By David Bautz, PhD
We are initiating coverage of Antibe Therapeutics Inc. (TSX:ATE.V) with a CAD$1.25 valuation. Antibe is a Canadian biotechnology company with two diversified business units: one in pain and inflammation and the other in regenerative medicine. The company’s lead product, ATB-346, is a next-generation non-steroidal anti-inflammatory drug (NSAID) that is designed to offer the same anti-inflammatory properties of current NSAIDs but with a greatly decreased risk of gastrointestinal side effects. Antibe’s subsidiary, Citagenix Inc., is the leading seller of tissue regenerative products for oral and maxillofacial surgery in Canada and recently initiated a strategic growth initiative in the U.S., which should lead to considerable growth in sales and profitability.
Lead Drug is a Potential Game Changer in the Safe Treatment of Pain & Inflammation
ATB-346 is a combination of a hydrogen sulfide (H2S) releasing moiety with naproxen, a widely used NSAID. Studies conducted thus far have shown ATB-346 to have a number of positive attributes, including:
- No gastrointestinal damage (GI) in healthy or unhealthy animals. NSAIDs are known to contribute to an increased risk of GI ulcers. Pre-clinical results with ATB-346 show that the compound is associated with both a decreased propensity for GI injury, but can also promote the healing of GI ulcers that have already formed.
- Anti-inflammatory effects that are equal to or greater than those of naproxen. A recent Phase 2 clinical study demonstrated excellent efficacy in humans, with ATB-346 showing pain relief nearly double that of naproxen and celecoxib based on comparable studies.
- No effect on blood pressure, which is a good indicator of cardiovascular safety. As opposed to currently available NSAIDs that are known to raise blood pressure, results from Phase 1 and 2 clinical trials show that ATB-346 does not significantly elevate mean arterial blood pressure.
Near-term Milestones including Phase 2 Proof-of-Concept Data this Year
Antibe will be initiating its Phase 2 proof-of-concept GI safety clinical trial in 2Q17 with data before the end of 2017, followed by the initiation of a Phase 2 dose-ranging effectiveness trial to support a potential partnering opportunity with a larger pharmaceutical company. We anticipate the two trials taking approximately 18 months to complete at a cost of approximately $4.5 million, at which time the company will be looking to partner for Phase 3 studies.
Non-Dilutive, Regional Licensing Strategy Supports Funding of Clinical Trials
Antibe recently signed a regional distribution agreement for ATB-346 with Laboratories Acbel SA, a subsidiary of one of Greece’s largest pharmaceutical companies, which included an upfront payment of CAD$1.1 million and 5% royalty on net sales. The company continues to negotiate regional distribution agreements for smaller markets (those outside the U.S. and E.U.) in order to generate non-dilutive capital to fund the upcoming Phase 2 studies. Acbel, through its affiliates and partners, is the largest seller of naproxen in this region, which represents approximately 1% of the global market for NSAIDs. Not including the royalty, this transaction effectively values the ATB-346 program at $110 million.
Drug Pipeline Has Blockbuster Potential – Addressing A $9 Billion Global Market Opportunity
NSAIDs comprise one of the largest drug classes worldwide, with estimated sales of both prescription and non-prescription drugs approaching $9 billion in 2016 (EvaluatePharma). Leading prescription NSAIDs include Celebrex® (celecoxib), for which Pfizer reported total revenues of $733 million in 2016 (EvaluatePharma), and Voltaren® (diclofenac), for which Novartis reported total revenues of $525 million in 2016 (EvaluatePharma). The top over-the-counter NSAID products include Advil® (ibuprofen) and Aleve® (naproxen).
Commercial Division in Regenerative Medicine Poised for Global Growth
Citagenix represents Antibe’s diversification strategy to augment the high-risk nature of drug development. Citagenix currently operates in 15 countries, including in Canada, where it is the market leader in sales of regenerative tissue products for oral and maxillofacial surgery, through a direct sales force and internationally through a network of distributor partnerships. By leveraging its market leading position in Canada, Citagenix is looking to expand through a global growth strategy that includes strengthening its presence in the U.S. market, which was valued at $341 million in 2014 (iData Research).
We value Antibe using a probability adjusted discounted cash flow model that takes into account potential future revenues for ATB-346 and Citagenix. For ATB-346, we anticipate that the company will enter into a collaboration with a larger pharmaceutical company before Phase 3 studies commence. For modeling purposes, we are estimating that Phase 3 studies for ATB-346 will begin in 2019, with an NDA filing in 2020 and approval in 2021. We model for approval in the E.U. a year later.
ATB-346 is the main value driver for Antibe as the NSAID market is valued at $8 billion total. We model for approval in OA, however we believe that if the drug is approved it will likely go on to be approved for multiple indications similar to celecoxib. There are approximately 27 million individuals in the U.S. with OA (NIAMS). Of those, we estimate approximately 50% are taking or are open to taking oral NSAIDs. With a conservatively estimated 6% of the market, ATB-346 would have peak sales of $1.0 billion. In the E.U., where there are approximately 40 million patients with OA (WHO), a similar market share could generate close to $1 billion in revenue. Using a 12% royalty rate, an 18% discount rate, and a 50% chance of approval, we estimate the net present value of ATB-346 to be $171 million. When taking into account estimated capital requirements (~$10 million), the current conversion to Canadian Dollars (USD$1 = CAD$1.34), and dividing by the fully diluted share count of 171 million shares leads to a valuation of approximately CAD$1.25. Antibe is certainly an interesting story and we encourage investors to get familiar with the company ahead of Phase 2 data readouts later in 2017 and 2018.
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