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EpiCept: Undervalued going into ASCO

May 02, 2011 2:35 AM ETEPCT
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EpiCept: Undervalued going into ASCO

Following two private placements in 1Q 2011, EpiCept have enough cash to fund operations into 1Q 2012. Nice progress is being made in the pipeline, and with a current Market Cap below USD 50 million the share price is currently not reflecting the true value of the company. EpiCept could be a very nice ASCO-play going into June, with upcoming presentations on positive phase 2 data for both NP-1 and Azixa. We are initiating coverage of the stock with a two-month Speculative Buy recommendation and a target of SEK 8,40 / USD 1,37 per share representing an upside around 100% from current level.

EpiCept reported 2010 Earnings in late February and posted a net loss of USD 15,5 million compared to a net loss of USD 38,8 million in 2009. Revenue was up 140% to USD 1,0 million, reflecting revenue and milestones from Ceplene market launch in Europe. In January 2010 EpiCept signed a partnership with the Swedish pharmaceutical company Meda, granting Meda the right to market Ceplene in Europe and several other countries including Japan, China, and Australia. EpiCept has received a USD 3 million upfront payment and in May 2010 a milestone of USD 2 million was obtained in connection with the launch of Ceplene. EpiCept is entitled to double-digit royalties on sales ranging from low teens to low twenties.

European Ceplene launch is gaining momentum

In October 2008 Ceplene was approved in the EU for remission maintenance and prevention of relapse in adult patients with Acute Myeloid Leukemia (AML) in first remission (CR1). The phase III trial leading to European approval is based on a study in 320 AML patients in Complete Remission with an outcome showing improvement in long-term Leukemia-Free Survival (LFS) exceeding 50% compared to the control arm in patients receiving subcutaneous injections of Ceplene in conjunction with low dose Interleukin-2

So far the drug has been launched in Germany, UK and Austria and reimbursement negotiations are ongoing in France, Italy and Spain as well as in smaller EU countries. So far sales have been slow - around USD 1 million in 2010 - however most sales comes from Q4 2010, which could indicate that sales are gaining momentum as Ceplene is launched in additional countries. The maximum cost for a patient completing all 10 cycles of treatment over an 18 months period is approx EUR 30.000.

EpiCept has committed with the EMEA to conduct a post approval phase IV study, investigating the impact of Ceplene on certain immunological biomarkers (T-cells and NK-cells) in AML patients in first remission and to measure the effect of Ceplene/IL-2 on minimal residual disease. The study is conducted in 30 centers in 7 countries and the first data could become available in late 2011. So far almost 40 patients in the up to 150 patients study have been recruited.

In October 2010 EpiCept agreed with the FDA on a regulatory path to conduct a confirmatory study in the US. EpiCept expects to submit the study protocol to FDA in 2Q 2011 with the goal of initiating the study via the Special Protocol Assessment (SPA) procedure in 2nd Half 2011. The study will compare Ceplene+IL2 with standard of care (which basically is none) in AML patients in First remission (CR1).

Highly Positive NP-1 phase 2b data reported in CPN

In February highly positive data from a 6-week NCI-sponsored phase 2b study with the topical analgesic cream NP-1 were reported. Intent-To-Treat (ITT) data from the more than 460 patients revealed that cancer survivors suffering from chemotherapy-induced peripheral neuropathy (CPN) achieved significant reductions in daily neuropathy intensity scores compared to placebo (p<0,001). Furthermore a large subgroup previously treated with Taxane-chemotherapy NP-1 also demonstrated a statistical significant


reduction in daily pain intensity (p=0,034). NP-1 is a mixture of two FDA-approved drugs; amitriptyline (anti-depressant) and ketamine (anesthetic). NSCI estimate that 30-40% of cancer patients treated with chemotherapy experience symptoms of CPN, which impairs their quality of life and ability to function. Today there are no approved drugs for CPN. More data from the study will be presented at ASCO, 3-7 June 2011.

Previously EpiCept have reported positive data for NP-1 in a 360-patient Post-Herpetic Neuropathy (PHN) as well as data trending towards statistical significance in a 215-patient study in Diabetic Peripheral Neuropathy (DPN).

In late 2010 Myrexis - the partner of EpiCept on Azixa - announced the launch of a randomized phase 2b study for Azixa as frontline treatment for glioblastoma multiforme (GBM – primary Brain tumor). The phase 2b involving 120 patients recruited on centers in the US and India will evaluate Azixa in combination with standard of care versus standard of care alone. Azixa is a vascular disruption agent developed from EpiCepts ASAP-technology platform and the small molecule has shown potent anticancer activity in previous studies both in GBM and in Metastatic Melanoma which have spread to the brain. At ASCO in June 2010 Myrexis reported data from two phase 2a studies showing that Azixa in combination with standard of care was able induce durable responses in both indications. In November 2010 data from a GBM-monotherapy study in patients that have failed frontline and secondline treatment also showed that Azixa is able to induce durable responses. At this year ASCO Myrexis is expected to present positive data from a subgroup of the patients who were naive to the VEGF-antibody Avastin.

In 2003 Epicept and Myrexis entered an exclusive collaboration on Azixa. Epicept is entitled to single digit royalties as well as milestones. The next milestone payment from Myrexis will be triggered upon phase III initiation.

Focus on progress in pipeline as funding is secured into 1Q 2012

Cash was running extremely low (USD 2,4 million) by the end of 2010, however since then EpiCept have in 1Q 2011completed two private placements raising USD 10,9 million in total net proceeds. The placements totaling 16 million shares at an average price per share of USD 0,73, were carried through in the US with Rodman & Renshaw as the exclusive placement agent. In 2011 EpiCept expects a monthly cash burn around 1 million, so our current cash position estimate for 1Q 2011 of approx USD 10- 11 million should be sufficient to fund operations into mid 1Q 2012.

With a current market cap below USD 50 million, and a reasonable cash position around USD 10 million, it is very likely that the focus in the short will shift towards the progress in the pipeline. Overall we view the EpiCept pipeline as attractive, with NP-1 as the most valuable asset in the short term. The reported phase 2b data in CPN was very encouraging and EpiCept should be able to secure a partner on the drug within the next 6-12 months. Phase 2b data presentation at ASCO will most likely be a strong trigger both in terms of partner negotiations and share price development.

Also the progress made by Myrexis for Azixa is promising and we expect positive phase 2a subgroup data to be presented at ASCO.

Long term the Ceplene program is still the crown jewel in the pipeline, however EpiCept will need a partner or capital from a NP-1 partnership to fund the confirmatory pivotal US-study. The European sales led by the marketing efforts of MEDA will secure a pick up in the revenue stream in 2011, and we believe it is reasonable to assume total sales around USD 5 million with approx 0,75 million in royalty payment to EpiCept.

We are initiating coverage of EpiCept with a Speculative Buy recommendation and a two-month target of SEK 8,40 / USD 1,37 per share

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