AZRX: 3Q:18 Financial and Operational Summary

By John Vandermosten, CFA

NASDAQ:AZRX

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On November 9th, AzurRx BioPharma, Inc. (NASDAQ:AZRX) filed its third quarter 10-Q with the SEC for the three month period ending September 30, 2018. Highlights for the period and to date include participation in investment conferences, presentation of favorable trial data, acceptance of a new IND and a nod of approval from the Therapeutics Development Network for their cystic fibrosis trial protocol. Financial results for the quarter reflect the interim between the chronic pancreatitis study and the cystic fibrosis study and show an expected dip in cash burn.

Expenses for 3Q:18 were $2.5 million, down 16% compared to the prior year. General and administrative expenses were $1.3 million, contracting 34% compared to 3Q:17 levels. The change was attributable to a number of factors including a decrease of legal, accounting and other professional fees, timing differences related to the recording of bonuses and a reduction in non-cash compensation. Research and development expenses were up 21% compared to the prior year period as AzurRx established its R&D function in the United States and recognized related costs, but were down sequentially, representing a break between the CP and CF studies. Fair value adjustment, related to contingent consideration and the Protea Europe SAS acquisition increased and was recognized as an $80,000 expense on the income statement. The value increased due to a rise in interest rates and a higher probability of ultimate success for MS1819 following the completion of the Phase IIa study for patients with chronic pancreatitis.

Cash on the balance sheet was $4.4 million and debt fell to zero as of September 30, 2018. AzurRx extinguished its note payable and convertible debt during the third quarter. Cash burn for the July to September period was ($2.7) million and ($7.6) million for the first nine months of the year.

Therapeutics Development Network (TDN) Recognition of CF Trial

The Therapeutics Development Network (TDN), a group supported by the CF Foundation (CFF), approved of AzurRx’s Phase II CF trial protocol for MS1819-SD. The TDN is a large network of physicians and experts in the United States that evaluate the safety and effectiveness of CF therapies investigated in clinical trials. The group is able to connect patients, investigators and sponsors to optimize clinical trial execution and generate critical data. Association with the group can help identify optimal study sites and identify enrollees to participate in the trial.

Investigational New Drug Application for Cystic Fibrosis

On October 16th AzurRx announced that the FDA had accepted their investigational new drug application for the Phase II cystic fibrosis (CF) study. This follows the September 24 release promulgating the final results from the chronic pancreatitis trial. The FDA’s sanction will allow the company to start the trial before year end in a ~30 patient blinded study which is expected to be complete by mid-year 2019. There will be several sites established in the United States and Europe in this effort led by Dr. Pennington. He and his team have developed strong relationships with candidates and CF organizations stemming from their experience running two other similar trials for Anthera (ANTH).

MS1819 CP Phase II in Cystic Fibrosis (CF)

Dr. James Pennington, who was previously running Anthera’s Phase III Sollpura program was added to the AzurRx team in May. His experience with the CF population makes him a particularly valuable asset to guide AzurRx through the next clinical trial steps. Dr. Pennington will also bring select members of his team onboard AzurRx to help advance MS1819 forward towards regulatory approval.

Dr. Pennington has already supervised a trial in a similar population to the one that will be examined in the CF trial, and was able to advance 127 patients in 17 months in the SOLUTION study and then another 140 patients in 11 months in the RESULT study at Anthera. The CF population, which will be examined in the study, is a much easier group to administer given the greater degree of focus on health management. This gives us greater confidence that AzurRx will be able to advance this candidate through these studies at a similar rate as was done with Sollpura.

Year to Date Highlights

‣ MS1819
     ◦ Phase IIa readout – 3Q:18
     ◦ IND filing acceptance –4Q:18
     ◦ Phase II in cystic fibrosis population launch – before year end 2018
     ◦ Fully adjudicated data release from Phase IIa study – 2018/2019
     ◦ Presentation of Phase IIa data at conference – 1H:19

‣ AZX1103
     ◦ Proof of concept preclinical data – 1Q:18
     ◦ Launch Phase I – 2019

Company Assets

MS1819, is a yeast-derived lipase enzyme used to compensate for exocrine pancreatic insufficiency (EPI). The compound has several superior characteristics compared to standard EPI therapy, demonstrating increased efficacy in low pH environments and derivation from a non-porcine source. Currently MS1819 is being prepared for a second Phase II trial which we anticipate will launch before year end 2018.

AZX1103 is AzurRx’s second compound in development. This is a recombinant β-lactamase derived from a bacterial source to address hospital-acquired infections acquired as a result of antibiotic use. AZX1103 is a β-lactamase enzyme combination providing evidence of positive pre-clinical activity and degradation of amoxicillin in the presence of clavulanic acid in the upper gastrointestinal tract in the Gottingen minipig model. The candidate is in pre-clinical development and AzurRx plans to file an investigational new drug (IND) application in 2019. While the market opportunity is substantial, due to the early stage of development we do not attach any value to the β-lactamase program in our analysis.


View Exhibit I – AzurRx Pipeline1

Summary

AzurRx has completed its chronic pancreatitis trial and is about to launch its CF trial prior to year-end. The company has continued to achieve its milestones as they march forward towards a registrational trial. The results of the MS1819 Phase IIa trial confirmed the clinical activity of the drug and provided evidence of its safety while the acceptance of the IND will enable the launch of the Phase 2 study in CF. As a reminder, AZRX will pursue approval of MS1819 in the US and ex-US based on the specific details outlined in the company’s licensing agreement. We maintain our target price of $7.50 per share.

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1 Source: AZRX August 2018 Corporate Presentation

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