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Friday, August 26, 2016

Can-Fite Looks Meaningfully Undervalued

On August 26, 2016, Can-Fite BioPharma, Ltd (CANF) provided a financial update for the six month period ending June 30, 2016. The company also provided an update on its pipeline, which I believe remains meaningfully undervalued. Can-Fite's market capitalization today is a measly $33 million, and roughly one-third of that is cash. Below is a quick update on the key drivers at Can-Fite and why I believe the shares are attractive as we head into the back-half of the year.

Financial Update

Revenues at Can-Fite during the first six months of the year totaled only $0.11 million and were derived from the recognition of a portion of a $1.36 million upfront payment from Cipher Pharmaceuticals for the distribution rights to CF101 in Canada received in March 2015. Net loss totaled $2.95 million, driven by $2.59 million in R&D and $1.30 million in G&A. The net loss equated to $0.10 per share. Can-Fite reported $12.1 million in cash as of June 30, 2016. Burn for the first six months of the year was $5.1 million (average of $850,000 per month), putting the current balance sufficient to fund operations for at least the next twelve months. The company continues to work on several potential non-dilutive ways to raise cash, which includes out-licensing or research collaborations around the pipeline for territories outside the U.S.

CF101 (Piclidenoson) Update

Earlier in the year, Can-Fite reached an agreement with the European Medicine Agency (EMA) on the protocol design of its upcoming Phase 3 trial for piclidenoson in the treatment of rheumatoid arthritis (RA). Based on the suggestion of the EMA, Can-Fite will study piclidenoson as a first-line therapy and replacement for the current "gold standard" DMARD, methotrexate (MTX), the most widely used drug for RA. The planned Phase 3 trial will aim to show piclidenoson is non-inferior to MTX, something that I believe is very achievable based on the existing Phase 2 data.

According to management, Can-Fite is now conducting preparatory work for the trial including drug tableting, packaging and labeling work. Can-Fite plans to submit its study protocol to the Institutional Review Boards (IRBs) of clinical sites located in the U.S. and Europe during the first quarter of 2017. More about this opportunity can be found in my article on the Phase 3 program back in June 2016 >> CF101-RA-P3

Also in the planning stages is the Phase 3 trial for piclidenoson for the treatment of moderate-to-severe psoriasis. Can-Fite submitted a Phase 3 clinical trial protocol to the EMA in the first half of 2016. Management expects a meeting with the EMA to discuss the trial's design in the third quarter of 2016. Based on a pre-submission meeting the company had with the EMA, the planned trial will be a head-to-head study comparing piclidenoson to Otezla®, an oral psoriasis drug that generated $472 million for Celgene in 2015. An analysis of how piclidenoson compares to Otezla can be found in my article >> CF101-PS-Update

A comprehensive review of the Phase 2/3 data with piclidenoson was recently published in the Journal of Drugs In Dermatology in August 2016 >> PubMed link

CF102 Update

Enrollment continues in the ongoing Phase 2 trial with CF102 for the treatment of hepatocellular carcinoma (HCC), the most common form of primary liver cancer. Target enrollment is 78 patients in the U.S., Europe, and Israel, and expected to conclude in the second half of 2016. The focus here is on the use of CF102 as a second-line agent for the treatment of advanced HCC in patients with Child-Pugh B cirrhosis, a market with little-approved therapies and lackluster results from category leader, Nexavar®.

The primary endpoint is overall survival (OS), so it is unlikely we will see primary endpoint data before the middle of 2017; however, there are several important secondary endpoints that may readout before that time, including time to progression (TTP), progression-free survival (PFS), objective response rate (ORR), and disease control (DC). Safety, hepatic dysfunction, viral hepatitis, and A3AR expression are other important secondary measures in the study. More about CF102 and the ongoing Phase 2 study can be found in my article from last month >> CF102-HCC-Update

Can-Fite is also in the preparatory stage for a Phase 2 clinical study with CF102 for the treatment of non-alcoholic fatty liver disease (NAFLD), the precursor to non-alcoholic steatohepatitis (NASH). The protocol design for the Phase 2 has been completed and a submission to IRBs is expected during the second half of 2016. More about the opportunity for CF102 in NASH can be found in my article highlighting the preclinical data from late last year >> CF102-NASH-Intro

CF602 Update

Can-Fite is currently conducting Investigational New Drug (IND) enabling studies of CF602 in the treatment of sexual dysfunction to support commencing a Phase 1 study in the first quarter of 2017. Although a crowded market, CF602 has interesting potential in the treatment of erectile dysfunction. The mechanism of action, its efficacy in increasing penile intracavernous pressure (ICP), and single dose efficacy data were presented at the American Urology Association's Annual Meeting in San Diego, California in May 2016. I took a look at the potential for CF602, which I believe makes an interesting in-licensing candidate for men's health and urology focused specialty pharmaceutical companies, back in late 2015 >> CF602-ED-Intro

Conclusion

The opportunity for CF101 (piclidenoson) as a first-line, MTX-replacement, in newly diagnosed RA patients in tremendous. Financial modeling assuming pricing at half the biologic drugs and only 3% market share equates to a $750 million opportunity in the U.S. and European markets. My NPV analysis pegs the value of piclidenoson in this indication alone with twice the current market value of the stock, and I think the Phase 3 trial has an excellent shot at success.

The opportunity for piclidenoson in psoriasis is less straightforward. The psoriasis market is getting crowded and some recent approvals and late-stage biologic drugs are putting up impressive data. Piclidenoson's advantage is its safety and oral mode of administration, a trait also shares by Celgene's Otezla. As such, the plan for the Phase 3 trial is to take on Otezla in a head-to-head study. If Can-Fite is successful here, another $500 million in potential sales between the U.S. and Europe is achievable. Although the odds of success are not quite as strong as the Phase 3 RA trial, my NPV analysis still suggests this a valuation comparable to the current market capitalization for the entire company.

CF102 remains the valuation wildcard for Can-Fite shareholders. Positive OS data for CF102 in the ongoing Phase 2 trial in patients with advanced, CPB-HCC would be a home run, potentially putting peak sales of the drug at over $500 million. It would also likely spark Can-Fite to investigate CF102 in other solid tumors. Although this has proven a difficult population to treat, I still believe there is a modest chance of success for the Phase 2 program. My NPV analysis pegs the fair value here at $20 million, with obvious tremendous upside on positive data.

Even more of a wildcard is the Phase 2 data with CF102 in NAFLD/NASH. Although this program has yet to commence, I'm now including it in my NPV analysis based on the solid preclinical data reported late last year. NASH is potentially the next big global epidemic and biopharma companies large and small are all ramping up research programs to treat this enormous patient population. Deutsche Bank estimates the market for NASH drugs could reach $40 billion in the next ten years, meaning that CF102, if successfully commercialized, could easily be a blockbuster drug. Without human proof-of-concept data my discount rate is incredibly high, but I still believe CF102 in NASH is worth as much as the program in HCC.

I have yet to assign any value for CF602, nor did I have any value assigned to CF101 for the treatment of glaucoma, which failed a Phase 2 study last month. Nevertheless, my NPV analysis pegs the fair value of Can-Fite at $140 million, which equates to $9 per ADR. This is almost 300% upside from today.

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1 comment:

  1. Tom Br alias CloefkapperAugust 27, 2016 at 4:54 PM

    Like you said, psoriasis/RA is getting crowded: Ablynx (backed by Abbvie) released Phase II data, positive although market had his doubts about the placebo and Phase III has been conducted in RA by Galapagos (dumped by Abbvie but later on Gilead has taken over the collaboratie)... honestly i have no clue if their data are better than Can-fite's data but if you der by who they are backed i would think 'yes' even though it remain an odd world as Abbvie dumped Galapagos because results not that was expected though Gilead had not the dame idea and took over ...

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