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Equity | Healthcare / Biotech no log y
Update (September 21, 2015)
DelMar Pharmaceuticals Inc.
(OTCQX: DMPI, Target Price: $4.53)
DelMar Pharmaceuticals, Inc. (“DelMar”, OTCQX: DMPI) is a
commercial and clinical stage biotechnology company focused on
the development of well-validated anti-cancer therapies in orphan
drug indications where patients are failing modern targeted or
biologic
treatments.
DMPI’s
lead
compound,
VAL-083
(dianhydrogalactitol), is a potential new treatment for refractory and
front-line glioblastoma multiforme ("GBM"), the most common and
aggressive form of brain cancer. VAL-083 is a first-in-class small
molecule with a novel alkylating agent that has been assessed in
over 40 National Cancer Institute-sponsored clinical and pre-clinical
trails showing the compound has potential for multiple cancers
including brain, lungs, blood, and cervical. VAL-083 has also been
approved in China for the treatment of lung cancer and chronic
myeloid leukemia (CML), a cancer of white blood cells.
Investment Highlights
$2.6mn placement shores balance sheet
On August 20, 2015, DelMar announced that it had completed a
$2.6mn registered direct placement. The move shores up the
company’s balance sheet, which had $1.8mn in cash and no debt
at the end of the June quarter. The placement consisted of 4.3mn
shares priced at $0.60, and offers potential future funding in the
form of 4.3mn warrants, which have a five-year term and a strike
price of $0.75.
Proceeds to be used for registration-directed Phase II/III trial
DelMar management noted that the offering should provide the
company with capital to help fund operations in 2016E, allowing
DelMar to maintain its focus on advancing its lead product, VAL083, into a registration-directed Phase II/III clinical trial for the
treatment of GBM, the most common and deadly form of brain
cancer.
The move is consistent with the plans outlined by
management to expand its cohort following the encouraging clinical
data released earlier this year from its ongoing Phase I/II trial,
which suggested that VAL-083 may be highly efficacious against
both stem and non-stem GBM cell cultures.
Expansion of Non-dilutive funding from NRC-IRAP
The completion of the $2.6mn direct placement followed positive
news announced on August 13, 2015, that DelMar had received an
increase in funding of up to CDN$287,000 from the National
Research Council of Canada Industrial Research Assistance
Program (NRC-IRAP). The funding is non-dilutive for DelMar, and
is intended to support and expands an ongoing project studying
potential applications of VAL-083 in other cancerous tumor types
beyond its current Phase I/II refractory GBM clinical trial into nonsmall cell lung cancer (NSCLC) and other solid tumors. We see the
announcement as a positive step for DelMar and note that it brings
total funding from NRC-IRAP to CDN$420,000 – following earlier
funding used in collaboration with University of British Columbia,
the Vancouver Prostate Center, and the B.C. Cancer Agency.
DelMar to investigate VAL-083 as treatment for ovarian cancer
This week DelMar announced that it was expanding the potential
treatment areas of VAL-083 to include ovarian cancer. The
company has conducted new research with researchers at MD
Anderson, and expects to present its findings at American
Association for Cancer Research’s October conference: Advances
in Ovarian Cancer Research: Exploiting Vulnerabilities.
Maintaining price target of $4.53
We maintain our price target of $4.53 for DMPI. If achieved,
the price target represents potential upside of 488.3% from the
recent price of $0.77 on September 15, 2015.
Stock Details (09/15/15)
OTCQX:
Sector / Industry
DMPI
Healthcare / Biotechnology
Price target
$4.53
Recent share price
$0.77
Shares o/s (mn)
43.7
Market cap (in $mn)
33.7
52-week high/low
$1.03 / 0.43
Source: Thomson Reuters, SeeThruEquity Research
Key Financial ($mn, unless specified)
FY13
FY14
0.0
0.8
0
EBITDA
(6.3)
(4.1)
(4.7)
EBIT
(6.3)
(4.1)
(4.7)
Net Income
(8.3)
(4.1)
4.8
(0.28)
(0.12)
0.13
FY13
FY14
FY15
Gross margin (%)
NM
NM
NM
Operating Margin (%)
NM
NM
NM
EBITDA margin (%)
NM
NM
NM
Net margin (%)
NM
NM
NM
P/Revenue (x)
NM
42.1
NM
EV/EBITDA (x)
NM
NM
NM
EV/Revenue (x)
NM
36.5
NM
Revenues
EPS ($)
FY15
Source: SeeThruEquity Research
Key Ratios
Source: SeeThruEquity Research
Share Performance, LTM
Source: Thomson Reuters
© 2011-2015 SeeThruEquity, LLC. Important disclosures appear at the back of this report.
1|Page
DelMar Pharmaceuticals, Inc.
Healthcare / Biotechnology
September 21, 2015
Recent financings to fund advancement of VAL-083 to registration-directed Phase II/ III trial for refractory GBM
•
DelMar reduced its financial risk and helped fund its 2016E operations and development pipeline with a $2.6mn
registered direct placement completed on August 20, 2015. The move shores up DelMar’s balance sheet, which had
$1.8mn in net cash at the end of its last reported quarter ending June 30, 2015.
•
The raise included existing investors and new investors, consisting of 4.3mn common shares priced at $0.60, which we
estimate increases the company’s total shares outstanding to 43.7mn. Additionally, the placement has the potential for
further cash, with participating investors also acquiring 4.3mn 5-year warrants with a strike price of $0.75.
•
Although we acknowledge the potential dilution from the warrants, in our view it was necessary for DelMar to secure
funding for its 2016E operating plan to ensure that it can continue to advance its lead product, VAL-083 into a
registration-directed Phase II/III trial for the treatment of refractory GBM, the most deadly form of brain cancer.
•
Expanded Funding from NRC-IRAP: The completion of the $2.6mn direct placement followed positive news
announced by DelMar on August 13, 2015, that it had received an increase in non-dilutive funding of up to
CDN$287,000 from the National Research Council of Canada Industrial Research Assistance Program (NRC-IRAP).
•
In our view, the announcement is a positive for DelMar not only because of the additional, non-dilutive capital, but also
because the research finding supports an expansion of the potential applications for VAL-083 beyond the ongoing
Phase I/II trial for GBM. Indeed, the CDN$287,000 in NRC-IRAP funding is an expansion of an ongoing collaborative
project with University of British Columbia, the Vancouver Prostate Center, and the B.C. Cancer Agency, which has
already received CDN$133,000 in research funding to explore potential uses of VAL-083 to treat non-small cell lung
cancer (NSCLC) and other solid tumors.
Expanded investigation of VAL-083 for possible treatment of NSCLC
•
On September 8, 2015, DelMar presented an overview of its planned clinical trial protocol for VAL-083
(dianhydrogalactitol) in the treatment of non-small cell lung cancer (NSCLC) at the 16th World Conference on Lung
Cancer in Denver Colorado.
•
The clinical development plan was presented in a poster: "Post-Market Clinical Trial of Dianhydrogalactitol in the
Treatment of Relapsed or Refractory Non-Small Cell Lung Cancer," and presented data in collaboration with
researchers at MD Anderson, with exploring the opportunity for VAL-083 to be useful for NSCLC patients who are
resistant to platinum-based therapy for NSCLC – the fundamental primary first-line therapy for 75% of lung cancer
patients.
•
Beginning Post Market Phase IV Clinical Trial in China: Importantly, Delmar stated that it would enroll up to 20
patients in an open-label post market Phase IV clinical trial to investigate the activity of VAL-083 in NSCLC patients who
have failed standard platinum doublet therapy. The dosing regimen in the trial will be in accordance with the approved
label in China, and patients will receive a VAL-083 intravenous (IV) dose of 40 mg/day for five consecutive days, with 12 weeks rest, for two courses, followed by maintenance therapy of 40 mg/day IV for five consecutive days every 28
days. Delmar stated in its announcement that patients will continue to receive treatment until withdrawal criteria are met
or the patient receives up to 12 cycles of therapy
•
The clinical trial will be initiated in China in Shanghai under the terms of DelMar's collaboration with Guangxi Wuzhou
Pharmaceuticals; under the terms of the collaboration, Guangxi Wuzhou Pharmaceuticals will be responsible for funding
VAL-083 clinical research in China, while DelMar will be responsible for management of the clinical trials. Delmar
management indicated that the information from the post-market study may also establish global proof-of-concept to
support a global clinical development program with VAL-083 in NSCLC.
DelMar to expand VAL-083 development program to include ovarian cancer
•
On September 2, 2015, DelMar announced that it would expand its development of VAL-083 to include ovarian cancer.
We note that VAL-083 is a first-in-class small molecule that has been assessed in over 40 National Cancer Institutesponsored clinical and pre-clinical trails demonstrating its potential for multiple cancers.
•
DelMar will discuss VAL-083 as a new potential treatment for ovarian cancer at American Association for Cancer
Research’s (AACR) Advances in Ovarian Cancer Research: Exploiting Vulnerabilities Conference being held October
17-20, 2015 in Orlando, FL, in an abstract titled: "A Comparison of the Mechanisms and Cytotoxic Activity of
Dianhydrogalactitol (VAL-083) to Cisplatin in Ovarian Tumor Models Harboring Wild-type and Mutant p53.” The abstract
© 2011-2015 SeeThruEquity, LLC. Important disclosures appear at the back of this report.
2|Page
DelMar Pharmaceuticals, Inc.
Healthcare / Biotechnology
September 21, 2015
will discuss VAL-083's potential as potential a new treatment for ovarian cancer in the context of DelMar's recent
research as well as historical data from prior NCI-sponsored clinical trials. Importantly, the data has been developed in
collaboration with researchers at the well-regarded MD Anderson Cancer Center.
Continued progress in ongoing VAL-083 for refractory GBM Phase I/II trail
•
Encouraging update for ongoing GBM Program: DelMar provided an encouraging update for its GBM program at the
2nd International Symposium on Clinical and Basic Research in Glioblastoma, being held September 9-12, 2015 in
Toledo, Spain.
•
Delmar presented Phase I dose escalation data that was presented at ASCO in a poster entitled, "Update on Phase I/II
study of VAL-083 (dianhydrogalactitol) in patients with recurrent malignant glioma.” The poster highlighted the potential
for VAL-083 to provide a clinically meaningful survival benefit in GBM patients whose tumors had progressed following
standard treatment with temozolomide, radiotherapy, and bevacizumab.
•
Importantly, Delmar also announced that it has initiated a Phase II expansion cohort for the refractory GBM study with
14 additional patients enrolled at the well-tolerated dose of 40 mg/m2/day x 3 in a 21 day cycle, in order to gain
additional safety and efficacy information of VAL-083 at the dosing regimen being considered for advancement into
later-stage Phase II / III clinical trials.
•
On July 20, 2015, Valmar announced that it has added the Sarah Cannon Cancer Research Center at HealthOne in
Denver, CO, as the fifth clinical trial site for its ongoing, multicenter Phase I/II study of VAL-083 for refractory GBM. The
announcement is consistent with management’s plans to expand its cohort following encouraging and statistically
significant overall survival results from its ongoing Phase I/II clinical trial. The ongoing clinical trial is an open-label,
single arm, safety and tolerability dose-escalation study utilizing a standard dose escalation design, until the maximum
tolerated dose (MTD) or the maximum specified dose has been reached.
•
In particular, we were encouraged by the overall survival (OS) data presented at ASCO, which demonstrated a median
survival of 9 months at doses of greater than 30mg/m2. In the study of 29 refractory GBM patients, the 6-month OS
was 41.4% (with two additional patients alive, but not yet at six months). The 12-month OS was 17.2%, with four
additional patients alive, but not yet at twelve months). Importantly, the clinically meaningful data demonstrated dose
responsiveness, as the OS was 9 months for a high dose, versus 4.4months for a low dose.
•
Several
Development
Catalysts on the Horizon:
Given
the
encouraging
update and the new clinical
trial site, we expect the
company will be able to
move forward with the
expansion cohort, and DMPI
should initiate open-label
Phase 2/3 registration trial
of VAL-083 in refractory
GBM by the end of 2015.
This could position to
company for NDA filing in
late 2016/ early 2017, with
potential commercialization
of VAL-083 for refractory GBM during 2017, as outlined in the enclosed development pipeline.
•
Large Opportunity for GBM: We note that GBM is the most common and deadly form of brain cancer and represents a
significant unmet need. The condition affects approximately 15,000 adults each year and has a survival rate of 4.5
months without treatment and approximately half of patients’ tumors fail all other treatments – which currently include
surgical debulking, Temodar® + radiation, and Avastin®. Indeed, the 5-year overall survival rate is less than 3%. DMPI
estimates the current annual market opportunity for VAL-083 for refractory and front-line GBM is in excess of $1Bn per
year.
© 2011-2015 SeeThruEquity, LLC. Important disclosures appear at the back of this report.
3|Page
DelMar Pharmaceuticals, Inc.
Healthcare / Biotechnology
September 21, 2015
Maintaining price target of $4.53 for DMPI
•
Our price target remains $4.53 for DMPI. If achieved, the price target represents potential upside of 488.3% from
the recent price of $0.77.
•
We continue to view DMPI as an overlooked story in the biotechnology industry.
substantial progress both on the operational front and in its development pipeline.
© 2011-2015 SeeThruEquity, LLC. Important disclosures appear at the back of this report.
The company has made
4|Page
DelMar Pharmaceuticals, Inc.
Healthcare / Biotechnology
September 21, 2015
About VAL-083
VAL-083 is a "first-in-class", small-molecule chemotherapeutic. In more than 40 Phase 1 and 2 clinical studies
sponsored by the U.S. National Cancer Institutes, VAL-083 demonstrated safety and efficacy in treating a number
of cancers including lung, brain, cervical, ovarian tumors and leukemia. VAL-083 is approved in China for the
treatment of chronic myelogenous leukemia and lung cancer and has received orphan drug designation in Europe
and the U.S. for the treatment of gliomas.
As a potential treatment for glioblastoma, VAL-083's mechanism of action appears to be unaffected by the
expression of MGMT, a DNA repair enzyme that causes chemotherapy resistance to front-line treatment with
Temodar® (temozolomide).
DelMar is currently studying VAL-083 in a multi-center Phase I/II clinical trial for patients with refractory
glioblastoma multiforme in accordance with the protocol that has been filed with the U.S. Food and Drug
Administration (FDA). Eligible GBM patients must have failed both Avastin® (bevacizumab) and Temodar®
(temozolomide) unless either of these therapies was contraindicated. (ClinicalTrials.gov Identifier NCT01478178).
About DelMar Pharmaceuticals, Inc.
DelMar Pharmaceuticals, Inc. was founded to develop and commercialize proven cancer therapies in new orphan drug
indications where patients are failing or have become intolerable to modern targeted or biologic treatments. The
Company's lead drug in development, VAL-083, is currently undergoing clinical trials in the U.S. as a potential treatment
for refractory glioblastoma multiforme. VAL-083 has been extensively studied by U.S. National Cancer Institute, and is
currently approved for the treatment of chronic myelogenous leukemia (CML) and lung cancer in China. Published preclinical and clinical data suggest that VAL-083 may be active against a range of tumor types via a novel mechanism of
action that could provide improved treatment options for patients. DelMarpharma.com.
© 2011-2015 SeeThruEquity, LLC. Important disclosures appear at the back of this report.
5|Page
DelMar Pharmaceuticals, Inc.
Healthcare / Biotechnology
September 21, 2015
CONTACT:
Ajay Tandon
Director of Research
SeeThruEquity, LLC
www.seethruequity.com
(646) 495-0939
[email protected]
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6|Page