Akari Therapeutics. ASH data highlight Coversin s unique properties. Soliris-resistant patient continues to respond

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1 Akari Therapeutics ASH data highlight Coversin s unique properties Clinical update Pharma & biotech Akari provided an update at the American Society of Hematology (ASH) meeting on the Soliris-resistant patient who has now been well controlled with Coversin for nine months. New data were released supporting a oncedaily dosing, with complete inhibition of hemolysis with 22.5mg and 30mg per day. The company also provided guidance on new indications either by leveraging Coversin s leukotriene B4 activity, or its ease of derivatization into new longer lasting and targeted versions. Results from the Phase II paroxysmal nocturnal hemoglobinuria study are expected in Q January 2017 Price US$7.90 Market cap US$93m Net cash ($m) at September ADSs in issue 11.8m Free float 29% Code AKTX Year end Revenue ($m) PBT* ($m) EPADS* ($) DPADS ($) 12/ (49.0) (5.73) 0.0 N/A N/A 12/16e 0.0 (17.4) (1.44) 0.0 N/A N/A 12/17e 0.0 (51.3) (4.05) 0.0 N/A N/A 12/18e 0.0 (75.6) (5.68) 0.0 N/A N/A Note: *PBT and EPADS are normalized, excluding amortization of acquired intangibles, exceptional items and share-based payments. Soliris-resistant patient continues to respond P/E (x) Yield (%) Primary exchange Secondary exchange Share price performance NASDAQ N/A Akari has been engaged in a Phase II clinical program to provide Coversin to patients who are resistant to Soliris with the hemolytic disorder paroxysmal nocturnal hemoglobinuria. Coversin binds at an alternate site on C5, and should be active in this population. One patient has been treated on this protocol for nine months, and has shown consistent suppression of hemolysis to below 1.5 times the upper limit of normal and no loss of activity. More evidence that patients prefer the sub-q route A recent survey of atypical hemolytic uremic syndrome patients identified the burden of IV injections from a doctor as a primary concern and a significant desire on the part of patients for a solution that allows them to treat themselves at home. Recent data released from the Coversin Phase Ib dosing trial shows complete inhibition of hemolysis with once a day dosing at multiple dosing strengths. Multiple future directions In addition to C5, Coversin also binds to leukotriene B4 (LTB4), a proinflammatory cytokine that recruits immune cells to sites of inflammation. This activity could be used to treat a broader array of immune and inflammatory diseases such as rheumatoid arthritis, psoriasis and pulmonary arterial hypertension. Additionally the company is developing modified versions of Coversin with longer retention (for once a week dosing) and targeted activity to specific tissues for other indications, as well as other tick-derived proteins with anti-inflammatory activity. Valuation: Increased to $398m or $33.78 per ADS We have increased our valuation to $398m or $33.78 per basic ADS, from $376m or $ This increase is due to rolling forward NPVs to 30 September 2016, and is partially offset by lower cash ($50.6m) and higher than expected SG&A costs. We expect the company to need $180m in financing before profitability in % 1m 3m 12m Abs 5.2 (7.1) (55.0) Rel (local) 2.2 (11.8) (60.7) 52-week high/low US$18.9 US$6.7 Business description Akari Therapeutics is a biopharmaceutical company developing Coversin, a complement system inhibitor for the treatment of paroxysmal nocturnal hemoglobinuria (PNH), atypical hemolytic uremic syndrome (ahus), and other immune disorders without a standard of care. Next events Data from PNH Phase II Initiation of GBS Phase II Q117 H117 PNH Phase III initiation Summer 2017 Analysts Maxim Jacobs Nathaniel Calloway healthcare@edisongroup.com Edison profile page Akari Therapeutics is a research client of Edison Investment Research Limited

2 ASH data supports advantages of Coversin Akari presented new data at the American Society of Hematology (ASH) meeting in December 2016 on the unique profile of Coversin and provided an update to potential future directions that the company may take. Coversin is being investigated for the treatment of the complement system disorders paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (ahus) as well as for the antibody mediated autoimmune disorder Guillain-Barré syndrome (GBS). The only approved C5 inhibitor is Soliris (eculizumab; Alexion), which is given as a biweekly intravenous injection for the treatment of PNH and ahus and had sales of $2.59bn in Coversin has a series of potential advantages over Soliris and potentially other complement inhibitors in development. First, Coversin binds to a site on the C5 protein different than the Soliris binding site. There is a congenital polymorphism at this site (cysteine 345) that prevents Soliris binding making it ineffective. The prevalence of this polymorphism in the general population is unknown, but a study in Japan identified it in 3.5% of individuals. 1 By binding at an alternative site, Coversin can potentially treat these Soliris-resistant patients. One such patient has been successfully treated for over nine months with Coversin (twice-daily self-injection) and has demonstrated complete complement inhibition (as measured by 50% hemolytic complement activity measure, CH50) and reduction in hemolysis to below 1.5 times the upper limit of normal (as measured by serum lactose dehydrogenase LDH, Exhibit 1). The company has reported that a second Soliris-resistant patient has been identified and may begin treatment shortly. Exhibit 1: Prevention of hemolysis in Soliris-resistant PNH patient Source: Akari Therapeutics. Note: Dashed line = 1.5 times the LDH upper limit of normal. A second advantage of Coversin is its small molecular weight (17kDa). It is substantially smaller than monoclonal antibodies like Soliris (approximately 148kDa), which significantly improves its tissue permeability. Because of this, Coversin can be administered subcutaneously (SC) as opposed to intravenous (IV) injection. An SC treatment would provide numerous quality of life 1 Mishimura J, et al. (2014) Genetic Variants in C5 and Poor Response to Eculizumab. N Engl J Med. 370, Akari Therapeutics 9 January

3 improvements over IV because IV injections must typically be performed by a medical professional, whereas SC injections can be performed by the patient. This frees the patient from numerous office visits, allowing them to miss less work or school and, for instance, plan vacations that are not centered around their next injection. Numerous studies have demonstrated a preference for alternatives to IV for the vast majority of drugs (exceptions being analgesics, vitamin K, and antivenom). 2 A recent survey of ahus patients confirmed that quality of life issues associated with frequent office visits are the primary complaints with Soliris treatment (Exhibit 2), and that these patients would prefer self-administration (Exhibit 3). Exhibit 2: Survey of ahus patients, difficulties with Soliris Exhibit 3: Survey of ahus patients, preference for selfadministration Source: ahus Alliance 2016 survey. Note: Y-axis = number of patients out of 233 respondents. Source: ahus Alliance 2016 survey. Note: X-axis = number of patients out of 233 respondents. The company released results at the American Society of Hematology (ASH) meeting in December 2016 of a Phase Ib dosing study that supports the use of Coversin in a once a day formulation. These results showed a reduction in complement activity as measured by CH50 Elisa and sheep blood lysis tests to below the limit of quantification with 22.5mg (n=4) or 30mg (n=4) daily dosing (following twice a day dosing for the first 48 hours) compared to placebo (n=5) (Exhibit 4). Patients were also dosed with 15mg of drug, although these patients had detectable complement activity. Akari is pursuing Coversin in a once-daily SC format for the ongoing PNH Phase II clinical trial (30mg daily adjustable to 45mg as needed). We expect data from the ongoing Phase II clinical trial of Coversin in PNH (non-resistant population) in Q117, and the company has announced that it plans to progress to Phase III in the summer of Jin JF, et al (2015) The optimal choice of medication administration route regarding intravenous, intramuscular, and subcutaneous injection. Pat. Pref. Adherence 9, Akari Therapeutics 9 January

4 Exhibit 4: Inhibition of hemolysis with Coversin Source: Akari Therapeutics. Note: Coversin inhibits compliment activity regardless if measured by Elisa testing (top) or sheep blood lysis (bottom). Twice a day dosing through 48 hours and once a day thereafter. Future directions The company has a number of different pathways to further development of the pipeline and its future directions. These can be broadly divided into three categories, roughly in order of their logical development priority: Development of Coversin for new indications leveraging its other biologic activities. Modification of the Coversin protein to improve its pharmacologic properties or targeting. Investigation of other tick proteins. A differentiating factor of Coversin is that in addition to C5, the protein also binds leukotriene B4 (LTB4). LTB4 is a proinflammatory molecule secreted by leukocytes that recruits other immune cells and activates them, resulting in a cascade of cytokine release and inflammation. This means that Coversin inhibits both of the two main axes of immunity: antibody mediated (via anti-c5 activity) and cell based (via anti-ltb4 activity). Although the current indications being examined were chosen on the basis of Coversin s complement activity, the clinical programs will monitor LTB4 levels in patients and examine its potential benefits. This may hypothetically improve some aspects of the drug s profile, such as limiting injection site reactions or reducing hemolysis induced inflammation. 3 However, the greatest potential for LTB4 inhibition is that there are a large number of other immune, inflammatory, and thombotic disorders that could potentially be addressed via the combined C5 and LTB4 mechanism (Exhibit 5). Coversin binds LTB4 very strongly (approximately 1nM binding constant), and significantly impact symptoms driven by this mechanism, especially when applied directly to the site of inflammation. This positions the drug well to disorders of the skin, joints, lungs and eyes. 3 Moteiro APT, et al. (2011) Leukotriene B4 Mediates Neutrophil Migration Induced by Heme. J. Immunol. 186, Akari Therapeutics 9 January

5 Exhibit 5: Potential future directions Complement Eicosanoid (LTB4) Bioamine (histamine) Dual C5 and LTB4 PNH Treatment-resistant asthma Atopic dermatitis Sjögren s syndrome ahus Alpha-1 antitrypsin deficiency Neuropathic pain Pulmonary arterial hypertension GBS COPD (frequent exacerbators) Acute mastocytosis Severe pemphigoid diseases Myasthenia Gravis (MG) Co-therapy cancer Retinopathies Bronchiolitis obliterans Source: Akari Therapeutics The company is also investigating ways of derivatizing Coversin, which is possible because the protein is easily modified at its N-terminus. The company is developing a PASylated version of the protein, which would have dramatically increased serum residence times. This development program is of a very high priority. PASylation is the addition of a repeating sequence of proline, alanine, and serine amino acid resides (abbreviated PAS), which improves renal retention of the drug and could enable once a week dosing. The company announced at ASH that the estimate human terminal half-life of the molecule was four days based on mouse and rat models, and that it would be moving to first-in man clinical studies in approximately Q417. Akari also announced at ASH that it is investigating derivatives of Coversin that are targeted to specific tissues. In particular, it is investigating the fusion of Coversin to a peptide that binds laminin ɣ1, a protein specific to the neuromuscular junction. The targeting of Coversin in this way could potentially be used as a treatment for complement disorders that attack the neuromuscular junction such as myasthenia gravis, with significantly lower doses of drug and much more limited systemic exposure and associated infection risk. The company stated that it is targeting initiation of Phase I studies in mid And finally, the last new avenue that the company is exploring is investigating other proteins isolated from the tick with biologic activity. Coversin is only one of a number of molecules in tick saliva that have evolved to limit engagement of the host s immune system. The company has proteins derived from ticks that inhibit leukotrienes and histamine, and other proteins that inhibit the complement system in new ways. The company has identified a different C5 inhibitor of a very small molecular weight that it is investigating for oral activity. The company has stated that it will announce further details of its preclinical development and future directions following the J.P. Morgan Healthcare Conference in January We expect any future clinical development programs to incur significant costs, although current forecasts only include preclinical development spending. We expect to update our valuation and forecasts when a lead follow-on development program and path to market is announced. Valuation We have increased our valuation to $398m or $33.78 per basic ADS from $376m or $ This increase is due to rolling over our NPVs to 30 September 2016, and is partially offset by a lower cash balance and an increase in unallocated costs (from an NPV of $36m to $37m) due to higher than expected administrative costs. We expect to update our valuation with top-line data from the Phase II clinical trial examining efficacy in the general PNH population, expected in Q117. The open-label trial will enroll a target of six patients with PNH, and the primary efficacy endpoint will be hemolysis as measured by LDH after 28 days of treatment. Additionally we may update our valuation with the release of more information from the Phase II clinical trial in Soliris resistant patients, which is ongoing. Akari Therapeutics 9 January

6 Exhibit 6: Valuation of Akari Development program Probability of success Launch year Peak sales ($m) Margin rnpv ($m) PNH (broader market) 20% % $130 PNH (poorly controlled) 15% % $123 PNH (Soliris resistant) 25% % $44 PNH (development costs) ($20) ahus 15% % $88 GBS 5% % $19 Unallocated costs (discovery programs, administrative costs, etc) ($37) Total $347 Net cash and equivalents (Q316) ($m) $50.6 Total firm value ($m) $397.9 Total ADSs (m) 11.8 Value per ADS ($) $33.78 Source: Edison Investment Research, Akari Therapeutics reports Financials The company reported operational spending of $7.5m for Q216 and $6.6m for Q316. The increase over Q116 ($3.9m) is associated with the initiation of the PNH clinical program. Our estimates for the total R&D spending for 2016 ($16.2m) remain unchanged. We are, however, increasing our estimates for 2016 SG&A spending from $5.6m to $8.8m, which is carried forward to later years. This increase is primarily due to larger than predicted share-based compensation. However, due to the non-cash nature of the charges, this does not affect our future funding schedule ($180m needed before profitability in 2020, $60m at the end of 2017, $50m in 2018, and $70m in 2019). We have included capex of $5m for 2016 and $5m in 2017 to account for the manufacturing buildout necessary to run a Phase III clinical trial. The company ended the quarter with $50.6m in cash and equivalents. Akari Therapeutics 9 January

7 Exhibit 7: Financial summary $000s e 2017e 2018e Year end 31 December US GAAP US GAAP US GAAP US GAAP PROFIT & LOSS Revenue Cost of Sales Gross Profit Research and development (5,799) (16,239) (40,238) (52,750) Selling, general & administrative (5,502) (8,804) (9,244) (9,706) EBITDA (11,311) (25,077) (49,517) (62,491) Operating Profit (before GW and except.) (11,301) (25,043) (49,482) (62,456) Intangible Amortization Exceptionals/Other (19,283) Operating Profit (30,585) (25,043) (49,482) (62,456) Net Interest (37,662) 7,602 (1,779) (13,179) Other (change in fair value of warrants) 11,408 7, Profit Before Tax (norm) (48,963) (17,440) (51,261) (75,635) Profit Before Tax (IFRS) (56,838) (10,306) (51,261) (75,635) Tax Deferred tax Profit After Tax (norm) (48,963) (16,863) (51,261) (75,635) Profit After Tax (IFRS) (56,838) (9,728) (51,261) (75,635) Average Number of ADSs Outstanding (m) EPADS - normalised ($) (5.73) (1.44) (4.05) (5.68) EPADS - IFRS ($) (6.66) (0.85) (4.05) (5.68) Dividend per ADS ($) BALANCE SHEET Fixed Assets 235 5,240 10,205 10,171 Intangible Assets Tangible Assets 41 5,055 10,021 9,986 Other Current Assets 69,658 40,634 49,441 28,490 Stocks Debtors Cash 68,920 39,436 48,244 27,293 Other 728 1,187 1,187 1,187 Current Liabilities (20,717) (10,713) (11,800) (12,466) Creditors (20,717) (10,713) (11,800) (12,466) Short term borrowings Long Term Liabilities (49) (56) (60,056) (110,056) Long term borrowings 0 0 (60,000) (110,000) Other long term liabilities (49) (56) (56) (56) Net Assets 49,128 35,106 (12,209) (83,860) CASH FLOW Operating Cash Flow (1,912) (24,321) (44,393) (57,751) Net Interest (3,054) 0 (1,800) (13,200) Tax Capex (11) (5,048) (5,000) 0 Acquisitions/disposals 1, Financing 75, Dividends Other Net Cash Flow 71,434 (28,791) (51,193) (70,951) Opening net debt/(cash) (2,794) (68,920) (39,437) 11,756 HP finance leases initiated Exchange rate movements (122) Other (5,186) (807) 0 0 Closing net debt/(cash) (68,920) (39,437) 11,756 82,707 Source: Edison Investment Research, Akari Therapeutics reports Akari Therapeutics 9 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) Akari Schumannstrasse Therapeutics 34b 9 January High Holborn 245 Park Avenue, 39th Floor Level 25, Aurora Place Frankfurt Germany London +44 (0) London, WC1V 7EE United Kingdom New York , New York US Sydney +61 (0) Phillip St, Sydney NSW 2000, Australia