Hey, it's us again! As we once mentioned, we planned on taking a look at Antibe Therapeutics' lead drug ATB-346 and how sound the science behind it is. In addition we also analyzed available financial filings of past few years to see how well is the company doing from a financial perspective.

Version with visual materials (pictures, graphs etc): part 1 (science) and part 2 (financials).

Hope we could be of service. 🙂

TLDR:

  • Antibe Therapeutics lead drug, ATB-346, seeks to be a more effective alternative for pain-relieving drugs;
  • The science behind the current FDA trials is pretty sound. We expect Antibe Therapeutics to successfully complete Phase 2B trials;
  • The company is a typical R&D pharmaceutical firm. They are very hungry for capital and churn through money very fast;
  • Nonetheless, the financial situation in the last few years has been mostly stable. They have proven their ability to find continuous additional capital for drug development;

Tiny Canadian pharmaceutical company, Antibe Therapeutics, is currently pushing through FDA trials to introduce a potentially revolutionary new drug – ATB-346. ATB-346 is an anti-inflammatory drug and pain-relieving drug. It is also shown that unlike other similar drugs (ibuprofen, naproxen), it does much less damage to stomach walls.

In this article, we are going to provide an overview and our own opinion on the chances of success for ATB-346 to succeed and whether one should consider investing in Antibe Therapeutics to capture the possible rise in stock price. For that, we will analyse and explain the science behind ATB-346 and also look at the company’s financials.

THE SCIENCE

What is ATB-346?

ATB-346 is a naproxen-based molecule, that releases hydrogen sulphide (H2S). Non-steroidal anti-inflammatory drugs or NSAIDs (class of drugs like ATB-346, ibuprofen, naproxen etc.) play a key role in relieving the symptoms of osteoarthritis. As osteoarthritis is still a chronic disease, people need to take the drug frequently – even for many years. This shows a great potential market for ATB-346. So far ibuprofen, naproxen and other NSAIDs are “destroying stomach walls” on frequent use. Take a look at a picture.

ATB-346 intends to protect stomach thanks to hydrogen sulphide (H2S). Hydrogen sulphide and its gastroprotective effects are one of Antibes lead scientists most researched subject. We could say that ATB-346 is a spin-off or practical outlet for his previous research. Its H2S gastroprotective (attached to naproxen) success is shown previously in 14-day phase 2 trial including 100+ patients. The success was outstanding with 94% of ulcer (“hole in the stomach wall”) incidence reduction compared to naproxen itself. It also showed lesser overall gastrointestinal side effects, which is just a bonus.

Osteoa… what?

Osteoarthritis is a type of arthritis that occurs when flexible tissue at the ends of bones wears down (thank you google). Osteoarthritis affects roughly 20-30 million people in the US – this is the potential maximum market in the US (according to various studies, there are other countries in the world as well…). We’d like to bring out two key factors affecting the progression of the disease:

  • Obesity. Heavy bodies increase the pressure on joints and worsen the osteoarthritis. As obesity steadily rises in the world, more osteoarthritis is likely to occur.
  • Age. As people age, there are biochemical changes in joints which may potentiate osteoarthritis. Even more importantly increasing age increases the risk of traumas, repetitive use of joints, infections, muscle weakness, etc., which all could increase the risk of osteoarthritis or worsen the disease. Between 2015 and 2050, the proportion of the world’s population over 60 years will nearly double from 12% to 22%.

People are getting fatter and older and it probably will increase the need for good pain killers to relieve osteoarthritis pain in the future.

About the phase 2B trial

Quick info[1]:

  • Began: 18.03.2019
  • End of data collection: 29.12.2019 (estimated/pushed forward to Q1 2020)
  • Disease: Osteoarthritis
  • Testing: ATB-346 (150, 200, and 250 mg) for pain relief against a placebo
  • Number of subjects: 360
  • Age of subjects: 40-75 (both sexes)

The Phase 2B trial was estimated to end on December 29, 2019. It began on March 18, 2019. The investigative period is 14 days with 10-day follow-up for side effects, which is quite short, yet appropriate for phase 2. But don’t expect the news now, because it seems, they are still recruiting patients and after that, it takes time to finish the analysis. They have officially said to release the results in Q1 2020. As of the end of November, they had tested about 70% of required 360 test subjects.

How likely is phase 2B trial going to be successful?

According to a previous study mentioned here, this type of drugs (anti-inflammatory) success rates for phase 2 have been 45.7%. However, Antibe is conducting a trial for the lead indication (osteoarthritis). The previous success rate for lead indication in this group of drugs has been 48.7%.

There is good evidence that this drug is effective for protecting the stomach walls. Now they intend to further prove the pain-relieving effect of the drug. Antibe has previously successfully proved the effect of ATB-346 against naproxen on 12 patients. This time they are recruiting a total of 360 patients and comparing it to placebo. Note that it is easier to prove efficacy against a placebo than a comparator drug. Against placebo, the drug must have at least some effect. Against comparator drug, it must be at least as effective as the already working drug. And on 12 patients in the previous trial, it was already as effective as naproxen. So, this the first reason why this trial should succeed.

In the red is marked the molecule of naproxen. If it gets released from the other part of the molecule, it should act as naproxen we already know and use today. Meaning, that we already know the potential benefits and side effects of one part of this drug. More importantly, we know that the part under investigation (naproxen part), is already effective in relieving pain, which the trial intends to prove. Also, releasing the naproxen part from the whole molecule might not even be necessary, as the naproxen part could effectively bind to receptors even with its added “tail” and still produce an effect. This is the second reason why this trial should succeed.

The investigative period is 14 days + 10 days follow up for possible side effects. Meaning it is enough to evaluate short term (2 weeks) pain relief, but too short to expose long term side effects. Not exposing side-effects is good for this specific trial to succeed. In the long term however, they must prove the long-term safety as well as increase number of patients for the trial.

We find that this trial has a high chance of succeeding because:

  • It is easier to succeed versus a placebo:
    It compares the pain-relieving effect to placebo, yet on 12 patients it has shown to be as effective as a working pain-killer naproxen. In a trial with 100+ patients, it inhibited thromboxane synthesis (responsible for pain via activation of COX enzymes) the same amount as naproxen. It should do well against a placebo.
  • Part of the drug is being used already:
    “Naproxen” part of the ATB-346 molecule is itself already well known and effective in mild to moderate pain-relieving. Again, a reason why it should do well against the placebo group.
  • Trial period is in favour of success:
    Short trial period serves in the favour of proving pain-relieving efficacy without showing any long-term side effects, that might halt or kill the trial.

What could go wrong in this trial?

  • Feeling of pain is subjective. Trials in larger groups of patients could reveal that earlier studies could have been a fluke, because of the subjective pain measurement.
    Not to worry too much: As explained above, it currently shows to be as effective as already marketed drug naproxen. Also, they are using a standardised pain measurement test WOMAC, which should give as objective responses as possible and is used in most trials investigating osteoarthritis pain.
  • 250 mg dose of ATB‐346 contains approximately one-sixth the amount of naproxen as the 550 mg, twice‐daily dose of naproxen. Usually naproxen blood plasma levels are 40-70 mcg/ml, ATB-346 levels are at 14-17 mcg/ml. Rising the question of can it really produce a pain-relieving effect?
    Not to worry too much: Antibe has shown in its trials that both ATB-346 and naproxen affect the main known pain biochemical pathway (COX inhibition via measuring thromboxane activity) equally. Meaning there is strong reason to believe that it relieves pain as well as naproxen.
  • H2S has a wide range of other physiological functions (as with all simpler molecules), which may in time, reveal many unwanted side effects. Worse if these side effects happen during this trial and they are severe enough to stop it.
    Not to worry too much: if there would have been anything especially serious, the trial would have stopped already. Yet they are still going and nearing the end. Even more, it actually showed less potency for at least the usual naproxen side effects. Its trial period (24 days for side effects) is really narrow to reveal long term side effects.
  • They are having problems with recruiting the patients. 70% recruited as of 28.11.2019. Recruitment went past the previous deadline, yet they have the largest number of trial centres open in Canada. This is mainly due to their patient inclusion and exclusion criteria. They are looking for healthy elderly patients with only osteoarthritis. How many of these kinds of patients are there?
    Not to worry too much: It is common for phase 2 efficacy trials to not include patients with more diseases. It is easier to analyse and prove efficacy with less intervening factors. Such as dealing with side effects and the extra costs related to it. And that’s what we want from this trial!
  • They run out of money. This is unlikely to happen as they have enough money for the completion of Phase 2B trials and also they have the capital to begin preparatory work on Phase 3.

Conclusion on the science

From purely the trial perspective, considering even the negative parts, we’d say the success rate is definitely more than 48,7%. In fact, we would be really surprised if the Phase 2B trial actually fails because:

  1. They are proving that naproxen part of ATB-346, that is already a marketed painkiller, relieves pain more than taking nothing (“placebo aka sugar-pill”), meaning it should be effective;
  2. They already have data (100+ patients), that it does inhibit enzymes responsible for the induction of pain (shown by the reduction of thromboxane activity), meaning it should be effective;
  3. Trial period is too short to reveal any long-term serious side effects to halt this particular phase 2 trial, meaning it should be safe;
  4. Many trials fail because they are not able to recruit enough patients or run out of money. They have already recruited 70% of the 360 patients and opened new centres, meaning they should get enough patients. So the only question remains – how capable is the company financially?

THE NUMBERS

Introduction

Since Antibe Therapeutics is primarily an R&D pharmaceutical firm, its’ financial metrics cannot be evaluated by normal standards. Moreover, it would very difficult to provide a valuation of the company since it would require one to make an assumption on the success of their drug developments, marketability, prices, profit margins of said drugs. All in all, let’s be honest – the provided valuation would probably be as accurate as the one you could read out from tea leaves or sheep intestines using dark and mysterious rituals.

One more thing: all the numbers below are expressed in Canadian dollars and 1 CAD = 0,77 USD.

Since we cannot possibly in good faith provide a valuation, we can merely delve into the company’s corporate and financial documents and seek for positive/negative signs. Those signs are for example amount of cash and liabilities company, how leveraged (in debt) the company is, are there any numbers that do not really add up and hint that something might be shady and so on.

Antibe Therapeutics is divided into two segments: Antibe Therapeutics, company for pharmaceutical development and its’ subsidiary Citagenix, a marketer and distributor of regenerative medicines serving the dental and orthopaedic marketplaces.

Note: sometimes the company’s fiscal year is different than the calendar year. In Antibe for example, the fiscal year starts with the first of April (jokes on you) and finishes on the 31st of March.

R&D part of the business, Antibe, generates no revenue whatsoever and solely focuses on drug development. Citagenix, on the other hand, most likely generates over 10 million CAD of revenue in the fiscal year 2020. As of September 30, 2019, Citagenix had generated 5,030 million CAD revenue, as opposed to 4,611 million CAD (ca +9%) at the same time in the year 2018. This shows a continuous growth trend.

But as revenue grows, cost of sales and expenses also increase, which has resulted in operating at a loss also for Citagenix. The management has explained incurring losses in the following way: “due to the seasonal slowdown of the business during the summer months, competitive pressures in Canada, the repositioning of the instrument business and the ongoing expansion into the US and the consequent expense on marketing and operational initiatives.”

The company management expects growth strategy in the U.S. to result in improved profitability and growth in fiscal 2020. If the company is going for growth in other markets, operating at a loss is nothing special and should not scare anybody off. Moreover, it is not common that small pharmaceutical firms have already operating segments driving stable revenue. Thanks to Citagenix, Antibe Therapeutics has some more room to maneuver thanks to additional generated cash flow as opposed to companies focusing solely on the R&D.

How is their expansion going?

Revenue by geographic region for the six months ended September 30, 2019, is as follows:

  • Canada 54% (-6%)
  • United States 31% (+6%)
  • Europe 4% (+2%)
  • Rest of World 11% (-2%)

They have increased their presence 6% in the last six months, leading us to conclude that at least short term their plan seems to be working and thus decreasing the single market risk.

Some small observations

  • Citagenix (and well, Antibes as well since Citagenix is the only revenue stream for the company) gross profit is moving up (3,549 million CAD vs 3,375 million CAD annually – ca +5%) in 2019. There is a reason to expect that gross profit for fiscal 2020 will be more than the year before as the half-year results show improvements (1,975 million CAD in 2020 for the first half of the fiscal year versus 1,812 million CAD for the first half of the fiscal 2019 – ca +8%). The gross profit margin seems to be hovering around 40% mark. The gross profit margin shows how much money did the company make from sales after deducting the cost of goods sold (for every 1 CAD, they earned ca 40 cents). With their expansion, it seems that the margin has largely remained the same, which is a good thing and means that the company is retaining its’ previous pricing power. However, this does not take into account the cost of selling and general costs etc, which currently outweigh the gross profit (due to expansion into other markets) and make the company actually lose money instead of profiting.
  • Revenue is moving up (9,5 million CAD vs 8,5 million CAD – ca +11%).
  • Expenses are also going up (more than 50% if you compare the fiscal 2018 to fiscal 2019!). This trend is continuous also in the fiscal 2020 as the Phase 2 trials for ATB-346 are on-going and expensive.
  • Losses are mounting (net loss increased from 4,990 million CAD in first six months of 2018 to 8,245 million CAD in 2019 – ca +65%). Losses are expected to further increase as Phase 3 trial for ATB-346 (if it passes Phase 2) will be even more expensive than Phase 2 (approximately 30 million CAD).

Shareholder equity

Antibe Therapeutics shareholder equity has a whopping deficit of -48 million CAD. This means that the company’s liabilities exceed its’ assets almost by 50 million CAD and should ATE.V go under, you will get nothing but a lesson for the future on risk management. 🙂

In this case, the negative equity is largely due to accumulated historical losses. Once again, this can be expected from a small R&D pharmaceutical company but it shows how risky the financial situation of the company is.

This squiggly line above shows very well how the company has to constantly recapitalize itself. However, this is not a bad thing at all since it would seem that currently the ATB-346 trials (and largely the company overall) are funded through capital markets (by issuing additional stock and warrants) and thus does not put the company in danger of drowning in debt. This is great from the perspective of the financial health of the company as the company does not need to pay back the received funding. It puts company (as they state themselves) in a dangerous position as it will need regular re-capitalization from the market, which is not beneficial to exist shareholders because of the dilution. It also means that in case of a recession, market crash or change in investors’ sentiment, the funding for trials can dry up really quickly.

Liabilities

Consolidated liabilities have risen from 7,378 million to 8,344 million ( ca +13%). Most of the increase is actually from Citagenix part of the business and liabilities and current (short term obligations, usually due to within a year). Overall, the company has increased current liabilities from 2,907 million CAD to 5,851 million CAD (more than +100%) from March 31, 2019, to September 30, 2019. Out of 5,851 million, 3,537 million CAD is from payable accounts and accrued liabilities. Loans take lesser, 2,143 million CAD of the total current liabilities.

Accounts payable are in essence debts for already rendered services. If you buy a phone but pay for it in the following 6 months, the cost of the phone together with interest is the payable account. That does not mean that the company has taken on a lot of debt but rather means that the company has pushed the payment date of services/products to the future. This is beneficial and recommendable action from a business perspective because it allows you to maintain cash liquidity and thus options to use capital in other more productive ways in the meantime. Still, about a third of the current liabilities (and pretty much total liabilities) is debt, which puts the company is a constant need to service the loan.

How solvent is the company?

One possible way to evaluate the company’s solvency is the “acid test”. In essence, you find the ratio between cash and current liabilities. The recommended ratio for a “typical” company is 1.1 (meaning that they have a bit more cash at hand than liabilities that must be paid within a year).

Acid test shows us that for the majority of last year the company was above 1. This means that there was no substantial risk of insolvency due to current liabilities and this is perceived as a good thing. The company has so far enough liquidity and a positive influx of capital to continue with drug development and trials.

Cash

Due to recent share and warrant (warrant gives a right to buy half a share in this case) issuance, company raised in total 7,637 million CAD and the total end of the period cash in 30th of September is 8,292 million CAD as opposed to 3.162 million CAD the previous year. The share and warrant issuance provided enough runway to see ATB-346 trials to the end of Phase 2 and hopefully fund some of Phase 3. In the documentation to issue new shares and warrants, the company stated that in August that the remaining cost for the Phase 2B study is 3,83 million CAD, which is to be funded by cash on hand and proceeds of the offering. This means that they definitely have capital to complete Phase 2B.

They projected that funds raised in August will last them until summer of 2020. This means that the funds are also meant to cover some of the costs related to Phase 3 trials and other pipeline projects.

The company expects Phase 3 trials to costs approximately 30 million CAD and they expect to commence with the trials in mid-2020 (lasting about 2 years).

Conclusion

Issues Antibe Therapeutics is facing are common for every small pharmaceutical or biotech company. In fact, they actually are in a more beneficial position comparatively since they also have a back-up source of revenue in name of Citagenix and they do not solely lie on the success of their lead drug, ATB-346. It must be stressed though, that company’s stock price is most likely correlated only to the performance of their on-going drug trials for ATB-346. This means that if the trials do not go as well as expected, the stock price will likely fall faster than a drunk guy trying to wear heels.

As we stated above, we are not comfortable giving our own guess on how the stock price reacts. Please refer to our previous article on the average performance of pharmaceutical stocks with on-going drug trials. We do think that the trial is likely to be a success and will boost the stock price.

Though wealth management and capital markets advisory firm Echelon has given stock price a target of 1.40 CAD. Anyhow, should the trials go well, Antibe Therapeutics definitely has a big potential upside in stock price.

Wow, you got to the end? Thanks for reading!

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