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APHB: Continued Success for Expanded Access Program; Ready to Initiate Clinical Trials for AB-SA01…

09/27/2018
By David Bautz, PhD

NYSE:APHB

READ THE FULL APHB RESEARCH REPORT

Business Update

Updated Expanded Access Data

On September 17, 2018, AmpliPhi Biosciences Corp. (NYSE:APHB) announced updated results from the company’s use of its lead bacteriophage product candidates AB-SA01 and AB-PA01 through the expanded access program. To date, a total of 21 patients with serious or life-threatening infections not responding to standard antibiotic treatments have been treated at seven hospitals. The majority of those patients (n=15) have been treated with AB-SA01 while the other six received AB-PA01. Importantly, there were no treatment-related adverse events following more than 1,000 total doses of bacteriophage.

The results showed that 84% (16/19) of patients in the modified intent-to-treat (mITT) group achieved treatment success, which was defined as either complete resolution of the infection or significant improvement of baseline signs and symptoms. This is similar to the 86% (6/7) of patients achieving treatment success that the company reported at the beginning of 2018.

We are very encouraged by the safety profile exhibited by both AB-SA01 and AB-PA01 along with the strong efficacy in a very difficult to treat patient population. These results clearly warrant continued development of the compounds as potential weapons in the fight against antibiotic resistant infections.

Positive FDA Feedback for AB-SA01 and AB-PA01 Clinical Development Plans

On September 17 and 18, AmpliPhi announced positive FDA feedback regarding the company’s clinical development plans for both AB-SA01 and AB-PA01. For AB-SA01, the FDA is in general agreement with the company’s proposed clinical trials for bacteremia and prosthetic joint infections caused by Staphylococcus aureus. Each of these trials is anticipated to enroll approximately 100 patients. For bacteremia, patients will receive either AB-SA01 plus the best available antibiotic therapy or placebo plus the best available antibiotic therapy intravenously. For hip or knee prosthetic joint infections, patients will receive either AB-SA01 plus the best available antibiotic therapy or placebo plus the best available antibiotic therapy via intra-articular injection and then intravenously in addition to surgical treatment. We expect one of those trials to initiate in the first half of 2019. Additional details regarding which indication the first trial will target and timelines for the study are anticipated in the next few months.

For AB-PA01, AmpliPhi received positive written feedback from the FDA without the need for a Type B Pre-IND meeting regarding the development plan targeting Pseudomonas aeruginosa infections in hospital-acquired and ventilator-associated pneumonia (HAP/VAP) and bacteremia. Those trials are anticipated to enroll approximately 100 patients each. For HAP/VAP, patients will be intravenously administered AB-PA01 plus the best available antibiotic therapy or placebo plus the best available antibiotic therapy. For bacteremia, patients will receive either AB-PA01 plus the best available antibiotic therapy or placebo plus the best available antibiotic therapy intravenously. AmpliPhi has indicated that in order to advance AB-PA01 further in the clinic it will seek non-dilutive funding or other opportunities.

S. aureus in Bacteremia and Joint Replacement Infections

Infections of the bloodstream (bacteremia), particularly those caused by S. aureus, represent a significant medical challenge. While difficult to ascertain an exact figure, most studies estimate the incidence of S. aureus bacteremia (SAB) ranging from 20-50 cases/100,000 population (Klevens et al., 2007; Benfield et al., 2006; El Atrouni et al., 2009). Prior to the advent of antibiotics, the mortality rate from SAB was close to 80% (Mendell, 1939). The introduction of antibiotics, coupled with greater standards of care, has reduced the mortality rate, which appears to have stabilized at approximately 20% (Turnidge et al., 2009). SAB can frequently lead to infective endocarditis (IE), an infection of the endocardial surface of the heart (Fowler et al., 2005). The prevalence of IE is estimated to be anywhere from 11 to 50% of patients with SAB. Development of IE leads to an increased risk of embolic event and death (Miro et al., 2005).

According to the American Academy of Orthopaedic Surgeons (AAOS), there are over one million joint replacement surgeries performed each year in the U.S., with the vast majority of them being hip and knee replacements. This number is expected to rise to over 4 million by the year 2030 (Kurtz et al., 2007). In order to minimize the risk of infection prophylactic antibiotics are typically given before and after surgery, however infections for hip and knee replacement still occur in 1-2.5% of all cases (Medline). Further complicating infected prosthetic joints is the fact that S. aureus can easily form biofilms (an accumulation of microorganisms surrounded by a polysaccharide mixture that adhere to a solid surface) on stainless steel and titanium orthopedic screws (Stoodley et al., 2005). Biofilms are typically nonresponsive to antibiotic therapy, and thus represent a significant complication of joint replacement surgery.

The treatment of choice for S. aureus infections is penicillin, however in most countries penicillin resistance is extremely common. Thus, first-line treatment for most S. aureus infections is a penicillinase-resistant β-lactam antibiotic such as oxacillin. Antibiotic resistance in S. aureus was uncommon when penicillin was first introduced; in fact the petri dish that Sir Alexander Fleming first observed the antibacterial activity of the Penicillium fungus was growing a culture of S. aureus. However, by 1950, 40% of S. aureus isolates were penicillin resistant and by 1960 the rate had grown to 80% (Chambers, 2001).

Resistance to penicillin is due to the activity of the enzyme penicillinase, which cleaves the β-lactam ring of the penicillin molecule. Penicillinase-resistant β-lactam antibiotics include methicillin, oxacillin, and flucoxacillin. S. aureus strains that have acquired resistance to methicillin have an altered penicillin-binding protein (PBP2a) that has lower affinity for binding β-lactam antibiotics, thus rendering them ineffective. Strains that have acquired this resistance are referred to as methicillin-resistant S. aureus (MRSA). S. aureus strains that are sensitive to the penicillinase-resistant β-lactam antibiotics are said to be methicillin-sensitive (MSSA). It is currently estimated that more than 40% of SAB are caused by MRSA (Styers et al., 2006).

The current gold standard for treatment of MRSA is vancomycin. However, vancomycin is far from ideal due to poor tissue penetration, slow bactericidal activity, and a number of side effects (Gould, 2008). Additional antibiotics utilized include teicoplanin, tegecyline, linezolid, daptomycin, and televancin. Each of those medications has their own shortcomings, including the development of resistance, thus there exists a significant unmet medical need for newer therapies, particularly those that are not susceptible to the development of resistance.

Conclusion and Valuation

Now that AmpliPhi has decided upon which indications it will be targeting we have made significant changes to our model. For valuation purposes, we are only including AB-SA01 at this point as the company has indicated that they are pursuing various opportunities to fund the studies for AB-PA01 and we are uncertain when those studies will get underway.

For S. aureus bacteremia, based on the incidence rate cited above we estimate there are approximately 130,000 cases in the U.S. each year and that approximately 40% of those will involve MRSA. Based on obtaining approval in 2023 in the U.S. and 2024 in the E.U., peak worldwide sales of approximately $300 million, a 50% probability of approval, and a 16% discount rate leads to a net present value for AB-SA01 in SAB of $68 million.

For hip and knee replacement infections caused by S. aureus, we estimate there are approximately 1 million joint replacements in the U.S. and E.U. each year with that rate growing approximately 12% per year. Of those, approximately 2% result in an infection with 40% being the result of MRSA. Based on obtaining approval in this indication in 2024 in both the U.S. and E.U., peak worldwide sales of approximately $250 million, a 50% probability of approval, and a 16% discount rate leads to a net present value for AB-SA01 in joint replacement of $76 million.

Combining the net present value for each indication along with the company’s current cash position, expected money from warrants, and dividing by the fully diluted share count of 33.7 million (current fully diluted share count of 25.7 million plus another 8.0 million shares to finance future operations) leads to a net present value for the company of approximately $5.00 per share. AmpliPhi’s shares continue to trade at a significant discount to this valuation and with a clearer clinical path we see a lot of upside to the shares at the current price.

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