|Shares Out. (in M):||10||P/E||0||0|
|Market Cap (in $M):||13||P/FCF||0||0|
|Net Debt (in $M):||-11||EBIT||0||0|
Anthera is a nanocap trading on NASDAQ with limited liquidity. As such, it may be only appropriate for smaller funds and personal trading accounts. We believe Anthera has venture capital like upside potential if its primary product achieves FDA approval. As with most microcap pharma/biotech stocks with a binary outcome, we recommend sizing it appropriately in the context of a diversified portfolio.
Anthera is currently priced at an extremely attractive valuation after a multi-year sell off in the stock, particularly in the last 12 months, in response to a series of disappointing negative clinical trials results. It has two drug program under development. The lead program is its Phase III drug candidate Sollpura (a non-porcine derived combination of Amylase, Lipase, and Protease) for Pancreatic Enzyme Replacement Therapy (PERT) for exocrine pancreatic insufficiency (EPI) in Cystic Fibrosis and Chronic Pancreatitis patients. The Phase III clinical trial for Sollpura missed its primary endpoint by 1% in December 2016. The company has improved its trial design to address this shortcoming and is currently conducting a new Phase III trial, which we believe has a reasonable probability of success.
The second program is a Phase II drug candidate Blisibimod for Immunoglobulin A nephropathy (IgAN). Blisibimod targets B-cell activating factor, or BAFF, which has been shown to be elevated in a variety of B-cell mediated autoimmune diseases, including IgAN, systemic lupus erythematosus, and others. Blisibimod failed its Phase III trial in 4Q16 for systemic lupus erythematosus (SLE). We believe the market is underappreciating the potential for Blisibimod in IgAN (which was recently granted orphan designation by the FDA) because of its recently failure in SLE. The new trial for IgAN has different endpoints and is addressing a different disease pathology than the prior trial for SLE. Thus, we believe the outcome of the new trial presents a renewed opportunity for success for Blisibimod.
Sollpura - History and New Phase III Trial
If the company’s lead program, Sollpura, meets its Phase III endpoints and receives FDA approval the stock could be worth over 10x+ it’s current price. The Phase III RESULT trial results for Sollpura are expected in 4Q17 or 1Q18, with BLA submission and manufacturing ramp in 2018 and FDA approval to follow in mid 2019 if the data is positive.
The key question for Sollpura is will Anthera generate positive Phase III data in its RESULT trial sufficient for FDA approval? A little bit of background is warranted here. Anthera’s drug Sollpura has twice failed clinical trials. Eli Lilly (LLY) originally ran a trial with with this drug (liprotomase) for pancreatic enzyme replacement therapy and failed its Phase III trial in 2011. Subsequently, Anthera acquired the drug in July 2014. After acquisition, Anthera repositioned the drug and proceeded with a different trial design to improve its likelihood of approval. Anthera’s the Phase III SOLUTION trial was based on a non-inferiority comparison to the competing PERT drug Pancreaze. It also had an improved formulation (higher lipase dose), a well-controlled patient population enrolled in the study, and weight-based dosing (vs. fixed dosing in the prior Lilly-sponsored Phase III study). The trial also had successfully passed two safety reviews by the data monitoring board. Unfortunately, in December 2016, despite investor optimism based on the redesigned trial, Anthera’s Phase III SOLUTION study failed to meet its primary endpoint of noninferiority in coefficient of fat absorption (CFA) by a tiny margin as shown below.
It was therefore not surprising that investors lost all faith in the company and indiscriminately sold the stock after what’s perceived to be two failures for the drug. The sell side has thrown in the towel. The stock is down about 99% from its highs a couple of years ago. Hence, we are presented with the current buying opportunity.
Despite the small miss of its primary CFA endpoint, Sollpura did demonstrate positive effects on protein absorption, a secondary endpoint, as show below:
Moreover, in the SOLUTION extension trial running after the 7 week SOLUTION trial, the drug showed continued safety and tolerability and demonstrated patients treated with Sollpura maintained their height and weight throughout the 20-week extension period with under 17-year-old population showing favorable trends during the extension period, as shown below.
The miss of the primary CFA endpoint was attributed to lower pH of CF patients, which affected the solubility of Sollpura. In order to address this issues, the company has revised the trial design and compensated for this fact with higher dosing. The higher dosing should increase the availability of lipase to offset the efficacy reduction caused by the lower pH environment.
After renewed discussions with the FDA, the company initiated a new Phase III with a new trial design to address the shortcoming of the prior Phase III trial. The new trial allows for a higher dose regimen and allows patients to titrate their dose up to a higher threshold than before. A summary of the new design is shown below.
The higher dose is within the guidelines of the the Cystic Fibrosis Foundation’s guideline based on its survey of the literature. It’s be been noted that approximately 30-40% of patients exceed the recommended dose limits in actual practice. We remain constructive that the new trial design has a good probably to overcome the failure of the prior SOLUTION trial and meet its CFA endpoint.
Sollupura Market Opportunity
The market for Pancreatic Enzyme Replacement Therapy (PERT) to treat exocrine pancreatic insufficiency is about $1.05 billion in the US alone and has been growing 20% per year over the last 5 years and expected to be $1.6 billion by 2023. The PERT market is comprised of number of competing products: Creon, Zenpep, Pancreaze, Ultresa, Viokace, and Pertzye. Creon accounted for the largest share of the market in the U.S. at approximately 70% market share.
Despite the large and growing market, there are drawbacks with the existing therapies, which are mostly porcine derived. For a variety of reasons, such as religion, taste/smell and safety concerns, some patients prefer to avoid porcine derived products. Moreover, the current PERT therapies require the patients to take upwards of 23 large pills per day. Some patients with swallowing limitations have difficulty swallowing that many large pills, particularly pediatric and certain CF patients. In contrast, Sollpura is not porcine derived (biotech derived) and will significantly reduce the pill burden on patients by being able to produce smaller pills that have a higher dose. The company is also running a trial called SIMPLICITY to test the sachet (dry powder) formulation for the CF pediatric population that has difficulty swallowing pills. The results of this trial will be released in 3Q18 and will require a separate FDA review.
Based on Anthera’s survey of doctors, a significant percentage of doctors would recommend Sollpura’s formulation based on these factors. Assuming the company meets its non-inferiority endpoint with a comparable safety profile as the prior trial, we conservatively estimate the market potential for Sollpura at around $100 - $200 million in the US (which would be about 10-20% market share). With good Phase III data and FDA approval (and prior to commercialization), we believe the company could trade around 2x peak sales ($200 -$400 million).
Here’s the best way to think about valuation. We use a probability weighted expected value estimation.
i. Probably of successful RESULT trial and FDA approval: 50%
ii. Probably of unsuccessful RESULT trial and the company is essentially insolvent: 50%
I. Value of Sollpura if successful RESULT trial and FDA approval: $200-$400 million
II. Value of Sollpura if unsuccessful RESULT trial and the company is essentially insolvent: $0
Thus, the current expected value of Sollpura: $100 million to $200 million. For the sake of simplicity, we assume a midpoint value of $150mil.
In summary, Sollpura has:
Near-term, large commercial opportunity ($1 billion+ market)
Novel, non-porcine, stable and soluble PERT
Two non-enteric coated formulations – capsule (10k, 40k, 80k) and sachet formulation that would improve patient compliance with the treatment regimen.
A revised Phase III trial called RESULT which optimized dosing and dose titration to overcome the failure of the prior Phase III SOLUTION trial
Topline readout of the RESULT Phase III data expected 4Q17/1Q18.
Sollpura’s current expected value is $150 million.
Blisibimod - New Endpoints and Targeting a Different Indication than SLE
Blisibimod targets a B-cell activating factor, or BAFF, which has been shown to be elevated in a variety of B-cell mediated autoimmune diseases, including Immunoglobulin A Nephropathy (IgAN), among others. The drug has been well-tolerated across 800+ subjects in multiple clinical trials. It is the first potential disease-modifying therapy for IgAN. In early August 2017, the company received orphan designation for the drug with an accelerated development pathway. While Blisibimod failed its Phase III trial in 4Q16 for systemic lupus erythematosus (SLE), we believe it has a new opportunity to prove itself as IgAN presents a new set of biometric endpoints and addresses a different pathology. The final results of the Blisibimod Phase II trial (BRIGHT-SC) in IgAN is expected by the end of August 2017.
While the failure of Blisibimod in the Phase III trial for SLE raised doubts about the future of the compound, we believe there are enough differences in the pathology of SLE versus IgAN and the opportunity to target difference endpoints that suggest that Blisibimod may have potential in IgAN. First, SLE is a complex disease state where it’s difficult for doctors to quantify disease activities across a broad patient population. Patients endure multiples cycles of flare-ups and remissions and are often on a cocktail of background medications. This makes it difficult to ascertain the responsiveness to the therapies. Second, there is a connection between renal function and proteinuria in IgAN. The data, albeit a small sample size, from the current Phase II study suggests an apparent slowing in proteinuria progression. This could translate into better outcomes and fewer patients progressing to end stage renal disease (currently 15-50% of IgAN patients progress to ESRD), eventually requiring dialysis or a kidney transplant. Third, while B-cells and autoantibodies are clearly implicated in SLE, there are likely a number of other factors involved as SLE is a complex disease state. In contrast, there seems to be a more direct association with autoantibodies in the IgAN pathology.
Market Opportunity and Valuation
IgAN has an annual incidence in the US of about 1 per 100K. The cost savings for an effective treatment of IgAN could be $200K+ per year because IgAN often leads to renal failure and dialysis or kidney transplant, which are very costly outcomes. The company recently received orphan designation for this drug in early August. Thus, typical orphan pricing in the range of $100k-$300k would not be unreasonable for this drug in the US once approved. With an estimated patient population of 3000 in the US and 50% of the patients eligible for treatment, the total addressable market would be in the range of $150-$450mil. Assuming peak sales of $200mil to be conservative and a 2x multiple of sales discounted by 85% at this stage of development, we estimate a very conservative risked value of $60mil. Any sales penetration in the EU would be additional upside not baked into these numbers, likely captured through a partnership. This valuation takes into account other competing drugs such as (1) Atacicept, a dual BAFF/APRIL inhibitor, which is currently undergoing a Phase II study that is expected to be completed in late 2018; and (2) Fostamatinib, an oral spleen tyrosine kinase inhibitor, which is also in Phase II. We believe Blisibimod, with a potentially better tolerability profile and first to market status, will be well positioned relative to the competition.
Anthera is has two drugs in the pipeline. The first, Sollpura, is a Phase III asset running a revised Phase III trial that improves upon the shortcomings of the prior trial that just missed its primary endpoint. The upcoming catalyst for this trial is 4Q17/1Q18. The second, Blisibimod, is a Phase II asset targeting an underserved orphan indication with a final readout expected by the end of August 2017. Together, the company’s current expected value is $150mil for Sollpura + $60 mil for Blisibimod, for a total value of $210mil. Of course, this is the current expected value, but upon positive data and FDA approval, the company could be worth more than 10x+ its current price.
Aside from the obvious risk of not achieving its primary/secondary endpoints in its Phase III trial for Sollpura and its Phase II trial for Blisibimod, the other major risk is financing risk. The company has enough cash to last until 1Q18, which is long enough to get the final Phase II readout for Blisibimod and Phase III readout for Sollpura. If the capital markets are not open to high risk biotech nanocaps, it’s possible the company won’t be able to raise capital on reasonable terms despite having positive data. In this scenario, current investors may make the correct call on the data but nevertheless not see the kind upside one would normally expect with positive data because of the financing overhang.
- Phase II results for Blisibimod by end of August 2017
- Phase III results for Sollpura in 4Q17 or 1Q18
- SIMPLICITY trial results for the sachet formulation in CF pediatric patients in 3Q18.