Nanexa announced that its first-in-human Ph I study of its lead clinical candidate NEX-18, a reformulation using the company’s proprietary slow-release PharmaShell® technology of already approved drug Vidaza (azacitidine), has been paused due to moderate injection site skin reactions. An analysis to determine the cause of the reactions, initially including skin biopsies, is being carried out with changes to the formulation or administration potentially to follow depending on the identified cause.
Likely fixable but expect a 1-2-quarter delay for NEX-18
Azacitidine is known to cause skin reactions, with ~30% getting bruised and ~10-15% experiencing redness, ~10-15% itching, and ~10-15% skin rash. The possible explanations for the worse than expected severity of skin reactions include a reaction to some component of the PharmaShell® or an exaggerated response to azacytidine, possibly due to the prolonged retention of the drug at the injection site, which seems more likely. Management is not guiding on timelines given the early stage, but we think a delay of 1-2 quarters from the expected readout in Q4’21 is likely for NEX-18. Management says that the planned Ph 1 start of NEX-20 (slow-release lenalidomide for multiple myeloma) in H2’22 should not be affected.
Updated valuation reflecting completed share issue
While a study pause is clearly an adverse development, management feels confident about finding a solution. The news should also be balanced against the preliminary findings of a beneficial pharmacokinetic (PK) profile, which provides initial validation of the PharmaShell® technology. We update our model by decreasing the risk-adjustment from 20% to 17% for NEX-18 to reflect the higher intrinsic risk in the programme. However, the bulk of our updated fair value range stems from the inclusion of the recent dilutive share issue. Our updated fair value range is SEK 4-10 (SEK 5-18). We note the cash/share of SEK 2 is close to the bottom of our fair value range, which when considering the value in the company’s IP, pre-clinical programmes, physical assets and its numerous partner projects provides support to the valuation. However, we expect a negative share price reaction today.
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