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AdAlta attracts buy recommendation and a 12-month price target of A$0.25 from Lodge Partners

Published: 13:58 13 May 2022 AEST

AdAlta Ltd - AdAlta attracts buy recommendation and a 12-month price target of A$0.25 from Lodge Partners

AdAlta Ltd (ASX:1AD) has received a buy recommendation from Lodge Partners with a 12-month price target of A$0.25 per share, reflecting an implied upside of 331% from current levels.

The Melbourne-based company is leveraging its proprietary i-body technology platform to generate a new class of medicines with the potential to treat some of today’s most challenging diseases.

AdAlta’s lead asset, AD-214, targets the GPCR receptor CXCR4 and is being developed for the treatment of Idiopathic Pulmonary Fibrosis (IPF), for which it was granted orphan status by the USFDA.

The following is an extract from Lodge Partners’ research report:

Investment Catalysts & Developments

  • Phase I clinical trial successfully completed with positive results – AdAlta conducted a phase I trial of AD-214 which included 50 participants, of which 42 received single intravenous (IV) doses to 20mg/kg and 8 received multiple IV doses to 5 mg/kg. Results from the Phase I clinical trial showed that AD-214 was well tolerated in single and multiple intravenous doses in healthy volunteers and demonstrated high and sustained duration of CXCR4 receptor occupancy.
  • Inhaled version of AD-214 in development for Phase II studies – On 5 April 2022, the company announced that it has finalised the pre-clinical development program for a direct lung (inhaled) delivery formulation of AD-214. Results from the Phase I trial showed that the initial IV route led to significant drug localisation in the liver (notably, with no associated safety issues). The development of an inhalation formulation would be significant as it provides a more direct administration to the fibrotic areas in the lung, requiring smaller dosages and lower manufacturing costs. The company is now undertaking a comprehensive package of in vivo and in vitro studies in an inhaled format, with the aim of confirming that AD-214 can be delivered to the far airways of the lungs; be retained in fibrotic tissues; and modulate the progression of fibrosis.
  • Multiple collaborations in place with significant market opportunities – AdAlta has also entered into two collaborative partnerships to advance the development of its i-body platform. It has an agreement with GE Healthcare to co-develop i-bodies as diagnostic imaging agents against Granzyme B, a biomarker in response to immuno-oncology drugs – a program that is now in preclinical development. Separately, it has a collaboration with Carina Biotech to codevelop precision engineered, i-body enabled CAR-T cell therapies. These co-development partnerships target the highly lucrative PET imaging agent and CAR-T therapy markets, which are each worth around US$6.4b and US$20b respectively.
  • Numerous near-term milestones on horizon in 2022 including but not limited to:
    • Q2 CY22 - Binding of AD-214 to CXCR4 and anti-fibrotic effects in vitro in cultured human lung tissue
    • Q2-Q3 CY22 - Distribution and retention of inhaled, nebulised AD-214 in sheep iii(PET imaging and pathology studies)
    • Q3 CY22 - Efficacy of inhaled AD-214 in bleomycin mouse model of IPF - Selection of lead AD-214 inhalation formulation

Recommendation

Lodge Partners has valued AdAlta using the risk-adjusted NPV method focusing on the AD-214 clinical programme. The model utilises a discount rate of 20% and conservative assumptions, including a probability of success of 12% due to AD-214’s strong safety profile with no noted adverse effects. Further, assumptions include the commencement of sales in 2028 with an initial market penetration of 2%, before gradually increasing to 9% achieving peak sales of A$742m in 2031. Lodge estimates include gross margins of 75% and SG&A of 20% of sales revenue. Furthermore, Lodge has considered additional indications which AD-214 targets, additional platform deals and further pipeline increases. Lodge also highlights a major risk to growth being the expiry of patents of the two approved drugs across major markets, potentially leading to the introduction of generics for IPF. Based on the above, Lodge has placed a BUY recommendation on AdAlta, deriving a price target of $0.25 per share (undiluted), reflecting an implied return of 297% from current levels. This gives the company an overall valuation of $78.5m, which is reasonable given its pathway to a Phase II trial in the foreseeable future.

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