Arovella Therapeutics — Refocused pipeline towards iNKT cell therapy

Arovella Therapeutics (ASX: ALA)

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Research: Healthcare

Arovella Therapeutics — Refocused pipeline towards iNKT cell therapy

Arovella is progressing on its lead product, ALA-101 (CAR19-iNKT) targeting blood cancers and has selected a CMO for the production of plasmid and lentiviral vector, with the company intending to finalise iNKT cell manufacturer in Q1 CY22. Legacy product, Zolpimist, an oro-mucosal spray for insomnia, expects to generate commercial sales in Australia (through Arovella’s partner STADA) starting from Q3 CY22. Following a recent fund raise of A$6.7m (excluding financing costs) in Q1 CY22, we estimate that the company has sufficient cash to run its iNKT studies and to manage its operating activities until CY23 (an acceleration in cash burn due to iNKT cell therapy related programs). Our valuation for Arovella stands at A$30.5m or A$0.05 per basic share.

Nidhi Singh

Written by

Nidhi Singh

Analyst

Healthcare

Arovella Therapeutics

Refocused pipeline towards iNKT cell therapy

Financial update

Pharma & biotech

5 April 2022

Price

A$0.04

Market cap

A$26m

A$1.37/US$

Pro forma net cash (A$m) at 31 December 2021

11.0

Proforma Shares in issue

658.8m

Free float

98.4%

Code

ALA

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

2.4

5.0

(4.5)

Rel (local)

(3.1)

6.4

(13.8)

52-week high/low

A$0.07

A$0.03

Business description

Arovella Therapeutics has historically been a drug delivery company focusing on developing oro-mucosal spray versions of established medicines. It has ex-North America rights to ZolpiMist, the spray version of Ambien for insomnia. It recently acquired a CAR-iNKT programme for haematological malignancies and a DKK1 antibody that has potential in multiple myeloma and solid tumours.

Next events

Progress on iNKT development

2022

Analyst

Nidhi Singh

+91 828 754 8220

Arovella Therapeutics is a research client of Edison Investment Research Limited

Arovella is progressing on its lead product, ALA-101 (CAR19-iNKT) targeting blood cancers and has selected a CMO for the production of plasmid and lentiviral vector, with the company intending to finalise iNKT cell manufacturer in Q1 CY22. Legacy product, Zolpimist, an oro-mucosal spray for insomnia, expects to generate commercial sales in Australia (through Arovella’s partner STADA) starting from Q3 CY22. Following a recent fund raise of A$6.7m (excluding financing costs) in Q1 CY22, we estimate that the company has sufficient cash to run its iNKT studies and to manage its operating activities until CY23 (an acceleration in cash burn due to iNKT cell therapy related programs). Our valuation for Arovella stands at A$30.5m or A$0.05 per basic share.

Year end

Revenue (A$m)

PBT*
(A$m)

EPS*
(A$)

DPS
(A$)

P/E
(x)

Yield
(%)

06/20

0.5

(3.6)

(0.03)

0.0

N/A

N/A

06/21

0.3

(3.4)

(0.01)

0.0

N/A

N/A

06/22e

0.4

(7.5)

(0.01)

0.0

N/A

N/A

06/23e

2.4

(5.8)

(0.01)

0.0

N/A

N/A

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

Recent capital raise extends runway to end-FY23

Arovella raised A$6.7m through two rounds of financing in Q1 CY22. The first round of financing raised A$4.6m through institutional investors and the second round raised A$2.2m through a share purchase plan. The company intends to utilise the funds for the development of iNKT cell therapy as well as for potential acquisitions of new technologies in the field of oncology.

Consolidating its iNKT franchise

Arovella has selected a plasmid and vector manufacturer for its lead programme, ALA-101 (CAR19-iNKT), and the production process for the lentiviral vector commenced in January. Post vector production, the company will start the manufacturing of iNKT cells (a contract manufacturer is expected to be finalised in Q1 CY22). In the case of ZolpiMist, partner Teva received early approval from Chile’s Ministry of Health in October. Arovella’s Australian-market partner STADA is expected to generate initial Zolpimist sales in Q3 CY22 and Arovella will be entitled to royalties.

Valuation: A$30.5m or A$0.05 per basic share

We have increased our valuation for Arovella to A$30.5m or A$0.05 per basic share, from A$25m or A$0.05 per basic share, mainly reflecting higher cash levels from recent capital raising activity. We believe its current pro forma net cash position (A$11m) extends the runway to CY23. We are not yet including either of the CAR-iNKT programmes in our valuation but intend to do so when they enter the clinic. Given the sales of similar products and/or the possibility of an acquisition, the resulting changes to our valuation could be meaningful.

Arovella Therapeutics pipeline update

Historically a drug delivery company focused on reformulating established drugs into oro-mucosal spray (via its OroMist platform) formulations for better bioavailability, Arovella pivoted its focus towards the immune-oncology space (in particular cell therapies) following the in-licensing of two chimeric antigen receptors (CARs) based immunotherapies in CY21 (both in preclinical stage). The first was an invariant natural killer T (iNKT) cell therapy platform in-licensed from Imperial College London in July 2021. The platform can be combined with CARs to target blood cancers (for more detail, see our previous report A potentially transformational acquisition). This was followed by the in-licensing of a novel monoclonal antibody targeting a Dickkopf-1 (DKK1) peptide from MD Anderson Cancer Center in December 2021 (for more detail, see Acquiring DKK1 rights).

Lead asset ALA-101 (CAR19-iNKT) allows dual targeting of CD1d and CD19 and is being developed as an ‘off-the-shelf treatment’ for blood cancers. The drug has so far has shown robust preclinical activity against CD19-expressing cancers. During Q222, Arovella selected a contract manufacturing organisation (CMO) for the production of two important components for the therapy, plasmid and lentiviral vector. After completing production of the lentiviral vector, the company will start manufacturing the final component, the iNKT cells. The company expects to finalise the CMO for iNKT cell manufacturing in Q1 CY22.

The second immunotherapy asset, ALA-104 (DKK1-CAR-iNKT), aims to combine the DKK1 targeting technology with the company’s iNKT cell therapy platform and test DKK1-CAR-iNKT cells in cancer models in 2022. Over the next few months, Arovella will seek to confirm that DKK1 does not target healthy cells and that it can combine with the iNKT cell therapy platform. It plans to initiate preclinical studies across relevant tumour types (including multiple myeloma, pancreatic cancer, lung cancer and triple-negative breast cancer) and develop and initiate a manufacturing strategy.

Legacy asset ZolpiMist is an oro-mucosal spray version of Ambien (Sanofi’s blockbuster) for the treatment of insomnia and has been out-licensed to Teva in Mexico, Brazil and Chile and to STADA Pharmaceuticals in Australia (with an option to expand to New Zealand). ZolpiMist’s registration was approved by Chile’s Ministry of Health in October 2021. Teva Pharmaceuticals applied for a Marketing Authorisation Application in May 2021 in Chile and received approval in this jurisdiction in October 2021, earlier than its prior expectation of April 2022. This approval is in addition to the existing ZolpiMist approval in Australia. Commercial sales for ZolpiMist are likely to start in Q3 CY22 in Australia, which should represent initial global sales of the product. The company’s previous commercial agreements for Singapore, Malaysia, the Philippines and South Korea with subsidiaries of Mitsubishi Tanabe, had been terminated in CY21. The company is also working on a number of other projects using its OroMist platform, including anagrelide (for the treatment of high platelet counts1 in cancer patients), sumatriptan (migraine), cannabinoids and others.

OroMist is Arovella’s drug delivery platform, using oro-mucosal technology spanning broad range of drug classes through either the cheeks, gums, tongue or floor of the mouth. The technology is designed to provide better bioavailability as it is absorbed directly into the blood stream through the oral mucosa.

Exhibit 1: Arovella Therapeutics pipeline

Programme

Indications

Status

Partner

Cell therapy

 

 

 

ALA-101 (CAR19-iNKT)

CD19 expression lymphomas

Preclinical

ALA-102

Undisclosed

Discovery

ALA-103

Undisclosed

Discovery

ALA-104 (DKK1-CAR-iNKT)

Multiple myeloma and solid tumours

Preclinical

 

OroMist platform

 

 

 

ZolpiMist

Short-term insomnia

Registered

Teva, STADA

ALA-001 (Sumatriptan)

Migraine

Preclinical

Strides

ALA-018 (Anagrelide)

Solid tumours and thrombocytosis

Reformulation

ALA-021 (pharmaceutical grade cannabis)

Multiple

Reformulation

Cann Pharma Australia

ALA-023

Undisclosed

Preclinical

Sanofi

Source: Arovella Therapeutics

H222 fund-raising

In February 2022, the company issued 120,230,220 shares to institutional investors, including Merchant, a specialist life sciences investor, raising gross proceeds of A$4.6m (A$0.038 per share, a 2.5% discount to the market price). In addition, the directors also contributed to the placement, adding A$160k to the gross proceeds. In late January, the company launched a A$1.5m share purchase plan (SPP) to raise additional capital from existing shareholders. The SPP issue was oversubscribed with the bids of over A$2.5m and hence Arovella enhanced the offer to A$2.0m. Further in March 2022, the company issued 57,052,548 shares (as part of previous SPP and placement of directors), worth A$2.2m (gross), on the same terms (A$0.038 per share) as to the institutional investors in previous capital raise.

With these two rounds of fund-raising, the current pro forma net cash position (31 December 2021) stands at A$11.0m, which we believe should be sufficient to fund manufacturing of components for the CAR19-iNKT cell therapy, preclinical studies for DKK1-CAR-iNKT and operational activities until CY23. The management expects a further equity raising in FY23.

Valuation

We have increased our total valuation of Arovella to A$30.5m or A$0.05 per basic share from A$25m or A$0.05 per basic share, reflecting higher cash levels due the recent capital raising activity. However, the per share impact has been minimal, due to the additional shares issued as part of the fund-raising. We are not yet including either of the CAR-iNKT programmes in our valuation but intend to do so when they enter the clinic. Given the sales of similar products and/or any acquisition, the resulting changes to our valuation could be meaningful.

Exhibit 2: Arovella Therapeutics Valuation

Product

Main Indication

Status

Probability of successful commercialization

Approval year

Peak sales (A$m)

Economics

rNPV (A$m)

ZolpiMist

Insomnia

Registered (Australia) , pre-registration (other regions)

70%

2020

17.3

Double digit royalties

19.5

Total

 

 

 

 

 

 

19.5

Net cash (as of 31 December 2021) + Subsequent equity raise in Jan 2022

11.0

Total firm value (A$m)

30.5

Total basic shares (m)

658.8

Value per basic share (A$)

0.05

Options (m)

94.1

Total number of shares (m)

752.9

Diluted value per share (A$)

0.04

Source: Edison Investment Research

H122 financials

For the half-year period ending 31 December 2021 (H122), the company reported A$22.6k in revenue, down 91% compared to the same period a year ago, mainly due to the decline in sales/licensing of goods (H1 FY21: A$0.11m) and zero reported co-development revenue (H1 FY21: A$0.13m). The co-development revenue in H121 was mainly related to Laboratorios Ordesa and Zelira Therapeutics, which decided not to progress ahead in their respective agreements. In H122, the company did not receive any export market development grant or COVID-19 assistance, which were part of operating income last year. There has been an acceleration in operating cash burn (A$2.3m in H122 versus A$1.9m in H121) due to iNKT cell therapy development activities; it is included in our estimates for FY22 and beyond.

The company had net cash of A$4.2m as at 31 December 2021 (A$4.4m gross cash offset by A$0.2m in lease liabilities). Due to additional rounds of funding, the pro forma net cash position stands at A$11.0m (adjusted for lease liabilities), with a total of 658.8m shares outstanding. While we previously estimated that the company would raise A$12.5m through illustrative debt by the end of FY23, following the A$6.7m (gross) equity raise in Q1 CY22, we now assume that its remaining funding requirements before the end of FY23 will be A$8.3m (raised through illustrative debt).

Exhibit 3: Financial summary

A$'000s

2020

2021

2022e

2023e

Year end 30 June

AIFRS

AIFRS

AIFRS

AIFRS

PROFIT & LOSS

Revenue

 

 

533

257

380

2,447

Cost of Sales

(201)

(223)

(707)

(849)

Gross Profit

332

35

(327)

1,598

Sales, General and Administrative Expenses

(4,259)

(3,529)

(3,670)

(3,817)

Research and Development Expense

(285)

(542)

(3,000)

(3,120)

EBITDA

 

 

(3,413)

(3,129)

(6,997)

(5,339)

Operating Profit (before amort. and except.)

 

 

(3,636)

(3,332)

(7,204)

(5,527)

Intangible Amortisation

(349)

(449)

(356)

(356)

Other

799

907

0

0

Exceptionals

(5,973)

(1,239)

0

0

Operating Profit

(9,958)

(5,021)

(7,559)

(5,883)

Net Interest

22

(27)

(272)

(282)

Other

0

0

0

0

Profit Before Tax (norm)

 

 

(3,613)

(3,359)

(7,475)

(5,809)

Profit Before Tax (FRS 3)

 

 

(9,936)

(5,047)

(7,831)

(6,166)

Tax

0

0

0

0

Deferred tax

(0)

(0)

(0)

(0)

Profit After Tax (norm)

(3,613)

(3,359)

(7,475)

(5,809)

Profit After Tax (FRS 3)

(9,936)

(5,047)

(7,831)

(6,166)

Average Number of Shares Outstanding (m)

142.3

330.9

569.5

658.1

EPS - normalised (c)

 

 

(2.78)

(1.15)

(1.37)

(0.94)

EPS - Reported ($)

 

 

(0.07)

(0.02)

(0.01)

(0.01)

Dividend per share (c)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

4,673

3,344

3,400

3,397

Intangible Assets

4,251

2,911

2,918

2,924

Tangible Assets

365

381

347

338

Other

57

52

136

136

Current Assets

 

 

2,035

7,343

7,233

9,738

Stocks

22

0

0

0

Debtors

869

534

789

947

Cash

977

6,717

6,083

8,430

Other

166

92

362

362

Current Liabilities

 

 

(2,022)

(1,695)

(2,580)

(2,949)

Creditors

(2,010)

(1,689)

(2,509)

(2,878)

Short term borrowings

(12)

(6)

(71)

(71)

Long Term Liabilities

 

 

(550)

(11)

(122)

(8,381)

Long term borrowings

(4)

(3)

(115)

(8,373)

Other long-term liabilities

(545)

(8)

(8)

(8)

Net Assets

 

 

4,135

8,982

7,931

1,806

CASH FLOW

Operating Cash Flow

 

 

(2,884)

(3,545)

(6,947)

(5,369)

Net Interest

0

0

0

0

Tax

0

0

0

0

Capex

(388)

(515)

(535)

(542)

Acquisitions/disposals

0

0

0

0

Financing

0

9,856

6,742

0

Dividends

0

0

0

0

Other

0

0

0

0

Net Cash Flow

(3,272)

5,797

(741)

(5,911)

Opening net debt/(cash)

 

 

(4,260)

(961)

(6,709)

(5,897)

HP finance leases initiated

0

0

0

0

Exchange rate movements

0

0

0

0

Other

-27

-50

-71

0

Closing net debt/(cash)

 

 

(961)

(6,709)

(5,897)

14

Source: Company reports, Edison Investment Research


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

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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.

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.

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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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SIGA Technologies — Geographic expansion underway

SIGA recently reported solid growth in FY21, with revenues up 9.8% y-o-y to $133.7m, as the US Biomedical Advanced Research and Development Authority (BARDA) exercised its procurement option valued at $112.5m. The company also enjoyed international growth as Canadian sales jumped from $2m to nearly $13m, and the recent Health Canada and EMA approvals for TPOXX should support SIGA’s geographic expansion. Its post-exposure prophylaxis (PEP) program has started the immunogenicity trial with TPOXX and Jynneos’s orthopox vaccine.

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