Download DMPI UPDATE JULY 20 FINAL

Equity | Healthcare / Biotechnology
Update (July 20, 2016)
DelMar Pharmaceuticals Inc.
(Nasdaq: DMPI, Target Price: $19.20)
DelMar Pharmaceuticals, Inc. (“DelMar”, Nasdaq: DMPI) is a
clinical stage biotechnology company focused on the development
and commercialization of new cancer therapies.
DelMar
specializes in 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 firstin-class small molecule with a novel alkylating agent that has been
assessed in over 40 National Cancer Institute-sponsored clinical
and pre-clinical trials showing the compound has potential for
multiple cancers including brain, lungs, blood, and cervical. VAL083 has also been approved in China for the treatment of lung
cancer and chronic myeloid leukemia (CML), a cancer of white
blood cells. DMPI continues to take meaningful strides on the
corporate and clinical development fronts, most notably with its
recent Nasdaq Capital Market listing – an impressive
accomplishment by management that reflects the significant
progress made at the company.
split. In our view it is clear that DMPI is making significant
progress advancing its clinical pipeline, with VAL-083 having
potential to address a number of therapeutic indications.
Management continues to execute on a number of fronts, from
securing financing and listing shares on the Nasdaq CM to
advancing its clinical pipeline and expanding the number of
potential indications that could be addressed by VAL-083. If
achieved, the price target represents potential upside of
106.5% from the recent price of $9.40 on July 12, 2016.
Stock Details (7/12/16)
Nasdaq:
Sector / Industry
DMPI
Healthcare / Biotechnology
Price target
$19.20
Recent share price
$9.40
Shares (incl. Preferred)
12.9
Market cap (in $mn)
120.0
52-week high/low
$10.15/ 1.72
Source: Thomson Reuters, SeeThruEquity Research
•
Key Financial ($mn, unless specified)
FY14
Investment Highlights
DMPI lists on Nasdaq Capital Market
DMPI management competed a key strategic goal on the corporate
development front, with the company uplisting shares to the
Nasdaq Capital Market as of July 12, 2016. We see the move as a
significant accomplishment by management, which should serve to
raise DMPI’s prestige in the industry while improving share liquidity
and allowing DMPI access to potential institutional investors who
could not invest in OTC shares.
Financing eases liquidity pressures
In May, DelMar completed a private placement in which the
company raised a $6.1mn in gross proceeds ($5.6mn net), through
the issuance of preferred stock. We believe the raise was a part of
the company’s efforts to uplist to the Nasdaq CM (as was a 1:4
reverse stock split). As part of the transaction, DMPI restructured
72% of investor warrants in order to reduce its derivative liability.
DMPI management now estimates that it has approximately $10mn
of potential additional funding from in-the-money warrants.
Considering the financing and potential warrant exercises,
management believes it has sufficient funding to last through 2017.
DelMar continues to advance its clinical program
In addition to the corporate initiatives completed over the last seral
months, DMPI continues to advance its clinical program. The
company had a successful presentation of Phase 1/ Phase 2 data
from its VAL-083 GBM clinical trials to key figures in the global
cancer research community at the cancer at the American Society
of Clinical Oncology's (ASCO) Annual Meeting in June, and has
outlined plans for a Phase 3 clinical trial for VAL-083 for refractory
GBM and another two Phase 2 trials for GBM in earlier stage
patients.
Adjusting price target to $19.20
We are adjusting our price target for DMPI to $19.20 from the prior
target of $5.75, reflecting the new share count and the 1:4 reverse
FY15
FY16E
0.8
0
0
EBITDA
-4.1
-4.8
-4.8
EBIT
-4.1
-4.8
-4.8
Net Income
-4.1
-5.3
-6.3
-0.48
-0.56
-0.50
Revenues
EPS ($)
Source: SeeThruEquity Research, adjusted for reverse split
Key Ratios
FY14
FY15
FY16E
Gross margin (%)
NM
NM
NM
Operating Margin (%)
NM
NM
NM
EBITDA margin (%)
NM
NM
NM
Net margin (%)
NM
NM
NM
P/Revenue (x)
149.9x
NM
NM
EV/Revenue (x)
147.5x
NM
NM
Source: SeeThruEquity Research
Share Performance, LTM
20.00
16.00
12.00
8.00
4.00
0.00
Jul-15
Oct-15
Jan-16
Apr-16
Source: Thomson Reuters
© 2011-2016 SeeThruEquity, LLC. Important disclosures appear at the back of this report.
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Jul-16
Delmar completes uplisting to Nasdaq; to ring bell on July 14, 2016
•
DMPI management competed a key strategic goal on the corporate development front, with the company uplisting
shares to the Nasdaq Capital Market as of July 12, 2016.
•
DMPI CEO Jeffrey Bacha will ring the Nasdaq’s
opening bell on July 14, 2016.
•
We see the move as a major milestone for the
company and a significant accomplishment by
management, reflecting the measurable progress by
the company over the last several years. As part of
the uplisting process, DelMar completed a capital
raise (as described in more detail below) to ensure the company would meet shareholders’ equity requirements, and a
1:4 reverse stock split (May 20, 2016) in order to meet the minimum bid requirement to list shares on the Nasdaq.
•
Additionally, the uplisting to the Nasdaq CM should serve to raise DMPI’s prestige in the industry while improving share
liquidity and allowing DMPI access to potential institutional investors who could not invest in OTC shares.
New private placement should fund clinical development through FY1Q17E
•
DelMar raises $6.1mn in gross proceeds from private placement: As part of the process to uplist shares to the
Nasdaq CM, DelMar completed a convertible preferred stock private placement financing in April and May. The offering
yielded $6.1mn in gross proceeds for the company ($5.6mn net proceeds) and consisted of the issuance of preferred
shares and restructuring of the company’s warrants outstanding. As part of the transaction, DMPI restructured 72% of
investor warrants in order to reduce its derivative liability.
•
In addition to allowing DMPI to meet Nasdaq listing requirements, the move enabled DelMar to address its capital needs
through 1QFY17, according to management commentary in the financing announcement. Given that the company is
clinical-stage, we view the financing as an important step that will allow DMPI breathing room to focus on clinical
development, strategic partnerships, and developing institutional relationships over the next year.
DelMar continues to make significant progress on its clinical initiatives
•
Importantly DelMar has continued to advance its clinical development pipeline amidst its corporate development
initiatives. On June 3, 2016, DelMar presented
positive Phase I/II GBM clinical trial data of
VAL-083 at the American Society of Clinical
Oncology's (ASCO) Annual Meeting, during
which the company showed that VAL-083
attacks cancer with a mechanism distinct from
other chemotherapies in the treatment of GBM,
making it a promising potential therapeutic for
cancer
patients
whose
tumors
exhibit
resistance
to
currently
available
chemotherapies including temozolomide, the
current front line therapy in the treatment of
GBM.
•
DelMar reported that 22 patients treated with an
assumed therapeutic dose of VAL-083
3
(20mg/m ) showed a meaningful improvement
to median survival rates of GBM patients
following bevacizumab (Avastin) failure, as shown in the enclosed image, provided by the company. DMPI sees the
data as suggesting that VAL-083 has the potential to improve therapeutic outcomes for GBM patients who currently
have no viable treatment options.
© 2011-2016 SeeThruEquity, LLC. Important disclosures appear at the back of this report.
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•
Looking ahead, DelMar reported that it had a “successful” completion of End-of-Phase 2 meeting with the FDA, and the
company will advance towards Phase 3 for refractory GBM. The company will pursue a single randomized Phase 3
study measuring survival outcomes compared to a "physicians' choice" control, which, if successful, would serve as the
basis for a New Drug Application (NDA) submission for VAL-083.
•
DelMar is also planning to initiate two separate Phase II clinical trials in earlier stage GBM patients and has the
previously discussed first recurrence clinical study ongoing in collaboration with MD Anderson. We have enclosed an
updated overview of the company’s pipeline below.
Source: Company Investor Materials
•
Receives Orphan Drug Designation for Ovarian Cancer. Since our last update on the company, the FDA has
expanded VAL-083’s orphan designation to include ovarian cancer. DelMar has now received orphan drug designation
status for VAL-083 for ovarian cancer, medulloblastoma (the most common malignant pediatric brain tumor) and GBM.
•
In our opinion, the continued expansion of indications for which VAL-083 receives orphan drug designation from the FDA
adds support to the thesis that the value that can be unlocked at DelMar extends well beyond GBM – we note that VAL083 is a “first in class” small molecule that has demonstrated anti-cancer activity in a range of areas in over 40 Phase I
and Phase II clinical trials, including brain, lung, cervical, ovarian and leukemia, among others.
© 2011-2016 SeeThruEquity, LLC. Important disclosures appear at the back of this report.
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QUARTERLY FINANCIAL SUMMARY
Figure 1. Income Statement Summary
Figures in $, unless specified
Research& Development
General & Administrative
Operating Expenses
YoY growth
Operating Income
Operating Margin %
Other items, net
YoY growth
Net income
EPS, Basic
Avg. Shares Outstanding in period (split adjusted)
3Q1FY6
3QFY15
9 mos FY16
9 mos FY15
790,323
630,226
1,420,549
24%
-1,420,549
NM
280,148
NM
-1,140,401
-0.10
11,077,275
641,839
500,753
1,142,592
NM
-1,142,592
NM
-944,127
NM
-2,086,719
-0.21
9,744,207
2,183,355
1,994,923
4,178,278
18%
-4,178,278
NM
-1,230,201
NM
-5,408,479
-0.50
10,896,887
1,925,635
1,601,982
3,527,617
NM
-3,527,617
NM
-695,270
NM
-4,222,887
-0.45
9,433,249
Source: Company Form 10Q, SeeThruEquity Research
Additional Notes:
•
DelMar reported a net loss of ($0.03) during the March quarter ($0.10 split-adjusted), with $1.4mn in operating
expenses including $0.8mn of research and development advancing development of the company’s clinical pipeline, as
well as $0.6mn of general and administrative expenses. The primary variance between net loss and operating loss was
primarily due to non-cash items including charges related to the valuation of derivatives.
•
DelMar is clinical stage, and cannot market its products without regulatory clearance, which may take several years.
The company is targeting commercial launch of VAL-083 for GBM (refractory) in 2018E, which would be the first
commercial product.
•
Balance Sheet Overview: DelMar ended the quarter with cash on hand of $0.9mn, and had current assets of $1.1mn,
versus current liabilities of $0.7mn. Delmar used $3.6mn of cash in operating activities, and we expect the company will
continue to have capital needs through at least 2019E to fund clinical product development, given that it does not have
revenue-generating products at this time.
•
$6.1mn financing eases financial pressure in short run: Mitigating its near term capital needs, DelMar raised gross
proceeds of 6,1mn in a convertible preferred share private placement, which took place as part of its initiative to list
shares on the NASDAQ.
•
Management has also stated that it believes it has the opportunity to raise approximately $10mn in new capital from the
exercise of in-the-money warrants. Considering the financing and the warrants, DMPI management has stated that it
should have sufficient capital to fund operations and development through the end of 2017E.
Adjusting DMPI price target to $19.20
•
We are adjusting our price target to $19.20 for DMPI. The new price target reflects instruments issued as part of
the company’s recent capital raising transactions, as well as the 1:4 reverse split completed in May.
•
We continue to have a favorable view of DelMar, and are encourage by management’s optimism that VAL-083 has
the potential to become a major new drug targeting the $1Bn annual market for GBO.
•
If achieved, the price target represents potential upside of 104.7% from the recent price of $9.38. We continue to
view DMPI as an overlooked story in the biotechnology industry. Beyond GBM, VAL-083 appears to have
therapeutic potential on a number of areas, including NSCLC, pediatric brain tumors, ovarian cancer, and cervical
cancer, among others.
© 2011-2016 SeeThruEquity, LLC. Important disclosures appear at the back of this report.
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About VAL-083
VAL-083 is a "first-in-class," small-molecule chemotherapeutic. In more than 40 Phase I and II clinical studies
sponsored by the U.S. National Cancer Institute, VAL-083 demonstrated clinical activity against a range of cancers
including lung, brain, cervical, ovarian tumors and leukemia both as a single-agent and in combination with other
treatments. VAL-083 is approved in China for the treatment of chronic myelogenous leukemia (CML) and lung
cancer, and has received orphan drug designation in Europe and the U.S. for the treatment of malignant gliomas.
DelMar has demonstrated that VAL-083's anti-tumor activity is unaffected by the expression of MGMT, a DNA
repair enzyme that is implicated in chemotherapy resistance and poor outcomes in GBM patients following standard
front-line treatment with Temodar® (temozolomide).
DelMar recently announced the completion of enrollment in a Phase II clinical trial of VAL-083 in refractory GBM.
Patients have been enrolled at five clinical centers in the United States: Mayo Clinic (Rochester, MN); UCSF (San
Francisco, CA) and three centers associated with the Sarah Cannon Cancer Research Institute (Nashville, TN,
Sarasota, FL and Denver, CO).
In the Phase I dose-escalation portion of the study, VAL-083 was well tolerated at doses up to 40mg/m2 using a
regimen of daily x 3 every 21 days. Adverse events were typically mild to moderate; no treatment-related serious
adverse events reported at doses up to 40 mg/m2. Dose limiting toxicity (DLT) defined by thrombocytopenia (low
platelet counts) was observed in two of six (33%) of patients at 50 mg/m2. Generally, DLT-related symptoms
resolved rapidly and spontaneously without concomitant treatment, although one patient who presented with
hemorrhoids received a platelet transfusion as a precautionary measure.
Sub-group analysis of data from the Phase I dose-escalation portion of the study suggested a dose-dependent and
clinically meaningful survival benefit following treatment with VAL-083 in GBM patients whose tumors had
progressed following standard treatment with temozolomide, radiotherapy, bevacizumab and a range of salvage
therapies.
Patients in a low dose (≤5mg/m2) sub-group had a median survival of approximately five (5) months versus median
survival of approximately nine (9) months for patients in the therapeutic dose (30mg/m2 & 40mg/m2) sub-group
following initiation of VAL-083 treatment. DelMar reported increased survival at 6, 9 and 12 months following
initiation of treatment with VAL-083 in the therapeutic dose sub-group compared to the low dose sub-group.
Further details can be found at http://www.delmarpharma.com/scientific-publications.html.
About DelMar Pharmaceuticals, Inc.
DelMar Pharmaceuticals, Inc. was founded to develop and commercialize new cancer therapies in indications where
patients are failing or have become intolerant 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 the U.S. National Cancer Institute, and is currently
approved for the treatment of chronic myelogenous leukemia and lung cancer in China. Published pre-clinical 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
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Contact
Ajay Tandon
SeeThruEquity
www.seethruequity.com
(646) 495-0939
[email protected]
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