Prescient Therapeutics — Update 1 March 2016

Exhibit 1 shows Prescient has two clinical-stage anti-cancer compounds in its pipeline: PTX-200 and PTX-100. It has restructured its management, with Steven Yatomi Clarke appointed CEO in February. To make best use of its limited financial resources, the company has narrowed its focus to three PTX-200 programmes, shown above the black line in Exhibit 1.

PTX-200 is a specific inhibitor of Akt, a key component of signalling pathways known to promote cancer cell growth and resistance to chemotherapy. For two of the priority PTX-200 programmes, breast and ovarian cancer, US-based Phase Ib trials are underway. These trials are partly funded by government grants.

The company plans to initiate a third Phase Ib trial of PTX-200 in patients with AML in H116, as detailed below.

The company’s second pipeline drug, PTX-100, inhibits geranylgeranyltransferase-1 (GGT1) and the Ras oncogene pathway. Clinical trials of this drug have been deferred for the time being – a Phase Ib trial in breast cancer could potentially begin in 2017, subject to funding.

The company has renewed its focus on AML following positive feedback from US investors and clinicians, and plans to initiate a Phase Ib trial of PTX-200 in this indication in H116.

AML is a cancer of the blood and bone marrow that is most common in adults over the age of 60. About two-thirds of patients respond to standard induction chemotherapy with duanorubicin and cytarabine. However, about half of patients who initially respond eventually relapse. There are limited treatment options for relapsed or refractory AML patients and the five-year survival rate is ~25%. The American Cancer Society estimates that there would have been ~20,830 cases of AML in the US in 2015.

In a previous Phase I study, 17 of 32 AML patients achieved stable disease after one treatment cycle, and three patients achieved a >50% reduction in the number of blast (cancerous) cells in the bone marrow. One patient showed a marked reduction in circulating white-cell count and spleen size. In the previous study PTX-200 was given as a monotherapy for a single cycle of treatment, whereas the new trial will examine PTX-200 in combination with cytarabine.

The Phase Ib trial will enrol 18 patients with relapsed or refractory AML at the Moffitt Cancer Center (the third-largest cancer centre in the US) under the guidance of Professor Jeffrey Lancet. Recruitment is expected to take six to nine months, so the trial could be fully recruited by the end of CY16. The trial will test four different doses of PTX-200 in combination with the standard-of-care chemotherapy drug, cytarabine. Prescient estimates the trial will cost US$400k.

The strong demand for new leukaemia drugs is illustrated by the sales performance of Imbruvica (Ibrutinib, JNJ/AbbVie), which was first approved by the US FDA in November 2013.

AbbVie reported Imbruvica US sales of US$267m in Q315 and US US$295m in Q415. Doubling the sales over the six months gives annualised US sales of US$1,124m. The wholesale list price for Imbruvica in the US is $116,000 per year. Allowing for discounts we assume the net manufacturer selling price is ~US$100k per year. Annualised sales of US$1,124m at an average price of US$100,000 per patient per year implies that 11,240 patients are being treated per year.

Imbruvica is approved in the US for chronic lymphocytic leukaemia (CLL, 14,200 new cases a year in the US, approved February 2014), Mantle cell lymphoma (~4,300 new cases [6% of non-Hodgkins lymphoma (NHL), 71,850 new NHL cases a year], approved November 2013), and Waldenström's macroglobulinemia (1,000 to 1,500 new cases in US each year). There would thus be a total of ~20,000 new cases per year in the US for these three disease indications. This implies that Imbruvica is already being used in 56% of new cases of these three diseases after less than two years on the market, even though it is only approved for second-line use for Mantle cell lymphoma and most CLL patients. We note that CLL and Waldenström's macroglobulinemia are chronic diseases, so the pool of treatable patients would be significantly higher than the number of new cases diagnosed each year, cited above.

In 2011 J&J licenced 50% of the rights to Imbruvica from Pharmacyclics for US$150m upfront plus potential development and commercial milestones of US$825m. In May 2015 AbbVie purchased Pharmacyclics for US$21bn, reflecting continued strong sales growth expectations for Imbruvica.

The total of ~20,000 new cases for the approved indications for Imbruvica is slightly less than the 20,830 new cases of AML in the US in 2015, which suggests a new and highly effective drug for AML could also be expected to deliver a strong sales performance.

The treatment strategy in AML has remained unchanged for more than 25 years, and the “7+3” chemotherapy regimen of cytarabine and daunomycin has been standard of care for first-line therapy for 40 years. However, Novartis’s midostaurin could potentially be approved in late 2016 for the one-third of AML patients who harbour a FLT3 gene mutation.

In December 2015 Novartis reported that midostaurin improved overall survival (OS) by 23% (Hr=0.77, P=0.0074) in patients under 60 years of age with newly diagnosed FLT3-mutated AML. The median OS for midostaurin-treated patients was 74.7, versus 25.6 months for patients in the placebo group. The FDA has awarded breakthrough therapy designation to the drug. Novartis intends to file for approval in H116, which could be granted before the end of the year.

Exhibit 2 summarises the pipeline of Phase III studies in AML that are underway or planned to start in 2016. Three Phase III studies are expected to report this year. These are the 301 study of Celator’s Vyxeos, the Polo-AML-2 trial of Boehringer Ingelheim’s volasertib, and the Seamless study of Cyclacel’s sapacitabine. We also note that AbbVie and Roche's Phase II drug venetoclax received breakthrough therapy designation as a front-line therapy for elderly patients with AML who are ineligible to receive standard induction therapy (high-dose chemotherapy).

It is important to note that midostaurin and a number of the other drugs in development are targeted towards subsets of AML patients who carry particular mutations. Therefore we expect there would be strong demand for PTX-200 if it proves to be an effective therapy in AML patients, even if some of these targeted therapies such as midostaurin have also reached the market by the time PTX-200 is launched.

The breast cancer Phase Ib trial has treated 17 patients with advanced cancer with PTX-200 in combination with weekly doses of paclitaxel chemotherapy in the escalation stage of its Phase Ib trial. While patients had metastatic breast cancer, there were a small number with lung and oesophageal cancer. The final patient has been treated at the third and highest dose level of PTX-200, and the recommended Phase II dose (RPTD) has been identified as 35mg/m2 PTX-200 together with chemotherapy. A Phase Ib expansion cohort of 12 patients at the RPTD began in February to further characterise the safety profile of the drug combination.

The initial stage of the trial was led by Professor Joseph Sparano at the Albert Einstein College of Medicine in New York, and has been partly funded by the US National Cancer Institute. Florida’s Moffitt Cancer Center, one of the world’s largest cancer centres, recently joined the trial under the direction of lead investigator Dr Heather Han, which should expedite recruitment of patients in the expansion cohort.

On completion of the expansion cohort, a Phase IIb study is proposed in patients with locally advanced breast cancer.

Prescient has strengthened its Scientific Advisory Board, adding two new members with considerable expertise in AML.

The first appointment was Professor Farhad Ravindi, who is a professor and section chief within the Department of Leukemia at the University of Texas MD Anderson Center. The second appointment was Professor Jeffrey Lancet MD from the H Lee Moffitt Cancer Center. Professor Lancet, a medical oncologist whose work involves developing and implementing clinical trials of small molecule inhibitors in acute leukaemia, will be the principal investigator of Prescient’s upcoming Phase Ib trial in AML patients at the Moffitt Center, as previously mentioned.

Professors Ravindi and Lancet were both investigators on the earlier Phase I trial of PTX-200 conducted in 32 patients with advanced haematological malignancies.

We value Prescient at A$49m (previously A$36m). The company has announced its intention to initiate a Phase Ib trial of PTX-200 in AML patients in H116, so we have added this indication to our valuation model and removed the multiple myeloma indication for PTX-100. With the company focusing its near-term product development on PTX-200 in preference to PTX-100, we have delayed the anticipated launch of PTX-100 in breast cancer by two years to 2026 and increased forecast R&D expenditure in FY18 and FY19.

After taking into account the issue of 36.5m shares at A$0.054 per share in the capital raising in October and November 2015, our valuation is A$0.53/sh (previously A$0.62/sh), with a diluted valuation of A$0.45/sh after accounting for 7.4m options and 9.5m deferred acquisition shares (previously A$0.49/sh).

Our diluted valuation of A$0.45/sh does not take into account the additional financing that will be required to finance ongoing and planned clinical trials. To illustrate the potential impact of a further capital raising, we calculate that if Prescient were to raise a further A$9m in FY17 at 9c/sh, in line with the current share price, our diluted valuation would decline to A$0.28/sh, which is still triple the current share price. This illustration does not take into account the additional value that would be likely to be created by clinical progress over this period; for example, if we assume that the PTX-200 progresses to Phase IIb in breast cancer, the valuation including dilution for the capital raise would be 35c/share vs 28c/share without making assumptions about future clinical progress.

Our valuation is based on a risk-adjusted discounted cash flow model, which includes our estimates of the future milestone payments and royalty streams for the four most valuable programmes in Prescient’s portfolio, namely PTX-200 in breast and ovarian cancers and AML, and PTX-100 in breast cancer. We have extended our cash flow forecasts to 2032 applying a 12.5% discount rate, but have not included any terminal valuation. We assume a long-term exchange rate of US$0.76/A$ compared to the current spot rate of US$0.72/A$.

Our model includes risk-adjusted upfront payments and clinical/regulatory milestones (but not sales milestones) from a potential licensing deal, based on average Phase II deal metrics from BioCentury. We assume that both PTX-100 and PTX-200 are sub-licensed to separate marketing partners at the completion of Phase IIb trials, and that each of the two licence deals include a US$20m upfront payment and US$120m in clinical and regulatory milestone payments.

We also assume that each PTX-100 Phase Ib/IIa trial costs US$3m (PTX-200 Phase Ib/IIa trials largely grant-funded) and a Phase IIb trial costs US$5m. Phase IIb trial costs are risk adjusted to 70%.

Exhibit 3 shows our market assumptions for PTX-100 and PTX-200, and the contribution of product royalties and milestone payments to the rNPV. In valuing individual products we have offset half of the risk-adjusted trial costs against royalty income for each disease indication, and half against milestone revenue (previously 100% of R&D costs were offset against royalty revenue).

It also shows that our base-case assumptions for the new AML indication for PTX-200 include 45% uptake, somewhat less than the estimated 56% uptake achieved by Imbruvica after two years on the market, and pricing of US$50k per year in the US. Under these assumptions we value the AML indication at A$18m. However, given that treatment options for relapsed AML are limited, pricing in the order of $100k could be justified if the first approval is for AML and the response rate to treatment is high. Under this higher price scenario, which includes global peak sales for AML of US$1,880m, the AML indication would be valued at A$37m.

Drug development risk: prospective cancer treatments have a high hurdle rate to reach approval, including lengthy and costly development programmes and high rates of failure.

Partnership/transactional risk: the timing for PTX-100 and PTX-200 development will depend on Prescient’s ability to secure a development partner or acquirer at favourable terms, as we do not expect it to independently develop or fund PTX-100 or PTX-200 at Phase III. Commercial success will also depend on the marketing capabilities of the potential partner.

Deferred acquisition consideration: a total 9.5m shares (17% of current issued capital) are payable if all clinical hurdles are met.

Financing risk: Prescient has limited sources of non-dilutive funding and challenges in obtaining funding on desirable terms for future studies could lead to programme delays or unfavourable dilution to equity holders. We estimate that the company may require A$9m of funding in FY17 to support its planned clinical trial programme, and this is not reflected in our diluted valuation of A$0.45/sh.

Prescient reported a loss of A$0.6m for H1 FY16 (to 31 December), which was 41% less than the previous corresponding period. Cash burn for the period was A$0.9m and the cash balance was A$1.9m at 31 December. Lower anticipated clinical trial spend has reduced our forecast losses by ~68% in FY16 and 9% in FY17. The company is likely to need to raise additional finance in FY17 to support ongoing and new clinical trials, which is likely to lead to significant dilution for existing shareholders. For example, if Prescient were to raise A$9m at the current share price of A$0.09/share, our diluted value per share would decline from the current A$0.45/share to A$0.28/share.