InDex Pharmaceuticals is a Swedish biotech company developing drugs for immunological diseases. The business model revolves around out-licensing drugs near market, earning upfront and milestone payments as well as recurring royalty revenues. As such, most of the risk is in the development stage, rather than at a business level. Their lead project is cobitolimod, under development for the treatment of ulcerative colitis, a chronic inflammation of the large intestine. A Phase IIb clinical trial is set to start in the first half of 2017 and the Company expects results in 2018. The Company’s goal is to partner cobitolimod prior to a Phase III. InDex uses a slim operative structure with less than 10 employees, and all manufacturing and development is outsourced. Other pipeline projects include a library of oligonucleotides with anti-inflammatory characteristics and the goal is to push the most promising projects through to Phase I. The Company is several years from profitability, but generates annual revenues of less than SEK 400,000 from DiBiCol, a diagnostic kit used for diagnosing inflammatory bowel disease.
Toll-like receptors (TLR) lie at the core of InDex’s research and clinical development programs. By using a proprietary technology platform, the company has been able to design over 150 TLR9 agonists, called DNA-based ImmunoModulatory Sequences (DIMS), with the potential to be used for treatment of immunological diseases. DIMS mimics bacterial DNA, without being harmful, and stimulates the immune cells to produce beneficial anti-inflammatory cytokines and helps to reduce the inflammation. InDex has multiple projects under development and one diagnostic kit on the market. The Company’s lead drug candidate, cobitolimod, is in Phase IIb clinical trials as a treatment for moderate to severe active ulcerative colitis.
Clinical studies have shown cobitolimod to be safe and efficacious, able to provide a rapid anti-inflammatory effect. The therapy uses a topical administration (used locally), hence the systemic absorption is limited, giving it a superior safety profile. Moreover, the topical administration provides a relatively quick onset of action compared to competing systemically administered drugs, which is highly valued by patients. However, the administration is restricted to the descending colon, so the potential treatable population are those with left-sided UC, about 80% of total patients. This limits immediate label expansion possibilities to chronic pouchitis, and possibly to pancolitis.
The UC-market is worth around USD 5 billion today and is dominated by four biological antibodies with over 80% of total sales. The market is expected to reach USD 6.5 billion by 2022, driven by an increasing incidence, better diagnostic technique, novel therapeutics claiming higher prices, and the chronic nature of the disease.
The introduction of tumor necrosis factor (TNF) antagonist agents dramatically changed the treatment landscape for UC. As of late 2013, three anti-TNF agents have been approved in this setting—infliximab (Remicade, Janssen), adalimumab (Humira, AbbVie), and golimumab (Simponi, Janssen)—with slightly different indications specific for each. Each of these agents has demonstrated benefit for the induction and maintenance of remission in moderate or severe UC. In addition, these biologic agents are noted for their ability to change the natural course of the disease by inducing mucosal healing, reducing glucocorticoid dependence, and decreasing the need for colectomy.
Despite their clear impact on the course of therapy, anti-TNF therapy remains inadequate in a significant portion of patients with UC. Approximately 40% of patients with UC fail to respond to anti-TNF therapy, and another 30% or 40% of patients with UC begin to lose response to anti-TNF therapy over time. Moreover, the treatment setting for UC is starting to put more emphasis on rapid-onset and safe drugs, opening up for alternative therapies like InDex lead project cobitolimod.
The competition in the field is tough, suggesting UC is a commercially interesting indication. Multiple projects with the potential to impact the treatment landscape are in late-stage development. However, most of the agents under development are administered systemically and none targeted to the colon, potentially limiting the impact. The products have yet to show superior efficacy compared to marketed products in a Phase III study. However, several has shown better safety than the TNF-antibodies and are orally administered, which is preferred by patients. At least three of the competitors could enter the market prior to cobitolimod, potentially creating commercial headwinds.
- Drug candidate has a spotty history - but is in fact very promising
- Treatment paradigm changing - commercial tailwinds can help uptake
- Investor concerns over previous failures overstated - valuation offer significant upside
InDex Pharmaceuticals has a spotty history, but is in fact very promising. The Company is coming from a failed Phase III study (COLLECT) and is now taking a step back to optimize dosing in a Phase IIb study (CONDUCT) with lead project cobitolimod. A misunderstanding is that the failed study proves that the drug doesn’t work, which has made investors suspicious. However, we argue that the past failure was not drug-related, but can be traced to flaws in the clinical study design, more specifically in the choice of primary endpoint and time of readout. The COLLECT study design was based on results from a single-center, open-label compassionate use trial in 14 patients, chosen by the former management team. The study used a loosely defined primary endpoint based on a scoring system (CAI) that includes multiple variables no longer considered relevant by regulators. Further, the readout of the primary endpoint was eight weeks after last dosing, something that allowed the disease activity to subside by itself. With a new CEO, InDex have designed CONDUCT based on recently released regulatory guidance on endpoints for UC trials, using a more strictly defined scoring system. The new primary measures were secondary endpoints in the previous study, for which cobitolimod showed statistical significance. Readout of the primary endpoint will also be closer to last dosing, potentially improving the efficacy score. Therefore, we argue that the new study design, together with a clean safety profile and previous efficacious clinical data, actually increase the probability of success in Phase IIb to 80%. The CONDUCT trial will commence in the first half of 2017 and we expect the results by early 2019.
The development of cobitolimod is helped by commercial tailwinds from a treatment paradigm with increased focus on achieving and maintaining remission rapidly with low systemic exposure, supporting the drug’s profile. With solid previous data in hand, the eventual success of cobitolimod is not a question of whether the product has a therapeutic effect; rather, the question is whether it will be competitive enough to win a large market share. To compete for the treatment of moderate-to-severe UC patients, we believe InDex will need a delta value of as much as 20-30%. To improve the chances of an even greater therapeutic effect the Company has decided to investigate a higher and more frequent dosing in CONDUCT. Furthermore, the fact that InDex is using the same primary endpoints in its Phase IIb trial as will be used in a pivotal Phase III trial, makes it easier for potential partners to evaluate potential Phase III success.
Apart from the COLLECT study failure, investors have shown concerns over the terminated partnering deal with the Spanish specialty pharma company Almirall, where InDex regained full commercialization rights in 2015. However, we argue that the concerns are overstated. The termination was likely due to a strategic move, were Almirall repositioned itself as a specialty pharma company focusing on dermatology, and even sold their highly promising respiratory pipeline to AstraZeneca. Regardless, investors might point to the low deal value - a EUR 5 million upfront payment, milestones, and double digit royalties for the full European rights of a Phase III project close to market. Though, we believe there is no real predictive value in the deal as cobitolimod was essentially a different project at the time, developed as a last-option rescue segment with a limited sales potential. Now targeting a broader patient population, cobitolimod offers a sales potential of up to USD 1.5 billion. As a matter of fact, about 10% of all deals that are terminated are re-partnered, and later pushed on to major success. If the Phase IIb study shows a positive outcome, we believe InDex once again could partner cobitolimod ahead of Phase III.
Although an investment in InDex is offering substantial upside, we believe that every investment has something wrong with it. Therefore, we acknowledge three main bear points an investor should understand prior to investing. First, the limited size of the study arms in CONDUCT can risk statistical power. The study will enroll 215 patients, divided into 5 study arms, meaning each patient represent 2.5%. An unexpected placebo response or treatment failure in an active arm could lead to the study’s statistical power becoming too low. This means that even if cobitolimod were to show efficacy, statistical significance might not be met. Second, InDex has no near term major catalysts. Thus, investors will go a long period of time before any new data will impact the fundamentals. Third, competition for enrolling patients in UC clinical trials is tough, and a speedy study process is unlikely. The Company could face delays or even failures to meet enrollment goals, which might force an early capital raise.
InDex Pharmaceuticals news
- News article 2017-03-22 INDEX PHARMACEUTICALS: HUVUDRES COBITOLIMOD FAS 2B I 4KV 2018
- Press release 2017-03-22 InDex Pharmaceuticals har genomfört ett välbesökt prövarmöte för fas IIb-studien CONDUCT
- Press release 2017-03-20 InDex Pharmaceuticals presenterar på Stockholm Corporate Finance Life Science Seminarium
- News article 2017-03-14 INDEX PHARMACEUTICALS: FÅR NYTT PATENT PÅ SUBSTANSER I USA
- Press release 2017-03-08 InDex Pharmaceuticals utser ny CFO
- Press release 2017-02-01 InDex Pharmaceuticals ingår avtal med CRO för CONDUCT-studien
- Press release 2017-01-23 InDex Pharmaceuticals deltar på europeiska Crohns- och kolit-organisationens (ECCO) kongress
- News article 2016-12-14 INDEX PHARMACEUTICALS: REDEYE SER VÄRDE 14 KR/A, STIGER 7,7 %
- Press release 2016-12-14 Redeye: Deep value galore in InDex Pharmaceuticals
- News article 2016-11-15 LIVE EVENT: REDEYE:S LIFE SCIENCE-SEMINARIUM - SE EVENTET HÄR