ASIT biotech — New generation of allergy immunotherapy

ASIT biotech (formerly Biotech Tools) was founded in 1997 and is based in Liège, Belgium. It completed its listing on Euronext Brussels and Euronext Paris in May 2016, raising €23.5m in gross proceeds. Its pipeline is based on the proprietary ASIT+ technology platform, which allows the development of products containing highly purified allergen fragments in an adjuvant-free formulation, selected to be safe while maintaining the capacity to stimulate the immune system. Its products aim to overcome the current limitations of AIT, ie the long and cumbersome treatment that results in low compliance rates. Its products have the potential to significantly reduce the number of doctor visits, improving the patient’s quality of life and providing better efficiency for healthcare systems. ASIT’s lead products are gp-ASIT+ for moderate-to-severe allergic rhinitis, hdm-ASIT+ for house dust mite allergy and food-ASIT+, a preclinical-stage project for various food allergies.

Our ASIT valuation is €119.6m or €7.3/share using an rNPV, which also includes net cash of €15.6m at end-Q417 (with recent fund-raise). Our model includes three of ASIT’s projects: gp-ASIT+ for allergic rhinitis caused by grass pollen, hdm-ASIT+ for allergic rhinitis caused by house dust mite and food-ASIT+ for peanut allergy. We have used conservative assumptions on the addressable patient populations, potential market shares for ASIT’s products, comparable pricing, clinical costs ultimately adjusting the calculated cash flow for historical clinical trial success rates. We assume ASIT will market itself in Europe, while finding partners for the US and China markets.

ASIT reported an operating loss of €12.0m for FY17 (€12.3m, FY16), mainly due to the previous Phase III study. R&D expenses were €10.9m vs €12.1m a year ago. 2017 G&A costs were €1.7m vs €1.8m in FY16. Our total operating expense estimates are €11.9m in 2018 and €12.3m in 2019, with R&D costs staying at a similar level to 2017. ASIT recently completed a two-part fund-raising in February 2018 of €13.9m including €2.4m from a warrant exercise, and excluding a potential further €20.6m from possible future warrant exercise. We expect a cash positon of €4.7m by end-2018 and our model implies a €7.6m cash requirement in 2019. ASIT expects to deliver the Phase III gp-ASIT+ data readout in late 2019, which should provide a significant catalyst for the share price.

ASIT is an innovative product developer. Value creation depends on successful R&D, clinical progress and any potential partnering activities. R&D risk is balanced across the ASIT+ platform: gp-ASIT+, hdm-ASIT+ assets and other indications in preclinical stage, such as peanut allergy. Although data from the first Phase III trial fell short of being sufficient for gp-ASIT+ registration, we see signs of potential efficacy and take into account ASIT’s insights on how to improve chances of successful outcome in the upcoming study. The severity of the next pollen season is a key factor and has confounded the registration effects of others, as implied by a meta-analysis of 50 SLIT clinical studies where 22 failed to report or prevented calculation of the relative clinical impact. On the other hand, there are no seasonal effects known with other indications that would benefit from the ASIT+ platform, and their R&D risk may be lower.

Allergy can be defined as excessive sensitivity of the immune system to certain substances, and the presentation can vary significantly from minor local reactions to systemic anaphylaxis that can be lethal. This and high global prevalence make allergy one of the top public health issues. From the pathophysiological perspective the mechanism of an allergic reaction is similar for different allergens. This process typically requires previous exposure to the allergen, which triggers the production of anti-allergen IgE antibodies. After repeated exposure the IgE-mediated allergic reaction involves bridging of at least two IgE molecules on the surface of granulocytes (mast cells or basophils). This results in the degranulation of the cells and release of inflammatory chemicals such as histamine, which is responsible for the symptoms of an allergic reaction (Exhibit 3A).

Current treatments for allergy are largely symptomatic, offering temporary relief of symptoms; for instance, antihistamines that block the action of histamine responsible for the hypersensitivity reactions like sneezing and itching. Symptomatic therapies also include non-specific immunosuppressants like steroids, leukotriene modifiers that have anti-inflammatory action and anti-IgE antibodies, such as Xolair (omalizumab, Roche), which neutralise the action of IgE antibodies. Symptomatic treatment effects are usually short-lived and the drugs have to be used continuously during the exposure to the allergen. This often results in development of side effects, deterioration of compliance and quality of life.

AIT is the only treatment that addresses the root cause of the disease and can provide long-term relief. Often called desensitisation therapy, the treatment involves administration of the allergen to build the immune system’s tolerance to it. Immunotherapy treatment usually begins with the administration of a low allergen dose to avoid allergic reaction. The dose is then escalated until an effective maintenance dose is reached and then given around every month for a long period of time (2-5 years). AIT is considered an effective therapy, but the cost-effectiveness can vary significantly between countries1 with no way of prospectively predicting the outcome. The established AIT technology is either subcutaneous immunotherapy (SCIT) or sublingual immunotherapy (SLIT) (drops or tablets):

Because of the risk of systemic allergic reactions, the AIT dose of whole natural allergens is low, therefore the treatment period is long with repeated dosing and commuting to the allergy centre (in the case of SCIT). This results in low compliance for both options. A recent study by Musa et al found a 59% compliance rate among patients on SCIT and 12% among those on SLIT after three years of treatment. Consequently, according to ASIT, only about half of eligible patients are willing to endure such a lengthy treatment.

The company’s ASIT+ technology platform allows the development, characterisation, manufacturing and quality control of highly purified natural allergen peptide fragments to be used as active pharmaceutical ingredients. The adjuvant-free formulation of the final product is intended to improve the safety profile, while maintaining the capacity to stimulate immune tolerance to the allergen to which the patient is hypersensitive.

An allergic reaction is triggered when allergens bridge the granulocyte-bound IgE antibodies, which leads to cell degranulation. Current AIT uses whole allergens extracted from various sources (pollens, foods, dusts, etc) or obtained via recombinant techniques, therefore the AIT needs to start at a very low dose during the escalation phase to avoid triggering allergic reaction. ASIT’s technology revolves around purified natural allergens that have been broken down into optimal size fragments to lower the capacity to bridge IgE on mast cells (Exhibit 3). Based on existing data for its lead product gp-ASIT+, the company believes that its technology platform can be used to design novel AIT products for a variety of allergies, including for food allergies.

ASIT’s lead product candidates target widespread respiratory allergies (grass pollen and house dust mite), while preclinical-stage projects include potential products targeting food allergies. The most advanced product candidate, gp-ASIT+, is for grass pollen. Based on the existing data, ASIT’s technology potentially has multiple advantages over conventional AIT:

gp-ASIT+ consists of a mixture of natural small allergen fragments from purified protein extract from Lolium perenne pollen. Allergic rhinitis is a common inflammatory condition affecting the upper airways with conjunctivitis also often present. The condition is widespread, affecting around 400 million people globally. The most frequent allergens in European allergic rhinitis patients are grass pollen (c 60%), house dust mite (c 50%), tree pollen (c 40%), weed pollen (c 30%), animal dander (c 30%) and mould spores (10%). In the US the most frequent allergens are grass pollen (c 55%), ragweed (c 50%), house dust mite (45%) and tree pollen (c 20%). A patient can be sensitive to several allergens.

In February 2017, ASIT presented the results of BTT009, its most advanced multi-centre Phase III clinical study evaluating the clinical efficacy of gp-ASIT+. The study randomised 554 patients with grass pollen-induced rhinoconjunctivitis with or without controlled asthma (ratio of 1:2) to receive once-weekly injections of placebo or increasing doses of gp-ASIT+, reaching the cumulative dose of 170µg in three weeks. The primary endpoint was a statistically significant reduction (predefined at 20%) in the combined clinical symptoms and medication score (CSMS) over placebo over the peak of pollen season after treatment. The CSMS consists of six individual scores for nasal and conjunctival symptoms and three scores for concomitant medication, as recommended by the task force of the EAACI Immunotherapy Interest Group. The symptoms and the use of medicines were documented in a diary. The symptom score can be 0, none; 1, mild; 2, moderate; and 3, severe.

Depending on analyses used, the improvement in CSMS reached statistical significance with 15% (at peak) to 21% (over the entire pollen season) reduction compared to placebo. However, the study missed the predefined absolute average 20% difference in CSMS between placebo and the treatment group over the peak season.

These data compare with Allergy Therapeutics’ 1,028-patient G301 study with Pollinex Quattro Grass, which showed 13.6% improvement in CSMS (p=0.0038) on an intention to treat (ITT) basis (n=514 active, 514 placebo) and 24.3% improvement (p=0.0031) in the subgroup with a complete dataset (n=177 active, 166 placebo).

The secondary endpoint was reduction in reactivity to the conjunctival provocation test (CPT). CPT decreased significantly in 60.0% of patients treated with gp-ASIT+ compared with 35.6% in the placebo group (p<0.0001, Chi-square test). In a patient subgroup with the highest CPT reactivity at baseline (reactivity scores 3 and 4), which represented more than half of all Phase III patients, the symptomatic improvement compared to placebo reached 20% during the peak pollen period (p=0.05) and 24% over the entire season (p=0.05); CPT reactivity observed at baseline was predictive of later clinical response.

In terms of safety, systemic allergic reactions (SARs) were assessed according to the World Allergy Organization grading system. Each grade is based on organ system involvement and severity, from 1 to 5. There were 16.6% grade 1 in the active arm (vs 4.5% in placebo), 5.2% grade 2 SAR (0.6% placebo), 0.3% grade 3 and 4 (0% placebo). There were no grade 5 SARs in either arm.

We view the data as encouraging and believe there is a potential treatment effect. However, the magnitude of this effect will have to be proven in the confirmatory Phase III trial. One explanation put forward by ASIT is that the trial was conducted during an atypical, mild pollen season, which contributed to the mixed results (one very short peak pollen season and discrepancies in pollen counts between centres). This variability in the natural seasonal challenge to allergic patients is part of the risk of conducting clinical trials in allergy and, for example, influenza. In the past, even effective influenza vaccines have failed in clinical studies because a mild influenza season resulted in so few cases of confirmed influenza that the active and placebo arms could not be statistically separated.

ASIT received scientific advice from the German regulator, the Paul-Ehrlich Institute, which considered the results supportive and requested an additional pivotal study for registration in Germany. ASIT is currently preparing to start a second Phase III trial in Q418 aimed at registration in Germany, then subsequently in other EU countries. If successful, Germany could act as reference member state for a marketing authorisation application (MAA) registration in other EU countries.

ASIT has taken a number of steps to ensure the confirmatory Phase III study is designed to maximise the probability of success:

The trial (BTT011) will start screening patients in Q418 to start dosing before the pollen season from January to mid-March 2019. Presuming positive data, the company expects to file an MAA in Germany in H120.

ASIT biotech ran the BTT008 Phase IIb clinical trial with the objective of establishing the dose with the best safety/efficacy ratio for Phase III testing. This was a double-blind, placebo-controlled, dose-finding study in 21 centres in Germany. The primary objective was to assess the clinical effect as measured by the change in CPT reactivity of treated patients in comparison to placebo and three different cumulative doses of subcutaneous gp-ASIT+ in adult patients with grass pollen-induced allergic rhinoconjunctivitis. The secondary objectives were to assess the impact of gp-ASIT+ on the immunological status of the patients in comparison with placebo, as well as to assess the safety and clinical tolerability of gp-ASIT+. The study randomised 198 grass pollen-allergic adults to receive placebo or cumulative doses of 70μg, 170μg or 370μg of gp-ASIT+.

After completion of five visits, 51.2% (170μg: p=0.023), 46.3% (370μg, non-statistically significant), and 38.6% (70μg, non-statistically significant) of patients receiving gp-ASIT+ vs 25.6% of patients receiving placebo had an improvement of CPT. This was a modified per-protocol set of patients (mPPS); the overall ITT data have not been disclosed. CPT was used as the primary endpoint in Allergy Therapeutics’ recent dose-finding study.

In another Phase IIa trial, gp-ASIT+ demonstrated it was able to induce tolerance by generating grass pollen-specific IgG4 antibodies in a dose-dependent manner. In particular, specific IgG4 increased 1.6x, 3.1x and 3.9x in the patients who received 70μg, 170μg and 370µg of gp-ASIT+, respectively (p<0.001, Wilcoxon test). The percentage of B-cells binding IgE/allergen complexes is considered a marker of a good desensitisation process and its decline indicates a more subdued allergic reaction. In the Phase IIa trial, it decreased by 17% after a two-week treatment, by 19% after a three-week treatment and by 26% after a four-week treatment, all statistically significant (p<0.001) as shown in Exhibit 7.

While gp-ASIT+ has shown a dose response in terms of immunology, statistically significant clinical protection seems to require the 170µg dose with some interference in dose response at 370µg. The achieved doses seemed to be safe.

As mentioned, ASIT’s platform can be used to develop AIT for various allergies. Besides grass pollen the company is also focusing on house dust mite (second lead asset, Phase IIb ready) and food allergies (preclinical). There is also no theoretical reason why an effective component of a SCIT cannot be used in a SLIT product.

hdm-ASIT+ consists in a mixture of optimally sized natural peptides obtained from the purified allergen extracted from the house dust mite (Dermatophagoides pteronyssinus). This product is expected to have similar properties to gp-ASIT+, hence it is advantageous over conventional HDM AITs which, as for grass pollen, are based on whole allergens. ASIT completed an exploratory Phase I/IIa study that randomised 36 patients (27 to hdm-ASIT+ and nine to placebo) in 2016/17. It showed a good safety and tolerability profile of hdm-ASIT+ and no serious or unexpected, adverse treatment-related events, even at the highest allergen dose of 200µg. Therefore the primary endpoint of the study was reached. However, there was no difference in the secondary endpoint of laboratory investigations, particularly in immunogenicity parameters between the treated group and the placebo group. The study was of limited size and therefore not powered to show statistical significance. In addition, a substantial placebo response has been observed. ASIT is now selecting a more potent prototype from the ongoing preclinical studies and plans to restart a Phase I/II development in Q119.

While still at an early preclinical stage, peanut allergy is an indication with a high unmet need and commercial potential given that in some cases it can be a life-threatening condition. Other food sensitivities on top of the company’s list are cow’s milk and egg white allergies. There are no approved immunotherapy treatments for food allergies and the only available option is food allergen avoidance. This situation developed partly due to high risk of serious systemic reactions observed in previous attempts to develop AIT for food allergies. Given that ASIT’s platform is built on fragmented allergens to reduce the risk of the AIT worsening the allergy, the rationale for food allergies is potentially very attractive. Over the next six to 12 months ASIT plans to select potential product candidates for peanut, cow’s milk and egg white allergies, likely prioritising peanut with a first-in-man trial in H119.

Peanut allergy is one of the most severe food allergies causing serious and sometimes fatal reactions. It is estimated that it affects around 1.4% of children in the US, up from 1.2% in 2002 and from 0.6% in 1997.2 There are around 30,000 emergency room visits for food allergy per year in the US, with around 200 deaths. Research suggests that around 74% of children and 44% of adults in the US seek treatment for their peanut allergy.3

According to multiple sources (EvaluatePharma, GlobalData, key players in the field and ASIT’s own commissioned market research), around 4.7 million people globally are estimated to be receiving AIT treatment, while around 50 million people are eligible. Global AIT sales in 2017 were projected to be $1.2bn. The European AIT market was valued at c $884m with 1.4 million patients receiving treatment; Germany and France comprise two-thirds of the European market. SCIT formulations account for the majority of the sales (55%) globally, with SLIT drops (40%) and SLIT tablets (6%) following.

The global market is dominated by SCIT formulations marketed under named patient product (NPP) status, which represents the majority (90%) of the global sales. From a regulatory perspective SCIT treatments are rather unique among other therapies. NPPs are typically allergen extracts for which formal efficacy studies have never been performed. The decision to prescribe NPPs as a treatment, rather than any other therapy is made by the allergists in consultation with the patients. The EU Medicinal Products Directive was expected to result in regulatory change since it defined AIT treatments as classical medicinal products requiring marketing authorisation and supported by a fully documented safety and efficacy file. However, technically the directive is not applicable to medicinal products prepared in a pharmacy on a named product basis and many member states still allow AITs to be marketed as NPPs without the need for an MAA, which would require exhaustive data packages.

A historically less-structured pharmacovigilance environment with AITs has resulted in scepticism in some countries about safety and efficacy, and lack of reimbursement, for example in the UK. Germany, on the other hand, is one of the most advanced countries in terms of the acceptance of reimbursement and use of AITs. It has made progressive regulatory efforts and increasingly requires fully documented application for AIT products, although some of the products are still being sold as NPPs. Germany constitutes the larger market share of AIT globally (c 40%) with France (c 30%), Spain (10%) and Italy (10%) following. Other European countries are also moving away from AIT treatments marketed as NPPs, for example by limiting reimbursement. This potentially could result in lower availability of NPP AITs and ASIT believes it could present an opportunity for AIT products with marketing authorisation supported by full safety/efficacy data. Such AITs should also be preferred by payers and other stakeholders like patients and physicians due to documented safety and efficacy. So far only SLIT tablets have been granted marketing authorisations. First introduced in 2006, SLIT tablets (Grazax for grass pollen, ALK-Abello) were once envisioned as a paradigm-changing formulation due to perceived convenience. However, still long treatment times and diminished efficacy hindered more widespread use and SCIT formulations remain the most popular AIT.

The US market mainly consists of NPP SCIT therapies compounded by allergists in their office-based practices using allergens purchased from suppliers at relatively low prices (‘homebrew’), rather than FDA-approved drugs. These treatments represent an economic incentive for office-based physicians, with payments for both the drug compounding and the administration over many doses. In addition, the compounded therapies tend to include more than one allergen if the patient has multiple allergies. Such polysensitisation is somewhat unique to the US market and further hindered the acceptance of single allergen formulations such as SLIT drops/tablets. As a result, US AIT product sales (excluding allergist services) are estimated at just c $194m, with three million people receiving treatment. The FDA has also approved four SLIT tablets: two grass pollen allergy tablets, Oralair (Stallergenes Greer) and Grastek (ALK-Abello); a short ragweed allergy tablet, Ragwitek; and Odactra for dust mite allergies (both from ALK-Abello). Sales have not been strong because of a preference for subcutaneous homebrew treatments. When an FDA-approved SCIT product becomes available in the US, the value of the market would be expected to increase as the US moves from a market valued on the purchase of homebrew allergen components to one based on regulated pharmaceutical pricing.

We believe a new and efficacious therapy approved by the FDA (via a biologics licence application) could compete with the established compounded competition, not the least because reimbursement becomes more difficult for compounded drugs with an FDA-approved alternative. If approved and marketed, gp-ASIT+ may have higher patient compliance given the familiarity of SCIT treatments, particularly in the US, and the much greater convenience of the shorter four-dose course. Given the unique aspects of the US market (homebrew formulations and polysensitisation), ASIT plans to position its products not as a substitute to classical SCIT therapy, but rather as a complement to it, primarily targeting those patients who refuse to commit to years of therapy (around 50% of all patients who are offered the treatment according to ASIT) or those who drop out (also around 50% of those who start it).

The main players in the global AIT market are ALK-Abello (FY17 AIT sales of DKK2.45bn; 35% share) and Stallergenes Greer (FY17 AIT sales of €250m; c 30% market share). ALK-Abello’s sales of SCIT and SLIT drops were DKK1.9bn and sales of SLIT tablets were DKK0.53bn in 2017. Overall, 76% of sales came from Europe, 21% from North America and 3% from other international markets. Stallergenes Greer markets SLIT Actair tablets for house dust mite allergy and Oralair for grass pollen allergy, with combined FY17 sales of €30.5m. SLIT Staloral drops for allergic rhinitis and allergic asthma reported FY17 sales of €125.5m. Sales of SCIT products were €70.4m in 2017. Most sales come from Europe (58.7%), followed by the US (33.8%) and international markets (7.5%). The most advanced competitor is Allergy Therapeutics’ Pollinex Quattro Grass, an allergy vaccine marketed in Europe as an NPP. It has been tested in the recently announced Phase II G205 clinical trial, which provided an optimal dose for the pivotal Phase III programme for registration in the US and Europe.

ASIT biotech is an innovative product developer. For the foreseeable future value creation will therefore depend on successful R&D, clinical progress and any potential partnering activities. The near-term R&D sensitivities are balanced across the ASIT+ platform: gp-ASIT+, hdm-ASIT+ and other indication in preclinical stage, such as peanut allergy. Although the data from the first Phase III trial fell short of being sufficient for the registration of gp-ASIT+, we see signs of potential efficacy and take into account the company’s insights on how to improve the chances of successful outcome in the upcoming study. Admittedly, the severity of the next pollen season is still one of the key factors. In our valuation model, we have assumed risk-adjusted clinical trial success, self-marketing of gp-ASIT+ in Europe and licensing in other countries. The type and terms of ASIT’s licensing deals are discussed in our valuation section, but there is currently low visibility of what terms could actually be achieved. We have assumed further funding rounds before ASIT reaches break-even. Our valuation is based on our estimates for price and penetration, which we believe are reasonable. Unknown future pricing dynamics could lead to a lower price than we currently assume.

We value ASIT Biotech based on a risk-adjusted NPV using a 12.5% discount rate, including €15.6m net cash estimated at end-Q118. This results in a value of €119.6 or €7.3/share. We value three of ASIT’s projects (see Exhibits 9 and 10 for assumptions and valuation):

ASIT’s strategy is to develop all three products internally, and to market them in Europe with a focus on Germany. The company plans to license the commercialisation rights for US and Chinese markets. We forecast sales for Europe (EU5), US and China for gp-ASIT+ and hdm-ASIT+, with licensing deals for US and China. For food-ASIT+ (peanut) we forecast Europe (EU5) and US, with a licensing deal for US.

Competitors in the AIT field have also licensed rights for markets outside Europe (ALK-Abello, Allergy Therapeutics and Stallergenes Greer). For example ALK has entered into many agreements to market its AIT SLIT-tablets worldwide, including with Schering-Plough in 2007 (now Merck) for US rights to grass (Grastek), ragweed and house dust mite SLIT tablets, Torii in Japan for house dust mite and Japanese cedar SLIT tablets, Eddingpharm in China, Abbott in selected emerging markets, Menarini in selected European countries and CSL in Australia and New Zealand. Allergy Therapeutics, another competitor in AIT, has also entered into several development, commercialisation and distribution agreements for its Pollinex Quattro product range. Partners include Paladin Labs, Nycomed, Ergomed and AllerPharma. Stallergenes Greer also licensed Japanese and Taiwanese rights for its Actair product to Shionogi, and Canadian rights to Paladin Labs.

Deal terms are based on two comparable AIT deals (sourced from EvaluatePharma) shown in Exhibit 8. A comparable corticosteroid deal is included for context. We use the two AIT deals when considering our deal terms, so take $35m upfront and $155 for sales milestones (average of $120m and $190m) and assumed a conservative 10% flat royalty rate. This is used for each individual product deal in the US, and for China deal for hdm-ASIT+. According to our model, gp-ASIT+ in China has low peak sales ($10m). Therefore any China deal is likely to be of a relatively low value so for valuation purposes we include the China deal as part of the US deal. No peanut allergy deals with financials disclosed were found, so this deal was also used for a US licensing deal in the peanut indication. We have modelled individual deals for valuation purposes but in reality a deal could include more than one product and/or geography. We have assumed a conservative probability of a late-stage licensing deal (60%).

We assume a prevalence of allergic rhinitis (hay fever) in the US population caused by grass pollen allergy c 26m in US 2018 (c 45m or 14% have allergic rhinitis,4 of which c 56% have grass pollen allergy). The prevalence of allergic rhinitis in Europe is slightly higher than US at 18% of population,5 of which c 60% have grass pollen allergy.6 The prevalence of allergic rhinitis in China is c 11%, but the prevalence of grass pollen allergy in China is thought to be very low at c 1% of the total population which is much lower than US and Europe. House dust mite allergy has similar prevalence rates to grass pollen in US and Europe: 45% of allergic rhinitis cases in US and 52.5% in Europe. Again there is a lack of literature for China so we take the midpoint between US and Europe % of allergic rhinitis patients (58.75%).

For both grass pollen and house dust mite allergy, AIT is recommended for patients who have failed first and second line treatments (ie antihistamines or corticosteroids), which leaves c 10% (estimates range from 10% to 25%) of patients that are eligible for AIT treatment. Currently, the AIT market is only reaching a small proportion of the eligible population. We assume this is 30% (although estimates range from 30% to 40%) of the eligible patients in the US and 20% in Europe (where estimates range from 20% to 30%), but to be conservative we assume a 10% penetration (15% in Europe) to the current market rather than the addressable market. In the US we assume the product is sold via a licensee and in Europe that it will be by direct sales). Note that if a less frequently dosed AIT were available, the addressable market could expand and penetration into this larger market would be lower. We have used a more conservative view of the AIT market due to the fact that the sales of AIT treatments have been flat. However, in using the most conservative estimates of the eligible population and market shares in the first instance, we recognise that significant upsides could exist. While we have assumed a 10% eligible patient population, the range of estimates is from 10% (ours) to 24% of patients seeking treatment then failing or not being well-controlled by earlier lines of therapy. Furthermore, our market estimates of 769,000 patients in the US and 691,000 in the EU may be higher if a shorter-course, more effective approved drug was available. In that latter case, a higher proportion of the patients who have a positive grass pollen skin prick test could comprise a larger addressable population.

If successful, a four-dose course of an approved treatment (ASIT’s and others) would capture both existing patients and expand the current market. This is the most obvious and perhaps the easiest challenge to our conservative assumptions of market size and share. China is not currently a major market for AIT and has lower access to healthcare, so we assume a lower current market than US and EU (assume only 5% of eligible patients are currently treated with AIT). We also assume peak penetration into the current market of 30% (via a licensee).

Current pricing for gp-ASIT+ and hdm-ASIT+ is assumed to be around $2,000 per patient per year in US, €750 in EU and much lower in China (we assume €250). This is more in line with the available SLIT treatments, rather than the SCIT treatments which are priced lower. This is because we believe that the short course treatments such as ASIT’s products may be able to command a higher price per patient per year than existing SCIT treatments. Our pricing assumptions for gp-ASIT+ and hdm-ASIT+ are not aggressive, partly because of the variability in reimbursement and the inclination of national (European, and US commercial) payers to shift the burden of a non-fatal indication onto the self-pay market. We assume a higher price for peanut of $4,500 per patient per year in US, and €3,150 in EU (70% of US price). This is because peanut allergy, unlike grass pollen allergy in almost all cases, can be a life-threatening condition.

For peanut allergy, two age groups are considered: <15 years and 15-55 years. Aimmune’s PALISADE trial only includes patients up to the age of 55. Prevalence of peanut allergy in US and Europe in <15 years is c 1.2% and in 15-55 is c 0.5%.7 In 2018 this results in c 740k and one million patients respectively in both US and Europe, or a total of 1.7 million patients. We assume the addressable market is the patient group carrying an EpiPen, since these patients are at risk of an anaphylactic reaction and so more severe and likely eligible for AIT (c 50% of patients). We assume a conservative 15% peak penetration into the addressable population for US and Europe due to more clinically advanced competitors DBV Technologies and Aimmune. We currently only include the US and Europe in our model, because ASIT has not detailed a China strategy for peanut.

We assume an SG&A cost of 30% of sales and a COGS of 10% of sales. This COGS is lower than competitors; ALK-Abello reported a 43.57% COGS in 2017, and Allergy Therapeutics reported a 26.2% COGS in 2017 (source: Bloomberg).

ASIT reported an operating loss of €12.0m for FY17 (€12.3m in FY16), mainly due to the previous Phase III study and regulatory interactions. Consequently, R&D expenses were €10.9m vs €12.1m in the previous year. G&A costs were €1.7m vs €1.8m in FY16. Our total operating expense estimates are €11.9m for 2018 and €12.3m for 2019, with R&D costs remaining at a similar level as in 2017.

As an early-stage biotech company, ASIT biotech has reported losses since inception. The company recently completed a two-part fund-raising in February 2018 of €13.9m including €2.4m from warrant exercise, and excluding a potential further €20.6m from possible future warrant exercise. At end December 2017, ASIT reported a cash balance of €2.1m, which has now been bolstered by the recent raises. We expect a cash positon of €4.7m by end-2018 and our model implies €7.6m cash requirement in 2019. The company expects to deliver the Phase III gp-ASIT+ data readout in late 2019, which should provide a significant catalyst for the share price.

ASIT reported total gross debt of €466k at the end of 2017. This is a refundable subsidy payable to the Walloon Region of Belgium, which funded the house dust mite and food allergy programmes, and is repayable under certain circumstances. These are expected to be the registration and first sales of the company’s hdm-ASIT+ and peanut allergy products.