Prostate cancer application gains momentum

Angle 21 March 2016 ADR Update

Angle

Prostate cancer application gains momentum

Company update

Pharma & biotech

21 March 2016

ADR research

Price

US$11.5

Market cap

US$68m

ADR/Ord conversion ratio 1:10

Net cash ($m) as at 30 October 2015

8.4

ADRs in issue

5.9m

ADR Code

ANPCY

ADR exchange

OTCQX

Underlying exchange

AIM

Depository

Bank of New York Mellon

ADR share price performance

52-week high/low

US$15.78

US$9.37

Business description

Angle is a pure-play specialist diagnostics company. The proprietary Parsortix cell separation platform can be used for the detection and harvesting of very rare cells from a blood sample, including circulating tumor cells (CTCs). The resulting liquid biopsy enables the analysis of these cells for precision cancer care.

Next events

Results from KOL studies in other cancer indications

H216

Start of enrolment for ovarian cancer clinical trial

H116

FY16 results

July 2016

Analysts

Jonas Peciulis

+44 (0)20 3077 5728

Lala Gregorek

+44 (0)20 3681 2527

Angle is a research client of Edison Investment Research Limited

Today Angle has announced results from a prostate cancer research study carried out by its KOL partner Barts Cancer Institute (BCI). The final data are yet to be published, but headline results indicate that Parsortix can potentially perform as well as or better than current standard of care in terms of detecting early-stage prostate cancer and assessing its severity, and can do so with a simple blood test. While this will require further clinical studies, it represents a likely second clinical application, in which Parsortix can substantially affect the management of cancer patients.

Year end

Revenue
($m)

PTP*
($m)

EPADR*
($)

DPADR
($)

P/E
(x)

Gross Yield
(%)

04/14

0.0

(2.9)

(0.34)

0.0

N/A

N/A

04/15

0.0

(5.1)

(1.08)

0.0

N/A

N/A

04/16e

0.5

(7.5)

(1.22)

0.0

N/A

N/A

04/17e

3.1

(4.7)

(0.74)

0.0

N/A

N/A

Converted at US$1.44 to £1. Investors should consult their tax advisor regarding the application of any domestic and foreign tax laws. *PTP and EPS are normalized. Changes compared to our last note are solely due to foreign exchange rate changes.

New prostate cancer data from BCI

Close cooperation with key opinion leaders (KOLs) is at the heart of Angle’s strategy in investigating the efficacy of the Parsortix cell separation system in diagnosing and treating various cancers. Angle’s partner BCI presented latest data from its prostate cancer study at the 10th ISMRC International Symposium on Minimal Residual Cancer: Liquid Biopsy in Cancer Diagnostics and Treatment in Hamburg on 19-21 March. While the full results will be published in upcoming months, headline data suggest Parsortix potentially is as good as or better than current standard of care tests in detecting and assessing the aggressiveness of the prostate cancer and, importantly, can achieve this with a simple blood test as opposed to the current invasive solid biopsy procedures.

Parsortix potentially outperformed standard of care

During the study the researchers found that Parsortix detected circulating tumor cells (CTCs) in 100% of the metastatic prostate cancer patients. Parsortix was able to harvest CTCs even from men with the early stage of the disease, who were under active surveillance where it was deemed that an intervention was not necessary. There was a good correlation between the number of mesenchymal CTCs harvested by Parsortix and the Gleason scores (see page 2) suggesting that Parsortix may be able to provide the same or similar information as the biopsy in assessing the aggressiveness of the cancer. Finally, the results suggest that Parsortix may be able to indicate the metastatic or localized status of the disease with a higher level of accuracy than the Gleason score, which is the established method for determining the aggressiveness of the cancer, but requires an invasive solid biopsy.

Valuation: DCF-based valuation of $137m

The results are encouraging and we expect Angle will provide an update on the strategy for prostate cancer in the coming months, which may bring clarity about commercialization. Once that is available, we will review our financial forecasts and the assumptions of our DCF-based valuation which, prior to adjustments for the new developments, is largely unchanged at $137m or $23.2/ADR (currency effect only).

Prostate cancer – potential second application for Parsortix

Prostate cancer is unique in its high mortality due to complications caused by metastases combined with a high prevalence of non-metastasized disease that does not necessarily lead to death. Many prostate cancer patients have low-risk disease and are on “watchful waiting” and the disease may not necessarily progress to advanced cancer. For example, in contrast with lung cancer, which accounts for 14% of new cases annually, but 28% of cancer deaths in men; prostate cancer accounts for 26% of new cases but only 9% of deaths (American Cancer Society). Historically, often false positive screening and fear of incurable and unpredictable metastasis led to overtreatment of localized disease and avoidable harm to patients. Therefore, better prediction and knowledge of the biology of metastasis can improve care across the spectrum.1

  B. Hu et al. Circulating Tumor Cells in Prostate Cancer. Cancers 2013, 5, 1676-1690; doi:10.3390/cancers 5041676.

Prostate cancer detection

Management of prostate cancer starts with screening, which is based on digital rectal exam and blood test for prostate-specific antigen (PSA), which so far has been the corner stone for the decision to refer patients to prostate biopsy. This is typically trans-rectal and in total can require up to 18 samples of tissues, which means 18 aspirations with a biopsy needle. Needless to say, a blood-based test is a much more convenient option. Overall, screening of prostate cancer is controversial to say the least. This is because PSA has low specificity and leads to large number of false positives, which results in a number of unnecessary biopsies. Indeed, estimates (cancer.gov) suggest that less than 10% of solid prostate biopsies indicate the need for treatment with around 80% showing a benign tumor. Over half of the identified malignant tumors require watchful waiting rather than treatment. On the other hand, solid prostate biopsy also poses challenges and may incorrectly draw conclusions relating to the aggressiveness of the disease.

Once a sample of prostate tissue has been obtained after the operation or biopsy, Gleason score is calculated based on the histological findings. It is one of the most established indicators of prognosis for prostate cancer patients. The Gleason score is composed of Gleason grades, which denote how abnormal the prostate cells look.

Where does the Parsortix system fit?

PSA lacks accuracy in reflecting disease burden and has low specificity, meaning that a lot of patients are unnecessarily referred to prostate biopsy. CTC analysis can fulfil the role of a biomarker by serving as an accurate, non-invasive measure of disease and can be followed throughout the course of the disease. In addition, the unreliability of PSA is a challenge in clinical trials, therefore a non-invasive biomarker could be well suited for use in clinical trials.

In many ways, CTC analysis is well suited to prostate cancer cases. However, to date, CTCs have been most extensively studied and qualified in advanced disease.1 CellSearch is the only FDA-approved circulating tumor-cell (CTC) capturing device approved for enumeration of CTCs including an application in prostate cancer. It isolates CTCs using magnetic particles coated with antibodies that bind to a cell surface marker called anti-epithelial cell adhesion molecule (EpCAM). Once extracted, CTCs are enumerated, which has been proven to have prognostic value for progression-free survival and overall survival in patients with breast, colon, prostate and lung cancers.2

  J. de Bono et al. Circulating Tumor Cells Predict Survival Benefit from Treatment in Metastatic Castration-Resistant Prostate Cancer. Clin Cancer Res 2008;14:6302-6309.

The data presented by the BCI indicate that Parsortix has the potential to be used much earlier in the disease. The exact process of metastasis is still unclear, but emerging data in this field point to epithelial mesenchymal transition (EMT) being involved. EMT is the process in which malignant epithelial cells gain migratory and invasive properties.1 Due to EMT circulating tumor cells may express fewer cell surface markers, like EpCAM. Therefore, antibody-based systems such as CellSearch limited to detecting epithelial markers could fail to detect spreading cancer. Parsortix uses a patented step-based microfluidic technology to capture CTCs on the basis of their size and compressibility, and therefore is not limited by cell marker bias. This puts Angle’s Parsortix system in a strong competitive position.

The EMT circulating tumor cells were the cells analyzed by BCI researchers using the Parsortix system to determine the aggressiveness of the disease. Since only headline results were released from the BCI study, it is premature to pinpoint the positioning of Parsortix in management of prostate cancer patients; however, two clear directions of use seem to be the detection of the cancer and the assessment of the aggressiveness, which impacts the interventional treatment. In particular the finding that Parsortix may be able to indicate the metastatic or localized status of the disease with a higher level of accuracy than the Gleason score looks to be striking, but will still need to be repeated in larger-scale trials.

Angle now intends to work with BCI and other cancer centers to conduct clinical studies to validate the use of the Parsortix system as a clinical application in the routine detection, assessment and treatment of prostate cancer patients. The company expects to take at least 18 months to complete the studies, while financial details remain undisclosed.

Prostate cancer could open multiple times larger market

We keep our valuation of Angle largely unchanged at $137m or $23.2/ADR (only impacted by foreign exchange rate since our last publication). Although we can see a substantial opportunity for Parsortix in prostate cancer, this application is still at an early stage, but today’s news is clearly a positive step forward. We believe that Angle will provide more details about the development strategy in this direction in the upcoming months, which is when we will revisit the possibility of adding it to our model.

As a reminder, this is a second clinical application gaining momentum. The trial with Parsortix helping to triage women with ovarian masses before surgery is due to start in partnership with the Medical University of Vienna in H116 (our expectation). In addition, metastatic breast cancer is being investigated in the US as a part of Parsortix’s FDA regulatory approval process.

In our valuation, we continue to include only the sales of the Parsortix system for use in research and clinical sales in ovarian mass triaging for operation. For comparison, we estimate c 600 thousand women underwent an operation due to adnexal masses globally. The prostate cancer population is substantially larger with c 220 thousand new cases in the US alone and over one million prostate biopsies per year in the US alone (cancer.gov). Based on the headline results from the BCI it is too early to exactly define the target population, but the finding that Parsortix correlates well with the Gleason score makes it potentially relevant for almost all stages of the disease and likely could be used repeatedly as a follow up. Currently there are c 2.9 million men living with some stage of the disease (American Cancer Society), which would represent an addressable population for Parsortix in the US alone.

Exhibit 1: DCF valuation

Key assumptions

NPV ($m)

Free cash flow model FY16-25e

25.7

Tapering growth free cash flows FY26-35e

52.3

Terminal value (2% growth rate assumed)

50.4

Total NPV

128.5

Net cash (Oct 30th 2015)

8.4

Valuation ($m)

136.9

Valuation/ADR($)

23.2

Discount rate

10%

Tax rate

20%

Key assumptions

Free cash flow model FY16-25e

Tapering growth free cash flows FY26-35e

Terminal value (2% growth rate assumed)

Total NPV

Net cash (Oct 30th 2015)

Valuation ($m)

Valuation/ADR($)

Discount rate

Tax rate

NPV ($m)

25.7

52.3

50.4

128.5

8.4

136.9

23.2

10%

20%

Source: Edison Investment Research

Exhibit 2: Financial summary

USD:GBP

1.44

$'000s

2013

2014

2015

2016e

2017e

Year-end April

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

1,395

0

0

491

3,147

Cost of Sales

0

0

0

(147)

(934)

Gross Profit

1,395

0

0

343

2,214

Research and development

(432)

(1,296)

(2,304)

(4,435)

(3,540)

EBITDA

 

 

(971)

(2,871)

(4,971)

(7,334)

(4,405)

Operating Profit (before amort. and except.)

(998)

(2,953)

(5,131)

(7,569)

(4,686)

Intangible Amortization

(443)

(143)

(294)

(516)

(544)

Share-based payments

(102)

(88)

(160)

(501)

(691)

Other

0

0

0

0

0

Operating Profit

(1,544)

(3,184)

(5,584)

(8,586)

(5,921)

Net Interest

60

19

13

48

22

Pre-tax Profit (norm)

 

 

(938)

(2,935)

(5,118)

(7,521)

(4,664)

Pre-tax Profit (FRS 3)

 

 

(1,484)

(3,165)

(5,571)

(8,538)

(5,900)

Tax

0

0

0

288

288

Discontinued operations

0

1,382

(26)

0

0

Net Income (norm)

(938)

(1,552)

(5,143)

(7,233)

(4,376)

Net Income (FRS 3)

(1,484)

(1,783)

(5,597)

(8,250)

(5,612)

0

0

0

0

0

Average Number of Shares Outstanding (m)

41

45

48

59

59

Average Number of ADRs Outstanding (m)

4

5

5

6

6

EPS - normalized ($)

 

 

(0.02)

(0.03)

(0.11)

(0.12)

(0.07)

EPS - normalized and fully diluted ($)

 

(0.02)

(0.03)

(0.11)

(0.12)

(0.07)

EPS - (IFRS) ($)

 

 

(0.04)

(0.04)

(0.12)

(0.14)

(0.09)

Earnings per ADS - normalized ($)

 

 

(0.23)

(0.34)

(1.08)

(1.22)

(0.74)

Earnings per ADS - normalized and fully diluted ($)

(0.23)

(0.34)

(1.08)

(1.22)

(0.74)

Earnings per ADS - (IFRS) ($)

 

 

(0.37)

(0.40)

(1.18)

(1.40)

(0.95)

Dividend per ADS ($)

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

N/A

N/A

N/A

70.0

70.3

EBITDA Margin (%)

N/A

N/A

N/A

N/A

N/A

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

5,154

2,710

2,264

1,829

1,353

Intangible Assets

1,555

1,644

1,655

1,294

878

Tangible Assets

199

201

609

535

475

Investments

3,400

865

0

0

0

Current Assets

 

 

5,489

6,160

13,893

6,587

2,600

Stocks

89

75

284

282

360

Debtors

654

472

1,452

700

862

Cash

2,632

5,613

12,158

5,604

1,378

Other

2,114

0

0

0

0

Current Liabilities

 

 

(870)

(929)

(1,629)

(1,344)

(1,803)

Creditors

(870)

(929)

(1,629)

(1,344)

(1,803)

Short term borrowings

0

0

0

0

0

Long Term Liabilities

 

 

0

0

0

0

0

Long term borrowings

0

0

0

0

0

Other long term liabilities

0

0

0

0

0

Net Assets

 

 

9,773

7,942

14,528

7,071

2,151

CASH FLOW

Operating Cash Flow

 

 

(1,945)

(2,735)

(4,915)

(6,528)

(4,187)

Net Interest

158

(6)

7

48

22

Tax

0

0

0

216

288

Capex

(200)

(120)

(468)

(161)

(220)

Acquisitions/disposals

222

6,229

181

0

0

Financing

2,974

(389)

11,739

0

0

Dividends

0

0

0

0

0

Net Cash Flow

1,208

2,981

6,545

(6,425)

(4,098)

Opening net debt/(cash)

 

 

(1,424)

(2,632)

(5,613)

(12,158)

(5,604)

HP finance leases initiated

0

0

0

0

0

Other

0

0

0

(128)

(128)

Closing net debt/(cash)

 

 

(2,632)

(5,613)

(12,158)

(5,604)

(1,378)

Source: Company accounts, Edison Investment Research. Note: Historic reported revenues relate to the legacy business which has now been divested. FY14 has been restated to exclude discontinued operations.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

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NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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