We are initiating coverage of Appili Therapeutics Inc. (TSX:APLI.V) with a valuation of CAD$4.00. Appili is a biopharmaceutical company developing novel treatments for infectious diseases. The company’s pipeline includes four programs: ATI-2307 for the treatment of invasive fungal infections; ATI-1701 for protection against Francisella tularensis, a Category A pathogen and potential biological weapons threat; ATI-1503 for development of new Gram-negative antibiotics; and ATI-1501 is a taste-masked liquid suspension reformulation of metronidazole.
Large Unmet Need in Cryptococcal Meningitis
Cryptococcus infections that lead to cryptococcal meningitis are a serious health risk for immunosuppressed patients and the current standard of care, amphotericin B, is associated with significant toxicity, including the potential for renal failure. ATI-2307 is a novel antifungal compound with a unique mechanism of action that has been safe and well tolerated in the 80 human subjects tested as part of three Phase 1 clinical trials. The drug has shown excellent activity in multiple pre-clinical animal models, including superior activity to amphotericin B in a model of cryptococcosis.
Potential for Multiple PRVs
Both ATI-2307 and ATI-1701, if approved, may qualify for a Priority Review Voucher (PRV) under the Tropical Disease and Medical Countermeasure statutes, respectively. A PRV allows the holder of the voucher to receive an expedited six-month review from the FDA for a New Drug Application (NDA) or biologics license application (BLA) instead of the usual ten-month review. PRVs are fully transferrable and multiple PRVs have sold for $80-$100 million each over the past two years.
Targeting Gram-negative Bacterial Infections
The ATI-1503 program is developing novel antibiotics for Gram-negative pathogens based on the naturally occurring, broad-spectrum antibiotic negamycin. The Center for Disease Control (CDC) 2019 report on antibiotic resistant infections includes data on multiple species of antibiotic-resistant bacteria and fungi categorized by the level of concern to human health (urgent, serious, and concerning). Included in the “urgent” category are the Gram-negative bacteria Acinetobacter and Enterobacteriaceae, which are responsible for hospitalizing thousands of patients each year. The report makes clear that additional antibiotics targeting these high-priority Gram-negative pathogens are needed.
Recent Deal for Taste-Masked Metronidazole
Appili recently entered a commercial agreement with Saptalis Pharmaceuticals for ATI-1501, a taste-masked liquid formulation of the antibiotic metronidazole, whereby Saptalis will be responsible for overseeing the regulatory review, manufacturing, and commercialization of ATI-1501 in the U.S. Metronidazole is a widely prescribed antibiotic, however its terrible taste makes taking it difficult for those who must crush or re-suspend the tablet due to swallowing difficulties. We estimate an NDA for ATI-1501 will be filed within the next 18 months.
We value Appili using a probability adjusted discounted cash flow model that takes into account potential future revenues for ATI-2307, ATI-1701, and ATI-1501. We are not including ATI-1503 yet as a lead compound for that program has yet to be identified. In addition, all values below are in USD, since the U.S. market is the primary one that Appili will be targeting for each of their development candidates.
For ATI-2307, we anticipate Phase 1 studies will initiate in 2021 that will eventually lead to a Phase 3 trial in 2024, an NDA filing in 2026, and approval in 2027. We currently forecast for Appili to form a partnership(s) for commercialization and receive a 15% royalty on net sales. Our model calls for treatment of cryptococcal meningitis with ATI-2307 to cost $70,000 and we forecast peak sales of approximately $250 million. In addition, we model for the company to be issued a PRV in 2027 that we estimate will be sold for $90 million. Using a 15% discount rate and a 25% probability of approval leads to a net present value for ATI-2307 of $14 million. We note that potential upside to this valuation exists through expansion of the drug’s use to include infections caused by various Candida species.
For ATI-1701, we forecast for an NDA filing in 2023 and approval in 2024. Our model currently incorporates the potential sale of ATI-1701 as a stockpiled treatment in the event of a bioterror attack using F. tularensis. Based on other stockpile contracts, including a $472 million contract to stockpile a smallpox vaccine in 2011 and a $539 million contract for a smallpox vaccine in 2017, our model includes a $500 million, five-year contract signed in 2024. In addition, we forecast for a PRV to be issued upon approval of ATI-1701, and for it to be sold that same year for $90 million. Using a 15% discount rate and a 50% probability of approval leads to a net present value for ATI-1701 of $124 million.
For ATI-1501, we forecast that a filing for approval will be made in 2021 and that the drug will be approved in 2022. Based on its ability to be utilized by patients that would otherwise not be able to receive the drug, we estimate for each treatment with ATI-1501 to cost $100 and for peak sales of $30 million. Using a 15% discount rate and a 75% probability of approval leads to a net present value for ATI-1501 of $5 million.
Combining the net present values for each of the company’s assets along with the current cash balance leads to a net present value for the company of $147 million. We divide this by an estimated fully diluted share count of 49.2 million, which includes the current fully diluted share count of 37.2 million plus an additional 12 million shares to account for future financings, which leads to a valuation of approximately $3.00 per share, or CAD$4.00 per share.
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