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ALLR: A Precision Undertaking

By John Vandermosten, CFA NASDAQ:ALLR READ THE FULL ALLR RESEARCH REPORT

Benzinga · 09/13/2022 09:23

By John Vandermosten, CFA

NASDAQ:ALLR

READ THE FULL ALLR RESEARCH REPORT

INITIATING COVERAGE

We are initiating coverage of Allarity Therapeutics, Inc., (NASDAQ:ALLR) with a valuation of $5.00 per share. Allarity has developed its Drug Response Predictor (DRP®) platform, which enables the creation of a drug-specific companion diagnostic to identify cancer patients that will most likely respond to an oncology drug based on a patient's tumor cell transcriptome. The company has three primary candidates in the clinic for cancers of the ovaries, breast and kidney with patient populations partitioned by each drug-specific DRP companion diagnostic.

Allarity combines genomic technology with drug performance data in its DRP platform to identify patients that robustly respond to cancer medications. The platform can be applied to almost any type of cancer drug. With two primary programs in metastatic ovarian cancer (mOC) and metastatic breast cancer (mBC), Allarity has a diverse portfolio in various stages of development. The lead program in mOC offers a combination approach that adds stenoparib and dovitinib guided by the DRP technology to identify patients that will respond best to the therapy. The other active programs are the European-centered Phase II evaluating IXEMPRA® in mBC and the Phase II studying stenoparib as monotherapy in mOC.

Allarity is distinguished from other oncology therapeutic companies by its DRP platform. DRP is a type of personalized medicine that considers a patient's unique tumor gene expression profile to match therapeutic products to those who will best respond to a particular cancer therapy. The approach requires a multi-step process that identifies genetic expression profiles that are either sensitive or resistant to the drug. The DRP algorithm then identifies the messenger RNA (mRNA) and microRNA correlated with drug response then generates the DRP companion diagnostic that scores patients most likely to respond. Before a drug-specific DRP predictive signature can be used as a companion diagnostic to select and treat cancer patients, it must be clinically validated using patient tumor biopsies. The process ensures that the biomarker can identify responder patients and improve their therapeutic benefit as compared to patients not selected by the DRP companion diagnostic.

After regulatory approval, oncologists can then provide Allarity with a tumor biopsy sample from patients for DRP therapeutic response predictions for one or more drugs. Results of the transcriptomic analysis of a specific patient's tumor are compared to the DRP companion diagnostic signature to generate a DRP matching score and identify patients who are high scorers and candidates for the drug. The DRP diagnostic directs the use of the drug only towards those patients who will likely favorably respond and excludes those that are likely to have a weak or no response to the drug allowing the latter to pursue other appropriate courses of therapy.

Each of Allarity's three primary candidates fall into unique categories of mechanism of action (MoA). The associated programs target an indication with material unmet need and rely on the DRP companion diagnostic to identify appropriate patients. Stenoparib is a poly-ADP ribose polymerase inhibitor (PARPi) which also demonstrates inhibitory action against tankyrases being investigated in mOC. This indication sees almost 20,000 new cases each in the United States and in Europe.1 Dovitinib is a second generation pan tyrosine kinase inhibitor (TKI) that offers both anti-tumor effects and anti-angiogenic activity. The drug is also being investigated in mOC in combination with stenoparib. Ovarian cancer is burdened by 79,000 cases per year in the United States and over 115,000 in the EU. Ixempra is a European exercise as Allarity has only secured European rights. The drug is a microtubule inhibitor approved in the US for mBC and is being advanced by Allarity for approval in the EU. There are about 230,0002 cases of mBC in the EU.

Each of Allarity's lead candidates is a follow-on product for others in its class. PARP inhibitors such as olaparib, rucaparib and niraparib produced over $3 billion in revenues last year. In the TKI class, tivozanib, regorafenib, lenvatinib, sunitinib, sorafenib and pazopanib generated over $4 billion in revenues in 2021.3 These are large markets in oncology where subsequent products can fill in the gaps left by others. Stenoparib, for example, has activity towards PARP and differentiates itself from others in the class with its tankyrase inhibition, low myelotoxicity and blood brain barrier penetration. Combined with DRP selection, Allarity's drug portfolio provides a differentiated product in several multi-billion dollar classes hungry for new candidates.

The drug development industry faces many hurdles in the modern era including declining returns, increasing costs, fewer blockbuster indications and long timelines to generate data needed to obtain regulatory approval. According to a 2016 report, the principal reasons that drugs fail is due to lack of efficacy (57%) or safety (17%).4 For clinical trials that can cost up to and in excess of a billion dollars to run, tools that help improve efficiency are extremely valuable. The drug development setting provides fertile ground for new technology and precision medicine which can improve efficacy by targeting those patients that will benefit the most and by analyzing data sets to isolate early safety signals. Allarity's DRP platform is one of the tools that can support this progress.

The benefit of precision medicine is its ability to direct the right therapy to the right patient. This has the ancillary effect of saving time and money as the tool allows for rapid identification of populations that will respond best to a therapy and does not squander resources on unresponsive patients. The approach guides construction of smaller trials that include only those patients with a complementary genomic, transcriptomic, epigenomic or proteomic profile. Applying DRP to drug repurposing is an attractive and efficient route. A repurposed drug in a new indication is able to build off of previous human safety and toxicology work and in most cases allow for a direct start to an advanced stage clinical trial. Drug repurposing or rescue can be a more efficient approach that is effective when candidates have an abundant patient history of safety and biometric data.

With DRP, Allarity Therapeutics has refined its approach to precision medicine and is employing it to advance and de-risk its pipeline. DRP enables physicians and patients to make better cancer treatment decisions.

Key reasons to own Allarity Therapeutics shares. Allarity:

➢ Offers proprietary DRP platform to identify responders/non-responders

o Increases efficiency of drug development

o DRP companion diagnostics can extend patent coverage for off-patent drugs

o Enables more efficient and rapid trials

o Reduces failure risk

➢ Offers best in class PARPi features with lead candidate stenoparib

o Tankyrase inhibitor activity for potential dual tumor killing MoA

o Blood brain barrier penetration

o Absence of myelotoxicity

➢ Uses combination therapy to address cancer's multiple survival pathways

➢ Provides salvage opportunity for failed drugs with validated safety and efficacy

➢ Pursues attractive indications with material unmet need

o Metastatic ovarian cancer (mOC)

o Metastatic breast cancer (mBC)

Allarity has licensed several candidates that have demonstrated safety and efficacy and will employ its DRP screening to improve the response rates of its candidates in patients with several metastatic cancers. DRP provides a competitive advantage by identifying patients that are most likely to respond to a drug. In this report we provide a description of Allarity's competitive environment, including the strengths and weaknesses of precision medicine and the argument for using combination therapies more aggressively. This is followed by an in-depth description of the DRP platform and the process from biopsy to drug response prediction. Further sections summarize Allarity's primary indications in ovarian and breast cancer and the regulatory process that it will follow in the pursuit of approval. Special considerations on the regulatory side with respect to drug-device combinations and the impact of Project Optimus on clinical trial design are addressed.

Further research investigates Allarity's primary candidates stenoparib, dovitinib and Ixempra, where we examine the individual drug's mechanism of action and completed clinical work. Intellectual property and patents are addressed as are the risks faced by biotech companies. The research report summarizes the main peers and competitors in the precision medicine oncology space and introduces the main executives managing the company. Our closing sections provide a summary of key milestones over the last year and a valuation of the company. The valuation provides the assumptions behind our discounted cash flow (DCF) model and produces a target price for Allarity Therapeutics. Based on this work we generate a valuation of $5.00 per share.

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1. 4.3/100,000 and EU population of 447 million.

2. Author's work - SDX

3. Source: Evaluate Pharma, Ltd.

4. Hwang, TJ, et al. Failure of investigational drugs in late-stage clinical development and publication of trial results. JAMA Internal Med, 176 (12) (2016), pp. 1826-1833