Companies in possession of a disruptive candidate receive rich valuations at early stages of development, in hopes of commercializing the next billion-dollar drug. In the diabetic realm, MannKind's (NASDAQ:MNKD) Afrezza has garnered plenty of attention lately with news of FDA approval, as many believe inhalable insulin will cause a dent in the current standard of care; injectible [mealtime] insulin. As a result, MannKind, a company without any marketing partner, sports a market cap of $4B. AntriaBio (OTCQB:ANTB) is developing a long-acting, once-weekly basal insulin that could alter the diabetic landscape. Though early in development, this candidate has shown remarkable activity in animals and expects to replicate the results in humans next year. At that point, the valuation could spiral upwards, for reasons explained below.
Antiviral Drugs: An Example of Risky but Steep Valuations
A review of the ability of animal tests to predict acute toxic effects in humans conducted by the drug industry found that out of 150 drugs, tests on rats and mice only predicted 43% of human effects. Animal models fail to be predictive modalities for human response because of the complex human system and evolutionary biology. Put succinctly, humans and animals are complex systems with different evolutionary trajectories. Even though the predictability of animal models is comparable to the probability of a coin flip, the market is optimistic enough to warrant early-stage valuations in the hundreds of millions (sometime even reaching a billion).
Take Arrowhead (NASDAQ:ARWR), for example, a company developing RNAi-based candidate ARC-520 for treatment of the hepatitis B virus. Preclinical data showed enough in mice for Arrowhead to be valued at $300M (November 2013). After a single injection, animal models saw reductions in hep-B viral DNA and proteins for over 30 days, suggesting that Arrowhead's candidate has potential to treat the chronic virus in a fundamentally different manner, while also leaving door open for a functional cure. Before Arrowhead advanced ARC-520 to Phase 2a trials, the company was trading at a $1 billion market cap.
AntriaBio Developing Once-Weekly Insulin
Sanofi's (NYSE:SNY) Lantus and Novo Nordisk's (NYSE:NVO) Levemir, the currently adopted long-acting insulin therapy, use insulin analogs (synthetic forms of insulin). Having a genetically engineered form of insulin with a modified amino acid structure has made it difficult for pharma companies to create extended basal levels of insulin. As a result, [synthetic] basal insulin therapies can only be effective for up to 36 hours.
AB101 is formulated by combining human insulin gene into E.coli, producing insulin for human use. The modified insulin is co-formulated with polyethylene glycol ("PEG") and encapsulated in biodegradable polymer (called PLGA) to produce microspheres (below). This process extends delivery by allowing slow release of the insulin as microspheres are broken down by contact with water. Rather than being released in spurts, insulin is uniformly released over a week.
Source: AntriaBio Investor Presentation
Large molecular weight PEGylation, necessary to obtain extended dosing beyond a day or two, impacts biologic activity and could lead to liver toxicity. Low molecular weight PEGylation, which AntriaBio uses, does not alter biologic activity, but not does deliver the sustained circulation to obtain once-weekly dosing. So AntriaBio's approach is to encapsulate low molecular weight PEG-modified insulin, which should extend to weekly dosing and be safe enough.
AntriaBio expects to report additional animal data in primates H2 2014, which will lay the groundwork for an Investigational New Drug (IND) application and a Phase 1/2(a) study.
Votes of Confidence:
1. Predictability in Diabetes - MannKind As A Benchmark
Animal data in insulin products has historically shown a high predictability (85%+) of data later seen in humans. When comparing this figure to the predictability of antivirals in animals and humans, it can be seen that preclinical diabetic companies pose relatively less risk when advancing to clinical trials.
When Pfizer (NYSE:PFE) pulled the plug on Exubera in late 2007, Eli Lilly and Novo Nordisk followed by discontinuing development of their own inhaled insulin products. One of the issues surrounding Exubera was that inhaled insulin could be associated with lung cancer. MannKind, which stuck with development of Afrezza, responded to this issue by referencing the safety profile of its product in extensive preclinical programs that involved tests on mice and other animals. Many did not buy the explanation, due to inconsistency between animal models and humans. In retrospect, preclinical animal safety data was a good predictor, as the FDA granted Afrezza approval amid lung safety concerns. Such indications bode well for AntriaBio's preclinical data when it advances to clinical stages.
2. History of Leadership
CEO Nevan Elam ran Nektar Therapeutics' (NASDAQ:NKTR) Pulmonary division, responsible for getting the first inhaled mealtime replacement therapy, Exubera, market approval. Though Exubera was considered a failure, Nektar's pulmonary unit was sold to Novartis for $115M.
AntriaBio ended Q1 2014 with a cash balance of $5.6M, and raised an additional $7.6M (net proceeds) in an April private placement. In total, the company has about $13M in cash, with which it plans to fund the remaining preclinical trials and the IND by early 2015. However, to fund the development of AB101 through completion of Phase 1 and Phase 2, AntriaBio expects to raise an additional $15 million within the next year.
Currently, ANTB trades in the $2.00 range. As per its latest quarterly filing, Antria has approximately 7.9M warrants outstanding at an average exercisable price of $2.19. If these warrants were to be in-the-money and exercised, the company could raise an additional $17M that would cover development throughout Phase II.
AntriaBio has also made it known that it plans to uplist onto a national exchange before year-end. Below are the Nasdaq Capital Market's financial and liquidity requirements.
As seen above, an increase in share price would satisfy all financial requirements for AntriaBio to uplist to the Nasdaq. Of course, this is easier said than done. The company is hopeful that catalysts such as presentation of preclinical data and the IND filing will add value to the stock.
During 2013, the volume of pharma deals grew as early-stage drugs drew interest from larger acquirers looking to diversify their pipeline. In Q2 2013, the average value of the upfront payment for Phase 1 treatments rose to $39.3M (from $11.1M in 2012). Preclinical valuations nearly doubled to $10.5M.
In 2015, leading diabetes drug Lantus ($7.8B sales in 2013), developed by Sanofi, will lose patent protection. Novo Nordisk's Levemir, a long-acting insulin with $2B in sales during 2013, will lose patent protection come 2019. As a result, a significant market shift is approaching for basal insulin therapies, as current market leaders will be seeing generic competition shrink top lines. With potential once-weekly treatments in development, current leaders are already looking to recover the imminent reduction of revenues.
As the table above shows, the value of early-stage diabetes deals can vary depending on the type of candidate and the terms of milestone payments. Diabetes companies have generally received higher-end valuations due to the vast market and imminent shift in market pricing with patent expiry of leading multi-billion dollar drugs.
AntriaBio has indicated that the company will develop its promising AB101 candidate until Phase 2 and then look for a partner. By that time, the complied data will determine whether AntriaBio is deserving of the next big deal or is another diabetic therapy dud.
AntriaBio is in early-stage development with its preclinical once-a-week insulin injection. With a basal insulin candidate, though, the market already has a thorough understanding of insulin's safety and efficacy profile. Additionally, as explained above, there is a high predictability between human and animal models. With that said, though, AntriaBio is not the first company to attempt to develop long-acting basal insulin. It is, however, the only company to encapsulate low molecular weight PEG-modified insulin that has shown extended weekly dosing and a safety profile.
Dilution and Liquidity of being a Micro Cap
Though the company has enough of cash balance to fund current operations, further funds will be needed to develop AB101 into clinical trials for H2 2015. AntriaBio will have options to raise necessary funds through exercise of warrants, however, the risk of further dilution will always be present given its miniscule size. Investors must be aware and willing to take these risks before putting money down.
If a company is carrying a disruptive enough drug candidate, being in early-stage development does not hinder its valuation. AntriaBio has the necessary science to garner market attention and the experienced management team that could be trusted to develop it. AB101 weekly insulin injection is taking a novel approach to basal insulin therapy, which has proven effective in animal models. With clinical trials in sight, AntriaBio could offer speculative investors a favorable risk-to-reward ratio.
Sources Used for this Report
- AntriaBio Investor Presentation (Q2 2014)
- AntriaBio Fact Sheet
- ANTB 10Q: March 31,2024
- The Chairman's Blog: AntriaBio
- Zacks Small-Cap Research Report: AntriaBio
Disclosure: The author is long ANTB. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.
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