How long have you held Innate Immunotherapeutics?
We recently invested into the Innate Immunotherapeutics (ASX: ILL) initial public offering (the company’s IPO is scheduled for tomorrow, Friday 20 December).
What does it do?
Innate is developing a drug called MIS416 for the treatment of Multiple Sclerosis (“MS”), specifically the secondary progressive stage of the disease. There are no approved drugs for the effective treatment of secondary progressive MS, so the drug has blockbuster (> $1,000 million) sales potential.
MIS416 looks to stimulate the body’s immune system to reduce inflammation, protect and even repair some of the damage the disease causes to the central nervous system.
The company will commence a mid-stage clinical trial in 90-100 secondary progressive MS patients by mid 2014 and expects to report its clinical results in late 2015. We believe if the company is able to reproduce clinical results seen in both its earlier study and compassionate program, then investors can realistically expect a lucrative partnering or sales agreement with a big pharma in 2016.
What do you like about it?
We like the fact the data from an earlier clinical trial, as well as anecdotal evidence from the New Zealand compassionate patient program, indicated the drug actually reversed some recently acquired disabilities. The drug looked to be particularly effective at improving physical strength, energy levels and lessening pain.
These results are compelling, as drugs typically gain regulatory approval in MS by slowing the disease progression, not actually reversing some disabilities.
Another attraction is the company will have a fully diluted market capitalisation of just $45 million. This compares favourably with other neurologically focused ASX listed biotechs, which have performed very strongly in 2013. The Alzheimer’s focused Prana Biotechnology (ASX : PBT) and Neuren Pharmaceutical (ASX: NEU) with its Rett Syndrome program, are broadly at similar stages of clinical development, yet capitalized much higher at $285 million and $150 million respectively.
We also like the fact that a high percentage of patients from an earlier New Zealand compassionate use program are still taking MIS416, with several patients having been on the drug for multiple years. We are encouraged to hear the New Zealand compassionate program has been extended and expect to be updated about patient experiences on the drug throughout 2014 and 2015.
How is it better than its competitors?
The treatment options for secondary progressive MS today are minimal and aimed at addressing individual symptoms, such as pain. We think MIS416 has disease-modifying qualities, as it appears to address a broader range of symptoms.
The company estimates the market for drugs in secondary progressive MS may be as large as US$3 billion per annum. There is a real gap in the global market for effective therapies for secondary progressive MS patients.
What do you like about its management?
Management is pragmatic and focused on doing a deal around the results of the Phase II clinical study, due in late 2015. The technology was founded in New Zealand, but the attraction of the Australian R&D tax incentives and a broader MS patient pool has resulted in the company relocating to Sydney.
At what point would you sell it?
The stock is being listed at 20 cents tomorrow, Friday. This is a classical high-risk and high-return investment, albeit some clinical de-risking has already occurred from earlier studies and the anecdotal evidence from the New Zealand compassionate use program.
The upside is genuinely large (greater than 10 times investment) should the clinical data read positively. The upside will come through a partnering or a sales deal with a big pharma. In the meantime, there appears to be share price upside, as Innate Immunotherapeutics trades at an excessive discount to its listed peers. The catalyst for this discount to close may be news-flow from the enlarged New Zealand compassionate program.
Andy Gracey is portfolio manager of the Australian Ethical Smaller Companies Trust
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
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