SPL has been a disaster for investors! The fundholders have all recently exited causing the price to crater.

I have previously posted on the perceived merits of the investment thesis, and the destruction of that thesis. If you are unfamiliar with the company it may help to read these to get a greater understanding of their product suite and the bull case.

The biggest failure has been execution. Much of the blame should rightly be laid at management's feet, but COVID severely disrupted their clinical trials pushing back the timeline on an already lengthy program. (They are conducting efficacy, side-effect profile AND survival benefit phase II trials using current chemotherapeutic agents attached to their proprietary DEP platform. This is hoped to reduce side effects and improve efficacy. Survival studies take a loooong time)

After many, many years, the results of those trials are coming out and they don't look too bad.

DEP- Cabazitaxel

DEP-Irinotecan

SPL's strategy has always been to self-fund these drug trials through to the end of Stage 2 and then out-licence the drugs to Big Pharma who would then pay for and run the inordinately expensive phase 3 trials. If these are successful, they receive milestone payments and then a royalty stream. Of course, the numbers attached to these deals is unknown but is likely to be in the order of many hundreds of millions of dollars in the event of a successful phase 3 - for each DEP-drug candidate. And likely single to double digit millions just for the rights.

I am hopeless at modelling these sorts of things so won't embarrass myself by trying, but the current MC is ~$50, and with a $7.5 mill R&D tax refund and the upcoming sale of Vivagel to Mundipharma for $8.5 mill, this gives the company ~$40 mill in cash.

BUT, there is a large cash burn of $15mill/year. This might moderate given the conclusion of these two large trials.

There are a number of other ideas in development but I don't ascribe any near time value to these, indeed just likely value destruction.

Another possible negative is the development of newer, potentially more effective anti-cancer drugs (immunotherapeutic agents) with potentially lower side effect rates. As yet, conventional chemotherapeutics are not showing signs of being significantly displaced, but....

So this comes down to one question: will they sign a deal? If they do, I could easily see this being re-rated by a factor of 20. Bit of casino.

NOT HELD, but thinking about it,

@what'spurpleandcommutes

For me SPL's venture into Viraleze is an unnecessary distraction from it's core businesses. 

1. Getting FDA approval for Vivagel
2. completing adequate trials of their DEP platform

(please see previous straws for what these refer to)

Regarding 1), it would be reasonable to say that they have got the rest of the world licensed and should just see how they go with that, as it is likely the FDA have their hands full at the moment and may well require a further large scale stage 3 trial in the USA, which would be prohibitively expensive. Also, they do not break out Vivagel sales in their reports, but given how meagre revenues are, they might not consider it worthwhile. This seems like a huge lost opportunity for the treatment of bacterial vaginosis is largely unmet.

But for 2) I cant express my frustration with this company in polite terms. Yes, COVID has put a significant handbrake on recruitment, but all of management's attention should be on getting their multiple stage 2 studies to completion ASAP. The longer they delay the greater the risk of another technology usurping their position. The only reasonable "unless" is if they have insight into the results being underwhelming. But from my reading of their results, their is plenty of evidence already that the reduction in side effects is enough to make the DEP taxanes a superior product to what is commercially available, if the survival outcomes are the same. And it seems likely there could be a survival advantage. FFS get on with it!

So, it strikes me as very poor judgement to expend not insignificant capital and attention on what can only be described as fluff. Their claims for Viraleze were laughable, and not unexpectably they got told to reconsider:

 Firstly the main line of sales was stopped: Viraleze removed from sale from a leading online UK pharmacy.

Secondly, they got pinged here in Australia TGA fine .

All a bit Lorna Jane, for a supposed ex CSIRO powerhouse of scientific brilliance.

Both of these events were completely preventable, showing poor management at many levels.

I still have a tiny holding (and getting tinier!), more as a piece of melancholic memorabilia than an investment. (see Osprey post for learning lessons, Grrrr!)

if anyone is interested, here is more in depth assessment of the risk reward of drug development

So, to continue with the counter-argument

SPL has committed itself to drug development. This is the graveyard of many an aspiring company. Biotechs routinely destroy shareholder value. Even Big Pharma has largely abandoned drug development due to the perversities of Eroom's Law.

This is the opposite of Moore's law as applied to semiconductors. Currently, it takes approximately a billion dollars and 8-10 years to bring a drug from conception to release to the general public, with a failure rate of >90%. Big Pharma commonly just outsources this high risk activity by just watching small companies and then buying them when things look interesing but not too expensive.

Starpharma are to be congratulated in getting Vivagel to market........but we havent got past the FDA yet. SPL management have just met with the FDA in response to their request for "more data". This cause a reduction in the share price of 1/3. The chances of getting through this without a further trial are probably <50%. If they are required to go through another trial this will add several years to the FDA approval in the US and willno doubt have ramifications for some areas in the ROW, that rely on FDA approval as a surrogate for their own approval process. Europe and ANZ and Japan are not beholden to the FDA and have already approved vivagel for sale, however the share price will no doubt take a large hit until there is another reason for a positive rerate. That could either be the anouncement of another highly lucrative deal such as the potentially $2.4 billion AZD deal, or evidence of sales traction of vivagel.

The cost of a new trial would also be considerable (>$5 mill) as it is likely that it may well need to be conducted in the US (I suspect major criticism will revolve around some patient selection issues in countries with different health care systems).

Additional issues could be

• significant delays in proving the validitiy of the DEP platform (these trials take years) and new drugs being developed that negate the need for the current DEP portfolio candidates
• failure of the DEP platform to cause any meaningful  improvement in survival. This is not actually the point, but reductions in side effects with a very large increase in cost (changing from off-patent to on-patent) may not be enough to change clinical practice in cash starved health systems.
• delayed side effects attributable to DEP, or uncommon but catastrophic short term side effects that have not been observed in the limited numbers of patients to date.
• ill-considered takeovers or rash use of funds to take a DEP candidate through phase 3 (high risk and high cost, and something they have said they will not do, but...)

There are probably heaps of other reasons as well, biotechs are not generally good creators of wealth unless.........

Looking over report is challenging to work out if there is any traction with sales of Vivagel as earning are split out into subsections. 

If one excludes  milestone payments from previous quarters it would appear revenue has indeed increased significantly in last quarter to something over $500k. From a base of pretty well nothing. 

Too early to tell whether this is coming from sales or manufacturing of active ingredients. Need a few more 4c to get clearer picture. 

Still suggest holding fire til FDA ann.

18/02/2021

SPL is on a tear this week.

Positive announcement with AZ and also with Merck as already noted.

I am no longer a holder and so have missed out on the gains. It is good to see them finally gain some traction with Bigpharma for their DEP platform. 

Perhaps the terms of the agreements are particularly favouable, which is why it has taken management so long to arrive at an agreement despite reasonably compelling data to suggest a threat to their original drugs' sales profile. 

To those that do not know the model, DEP is a method of attaching known, effective and proven chemotherapeutic agents onto a "dendrimer" to make them less toxic and potentially more effective.

Studies to date have been delayed repeatedly and hence I lost confidence in management's ability to execute. Their capacity to create any value from the vivagel product was not inspiring.

I strongly believe in the validitiy of the DEP platform.

It appears that there is now some traction. There is however a long way to go. They are not earning cash, as I had supposed, from the vivagel product line to support their studies and may well be looking at another cash raise, although these recent deals may negate that thesis.

As with all biotechs, there exists a binary outcome. The odds have now shifted considerably more towards success than failure. I am unsure if $2.30 represents a good gamble or not. 

Should we have market correction I suspect SPL will suffer heavily and would look at buying. For now I am happy to be a spectator.

There is a lot of research required if anyone is interested in investing in SPL. I would be happy to assist should you want to.

AZ have plumped up for their latest chemo agent utilising the SPL dendrimer platform. 

In addition there is much excitement around the "viral eze" nasal spray which might reduce infection from Covid. 
 

I had been a holder for 20 years and did reasonably well selling out last year at ~1:50. I lost confidence on management's ability to transition from good science to commercial success given their abject failure with vivagel for Bc and the condoms. 
 

their chemo stage 2 trials are taking forever to reach a conclusion. 
 

the AZ deal could potentially transform their fortunes by bringing a more complete skill set 
 

Bunch of relatively positive announcements and SP has appreciated 10% orso since last post. None of these announcements amount to much so far.

Big event is still the FDA decision on vivagel.

I have sold 1/2 of my holdings and will consider re-entering after FDA announcement. If -ve I would predict a ~30-50% SP drop. Given ROW sales of vivagel are imminent this would provide an attractive entry point for anyone considering this stock.

This is not a low risk option.

There is a binary event in the near furture. If the FDA approve vivagel for sale, either with or without  further prospective data collection, then the SP will soar. If they request a re-trial, it will plummet. 

However, even without the US, approval for ROW plus the current cash reserves should provide adequate funding to get the DEP platform through the trials process and into the money.

And this is where it gets interesting because SPL offers an uncommon asymmetric risk. Given that the 3 lead candidates are all approved already there should be a light touch regulatory approach to ongoing approvals and the science is looking compelling. I have listed the global sales of the non-DEP agents, and patent expiry date below:

• docetaxel (taxotere) US$ 3.1 Bn - already off-patent
• cabazitaxel (jevtana) US$ 500m - jevtana off patent 2021, generics available but not approved
• irinotecan (campostar) US$ 1.1 Bn, -generics available, canpostar off patent 2020

Plus SPL are working closely with AstraZeneca and are co-developing several agents (these are a long way from the clinc, unlike the above) but have very favourable terms.

It is possible that significant upfront and milestone payments (with royalties to come for years after) could be forthcoming within several years. Upfront payments are likely to be in high tens of millions to hundreds of millions PER DRUG, depending on the results of the trials (reduced side effects vs reduced side effects plus improved efficacy). Royalties are likely to be in the teens, percentage wise, of global sales. It is unclear if drug manufacture would remain in house and additional revenue stream.

From vivagel - sketchy details but revenue share model plus manufacture sales plus milestone payments of up to $24 million in ROW, double digit royalties plus $100m for US.

Outgoings are approximately AUD 10-15 million pa

Too many variables for a formal DCF model but you can see that if they get  a few things right then things could look very interesting.

Be interested in anyone's comments.

Please feel free to correct me in any areas you think need improvement.

Synopsis

Starpharma is a company I have been following for oooh, about 14 years.

I have been a  holder for about 12.

It has had some serious historical ups and downs, and has continued to have more, but I think it is now in a position to shine.

It has plenty of cash, brought it s first product to market and has a long pipeline of clever drugs coming on line, with a much cheaper and more realistic path to regulatory approval and sales than your average biotech company. The near term catalysts are increasing sales from Vivagel, its product for bacterial vaginosis. Long term, big bucks are likely from its chemotherapy portfolio, radiotherapeutics and treatment for viral conjunctivitis.

Background

SPL is a Biotechnology company that was spun out of CSIRO and accumulated Dentdritic Nanotechnologies and consequently has a massive IP on dendrimers. These are one of the four core naoparticles and can be applied to many disciplines, not just the life sciences. Indeed, it sold it agribusiness arm several years ago for ~$45 million AUD.

Nowadays, however, it is exclusively a life sciences company with two main arms:

1) Vivagel

Vivagel is a topical agent used in the treatment of bacterial vaginosis. This is a social inhibiting condition that most women will be desperate to be rid of, and as yet current treatments are at best average. The usual option is antibiotcs that have predicatble side effects but also are commonly only effective in a proportion of women and there is a considerable recurrence rate. BV affects between 20-30% of the female population, at some point, of western countries ie there is a massive TAM (USD1.5-2 Billion) and no other good options. 

They have negotiated distribution and sales agreements with three different companies. Aspen for ANZ (launched last week), Mundipharma for most of the ROW ex-USA (launch in next Q), and ITF for USA (see below)

They had a bit of a shock at the end of last year when the FDA knocked back approval in the US, despite being intimately involved with the design and execution of the studies.

Vivagel is available OTC (over the counter) in ANZ. US will be prescription. ROW I am unsure about.

SPL has developed and trialled this drug and brought it to market in a world first for a dendrimer.

They are also looking at creating an eye drop formulation of same active dendrimer for treamtent of viral conjunctivits. Not even stage 1 but again, no other effective treamtent, likely buy over the counter and billion dollar plus TAM.

2) DEP drug delivery platform

This is a platform approach to modifying drugs for three main reasons

1) improved solubility and hence cut out nasty agents that cause serious side effects

2) improve pharmacokinetics and dynamics (how long the drug hangs around, in what area of the body it hangs around and does what it needs to do, and how quickly it is excreted fromthe body)

3) extending patents by re-formulating old drugs

I am going to talk about all three together as for most of the drugs in development all three apply. 

So, they have three products in early development: DEP-docetaxel, DEP-cabzitaxel, DEP-irinotecam. So far all are proving to be safer, with no serious side effects reported despite the fact these agents when not combined with DEP will cause serious side effects (hair loss, bone marrow suppression which patient uncomonly but routinely die from and nerve damage). They also report "encouraging efficacy signals". Improved efficacy is almost not even necessary. If they are as effective as the original version and have markedly reduced side effects, PLUS they allow the original manuaacturing company to re-patent, then they are going to be a success. All 3 of these agents are about to, or have already become, ex-patent with a resulting collapse in revenue for parent drug company.

However there are some very encouraging graphs in animal models in this presentation.

Please interpret animal models with extreme caution.

SPL estimate that of the 200 global top selling drugs, 170 have the ability to be improved by their DEP platform. 

Perhaps more realistically, they only really need to convert 1-2 every few years to be a multi-billion dollar MC company.

So far, they have negotiated well, and have good upfront milestone payments and ongoing royalties for eventual sales.

They have stated they have no intention of continuing to pay for the trials beyond stage 2 so will out-licence and retain a %age royalty stream. Then move onto the next drug.

Currently the partner agreements with

It is likely that given that these drugs already exist that a less complex and arduous route to regulatory approval can be expected. This could decreas time to market and cost of drug development significantly. I personally would antiipate that each subsequent drug-denrimer combo using a previously approved drug plus the same dendrimer platform will become easier and quicker to trial.

nearly at my limit so more in a separate post