This research note is provided by Alpha Deal Group LLC. Alpha Deal works for buyside clients on special situation deal intelligence in select regional capital markets on mispriced equity idea generation, deal sourcing and deal networking introductions.
ImmuPharma plc (IMM.L) is a United Kingdom-based drug development company that is focused on developing drugs based on peptide therapeutics to treat serious medical conditions such as autoimmune diseases. We examine ImmuPharma and offer analysis of their current path to possible commercial success and insight into their current valuation.
During Alpha Deal Group’s initial due diligence call with ImmuPharma, CEO Dmitri Dimitriou outlined that the company has five candidates in the drug development pipeline. The most advanced is a potential blockbuster treatment for lupus named Lupuzor™, which has been granted approval by the FDA to commence Phase III trials with a Fast-Track designation together with a Special Protocol Assessment (SPA).
ImmuPharma has also been granted exclusive global rights to exploit commercially certain discoveries it develops with the CNRS (Centre National de la Recherche Scientifique), the largest fundamental research organization in Europe.
Significant commercial opportunity
Lupus is a chronic inflammatory disease, sometimes fatal, associated with disorders of the immune system. ImmuPharma’s Lupuzor™ modulates the immune system specifically to correct the abnormality in lupus. Lupuzor™ leaves the rest of the immune system intact to defend the body and has significant advantages compared to other current treatments that either have serious side effects or limited effectiveness.
The recent approval of GlaxoSmithKline’s Benlysta,the first FDA-approved drug for the treatment of lupus in over 50 years, paves the way for Lupuzor™.
The Lupus Foundation of America estimates that at least 1.5 million Americans have lupus. With a target price around $10,000-$20,000 per patient per year, that is less than half the cost of the current available option costing approximately $40,000 per patient per year. It is also estimated that at least five million people worldwide have some form of the condition. Considering that not all patients would have access to Lupuzor™, we could see the drug’s end market being at least one million patients.
History of Lupuzor™
ImmuPharma licensed Lupuzor™ to Cephalon in 2008 in a deal worth up to $500 million in milestones plus tiered royalties. Cephalon paid $45 million to ImmuPharma, with Cephalon assuming all responsibilities and costs for development and commercialization worldwide. Cephalon was then acquired by Teva in 2011 with ImmuPharma regaining all rights to Lupuzor™ due to the acquisition’s “change of control.”
Dimitriou said the company’s primary objective now is to proceed with Phase III trials with a development partner. However, the company has also secured a no-obligation £50 million equity financing facility that would enable it to proceed through Phase III trials independently.
Other candidates
Apart from Lupuzor™, ImmuPharma also has also an excellent candidate for the treatment of various types of cancer such as breast cancer, prostate cancer, melanoma, glioblastoma, leukemia, colon cancer and pancreatic cancer – called IPP-204106.
Dimitriou also said the promising cancer drug IPP-204106 has a dual mechanism of action – preventing both angiogenesis and proliferation. A Phase I/IIa trial was successfully completed last year that met its primary (safety) endpoints: 6 of 14 patients (42%) with progressive disease demonstrating stabilization. The PhaseI/IIa clinical trial currently continues with the next generation “polyplexed Nucant” formulation in three European hospitals including the prestigious Institute Jules Bordet in Belgium. The trial’s key objective is to identify optimal dose for treating patients before the phase II efficacy trial.
ImmuPharma also has three additional drug candidates in pre-clinical phases: Severe Pain Relief (IPP-102199), MRSA (IPP-203101), Inflammatory and Allergic Disorders (IPP-201007), as well as a strong discovery pipeline linked to the CNRS.
Financial Forecast
A recent study conducted by GECR sets ImmuPharma’s target price at 200p per share, compared to the current 60p.
Chart 1: ImmuPharma stock performance
Source: Refinitiv
Examining value indicators
If we look at ImmuPharma’s P/E ratio, we can see that its P/E ratio remains at significantly lower levels in comparison to the P/E ratio of its sector and industry.
Table 1: Industry and Sector P/E
Source: Refinitiv
The GECR study based its valuation on a discounted cashflow model, on the assumption that a commercialization partner for Lupuzor™ is found in 2014, Lupuzor™ Phase III trials are completed in 2015, the drug is approved by the FDA before the end of 2016 and sees the first sale in 2017.
The GECR study also assumes that all R&D and other expenditures are incurred by the commercialization partner, receiving $10 million when they are appointed and then $15 million in both 2015 and 2016 as milestones are met.
Net financing costs and taxation are expected to be relatively low and positive in both years, meaning a profit of £1.6 million will be realized in 2014, when EPS is expected to be positive at 1.99p.
Good cash preservation
ImmuPharma has a very strong cash reserve that can be helpful during its experimental phases. ImmuPharma reported H1 2013 results which were better than expected, with a cash balance of £7.7 million. A possible corporate deal with an upfront payment could also improve its cash position.
Conclusion
Investors wishing to take ImmuPharma’s financial temperature will see that Lupuzor™ is primed to enter Phase III trials with a £50 million flexible funding source secured for progression through that phase, the company enjoys a lack of competition in Lupuzor’s™ marketplace and has additional strong drug candidates. Overall, it also has a strong current cash position. At current valuations, ImmuPharma looks like a strong buy-side consideration.
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