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Island Pharmaceuticals could see a re-rating on positive Phase 2a results in H2CY23: MST Access

Published: 13:40 16 Jan 2023 AEDT

Island Pharmaceuticals Ltd - Island Pharmaceuticals could see a re-rating on positive Phase 2a results in H2CY23: MST Access

Island Pharmaceuticals Ltd (ASX:ILA) recently initiated a major step by submitting its Investigational New Drug (IND) application to the US FDA to commence the ISLA-101 Phase 2a PEACH clinical trial.

ISLA-101 is a well-known drug candidate that is being repurposed for the prevention and treatment of dengue fever and other mosquito (or vector) borne diseases.

The submission started a 30-day clock for the FDA to raise any queries regarding the trial’s format.

In MST’s view, the standing and experience of ILA’s clinical trial partners, which include the US Army, provide validation of its program and reduce the clinical trial’s risk from design and execution perspectives.

As a challenge trial, the length of the trial is subject to results of each cohort. MST estimates the Phase 2a trial will conclude by end of H2FY23.

MST notes realisation of the valuation over the short term will be difficult but expects positive Phase 2a results in H2CY23 to see a re-rating of the stock.

The following is an extract from the research update:

Investment Thesis

The investment thesis for ILA is built around its drug repurposing strategy. The strategy offers shorter timelines, lower risk and cost. Its first target, fenretinide in dengue fever, highlights the advantages of its strategy.

Repurposed drugs offer:

1. Lower risk: ILA.AX is seeking approval to commence its Phase 2a trial. At the start of clinical trials, a first-inhuman drug faces significant efficacy and safety risks. ILA’s fenretinide offers data from 45+ clinical trials that support its safety in cancer and other non-viral diseases. Safety accounts for some 30-45% of clinical trial failures. MST thereby has applied a higher rate of success for the clinical trial program.

2. Review of drug approvals demonstrates that drugs targeting infectious diseases carry a higher probability of approval. The average for all conditions is ~8% which is in contrast to ~13% for infectious diseases.

ILA’s fenretinide offers additional advantages:

3. Preclinical studies support ISLA-101’s mechanism of action in a number of related viruses including Yellow Fever, West Nile and Japanese Encephalitis and Zika Virus. ILA’s strategy for dengue can be leveraged in these diseases, offering the same advantages; faster timelines and cost efficiencies. The use of ISLA-101 in new indications has allowed for new patent filings that should offer market protection until 2034. 

4. From a competitive perspective, there are no approved treatments for its first target, Dengue Fever - noting that there are a number of treatment and preventative candidate therapies in development.

5. The wide geographic and populous area endemic to dengue fever offers large markets – acknowledging the socioeconomic factors present a trade-off of price and market uptake. Environmental factors are contributing to an expansion of dengue fever prevalent areas.

6. ILA’s approach is further supported by noteworthy partners, US National Cancer Institute (NCI) and the US Army. The ILA Board offers a depth of scientific and commercial expertise.

Potential Milestones

H2FY23

  • 1st Subject enrolled in Phase 2a PEACH trial
  • Phase 2a trial results
  • End of Phase 2a meeting with FDA

Valuation, Risks, Sensitivities

MST valuation is based on the average market capitalisation of a cohort of ASX listed biotechs in Phase 2 trial, a similar stage of development to ISLA-101. MST applies a premium to reflect firstly, ISLA-101’s strong safety profile from earlier 45+ clinical trials and secondly, its target of infectious diseases which carry a lower risk. It applies a 25% probability of approval versus industry average of 15%.

The valuation approach presents a 12 month forward valuation of A$76.6m. It assumes positive Phase2a trial data. The trial will include first efficacy data, a key milestone for the repurposed drug. MST notes there is risk that the current market trends may prevail and mute the market response.

Upside/downside risks and sensitivities of drug development include clinical trial patient recruitment, timing and costs, regulatory approval and market entry, pricing, market enetration and sales, competitor drugs and potential royalties/licensing payments. MST also acknowledges the current sector investment trends as headwinds in realising the valuation over the short term.

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