Adocia — Pipeline and partnerships drive prospects

Adocia is a clinical-stage biotechnology company focused on the development of innovative formulations for metabolic diseases. Its proprietary BC technology allows the formulation of biologic drugs in a ready-to-use format with improved pharmacokinetics (PK) and pharmacodynamics (PD) profiles that have the potential for better efficacy and safety over current marketed products. The BC technology also allows other characteristics such as stable liquid formulation or the combination of two molecules that are not stable together. Adocia was founded in 2005 and is based in Lyon, France. It had 130 employees at the end of 2017.

Adocia’s clinical pipeline is focused on therapeutic proteins for the treatment of diabetes, in particular insulin. Insulins can be divided into basal (long-acting) and prandial (rapid-acting or mealtime). Basal insulins provide a constant level of insulin action throughout the day and help keep blood sugars at a consistent level when a person is not eating, but it is not enough to cover glucose spikes after mealtime. Prandial insulins, on the other hand, are taken at mealtime and act rapidly on the body, serving to bring down the high sugar levels after meals.

Adocia’s pipeline consists of the following products:

BC Lispro was part of a 2014 licensing deal between Adocia and Lilly. The deal’s overall value was $570m plus tiered royalties on sales. Lilly terminated the agreement in January 2017, presumably to pursue its own ultra-fast insulin LY900014, which is in Phase III trials with potential filings in H218/2019. At the time of termination, Adocia had received $60m in milestone payments and $30m as part of the research collaboration included in the agreement. Recently, Adocia has filed arbitration proceedings against Lilly arising out of their collaboration and confidentiality agreements. The company’s legal action is divided into two arbitration filings. The first one was brought in October 2017 and seeks $11m plus other specific relief due to Lilly’s change of development plan. Adocia expects the arbitration proceeds to complete in Q218. The second case was announced in February 2018. Adocia filed further claims related to the misappropriation and improper use and breach of confidential information by Lilly. Adocia seeks over $200m in damages from this second case. The company expects a decision by Q318.

Adocia is looking for partners for its clinical pipeline. A global partner for BC Lispro is being sought. Moreover, Adocia is seeking a partner in China and other emerging countries for BC Combo, a combination of basal insulin Lantus (insulin glargine, Sanofi, 2017 sales $5.2bn) with the rapid insulin Humalog (insulin lispro, Lilly, 2017 sales $2.9bn). Finally, Adocia is looking for a partner for emerging countries for HinsBet, a fast-acting human insulin.

Adocia has started a clinical trial with BC Pramlintide Insulin (April 2018), and expects to start clinical trials for BC Glucagon (GLP-1 Q418) and BC GLP-2 (Q418).

BC is Adocia’s proprietary technology platform. BCs are oligomers or polymers that are inspired by the interactive properties of heparin with proteins. They form a soluble complex with proteins, which protects them from enzymatic degradation, permits solubilisation at physiological pH and provides improved stability and accelerated absorption. This also may allow for reduced dosage and frequency of administration.

Adocia has 32 patent families on BC with first expirations starting in 2033.

Adocia is developing its BC product of insulin lispro (BC Lispro) as a new ultra-fast prandial insulin that can be given at the same time as a meal or shortly after. BC Lispro has completed 10 clinical trials and has demonstrated a favourable profile head-to-head versus Humalog, Novolog and Fiasp. Adocia has a complete clinical dossier ready for Phase III testing. The company is looking for a global partner to conduct late-stage clinical trials, registration and marketing.

Fast-acting prandial insulins are given before meals to cover glucose spikes that occur after eating. They start working about 20 minutes after the injection, gradually rise in activity over 1.75 to 2.25 hours, then gradually fall over the next three hours. The Tmax (time at maximum concentration) is 1-1.5 hours. This provides about five to six hours of insulin coverage, which is common with these insulins, instead of 24 hours of coverage for long-acting insulins. In general, these fast-acting insulins are still too slow for many common meals where the glucose peaks within an hour, hence the need for new, ultra-rapid insulins that can reproduce the metabolic profile that ensues after meal ingestion in healthy people. The goal is to improve glycaemic control, the risk of hypoglycaemia, weight gain, convenience and quality of life. In the most recent clinical study, using insulin pumps BC Lispro showed:

Although these are early stage data, we believe they show a potential best-in-class profile of BC Lispro over competitors that will need to be confirmed in further late-stage studies.

The primary endpoints of Fiasp’s Phase III programme (onset-1 and onset-2) and of Lilly’s ongoing Phase III studies with its ultra-fast insulin LY900014 (PRONTO-T1D and PRONTO-T2D) are change from baseline in glycated haemoglobin (HbA1c) after 26 weeks. Fiasp was compared with insulin aspart and LY900014 is being compared with insulin lispro. We believe that to gain regulatory approval, BC Lispro will need to successfully complete at least two Phase III clinical trials in patients with T1D and T2D, respectively in around a thousand patients per trial; with a similar design as Lilly and Novo Nordisk’s trials. Costs per trial could be in the $100m range for c 2,000 patients.

Lilly’s Humalog and Novo Nordisk’s Novolog are the most prominent rapid insulins. They are both off-patent. Humalog (insulin lispro) generated revenues of $2.87bn in 2017; Evaluate Pharma’s 2022 consensus forecast is $1.8bn due to biosimilar competition from Sanofi’s Admelog. Novolog (insulin aspart) reported 2017 sales of $3bn; Evaluate Pharma’s 2022 consensus forecast is $2.8bn. Novo Nordisk recently launched Fiasp, an ultra-fast insulin. 2017 sales were $11m and Evaluate Pharma’s 2022 consensus forecast is $347m. We expect new ultra-fast insulins and biosimilars to gain market share over the next few years due to advantages such as faster onset of action and lower price. BC Lispro will need to demonstrate a best-in-class profile in late-stage clinical trials over current fast-acting insulins to garner market share.

BC Combo is a 75/25 combination of basal insulin Lantus with the rapid insulin Humalog. The aim of BC Combo is to replicate the simplicity of administration of pre-mixed insulins (two injections per day) and the glycaemic control of basal-bolus regimen. Pre-mixed insulins are usually prescribed for patients that need a single treatment plan, eg patients that just started therapy, patients with regular meal patterns or those with impaired vision. They are also the best-selling insulins in emerging countries such as China. The BC technology enables this combination by solubilising insulin glargine at a neutral pH, where it is compatible with fast-acting insulin analogues. Adocia is looking for partners in China and other emerging countries, where premix products are the top treatment option. The company has not disclosed its strategy for developed countries.

In clinical trials BC Combo has demonstrated superiority vs Lilly’s Humalog Mix25 in T1D and T2D patients and showed no difference compared to the separate injections of Lantus and Humalog.

Novo Nordisk’s premix insulin Novomix recorded sales of $1.6bn in 2017 and EvaluatePharma’s (EP) consensus forecast is $1.5bn in 2022. Lilly does not show Humalog Mix sales, but global Humalog sales were $2.87bn in 2017 and EP consensus forecast is $1.8bn in 2022. Novo Nordisk’s Ryzodeg (insulin degludec plus insulin aspart) is the only direct competitor to BC Combo. Ryzodeg was launched in 2015 in selected markets and sold $75m in 2017 (EP consensus forecast is $351m in 2022). Adocia plans to compete in price with Ryzodeg taking advantage of biosimilar insulin products. Novo Nordisk plans to launch Ryzodeg in China in 2020.

According to Adocia the premix insulin market is $5bn globally and represents 65% of the total insulin market in China per volume; it is expected to reach $2bn in 2025.

HinsBet is a rapid-acting formulation of recombinant human insulin using Adocia’s BC technology. In low-income countries, human insulin is used as the most common prandial insulin. Human insulin acts slower than insulin analogues Adocia plans to partner HinsBet U100 in emerging markets as a low-cost, prandial human insulin that can act as fast as insulin analogues. Adocia has a high U500 concentration of HinsBet that is in preclinical development for people that require large doses of insulin in developed markets.

The company conducted a Phase I/II clinical trial (NCT02739906) with HinsBet U100 in 36 patients with type 1 diabetes (T1D). The study met the primary endpoint as HinsBet achieved a statistically significant reduction of blood glucose concentration one hour after the start of intake of a standardised meal compared with Humulin (Lilly, 2017 sales $1.3bn).

In healthy people normoglycaemia is maintained by a time-dependent hormonal pattern. This pattern is mainly comprised of four hormones: insulin, glucagon, glucagon-like peptide 1 (GLP-1) and amylin. In patients with T1D this hormonal pattern is severely disrupted.

Adocia has applied its BC technology to generate a new formulation of human glucagon. The company is developing BC Glucagon as a potential improved product of current rescue treatment for severe hypoglycaemia. Potential additional indications would be: 1) as a dual hormone artificial pancreas, which would secrete insulin and glucagon and would be an improvement over hybrid closed-loop insulin pumps as glucagon would allow more use of insulin by reducing hypoglycaemia at night and during the day; 2) for the treatment of congenital hyperinsulinism, an orphan disease that affects 1 in 50,000 children worldwide; and 3) for the treatment of chronic hypoglycaemia resulting from post-bariatric surgery, as around 0.2% of bariatric surgery patients suffer from chronic hypoglycaemia. The company intends to advance it into late-stage development; the timeline has not been released.

Adocia has conducted a Phase I clinical trial (NCT03176524) in 27 patients comparing two formulations of BC Glucagon to Novo Nordisk’s Glucagen Hypokit. The median time to reach a clinically safe blood glucose level was 11 minutes for BC Glucagon and c 7 min for Glucagen. All subjects achieved resolution of hypoglycaemia at 35 minutes (press release). Given the importance that time has in this emergency setting, we believe BC Glucagon will need to show it is a ready-to-use solution with a similar profile to current glucagon to gain market share. Full data will be released at a major diabetes congress in late 2018.

Current glucagon rescue kits on the market are Novo Nordisk’s GlucaGen HypoKit (sales not disclosed) and Eli Lilly’s Glucagon emergency kit (2017 sales $142.2m). However, due to glucagon’s instability in aqueous solutions, it must be kept lyophilised and needs to be mixed with sterile water before use. In this emergency situation most caregivers have difficulties administering the right dose to the patient. We view BC Glucagon as an interesting ready-to-inject alternative. Current competitors are Xeris Pharmaceuticals (expects to file an NDA with the FDA in Q218); Zealand Pharma’s dasiglucagon (Phase III, data expected in 2018); and Arecor (preclinical). Eli Lilly’s Locemia is developing a nasal spray of glucagon for the same indication; an NDA submission is expected in 2018. According to Adocia, the current market for these devices is $300m in the US based on similar sales for Lilly and Novo Nordisk’s products, which it expects to grow due to other ready-to-use kits entering the market.

BC Pram Insulin, a combination of amylin analogue and insulin

Adocia is developing BC Pramlintide Insulin (BC Pram Insulin) as a combination product of pramlintide and human fast-acting insulin for diabetic patients. The company started a first-in-man clinical trial in April 2018. Amylin is a hormone that is co-secreted with insulin in physiologic conditions. Amylin acts synergistically with insulin by suppressing glucagon secretion, slowing down gastric emptying and creating a feeling of satiety. Pramlintide (Symlin, AstraZeneca) is an analog of amylin that has demonstrated better glycaemic control, reduced insulin consumption and reduced weight gain in clinical trials when used in addition to prandial insulin compared to prandial insulin alone. Symlin is approved by the FDA to control blood sugar levels in adults with T1D or T2D. Patients have to undergo seven injections per day: one of basal insulin, three of prandial insulin and three of Symlin. According to Adocia, by combining pramlintide and insulin in a single product, BC Pram Insulin could significantly improve post-prandial control in people with diabetes without increasing the number of daily injections. AstraZeneca reported FY17 sales of $48m for Symlin. EP consensus forecast is $63m in 2022.

BC Glucagon GLP-1 for obesity

Another opportunity for the BC technology is in obesity. Adocia is using the GLP-1 receptor agonist exenatide (Byetta, AstraZeneca, 2017 sales $176m, off-patent) in combination with glucagon. Adocia plans to start a first-in-man study in Q418.

Although obesity is a potential large market (36.5% of US adults were obese in 2014 according to the Centers for Disease Control), a number of companies (eg Arena, Vivus and Orexigen) targeting this market failed to achieve meaningful sales; among other reasons, due to increased side effects, small weight loss and reluctance from physicians to prescribe drugs to treat obesity. On the other hand, GLP-1 receptor agonist liraglutide (Saxenda, Novo Nordisk) has been successful, with 2017 sales of $389m and is projected to achieve $927m in 2022 according to EvaluatePharma’s consensus forecast.

We believe that a product with dual GLP-1 and glucagon agonistic properties could be effective in promoting weight loss, increasing energy expenditure and reducing calorie intake. For example, this clinical study shows that glucagon and GLP-1 co-infusion significantly reduced food intake by 13% in the study meal compared with placebo, which was also significant with respect to the administration of either glucagon or GLP-1 alone.

BC GLP-2 for short bowel syndrome

The BC technology is used to stabilise GLP-2 analog teduglutide (Gattex, Shire, 2017 revenues $336m, EP consensus forecast for 2022 is $505m) in a ready-to-use liquid formulation for short bowel syndrome (SBS). Gattex needs reconstitution prior to use, which involves 22 steps, two syringes, is time consuming and there is the potential of dosing mistakes. Adocia plans to start a first-in-man study in Q418.

SBS is a malabsorption disorder associated with partial or total loss of intestinal function. It usually develops after surgery. The worldwide incidence is estimated at two to five patients per million people (ref). Management of SBS frequently requires lifelong parenteral nutrition. GLP-2 stimulates the growth of intestinal tissue, increases nutrient absorption potentially reducing dependence on parental nutrition.

Glepaglutide from Zealand Pharma is a ready-to-use formulation of a new GLP-2 agonist analog that will start a Phase III trial in 2018 as a once- and twice-weekly dose. Positive Phase II results were announced in June 2017. Evaluate Pharma’s forecast is for launch in 2020 and revenues of $125m in 2022. We believe that BC GLP-2 will need to differentiate itself in terms of dosage, or a broader application beyond patients on parenteral nutrition to compete with glepaglutide.

Adocia’s FY17 operating revenue decreased to c €27.2m from €30.4m in FY16. Most of the top line came from the recognition of the non-amortised part of the upfront received from Lilly in 2014 (€18.8m), which has no impact on the cash balance. Additionally, €7.5m of research tax credit was recognised. FY17 expenses decreased from to €35.36m from €38.45m in FY16. Most (77%) of the total of operating costs accounted for research and development. FY17 operating loss was €8.2m, similar to €8.0m in FY16. Net loss was €8.6m in 2017 versus €7.9m in 2016.

In 2017 Adocia consumed €23.9m in cash versus €13.1m in 2016. It also received €3.1m from the licensing agreement with Lilly and other collaborative agreements versus €14.3m in 2016. Financial debt at end 2017 was €7.6m vs €7.1m in 2016. Most debt is associated with a 2016 loan to finance the acquisition of the company’s headquarters and research facilities. The company’s gross cash balance was €34.8m at end 2017 versus €58m at end 2016.

Adocia guides for the same burn rate in 2018 as 2017, ie c €23m. We believe Adocia is funded into mid-2019. Additional cash inflow may come from potential partnerships, the decision on the legal cases against Lilly and equity/debt financings.

Adocia’s market cap is c €108m and its enterprise value (EV) is c €80.5m, based on the last reported net cash balance of €27.5m. Adocia’s lead products BC Lispro and BC Combo target a market of over $11bn, according to 2017 worldwide sales of the main products marketed in their respective indications. According to Adocia, in 2016 the worldwide pre-mix insulin market was $5bn and the hypoglycaemia rescue market was $300m. Although it is early stage, BC Glucagon GLP-1 also targets the obesity market. According to Evaluate Pharma, sales of the top 10 obesity products were c $1bn in 2017, expected to grow to $1.8bn in 2022.

We note, however, that the insulin market is becoming more crowded, dominated by big players. We believe that Adocia will need strong Phase III results and to partner with a large pharmaceutical company to achieve meaningful sales.

For the peer comparison we focus on other biotech companies working mainly in diabetes, at a similar stage of development to Adocia. We find Adocia’s EV lowest in the peers group, however, further relative valuation comparison is not meaningful as companies are loss making.

Adocia is subject to the risks associated with biotech development. This includes clinical development, manufacturing, regulatory applications, launch and reimbursement for its products. As Adocia is developing new formulations of approved products, we see potentially reduced clinical risk. However, this needs to be confirmed in larger trials. So far Adocia has run ten Phase I/II clinical trials in 400 patients for BC Lispro and five clinical trials in 141 patients for BC Combo. It plans to start two first-in-man clinical trials in 2018 with its preclinical assets, self-conducted. Adocia is behind its competitors for the insulin and glucagon products and will need to differentiate them to gain market share. For BC Pram Insulin, Adocia is in a unique position. We believe the company is funded for 2018 and mid-2019, but it will likely need new funds and a partner to advance its pipeline into late-stage development and realise the value of these products. A licensing deal and decisions on the two legal proceedings against Lilly for over $211m (or equity/debt financing) are expected this year and could add to its cash balance.