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By David Bautz, PhD
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We are initiating coverage of Oragenics, Inc. (OGEN) with a $7.00 valuation. Oragenics is a biopharmaceutical company developing a new treatment for oral mucositis (OM) and a novel class of antibiotics.
Lead Drug is a Novel Solution to a Common Cancer Treatment Side Effect
AG013 is the company’s lead product for the treatment of OM, a painful inflammation and ulceration of the lining of the mouth, throat, and esophagus that is one of the most common side effects of cancer chemotherapy and radiation treatment. AG013 is an oral rinse designed to deliver human Trefoil Factor 1 (hTFF1), which is secreted from a genetically modified Lactococcus species. We believe AG013 has a number of advantages over current OM treatments, including:
• Ease of Administration: AG013 is administered three times a day following a meal as an oral rinse.
• Potential to Prevent OM: There are no FDA approved therapies for the prevention of OM in a broad cancer population as current therapies are palliative in nature. In a Phase 1 study, AG013 treatment resulted in 29% of patients experiencing either 0 or 1 day of ulcerative OM compared to 0% of placebo-treated patients.
• Low Cost of Goods: Producing AG013 is very cost efficient as there are no peptides or proteins to purify.
Near-term Milestones including Interim Safety Data for Phase 2 Study of AG013
Oragenics is currently conducting a Phase 2 trial of AG013 in patients with head and neck cancer being treated with chemoradiation therapy. The company recently reported positive results from an interim safety analysis, and we anticipate completion of enrollment near the end of 2018 or early 2019 and topline data being reported in mid-2019.
Developing a Novel Class of Antimicrobial Compounds
The widespread misuse and overuse of antibiotics has led to the development of a number of antibiotic resistant microbes, some of which that are resistant to multiple classes of drugs. Due to this, there is a desperate need for new antimicrobial compounds. Lantibiotics are a novel class of antimicrobial compounds that are active against multiple species of Gram-positive bacteria. Oragenics lead lantibiotic, OG716, is being developed for the treatment of Clostridium difficile infection. OG716, and the lantibiotic class of compounds, have a number of positive attributes, including:
• Novel Mechanism of Action: OG716 exerts its bactericidal activity through a unique mechanism of Lipid II binding and sequestration, which renders the microbe unable to synthesize the cell wall and leads to rapid cell death.
• Low Propensity for Resistance: The unique mechanism of action is likely not amenable to the easy development of resistance, as it is even difficult to drive resistance to lantibiotics in controlled experiments where resistance to other antibiotics is typically seen.
• Minimal Cytotoxicity/Immunogenicity: OG716 has shown limited cytotoxicity in vitro in human and mouse cell lines and does not cause an immunological response.
Oragenics is currently completing pre-IND studies with OG716, and we anticipate the company filing an IND with the FDA in the second quarter of 2019 such that clinical trials can be initiate for the treatment of Clostridium difficile infection.
We value Oragenics using a probability adjusted discounted cash flow model that takes into account future revenues from AG013 and OG716. For modeling purposes, we anticipate AG013 entering a Phase 3 trial in early 2020, an NDA filing in 2021, and approval in 2022 in the U.S. and Europe, with approval one year later in Japan. For OG716, we forecast for clinical trials to start in 2019, an NDA filing in 2022, and approval in 2023.
There are approximately 700,000 newly diagnosed cancer patients in the U.S. that could potentially develop OM, with another 1.3 million in the E.U. and 20,000 in Japan. Patients who develop OM currently have few treatment options available to them outside of palliative care. We believe that a successful treatment that both prevented the incidence of OM and also decreased the incidence of severe OM in those that develop it would be very appealing to oncologists. An effective OM therapy could also decrease rates of hospitalizations for patients suffering severe OM and limit the need to decrease or stop therapy. We use a very conservative 5% peak market share, an average length of use of 60 days, and a cost of $100/day in the U.S. ($70/day and $75/day for the E.U. and Japan, respectively) to arrive at peak worldwide sales of approximately $350 million. Using a 13% discount rate and a 40% chance of approval leads to a net present value of $199 million.
For OG716, we estimate peak market share of 10% of the approximately 500,000, 200,000, and 100,000 C. difficile infections each year in the U.S., E.U., and Japan, respectively. We estimate the cost of treatment of $3,000, $2,000, and $2,250 for the U.S., E.U., and Japan, respectively. This leads to peak worldwide revenues of approximately $275 million. Using a 13% discount rate and a 25% chance of approval leads to a net present value of $15 million.
Combining the net present values for AG013 and OG716 along with the company’s current cash position and potential cash from warrant exercises leads to a net present value for the company of $223 million. Dividing by the fully diluted share count of 11.9 million plus an additional 20 million shares to account for future financings leads to a current value of $7.00 per share.
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