Redx Pharma's FY20 results are a powerful reminder of the progress made in the past year.

A subsequent key event, December's c GBP25.6m (gross) raise, extended the cash runway to end-2022, with three specialist funds (Redmile, Sofinnova, Polar Capital) providing tangible validation of management strategy. Its proven medicinal chemistry expertise is focussed on creating 'first in class' or 'best in class' compounds addressing well-defined cancers and fibrotic diseases. These are rapidly developed to key value-inflection points, typically Phase II proof-of-concept trials, ahead of partnering for the more expensive clinical phases. Despite COVID-related impacts on clinical trials, both RXC004, a porcupine inhibitor for oncology, and RXC007, a ROCK2 inhibitor for fibrosis, are set to reach important value inflection points during 2021. Our rNPV-based valuation is GBP326.4m, equivalent to 119p/share (84p fully diluted).

Clinical progress for key assets Redx is gaining a reputation as a respected creator of innovative small molecule drugs based on its proven expertise in medicinal chemistry, which underpins its discovery platform. Four major partnership deals have been struck, with the focus now to advance key in-house assets (RXC004, a porcupine inhibitor for oncology, and RXC007, a ROCK2 inhibitor for fibrosis) to major inflection points. Both assets are progressing well: RXC004 is due to deliver Phase I data and enter Phase II trials, and RXC007 to enter Phase I, during 2021.

Funding through to end-2022 The past 12 months have seen Redx's balance sheet transformed as new funds, both as equity and convertible loan notes, were raised. Existing cash resources, and risk-adjusted forecast milestone income, will be invested in progressing RXC004 and RXC007 and in broadening the earlier R&D pipeline, notably in further oncology and fibrosis research. The cash runway now extends to end-2022, suggesting several value-inflection points can be achieved.

Proven management and a clear strategy Whilst Redx's medicinal chemistry expertise drives the business model, it is its management that is successfully executing the strategy. The aim is to develop first-in-class molecules addressing novel targets and best-in-class drugs directed at scientifically validated pathways. These are then progressed to Phase II proof of concept and, if successful, will then be outlicensed. The ability to strike attractive deals has now been demonstrated.

rNPV valuation of GBP326.4m or 119p/share We value Redx Pharma using an rNPV and sum of the parts methodology, with conservative assumptions. Our updated model generates a valuation of GBP326.4m, equivalent to 119p/share (or 84p/share fully diluted), which is a small uplift to our previous GBP317.5m, or 116p/share (81p/share fully diluted).

Redx Pharma: funded to value-inflection points

Redx Pharma's FY20 results are an apt reminder of the company's transformation over the course of the past 12 months. The successful raising of >GBP48m in equity and convertible loan notes provides the financial resources to progress the key assets, RXC004 (a porcupine inhibitor for oncology) and RXC007 (a ROCK2 inhibitor for fibrosis), to their next clinical value-inflection points. The 2020 raises brought on board the specialist investors Redmile, Sofinnova Partners, and Polar Capital. These are respected and supportive investors and their involvement provides valuable external validation of management's clearly defined strategy. Similarly, the deals with AstraZeneca and Jazz Pharmaceuticals were not simply struck on attractive terms but demonstrated the active de-risking of Redx's pipeline, notably reducing the porcupine inhibitor class as a development risk.

Redx's strategy aims to leverage its now well-established expertise in medicinal chemistry to develop both first-in-class molecules addressing novel targets and best-in-class drugs directed at known and scientifically validated pathways. The focus is on genetically-defined oncology indications and fibrotic diseases, with the goal to achieve three IND (Investigational New Drug) applications by 2025. Selected candidates are progressed to Phase II proof of concept clinical trials before being out-licensed, with an element of commercial revenues retained; however, assets will be out-licensed earlier if the proposed returns are sufficiently attractive. Even a relatively modest delivery on this well-articulated and ambitious strategy should be transformative for the business over the medium term.

As we stated in our September 2020 Initiation, the pipeline is now well-balanced (Exhibit 2); the two in-house programmes (RXC004 and RXC007) continue to progress, two have been successfully partnered, and the earlier stage assets are showing promise. The near-term aim is to progress RXC004 and RXC007 to Phase II proof of concept trials. Around GBP14m of the funds raised in 2020 is directed to completion of Phase I monotherapy and immunotherapy combination trials and planned Phase II studies for RXC004; with c GBP11m to preclinical work, initiation of planned Phase I and Phase II trials for RXC007. Importantly for the medium-term outlook, GBP16m has been earmarked to expand oncology and fibrosis research and identify a next generation of similarly differentiated small molecules.

RXC004 completing Phase I clinical trial

RXC004 is a highly selective and potent small molecule that targets the porcupine (Porcn) enzyme on the Wnt (Wingless type) signalling pathways. Wnt ligands play a critical role in balancing cell proliferation, differentiation, and cellular homeostasis. Dysregulation is known to drive many cancer types, particularly those that have a poor prognosis, with elevated activity resulting in drug resistance. The pathway is complex and difficult to address, with the porcupine enzyme seen as an attractive target. Comprehensive preclinical studies have shown RXC004 to have promising direct anti-tumour activity in cancer lines with upstream mutations in this pathway, for instance RNF43. Additionally, RXC004 enhances the immune response in the tumour microenvironment and hence has a possible dual mechanism of action (Exhibit 3).

RXC004 is currently in a dose escalation Phase I trial to examine its safety and tolerability. The study is set to enrol around 20 patients across five centres in the UK. Four patient cohorts have been completed successfully, with no dose limiting toxicities (DLTs), including, importantly no bone fragility fractures, and a strong target engagement detected in markers in skin tissue. The pharmacokinetics showed good oral absorption and bioavailability and support a once daily dosing. The fifth and final patient cohort as monotherapy, at a 3.0mg dose, initiated in January 2021. The study was hampered by COVID-19 restrictions, with patient recruitment suspended, but the full data are expected to be available during H121. The combination arm of the study, exploring RXC004 together with a PD-1 immune checkpoint inhibitor (CPI), is being initiated. Preclinical studies showed combination treatment had materially improved responses. Results from this arm will guide the dose selected for the Phase II study.

The Phase II programme will similarly explore both monotherapy and a CPI combination. Monotherapy studies will likely explore RXC004 in geneticallyselected MSS mCRC (micro-satellite stable metastatic colorectal cancer), selected pancreatic cancer, and all biliary cancers, with the combination therapy evaluating genetically-selected MSS mCRC (at least initially). There are currently four other porcupine inhibitors known to be in clinical development, with Novartis' WNT974 (LGK974) being arguably the most advanced. The data from the Phase I study is awaited keenly, particularly for early signals of direct efficacy. It may also provide an insight into whether RXC004 could be the better compound in terms of expected efficacy and, possibly, side-effect profile than WNT974

The move into Phase II trials is planned for 2021 but, along with most similar clinical studies, timings may be impacted by COVID-19 factors. The Phase II data would be the prelude to out-licensing discussions.

Contact:

Lala Gregorek

Tel: +44 (0) 20 3637 5043

Email: lgregorek@trinitydelta.org

(C) 2021 Electronic News Publishing, source ENP Newswire