AFT Pharmaceuticals — Pascomer falls short of FDA mandated threshold

AFT Pharmaceuticals (ASX: AFT)

Currency in NZD

Last close As at 25/01/2023

NZD3.75

0.04 (1.08%)

Market capitalisation

NZD398m

Research: Healthcare

AFT Pharmaceuticals — Pascomer falls short of FDA mandated threshold

AFT Pharmaceuticals announced that its Pascomer Phase II clinical trial has failed to meet its primary endpoint of a two-point improvement on the Investigator’s Global Assessment (IGA) scale. Pascomer is AFT’s topical rapamycin formulation being evaluated as a treatment of facial angiofibromas (FA) associated with tuberous sclerosis complex (TSC). As a result, AFT’s US development partner and licensee, Timber Pharmaceuticals, has terminated its agreement with the company. Despite this setback, AFT maintains that the study showed ‘statistically significant benefits’ against the clinically relevant Facial Angiofibroma Severity Index (FASI) and a less rigorous one-point improvement on the IGA scale and plans to undertake further development activities on its own. Our estimates do not capture AFT’s research and development (R&D) programmes and this announcement therefore does not impact our valuation of the company (NZ$680.8m or NZ$6.50/share).

Soo Romanoff

Written by

Soo Romanoff

Managing Director - Head of Content, Healthcare

Healthcare

AFT Pharmaceuticals

Pascomer falls short of FDA mandated threshold

Clinical development update

Pharma and biotech

28 July 2022

Price

NZ$3.74

Market cap

NZ$411m

NZ$0.62/US$

Net debt (NZ$m) at 31 March 2022

29.3

Shares in issue

104.9m

Free float

26.8%

Code

AFT

Primary exchange

NZX

Secondary exchange

ASX

Share price performance

Business description

AFT Pharmaceuticals is a specialty pharmaceutical company that operates primarily in Australasia but has product distribution agreements across the globe. The company’s product portfolio includes prescription and over-the-counter drugs to treat a range of conditions, and a proprietary nebuliser.

Analysts

Soo Romanoff

+44 (0)20 3077 5700

Jyoti Prakash, CFA

+44 (0)20 3077 5700

Nidhi Singh

+44 (0)20 3077 5700

AFT Pharmaceuticals is a research client of Edison Investment Research Limited

AFT Pharmaceuticals announced that its Pascomer Phase II clinical trial has failed to meet its primary endpoint of a two-point improvement on the Investigator’s Global Assessment (IGA) scale. Pascomer is AFT’s topical rapamycin formulation being evaluated as a treatment of facial angiofibromas (FA) associated with tuberous sclerosis complex (TSC). As a result, AFT’s US development partner and licensee, Timber Pharmaceuticals, has terminated its agreement with the company. Despite this setback, AFT maintains that the study showed ‘statistically significant benefits’ against the clinically relevant Facial Angiofibroma Severity Index (FASI) and a less rigorous one-point improvement on the IGA scale and plans to undertake further development activities on its own. Our estimates do not capture AFT’s research and development (R&D) programmes and this announcement therefore does not impact our valuation of the company (NZ$680.8m or NZ$6.50/share).

Year end

Revenue (NZ$m)

PBT*

(NZ$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

03/21

113.1

8.2

7.1

0.00

N/A

N/A

03/22

130.3

18.9

19.2

0.00

N/A

N/A

03/23e

155.9

27.0

20.4

4.04

N/A

N/A

03/24e

194.2

43.5

30.0

5.94

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

The Phase II clinical study was a randomised placebo-controlled study enrolling a total of 107 patients across three cohorts (38 in placebo group, 36 in Pascomer low-strength dose and 33 in Pascomer high-strength dose). The study compared changes in FA patients, treated with either placebo or Pascomer at low or high strength over a 26-week period. The US FDA mandated primary endpoint was a two-point improvement on the IGA scale. While Pascomer (both high- and low-dose cohorts) delivered higher responder rates than placebo on the less rigorous one-point improvement on the IGA scale with statistical significance (p<0.05), it could not reach statistical significance on the two-point improvement on the IGA scale. However, the study met all secondary endpoints – FASI, patient or physician rated improvement – across both high- and low-dose cohorts with statistical significance against placebo. Following this, US partner Timber has terminated its agreement with AFT and the company now plans to undertake further development and commercial activities on its own. However, Desitin Arzneimittel continues as the licensee partner for the FA orphan drug indication in Europe, Switzerland and UK.

As a reminder, TSC is a genetic disease afflicting over one million people worldwide, including 50,000 cases in the US. Over 70–80% of all TSC cases suffer from FA, which can cause adverse effects on appearance and in serious cases, impair breathing and vision. We had highlighted earlier that the recent FDA approval of Nobelpharma’s competing topical rapamycin formulation with an orphan drug designation (with the associated seven-year market exclusivity) would potentially affect Pascomer’s US commercial plans in FA and the company is likely to focus on larger non-orphan indications, such as port-wine stains. Our valuation does not capture any of the company’s ongoing R&D programmes, therefore remains unchanged at NZ$680.8m or NZ$6.50m despite the current development.

General disclaimer and copyright

This report has been commissioned by AFT Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by AFT Pharmaceuticals. 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.

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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.

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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.

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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.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by AFT Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by AFT Pharmaceuticals. 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 2022 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.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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