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Akari Therapeutics — Update 8 July 2016

Akari Therapeutics — Update 8 July 2016

Akari Therapeutics

Analyst avatar placeholder

Written by

Akari Therapeutics

Increasing evidence of Coversin activity

Clinical update

Pharma & biotech

8 July 2016

Price

US$10.75

Market cap

US$127m

Net cash ($m) at March 2016

61.4

ADSs in issue

11.8m

Free float

29%

Code

AKTX

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(26.4)

(43.1)

82.2

Rel (local)

(25.9)

(44.6)

80.7

52-week high/low

US$39.5

US$4.9

Business description

Akari Therapeutics is a biopharmaceutical company developing Coversin, a complement system inhibitor for the treatment of paroxysmal nocturnal hemoglobinuria (PNH), atypical hemolytic uremic syndrome (aHUS), and other immune disorders without a standard of care

Next events

Initiation of GBS Phase II

H216

Initiation of aHUS Phase II

H216

Data from PNH Phase II

H216

Analysts

Maxim Jacobs

+1 646 653 7027

Nathaniel Calloway

+1 646 653 7036

Akari Therapeutics is a research client of Edison Investment Research Limited

Akari released interim results from a Phase Ib dose-ranging study of Coversin in healthy volunteers. The trial was a double-blind, placebo-controlled study with six participants and showed complete inhibition of complement activity in the four patients on the active arm, receiving 30mg of Coversin dosed twice daily for two days followed by once daily for five days. The Phase Ib trial is designed to continue to other doses; the company stated that it will proceed with Phase II studies using the 30mg subcutaneous dose.

Year
end

Revenue ($m)

PBT*
($m)

EPADS*
($)

DPADS
($)

P/E
(x)

Yield
(%)

12/15

0.0

(49.0)

(5.73)

0.0

N/A

N/A

12/16e

0.0

(20.9)

(1.71)

0.0

N/A

N/A

12/17e

0.0

(48.1)

(3.71)

0.0

N/A

N/A

12/18e

0.0

(72.7)

(5.33)

0.0

N/A

N/A

Note: *PBT and EPADS are normalized, excluding amortization of acquired intangibles, exceptional items and share-based payments.

Coversin consistently active

The Phase Ib study represents a significant increase in the amount of human clinical data we have on Coversin activity. Previously we only had data from a single patient in Europe treated under a protocol for patients genetically resistant to Soliris. The current study demonstrated inhibition of complement activity to below the level of detection for four more human subjects.

Once-a-day sub-Q the way to go

The results also establish that the drug is effective when administered daily via a subcutaneous injection. This finding positions the drug favorably to Soliris, which must be dosed IV once or twice weekly by a physician or at an infusion center, whereas a subcutaneous injection can be administered by the patient at home.

No injection site reactions

A concern with Coversin is that because it is a foreign protein (derived from a tick) it could potentially trigger an immune response and generate neutralizing antibodies. Although the data from the trial are limited, no injection site reactions were seen suggesting that the drug does not trigger an inflammatory response. This is encouraging, but more data will be needed to assess the complete immunogenic profile of the drug.

Valuation: Increased to $376m or $31.95 per ADS

We have increased our valuation to $376m or $31.95 per ADS from $273m or $23.17 per ADS, based on a small five percentage point increase to the probability of success for the paroxysmal nocturnal hemoglobinuria and atypical hemolytic uremic syndrome programs. This reflects the finding that the complement inhibition by Coversin is reproducible and that once-a-day dosing is a viable option. We predict that the company will need $180m in financing before profitability in 2020.

Phase Ib results: Complement activity undetectable

Akari is developing Coversin for the treatment of the complement system disorders paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS) as well as for the antibody mediated autoimmune disorder Guillain-Barré syndrome (GBS). Coversin is an inhibitor of C5, a critical component of the complement system, which becomes abnormally activated, leading to hemolysis and thrombosis in patients with PNH and aHUS. PNH is the milder of the two disorders and more common (for a rare disease) with approximately 10 patients affected per million (compared to three per million for aHUS). The only approved medication for these disorders is Soliris (eculizumab; Alexion), which also inhibits C5.

On 6 July 2016, Akari announced interim results of a double blind, randomized Phase Ib trial of Coversin in healthy volunteers. The trial is designed to assess inhibition of complement activity using a once-a-day subcutaneous maintenance dose of the drug. Six patients were randomized between a cohort (n=4) that received a 30mg subcutaneous dose of the drug twice a day for a two days followed by a once a day maintenance dose for five days, and a cohort (n=2) that received an equivalent amount of placebo. All participants received prophylactic antibiotics for the prevention of opportunistic meningitis, which is standard procedure for anyone receiving complement inhibitors.

Complement activity (as measured by CH50, the standard activity assay) was inhibited to below the limit of detection (<8 Eq/ml) within the first day of dosing and was maintained throughout the trial on the once-a-day dose. No injection site reactions were noted during the seven days of the trial. One patient on the active arm elected to leave the trial on day three due to a “non-serious adverse event” that the company suspects was related to the prophylactic antibiotics.

These results are important for a number of reasons. Prior to this data, despite in vitro and animal data supporting the activity of Coversin, it had only been dosed in a single human PNH patient that has been receiving the drug as part of a Phase II trial in Europe for patients that are genetically resistant to Soliris. The Phase Ib trial increases the number of humans that have been successfully dosed with Coversin to five, and provides support that complement activity can be successfully controlled on a once-a-day subcutaneous dosing regimen. Subcutaneous dosing could allow patients to treat themselves, compared to Soliris, which must be dosed IV once or twice weekly by a physician or at an infusion clinic.

Additionally, the observation that no participants in the trial had injection site reactions is supportive of a compatible immunological profile for the drug. Coversin was discovered in the saliva of a tick, and like many foreign proteins, could potentially result in an immune response and the generation of neutralizing antibodies. There is reason to believe that the protein is immunologically benign because it evolved in the tick to limit immune activation, and therefore detection, but this logic is purely hypothetical and until recently, the only data supporting this conclusion was based on the dosing of non-human primates. We still consider the generation of neutralizing antibodies to be the primary risk limiting the potential utility of the drug, but these results (albeit very early) are encouraging. The Soliris resistant patient has also been successfully treated for approximately four months now without immunological issues, but multiple patients receiving the drug for extended periods will be needed before making definitive conclusions.

Under the current protocol for the Phase Ib trial, an additional cohort will be treated with 22.5mg per dose with the same regimen, but the company has stated that because the 30mg dose achieved complete inhibition, this will be used in the upcoming Phase II PNH trial slated to begin in H216. The trial will use a measure of hemolysis (lactate dehydrogenase, LDH) after 28 days of dosing as the primary endpoint, and is expected to report top-line data before YE16. LDH levels were reduced by over 70% to 1.5 times the upper limit of normal in the Soliris resistant patient, but more data are needed to draw the conclusion that the levels of complement inhibit seen in healthy volunteers in this study will translate to a durable reduction in hemolysis in PNH patients.

Valuation

We have increased our valuation to $376m or $31.95 per ADS from $273m or $23.17 per ADS. This increase reflects a small increase (five percentage points) in the probability of success for the PNH and aHUS development programs to reflect the successful complement inhibition observed in the Phase Ib trial and the finding that the effect is reproducible on a once-a-day dose. This increase has a large effect because the entire valuation of the company is contingent on this single product and because this increase is on top of an initially high risk base case. Although the lack of infusion sight reaction was encouraging of a compatible immune profile, data at longer time points will be needed and we view immune compatibility as a significant outstanding risk to this program. We are currently not increasing the probability of success for the GBS program, because complement inhibition has not been validated as an effective treatment for this disorder yet. We expect to update our valuation following Q216 results, and with the results from the PNH Phase II program, expected around the end of 2016.

Exhibit 1: Valuation of Akari

Development program

Prob. of success

Launch year

Peak sales ($m)

Margin

rNPV ($m)

PNH (broader market)

20%

2020

507

62%

$119

PNH (poorly controlled)

15%

2020

470

63%

$112

PNH (Soliris resistant)

25%

2020

92

62%

$41

PNH (development costs)

($21)

aHUS

15%

2021

432

65%

$82

GBS

5%

2021

366

64%

$17

Unallocated costs (discovery programs, administrative costs, etc.)

($36)

Total

 

 

 

 

$315

Net cash and equivalents (Q116) ($m)

61.4

Total firm value ($m)

376.3

Total ADSs (m)

11.8

Value per ADS ($)

31.95

Source: Edison Investment research, company reports.

Financials

We are not updating our forecasts at this time as the results from the Phase Ib trial do not impact our predictions of expected cash flows. The company ended Q116 with $61.4m in cash, which we predict will provide a runway to late 2017. In the near term, we expect significant CAPEX spending of approximately $10m to support the manufacturing build up to support the three phase II trials expected in H216. Our forecasts predict an additional funding requirement of $180m before profitability in 2020 ($60m in late 2017, $50m in 2018, $70m in 2019). We currently model the company internally commercializing Coversin, but a significant fraction of this funding requirement could be offset by licensing agreements. We record this funding as illustrative debt, but should the company seek these funds on the capital markets, this could result in significant dilution.

Exhibit 2: Financial summary

$'000s

2015

2016e

2017e

2018e

Year end 31 December

US GAAP

US GAAP

US GAAP

US GAAP

PROFIT & LOSS

Revenue

 

 

0

0

0

0

Cost of Sales

0

0

0

0

Gross Profit

0

0

0

0

Research and development

(5,799)

(16,239)

(40,238)

(52,750)

Selling, general & administrative

(5,502)

(5,557)

(6,113)

(6,724)

EBITDA

 

 

(11,311)

(22,792)

(47,347)

(60,470)

Operating Profit (before GW and except.)

(11,301)

(21,796)

(46,351)

(59,475)

Intangible amortization

0

0

0

0

Exceptionals/Other

(19,283)

0

0

0

Operating Profit

(30,585)

(21,796)

(46,351)

(59,475)

Net Interest

(37,662)

880

(1,779)

(13,179)

Other (change in fair value of warrants)

11,408

704

0

0

Profit Before Tax (norm)

 

 

(48,963)

(20,916)

(48,130)

(72,654)

Profit Before Tax (IFRS)

 

 

(56,838)

(20,212)

(48,130)

(72,654)

Tax

0

0

0

0

Deferred tax

0

0

0

0

Profit After Tax (norm)

(48,963)

(20,916)

(48,130)

(72,654)

Profit After Tax (IFRS)

(56,838)

(20,212)

(48,130)

(72,654)

Average Number of ADSs Outstanding (m)

8.5

12.4

13.0

13.6

EPADS - normalized ($)

 

 

(5.73)

(1.71)

(3.71)

(5.33)

EPADS - IFRS ($)

 

 

(6.66)

(1.65)

(3.71)

(5.33)

Dividend per ADS ($)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

235

9,279

8,283

7,288

Intangible Assets

52

49

49

49

Tangible Assets

41

9,088

8,092

7,097

Other

142

142

142

142

Current Assets

 

 

69,658

39,727

56,715

38,516

Stocks

0

0

0

0

Debtors

10

11

11

11

Cash

68,920

38,463

55,451

37,252

Other

728

1,253

1,253

1,253

Current Liabilities

 

 

(20,717)

(19,920)

(22,645)

(24,613)

Creditors

(20,717)

(19,920)

(22,645)

(24,613)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

(49)

(52)

(60,052)

(110,052)

Long term borrowings

0

0

(60,000)

(110,000)

Other long term liabilities

(49)

(52)

(52)

(52)

Net Assets

 

 

49,128

29,034

(17,699)

(88,861)

CASH FLOW

Operating Cash Flow

 

 

(1,912)

(20,407)

(41,212)

(54,999)

Net Interest

(3,054)

0

(1,800)

(13,200)

Tax

0

0

0

0

Capex

(11)

(10,042)

0

0

Acquisitions/disposals

1,411

0

0

0

Financing

75,000

0

0

0

Dividends

0

0

0

0

Other

0

0

0

0

Net Cash Flow

71,434

(30,449)

(43,012)

(68,199)

Opening net debt/(cash)

 

 

(2,794)

(68,920)

(38,464)

4,549

HP finance leases initiated

0

0

0

0

Exchange rate movements

(122)

0

0

0

Other

(5,186)

(8)

0

0

Closing net debt/(cash)

 

 

(68,920)

(38,464)

4,549

72,748

Source: Edison Investment research, company reports.

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United Kingdom

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US

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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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

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Wellington 6011

New Zealand

Celyad — Update 8 July 2016

Celyad

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