Equity Healthcare / Biotechnology Update (December 3, 2015) DelMar Pharmaceuticals Inc. (OTCQX: DMPI, Target Price: $5.75) DelMar Pharmaceuticals, Inc. ( DelMar, OTCQX: DMPI) is a clinical stage biotechnology company focused on the development and commercialization of new cancer therapies. DelMar specializes in the development of well-validated anti-cancer therapies in orphan drug indications where patients are failing modern targeted or biologic treatments. DMPI s lead compound, VAL-083 (dianhydrogalactitol), is a potential new treatment for refractory and front-line glioblastoma multiforme ("GBM"), the most common and aggressive form of brain cancer. VAL-083 is a firstin-class small molecule with a novel alkylating agent that has been assessed in over 40 National Cancer Institute-sponsored clinical and pre-clinical trails showing the compound has potential for multiple cancers including brain, lungs, blood, and cervical. VAL- 083 has also been approved in China for the treatment of lung cancer and chronic myeloid leukemia (CML), a cancer of white blood cells. Investment Highlights Increasing price target after encouraging corporate update We are increasing our price target to $5.75 following an encouraging corporate update at DelMar. DelMar s executive leadership held a conference call with investors on November 23, 2015, to review recent developments at the company. These included September quarter financial results and a deep dive on the company s clinical pipeline. DelMar is focused on developing its lead compound VAL-083, which is a first-in-class small molecule with a unique mechanism of action that has demonstrated anticancer activity across a range of cancers in prior US National Cancer Institute (NCI) sponsored clinical trials. Delmar has an orphan drug designation for VAL-083 in the US and the EU with IP protection through 2032. DMPI released positive data from an expansion cohort from its ongoing Phase II clinical trial for VAL-083 for refractory GBM, which appears to have the potential to surpass the standard of care in treating GBM. Management also discussed the expanding pipeline of several new potential therapeutic applications in high value oncology markets beyond GBM, including NSCLC, a differentiated approach to chemotherapy and chemo-- resistant cancers including ovarian cancer, cervical cancer and pediatric brain cancer. Encouraging data from ongoing Phase 2 clinical study of VAL- 083 in refractory GBM On November 23, 2015, DelMar released positive data from the fully enrolled, 14 person expansion cohort of the company s ongoing Phase II clinical study of its lead compound, VAL-083, in refractory glioblastoma multiforme (GBM). The data supported a clinically meaningful survival benefit in refractory GBM, highlighting the significant potential value for VAL-083 to overcome chemoresistance and become the standard of care for GBM, a billion dollar market opportunity and a large unmet need. Impressively, DMPI completed the enrollment of the cohort in less than four months at five clinical sites including the Mayo Clinic, Sarah Canon Cancer Research Institute, and the UCSF Medical Center. Stock Details (11/24/15) OTCQX: DMPI Sector / Industry Healthcare / Biotechnology Price target $5.25 Recent share price $1.48 Shares o/s (mn) 43.7 Market cap (in $mn) 33.7 52-week high/low $1.52 / 0.43 Source: Thomson Reuters, SeeThruEquity Research Key Financial ($mn, unless specified) FY13 FY14 FY15 Revenues 0 0.8 0.0 EBITDA -6.3-4.1-4.8 EBIT -6.3-4.1-4.8 Net Income -8.3-4.1-5.3 EPS ($) -0.28-0.12-0.14 Source: SeeThruEquity Research Key Ratios FY13 FY14 FY15 Gross margin (%) NM NM NM Operating Margin (%) NM NM NM EBITDA margin (%) NM NM NM Net margin (%) NM NM NM P/Revenue (x) NM 80.8 NM EV/EBITDA (x) NM NM NM EV/Revenue (x) NM 78.4 NM Source: SeeThruEquity Research Share Performance, LTM Source: Thomson Reuters Raising price target to $5.75 We our price increasing our price target to $5.75 for DMPI. If achieved, the price target represents potential upside of 288.5% from the recent price of $1.48 on November 24, 2015. 2011-2015 SeeThruEquity, LLC. Important disclosures appear at the back of this report. 1 P age
QUARTERLY FINANCIAL SUMMARY Figure 1. Income Statement Summary Figures in $, unless specified 3Q15 3Q14 Research& Development 603,845 671,627 General & Administrative 474,025 445,000 Operating Expenses 1,077,870 1,116,627 YoY growth NM NM Operating Income (1,077,870) (1,116,627) Operating Margin % NM NM Other items, net (543,518) (400,109) YoY growth NM NM Net income (1,621,388) (1,516,736) EPS, Basic (0.04) (0.04) Avg. Shares Outstanding in period 42,481,875 36,451014 Source: Company Form 10Q, SeeThruEquity Research Additional Notes: DelMar reported a net loss of ($0.04) during the September quarter, with $1.1mn in operating expenses including $0.6mn of research and development and $0.5mn of general and administrative expenses. The primary variance between net loss and operating loss was primarily due to non-cash items including charges related to the valuation of warrants. DelMar ended the quarter with cash on hand of $2.8mn, up from $1.8mn at the end of the June quarter. The primary reason for the increased balance was the $2.6mn private placement completed on August 20, 2015, during which the company sold 4.3mn units including common shares and five-year warrants with an exercise price of $0.75. DelMar used ($1.4mn) in cash from operating activities during the quarter, versus ($1.0mn) in the year ago quarter. We also believe DelMar should be able to raise capital through the exercise of warrants that are already outstanding, many of which are deep in the money. The company estimates that it could raise as much as $10.6mn from already issued warrants that are in the money, as indicated in the following table, and in fact DMPI can call up to 4.3mn warrants at 0.786 per share if its stock price remains above 1.60 for 20 consecutive trading days. Source: Company investor materials Positive data released from ongoing Phase II clinical study of VAL-083 in GBM On November 23, 2015, DelMar released positive data from the fully enrolled, 14 person expansion cohort of the company s ongoing Phase II clinical study of its lead compound, VAL-083, in refractory glioblastoma multiforme (GBM). 2011-2015 SeeThruEquity, LLC. Important disclosures appear at the back of this report. 2 P age
Impressively, DMPI completed the enrollment of the cohort in less than four months at five clinical sites including the Mayo Clinic, Sarah Canon Cancer Research Institute, and the UCSF Medical Center. The data was first presented at the 20th Annual Scientific Meeting and Education Day of the Society for Neuro- Oncology (SNO) in San Antonio, Texas, held November 19-22, in a poster entitled, Phase I/II study of Dianhydrogalactitol (VAL-083) In Patients With Recurrent Malignant Glioma. The data supported a clinically meaningful survival benefit in refractory GBM, demonstrating the potential for VAL-083 to address the significant unmet medical need for patients whose tumors have recurred following both front line therapy with temozolomide and second line bevacizumab (Avastin ) treatment. Also, the data supported 40 mg / m2 as the appropriate dose for advancement into registration-directed Phase II/Phase III clinical trials with VAL-083 for recurrent GBM. Several items stood out for us reviewing the positive data. First, the company completed enrollment in just four months much faster than expected which indicates growing interest from clinical investigators. Also of interest, the results were consistent with prior trials in showing a statistically significant survival rate, with safety data consistent with past trials. Perhaps most importantly, the data showed that the anti-tumor activity is independent of MGMT, the resistance mechanism which causes the majority of GBM patients to fail currently available cycotoxic chemotherapy. We see this as a material point of differentiation in support of clinical advancement of VAL-083 for GBM given the significant number of GBM patients who do not respond to the current standard of care. Overall, the data highlighted the significant potential value for VAL-083 to overcome chemo-resistance and become the standard of care for GBM, a billion dollar annual market opportunity and a large unmet need. We note that GBM is the most common and deadly form of brain cancer and represents a significant unmet need. The condition affects approximately 15,000 adults each year and has a survival rate of 4.5 months without treatment and approximately half of patients tumors fail all other treatments which currently include surgical debulking, Temodar + radiation, and Avastin. Indeed, the 5-year overall survival rate is less than 3%. DMPI estimates the current annual market opportunity for VAL-083 for refractory and front-line GBM is in excess of $1Bn per year, including $200mn in the United States alone, as indicated in the following graphic. Source: Company investor materials We continue to expect the company to request an FDA guidance meeting with the aim to initiate a Phase II/ Phase III registration trial within the next 9-12 months. Delmar remains on track, assuming continued positive data and outcomes with its meetings with the FDA, to file an NDA in 2017 with orphan drug designation allowing for fast track status. 2011-2015 SeeThruEquity, LLC. Important disclosures appear at the back of this report. 3 P age
Expanded potential future applications for VAL-083 The strong Phase II data for VAL-083 comes on the heels of several positive announcements that expand the potential therapeutic applications of VAL-083, including pediatric brain tumors, ovarian and cervical cancer, non-small cell lung cancer (NSCLC). While we expect DelMar s focus to remain primarily on GBM, we would expect the company to advance the clinical development of other therapeutic applications for VAL-083, most likely through engaging in strategic licensing and / or development partnerships. The following table, provided by the company, illustrates DelMar s clinical status in each area. Increasing price target of $5.75 for DMPI Source: Company investor materials Our price target rises to $5.75 for DMPI following the company s corporate update. The update reaffirmed our view that VAL-083 has the potential to become a major new drug targeting the $1Bn annual market for GBO. If achieved, the price target represents potential upside of 288% from the recent price of $1.48. We continue to view DMPI as an overlooked story in the biotechnology industry. Beyond GBM, VAL-083 appears to have therapeutic potential on a number of areas, including NSCLC, pediatric brain tumors, ovarian cancer, and cervical cancer, among others. 2011-2015 SeeThruEquity, LLC. Important disclosures appear at the back of this report. 4 P age
About VAL-083 VAL-083 is a "first-in-class", small-molecule chemotherapeutic. In more than 40 Phase 1 and 2 clinical studies sponsored by the U.S. National Cancer Institutes, VAL-083 demonstrated safety and efficacy in treating a number of cancers including lung, brain, cervical, ovarian tumors and leukemia. VAL-083 is approved in China for the treatment of chronic myelogenous leukemia and lung cancer and has received orphan drug designation in Europe and the U.S. for the treatment of gliomas. As a potential treatment for glioblastoma, VAL-083's mechanism of action appears to be unaffected by the expression of MGMT, a DNA repair enzyme that causes chemotherapy resistance to front-line treatment with Temodar (temozolomide). DelMar is currently studying VAL-083 in a multi-center Phase I/II clinical trial for patients with refractory glioblastoma multiforme in accordance with the protocol that has been filed with the U.S. Food and Drug Administration (FDA). Eligible GBM patients must have failed both Avastin (bevacizumab) and Temodar (temozolomide) unless either of these therapies was contraindicated. (ClinicalTrials.gov Identifier NCT01478178). About DelMar Pharmaceuticals, Inc. DelMar Pharmaceuticals, Inc. was founded to develop and commercialize proven cancer therapies in new orphan drug indications where patients are failing or have become intolerable to modern targeted or biologic treatments. The Company's lead drug in development, VAL-083, is currently undergoing clinical trials in the U.S. as a potential treatment for refractory glioblastoma multiforme. VAL-083 has been extensively studied by U.S. National Cancer Institute, and is currently approved for the treatment of chronic myelogenous leukemia (CML) and lung cancer in China. Published preclinical and clinical data suggest that VAL-083 may be active against a range of tumor types via a novel mechanism of action that could provide improved treatment options for patients. DelMarpharma.com. 2011-2015 SeeThruEquity, LLC. Important disclosures appear at the back of this report. 5 P age
CONTACT: Ajay Tandon Director of Research SeeThruEquity, LLC www.seethruequity.com (646) 495-0939 ajay@seethruequity.com DISCLOSURE: This report has been prepared and distributed by SeeThruEquity, LLC. This report is based on sources that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. All information contained herein is subject to change without notice. This report is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any information in this report is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. Statements included in this report may constitute forwardlooking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve a number of risks and uncertainties such as competitive factors, technological development, market demand and the company's ability to obtain new contracts and accurately estimate net revenues due to variability in size, scope and duration of projects, and internal issues. SeeThruEquity has not been compensated for the preparation of this report. SeeThruEquity and/or its affiliates may have a long position with respect to the publicly traded shares of the subject company covered in this report. SeeThruEquity, LLC is not a broker-dealer and does not generate any investment banking or commission-based revenue with respect to the securities of the company described herein. Our professionals may provide oral or written market commentary that reflects opinions that are contrary to the opinions expressed in this report. The price and value of the investment referred to in this report may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors. Our report is disseminated primarily electronically, and, in some cases, in printed form. Electronic report is simultaneously available to all recipients in any form. The information contained in this report is not incorporated into the contents of our website and should be read independently thereof. Copyright 2011-2015 SeeThruEquity, LLC. No part of this material may be (i) copied, photocopied or duplicated in any for by any means or (ii) redistributed without the prior written consent of SeeThruEquity, LLC. 2011-2015 SeeThruEquity, LLC. Important disclosures appear at the back of this report. 6 P age