We are initiating coverage of INmune Bio, Inc. (NASDAQ:INMB) with a valuation of $19.00. INmune is a biopharmaceutical company focused on treatments that target the innate immune system. As opposed to the adaptive arm of the immune system, which targets highly specific antigens and can take days to weeks to mount an efficient response, the innate immune system is designed to rapidly attack any and all harmful cells in the body in a non-specific manner. The company has three lead development products: INB03 – which targets soluble tumor necrosis factor (TNF) to down regulate myeloid derived suppressor cells (MDSCs), key immunosuppressive cells in the tumor microenvironment; INKmune – which targets the activation of senescent natural killer cells to eliminate residual cancer cells; and XPro1595 – for use in patients with mild to moderate Alzheimer’s Disease (AD).
Looking to Expand the Use of Checkpoint Inhibitors with INB03
INB03 is a pegylated recombinant protein that inhibits soluble TNF (sTNF) while not affecting trans-membrane TNF (tmTNF) or TNF receptors (TNFR), thus altering the immunosuppressive profile in the tumor microenvironment through a decrease in the number of MDSCs. Preclinical studies have shown that treatment with INB03 results in fewer and smaller cancers with increased survival through a decrease in the production of immunosuppressive cytokines, improved NK/DC crosstalk, and recruitment of cytotoxic CD8+ T cells to the tumor (i.e., making cold tumors hot). We believe treatment with INB03 will be utilized in combination with checkpoint inhibitor (CPI) therapy (anti-PD-(L)1 or anti-CTLA-4) to increase their effectiveness, as approximately three-quarters of patients do not respond adequately to CPIs.
Turning Resting Natural Killer Cells into Primed ‘Cancer-Killing’ Cells
Natural Killer (NK) cells are the body’s main weapon against the growth and spread of cancer, however ‘successful’ cancer cells are able to evade this natural defense mechanism through the downregulation of priming ligands. INKmune is designed to deliver the signaling ligands necessary to convert a resting NK cell to a primed and activated NK cell capable of eliminating cancer cells. We believe INKmune will be utilized as a ‘post-traditional treatment’ therapy to rid the body of residual cancer cells that survive chemotherapy and radiation treatment and are the cause of cancer relapse in many patients.
Non-Amyloid Approach to Treating Alzheimer’s Disease
Following a long series of failures for AD treatments that target beta-amyloid, many believe it is time to explore alternative therapeutic approaches. XPro1595 uses a similar mechanism of action as INB03, but it is targeted at activated microglial cells for the treatment of AD patients with mild to moderate disease. Activated microglial cells respond to increased sTNF to cause neuroinflammation, which is known to cause a wide range of issues in AD, including neurodegeneration, synapse loss, and reduced clearance of toxic debris. Preclinical studies show that inhibiting sTNF alters the presence of toxic amyloid, prevents nerve cell death, reverses synapse dysfunction, and improves cognition.
Biomarker Directed Studies
Each of the clinical trials set to be conducted by INmune rely on the use of biomarkers to select for those patients that are most likely to benefit from treatment. This not only will help utilize limited resources in the most efficient manner possible, but should also increase the probability of clinical success.
Near-Term Milestones Including Clinical Data This Year
INmune is set to initiate three clinical trials in 2019, one each for the three lead development programs and we anticipate initial clinical data from a Phase 1 study of INKmune in patients with platinum resistant ovarian cancer and INB03 before the end of 2019.
We value INmune using a probability adjusted discounted cash flow model that takes into account potential future revenues for INB03, XPro1595, and INKmune. We model for INmune to partner each of the assets and to receive a 15% royalty on net sales.
For INB03, we model for its use in non-small cell lung cancer (NSCLC), which is where checkpoint inhibitors have shown great promise, but only in approximately 25% of treated patients. Following initiation of a Phase 1 study this year, we estimate a Phase 3 trial initiates in 2022, an NDA filing in 2024, and approval in 2025. Based on approximately 225,000 lung cancer cases a year, with 80% of those being NSCLC and 75% resistant to checkpoint inhibitors, we model for a potential market size of approximately 70,000 patients, which would lead to we estimate peak revenues in excess of $1.5 billion in both the U.S. and E.U. Applying a 15% discount rate and a 25% probability of approval leads to a net present value of $145 million for INB03.
For XPro1595, we anticipate a Phase 1 study initiating in 2019, a Phase 3 trial starting in 2023, an NDA filing in 2026, and approval in 2027. There are currently approximately 5 million Americans suffering from AD, and that number will only increase with the aging population. We believe a successful Alzheimer’s treatment would be a definite blockbuster with peak sales of $3 billion. However, with all the clinical trial failures in AD we only assign a probability of 10% at this point. Using a 15% discount rate leads to a net present value for XPro1595 of $31 million.
For INKmune, we model for approval in ovarian cancer, however we realize that there are many other types of cancers for which the treatment could be beneficial. There are approximately 60,000 cases of ovarian cancer worldwide. We model for a Phase 1 study initiating in 2019, a Phase 3 study initiating in 2023, an NDA filing in 2025, and approval in 2026. We believe peak worldwide sales in ovarian cancer could be $1 billion, and we assign a 25% probability of approval. Using a 15% discount rate leads to a net present value for INKmune of $31 million.
Combining the net present values for each of the company’s assets along with the current cash balance and potential money from exercised warrants leads to a net present value for the company of $234 million. There are approximately 9.8 million common shares currently outstanding and when factoring in stock options and warrants a fully diluted share count of 12.3 million. Dividing the company’s net present value by the fully diluted share count leads to a valuation of $19 per share.
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