardiometabolic diseases take approximately 17.9 million lives worldwide each year. Management has communicated that ETX-291 has the potential to provide a disease-modifying benefit and, in a representative disease model, the therapy has been found to have a pleiotropic benefit across multiple cardiometabolic disease drivers.

ETX-148 is being developed for the treatment of haemophilia, a group of rare genetic disorders in which blood clotting is impaired. ETX-148 data from a preclinical joint bleed model suggest it may provide protection against bleed-induced joint damage, a key unmet need in the area. Management claims that the therapy provides this protection without increasing the risk of thrombosis.

Management plans to present further details on these preclinical data packages in the near future.

Generative AI to accelerate all aspects of drug development

e-therapeutics has reaffirmed its commitment to continue integrating large language models and generative AI into its processes in H1 FY24, which should further enhance its research efforts. Management attests that, as a smaller company, it has the competitive edge over its larger peers since it can better utilise generative AI at the centre of its operations. A key component of e-therapeutics’ AI strategy is the use of specialist ‘generative AI agents’, a proprietary technology that is being used to advance the capabilities of its HepNet platform (Exhibit 2). The company is training these specialist AI agents on specialised data, such as hepatocyte-specific data, siRNA sequences/constructs and scientific papers, enabling the AI agents to understand, reason and infer better within specialised domains. Additionally, the generative AI agents have live access to the internet and the ability to learn from feedback and to self-correct. With these capabilities to hand, and with domain experience in hepatocyte biology, management believes that the company is well positioned to realise the ambition to be ‘computing the future of medicine’.

Exhibit 2: e-therapeutics’ plans to evolve HepNet with generative AI

Source: e-therapeutics interim presentation: Computing the Future of Medicine

As a case study, e-therapeutics has illustrated how its proprietary AI agents could be used to help formulate a patent strategy based on the analysis of unstructured patent data. For example, this might include extracting information from existing patents to find opportunities for freedom to operate (FTO) and new IP, as well as autogenerating new patent applications. According to management, there have been just under half a million RNAi-related patents filed since 2001. As each patent may contain hundreds of pages and include text, charts and chemical structures, this project was intended to compare how e-therapeutics’ AI agent might perform in comparison to a more traditional ‘manual’ approach across a number of tasks (Exhibit 3). Given the large number of patent documents, it was determined that some of the more advanced tasks, such as understanding the specialist syntax of patents, extracting and structuring data from tables, images and text, as well as inferring missing information are not feasible manually. However, management claims this is now possible at scale with the AI agent approach, though this is yet to be validated.

Exhibit 3: e-therapeutics’ AI agent capabilities in mining unstructured data from RNAi patents

Source: e-therapeutics investor presentation: Is Drug Discovery a Data Science Problem? Note: ‘+’ denotes the requirement for a lot of human intervention, ‘++’ denotes some human intervention, and ‘+++’ denotes little human intervention required.

Strategic collaboration announced with Arcturis

Post the reporting period, in November 2023, e-therapeutics announced a strategic collaboration with Arcturis Data. Arcturis is a UK-based company focused on using real-world data to support the discovery of new medicines. Its Real-World Evidence (RWE) platform uses high-quality, real-world data, as well as analytical capabilities derived from its unique access to patient-derived data. etherapeutics plans to utilise this RWE platform to enhance the capabilities of HepNet, with a focus on developing new therapeutic options for metabolic dysfunction and associated fatty liver disease, including non-alcoholic fatty liver disease. As part of this strategic collaboration, e-therapeutics will assess outputs from Arcturis’s RWE platform using HepNet and will have exclusive rights to nominate novel targets identified and to develop siRNA therapies using the GalOmic platform. In our view, the announcement marks a positive step forward for e-therapeutics, as it complements the company’s ongoing research efforts focused on metabolic diseases. We believe the external interest is encouraging for the company’s unique approach to accelerating and de-risking drug discovery.

Financials

During the first half of FY24, total revenue was recorded at £0.2m, which mainly comprised milestone payments related to the small molecule discovery agreement with iTeos Therapeutics, versus H1 FY23 revenue of £0.3m, which included the remaining milestone payments from the Galapagos collaboration. We note that the company does not generate a recurring revenue stream as it is still in the preclinical stages of drug development. The operating loss for the period increased to £7.0m, from £4.6m in H1 FY23, due to higher R&D expenses totalling £5.3m (H1 FY23: £3.1m). R&D expenses formed the majority (c 76%) of the total operating expenses. The increased R&D expenditure was attributed to higher outsourced contract research organisation costs associated with the development of the company’s preclinical assets, along with additional costs with respect to its RNAi platforms and related patent applications. Management expects a further increase in R&D costs and the cash burn rate in H2 FY24 as the company plans to continue the development of its preclinical assets and intends to expand its development pipeline across various therapeutic areas.

During H1 FY24, e-therapeutics reported an operating cash outflow of £6.9m (up from £4.7m in H1 FY23) and management anticipates this to increase further, in line with the expected higher R&D spend during the second half of FY24. The company ended H1 FY24 with a cash balance of £24.8m. However, management expects operating cash burn to increase further as the company ramps up R&D activities in line with its strategic priorities; this may affect the current runway.


General disclaimer and copyright

This report has been commissioned by e-therapeutics and prepared and issued by Edison, in consideration of a fee payable by e-therapeutics. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

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General disclaimer and copyright

This report has been commissioned by e-therapeutics and prepared and issued by Edison, in consideration of a fee payable by e-therapeutics. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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