Pharmaxis Ltd (ASX:PXS, OTC:PMXSF), a biotech targeting fibrosis and inflammation, has released two FDA-approved respiratory drugs and a pipeline of drugs developed in house that are targeting fibrosis and inflammation.
Clinical results for two of these anti-fibrosis drugs, PXS-5505 and PXS-6302, targeting fibrotic bone marrow cancer myelofibrosis (MF) and wound scars respectively, are expected in the second half of the coming year.
The company recently announced plans to expand clinical development of PXS-5505 into a second indication in liver cancer, and is currently raising the cash – around A$25 million – to do so.
The work has led Taylor Collison to initiate coverage and place an outperform recommendation on the stock.
Broker raises outlook
Taylor Collison reports that the company’s two FDA-approved respiratory products, Bronchitol for cystic fibrosis (CF) and the Aridol asthma diagnostic, are expected to be profitable on an ongoing basis and to contribute in the vicinity of A$10 million of EBITDA by the 2026 financial year.
PXS’s market cap of A$55 million is viewed by the broker as modest for a company with a portfolio of revenue-generating drugs and with clinical efficacy readouts in two indications expected next year.
On this basis, Taylor Collison sees the potential for the company to outperform its current rating as it moves towards the clinical data milestones in the second half of 2022, valuing the company at A$174 million or $0.31 per share, fully diluted.
"We initiate coverage of PXS with a valuation of $174 million or 32 cents per share (undiluted), based on a risk-adjusted discounted cash flow model, which includes our estimates of the future milestone payments and royalty streams for PXS-5505 and PXS-6302 and revenue streams from the mannitol business segment," Taylor Collison analyst Dr Dennis Hulme said.
Financial outlook
PXS has a healthy balance sheet as it progresses its drug pipeline. In September it announced it had A$16.1 million cash, while in November it announced a A$7.2 million institutional placement and a share purchase plan to raise A$2 million from eligible shareholders.
Assuming this offer will be fully subscribed, it would increase pro forma cash to around A$25 million.
There are a range of reasons why PXS is expected to consolidate and strengthen its finances as it moves forward with its assets. The company’s losses have reduced year on year – A$3 million in the last financial year compared to A$13.9 million in the previous year. The improvement was due to A$16 million of revenue from Bronchitol milestone payments and the sale of Bronchitol distribution rights in Russia.
Operating cash flow was also positive – A$3.1 million – in 2020-21, compared to A$13.2 million cash outflow in 2019-20, with operating expenses decreasing slightly.
The company has a A$19.9 million liability under a NovaQuest financing agreement, but this is only payable as a percentage (around 6 to 7%) of US Bronchitol revenue over a period of up to seven years.
PXS’s Mannitol asset is now expected to run on its own steam, generating EBITDA of A$10 million per year by 2026 – the company’s Mannitol segment improved to A$11.5 million last year compared to a A$4.0 million EBITDA loss in the previous year.
Oral pan-LOX inhibitor
PXS recently completed a Phase 1c trial which tested three doses of PXS-5505, an inhibitor of the lysyl oxidase (LOX) family of enzymes, in MF patients.
The drug was well-tolerated, so treatment has commenced in a Phase 2a expansion cohort which will treat 24 patients for six months at the highest dose tested in the Phase 1c trial. While the primary endpoint is safety, data on the main efficacy endpoint, a reduction in fibrosis assessed by bone marrow biopsy, is also expected in the second half of 2022.
In preclinical models, PXS-5505 showed potential to be an effective treatment for MF, stopping the progress of fibrosis which crowds out red blood cell production in the bone marrow.
An initial clinical trial of PXS-5505 in a second indication, liver cancer, is in the final stages of preparation, after promising preclinical results.
Topical pan-LOX inhibitor
PXS 6302, a topical pan-LOX inhibitor, is being trialled as a treatment for scar tissue, including burn scars, at the Fiona Stanley Hospital in Perth.
In preclinical studies, PXS-6302 treatment resulted in cosmetic and functional improvement to scarring. The drug has the potential to reduce the excessive scar formation that causes contraction of burn scars, to reduce the formation of keloid scars following surgery and to help resolve existing scars.
Productive drug development pipeline
The company has a number of drug candidates in its pipeline based on its expertise in the chemistry of amine oxidase inhibitors. In addition to its pan-LOX inhibitors, this array includes selective lysyl oxidase-like inhibitors (LOXL2) targeting chronic fibrotic diseases, and a semicarbazide-sensitive amine oxidase (SSAO) inhibitor PXS-4728.
PXS has licensed PXS-4728 to Boehringer Ingelheim (BI), receiving payments of A$83 million. BI abandoned development of PXS-4728 due to dose-dependent drug interactions and returned the rights to PXS in 2020.
Bronchitol and Aridol
After a long delay, PXS’s cystic fibrosis treatment Bronchitol gained FDA approval in October 2020, adding to approvals in Australia, Europe and Russia.
PXS manufactures Bronchitol and related product Aridol at its facility in Sydney. The mannitol respiratory business had a bad year in 2019-20, losing around A$4 million, but is expected to be cash-flow positive now that it’s up and running. Management estimates that the mannitol business could generate around A$10 million of EBITDA by 2026.
The company plans to streamline the mannitol business and sold distribution rights for Bronchitol in Russia, and Bronchitol and Aridol in Australia, for A$4 million in 2021.
The company’s US partner Chiesi anticipates sales of Bronchitol in the US to peak at around US$50 million annually, 20% of which would flow through to PXS’s pre-tax earnings.