TLTFF Speculative buy rating-Target price .60USD / .80CAD
EXECUTIVE SUMMARY
Corporate Overview: Theralase (TLT-V) is a Canadian public company that is focused on developing a paradigm-shifting PDT for treating BCG-unresponsive CIS, NMIBC – an unmet medical need with significant market potential (over US$2.5BN per year). The Company initiated a Phase II BCG-unresponsive, CIS, NMIBC clinical study with this PDT in April 2019 – which should serve as a pivotal clinical study for an accelerated approval in the U.S. for this indication. Besides the PDT program, Theralase has a legacy business segment which is generating nominal revenues, selling the Company’s proprietary cool laser therapy devices approved for the treatment of knee pain. Theralase recently hired two new co-CEOs – Dr. Shawn Shirazi (CEO – Drug Division), who has over 20 years of pharmaceutical experience in R&D and regulatory affairs and Mr. Kipton Lade (CEO – Device Division), who has over 25 years of global experience in developing, marketing and launching new medical devices. Theralase has also assembled a strong medical and scientific advisory board (“MSAB”) composed of world-class experts in urology, PDT and bladder cancer. We believe Theralase’s PDT program is the company’s key value driver going forward.
How Does Theralase’s PDT Work?: Theralase’s PDT includes two components (drug+device): a drug candidate called TLD1433 and a laser device called the TLC-3200. Administered intravesically, TLD-1433 is a targeted photodynamic compound (“PDC”) that was designed to specifically enter bladder tumor cells through transferrin receptors, which are expressed at higher levels in tumor cells versus healthy cells – a key mechanism ensuring Theralase’s PDT has better selectivity (i.e.: superior efficacy and safety) than conventional PDTs. Activated by green laser light emitted by the TLC-3200, TLD-1433 is able to selectively kill bladder cancer tumor cells through production of a violent form of oxygen, known as singlet oxygen and/or reactive oxygen species (“ROS”).
Phase Ib Results Showing Early Promise: A Phase Ib clinical study with Theralase’s PDT was completed in 6 BCGunresponsive NMIBC patients, who were considered clinically unfit or refused a radical cystectomy (the surgical removal of the bladder and associated organs) – the first 3 were treated with the maximum recommended starting dose (“MRSD”) of TLD-1433 (0.35 mg/cm2 ), while the final 3 were treated with the therapeutic dose (0.70 mg/cm2 ). All patients received only one dose of TLD-1433 on Day 0. The primary objective was safety and tolerability as measured by adverse events (“AEs”) that were greater than or equal to 4 and did not completely resolve within 180 days post treatment. The secondary objective was pharmacokinetics (movement and exit of the drug within the body) evaluated both in urine and plasma. The tertiary objective was efficacy, measured by CR, primarily at 90 days and secondarily at 180 days. The results demonstrated that Theralase’s PDT was safe and tolerable at 180 days post treatment – demonstrating neither phototoxicity (associated with red laser light-based PDT such as Photofrin) nor bladder wall muscle damage (associated with red laser light-based PDT such as Photofrin) was reported. In terms of efficacy, two patients treated with the Therapeutic Dose achieved durable CRs on Day 540 and Day 360, respectively, post-treatment – representing a 67% CR rate at these time points that outperformed CR and duration of CR results of any other comparable clinical studies using other modalities (i.e.: chemo, PD-1/L1 checkpoint inhibitors, antibody-drug conjugates, gene therapy, among others).
Taking Advantage of a Regulatory Tailwind – The FDA Pathway: Theralase has initiated a single-arm Phase II BCGunresponsive , CIS, NMIBC clinical study with the Therapeutic Dose (0.70 mg/cm2 ) TLD-1433 (the higher dose in the Phase Ib clinical study) to enroll and treat approximately 100 BCG-unresponsive, CIS, NMIBC patients. The patients would receive two doses of TLD-1433 in total (Day 0 and Day 180). The primary objective of the Phase II clinical study is CR at any point in time. The secondary objective of the study is duration of CR evaluated on Day 360 and the tertiary objective of the study is safety and tolerability, measured by AEs that are equal or greater than 4 and do not completely resolve within 360 days post-treatment. Per the FDA’s guideline for developing BCG-unresponsive NMIBC drugs (published in Feb. 2018), a single-arm clinical study with CR rate and duration of response as the primary objectives can serve as a pivotal study to support a marketing application – with positive data from this clinical study, we believe Theralase should be in a position to apply for approval with its PDT.
Favorable Feedback from KOLs: We recently spoke with three key opinion leaders (“KOLs”) to discuss Theralase’ PDT, including one U.S. urologist who consulted on the FDA’s guidance, one Canadian urologist who was directly involved in achieving BCG approval by the FDA for treating bladder cancer and another Canadian urologist. All three KOLs commented that: (i) the Phase Ib clinical study data looked promising, (ii) the Phase II clinical study was well designed, and (iii) the Phase II clinical study should be sufficient to support an accelerated approval if it could replicate the Phase Ib clinical study results. In terms of competitive landscape, the two Canadian urologists were more bullish on Theralase’s PDT than other treatmentmodalities (such as PD-1 inhibitors) due to their safety and durability issues. The US urologist believed Theralase’s PDT could potentially be used in combination with PD-1 inhibitors to treat BCG-unresponsive NMIBC.
Recommendation and Target: We are initiating coverage of Theralase with a SPECULATIVE BUY rating and a target price of C$0.80/share. Our valuation is based on a two-stage DCF methodology that has taken a probability of success for the PDT program into consideration.
