2020 is going to be the year for Starpharma. This will be my last post until the new year (sorry Eyeman)
Todays announcement of AZD0466 entering clinical trials did surprise me. Clearly AstraZeneca initiated the trial some time ago, and had just dosed its first patient. I am sure Jackie knew this was the case, however did not want to announce anything until the first patient had been dosed (which activated the AU4.3 million payment)
Bell Potters Assumptions on licensing of current inhouse drugs
Dep Docetaxel
Licensed 2020 on completion of phase 2 trial
Total Deal Value (upfront plus milestones) US$300 million AU$430 million
Upfront US$15 million AU$21.7 million
Development and regulatory milestones US$125 million AU$181 million
Commercial milestones US$160 million AU$231.8 million
Royalty rate 15%
Dep Cabazitaxel
Licensed 2020 during phase 1/2 trial
Total Deal Value (upfront plus milestones) US$150 million AU$217 million
Upfront US$8 million AU$11.5 million
Development and regulatory milestones US$67 million AU$97.1 million
Commercial milestones US$75 million AU$108.7 million
Royalty rate 12%
Dep Irinontecan
Licensed 2021 during phase 1/2 trial
Total Deal Value (upfront plus milestones) US$330 million AU$478.3 million
Upfront US$30 million AU$43.5 million
Development and regulatory milestones US$190 million AU$275 .4 million
Commercial milestones US$110 million AU$159.4 million
Royalty rate 17%
AZN Dep AZD0466
Total Deal Value (upfront plus milestones) US$126 million AU182.6 million
Upfront US$2 million received
Development and regulatory milestones US$64 million (US$3 million received AU$4.3 million) AU$92.7 million
Commercial milestones US$60 million AU$87 milliom
Royalty rate N/A
NOTE: DEP DOCETAXEL, CABAZITAXEL AND IRINOTECAN DEAL ASSUMPTIONS ARE CONSERVATIVE REFLECTING ITS EARLY STAGE. IT COULD POTENTIALLY HAVE ADDITIONAL VALUE FOR EACH ADDITIONAL INDICATION THAT THE LICENSEE PURSUES. ROYALTIES ARE LIKELY TO BE TIERED FOR EACH DEAL. WE ASSUME FLAT RATE FOR NOW. AZN DEP CANCER DRUG ONLY INCLUDES UPFRONT, DEVELOPMENT AND LAUNCH MILESTONES FROM LEAD DRUG UNDER AGREEMENT, WE DO NOT MODEL ROYALTIES OR SALES MILESTONES AS YET. SOURCE: BELL POTTER SECURITIES ESTIMATES
Option agreement with AZN on marketed oncology drug
SPL has entered into an option agreement with its long standing partner AstraZeneca for a DEP enhanced version of one of AZN’s marketed oncology drugs. SPL will conduct pre-clinical studies on this compound, on completion of which, AZN has the option to license it (at pre-agreed deal terms which include undisclosed milestones and royalties) and an option exercise fee of US$5m. This is the next stage of progress on the initial research collaboration signed by the companies in July’16 and is separate from the existing commercial partnership which includes AZD0466 in the lead. We expect that the cost of these pre-clinical studies will be modest (BPe $1-2m) and be completed in less than a year. SPL will have more control on speed of preclinical development given its running the trials vs. the experience had with AZN with the first deal and AZD0466 product. SPL can scale up manufacturing of drug to support these studies and future clinical trials in-house to shorten timelines. The deal terms could be similar to the first deal between AZN/SPL, with value likely skewed towards the royalty potential from what we believe is a blockbuster oncology drug from AZN’s stable.
This further deepening of ties between SPL/AZN, bodes well for their long term collaboration and AZN’s interest in SPL and its DEP platform. The strong endorsement from AZN, provides further validation for the DEP platform and also highlights its broad utility to a company like AZN (novel pipeline drugs and life cycle management of existing marketed drugs which are facing patent expiry and generic sales erosion). Valuation modestly lifted to $1.94, Retain Buy (spec)
No changes to earnings as we currently do not include any value for the option agreement with AZN in our model. Time creep has led to a modest lift in our valuation for SPL to $1.94/sh (was A$1.89/sh). We note that our current valuation is weighted towards VivaGel BV due to its advanced stage. The DEP portfolio albeit earlier stage is progressing rapidly with key data read outs in 2HCY19 which could act as significant re-rating catalysts for the stock. We also note that our model currently includes limited value for SPL’s partnerships with AZN, which could be a source of significant upside in future. SPL remains one of our Top picks for 2019.
Forthcoming Milestones
In terms of news flow in CY19, we expect the following announcements to act as catalysts for a potential re-rating of the stock:
June’19- Launch of VivaGel OTC (Over the counter) product by Mundipharma in initial markets in Europe;
Mid CY19- Launch of VivaGel condom in Japan by Okamoto;
Mid CY19 – Initiation of DEP-irinotecan Phase 1/2 clinical trial;
2HCY19 – Potential initiation of Phase I trial with first DEP AstraZeneca drug AZD0466 under partnership triggering a US$3m milestone payment to SPL;
2HCY19 – Initial data from ongoing Phase 2 DEP docetaxel trial and Phase 1 cabazitaxel trial. We note interim data so far is encouraging with no dose limiting toxicities and efficacy signals being observed;
2HCY19 –SPL to update market on path forward for VivaGel BV for US market once finalised;
2HCY19/CY20 – Further approvals and launches of VivaGel BV by Mundipharma in licensed territories.
In addition, we expect that over the next 12 months SPL’s option agreement with AstraZeneca on the marketed oncology candidate announced today, could advance to a commercial licensing deal. In the same time frame, we also expect an update on progress made with SPL’s collaboration with 2 undisclosed companies on its targeted DEP platform.
Also, we note that activities related to obtaining regulatory approval in China for SPL’s VivaGel coated condom for the government segment of the Chinese condom market have commenced and are progressing well. The process could take several months and at this stage it is difficult to estimate a timeline for approval and launch. We believe there is a possibility for the approval to be received in the next 12-18 months.
Valuation
No changes to earnings. Time creep has led to a modest lift in our valuation of SPL to $1.94/sh (was A$1.89/sh). We retain our Buy (Speculative) recommendation.
We note that based on our sum of parts valuation, the current stock price of SPL is supported mostly by our valuation for VivaGel BV alone. The DEP portfolio albeit earlier stage is progressing rapidly with key data read outs in 2HCY19 which could act as significant re-rating catalysts for the stock. With the upcoming multiple value drivers across the VivaGel BV portfolio and the DEP portfolio, we believe SPL represents an attractive buying opportunity at current prices and it remains in our Top Stock Picks for 2019.
Upside Risk to our valuation
We have not modelled SPL’s potential revenue flow from its undisclosed partnerships in drug delivery (partnership with 2 undisclosed companies on antibody-targeted conjugates). These partnerships becoming substantial in future and converting to a commercial licensing deal with financial terms would lead to an upside to our estimates.
At this stage we do not model royalties and sales milestones attached to the lead cancer drug AZD0466 under the AstraZeneca (AZN) partnership. Sales milestones are estimated to be US$60m and SPL estimates that royalties over the life of the lead drug could amount to over US$2.3bn, based on revised annual sales projections. We also do not include any value for the follow on compounds under the AZN agreement including the second molecule selected by AZN which are each worth up to US$93.3m in milestones. We intend to model royalties and sales milestones for the lead drug in a first indication over the coming months, likely a form of blood cancer, which represents an upside to our estimates. Other follow on compounds moving into the clinic would be a potential upside to our estimates.
At this stage we assign no value to the option agreement signed with AstraZeneca on 3rd June, 2019 on a new DEP enhanced oncology compound from AZN’s existing portfolio (i.e. a marketed oncology compound by AZN). SPL will be conducting preclinical development on this compound, with the option for AZN to license it at pre-agreed terms after. Should this option agreement translate to a commercial licensing deal in future, AZN will pay SPL US$5m in option exercise fee and standard industry milestones and royalties on net sales. Exercise of option by AZN to license this compound will be an upside to our estimates.
Also, we note that docetaxel (Taxotere) made by Sanofi Aventis is currently approved for multiple indications including breast cancer, head and neck cancer, gastric cancer, prostate cancer and non-small cell lung cancer (NSCLC). SPL has previously reported results from animal studies of DEP docetaxel, which demonstrated that DEP docetaxel has superior efficacy to docetaxel alone across a wide range of tumours namely prostate, lung, ovarian and breast. At this stage for SPL, we model DEP docetaxel’s opportunity for the two disclosed indications for DEP docetaxel in the ongoing Phase 2 trial of prostate cancer and non-small cell lung cancer (NSCLC). Further expansion of DEP docetaxel into additional indications could considerably increase the market opportunity for this asset and represents an upside to our current estimates.
Cabazitaxel (Jevtana) made by Sanofi Aventis is currently marketed for hormone-refractory metastatic prostate cancer in docetaxel-resistant patients in combination with steroid prednisone. At this stage we model DEP Cabazitaxel’s opportunity for the approved prostate cancer indication. However, we note that the drug is in clinical development for various other cancer indications including breast, head and neck, bladder etc. Further expansion of DEP cabazitaxel into additional indications could considerably increase the market opportunity for this asset and represents an upside to our current estimates.
Irinotecan (Camptosar) made by Pfizer is currently predominantly used for metastatic colon cancer (both as first line and second line therapy). The liposomal irinotecan reformulation Onivyde is approved for metastatic pancreatic cancer in combination with 5-FU and leucovorin in gemcitabine refractory patients. However, we note that irinotecan is increasingly being used off label (in combination therapy) for other solid tumours such as lung, ovarian, gastric and cervical cancer. At this stage we model DEP Irinotecan’s opportunity for the Onivyde indication i.e. in gemcitabine refractory metastatic pancreatic cancer. Further expansion of DEP Irinotecan into additional indications could considerably increase the market opportunity for this asset and represents an upside to our current estimates. We also note that we assume a global deal for DEP-irinotecan after Phase 1/2 completion could be worth US$970m (same as Ex-US deal between Baxter and
Merrimack for Onivyde after Phase 3 results) and include value for multiple indications. At this stage, for conservatism sake we only include deal value for a first indication at US$330m, with the remaining value as a potential upside to our estimates.
At this stage, we do not assign any value to SPL’s commercial opportunity for the VivaGel Coated Condom in China. SPL has signed a license and supply agreement with Shenyang Sky and Land Latex Co. for its VivaGel coated condom (VCC), for the government segment of the Chinese condom market (estimated market 3bn condoms/year). Activities related to obtaining regulatory approval in China have commenced and we understand are progressing at a rapid rate. Approval in China would be a potential upside to our estimates.
At this stage, we do not value SPL’s other internal candidates from drug-delivery including its Herceptin-targeted DEP conjugate given the early nature of these programmes. These programmes moving ahead into the clinic would be a potential upside to our estimates.
INVESTMENT STRATEGY
In 2018, SPL licensed its VivaGel BV product for most of Ex-US markets to Mundipharma with launch expected in 2QCY19 and to ITF Pharma for the US market. We expect the company will move to a commercial stage company with recurrent revenues from VivaGel BV starting in 2019 from Ex-US markets. US launch of the product is potentially delayed following FDA asking for additional confirmatory clinical data. We await clarity on path forward following FDA meeting in April’19. Launch in US prior to FY22 will be an upside to our estimates. Initial data from ongoing Phase 2 Docetaxel trial and Phase 1/2 cabazitaxel trial are encouraging with no dose limiting toxicities and initial efficacy signals being observed. Results from these trials in 2HCY19 could be a key re-rating catalyst and potentially trigger partnering deals. SPL’s strong cash position of ~A$44.7m and sharpened focus on pharmaceuticals underpins its future growth and we expect SPL to add value in the medium term through commercial revenue from the VivaGel BV asset, the AstraZeneca drug delivery partnerships, as well as through progressing clinical trials for DEP docetaxel and other internal DEP candidates. We also are encouraged between the deepening ties between AstraZeneca and SPL.
SPL Price at posting:
$1.24 Sentiment: Buy Disclosure: Held
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