AzurRx BioPharma (AZRX)

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1 Initiating Coverage March 1, 2017 AzurRx BioPharma (AZRX) Initiation Report LifeSci Investment Abstract AzurRx BioPharma (NasdaqGM: AZRX) is a biopharmaceutical company focused on the development of oral recombinant products to address gastrointestinal diseases and microbiome related conditions. The Company s lead candidate, MS1819, is a recombinant yeast lipase that is being developed for the treatment of exocrine pancreatic insufficiency (EPI). This occurs when there is a lack of pancreatic digestive enzymes necessary for nutrient digestion and absorption. There are numerous causes for EPI, including chronic pancreatitis (CP) and cystic fibrosis (CF). MS1819 is currently in a Phase IIa study in patients with EPI caused by CP. Topline results from the trial are expected in the first half of In addition, the initiation of a Phase IIb crossover trial is anticipated in the first half of The Company is also developing is AZX1101, a beta-lactamase that is currently in preclinical testing for preventing hospital acquired infections and antibiotic associated diarrhea in patients receiving intravenous beta-lactam antibiotics. Key Points of Discussion Replacing Essential Lipase Function Lost in EPI. EPI develops when there is a lack of digestive enzymes that should be secreted by the pancreas. Most EPI symptoms, including weight loss and fatty diarrhea (steatorrhea), are caused by fat malabsorption due to loss of lipase enzyme function. Pancreatic enzyme replacement therapy (PERT) using porcine-derived pancreas extract has been used as a way to substitute these missing digestive enzymes, which include protease, lipase, and amylase. However, many patients receiving currently available PERT still experience ongoing EPI symptoms. Unsatisfactory outcomes with these treatments are believed to be at least in part due to limited lipase function. AzurRx is developing a yeast-derived lipase, MS1819, which has been engineered to have superior enzymatic activity as compared to current treatments. If approved, this would be the first non-animal derived PERT option available for the treatment of EPI. Topline data from an ongoing Phase IIa trial are expected in the first half of MS1819 Market Opportunity. AzurRx is developing MS1819 for EPI patients who have chronic pancreatitis (CP) or cystic fibrosis (CF). Epidemiological studies indicate that EPI is fairly common in patients with CP and found in the vast majority of patients with CF. As detailed below, we estimate that there are approximately 48,000 CP patients, and approximately 24,000 CF patients in the US who are currently taking PERT. The PERT market is currently dominated by AbbVie s (NYSE: ABBV) Creon, which makes up 79% of prescriptions. Allergan s Zenpep has a 17% market share. Together, these two options represent 96% of prescriptions for individuals with EPI. Analysts Jerry Isaacson, Ph.D. (AC) (646) jisaacson@lifescicapital.com Market Data Price $4.14 Market Cap (M) $40 EV (M) $44 Shares Outstanding (M) 9.6 Fully Diluted Shares (M) 12.9 Avg Daily Vol 11, week Range: $ $5.60 Cash (M) $5.4 Net Cash/Share $(0.35) Annualized Cash Burn (M) $12.0 Years of Cash Left ~0.5 Debt (M) $9.9 Short Interest (M) 0.01 Short Interest (% of Float) 0.2% Financials FY Dec 2014A 2015A 2016A EPS Q1 NA NA NA Q2 NA NA NA Q3 NA (0.52)A (0.53)A Q4 NA NA NA FY NA NA NA Expected Upcoming Milestones H All patients enrolled in Phase II dose escalation trial for MS1819. H Initiation of Phase IIb MS1819 crossover study Initiation of clinical testing for AZ1101. Early 2018 Results expected from MS1819 Phase IIb study. For analyst certification and disclosures please see page 27 Page 1

2 Total estimated sales of PERT for 2016 reached almost $900 million, and the overall market is expected to reach about $1 billion in There are many reasons to believe that MS1819 can have a competitive advantage over existing products, in terms of pill burden, efficacy, and safety. If MS1819 is approved, we believe it has a good chance to erode Creon s market leading advantage. Considering the overall size of the market, AzurRx would only have to capture a portion for MS1819 to be commercially successful. Results from the Phase Ib Trial of MS1819 for EPI. AzurRx has reported positive data from a Phase Ib study that tested the safety, tolerability, and efficacy of MS1819. The randomized, double-blind, placebo controlled trial enrolled 12 patients with EPI due to CP or pancreatectomy. The trial met its primary endpoint of improvement in steatorrhea. Key secondary endpoints that were also achieved included coefficient of fat absorption (CFA), number of stools over 7 days, stool weight, and Bristol scale, which is used to categorize the stool. Regarding safety, there were no serious adverse events (AEs) and no unexpected serious adverse reactions. These results provide an initial indication of MS1819 s efficacy and support ongoing clinical development. Phase IIa Trial in Patients with EPI due to Chronic Pancreatitis. AzurRx s Phase IIa study is designed to test the safety, tolerability, and efficacy of MS1819 in patients with EPI due to CP. The open-label, dose-escalation trial is testing 4 doses of MS1819 and is expected to enroll patients. Following a washout period of days to remove previous PERT, patients enter the open-label phase and are started at the lowest 280 mg/day of MS1819 for days. These patients are then dose-escalated up to 2,240 mg/day with days of treatment at each dose. At the end of the trial, patients return to their previous PERT regimen. The primary endpoint is the change in CFA at the end of the open-label phase compared to baseline. Secondary endpoints include CFA change at steps 1-3 in the dose escalation compared to baseline, number of daily evacuations, and stool consistency assessed by the Bristol scale. Safety measures include adverse events, liver enzymes, measures of renal and pancreatic function, and laboratory tests. The first three patients were enrolled in this trial in December, and full data are expected in the first half of Planned Phase IIb Crossover Study. AzurRx is planning a randomized, double-blind Phase IIb crossover study in CP patients. This trial will provide important dosing data that may inform the selection of an optimal dose to take into Phase III development. The Company anticipates enrolling patients in Australia, New Zealand, and the US and expects to report topline results in early The trial begins with a washout period to make sure that any previous PERT is no longer in the patient s system. They are then treated with day periods of active treatment alternating with either treatment or placebo. The order of placebo or treatment crossover is randomized. The crossover design allows a measurement of efficacy where each patient is their own control, meaning it is possible to compare the patient s performance during each phase of the study. The trial is expected to begin in the first half of Potential Competitive Advantage for MS1819. While there are a number of different commercially available PERT drugs, they are all derived from the same source and are essentially the same. That means the drawbacks to PERT such as high pill burden and a lack of efficacy plague all current products. Because of the limited enzyme activity, EPI patients taking PERT typically require large numbers of pills per meal. Preclinical data from lipase activity assays have demonstrated that MS1819 has equivalent lipase activity at lower dose strengths compared to Creon, the current PERT market leader. The Company s ongoing Phase IIa trial for MS1819 is currently testing efficacy with a smaller number of pills. The large pill burden of current regimens hurts patient compliance, which further reduces efficacy. There is also substantial preclinical data supporting MS1819 s potentially superior efficacy. For example, data from a minipig model suggest superior lipase function as measured by CFA. Page 2

3 Another factor affecting the efficacy of PERT is the relatively low ph of the patient s GI tract. Lower, more acidic ph reduces PERT therapeutic value due in part to the lipase being susceptible to acid induced inactivation and degradation. Compared to commercial porcine pancreatic extracts (PPE), preclinical data using MS1819 in test meal assays have reported ~133 and ~224 fold increases in lipase activity at the lower ph that would be expected in these patients. Anthera s Recent Phase III Miss Leaves MS1819 Standing Alone. Anthera recently announced that lead product candidate Sollpura (liprotamase) failed to demonstrate non-inferiority by CFA in patient with EPI due to CF in the Phase III SOLUTION trial. To our knowledge, this is the only other active clinical program for a new PERT. While the company has stated that they will continue with additional clinical trials, the history of this molecule, with multiple failures in large trials over the years, does not suggest future success. One of the suggested reasons for trial failure was hyperacidity in the patients GI tract damaging enzymatic activity. This is a problem that MS1819 won t face because it was specifically chosen for its potency at low ph. With this program quickly falling off the radar screen, the competitive landscape for MS1819 remains clear. AzurRx is Developing Novel Therapeutics for Controlling Bacterial Growth. In the pipeline behind MS1819, AzurRx has two additional development programs. The first is AZ1101, an oral, non-absorbable, synthetic ß- lactamase. This unique candidate is being developed for the prevention of hospital-acquired infections and antibiotic-induced diarrhea in patients being treated with beta-lactam antibiotics. This program is currently in preclinical stages, and the Company intends to launch a clinical trial in The second program is a transition state chemistry platform for MTAN inhibition in bacterial quorum sensing. The technology is focused on the development of compounds that control bacterial growth without the use of antibiotics, which means minimal risk for inducing antibiotic resistance. This program is currently in preclinical phase development and will initially focus on Helicobacter pylori and its ability form biofilms. Financial Discussion Third Quarter of 2016 Financial Results. For the three month-period that ended on September 30 th, 2016, AzurRx reported research and development expenses of $744,309 and general and administrative expenses of $543,721, as compared to $363,996 and $1,044,968 for the same period of For the three month-period that ended on September 30 th, 2016, the Company reported net expenses of $2,188,030 compared to $1,408,964 for the same time-period in After adjusting for other income and expenses, the Company reported total net losses for the three months ending on September 30 th, 2016 as $3,198,168, which was $1,873,929 the for the same period in The Company reported a $0.53 loss per share per basic and fully diluted loss per share of $0.53 for the three months ending on September 30 th, 2016, compared to $0.52 for the same time-period in Initial Public Offering. AzurRx began trading on the Nasdaq as of October 14 th, 2016, after the completion of an initial public offering (IPO). The Company reported gross proceeds of $5,280,000 for 960,000 shares of common stock priced at $5.50 per share. The Company also reported total expenses of about $1,774,000 related to the IPO, translating to gross proceeds for AzurRx of $3,506,000. Page 3

4 Table of Contents Company Description... 5 MS1819: A Novel Recombinant Lipase for EPI... 6 Mechanism of Action... 6 Preclinical Studies... 6 Exocrine Pancreatic Insufficiency (EPI)... 8 Causes & Pathogenesis... 9 Symptoms & Diagnosis... 9 Pharmacological Treatments for EPI EPI Market Information Clinical Data Discussion FLIP110 Phase Ib Trial Phase IIa Trial Phase IIb Trial Other Drugs in Development for EPI Competitive Landscape AZ1101: A Synthetic Beta-Lactamase to Prevent Hospital-Acquired Infections Market Opportunity for AZ MTAN Inhibition Technology for Bacterial Quorum Sensing Intellectual Property & Licensing Management Team Risk to an Investment Analyst Certification Disclosures Page 4

5 Company Description AzurRx is a clinical-stage biopharmaceutical company focused on developing novel, non-systemic, non-absorbable oral therapies to treat serious gastrointestinal diseases. MS1819, the Company s lead compound, is a novel yeast recombinant lipase being developed for the treatment of exocrine pancreatic insufficiency (EPI). The current standard of care treatment for patients with EPI is pancreatic enzyme replacement therapy (PERT), which requires the ingestion of about 25 pills per day of animal-derived pancreatic digestive enzymes. Because it is designed to overcome the problems of existing PERT therapies, MS1819 has the potential to lower this pill burden in addition to other advantages. The Company completed a Phase Ib study of MS1819 in patients with EPI and is currently conducting a doseescalation Phase IIa trial in patients with EPI secondary to either chronic pancreatitis or surgical pancreatectomy in Australia and New Zealand. They have also announced plans to initiate a Phase IIb crossover study in the same patient population. AzurRx is also planning to develop MS1819 for the treatment of cystic fibrosis (CF) patients with EPI. Topline data from the Phase IIa study are expected in the first half of 2017and data from the Phase IIb study should be available in early The Company s development pipeline is shown in Figure 1. Figure 1. Development Pipeline for AzurRx Source: LifeSci Capital In addition to MS1819, AzurRx is developing AZ1101, a synthetic beta-lactamase, for the prevention of hospitalacquired infections and antibiotic-induced diarrhea in patients being treated with beta-lactam antibiotics. AZ1101 is not absorbed systemically so it doesn t interfere with the activity of intravenous antibiotics. However, when the antibiotics come into the GI tract AZ1101 degrades them so they don t disturb the patient s microbiome. Clinical testing for this program is expected to begin in The Company also recently announced an agreement with TransChem, Inc. (private) to license their Transition State Chemistry (TSC) platform technology for MTAN inhibition in bacterial quorum sensing. This program is still in pre-clinical testing, but is very interesting because of the possibility of controlling bacterial infections without the risk of inducing resistance. Page 5

6 MS1819: A Novel Recombinant Lipase for EPI AzurRx s lead candidate, MS1819, is a yeast-derived recombinant lipase currently in development for the treatment of exocrine pancreatic insufficiency (EPI). EPI occurs when there is an imbalance between incoming dietary macromolecules, such as lipids, carbohydrates, and proteins, and the digestive enzymes need to break them down. These are normally secreted by the pancreas and include lipases, -amylases, and proteases. People with chronic pancreatitis, those who ve undergone resection or removal of the pancreas, and cystic fibrosis patients are susceptible to EPI. The current standard of care for EPI is oral, porcine-derived pancreatic enzyme replacement therapy (PERT), which contains the three classes of digestive enzymes. Together, these pancreatic enzymes are also referred to as pancrelipase or pancreatin. The primary concerns with current PERT are a lack of efficacy and the large number of pills that need to be swallowed to provide clinical benefit. Even with treatment many EPI patients suffer from quality of life issues due to nutritional deficiencies from ongoing malabsorption, highlighting the unmet medical need. The lipases for breaking down fats are the most critical component of PERT. The primary reason that current porcine-derived lipases have limited efficacy is that they are not very active at physiological ph. In vitro studies comparing MS1819 to porcine PERT showed that MS1819 has superior lipase activity compared to other lipases at both normal stomach ph and the lower ph that is usually present in EPI patients. If approved, MS1819 would be the first non-porcine lipase approved for EPI, reduce patients pill burden, and potentially address the ongoing nutritional deficiencies in patients dependent on PERT. Mechanism of Action MS1819 is a recombinant lipase that was isolated from the yeast strain Yarrowia lipolytica. MS1819 hydrolyzes the ester bonds on the glycerol backbone of dietary triglycerides (TGs), generating one 2-monoglyceride molecule and 2 fatty acids per TG, which is sufficient for intestinal absorption. In comparison to other lipases, MS1819 has demonstrated superior enzyme activity and resistance to inactivation when exposed to hyper-acidic environments and bile-acid salts. Lipase function is the most important defect missing in patients with EPI. To provide clinically meaningful treatment that will address the clinical and biochemical defects seen in EPI, a novel non-porcine lipase with superior function that is resistant to inactivation is needed. MS1819 would address these concerns, which distinguish it from current PERT options on the market. MS1819 does not contain enzymes to digest proteins or carbohydrates. However, since it is more active at targeting the most important component, fats, it is expected to lead to better outcomes than existing therapies. Preclinical Studies AzurRx has conducted a series of in vitro and in vivo studies to support the development of MS1819. In vitro studies included standard biochemical assays as well as a test-meal. In one very important experiment, the Company compared the enzymatic activity of MS1819 to standard PERT at different ph levels, which is relevant for patients Page 6

7 with EPI, and especially those with CF. The in vivo minipig model revealed that MS1819 has comparable efficacy to currently available treatments. The results of these studies were published in the journal Gastroenterology. 1 In Vitro Studies. Using purified MS1819 and standard lipid activity assays, in-vitro enzyme activity and stability for MS1819 was measured and compared to other lipases in different conditions that varied either lipid substrates, ph concentration, or enzyme activity, with and without the presence bile. The graph in Figure 2 illustrates the lypolytic activity of MS1819 and of porcine pancreatic extract over a large ph range in the presence of bile salts. Results using MS1819 generally showed superior lipase activity across ph values, with maximal differences seen between ph 4-7 and maximum lipase activity around ph 6. Of note and relevant in the context of EPI, compared to porcine pancreatic extract, MS1819 activity was much more active at ph 5 and lower. This is very important because patients with EPI, and especially CF patients, have lower gastrointestinal ph than healthy individuals. MS1819 showed reduced stability and activity at ph 3 with or without pepsin, however, improved stability and enzyme activity was seen at ph 4-6 with or without pepsin. These results, demonstrating resistance to low ph, proteases, and bile, position MS1819 as a viable oral candidate for the treatment of EPI. Figure 2. Lipase Activity of MS1819 Compared to PPE at Different ph Values Source: AzurRx Presentation In Vivo Minipig Studies. To evaluate the in-vivo effects of oral MS1819, a minipig model was generated via surgical embolization of their pancreas glands to induce EPI with steatorrhea. Steatorrhea are frothy, foul smelling, buoyant stools which are classically defined as at least 7 g of fecal fat loss over 24 hours with 100g of daily fat intake. A total of 26 minipigs were tested using escalating levels of lipase units (U), which corresponded to either 1 mg (12,500U), 4 mg (50,000U), 8 mg (100,000U), 40 mg (500,000U), or 80 mg (1,000,000U) of MS1819. These groups were compared to a control group that received a single dose of 1200 mg pancreatin (100,000 USP units). 1 Aloulou, A. et al., Yarrowia lipolytica Lipase 2 Is Stable and Highly Active in Test Meals and Increases Fat Absorption in Page 7

8 Coefficient of fat absorption (CFA), an established short term measurement for fecal fat loss, was measured before and after treatment for each group. As shown in the table in Figure 3, significant improvements in steatorrhea and CFA after treatment were observed for all groups except the 1 mg MS1819 dose. Another important finding with this study was that similar efficacies were observed with lower doses of MS1819 (4 mg) compared to a standard dose (1200 mg) of pancreatin. This finding suggests that fewer pills would be needed for MS1819 to produce the equivalent effect using standard PERT, which means a lower pill burden with MS1819. EPI Clinical Parameter Figure 3. Comparison of Different Doses of MS1819 to Pancreatin Control 1 mg (12,500U) 4 mg (50,000U) 8 mg (100,000U) 40 mg (500,000U) 80 mg (1,000,000U) Pancreatin 1200 mg (100,000U) Minipigs Used (n) Baseline Steatorrhea before treatment (g of fat per 24 h) Change in Steatorrhea after treatment Baseline CFA before treatment Change in CFA after treatment MS1819 Daily Dose Source: Aloulou et. al., 2015 Safety Profile. Based on preclinical and Phase Ib data it appears that MS1819 has a safety and tolerability profile comparable to current PERT options. One safety advantage of the treatment is that it only enters the GI tract and is never systemically absorbed. Preclinical testing of MS1819 in minipigs did not show any signs of mutations or abnormal growth. No toxicity up to 1000mg/kg/day in rats and 250 mg/kg/day in minipigs over 3 months was noted. IgG antibodies to MS1819 were detected in some rats and minipigs following enzyme exposure, but no clinical signs of immunotoxicity were observed. AzurRx has completed a Phase Ib safety study in 12 patients and reported that MS1819 did not induce any serious or unexpected adverse events. Additionally, no systemic MS1819 lipase or anti-ms1819 antibodies were detected in these patients. Exocrine Pancreatic Insufficiency (EPI) EPI occurs when the pancreas loses its ability to provide digestive enzymes, for example in people with cystic fibrosis or those suffering from chronic pancreatitis. These enzymes are critical in the breakdown of macromolecules into smaller absorbable structures which are used to generate energy. Lipids, when compared to proteins or carbohydrates, have the most stored energy. As such, lipase function is the most critical because these Page 8

9 stored energy units can only be generated if lipid is first digested, and then absorbed. Consequently, loss of lipase function is primarily responsible for many of the symptoms seen with EPI, including weight loss and steatorrhea. 2 Specifically, the exocrine function of the pancreas is responsible for secreting proteases, -amylases, and lipases to the duodenum portion of the small intestine. In response to gastric digestion products, enteroendocrine cells found lining the duodenum/jejunum secrete cholecystokinin hormone (CCK) and secretin, which are stimulators of exocrine pancreatic function. These digestive enzymes mix with gastric contents and bile-acids to help with micelle formation to digest macromolecules into smaller structures that can be absorbed by the small intestine. If the pancreas loses its exocrine function, it loses its ability to produce digestive enzymes. Consequently, maldigestion and malabsorption with clinical manifestations of EPI ensue. PERT is used to replace enzymes that are missing in patients with EPI. Of note, loss of bicarbonate secretion from the pancreas, also seen with EPI, will lower the ph in the duodenum. This increases acid-induced enzyme inactivation, impedes micelle formation, and decreases fat digestion and absorption. It is important to note because this process likely plays a deactivating role for current commercial PERT products, which are not active at low ph. Furthermore, gastrointestinal motility has also been reported as altered in EPI, causing increased gastric emptying and faster small intestinal transit time. 3 This process decreases the chances for digestion and absorption, also decreasing efficacy for current PERT products. By contrast, MS1819 has good activity at lower ph. Causes & Pathogenesis Factors that can affect the ability of the pancreas to secrete digestive enzymes, including chronic pancreatitis, cystic fibrosis, surgical resection/alteration, and malignancy. Most clinical symptoms attributed to EPI, including impaired weight gain, fat loss, and increased stool frequency, are attributed to lipase function loss. Lipases are critical to prevent lipid malabsorption and maintain caloric intake, as most energy is derived from fat compared to protein or carbohydrate. There is an increasing awareness that EPI can be caused by many extra-pancreatic diseases, including HIV, end-stage liver cirrhosis, celiac disease, irritable bowel syndrome, inflammatory bowel disease, and type 1 diabetes. 4 Symptoms & Diagnosis Uncorrected maldigestion and malabsorption leads to malnutrition and fecal fat loss. This in turn causes failure to gain or maintain weight and decreased growth. Clinically, EPI symptoms include weight loss, steatorrhea, and dull epigastric abdominal pain. While most EPI patients present with abdominal pain, weight loss, and steatorrhea, 20% of patients with EPI secondary to chronic pancreatitis can present with painless steatorrhea as their main complaint. 3 Most patients present for clinical evaluation after less than 10% of exocrine pancreatic function remains, at which point lipid malabsorption is the overriding cause for many of the clinical symptoms. For example, inefficient absorption of lipid-soluble vitamins (A, D, E, and K) leads to nutritional deficiencies along with their associated clinical findings, like decreased vitamin K associated with increased bruising/bleeding. 2 Fieker, A., Philpott, J., Armand, M., Enzyme replacement therapy for pancreatic insufficiency: present and future. Clinical Experimental Gastroenterology, 4: pp Fieker, A., Philpott, J., Armand, M., Enzyme replacement therapy for pancreatic insufficiency: present and future. Clinical Experimental Gastroenterology, 4: pp55-73.ibid. 4 Nakajima, K., Oshida, H., Muneyuki, T., Kakei, M., Pancrelipase: an evidence-based review of its use for treating pancreatic exocrine insufficiency. Core Evidence, 7: pp Page 9

10 EPI is diagnosed using two types of tests, typically referred to as either direct or indirect. Direct tests include measuring secretin-cerulein or secretin-pancreozymin while indirect tests include those looking at a 72-hour fecal fat or fecal elastase-1. Related to a 72-hour fecal fat test, coefficient of fat absorption (CFA) is used to quantify steatorrhea. It is calculated using the equation shown in Figure 4. People with normal pancreatic function typically have a CFA greater than 90%, while EPI patients have much lower values. In one study, CF patients had a mean CFA of 38.5% ± 14.7%. 5 Figure 4. Equation for Calculation Coefficient of Fat Absorption CFA (%) = Dietary Fat Ingested Fat Excreted in Stool Dietary Fat Ingested x 100 Source: LifeSci Capital In addition to low CFA, patients with EPI also usually have a risk of poor coefficient of nitrogen absorption (CNA), which is a measure of protein abosorption. CFA is an accepted short-term measurement of fat absorption that is best measured with a standardized diet with a known number of grams of fat per day (generally 100 g/day) followed by a 72-hour stool collection to measure the fat remaining in the stool. Although not as commonly used as CFA to monitor steatorrhea, CNA can also be used to monitor azotorrhea, which occurs when >2.5 g of nitrogen is lost per 24 hours. The gold standard for diagnosing PEI is direct pancreatic function testing. This has historically been done by using a fluoroscopically placed tube in the small intenstine. Pancreatic secretions were then sampled and analyzed after a test meal. Pancreatic function testing can now be performed endoscopically, with cholecystokinin or secretin stimulation instead of a test meal. Although these tests are the best way to diagnose EPI, they are cumbersome to perform, available in only a few specialized centers, and are often not needed. Pharmacological Treatments for EPI Standard of care pharmacological treatment for EPI is pancreatic enzyme replacement therapy (PERT) with phsensitive enteric coating. This traditionally has involved supplementing all three enzyme classes, lipases, amylases, and proteases, to increase fat and nitrogen absorption and treat clinical symptoms. All commercial PERT products are porcine in origin, sensitive to inactivation in low ph values, and require large amounts of pills to achieve a minimum level of lipase activity per meal. Pointing to the unmet need for superior treatments, unsatisfactory results 5 Borowitz, D. et al., Coefficients of Fat and Nitrogen Absorption in Healthy Subjects and Individuals with Cystic Fibrosis. The Journal of Pediatric Pharmacology and Therapeutics, 12(1), pp Page 10

11 are generally expected from PERT due to poor compliance and limited efficacy. 6 In fact, most patients on PERT for cystic fibrosis induced EPI have non-optimal CFA measurements despite clinician- guided PERT dosing. 7 Lipase replacement is the most critical enzyme in PERT for providing clinical improvement. However, lipase is also the most susceptible to inactivation and protein degradation by pepsin. This makes clinically meaningful biologics delivery challenging. 8 The course and choice of treatment for EPI is driven by multiple factors, including predisposing cause for EPI and severity of malabsorption. The overall goal for PERT is to promote digestion and absorption. This requires optimal PERT placement in the duodenum at the same time when gastric digestion products are delivered there. As shown in Figure 5, there are currently 6 FDA approved biologics for EPI, and they are all very similar. Their limited efficacy is likely due to multiple reasons, including: the biologic not being delivered to the duodenum at the same time as the emptying of the gastric contents, non-uniform biologic dose delivery between treatments, and drug inactivation due to the increased acidic contents the gastrointestinal tract. Patient history and general health play an extensive role in the development of treatment plans for EPI to help with compliance. Treatment efficacy and dose titrations are usually guided by clinical responses, like weight gain and stool fat content. 6 DiMagno, E.P., Controversies in the treatment of exocrine pancreatic insufficiency. Digestive Diseases and Sciences, 27(6): pp Durie, P., Kalnins, D., Ellis, L., Uses and abuses of enzyme therapy in cystic fibrosis. Journal of the Royal Society of Medicine, 91 Suppl 34: pp Nakajima, K., Oshida, H., Muneyuki, T., Kakei, M., Pancrelipase: an evidence-based review of its use for treating pancreatic exocrine insufficiency. Core Evidence, 7: pp Page 11

12 Figure 5. MS1819 and Current FDA Approved Drugs for EPI Brand Name Generic Name Company Target Molecule Source MS1819 MS1819 AzurRx Lipid Yeast Ultresa Creon Viokace Zenpep Pancreaze Pertzye Pancrelipase or pancreatin Pancrelipase or pancreatin Pancrelipase or pancreatin Pancrelipase or pancreatin Pancrelipase or pancreatin Pancrelipase or pancreatin Allergan AbbVie Allergan Allergan Johnson & Johnson Chiesi Protein, fat, carbohydrate Protein, fat, carbohydrate Protein, fat, carbohydrate Protein, fat, carbohydrate Protein, fat, carbohydrate Protein, fat, carbohydrate Porcine pancreas Porcine pancreas Porcine pancreas Porcine pancreas Porcine pancreas Porcine pancreas Formulation Spray-dried Delayed Release Capsule Delayed Release Capsule Delayed Release Capsule Tablet, nonenteric coated Delayed Release Capsule Delayed Release Capsule Delayed Release Capsule Source: LifeSci Capital Porcine Derived PERT. Of the 6 FDA approved options for the treatment of EPI, Creon is the market leader with a dominant market share and $730 million in sales in The PERT formulations that have been approved share commonalities in that they supply all derived from pig pancreas and contain the three enzyme classes. These treatments were approved based on consistent increases in CFA and CNA, and improved stool frequency and consistency when compared to placebo. No head to head studies have been performed comparing these products, but their efficacy is believed to be similar. PERT rarely eliminates steatorrhea, can cause allergic reactions, requires large numbers of capsules per meal, theoretically may transmit infectious agents, and may not be accepted by patients with personal or religious preferences who are against animal-derived products. Although there are numerous scales and differing suggestions for the minimum number of lipase units needed per meal, most recommend 30,000 international units (IU). 9 The number of pills needed to achieve the minimum lipase units per meal varies depending on the chosen products, but regardless of the choice, the pill burden is high with patients ingesting between capsules daily. Limited efficacy for PERT in EPI is due to multiple factors that can be attributed to limited lipase function. Most lipases have low activity against long-chain fatty acids, and 95% of dietary fats are triglycerides with varying acyl 9 Majumder, S., Chari, S.T., Chronic pancreatitis. Lancet, 387(10031): pp Page 12

13 chain lengths. 10 Also, PERT can only afford limited amounts of lipase enzyme to the duodenum to digest the remainder lipid types, including phospholipids, galactolipids, and cholesterol esters. In the 1990s, PERT dose escalation was attempted to improve fat absorption, but was stopped when it was realized high doses were causing fibrosing colonopathy. This led to the creation of dose limitation guidelines that typically approximate 2,500 lipase units/kg per meal or 10,000 lipase units/kg daily. Many lipases, in addition to losing enzyme activity in low ph environments or in the presence of bile salts, also do not have activity against polar lipids or fat-soluble vitamin esters. 11 AzurRx s MS1819 has been specifically chosen and is being developed to overcome the limitations of existing PERTs. Creon Phase III Trials. As a basis for comparison in considering the development of MS1819, it is worth taking a moment to consider the Creon Phase III clinical program, which consisted of three double-blind, placebo controlled trials. Two of the trials were conducted in CF patients with EPI and enrolled a total of 49 patients. A third trial tested the drug in patients with EPI due to CP or pancreatectomy. The primary endpoints for all of the trials were based on differences in CFA after treatment compared to placebo. 12 In the CF study all patients received a Creon dose of 4,000 lipase units/g fat ingested, and were placed on a high fat diet. Study 1 enrolled patients aged 12 to 43 years and Study 2 included patients 7 to 11 years of age. Each patient was treated with active drug or placebo for 5-6 days and then crossed over to the opposite treatment. CFA and CNA were measured at 72 hours for each group. The data are summarized in the table in Figure 6. # of Patients Figure 6. CFA and CNA Values from Pivotal Creon Trials CFA (active) CFA (placebo) p-value CNA (active) CNA (placebo) p-value Study % 49% < % 49% <0.001 Study % 47% < % 45% <0.001 Source: Creon Prescribing Information The third Phase III study for Creon tested the treatment in patients with chronic pancreatitis or who had undergone pancreatectomy. This trial enrolled 54 patients between the ages of 32 and 75. The Creon dose during the doubleblind treatment period was 72,000 lipase unites per meal and 32,000 lipase units per snack. All patients consumed a high fat diet during the trial. The primary endpoint for the trial was change CFA from the run-in period to 72 hours for Creon treated patients compared to placebo. At the end of treatment CFA for treated patients was 86% as compared to 66% for placebo. The increase in CFA from the end of the run in period was 32% for Creon treated patients, which was significantly better than 9% for placebo (p<0.0001). 10 Lowe, M.E., Whitcomb, D.C., Next Generation of Pancreatic Enzyme Replacement Therapy: Recombinant Microbial Enzymes and Finding the Perfect Lipase. Gastroenterology, 149(7): pp ommittee/ucm pdf 12 Creon Prescribing Information Page 13

14 EPI Market Information Epidemiology. AzurRx is developing MS1819 for EPI patients who have chronic pancreatitis (CP) or cystic fibrosis (CF). Epidemiological studies indicate that EPI is fairly common in patients with CP and found in the vast majority of patients with CF. In Figure 7, we estimate the number of patients with CP or CF who have EPI and could be candidates for PERT. We base our estimate on the following assumptions: Disease Prevalence We assume a prevalence of 41.8 per 100,000 individuals for chronic pancreatitis, which translates into an estimated US prevalence of 134,000 CP patients. 13 According to the Cystic Fibrosis Foundation, there are roughly 30,000 individuals in the US with cystic fibrosis. Rate of EPI Roughly 40% of CP patients have EPI. This may underestimate the number of EPI patients over the long term. According to the Cleveland Clinic, approximately 90% of CF patients develop EPI. Candidates for PERT We assume that 90% of patients with EPI will be candidates for PERT. Figure 7. EPI Prevalence in CP and CF Patients Chronic Pancreatitis Cystic Fibrosis US Disease Prevalence 134,000 30,000 EPI Incidence 40% 90% Target Patient Population 53,000 27,000 Estimated PERT Market 48,000 24,000 Source: LifeSci Capital Market Size. Figure 8 highlights the market share of approved EPI therapies as of December 31, The PERT market is currently dominated by AbbVie s (NYSE: ABBV) Creon, which makes up 79% of prescriptions. Allergan s Zenpep has a 17% market share. Together, these two options represent 96% of prescriptions for individuals with EPI. 13 Levy, P, et al., Epidemiology of chronic pancreatitis: burden of the disease and consequences. United European Gastroenterology Journal, 2(5), pp Page 14

15 Figure 8. Market Share for Approved EPI Therapies Creon Zenpep Pancreaze Viokace Pertzye Enzycap Source: LifeSci Capital The graph in Figure 9 indicates the size of the PERT market for the last three years, with estimated sales for 2016 reaching almost $900 million. The overall market is expected to reach about $1 billion in The green bar indicates sales of market leader Creon while the blue portion indicates the combined sales of the other treatments. As detailed throughout this report, there are many reasons to believe that MS1819 can have a competitive advantage over existing products, in terms of pill burden, efficacy, and safety. If MS1819 is approved we believe it has a good chance to erode Creon s market leading advantage. Considering the overall size of the market, AzurRx would only have to capture a portion for MS1819 to be commercially successful. Figure 9. Current PERT Market E Creon Zenpep Source: LifeSci Capital Page 15

16 Clinical Data Discussion AzurRx is currently testing MS1819 in a Phase IIa study in patients experiencing EPI and plans to launch a Phase IIb study that includes US trial sites in the first half of The Company expects to report Phase IIa data in the first half of 2017 and data from the planned Phase IIb study in early Here we discuss results from a completed Phase Ib trial as well as the trial designs for the ongoing and planned trials. FLIP110 Phase Ib Trial Trial Design. This was a randomized, double-blind, placebo controlled Phase Ib safety study testing MS1819 in 12 EPI patients who either had CP or had previously undergone surgical pancreatectomy for acute pancreatitis, CP, or pancreatic cancer. The primary endpoint was a change in steatorrhea after seven days, defined as 7 g per 24 hours. Secondary endpoint measurements included coefficient of fat absorption (CFA), a measure of dietary fat digestion, as well as number of stools, stool weight, and Bristol scale, a diagnostic tool for classifying human feces. Trial Results. This study demonstrated that MS1819 was safe and well-tolerated in patients with EPI secondary to CP and/or those who previously underwent surgical pancreatectomy. The study also showed that patients receiving MS1819 experienced improvements in steatorrhea and CFA relative to the placebo group. As shown in Figure 10, patients were randomized to receive either MS1819 or placebo. CFA and steatorrhea measurements were performed before and 7 days after drug intervention. MS1819-treated patients experienced a 20.4% reduction in steatorrhea compared with a 9.4% increase in the placebo group (left panel). Individuals treated with MS1819 had a 9.58% increase in CFA, relative to a 6.65% decrease in the placebo group, with a 16.2% absolute difference. Although this trial was not powered for statistical significance, there were encouraging signs of efficacy that warranted further investigation. The Company reported possible tolerance signals of constipation and hypoglycemia, however they also noted that MS1819 lipase was undetectable in patients serum and that there was no detection anti-ms1819 antibodies. Figure 10. Effect of MS1819 on Steatorrhea and CFA in Patients with EPI Source: AzurRx Presentation Page 16

17 Phase IIa Trial This is an ongoing open-label study in Australia and New Zealand investigating the safety and efficacy of escalating doses of MS1819 in EPI patients caused by either CP or surgical distal pancreatectomy due to acute pancreatitis, CP, or pancreatic cancer. The Company announced the enrollment of the first 3 patients in December 2016 and expects to enroll a total of patients. Topline data are expected in the first half of Trial Design. This Phase IIa study is designed to test the safety, tolerability, and efficacy of MS1819 in patients with EPI. The open-label, dose-escalation trial is testing 4 doses of MS1819 and is expected to enroll patients. The doses of MS1819 being tested are 280 mg/day, 560 mg/day, 1,120 mg/day, and 2,240 mg/day. A schematic of the trial design is shown in Figure 11. The total duration for all four treatment phases will be days and the total duration for the patient participation phase will be days. Following a washout period of days to remove previous PERT, patients enter the open-label phase (C) and are started at the lowest 280 mg/day of MS1819 for days. These patients are then dose-escalated up to 2,240 mg/day with days of treatment at each dose. At the end of the trial patients return to their previous PERT regimen. The primary endpoint is the change in CFA at the end of the open-label phase compared to baseline. Secondary endpoints include CFA change at steps 1-3 in the dose escalation compared to baseline, number of daily evacuations, and stool consistency assessed by the Bristol scale. Safety measures include adverse events, liver enzymes, measures of renal and pancreatic function, and laboratory tests. Figure 11. Phase IIa Trial Design for Cross-Over Dosing of MS1819 in EPI Source: AzurRx Presentation Page 17

18 Phase IIb Trial AzurRx is planning a randomized, double-blind Phase IIb crossover study in CP patients. This trial will provide important dosing data that may inform the selection of an optimal dose to take into Phase III development. The Company anticipates enrolling patients in Australia, New Zealand, and the US and expects to report topline results in early Figure 12 highlights a schematic of the trial design. The trial begins with a washout period to make sure that any previous PERT is no longer in the patient s system. They are then treated with day periods of active treatment alternating with either treatment or placebo. The order of placebo or treatment crossover is randomized. The crossover design allows a measurement of efficacy where each patient is their own control, meaning it is possible to compare the patient s performance during each phase of the study. The trial is expected to begin in the first half of Figure 12. Phase IIb Trial Design for Cross-Over Dosing of MS1819 in EPI Source: AzurRx Presentation Other Drugs in Development for EPI The drugs in development for EPI are shown in Figure 13. Anthera s (NasdaqGM: ANTH) Sollpura (liprotamase) is the most advanced program with the ongoing SIMPLICITY Phase III trial and the recently completed SOLUTION Phase III trial. 14,15 SOLUTION was a randomized, open-label, non-inferiority study evaluating a capsule formulation 14 Page 18

19 of Sollpura versus placebo, while SIMPLICITY is testing a powder formulation. Both of these trials are testing Sollpura in CF patients. On December 27, 2016, Anthera reported that the SOLUTION missed the CFA noninferiority margin, which was the primary endpoint of the study. 16 Based on positive trends in the study, the company has announced plans to launch a new study, the RESULT Phase III trial, in the second quarter of 2017 with topline results expected in the fourth quarter. Data are also expected from the SIMPLICITY Phase III study in the second quarter of Anthera acquired this asset from Eli Lilly (NYSE: LLY) in Eli Lilly previously filed for approval of the drug but received a complete response letter (CRL) from the FDA in Figure 13. Treatments in Development for EPI Compared to MS1819 Drug Company Stage Target Sollpura Phase III Protein, lipid, Anthera (liprotamase) carbohydrate MS1819 AzurRx Phase II Lipid Source: LifeSci Capital Sollpura (liprotamase) Anthera. Anthera is developing Sollpura for the treatment of EPI in CF patients. It is a mixture of three non-porcine, biotechnology-derived enzymes including a lipase, a protease, and an amylase. The first thing to note about this asset is that it has been in clinical trials for a decade or more, and in 2011 Eli Lilly received a complete response letter (CRL) on their NDA for the drug. 17,18 The hard times now continue for Sollpura as Anthera recently reported that the drug failed to meet the primary endpoint of non-inferiority in CFA as compared to Jansenn s (NYSE: JNJ) Pancreaze after 7 weeks in the SOLUTION Phase III trial. Figure 14 shows the CFA results from the study, where not only did Sollpura fail to meet the non-inferiority margin, it actually led to a reduction in patients CFA (right panel). While Sollpura was well-tolerated, there was a slightly higher rate of signs of malabsorption in the Sollpura group compared with the Pancreaze arm. One explanation for these higher rates of malabsorption may be due to decreased levels of Sollpura at ph values seen in CF patients with EPI, as shown in the left panel Grujic, Danica; Piedra, Jose; Prykhodko, Olena LU; Szymanczyk, Sylwia and Pierzynowski, Stefan (2010) 75th Annual Scientific Meeting of the American-College-of-Gastroenterology In American Journal of Gastroenterology Grujic, Danica (2010). "1025 Liprotamase, a Microbial Enzyme Therapy, Reversed Impaired Growth in a Model of Cystic Fibrosis: Pigs With Total Exocrine Pancreatic Insufficiency (EPI Pigs)". Gastroenterology (New York, N.Y. 1943) ( ), 138 (5), Page 19

20 Figure 14. Sollpura Stability at Different ph and CFA Endpoint in SOLUTION Phase III Trial Source: Anthera Presentation Anthera management provided a number of reasons for the failure of the SOLUTION trial. These included the potential that patients did not receive an adequate dose, based on faulty preclinical findings, and time and dosing restrictions in place for the trial. They also noted that Sollpura is not very active at the low ph present in CF patients gastrointestinal tract. While they argued that this can be overcome with an increased dose, the efficacy results to date seem to confirm the inactivity. This disadvantage is in stark contrast to MS1819, which was chosen in part for its activity at low ph. Based on these results, the company has already announced plans for another trial in this patient population. The new trial is expected to have a design that enables optimum dosing and dose titration. While Sollpura is further along in development than AzurRx s MS1819, based on clinical trial results produced to date we do not view this product as a competitive threat, even if it is eventually approved. Competitive Landscape Unmet Need for EPI Patients despite FDA Approved Therapies. The biggest obstacle with EPI is the effective sustained replacement of active pancreatic enzymes, primarily lipase. 6 FDA approved porcine-derived PERT formulations have been approved for the treatment of EPI. The approval of a non-animal derived, robust lipase with high enzyme activity across a range of lipid substrates would address many of the concerns associated with PERT therapy today. MS1819 has potential to mitigate these concerns and safety risks while providing EPI patients with similar or improved CFA measurements and clinical outcomes. MS1819 should also help avoid serious safety risks associated with high doses of PERT, such as fibrosing colonopathy. MS1819 does not contain any protease, therefore theoretically does not pose a safety risk for patients to develop fibrosing colonopathy. MS1819 Offers Potentially Superior Efficacy with Reduced Pill Burden. One of the key differentiating features of MS1819 is that it has superior enzymatic activity against lipids in more acidic ph ranges compared to other lipases. Furthermore, the amount of enzyme needed to produce equivalent enzymatic activity for MS1819, referred to as lipase units in this report and generally otherwise, is less for MS1819 when normalized to equivalent lipase units for other PERT options. This feature is advantageous and sets up the possibility for reduced amounts of pills to achieve the minimum lipase units needed per meal. As pill burden is a strong negative influence on patient Page 20

21 compliance, the introduction of a therapy that alleviates this concern is likely to be favored by both patients and treating gastroenterologists, and may even expand the market size. Although no serious adverse events have been reported with PERT that were attributed to their porcine origins, MS1819 removes even theoretical concerns and safety risks associated with animal-derived products. Why MS1819 May Succeed Where Sollpura Failed. Anthera recently announced that their lead product candidate Sollpura failed to demonstrate non-inferiority in the Phase III SOLUTION trial. This trial compared CFA changes in patients who were treated with Sollpura to those treated with standard of care PERT. The lipase component of any PERT is susceptible to degradation or inactivation by hyperacidity, and Anthera pointed to the highly acidic environment in CF patients stomach as a reason for trial failure. AzurRx s MS1819 is much more active than currently available PERTs at lower ph, which we believe dramatically improves the chances of clinical trial success compared to Sollpura. AZ1101: A Synthetic Beta-Lactamase to Prevent Hospital-Acquired Infections AzurRx is also developing an oral beta-lactamase drug, AZ1101, intended to prevent hospital-acquired infections and antibiotic-associated diarrhea. Many intravenously administered antibiotics are processed by the liver and released as waste via the large intestine. Once in the intestine, these antibiotics can heavily disrupt the gut microbiome, which sometimes results in antibiotic-associated diarrhea, colonization by C. difficile, or other harmful effects to the patient. This process is highlighted in Figure 15. Figure 15. Systemic Antibiotics Can Disrupt Microbiome Once Excreted to the Large Intestine Source: AzurRx Presentation AZ1101, a synthetic beta lactamase that is not absorbed in the gut, meaning that it will not disrupt the antibiotic activity of the IV antibiotics that are likely treating a severe infection. However, AZ1101 can inactivate beta lactam antibiotics once they reach the large intestine, thus preventing harmful disruptions to the gut microbiome. AzurRx is developing AZ1101 as a complimentary treatment for patients receiving antibiotics in the hospital setting. Given the large number of patients treated with beta-lactam antibiotics, we estimate that there is a multibillion dollar market opportunity for a drug like AZ1101. There is strong rationale to include a drug like AZ1101, due to the growing rate Page 21