Achillion Pharmaceuticals

Transcription

1 Achillion Pharmaceuticals Starting the new year on a solid footing Update on data Pharma & biotech Achillion brings in the new year well positioned, with the announcement of encouraging data from two of its hepatitis C compounds in late December enabling the start of combination trials for a potent all-oral duet in Each new positive data set adds value to the pipeline, increasing the potential of the company in any possible corporate partnership. The emergence of a novel factor D inhibitor platform (posters presented at ASH in December) underscores the scope of Achillion s technology and its inhouse abilities beyond that of its high-profile hepatitis C programme. 12 January 2015 Price US$14.6 Market cap US$1,464m Net cash ($m) at 30 September Shares in issue 100.3m Free float 88% Code ACHN Year end Revenue ($m) PBT* ($m) EPS* ($) 12/ (47.1) (0.64) 0.0 N/A N/A 12/ (58.9) (0.63) 0.0 N/A N/A 12/14e 0.0 (64.6) (0.65) 0.0 N/A N/A 12/15e 0.0 (70.5) (0.70) 0.0 N/A N/A Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments. DPS ($) P/E (x) Yield (%) Primary exchange Secondary exchange Share price performance NASDAQ N/A Encouraging trial results reported on hep C trials Achillion is on track to develop its own all-oral, once a day HCV treatment competitive with leaders in the space. Interim results for second generation NS5A inhibitor ACH-3102 combined with Gilead s NS5B inhibitor, sofosbuvir, showed an unprecedented 100% sustained viral response (SVR4) in the four weeks following six weeks of therapy independent of baseline viral load. Additionally, Achillion has established proof of concept for its own NS5B inhibitor, ACH-3422, in a Phase I study showing notable 4.8 log viral load reduction following 14 days of treatment. Promising early data for factor D inhibitors The company discussed two abstracts and poster presentations at ASH focusing on its emerging factor D (Fd) compounds in paroxysmal nocturnal hemoglobinuria (PNH), a rare, genetically acquired and life-threatening blood disorder. Investigation is also ongoing for its Fd inhibitors in atypical haemolytic uremic syndrome (ahus), myasthenia gravis and age-related macular degeneration (AMD). Achillion plans to announce its lead compound from the platform and initiate clinical development by the end of Alexion s monoclonal antibody Soliris (eculizumab), expected to reach sales of more than $2bn in 2014, is the only treatment currently on the market for PNH, but with limitations including an intravenous administration. Valuation increases to $1.86bn from $1.42bn Positive Phase II data for ACH-3102 and proof of concept data for ACH-3422 support an increase in our valuation for Achillion to $1.86bn from $1.42bn (to $18.5 from $14.5 per share). Our valuation remains centred on a DCF for a potential alloral double or triple combination HCV treatment. Therapeutic candidates in the factor D programme are currently still in preclinical development and it is premature to incorporate potential sales into our forecasts and company valuation. The next major value inflection point for the share is Phase II data from the planned combination trial of ACH-3422 and ACH-3102 in % 1m 3m 12m Abs Rel (local) week high/low US$15.5 US$2.5 Business description Achillion Pharmaceuticals is a biopharmaceutical company engaged in the discovery and development of treatments for chronic hepatitis C virus (HCV) and other related therapeutic areas. Key drug candidates include ACH-3422 (Phase I/Ib), a novel nucleotide NS5B polymerase inhibitor; ACH-3102 (Phase II), second-generation NS5A inhibitor; and ACH-2684 (Phase I) and sovaprevir (Phase II), two NS3/4A protease inhibitors. Next events FY14 results March 2015 ACH-3102+ACH-3422 Phase II H115 Factor D Phase I start 2015 Analysts Katherine Genis +44 (0) Dr Mick Cooper +44 (0) healthcare@edisongroup.com Edison profile page Achillion Pharmaceuticals is a research client of Edison Investment Research Limited

2 Hepatitis C treatments report encouraging results On 22 December, Achillion reported key news on the progress of its hep C programme, highlighting positive and separate trial results for its lead compounds ACH-3102 (NS5A inhibitor) and ACH-3422 (NS5B inhibitor), which if taken together have the potential for a highly competitive HCV treatment regimen. Data in both trials was positive and management plans to commence a hep C dual combination trial in early We await detail on the design of the study, called SPARK, which the company has indicated will be short in duration (initially eight weeks) and pan-genotypic. Robust data for NS5A inhibitor ACH-3102 The company announced highly promising interim results of a Phase II ongoing proxy study of a six-week treatment of its second generation NS5A inhibitor ACH-3102, with NS5B inhibitor sofosbuvir (which Gilead currently markets in its own combination cocktail). Of the active patients enrolled, 10 patients were genotype 1a and two were genotype 1b. Mean baseline RNA viral loads were relatively high at 7 log. Four weeks following therapy completion, an unprecedented 100% (12 patients of 12) achieved an SVR4 (sustained viral response) independent of baseline viral load, gender and IL28B status. Perhaps more impressively, management highlighted in a conference call following its press release that all patients, irrespective of genosubtype, were virtually clear two weeks into treatment. The data compares favourably against that of Harvoni, Gilead s own NS5A and sofosbuvir combination, which showed sustained viral response eight weeks following treatment completion. Achillion will report SVR12 (sustained viral response 12 weeks following therapy completion, which constitutes a cure) in the first half of The combination therapy was well tolerated with no serious adverse events or clinically significant laboratory or ECG abnormalities. Additionally, cumulative studies have shown that ACH-3102 looks to retain activity against a number of mutations knows to confer resistance to first generation NS5A inhibitors. NS5B inhibitor ACH-3422 achieves proof-of-concept Achillion simultaneously reported the highly awaited results of the Phase I proof-of-concept trial of its own NS5B inhibitor, ACH-3422, as monotherapy in treatment-naïve genotype 1 HCV patients. In dose ranging trials, the higher 700mg group showed a mean viral load reduction of 4.2 log after 10 days and continued viral suppression at 4.8 log within 14 days. Out of six patients, three achieved undetectable HCV RNA over the 14 days. Achillion s NS5B reported a favourable safety profile in the trial. The Phase I data for ACH-3422 has been met with caution by some market commentators, specifically when compared to competitors in the class in terms of time to significant viral load reduction, which looked to take approximately three additional days for full effect. Previous data from a Phase II study of Gilead s NS5B, sofosbuvir, taken as monotherapy showed a median drop of HCV RNA level of 4.7 logs at seven days and at 14 days the median HCV RNA drop was 5 logs with seven out of eight patients showing HCV RNA below the level of detection. We are only aware of two other NS5B inhibitors in development, Merck s IDX21437 (Phase II) and IDX21459 (Phase I). In a Phase I/II trial in treatment-naïve patients, monotherapy with IDX21437 led to a 4.2 log reduction of HCV RNA at day seven in GT1 and 4.3 log reduction in GT2 and GT3 subgroups. Discussion surrounds whether the slower action of ACH-3422 could lead to susceptibility of viral rebound or relapse. However we point to the sustained activity of the compound to day 14 as well as its intended use together with the highly potent ACH Detailed results of the Phase I trial will be presented in April at a medical conference (EASL), at which time we expect additional detail as to the pharmacokinetic profile of ACH Achillion Pharmaceuticals 12 January

3 We do not expect the indicative three-day lag to viral reduction for ACH-3422 to show a significant impact on speed of action when tested in a dual combination with ACH-3102 in upcoming trials aiming to match or improve on Gilead s dual 12-week NS5B/NS5A regimen. Achillion management has indicated its nuc and HS5A combination trials will first target an eight-week treatment but a shorter treatment duration of six weeks will also likely be investigated. Share volatility on news Achillion s share price exhibited considerable volatility on the back of the reported data rising 9% on the news, only to drop back 24% the following day amid speculation by market commentators as to the true potential of ACH In an ironic twist the share was also hurt by an overall drop in US biotech shares on that Bloody Tuesday after Express Scripts said it would exclude Gilead s hep C combination treatment Harvoni (NS5B sofosbuvir and NS5A inhibitor ledipasvir) from its national preferred formulary starting in January, after granting exclusive formulary status to AbbVie s Viekira Pak regimen on the basis of price. The Viekira regimen, recently approved by the FDA in December, combines three antivirals including ribavirin in a multi pill regimen vs Harvoni s qd (once daily) pill, FDA approved in October. Viekira s more complicated regimen could have implications on patient compliance and therefore overall efficacy, while the treatment also has more potential for side effects. Undisclosed price discounts on its $85,000 treatment price have apparently been offered Express Scripts undercutting Gilead s controversial lofty price of $94,500 per treatment cycle. We view Express Scripts decision on Viekira as an indication of a trend toward push back b PBMs (pharmacy benefit programs of the high pricing of critical treatments and a willingness to trade optimal overall performance for more reasonable costs. We therefore expect a place for new efficacious and safe treatments in the attractive hep C market that are also price competitive. We believe that pricing pressure will continue for hep C treatments in the coming years and conservatively model $50,000 per treatment in our forecasts for Achillion s oral combination pill which is slated for a 2018 launch. Positioned for its own all-oral HCV drug Achillion owns HCV drug candidates in three key classes that can be formulated into a once-a-day single pill: ACH-3422, a novel nucleotide NS5B polymerase inhibitor; ACH-3102, a secondgeneration NS5A inhibitor; and two NS3/4A protease inhibitors, ACH-2684 and sovaprevir. On the back of the promising Phase II clinical data released on ACH-3102 and proof of concept data for ACH-3422 we increase our probability of success for a single pill treatment to 45% from 35%, maintaining our peak global forecasts of $3.8bn in Our analysis of market potential is based on three markets the US, the big five European countries and Japan and we assume 25% market penetration. We continue to maintain the view that Achillion is a good candidate for collaboration or take-over for a big pharma company that is interested in the HCV market but does not have all the components necessary to create a competitive HCV oral drug. Likewise Achillion remains interesting for those existing HCV players looking to eliminate potential competition, and/or perhaps benefit from one or all of Achillion s Hep-C pipeline drugs - while also gaining access to their Factor D platform. We expect the strength of the data for ASH-3102 will offset any nuanced differences between ACH and other competitive nucs and will await the results of dual and likely triple Phase II combination trials in the current year. Achillion Pharmaceuticals 12 January

4 Exhibit 1: Achillion pipeline Drug Technology Status Note ACH-3102 NS5A inhibitor Phase II Combination w/ Sovaldi 100% cure rate SVR4 in 12/12 patients at 6 weeks (genotype 1a and 1b) ACH-3422 Nucleotide NS5B polymerase inhibitor Phase I/Ib Positive interim Phase I results genotype 1 ACH-2684 NS3/4A protease inhibitor Phase I Sovaprevir NS3/4A protease inhibitor Phase II Clinical hold has been lifted Source: Achillion Pharmaceuticals Achillion Pharmaceuticals 12 January

5 Achillion s factor D inhibitors exhibit high potency Achillion has initiated a discovery programme for novel small molecule inhibitors of complement factor D (fd), a serine protease that is the rate-limiting enzyme of the alternative complement pathway. The oral compounds have shown potential in a number of immune-related diseases. The emergence of this novel platform underscores the scope of Achillion s in-house abilities beyond that of its high-profile hep C development programme. At ASH in mid-december, Achillion presented two posters detailing its progress in the preclinical evaluation of its fd inhibitors, including potency, off-target activities, metabolism and pharmacokinetic properties. The novel small-molecule inhibitors are orally available and look to be both potent and highly specific. As highlighted by the company, the ACH compounds: demonstrate complete suppression of complement alternative pathway AP activity after oral dosing to non-human primates; bind factor D with high affinity and inhibit factor D proteolytic activity with high potency, enabling complete blockage of AP-mediated complement terminal pathway activation; and effectively block C3 fragment deposition on cells, in contrast to C5-targeted therapies. Exhibit 2: Complete inhibition (>99%) of complement AP activity for 24 hours following oral administration of Compound A In cynomolgus monkeys Source: Abstract ID: 4819, Achillion, presented at the 56th Annual Meeting of Hematology, 6-9 December 2014 Results of ongoing research on the compounds substantiate the therapeutic potential for the treatment of complement-related diseases and the company has focused thus far on their potential in paroxysmal nocturnal hemoglobinuria (PNH). Investigation is also ongoing in atypical haemolytic uremic syndrome (ahus), myasthenia gravis and age-related macular degeneration (AMD). Achillion expects to establish proof of concept in a Phase I trial with its first compound by the end of 2015, building out and communicating more detailed development plans in Paroxysmal nocturnal hemoglobinuria (PNH) The complement system plays a key role in many haematological conditions, including PNH. PNH is a debilitating ultra-rare, life-threatening blood disorder, characterised by complement-mediated hemolysis (destruction of red blood cells). The only approved treatment for PNH is Alexion s Soliris (eculizumab), a humanised anti-c5 monoclonal antibody indicated to reduce intravascular hemolysis. Soliris, a first-in-class terminal complement inhibitor, is an intravenous infusion and comes with a black box warning of serious meningococcal infections. It is the only option for those suffering this rare disease. Sales of more than $2bn in 2014 are expected in its approved indications of PNS and ahus. There is a significant unmet medical need for a more effective therapy of PNH with an improved treatment regimen. An oral treatment, therefore, holds considerable potential in PNH, a chronic illness. Additionally, a large portion of PNH patients respond incompletely to eculizumab, and a small number (with genetic polymorphism in C5) are non-responders. Achillion s factor D inhibitors show significant promise as an oral therapy for patients with PNH, and most notably those refractory to Alexion s eculizumab. Achillion Pharmaceuticals 12 January

6 Valuation We increase our value for Achillion to $1.86bn or $18.5 per share, from $1.42bn or $14.5 per share, on the back of the solid Phase II trial for ACH-3102 and Phase I proof of concept data for ACH No changes have been made to our shorter-term forecasts seen in Exhibit 4. We continue to forecast launch in 2018 of an all-oral combination HCV treatment, now factoring in a 45% probability of success, up from 35%. Our valuation is based on a risk-adjusted DCF on forecast revenues for an all-oral combination (most likely ACH-3422/ACH-3102, possibly adding its NS3/4A protease inhibitor) and includes cash and cash equivalents of an estimated $103m. Our valuation, based on conservative pricing assumptions for Achillion s oral hep C drug in development of $50,000, would be significantly higher using currently hep C market pricing (as mentioned, Gilead s combination treatment cost is $94,500). Despite encouraging progress in the complementary factor D programme, therapeutic candidates are currently still in preclinical development. It is therefore premature to incorporate potential sales into our forecasts and company valuation. The start of Phase I trials, targeted for the end of 2015, would, however, trigger inclusion (on a risk-adjusted basis). Exhibit 3: Achillion valuation Product Main Status Prob. of Launch Peak Patent Royalty rnpv Indication success year sales ($m) protection All oral combo US, HCV Phase II 45% 2018 $1, Fully own $945 All oral combo EU Big-5, HCV Phase II 45% 2018 $1, Fully own $574 All oral combo Japan, HCV Phase II 45% 2018 $ Fully own $436 R&D ($203) Total $1,753 Cash and cash equivalents (YE 14) ($m) $103.0 Total firm value ($m) $1,856 Total basic shares (m) Value per basic share ($) $18.5 Source: Edison Investment Research Achillion Pharmaceuticals 12 January

7 Exhibit 4: Financial summary $ e 2015e 2016e Year end 31 December IFRS IFRS IFRS IFRS IFRS IFRS PROFIT & LOSS Revenue , Cost of Sales Gross Profit , EBITDA (47,663.0) (51,633.0) (65,795.0) (71,913.0) (77,759.4) (84,150.0) Operating Profit (before amort. and except.) (44,347.0) (47,293.0) (59,476.0) (65,055.0) (70,851.4) (77,192.0) Intangible Amortisation Exceptionals Other Operating Profit (44,347.0) (47,293.0) (59,476.0) (65,055.0) (70,851.4) (77,192.0) Net Interest Profit Before Tax (norm) (44,206.0) (47,127.0) (58,947.0) (64,579.0) (70,501.4) (76,942.0) Profit Before Tax (FRS 3) (44,206.0) (47,127.0) (58,947.0) (64,579.0) (70,501.4) (76,942.0) Tax Profit After Tax (norm) (44,206.0) (47,127.0) (58,947.0) (64,579.0) (70,501.4) (76,942.0) Profit After Tax (FRS 3) (44,206.0) (47,127.0) (58,947.0) (64,579.0) (70,501.4) (76,942.0) Average Number of Shares Outstanding (m) EPS - normalised ($) (0.69) (0.64) (0.63) (0.65) (0.70) (0.75) EPS - normalised and fully diluted ($) (0.69) (0.64) (0.57) (0.59) (0.64) (0.69) EPS - (IFRS) ($) (0.69) (0.64) (0.63) (0.65) (0.70) (0.75) Dividend per share ($) Gross Margin (%) N/A N/A N/A N/A EBITDA Margin (%) N/A N/A N/A N/A N/A N/A Operating Margin (before GW and except.) (%) N/A N/A N/A N/A N/A N/A BALANCE SHEET Fixed Assets 1, , , , , ,525.0 Intangible Assets Tangible Assets , , , , ,340.0 Investments , , , Current Assets 81, , , , , ,048.6 Inventory Accounts recievable, net Cash and cash equivalents 79, , , , , ,061.6 Other 1, , , , , ,352.0 Current Liabilities (8,944.0) (9,136.0) (9,403.0) (9,447.0) (9,522.0) (34,597.0) Creditors (8,803.0) (8,786.0) (9,112.0) (9,212.0) (9,312.0) (9,412.0) Short term borrowings (141.0) (350.0) (291.0) (235.0) (210.0) (25,185.0) Long Term Liabilities (229.0) (347.0) (56.0) Long term borrowings (229.0) (347.0) (56.0) Other long term liabilities Net Assets 73, , , , ,042.6 (28,023.4) CASH FLOW Operating Cash Flow (36,268.0) (46,700.0) (54,165.0) (57,675.0) (63,421.4) (69,712.0) Net Interest Tax Capex (732.0) (656.0) (408.0) (492.0) (492.0) (492.0) Acquisitions/disposals Financing 61, , , , , ,200.0 Net Cash Flow 24,795.0 (2,955.0) 79,907.0 (54,599.0) (60,413.4) (66,754.0) Opening net debt/(cash) (54,883.0) (79,573.0) (76,721.0) (157,642.0) (103,117.0) (42,679.6) HP finance leases initiated Other (105.0) , (24.0) (49.0) Closing net debt/(cash) (79,573.0) (76,721.0) (157,642.0) (103,117.0) (42,679.6) 24,123.4 Source: Edison Investment Research, company accounts Achillion Pharmaceuticals 12 January

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Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE s express written consent. Frankfurt +49 (0) Achillion Schumannstrasse Pharmaceuticals 34b High January Holborn Park Avenue, 39th Floor Level 25, Aurora Place Level 15, 171 Featherston St Frankfurt Germany London +44 (0) London, WC1V 7EE United Kingdom New York , New York US Sydney +61 (0) Phillip St, Sydney NSW 2000, Australia Wellington +64 (0) Wellington 6011 New Zealand