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.
4 | Edison Investment Research | Outlook | Exonhit | 21 May 2012
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.
Source: Edison Investment Research
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
Source: Edison Investment Research
5 | Edison Investment Research | Outlook | Exonhit | 21 May 2012
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).
6 | Edison Investment Research | Outlook | Exonhit | 21 May 2012
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.
Source: Edison Investment Research
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
Source: Edison Investment Research
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.
Source: Edison Investment Research
7 | Edison Investment Research | Outlook | Exonhit | 21 May 2012
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
Source: Edison Investment Research
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.
8 | Edison Investment Research | Outlook | Exonhit | 21 May 2012
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).
Source: Edison Investment Research
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%.
Source: Edison Investment Research
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).
9 | Edison Investment Research | Outlook | Exonhit | 21 May 2012
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.
Source: Edison Investment Research
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.
Source: Edison Investment Research
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.
Source: Edison Investment Research
10 | Edison Investment Research | Outlook | Exonhit | 21 May 2012
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%
Source: Edison Investment Research
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.
11 | Edison Investment Research | Outlook | Exonhit | 21 May 2012
Exhibit 17: Financials
Source: Edison Investment Research
€'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
12 | Edison Investment Research | Outlook | Exonhit | 21 May 2012
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
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15,000
20,000
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2010 2011 2012e 2013e
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