Akari Therapeutics — Update 20 June 2016

Akari is a biotechnology company formed in September 2015 following the reverse merger of Volution Immuno Pharmaceuticals into Celsus Therapeutics. The company’s goal is the development of Coversin, a protein discovered by Volution’s CSO Miles Nunn, that shares a mechanism of action (C5 inhibition) with Soliris (Alexion). The company currently has clinical programs examining Coversin for the hemolytic complement disorders paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS) as well as the antibody mediated immune disorders Guillain-Barré syndrome (GBS) and Sjögren’s syndrome (SS). The company plans to initiate a Phase II study of PNH in H116 and trials for aHUS and GBS in H216, and is developing a once- or twice-weekly Coversin using XL-protein’s PASylation technology.

Using a risk-adjusted NPV analysis, we value Akari at $273m or $23.17 per ADS. Our valuation is based on the assumption that Akari will internally develop and commercialize Coversin for each indication. We currently value the PNH program the highest at $177m, and consider it lower risk compared to other programs at this stage, based on the established market and the validated mechanism of action. We expect to adjust our valuation with the advancement of the four clinical programs in the clinic, as we learn more about their timelines and regulatory pathways.

Following the September 2015 private placement of $75m at $18.945 per ADS, the company ended Q116 with $61.4m in cash, which we expect will be able to fund clinical development through 2017. We expect the company to need $180m in additional financing before profitability in 2020, although this could be potentially partially offset through partnership deals for regional rights to Coversin or out-licensing of the eye drop formulation for Sjögren’s syndrome. We predict a cash burn of approximately $30m in 2016, associated with manufacturing scale up and new clinical programs.

Akari’s programs are still at an early stage of development, and carry with them the associated risks. The company is undiversified with a single therapeutic. Very little human data has been gathered with Coversin, with only 16 people receiving drug in a Phase Ia study and a single Soliris-resistant patient. Its safety and efficacy profile has not been established for any indication. With these considerations in mind, Coversin shares its mechanism of action with Soliris, which has already validated the clinical pathway and the market for PNH and aHUS. It has been successfully used to treat a single PNH patient resistant to Soliris for over four months, although these results should be interpreted with caution. The main clinical risks we expect are safety related, because Coversin is a potentially more potent immune inhibitor than Soliris and may increase the already present risk of opportunistic infections. Additionally, as an insect protein, there is a risk that Coversin is immunogenic and will be neutralized by patient antibodies. We believe that the clinical programs for GBS and SS are high risk because neither of these indications (or any in the same class) has previously been treated with complement inhibitors. There is also substantial commercial risk if the drug is approved. There are 16 other drugs in development for PNH and aHUS, and Soliris is expected to go generic in 2021, posing substantial competitive risk. There is risk associated with the capital needed to execute these clinical development programs. According to our estimates, the company will need $180m in additional capital before profitability in 2020, with the first funding needed in late 2017. If the company is unable to increase its share price on the back of positive clinical results, this funding requirement could result in significant dilution.

Akari is a very new company in its current form, but has already attracted substantial investment during its September 2015 $75m private placement. The company was formed by the reverse merger of the private Volution Immuno Pharmaceuticals into Celsus Therapeutics following the discontinuation of Celsus’s previous clinical programs in 2015. The timing of the private placement was prescient because Akari is on the cusp of initiating a series of clinical programs with substantial revenue potential based on an already validated clinical mechanism. The company’s sole product is Coversin, an inhibitor of the complement system initially isolated from a species of tick. The drug inhibits C5, a critical component of the complement system responsible for killing invading foreign pathogens. This mechanism is the same as the drug Soliris (Alexion) and Akari is targeting Soliris’s approved indications, PNH and aHUS. Soliris sold $2.59bn in 2015, therefore establishing a substantial market for this class of drug. Additionally, Akari intends to study Coversin in other immune disorders that lack a current standard of care, such as GBS and SS. The company has initiated a Phase Ib multiple dose trial for Coversin in healthy volunteers and a patient resistant to Soliris has been successfully treated for four months. The company intends to initiate a Phase II trial in PNH patients in H116. Additional Phase II trials for GBS and aHUS are planned to initiate in H216. Pilot clinical studies of an extended half-life version of Coversin using XL-protein’s PASylation technology are planned for Q317.

The complement system is an integral part of the body’s immune system and one of the body’s primary mechanisms to kill pathogens. The system consists of a series of proteins that interact in an amplifying cascade of signals in response to antibody binding or an innate immune response. The complement cascade is directly cytotoxic and results in the assembly of pore-forming complexes in the membrane of the pathogen, the so-called membrane attack complex (MAC), leading to lysis. Additionally, binding of complement factors to the surface of pathogens can induce them to cluster and stick together, improving their identification and clearance from the body. Finally, the cascade causes the release of a large number of inflammatory cytokines, which recruit immune cells to the site of the pathogen and encourage phagocytosis. The complement system can be activated by three different pathways. First the classical pathway activates the cascade in response to the presence of antibodies, and is one of the primary ways that antibodies direct the immune system to destroy microbes. Second, the lectin pathway can activate the cascade in response to sugars on the surface of pathogens that are not found in human tissue. Finally, the alternative pathway will activate in response to any cell surface that is not protected by endogenous complement regulatory proteins.

Dysregulation of the complement system is implicated in a number of disorders (Exhibit 1). The most serious of these are hemolytic disorders in which the complement system attacks circulating blood cells leading to anemia and blood clots. These disorders include paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS). Both are rare diseases, typically genetic in origin, where the normal regulatory mechanisms that allow the complement system to recognize the patient’s own cells are lost. Currently the only available treatment for these disorders is Soliris (eculizumab; Alexion Pharmaceuticals), an inhibitor of the complement enzyme C5.

Additionally, as a key component of the immune system, the complement system is an effector in many immune disorders of a different origin. The system underlies the antibody-mediated cytotoxicity present in lupus and organ rejection, among others. These disorders are generally well controlled with anti-inflammatories and other immune modulators, but some autoimmune disorders do not respond well to these treatments. Complement inhibitors may be effective for these disorders, but are largely untested.

Coversin is a small protein (17 kDa) derived from a factor isolated in 2005 from the saliva of the Ornithodoros moubata tick.1 The tick protein evolved to protect the animal from its host’s complement system. In addition to its potential as a therapeutic, the protein is also of interest to infectious disease biologists because inhibition of the complement system may promote the transfer of zoonotic diseases from tick to host. Coversin is a recombinant version of the tick protein that retains all of its biological activity.

Coversin’s anti-complement activity is derived from its ability to prevent the cleavage of C5. This is the same mechanism of action as Soliris, although the two drugs bind to different regions of C5. C5 is cleaved by C5 convertase into C5a and C5b. C5b is a core component of the MAC that is necessary for its assembly, while C5a, on the other hand, is an inflammatory mediator that recruits immune cells to the site of complement activation. Therefore inhibition of C5 has both a cytoprotective and anti-inflammatory effect. Because C5 is one of the final proteins in the complement cascade, inhibition with Coversin is effective regardless of the activation pathway.

Development of Coversin will initially target the indications that are already approved for treatment with Soliris, PNH and aHUS, and it is reasonable to assume the drug has potential in other indications where Soliris has demonstrated clinical efficacy, such as Myasthenia gravis (currently in Phase III with Soliris) as well as other antibody mediated immune disorders like GBS (Phase II planned in 2016). However, Coversin should not be seen purely as a follow-on to Soliris as the small molecular weight and high absorbability of the molecule opens a range of unique methods of administration that are not available to Soliris. For instance, the drug has also been prepared in an eye drop formulation with the aim of treating SS and potentially other eye diseases. Animal research into GBS and SS (among other diseases) has been used to validate the therapeutic potential in these diseases because the molecule works in a wide array of animal models. Coversin evolved in the tick to inhibit complement activation and enable feeding across a range of species. This has enabled earlier research into these diseases.

The inhibition of the complement system disables a significant component of the immune system that protects the body from infection. Because of this, use of complement inhibitors is associated with a risk of opportunistic infection, particularly life-threatening bacterial meningitis. Soliris carries a black box warning stating these facts, and the risk is unavoidable in the case of Coversin. However, patients on these drugs generally take prophylactic antibiotics, and these infections are well controlled. All patients entering Coversin clinical trials must be vaccinated for meningitis and be willing to receive antibacterial prophylaxis.

In addition to C5, Coversin also binds to leukotriene B4 (LTB4), a function that is not directly tied to its anti-complement activity and is not present in any other approved or investigational complement inhibitors. LTB4 (like other leukotrienes) is a small fatty acid molecule secreted by white blood cells in response to inflammation. It is a potent chemoattractant for neutrophils, but also attracts eosinophils and monocytes to the site of inflammation, and it promotes both the activation of these cells as well as the production of other pro-inflammatory molecules. By binding LTB4, Coversin may attenuate the inflammatory cascade. This was an important evolutionary advantage for the tick because it helped prevent detection by its host. Although Coversin is currently not being investigated specifically for this property, its anti-inflammatory activity independent of complement inhibition could contribute to the efficacy of this molecule in the studied indications. In particular, it could prove to be an attractive property for the treatment of GBS and SS, because these are primarily inflammatory disorders, but there are also potential positive effects on the thrombotic activity seen in PNH and aHUS. However, it must be noted that increased anti-inflammatory activity may further increase the risk of meningococcal and other opportunistic infections.

Coversin is protected by a number of different patents and other market exclusivities. The US composition of matter patent expires in 2024, but this could be potentially extended to 2029 with patent term extensions. However, based on our anticipated 2020 approval date, we anticipate that the 12 years of BLA exclusivity will provide protection in the US until 2032. We expect that the drug will receive an orphan designation in Europe, which will be its primary mode of market exclusivity extending to 2030.

PNH is a genetic disorder in which hematopoietic cells lose the ability to generate the proteins that protect them from attack by the complement system. All cells have a series of proteins on their surface that prevent complement factors from binding and triggering lysis (these include CD55 and CD59). In the case of PNH, the pathway that generates these membrane markers becomes disrupted. This allows the complement system to attack and lyse blood cells. The death of red blood cells via this mechanism leads to anemia and high levels of free hemoglobin. The anemia is made worse by a reduction in the production of red blood cells (and other blood cells) because the complement system attacks the hematopoietic progenitor cells in the bone marrow. Patients are generally diagnosed in their 30s and the median survival is 22 years in the most recent studies. PNH patients have an increased risk of thrombosis: 50% of patients have thrombotic events, resulting in the death of one-third of all PNH patients.2 The specific mechanism behind thrombosis in these patients in currently poorly understood.

PNH is a rare disorder, occurring in 10 per 1,000,000 people in Western countries.3 It is an acquired genetic disorder due to a spontaneous mutation and does not have an inherited component. Currently the only approved treatment for PNH is Soliris, which decreases the rate of hemolysis and may decrease the rate of thrombosis. The only cure for PNH is a bone marrow transplant, but this is rare because of the high rate of adverse events including blood clots.

Akari has announced plans to initiate a three-month Phase II study of Coversin in PNH in Q216 following the completion of the ongoing Phase Ib dose ranging study. The primary endpoint is reduced levels of lactate dehydrogenase (LDH, a marker for hemolysis) at 28 days. With this short treatment course and only six patients, the trial should be quick and is planned to be complete before the end of 2016. This will enable the company to initiate a Phase III pivotal trial in 2017 with a targeted approval in 2020. The company has stated that it intends to do a head-to-head comparative study with Soliris for the Phase III, but is awaiting feedback from the FDA and EMA on the most productive Phase III program. A comparative study is perhaps the most conservative option and we model the development path on this basis, but there are a range of potential pathways, such as targeting poorly controlled patients first or performing trials in underserved populations. An issue with doing a comparative study such as this is that Akari might be required to buy Soliris, which with a list price of over $400,000 would substantially increase the cost of the trial. NICE in the UK has indicated to the company that it may be willing to support a clinical trial by providing some or all of the Soliris for the study, but at this stage without a trial design or comments from other regulatory bodies, the future cost of this program is unclear. Soliris was approved for PNH with two clinical trials, with 87 and 97 patients respectively (half on Soliris).

Clinical and preclinical results

Coversin has been examined in a number of studies investigating its potential to treat PNH patients. In an initial preclinical study, the blood from a PNH patient was isolated and treated with both Coversin and Soliris. It was found that Coversin inhibits the lysis of blood cells lacking the complement inhibitor CD59 with the same frequency as an equimolar amount of Soliris.

The drug has also been examined in healthy non-human primates (Exhibit 4). The researchers found that a once a day subcutaneous dosing regimen completely inhibited complement system activity in these animals. The CH50 (50% hemolytic complement, the standard metric for complement activity) as measured by Elisa assay and sheep blood lysis, was almost completely absent by 15 days on the drug. Most importantly, no serious adverse events were observed, including no evidence of Coversin immunogenicity. This is an important finding because proteins from other species very commonly invoke immune responses and the generation of neutralizing antibodies that limit their use as therapeutics. This is understandable considering that the tick has evolved to avoid its host’s immune system. It should be noted that human immunogenic data still needs to be gathered.

Coversin has also been examined in a Phase Ia clinical study in 24 healthy human volunteers (Exhibit 5). A single dose of the drug was administered subcutaneously and CH50 was measured for 96 hours. It was found that this single dose was sufficient to achieve 100% complement inhibition in all of the tested subjects. Significant inhibition was maintained for 24 hours after dosing, suggesting that a once a day dosing regimen might be possible. No serious adverse events were observed.

Patients poorly controlled on Soliris

There is data to suggest that PNH is inadequately controlled in a large subset of patients on Soliris. Although Soliris is exceptionally good at suppressing thrombotic events (0.8 vs 5.6 events per 100 patient-years),4 there are significant improvements that can be made to improve the quality of care for PNH patients. During the two Phase III trials for Soliris in PNH, in both cases 49% of patients still required blood transfusions while on the drug (during six-month and one-year study periods for the two trials).5,6 More recently a study was done in which 22 patients on Soliris were followed for two years, with blood samples taken every two weeks. Of the blood samples gathered in the study, 49% had detectable hemolytic activity.7 This activity was correlated with concentrations of the drug, suggesting that the once every other week Soliris dosing regimen might be implicated. Soliris is currently only approved in a fixed dose, and some patients may be poorly controlled due to natural variations in body weight or metabolism. Future Coversin trials may be able to address these concerns by adopting an adaptive daily dosing regimen to avoid exacerbations. Information learned during the treatment of the Soliris-resistant patient (see below) supports the ability to titrate the dose of drug as needed and this is included in the Phase II protocol.

Soliris resistance

In February 2016, Akari dosed the first patient under a Phase II program for PNH sufferers who are resistant to Soliris. The patient has a rare congenital polymorphism in the C5 protein that prevents Soliris binding, and therefore lacked any effective treatment for his disease. The program is being conducted under an EMA approved clinical trial protocol (2015-003778-34) so that data can be collected from this patient and any future patients and integrated into the design of future clinical trials. The company presented data at the European Hematology Association (EHA) on the patient showing a reduction in hemolysis (LDH approximately 1.5 times the upper limit of normal) similar to that seen on Soliris (Exhibits 6, 7, and 8) when the patient initiated a dose of 0.14mg/kg twice daily. The patient has been successfully self-dosing using subcutaneous Coversin without any immunogenicity or safety concerns.

The result is important because it is the first and only clinical data we have on Coversin in patients with disease. These data build on previous preclinical data showing that Soliris was unable to completely inhibit the in vitro hemolytic activity in blood from two patients with this polymorphism. A second resistant patient identified may be added to the protocol in summer 2016.

The polymorphism associated with resistance to Soliris is known to be present in 3.5% of the Japanese population,8 but the frequency is not known outside of Japan. If there is a similar incidence rate in Europe, this would correspond to approximately 190 patients in the EU and 120 in the US with PNH and this polymorphism.

The clinical manifestation of aHUS is in many ways similar to a severe case of PNH. The disease is characterized by hemolytic anemia and widespread thrombosis in the microvasculature (thrombotic microangiopathy, TMA) leading to tissue damage. The combination of TMA and high levels of plasma hemoglobin invariably leads to kidney damage and eventual renal failure, with 53% of patients having end-stage renal failure within three years of diagnosis.9 Any organ system can be affected suddenly by thrombosis, and stroke and heart attack are common. The three-year survival rate is 77%. The underlying pathology of aHUS is different from PNH. aHUS is a cluster of closely related disorders in which a complement regulatory factor (eg factor H) is inactivated by a mutation or a neutralizing antibody. This causes the complement system to indiscriminately attack the body’s cells, and causes a widespread inflammatory response.

aHUS is an exceptionally rare disease with two cases per 1,000,000 people per year.10 Currently the only approved therapy is Soliris. The drug was approved on the basis of three small (<20 patient) studies that showed that Soliris reduced or completely prevented TMA events in 80-88% of patients. Additionally, in two of the trials, there was significant improvement in renal function. Alternative therapies for aHUS are rare, and primarily limited to supportive care. Patients frequently receive transfusions for anemia, and plasma exchange or infusion to limit the duration of thrombotic events (as donor plasma contains active complement inhibitors).

Due to the exceptionally rare nature of this disease, there are several considerations regarding its clinical development. The previous clinical trials for Soliris were small (17-20 patients), open label, and single arm. Omeros recently guided to a similar design for its upcoming aHUS trial, following feedback from the FDA. This structure is in part to accommodate the difficulty in recruiting these rare patients. However, we expect that some of the efficiencies from such a small trial will be offset by the associated costs. We believe that it will be even more difficult to recruit patients now that Soliris is an established treatment.

Soliris sold $2.59bn in 2015 for its approved indications of PNH and aHUS, a 16% increase over 2014. The drug has been widely recognized as one of the most expensive in the world, with a WAC of over $400,000. It is currently the only approved medication for PNH and aHUS.

Due to the commercial success of Soliris, there has been significant interest in developing other therapeutics for PNH and aHUS. There are currently 16 development programs targeting these disorders (Exhibit 9). The most advanced program is OMS721 at Omeros, which initiated a Phase III study in March 2016. Unlike the other development programs, it targets a component of the lectin activation pathway, which is uniquely implicated in the pathology of aHUS and other TMAs but not PNH. The results available from the Phase II dose ranging study in a small number of patients showed significant increases in levels of circulating platelets, but LDH were only reduced 24% on the treatment compared to 86% during Soliris trials.5

Another clinical program of significant interest is the RNAi based C5 inhibition program being developed at Alnylam (ALN-CC5). This program decreases the amount of circulating C5 as opposed to inhibiting its action. RNAi based therapies are well suited to target C5 and other complement proteins because they are generated in the liver and injected RNA therapeutics tend to accumulate in the liver. The therapy can decrease the amount of circulating C5 by approximately 95%. However, hemolysis (as measured by CH50) was only reduced by 84% compared to Soliris and Coversin, which can reduce CH50 levels to below detection. Because of this, we currently predict a substantial amount of risk in the Alnylam clinical program. Alnylam announced during its Q116 earnings conference call that the company will be targeting approval in Soliris resistant patients. We believe this is due to the drug’s inability to compete with Soliris, and we do not consider this program a substantial risk to Coversin.

We believe that Coversin will be able to compete with Soliris in the PNH and aHUS markets using a combination of strategies. The current clinical strategy is to demonstrate superiority to Soliris in a head-to-head Phase III trial by demonstrating more complete control of symptoms. However, as Coversin is one of the first competitors in this space, we also expect it to be able to compete directly on price without necessarily having to demonstrate superiority.

Moreover, the subcutaneous administration of Coversin provides a number of benefits over Soliris, which must be administered iv. This would allow patients to dose themselves at home and opens the potential to use an autoinjector pen for enhanced ease of use. The twice-monthly infusion of Soliris can be inconvenient for patients who do not live near the small number of physicians who treat these disorders, and many patients (particularly those with aHUS) find the procedure painful. Akari is developing a long-acting version of Coversin in collaboration with XL-protein using the latter’s proprietary PASylation technology, yielding a drug with over 50 times the half-life of the unmodified version. This development if successful would enable dosing once or twice weekly, further reducing the burden to Coversin use. First in human studies of the PASylated Coversin are planned for Q317.

GBS is an autoimmune disease of the nervous system in which the body attacks the myelin producing Schwann cells in the peripheral nervous system. In this way, the disorder is similar to multiple sclerosis, but in the case of GBS, the demyelination is driven primarily by the antibody directed activation of the complement system.11 These are typically cross-reactive antibodies that appear following bacterial or viral infection. The disease is most common following infection by Campylobacter jejuni, however, the recent outbreak of Zika virus has been correlated with a substantial increase in the number of reported cases of GBS in affected areas.

Both sensory and motor neurons are typically affected by the disease, and its onset can be exceptionally fast with symptoms progressing from peripheral numbness to need for respiratory support in under a week. The mortality rate during the early stages of the disease is approximately 12%. However, after this initial acute phase, patients generally recover and only 30% of patients have residual weakness three years after diagnosis. Additionally relapse is rare with only 3% suffering a second attack within their lifetime.

The disease has historically been rare with an annual incidence of eight to 19 cases per 1,000,000.12 Current interventional therapies are limited to plasmapheresis and intravenous immunoglobulins (IVIG), which attempt to reduce or neutralize the effect of the pathologic autoantibodies. These therapies when administered during the acute phase of the disease are effective in approximately 80-85% of patients, but 10-35% of patients are left with long-term neurological dysfunctions. Moreover, it is impossible with the current standard of care to predict long-term outcomes during early stages of the disease. There are no approved targeted therapies for the disease, and there has been very little clinical activity devoted to the study of new therapeutics to date. Soliris is currently being investigated as an effective treatment for the disorder, but this is in a small (n=30), single-center investigator-sponsored study.

Because the antibodies that lead to nerve damage are generally only present during the acute phase of the disease, we currently expect that Coversin will only be dosed during this phase. This substantially alters the pharmacoeconomics of this indication compared to chronic diseases like PNH and aHUS, as we only expect the patient to be on the drug for one to two months.

Another indication being explored by Akari that could potentially be addressed with Coversin is Sjögren’s syndrome (SS). Like GBS, it is an antibody mediated disorder effected by the complement system, but in this case the patient’s adaptive immune system attacks moisture-producing glands such as salivary, sweat, and tear glands. This leads to widespread dryness of the skin and mucous membranes with accompanying complications such as dental problems and conjunctivitis. The disease can be diagnosed as the primary indication (pSS) or secondary to another autoimmune disorder (sSS). Estimates of the prevalence of SS vary significantly, but a retrospective study identified pSS rates of 43-61 per 100,000 (26-78 95% CI).13

There are currently no approved or widespread off-label treatments for SS. Patients with mild to moderate disease are typically treated with palliative therapy such as eye drops and oral lubricants. Those experiencing more severe symptoms or multiple organ involvement have been treated with a range of different immunomodulatory agents, but to little effect.14,15,16,17

Akari has completed a preclinical toxicology study in which Coversin was applied in an eye drop formulation. The small size of the Coversin protein allows it to be used topically and still penetrate tissues, and the direct application to the eye allows for much smaller doses that would not necessarily increase the risk of opportunistic infections. The preclinical results suggested that the eye drops were not toxic and provided evidence of activity against eye inflammation. Offering the drug in an eye drop formulation has the additional advantage that it can use a different pricing scheme than is employed for the other rarer disorders being studied by Akari.

Akari’s risk profile is similar to that of other early stage biopharmaceutical companies, with several differentiating factors associated with the unique profile of Coversin. First, there is substantial development risk associated with all the current programs because of their very early stage of development and our current lack of knowledge regarding the drug’s profile. Coversin’s clinical experience has largely been healthy patients (Phase Ia, n=24) and it has only been tested in a single patient with disease (the Soliris-resistant patient). The clinical risk is compounded by the fact that Coversin is Akari’s only product. The entirety of Akari’s valuation is tied to the drug and any safety or efficacy issues could quickly translate into insolvency.

However, after considering the risks inherent in clinical development from this stage, we see the efficacy profile of Coversin as partially de-risked. The ability of the molecule to inhibit complement activity is of little question, given the results of the Phase Ia pilot study, and this mechanism of action has been validated for PNH and aHUS by Soliris. The pharmacokinetic data in healthy humans supports a once a day subcutaneous dosing profile, and we see little reason why this profile would change in later trials. Although patient recruitment is always difficult for orphan diseases, the Phase II program plans include Leeds General Infirmary and Nijmegen Medical Center, the largest recruiting sites for the Soliris PNH Phase III program.

Because of these considerations, we see the primary clinical risk of Coversin being safety. Coversin is associated with the same opportunistic infection risks as Soliris. Unlike Soliris, Coversin binds to LTB4, which could potentially enhance its immunoinhibitory effect, and therefore the attached infection risk. Also because Coversin is an insect protein there is the risk that it is immunogenic. No immunogenicity was seen in non-human primates, but there is currently not enough evidence in humans to rule this possibility out. However, the safety profile from the Phase I study did not identify any toxic effects of the drug. There are additional risks associated with the GBS and SS programs, because neither these indications nor any in this class have been treated using complement inhibitors.

There is a substantial amount of commercial risk associated with the Coversin programs. There are 16 other drugs in development for PNH and aHUS, and Coversin is not the most advanced program for aHUS. We expect significant pricing pressure as well and currently model Coversin at a 20% discount to current Soliris pricing. Additionally, the small number of prescribing physicians and their pre-existing relationships with Alexion may make penetration difficult.

Unlike Soliris, which is dosed every two weeks after induction, Coversin is cleared more quickly from the body with an activity half-life of approximately 48 hours as measured by CH50, which necessitates once a day dosing. This increased burden is offset because Coversin can be dosed subcutaneously at home, unlike Soliris, which must be given iv by a healthcare professional. This may be a more convenient option for some patients, but doctors are incentivized to prescribe Soliris because they are reimbursed for each injection that they give. However, this is partially offset by the cost savings to payers by avoiding doctors’ fees.

There is also significant financial risk with Akari. We predict the company will need to raise $180m in additional capital before profitability in 2020. The company has four ongoing development programs, all in the very early stages of development, and we expect the R&D costs associated with these programs to significantly increase to a peak of $47m per year in 2018. We currently model that the company will internally commercialize Coversin, and we expect significant selling costs associated with this of up to 20% or more of gross. These costs are lower than for many other indications due to the small total number of prescribing physicians for rare diseases like those addressed with Coversin.

Using a risk-adjusted NPV analysis, we value Akari at $273m or $23.17 per ADS. Each ADS represents 100 underlying common shares, although these shares are not publically traded. We have assumed that the company will internally develop and commercialize Coversin for the four indications currently under investigation. We are currently not including a valuation of the SS clinical program because a clinical trial currently is not planned and there has been a lack of guidance regarding the status of this program. We may add this program to our valuation in the future.

Our estimates for trial sizes and timing are based on Soliris development, and allow for potentially small numbers of patients, albeit at higher cost (estimated 100-person, 18-month Phase III with $300,000 in costs per patient, largely associated with the cost of Soliris for the comparator arm). We have modelled a total of $96m in clinical trial costs between the three near-term clinical programs ($55m for PNH, $15m for aHUS, $26m for GBS). We currently model a WAC for Coversin of $370,000 per year at launch in 2021. This price is a 20% discount to Soliris (adjusted for growth in prices).

The probability of success for each indication is based on an analysis of the proportional risks of the given program compared to other programs in the same therapeutic class at the same stage. We have divided the PNH program into three different target markets with different risks. We assign a 15% probability that Coversin will be able to compete with Soliris and other drugs in the wider market (peak 20% market share), helped primarily by discounted pricing. This success probability is a premium to other programs in the rare disease space at this development stage because of the well-established mechanism and market. Separately, we model a 10% probability that Coversin will be demonstrably more effective in patients who are poorly controlled on Soliris (assumed 30% with detectable hemolysis), and a 20% probability that Coversin will be able to compete in the fraction of patients genetically resistant to Soliris (assumed 3.5% as per the Japanese study).

The aHUS program has higher risks associated with it because of the exceptionally small patient population and the high degree of statistical variability with small clinical trials. We model GBS as high risk because neither this indication nor any antibody mediated autoimmune disorders have been treated using complement inhibitors in the past. Development costs for aHUS and GBS are included in their valuations. Our predicted margins are exceptionally high for PNH, aHUS, and GBS because of the unique efficiencies of scale for rare disorders and because the UK domicile of the company reduces the tax burden. We expect to adjust our valuation with the advancement of Coversin into the clinic as we learn more about the trial designs for each of these indications.

In September 2015, Celsus Therapeutics bought Volution Immuno Pharmaceuticals in a reverse merger. Concurrent with this transaction, the newly combined company performed a private placement of 3.96m ADSs (33.3% of the company) worth $75m. The company ended Q116 with $61.4m of this cash remaining. The company reported $11.3m in operational spending in 2015 and $3.9m in Q116. We predict substantial increases in R&D spending ($16m in 2016, $40m in 2017) with the advancement of multiple programs into the clinic. These costs are largely due to the initiation of the PNH Phase III program. In addition, we are including $10m in capex associated with setting up manufacturing to support the trials in our 2016 forecasts.

We currently model that Akari will commercialize Coversin using an internal salesforce on a worldwide basis. This is possible with these rare disease indications because of the exceptionally small number of prescribing physicians. We project selling costs in the order of 20% of peak sales. Based on our projections, the company will be profitable in 2020 following the approval and launch of Coversin for PNH. We predict a fast initial uptake primarily in the fraction of patients resistant to or poorly controlled by Soliris.

The company will need at least $180m in additional capital to fund development and launch expenses before profitability. We represent this funding as illustrative debt in our model ($60m in late 2017, $50m in 2018, $70m in 2019). The company could offset some of these funding requirements by offering partnership deals for overseas sales territories of Coversin, although we currently do not include this in our model. Another potential source of financing includes the out-licensing of the ophthalmological formulation of Coversin for SS, because this product is subject to different pricing, a different route of administration and a different prescriber base than subcutaneous Coversin. If the company seeks this financing in equity markets, it could result in significant dilution.