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goetzpartners securities Limited This equity research note was formally published on 30th November 2017 at 2.30pm. goetzpartners securities review on Probiodrug (PBD-NA): Q3 positive, Phase IIb on track Recommendation: OUTPERFORM Probiodrug provided a positive Q3 business update confirming that the Phase IIb clinical programme for lead compound PQ912 for Alzheimer's disease ("AD") remains on track. R&D expenses of EUR1.13m came in below Q1 and Q2 levels (due to the completion of the Phase IIa SAPHIR study) and below our estimates, suggesting a narrower FY 2017 net loss than we currently model. Reported cash of EUR11.7m should allow Probiodrug to fund operations through at least 2018 in the absence of a licensing deal. We reiterate our OUTPERFORM recommendation and TP of EUR91 per share, which is based on our net present value ("NPV") for PQ912 plus cash. We model a 15% chance of PQ912 achieving peak sales of c.$15bn in 2025E following launch in 2021E, with Probiodrug receiving total milestone payments worth $475m and 12% royalties on global sales from a partner. PQ912 Phase IIb programme on track Probiodrug announced in October that it had started preparations for the European Phase IIb trial (the second study will be in the US) for PQ912 in AD leveraging the infrastructure built up in the SAPHIR trial. The focus will be on finding the right dose that achieves high target inhibition and hence efficacy whilst minimising adverse events. Phase IIa SAPHIR data presented at the prestigious CTAD conference earlier this month showed encouraging first signs of efficacy in the context of synaptic improvement. The compound was also safe and well tolerated, although the discontinuation rate was slightly higher in patients treated with PQ912 due to skin and gastrointestinal side effects, which Probiodrug believes can be minimised by using a lower dose. PQ912 is a glutaminyl cyclase ["QC"] inhibitor that blocks the formation of highly neurotoxic and prevalent pGlu-Abeta, a key culprit in Abeta plaque formation - the hallmark of AD.
PQ912 is the most advanced pGlu-Abeta-focused compound in clinical development, ahead of Eli Lilly's anti-pGlu-Abeta mAb LY3002813 in Phase I. Partnering discussions with biopharma companies are ongoing and we remain confident that one or more licensing deals will be signed in 2018E. Our valuation is based on a deal based on total upfront and milestone payments of $475m plus 12% royalties on global sales to Probiodrug. A potential deal for preclinical compound PBD-C06 (anti-pGlu-Abeta mAb) is not currently captured in our model and would therefore represent further upside to our valuation for Probiodrug. PBD-C06 has a complementary mechanism of action and could therefore be used in combination with PQ912. This is strongly supported by studies conducted in highly relevant preclinical models.
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