Outlookc3352932.r32.cf0.rackcdn.com/pdfca4127679b7f9bbe9... · Valuation: Risk-adjusted NPV of €88m . Exonhit has a current market cap of €40m and cash of €12.9m resulting in

Exonhit is a client of Edison Investment Research Limited

21 May 2012

Exonhit’s investment case is based on AclarusDx’s sales growth, marketing deals

and FDA approval. We believe that AclarusDx’s business case will be enhanced by

the regulatory approval of new targeted biological drugs for Alzheimer’s disease (AD)

in the next one/two years and its ability to find or exclude AD. Exonhit is introducing

AclarusDx for the diagnosis of AD. EHT Dx14 has successfully completed validation

clinical trials for the diagnosis of breast cancer, EHT 0202 has completed Phase IIa

trials for AD and EHT/AGN 0001 is in Phase II trials for neuropathic pain.

AclarusDx is being introduced in France AclarusDx was made available to French memory centres in April 2011, after

receiving a CE Mark, as an aid in the diagnosis of AD. AclarusDx could also be used

in AD clinical trials for selecting smaller homogeneous patient populations, which may

reduce development time and cost. Exonhit will market AclarusDx directly in France

but is seeking marketing partners and distributors for other EU countries and the US.

Ongoing French and new US AD patient observational studies will define AclarusDx’s

clinical utility in a real clinical setting and be used for discussions with the FDA.

EHT/AGN 0001 is in Phase II trials for neuropathic pain EHT/AGN 0001 is in Phase II trials for neuropathic pain. It was developed in

collaboration with Allergan and sub-licensed to Bristol-Myers Squibb (BMS). Exonhit

is entitled to clinical development and regulatory approval milestone payments

totalling $32m and sales royalty payments.

Financials: Funded to H113 Exonhit ended 2011 with cash of €12.9m, which should provide a sufficient runway

to conduct the AclarusDx clinical studies and target French neurologists.

Valuation: Risk-adjusted NPV of €88m Exonhit has a current market cap of €40m and cash of €12.9m resulting in an EV of

€27m. In comparison, we calculate a risk-adjusted NPV of €88m based on prudent

assumptions of the four products’ probability of success in each indication, launch

date, pricing and market penetration.

Outlook

Price €1.18 Market Cap €40m Share price graph

Share details Code ALEHT Listing NYSE Alternext Sector Pharmaceuticals & Biotech Shares in issue 34.1m

Price 52 week High Low €2.10 €0.75

Balance Sheet as at 31 December 2011 Debt/Equity (%) N/A NAV per share (c) 41.0 Net cash (€m) 12.9 Business Exonhit is a biotech company, focused on personalised medicine. It develops innovative diagnostic and therapeutic products, principally for cancer and Alzheimer’s disease.

Valuation 2011 2012e 2013e

P/E relative N/A N/A N/A

P/CF N/A N/A N/A

EV/Sales N/A N/A N/A

ROE N/A N/A N/A

Revenues by geography UK Europe US Other

0% 0% 100% 0%

Analysts Dr Wang Chong +44 (0)20 3077 5700 Robin Davison +44 (0)20 3077 5737 [email protected]

Exonhit Year End

Revenue (€m)

PBT* (€m)

EPS* (c)

DPS (c)

P/E (x)

Yield (%)

12/10 8.4 (8.9) (23.4) 0.0 N/A N/A

12/11 5.0 (7.9) (19.6) 0.0 N/A N/A

12/12e 5.0 (10.3) (25.9) 0.0 N/A N/A

12/13e 5.0 (11.0) (28.0) 0.0 N/A N/A

Note: *PBT and EPS are normalised, excluding goodwill amortisation and exceptional items.

Investment summary: Aiding Mnemosyne

2 | Edison Investment Research | Outlook | Exonhit| 21 May 2012

Investment summary: Aiding Mnemosyne

Company description: Alzheimer’s/cancer diagnostics/therapeutics Exonhit is a world leader in the analysis of alternative RNA splicing (a process in gene expression)

and uses this technology to develop innovative molecular diagnostic tests and therapeutics for AD

and cancer. Exonhit has both internal development programmes and strategic collaborations, in

particular, with Allergan and bioMérieux. Exonhit’s strategy is to develop and market its own

diagnostic products and to partner with large pharma to custom develop biomarkers and

companion diagnostics to reduce both duration and risk of drug clinical trials and also select likely

responders to marketed drugs. Exonhit also identifies therapeutic targets and develops drug

candidates in collaboration with large pharma partners. It has a strong intellectual property position

with 127 granted patents and 264 patent applications world-wide. Established in 1997, Exonhit

floated on the Alternext in 2005 and new management started in 2008. It has raised over €100m of

equity funding to date. The company has 51 employees in France and two employees in the US.

Exhibit 1: Exonhit’s R&D pipeline summary (clinical only) Product Indication Stage Development Notes AclarusDx AD diagnostic CE Marked FDA trial TBA Marketed in France since April 2011. EHT Dx14 Breast cancer Dx Validation study Completed in July 2011. EHT 0202 AD Seeking licensing partner Phase IIa trial completed in 2009. EHT/AGN 0001 Neuopathic pain Phase II In collaboration with Allergan and out-licensed to BMS.

Source: Edison Investment Research

Valuation: Risk-adjusted NPV of €88m Exonhit’s current EV of €27m (market cap of €40m minus €12.9m of cash) offers an attractive risk-

reward balance considering our current risk-adjusted NPV potential of €88m. This valuation

assumes industry standard probabilities of trial success for the product in each indication.

Successful EHT/AGN 0001 Phase II results in the near term and/or AclarusDx’s FDA approval

could attract a global marketing partner, which could result in a re-rating.

Sensitivities There is currently no peer-reviewed published data on AclarusDx but an article has been submitted

to a journal. Exonhit is also exposed to typical biotech/diagnostic company drug/technology

development risks, including the unpredictable outcome of trials. It has attempted to reduce this

risk by developing both diagnostics and therapeutics products and by targeting different

applications/indications. Development risk is also reduced by the lead diagnostic product being CE

Marked and introduced in France and through collaborations with multinational partners. However,

adoption of new medical technologies by physicians can be slow, requiring education and key

opinion leader endorsement. Collaboration partners can terminate contracts unexpectedly.

Financials: Funded to H2 2013 Exonhit reports twice yearly, in accordance with French GAAP. Exonhit reported cash of €12.9m

with a monthly burn rate of €500k as at 31 December 2011. In July 2011, Exonhit renewed the

TEPA financing undertaken in June 2010 to enable its shareholders to benefit from the ISF-TEPA

tax incentive. As a result the company raised €1.5m by issuing 782,718 new common shares. In 8

November 2011, the remaining convertible bonds issued by the company in 2006 matured and

were reimbursed. Exonhit is now debt free. There are 90,906 warrants outstanding to supervisory

board members with an exercise price of €2.28.

3 | Edison Investment Research | Outlook | Exonhit | 21 May 2012

Outlook: Sales growth and partnership deals Exonhit is relatively diversified in having both medical diagnostics and therapeutics divisions, which are

synergistic. It has a longstanding and profitable collaboration with Allergan to identify and develop

therapeutic candidates, such as EHT/AGN 0001. The company would like to continue and increase

the number of such therapeutic collaborations to fund the development and launch of its diagnostic

products in the short-term. In the medium to long term, it expects to derive the majority of its earnings

from its proprietary diagnostic products, such as AclarusDx and EHT Dx14. Exonhit has catalysts for

growth including:

• AclarusDx clinical studies and marketing deals. We believe that AclarusDx’s business

case will be enhanced by the regulatory approval of targeted biological drugs for

Alzheimer’s disease (AD) in the next one/two years; and

• EHT/AGN 0001 Phase II results.

In the molecular diagnostics division, AclarusDx for AD was awarded a CE Mark and launched in

France in 2011, EHT Dx14 successfully completed validation clinical trials for breast cancer and other

products are in early development. In the therapeutics division, EHT 0202 has completed Phase IIa

trials for AD, EHT/AGN 0001 is in Phase II trials for neuropathic pain and other products are in

preclinical development. EHT/AGN 0001, 0002 and 0003 are being developed for pain,

neurodegeneration and ophthalmic diseases in a 10-year old collaboration with Allergan, EHT/AGN

0001 and 0002 were sub-licensed by Allergan to BMS in 2010. A summary of the company’s R&D

pipeline is shown in Exhibit 2.

Exhibit 2: Exonhit’s R&D pipeline (detailed) Product Indication Stage Development Notes

AclarusDx (EHT Dx21)

Alzheimer’s disease diagnosis

CE Marked FDA trial TBA

Introduced in France as an aid to AD clinical diagnosis since April 2011. In Dec 2011, DIALOG, a new 600 AD patient, cross-sectional, non-interventional clinical study in France begun to evaluate the performance of AclarusDx in newly referred AD patients to French expert memory centres. A blood sample for the AclarusDx test will be collected at inclusion with other biological samples. Results expected: Q413. A US pilot observational study in 160 newly referred AD patients started in Dec 2011. Results expected: Q412, which will be used for discussion with the FDA regarding the clinical trial design required for regulatory approval. A French multicentre blind validation study of 164 individuals demonstrated a sensitivity of 81.3% and a specificity of 67.1%.

EHT Dx14 Breast cancer diagnosis

Validation study

Completed in July 2011. Sensitivity: 96.1% and specificity: 90.7%.

EHT 0202 Alzheimer’s disease

Phase IIa completed

Phase IIa trial completed in 2009. Seeking licensing partner to continue clinical development.

EHT/AGN 0001 (pos. BMS-954561)

Neuropathic pain

Phase II Collaboration with Allergan and out-licensed to Bristol-Myers Squibb. Details undisclosed by Exonhit, but we presume this to be BMS-954561, which is in Phase II trials for diabetic peripheral neuropathy and post-herpetic neuralgia. The primary endpoint of both studies is the average pain score compared with placebo. Results expected: Q212.

EHT/AGN002 Neuro-degeneration

Preclinical Collaboration with Allergan and out-licensed to Bristol-Myers Squibb. No details available.

EHT/AGN003 Oph/neuro* Preclinical Collaboration with Allergan. No details available.

Source: Edison Investment Research *Ophthalmic and and neurodegeneration

Alternative RNA splicing platform Exonhit therapeutic and diagnostic pipelines are derived from its proprietary human Genome Wide

Splice Array (hGWSA) technology, which compares transcriptome variations in patients with healthy

subjects to produce molecular signatures of disease or new therapeutic targets. RNA splicing is an

essential and precisely regulated post-transcriptional process that occurs prior to mRNA

translation. Alternative splicing occurs so that a gene can give rise to multiple proteins with different

activities, see Exhibit 3 for details.

http://clinicaltrials.gov/ct2/show/NCT01465360

http://clinicaltrials.gov/ct2/show/NCT01314222

http://www.clinicaltrials.gov/ct2/show/NCT01305538?term=post-herpetic+neuralgia&lead=bristol-myers+squibb&rank=1


Exhibit 3: Alternative RNA splicing background What is RNA?

Ribonucleic acid (RNA) is one of the three major macromolecules (along with DNA and proteins) that are essential for all known forms of life. Like DNA, RNA is made up of a long chain of components called nucleotides. Each nucleotide consists of a nucleobase, a ribose sugar, and a phosphate group. The sequence of nucleotides allows RNA to encode genetic information. All cellular organisms use messenger RNA (mRNA) to carry the genetic information that directs the synthesis of proteins. Some RNA molecules play an active role in cells by catalysing biological reactions, controlling gene expression, or sensing and communicating responses to cellular signals. One of these active processes is protein synthesis, a universal function whereby mRNA molecules direct the assembly of proteins on ribosomes.

What is alternative splicing?

Alternative splicing is a process by which the exons of the RNA produced by transcription of a gene (a primary gene transcript, transcriptome or pre-mRNA) are reconnected in multiple ways during RNA splicing. The resulting different mRNAs may be translated into different protein isoforms; thus, a single gene may code for multiple proteins. Alternative splicing occurs as a normal phenomenon in eukaryotes, where it greatly increases the biodiversity of proteins that can be encoded by the genome. In humans, around 95% of multiexonic genes are alternatively spliced. There are numerous modes of alternative splicing observed, of which the most common is exon skipping. In this mode, a particular exon may be included in mRNAs under some conditions or in particular tissues, and omitted from the mRNA in others.

Modes of alternative splicing

Five basic modes of alternative splicing are generally recognised, which result in different disease conditions: • Exon skipping or cassette exon: an exon may be spliced out of the primary transcript or retained. This is

the most common mode in mammalian pre-mRNAs. • Mutually exclusive exons: one of two exons is retained in mRNAs after splicing, but not both. • Alternative donor site: an alternative 5' splice junction (donor site) is used, changing the 3' boundary of

the upstream exon. • Alternative acceptor site: an alternative 3' splice junction (acceptor site) is used, changing the 5'

boundary of the downstream exon. • Intron retention: a sequence may be spliced out as an intron or simply retained. This is distinguished

from exon skipping because the retained sequence is not flanked by introns. This is the rarest mode in mammals.

Role of alternative splicing in disease

Abnormal variations in splicing are implicated in disease; a large proportion of human genetic disorders result from splicing variants. Abnormal splicing variants are also thought to contribute to the development of cancer, although such aberrant splicing products are usually safeguarded and eliminated by a post-transcriptional quality control mechanism.

Genome-wide analysis of alternative splicing

Genome-wide analysis of alternative splicing is a challenging task. Typically, alternatively spliced transcripts have been found by comparing expressed sequence tag (EST) sequences, but this requires sequencing of very large numbers of ESTs. Most EST libraries come from a very limited number of tissues, so tissue-specific splice variants are likely to be missed in any case. High-throughput approaches to investigate splicing fall into three categories: DNA microarray-based analyses, cross-linking and immunoprecipitation, and in vivo reporter gene assays. In microarray analysis, arrays of DNA fragments representing individual exons (eg Affymetrix exon microarray) or exon/exon boundaries (eg arrays from Exonhit or Jivan) have been used. The array is then probed with labeled complementary DNA (cDNA) from tissues of interest. The probe cDNAs bind to DNA from the exons that are included in mRNAs in their tissue of origin, or to DNA from the boundary where two exons have been joined. This can reveal the presence of particular alternatively spliced mRNAs. Deep sequencing technologies are also being used to perform genome-wide studies of transcript variation.


Exhibit 4: GWSA Collaborations Identify biomarkers and develop diagnostic tests Identify therapeutic targets and develop drug candidates Pharmacog Project funded by Innovative Medicines Initiative

Alzheimer’s disease BGI Next generation sequencing

Cleveland Clinic Alzheimer’s disease Allergan Neurodegeneration, pain, ophthalmic disease

Pfizer Alzheimer’s disease Genmab Breast cancer bioMérieux Prostate cancer Institut Gustave Roussy Breast cancer



RNA splicing is specifically deregulated in disease conditions. A precise understanding of these

deregulations using hGWSA can reveal new targets for the discovery of more efficacious drugs or

new biomarkers for the development of more accurate diagnostics. Exonhit’s strengths are its

proprietary hGWSA and competencies for personalised medicine, such as biology, medicinal

chemistry and genomics R&D; hGWSA’s unique capabilities include the ability to monitor the entire

gene transcript (5’ to 3’) to provide complete coverage, around 6m probes to monitor more than

150,000 mRNAs (standard arrays have 25-50,000 probes to monitor 25,000 genes), probes

designed to monitor exon body, exon junctions and exon-intron junctions, probes that detect

known and novel splice events and 6-18 oligonucleotides to monitor one splice event. The hGWSA

also has the advantage of being a mature platform for R&D activities and an approved platform for

in-vitro diagnostics (IVD); see Exhibit 4 for multiple collaborations.

AclarusDx is being introduced in France AD is the most common form of dementia; a group of symptoms associated with a decline in

cognitive abilities, such as memory and reasoning, and can cause an enormous burden of care,

see Exhibit 5 for details. Patients are currently diagnosed through a combination of various clinical

examinations and assorted imaging and biological tests; a relatively long process due to the

difficulty in making an accurate diagnosis, leading to a late diagnosis of the disease. The French

Gallez Report (2005) estimates that one out of three patients is diagnosed at a late stage of the

disease, one out of two at a moderate stage (46%) and three out of four (73%) at a severe stage.

Boise et al (2004) found that less than 50% of AD patients are currently diagnosed in the early

stages of AD, the patient sub-group most likely to benefit from a disease modifying therapy. The

UK’s National Institute for Clinical Excellence showed in 2011 that a diagnosis associated with an

early treatment could postpone loss of independence.

AD diagnostics has focused mainly on measuring levels of amyloid-β aggregates or tau proteins in

the CSF and neuroimaging via MRI or PET. Standard methods of and marketed rival products for

diagnosing AD have relatively low efficacy, see Exhibits 6 and 7, so are often used in combination.

Therefore, clinicians are striving to find new methods of improving AD diagnosis. There are a variety

of AD diagnostic products in development, see Exhibit 8, but one of the most comprehensive

studies is being conducted by AddNeuroMed, a European consortium, which is testing more than

10,000 samples from 700 AD patients by combining various plasma biomarkers, including

clusterin, with neuroimaging in a 10-year longitudinal study. Initial results of this consortium’s study

of AD compared to controls suggest a sensitivity of 86% and specificity of 95%.

AclarusDx is a blood-based test developed by comparing AD patients’ transcriptomes to those of

healthy subjects to identify an AD signature after gathering biomarkers linked to more than 130

genes, including those involved in AD inflammatory and immune mechanisms. AclarusDx

diagnoses AD based on the gene expression in peripheral blood cells. Blood samples are obtained

in the clinic using the AclarusDx collection set, then sent to Almac Diagnostics (the reference

laboratory) for processing using Exonhit’s hGWSA and array analysis software. A French

multicentre blind validation study of 164 individuals demonstrated a sensitivity of 81% and a

specificity of 67%, which is competitive with currently marketed products on a convenience to

accuracy ratio. AclarusDx could be used in combination with other existing diagnostic tests to

improve the overall efficacy of diagnosing AD, which may be demonstrated in the ongoing French

and US observational clinical studies (see Exhibit 2 for details).


Exhibit 5: Alzheimer’s disease background What is AD?

AD is an irreversible, progressive brain disease that slowly destroys memory and cognitive skills, and eventually even the ability to carry out the simplest tasks. It is the most common cause of dementia. AD attacks nerves, brain cells and neurotransmitters. The exact cause is unknown. Symptoms usually first appear after age 60 but is often associated with increasing age.

Incidence/ prevalence

Around 35.6m people worldwide were estimated to have dementia (2010), costing $315bn pa (2005). 5.4m Americans may have AD costing $188bn pa (2011); 750,000 British people may have AD, costing £20bn pa (2011); 860,000 French people have dementia, costing €9.9bn pa. Prevalence: 10% in over 65s and 50% in over 85s.

AD stages Mild, moderate and severe; MMSE score: 21-24, 10-20 and 9 or less respectively (Normal: MMSE score >25). Symptoms (progressive)

Early: Mild cognitive impairment (impaired memory and reasoning). Mild: confusion, poor memory and forgetfulness, mood swings and speech problems. Moderate: As for mild plus hallucinations, delusions, obsessive or repetitive behaviour, a belief that you have done or experienced something that never happened, disturbed sleep and incontinence. Severe: As for moderate plus difficulty swallowing, difficulty changing position or moving without assistance, weight loss or anorexia, increased vulnerability to infection, complete loss of short-term and long-term memory and self-neglect.

Diagnosis No basic test; a diagnosis of exclusion. Therefore, usually requires a combination of clinical and various tests. Clinical: Mini Mental State Examination (MMSE), Tests: brain CT and MRI scans +/- biological.

Treatment Mild to moderate (MMSE score 10-20): anticholinesterase inhibitors – donepezil, galantamine, rivastigmine. Moderate to severe (MMSE score 14 or less): memantine, NMDA receptor antagonist. Severe (MMSE score 9 or less): donepezil.


Exhibit 6: Standard methods of diagnosing AD Criteria Neuro-psychiatry CSF analysis Neuro-imaging Blood-based IVD Test

(AclarusDx) Resource constraint Yes Yes Yes No Time to result Days 1.5 months Days 3 weeks Ease of use ++ - - +++ Exam cost Fragmented and

indirect c. €1,500 MRI: €292,

PET: €1,200 <€900

Reproducibility of results - + - +++

Source: Edison Investment Research, Exonhit

Exhibit 7: Marketed rival AD diagnostic products Product/company ADtect (DiaGenic) Innotests (Innogenetics) AclarusDx Technology RT-PCR Immunoassays Genome arrays Sample Whole blood CSF Whole blood Population distinction AD vs controls,

excl. pts >80 years old AD vs non-AD AD vs controls

Performance Sn: 71.9%, Sp: 71.4% Sn: 80%, Sp: 79% Sn: 81.3%, Sp: 67.1% Launched Q410 1995-2002 Q111

Source: Edison Investment Research, Exonhit

Exhibit 8: Selected products in clinical trials for AD diagnosis Product Company Phase Class Results

Florbetapir Lilly/Avid Filed β amyloid diagnostic Due Florbetaben Bayer Phase III β amyloid diagnostic Q212 AZD4694 AstraZeneca/Navidea Phase II β amyloid diagnostic Q312 MK-3328 Merck & Co Phase I β amyloid diagnostic Q212


Exhibit 9: Selected AD treatments in Phase III trials Product Company Class Development notes

Bapineuzumab Pfizer Anti- β amyloid MAb

1100 pt, Phase III, randomised, double-blind, placebo-controlled, parallel-group efficacy and safety trial of bapineuzumab in mild to moderate AD apolipoprotein E ε4 carriers. Primary endpoint: ADAS-Cog score, disability assessment for dementia total score. Results: Q313. Similar trial in 1000 AD apolipoprotein E ε4 non-carriers. Results: Q314.

Solanezumab Lilly Anti- β amyloid MAb

1275 pt, continued efficacy and safety monitoring of solanezumab, in AD patients. Primary endpoints: vital signs laboratory values, electrocardiograms. Results: Q314.

Immune globulin intravenous

Baxter β amyloid vaccine

402, Phase III, randomised, double-blind, placebo-controlled study of the safety and effectiveness of immune globulin intravenous (human), 10% Solution (IGIV, 10%) for mild to moderate AD. Primary endpoint: ADAS-Cog score, ADCS- ADL inventory. Results: Q414.

SK-PC-B70M SK Chemicals

Pulsatilla koreana extract

256 pt, Phase III, randomised, double-blind, placebo-controlled, parallel-group, efficacy and safety trial of SK-PC-B70M in mild to moderate AD. Primary endpoint: ADAS-Cog score. Results: Q212.



Exhibit 10: Selected pharmaceutical/diagnostic partnerships in AD Pharma company Diagnostics company Partnership type Diagnostic method

Pfizer/J&J Avid Radiopharmaceuticals

Venture investment and clinical trial collaboration

PET ligand binding to amyloid-β

Lilly Avid Radiopharmaceuticals

Acquisition for $300m upfront and up to $500m milestones

PET ligand binding to amyloid-β

AC Immune Bayer Clinical trial PET ligand binding to amyloid-β J&J GE Health Joint investment PET and MRI based tools Lilly C2N Diagnostics R&D grant Radiolabelled amyloid-β/tau CSF

production/turnover Merck Neuroptix Venture investment Amyloid-β measurement in retiina Merz Pharma DiaGenic R&D partnership Blood-based PCR for AD affected multiple RNAs Pfizer DiaGenic R&D partnership Blood-based PCR for AD affected multiple RNAs GE Healthcare DiaGenic R&D partnership Blood-based PCR for MCI affected RNAs with PET


AclarusDx received a CE Mark in March 2011 and was introduced in France in April 2011 as an aid

in the diagnosis of AD. It could also be used in AD clinical trials for selecting smaller homogenous

patient populations, which may reduce development time and cost. We believe that AclarusDx’s

main value is not as a general population screening tool but as an IVD device to aid neurologists to

diagnose early AD to select the right patients for earlier and targeted treatment, and more

importantly as a research use only device to aid pharmaceutical companies to recruit the right

patients for clinical trials. AclarusDx’s sales could be enhanced significantly by the regulatory

approval of new exciting, targeted biological drugs for AD in the next one/two years, such as

Pfizer’s bapineuzumab and Lilly’s solanezumab, which will probably need to identify the AD sub-

groups that will respond to these expensive drugs, see Exhibit 9. For these reasons,

pharmaceutical companies are already partnering or acquiring AD diagnostic companies, see

Exhibit 10 for examples. Snyder et al (2012) calculated that if a biomarker reduces a drug’s Phase

III trial costs by 25%, the drug’s NPV could increase by 2.7% and if the AD diagnosis rate improves

by 10%, drug sales could rise by 10% with the corresponding NPV increasing by 10.9%.

Exonhit is currently introducing AclarusDx in France only with its own sales person but will be

seeking marketing partners and distributors for other EU countries and the US. Initial marketing in

2011 through the DIALOG study, was targeted at French key opinion leaders (KOL) in 19 of the 25

expert memory centres and will be extended in 2012 to 15 of the 300 memory centres with the

highest AD patient throughput and reputation, which are networked to the expert memory centres.

In France, the KOLs treat most of the annual 225,000 new AD patients. Ongoing 600 French and

160 new US AD patient observational studies will define AclarusDx’s clinical utility in a real clinical

setting and be used for discussions with the FDA regarding the clinical trials required for FDA

approval, see Exhibit 2 for study details. The results of these studies could be used for a global

product launch and to attract a major global marketing partner.

EHT Dx14 is being developed for the diagnosis of breast cancer Breast cancer is often the commonest cancer in women in Western countries and has a high

mortality rate, see Exhibit 11 for details. There are currently no rival diagnostic tests available;

diagnosis is by traditional biopsy of the breast lump and/or axillary lymph nodes followed by

histopathology. Following the promising validation trial results in July 2011 with a specificity of

90.7% and sensitivity of 96.1% (Exhibit 12), Exonhit is currently assessing its options for an IVD

device before applying for regulatory approval.


Exhibit 11: Breast cancer background Incidence 2008 incidence varies: Western Europe: 89.7 per 100,000 and North America: 76.7 per 100,000

2011 US female incidence: 230,480 and deaths: 39,520. 2008 EU incidence: 332,670. Diagnosis Screening: mammogram, ultrasound and MRI scans and genetic testing of high-risk families: 5-10% may have a

mutation of the BRCA1 and BRCA2 genes with an estimated lifetime risk of developing breast cancer of 40-85% and an increased risk of ovarian cancer and possibly other primary cancers. Diagnosis: biopsy of breast lump +/- lymph nodes.

Classification TNM: Stages I (small and localised) to IV (metastases) Grade: low, intermediate, high. Molecular profiling: basal-like, HER2+, normal, luminal A, luminal B; including ER and PR status, HER2/neu receptor status, genetic profile.

Treatment Surgery +/- radiotherapy, hormone (for oestrogen receptor positive), chemotherapy (for metastases) and biological (for HER2 receptor positive).


Exhibit 12: EHTDx 14’s trial results for the diagnosis of breast cancer Study Results Early A 2009 study of 165 fine needle aspiration (FNA) breast samples (120 tumours and 45 benign) obtained by the

Institut Gustave Roussy were used to generate a molecular classification for breast cancer diagnosis (n=94). The molecular predictor in the validation set (n=71) accurately classified 68 of 71 tumours (96%).

Validation Completed in July 2011. EHT Dx14 clinical validation was a two-stage process. It first demonstrated in an independent set of 47 malignant and 47 benign FNA breast samples from the Institut Gustave Roussy, diagnosed by standard analysis, a specificity of 91.5% and a sensitivity of 97.9%. In the second stage, the tests added value in discriminating 55 cytologically inconclusive samples showed a specificity of 81.8% and a sensitivity of 77.3%. By projection, taking into account the expected frequency of uncertain diagnosis in the general population, EHT Dx14’s adjusted global performance is 93.4% (post hoc analysis) with a specificity of 90.7% and sensitivity of 96.1%.


EHT 0202 has completed Phase IIa trials for AD EHT 0202 (etazolate hydrochloride) is a novel compound with potential for both AD disease-modifying

and symptomatic treatment. It stimulates the α-secretase pathway, thus, enhancing the production of

the procognitive and neuroprotective sAPPα fragment of amyloid precursor protein (APP). Stimulating

the α-secretase pathway potentially reduces toxic Aβ amyloid peptide production and, therefore, Aβ

plaque formation. EHT 0202 is also a GABA-A receptor modulator and a PDE-4 inhibitor.

EHT 0202 completed Phase IIa trials in 2009. The 159 patient, randomised, double-blind, placebo-

controlled Phase IIa trial in mild to moderate AD patients in 23 centres across France showed that oral

EHT 0202 40mg and 80mg twice daily as adjunctive therapy to one acetylcholinesterase inhibitor for

three months were safe and generally well tolerated. EHT 0202-treated patients showed encouraging

signs of cognitive improvement, as measured by ADAS-Cog and the ApoE4 positive subpopulation

was also observed in some assessments, including ADAS-Cog, to respond better to EHT 0202

treatment. However, the trial was not powered or designed to show efficacy.

In 2010, Exonhit identified a blood-based transcriptomic signature that could allow pre-treatment

stratification of patients who would benefit from EHT 0202 treatment from those who would not

respond. The use of such a signature during further clinical development could significantly increase the

likelihood of successfully achieving study endpoints and help to identify the most relevant patient

populations for EHT 0202. Exonhit is currently seeking a partner to conduct the Phase IIb trial.

However, we believe that the out-licensing of this product will be a challenge and have not included

EHT 0202 in our valuation model.

EHT/AGN 0001 is in Phase II trials for neuropathic pain Peripheral neuropathy (PN) is the term for damage to nerves of the peripheral nervous system (nerves

that run from the brain and spinal cord to the rest of the body), which may be caused either by disease,

trauma to the nerve, or the side-effects of systemic illness and can cause significant pain and disability,

(Exhibits 13 and 14). There are several products in late-stage clinical development for PN (Exhibit 15).


EHT/AGN 0001, the lead compound synthesised within the 10-year old Allergan collaboration, and

EHT/AGN 0002, which is being developed for pain, neurodegeneration and ophthalmic diseases were

sub-licensed by Allergan to BMS in March 2010. Exonhit’s collaboration with Allergan was renewed in

2011 until December 2013. The sub-licensed compounds were originally designed and synthesised by

ExonHit’s medicinal chemistry team and it has taken less than four years to go from target identification

to the delivery of a clinical product.

Exhibit 13: Peripheral neuropathy background What is PN?

Peripheral neuropathy (PN) is the term for damage to nerves of the peripheral nervous system, which may be caused either by diseases (such as herpes simplex, zoster and leprosy), trauma to the nerve, or the side effects of systemic illness (including diabetes, chemotherapy and HIV).

Incidence/ prevalence

Prevalence is about 2.4% of the population rising with age to 8% or 15m Americans. AmiKet’s target US market is 4.7m with a market potential of US$3.2bn.

Symptoms Symptoms depend on the nerve types affected (motor, sensory, or autonomic) and where the nerves are in the body; one or more type of nerve may be affected. Damage to the motor nerve can cause muscle weakness, cramps and spasms, which may cause loss of balance and coordination. Damage to the sensory nerve can produce tingling, numbness, and pain.

Treatment Many PN treatment strategies are symptomatic and depend on the underlying cause. Commonly-used treatments include antidepressants (such as tricyclics [amitriptyline] and serotonin-norepinephrine reuptake inhibitors [duloxetine]) and antiepileptics (such as gabapentin, pregabalin or sodium valproate). Transcutaneous electrical nerve stimulation (TENS) therapy may be effective and safe in the treatment of diabetic peripheral neuropathy.


Exhibit 14: Background of diabetic and post-herpetic peripheral neuropathies Disease Background

Diabetic neuropathy

In Western countries, the most common cause of PN (7%) is diabetes mellitus, affecting around 30% of hospital and 20% of community diabetics, which can produce PN, disabling foot ulcers, and death from autonomic neuropathy. DPN is implicated in 50-75% of non-traumatic amputations. Diabetes mellitus afflicts more than 14m in the US. The NIH estimates that 8.3% of Americans have diabetes or 25.8m but only 18.8m are diagnosed. In comparison, Diabetes UK estimates 4.26% of the UK population is diabetic.

Post-herpetic neuralgia

Herpes zoster (HZ; shingles) affects an estimated 800,000 Americans annually, most of whom are elderly or immunosuppressed. Around 25-50% of adults older than 50 years develop PHN (defined as pain at three months after rash onset). HZ results from reactivation of varicella–zoster virus that has been dormant in the spinal and cranial sensory ganglia following primary infection with varicella (chickenpox), usually during childhood. In developed countries more than 95% of the adult population are seropositive for varicella–zoster virus and are therefore at risk of developing HZ. Reactivation can occur at any age, but it is associated with an age-related decline in cell-mediated immunity and therefore occurs more frequently in older adults. Thus, HZ affects up to 25% of individuals during their lifetime, but approximately 50% of those aged >80 yrs. HZ is associated with a number of acute symptoms such as a vesicular rash and pain and chronic complications include visual disturbances and PHN, which may require hospitalisation. Current management of HZ with antiviral drugs and analgesics has good efficacy in younger patients, particularly for acute pain and skin rash, but not for PHN, which occurs more commonly and more severely in older patients. Once PHN has developed, current treatments offer only limited benefit and adverse effects are common, less than 50% of patients gain 50% pain relief.


Exhibit 15: Selected products in Phase III trials for DPN and PHN Product Company Notes

Pregbalin Pfizer 1,000-pt Phase IIIb study of pregabalin in inadequately treated painful DPN. Primary endpoint: mean pain score from the daily pain diary over 19 weeks. Results: Q112. 175-pt Phase IIIb study of pregabalin for pain on walking in DPN. Primary endpoint: reduction in DPN pain over 14 weeks. Results: Q313. 612 pt, 11-week study of pregabalin (300mg/day) using a fixed dosing schedule in painful DPN. Primary endpoint: mean pain score based on the pain scores from the subject's daily pain rating scale from baseline to week 9. Results Q413. 300-pt study of pregabalin in painful DPN with background NSAID treatment for other pain conditions. Primary endpoint: mean pain score, based on the mean of the last 7 daily pain numeric rating scale (NRS) scores from the daily pain diaries while receiving study medication in each treatment period over 6 weeks. Results Q413. 290-pt Phase III study of once daily controlled release pregabalin in PHN. Primary endpoint: time to loss of therapeutic response (LTR), defined as <30% pain response relative to the baseline phase or patient discontinuation due to lack of efficacy or adverse events over 13 weeks. Results: Q312.

Qutenza (capsaicin patch)

Astellas 360 pt, Phase III study evaluating the efficacy and safety of Qutenza in DPN. Primary endpoint: Percent change in the average daily pain score from baseline through weeks 2-8. Results: Q113.

Topical Capsaicin

Bangkok Drug Co

40-pt Phase II/III trial of topical capsaicin in treatment of painful DPN. Primary endpoint: pain relief from pain score reduction, using visual analogue scale (VAS). Results due: Q312.

Eslicarbazepine acetate (BIA 2-093)

Bial - Portela CSA

468-pt Phase III study of eslicarbazepine acetate in DPN. Primary endpoint: response to a 11 point Numerical Rating Pain Scale (NRPS) relating to pain intensity; used to generate the primary efficacy variable of change from baseline to endpoint in mean pain.Results: Q312. 392-pt Phase III study of eslicarbazepine acetate in PHN. Primary/secondary endpoints: same as DPN trial. Results due: Q412.



During H111, BMS initiated Phase II trials of EHT/AGN 0001 for the treatment of neuropathic pain.

Exonhit received a $4m upfront payment in 2010 and is entitled to receive clinical development and

regulatory approval milestone payments totaling $32m and sales royalty payments. See Exhibit 1 for

trial details. Results are expected in Q312.

Sensitivities

Exonhit is exposed to the usual biotechnology company development risks, including the

unpredictable outcome of clinical trials, reliance on partners and ability to secure new commercial

partners on attractive economic terms. In the near term, Exonhit will need an EHT/AGN 0001

milestone payment from BMS for successful Phase II trial results in Q312, another profitable

therapeutic collaboration deal with a large pharmaceutical company and to generate AclarusDx

revenues to reduce the need to keep raising more capital from shareholders to fund operations.

Another partnership deal, regulatory approval or rapid AclarusDx sales growth should achieve a

significant re-rating in valuation.

Valuation Exonhit’s EV is currently €27m, reflecting its market cap of €40m and end December cash of

€12.9m. In comparison, we calculate a risk-adjusted net present value of €88m using a 12.5%

discount rate. This valuation model is based on prudent assumptions of each product’s probability

of success, launch date, pricing and market penetration. This valuation assumes probabilities of

trial success in four different indications in line with industry norms. No upfront or milestone

payments from a licensing partner have been assumed in our model, as per our policy. A

partnership deal with a major medical diagnostic or pharmaceutical company would increase

Exonhit’s valuation significantly.

Our valuation model comprises the assumptions illustrated in Exhibit 16 and an AclarusDx full

service price of €850 per patient. We currently forecast that more than 90% of Exonhit’s value is

derived from AclarusDx. We have not included any value for EHT 0202 since we believe that the

out-licensing of this product will be a challenge.

Exhibit 16: Assumptions used in the valuation model Product Stage Prevalence

(US, EU) Peak

penetration Year of peak Probability of

success AclarusDx EU Marketed 4.7m 10% 2019 100% AclarusDx US Awaiting FDA trial 5.4m 10% 2021 30% EHT Dx14 Validation trial completed 0.35m 10% 2020 30% EHT/AGN 0001 Phase II 12m 10% 2022 20%


Financials Exonhit reports twice-yearly accounts in euros in French GAAP. The company ended 2011 with

cash of €12.9m and a monthly burn rate of €500k. Most revenues are derived from the Allergan

partnership. The burn rate should be lower after closing the US laboratory and consolidating R&D

in Paris in 2011. Exonhit spent €7.7m on R&D in 2011, 59% of operating costs.

Exonhit raised €1.4m (net) in 2011, from issuing shares at €1.92 under the TEPA financing scheme.

Our model suggests the company should have enough cash for 2012 but assumes TEPA financing

of €1.5m in July 2012 and 2013.


Exhibit 17: Financials


€'000s 2010 2011 2012e 2013 e 2014eYear end 31 December FAS B FAS B FAS B FAS B FAS BPR OFIT & LOS S R evenue 8 ,418 4,9 9 3 5,000 5,000 5,000Cost of Sales 0 0 0 0 0Gross Profit 8 ,418 4,993 5,000 5,000 5,000EB ITDA (6 ,9 74) (8 ,09 5) (10,259 ) (11,03 1) (11,8 8 0)Opera ting Prof i t (be fore GW and except.) (6 ,9 74) (8 ,09 5) (10,259 ) (11,03 1) (11,8 8 0)Intangible Amortisation 0 0 0 0 0Exceptionals 0 (-491) 0 0 0Other (144) 227 0 0 0Opera ting Prof i t (7,118 ) (8 ,3 59 ) (10,259 ) (11,03 1) (11,8 8 0)Net Interest (1,959) 157 0 0 0Prof i t B e fore Tax (norm) (8 ,9 3 3 ) (7,9 3 8 ) (10,259 ) (11,03 1) (11,8 8 0)Prof i t B e fore Tax (FR S 3 ) (9 ,077) (8 ,202) (10,259 ) (11,03 1) (11,8 8 0)Tax 1,329 1,103 1,329 1,329 1,329Prof i t Af te r Tax (norm) (7,748 ) (6 ,6 08 ) (8 ,9 3 0) (9 ,702) (10,551)Prof i t Af te r Tax (FR S 3 ) (7,748 ) (7,09 9 ) (8 ,9 3 0) (9 ,702) (10,551)

Average Number of Shares Outstanding (m) 33.1 33.7 34.5 34.6 34.6EPS - normalised (c) (23.4) (19.6) (25.9) (28 .0) (30.5)EPS - FRS 3 (c) (23.4) (21.1) (25.9) (28 .0) (30.5)Dividend per share (c) 0.0 0.0 0.0 0.0 0.0

B ALANCE S HEETFixed As s ets 1,772 1,040 1,143 1,257 1,3 8 2Intangible Assets 0 6 6 6 6Tangible Assets 1,772 1,034 1,137 1,251 1,376Investments 0 0 0 0 0Current As s ets 29 ,49 0 16 ,56 3 9 ,224 11,121 7,18 0Stocks 3,8 8 3 2,607 2,8 68 3,154 3,470Debtors 0 1,031 1,000 1,000 1,000Cash 25,607 12,925 5,356 6,967 2,710Current L iabi l i t ies (3 ,9 9 9 ) (3 ,405) (9 9 6 ) (1,09 5) (1,205)Creditors (3,999) (3,405) (996) (1,095) (1,205)Short term borrowings 0 0 0 0 0Long Term Liabi l i t ies (8 ,071) 0 0 (10,000) (15,000)Long term borrowings (6,522) 0 0 (10,000) (15,000)Other long term liabilities (1,549) 0 0 0 0Net As s ets 19 ,19 2 14,19 8 9 ,3 71 1,28 3 (7,6 42)

CAS H FLOWOperating Cas h F low (7,748 ) (10,9 44) (10,3 9 8 ) (11,218 ) (12,08 6 )Net Interest 0 0 0 0 0Tax 1,329 1,103 1,329 1,329 1,329Capex 0 0 0 0 0Acquisitions/disposals 0 0 0 0 0Financing 965 1,364 1,500 1,500 1,500Dividends 0 0 0 0 0Net Cash Flow (5,454) (8 ,477) (7,569) (8 ,38 9) (9,257)Opening net debt/(cas h) (23 ,723 ) (19 ,08 5) (12,9 25) (5,3 56 ) 3 ,03 3HP finance leases initiated 0 0 0 0 0Other 8 16 2,317 0 0 0Clos ing net debt/(cas h) (19 ,08 5) (12,9 25) (5,3 56 ) 3 ,03 3 12,29 0


Growth Profitability Balance sheet strength Sensitivities evaluation

N/A

N/A

Litigation/regulatory

Pensions

Currency

Stock overhang

Interest rates

Oil/commodity prices

Growth metrics % Profitability metrics % Balance sheet metrics Company details

EPS CAGR 09-13e N/A ROCE 12e N/A Gearing 12e N/A Address:

EPS CAGR 11-13e N/A Avg ROCE 09-13e N/A Interest cover 12e N/A 65 Boulevard Masséna F-75013 Paris, France EBITDA CAGR 09-13e N/A ROE 12e N/A CA/CL 12e N/A

EBITDA CAGR 11-13e N/A Gross margin 12e N/A Stock turn 12e N/A Phone +331 5394 7700

Sales CAGR 09-13e N/A Operating margin 12e N/A Debtor days 12e N/A Fax +331 5394 7707

Sales CAGR 11-13e N/A Gr mgn / Op mgn 12e N/A Creditor days 12e N/A www.Exonhit.com

Principal shareholders % Management team

Oxford Bioscience Partners 7.61 President: Loïc Maurel, MD

Pro BTP 2.93 Appointed July 2008. Previous roles include president and CEO of Debiovision, VP of marketing and specialty business for Novartis in Canada, various sales/marketing roles at Novartis and Rhône-Poulenc. Former chairman of Oncomab and board director of Avance Pharma and BIOQuebec.

Federal Gestion 1.13

Natrixis Asset Management 0.55

Exonhit Therapeutics SA 0.14

HSBC Asset Management Europe SA 0.10 CFO: Hervé Duchesne de Lamotte, MBA, MSc

LBPAM 0.10 Appointed 2009. Previous roles included managing Cirrus Finance Management, COO of IDM Paris, CFO of the IDM Group and positions at a Paris-based asset management firm and various consultancy firms. Former board director of France Biotech.

Forthcoming announcements/catalysts Date *

EHT/AGN 0001 Phase II trial results Q212

AclarusDx US observational study results Q412 Executive VP Diagnostics: Isabelle Barber, PhD, MBA

Appointed in 2010. Previous roles included marketing and other roles at Ortho Clinical Diagnostics, director of Chemistry at Genset and R&D senior scientist at Isis Pharmaceuticals.

Executive VP Therapeutics: Mathew Pando, PhD, BSc

Joined in 2002 and appointed in 2008. Areas of expertise are early discovery and development in neurodegenerative diseases and oncology.

Companies mentioned in this report.

Allergan, Bristol-Myers Squibb, Pfizer, bioMérieux, Genmab, BGI, Institut Gustave Roussy, Cleveland Clinic

at

-5 ,000

0

5,000

10,000

15,000

20,000

25,000

2010 2011 2012e 2013e

Net

cas

h (€

'000

s)

Edison Investment Research Lincoln House, 296-302 High Holborn, London, WC1V 7JH tel: +44 (0)20 3077 5700 fax: +44 (0)20 3077 5750 www.edisoninvestmentresearch.co.uk Registered in England, number 4794244. Edison Investment Research is authorised and regulated by the Financial Services Authority.

EDISON INVESTMENT RESEARCH LIMITED Edison Investment Research is a leading investment research company. It has won industry recognition, with awards both in the UK and internationally. The team of 90 includes over 55 analysts supported by a department of supervisory analysts, editors and assistants. Edison writes on more than 350 companies across every sector and works directly with corporates, fund managers, investment banks, brokers and other advisers. Edison’s research is read by institutional investors, alternative funds and wealth managers in more than 100 countries. Edison, founded in 2003, has offices in London, New York and Sydney and is authorised and regulated by the Financial Services Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584).

DISCLAIMER Copyright 2012 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Exonhit and prepared and issued by Edison Investment Research Limited for publication in the United Kingdom. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison Investment Research Limited at the time of publication. The research in this document is intended for professional advisers in the United Kingdom for use in their roles as advisers. It is not intended for retail investors. This is not a solicitation or inducement to buy, sell, subscribe, or underwrite securities or units. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment. A marketing communication under FSA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison Investment Research Limited has a restrictive policy relating to personal dealing. Edison Investment Research Limited is authorised and regulated by the Financial Services Authority for the conduct of investment business. The company does not hold any positions in the securities mentioned in this report. However, its directors, officers, employees and contractors may have a position in any or related securities mentioned in this report. Edison Investment Research Limited or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. This communication is intended for professional clients as defined in the FSA’s Conduct of Business rules (COBs 3.5).

Documents

Outlookc3352932.r32.cf0.rackcdn.com/pdfca4127679b7f9bbe9... · Valuation: Risk-adjusted NPV of €88m . Exonhit has a current market cap of €40m and cash of €12.9m resulting in