CORPORATE RESEARCH Adocia · 2013. 3. 8. · therapeutic proteins. The first candidate is the...

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CORPORATE RESEARCH Adocia 8th March 2013 An ally of choice in diabetes Healthcare Fair Value EUR19.5 (price EUR12.80) CORPORATE

Bloomberg Reuters ADOC FR 12-month High / Low (EUR) 15.6 / 7.1 Market capitalisation (EURm) 79 Enterprise Value (BG estimates EURm) 63 Avg. 6m daily volume ('000 shares) 4.30 Free Float 19.7% 3y EPS CAGR NM Gearing (12/12) -98% Dividend yield (12/13e) NM

Adocia has designed and developed a technology platform, BioChaperone®, which

could improve the medical performance of already approved therapeutic proteins.

Adocia has focused its developments specifically on the treatment of chronic diseases,

such as diabetes and diabetic foot ulcer.

A unique technology platform. The innovation developed by Adocia could improve efficacy as well as safety of use of therapeutic proteins which have already proved their therapeutic application. Adocia has already developed a database of more than 250 BioChaperone which demonstrates the versatility of its platform and the ability to industrialize its innovation process. 25 classes of patents protect at global level this innovation.

Target markets have high potentials. The management has identified two approved therapeutic proteins. The first candidate is the insulin for diabetes therapy whose market value amounts USD17bn at present, and still sharply growing. The second candidate is a growth factor, PDGF, specifically for the treatment of diabetic foot ulcer, whose market value surpasses USD3bn. Adocia plans to develop its products with high technology potential not only for Europe/US/Japan market, but also for emerging countries with compatible costs.

A business model with attractive risk-reward. Adocia aims to sign partnerships with big pharmaceutical companies as soon as the "proof of concept" is established backed by clinical studies. This strategy has already realized its first success with the signing of a license agreement and collaboration with Eli Lilly (USD10m upon signing and USD156m of milestones plus royalties tiered with future sales).

Strong Cash position to finance development. End- 2012, Adocia disposed more than EUR30m cash allowing it to accelerate its clinical study plans, which is the key point for signing new partnerships.

Fair value at EUR19.5 per share. It is obtained through sum-of-the-parts analysis.

This Report has been sent to you for marketing purposes. It is non-independent research within the meaning of the FSA rules. It is not being held out as an objective or independent explanation of the matters contained in it and should not be treated as such. It has not been prepared in accordance with the legal requirements designed to promote the independence of investment research. Accordingly, the Firm is not subject to any prohibition on dealing ahead of the dissemination of investment research. Please see the section headed “Important information” on the back cover.

YE December 12/12 12/13e 12/14e 12/15e Revenue (EURm) 7.24 10.23 8.30 24.36 EBIT(EURm) -6.69 -6.33 -3.43 16.38 Basic EPS (EUR) -0.93 -0.88 -0.55 2.24 Diluted EPS (EUR) -0.93 -0.88 -0.55 2.24 EV/Sales 7.8x 6.1x 6.7x 1.5x EV/EBITDA NS NS NS 1.6x EV/EBIT NS NS NS 2.2x P/E NS NS NS 5.7x ROCE -637.8 -3,372 -182.0 303.4

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ADOCIASTOXX EUROPE 600 E - PRICE INDEX

Source: Thomson Reuters Datastream

Corporate broking: Contact details 33(0) 1 56 68 75 00 [email protected]

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Income Statement (EURm) 2011 2012 2013e 2014e 2015e 2016e Revenues 3.8 7.2 10.2 8.3 24.4 38.6 Change (%) -% 91.1% 41.4% -18.9% 194% 58.5% Adjusted EBITDA (5.9) (5.1) (3.9) (1.4) 22.2 39.2 EBIT (6.1) (6.7) (6.3) (3.4) 16.4 30.0 Change (%) -% -10.1% -5.3% -45.9% -% 83.0% Financial results (0.06) (0.06) (0.04) (0.04) (0.04) (0.04) Pre-Tax profits (6.1) (6.7) (6.4) (3.5) 16.3 29.9 Exceptionals 0.0 0.0 0.0 0.0 0.0 0.0 Tax (0.32) 1.0 0.95 0.03 (2.5) (4.5) Profits from associates 0.0 0.0 0.0 0.0 0.0 0.0 Minority interests 0.0 0.0 0.0 0.0 0.0 0.0 Net profit (6.5) (5.7) (5.4) (3.4) 13.9 25.4 Restated net profit (6.5) (5.7) (5.4) (3.4) 13.9 25.4 Change (%) -% -11.0% -5.6% -36.7% -% 83.2% Cash Flow Statement (EURm) Operating cash flows (6.1) (4.1) (3.0) (1.4) 19.7 34.7 Change in working capital (0.08) (5.0) (1.2) (3.5) 0.03 5.4 Capex, net (0.16) 0.48 (0.24) (0.25) (0.36) 0.73 Financial investments, net 0.25 33.3 (1.7) 10.3 (0.67) (4.7) Dividends 0.0 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 0.0 Net debt (0.46) (23.0) (16.7) (24.1) (43.8) (79.5) Free Cash flow (6.1) 24.6 (6.1) 5.2 18.7 36.1 Balance Sheet (EURm) Tangible fixed assets 0.56 0.31 0.55 0.80 1.2 0.43 Intangibles assets 0.01 0.01 0.01 0.01 0.01 0.01 Cash & equivalents 5.9 30.5 24.5 29.6 48.3 85.5 current assets 11.2 6.0 5.2 4.4 5.9 9.3 Other assets 0.0 0.21 0.21 0.21 0.21 0.21 Total assets 17.6 37.1 30.5 35.0 55.6 95.4 L & ST Debt 5.4 7.6 7.8 5.5 4.6 6.0 Others liabilities 7.9 6.1 4.1 2.2 0.26 0.26 Shareholders' funds 4.3 23.4 18.6 27.3 50.7 89.2 Total Liabilities 17.6 37.1 30.5 35.0 55.6 95.4 Capital employed 8.8 0.89 0.16 1.9 4.6 5.9 Financial Ratios Operating margin (160) -92.42 -61.92 -41.28 67.22 77.60 Tax rate 5.13 -14.87 -14.91 (0.87) -15.00 -15.00 Net margin (170) -79.38 -53.02 -41.41 57.00 65.88 ROE (after tax) (149) -24.52 -29.21 -12.57 27.38 28.54 ROCE (after tax) -72.92 (638) (3,372) (182) 303 433 Gearing -10.58 -97.99 -89.80 -88.36 -86.27 -89.13 Pay out ratio 0.0 0.0 0.0 0.0 0.0 0.0 Number of shares, diluted 13.97 6.20 6.20 6.20 6.20 6.20 Data per Share (EUR) EPS (0.46) (0.93) (0.88) (0.55) 2.24 4.11 Restated EPS (0.46) (0.93) (0.88) (0.55) 2.24 4.11 % change -% -101% -5.6% -36.7% -% 83.2% BVPS 0.31 3.78 3.00 4.41 8.19 14.39 Operating cash flows (0.44) (0.67) (0.48) (0.23) 3.19 5.60 FCF (0.44) 3.97 (0.98) 0.83 3.02 5.83 Net dividend 0.0 0.0 0.0 0.0 0.0 0.0

Source: Company Data; Bryan, Garnier & Co ests.

Company description With its technology platform, BioChaperone ®, Adocia aims to improve the efficacy and safety of already approved therapeutic proteins and ease of use for patients.

Adocia is specialized in insulin therapy and the treatment of diabetic foot ulcer, one of the major complications of diabetes. Therapeutic innovations of Adocia are enrolled in an on-going profound change of pharmacoeconomics in the world, notably characterized by the need to control spending on public healthcare and the increasing demand from emerging markets.

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Innobio13%

Idinvest12%

Amundi6%Viveris

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BioAM6%

Sham6%

Oréo Finance

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Deleage Family

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1% Public float20%

Autocontrol1%

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Table of contents

1. Investment Case ........................................................................................................................................... 4

2. BioChaperone, an innovative technology platform ............................................................................... 5

2.1. The formulation as the source of innovation ................................................................................ 5

2.2. An industrialized technology platform ........................................................................................... 6

2.3. Comprehensive patent protection ................................................................................................... 8

2.4. Target markets have high potentials ............................................................................................... 9

3. Pertinent offers in the field of diabetes ................................................................................................ 12

3.1. Diabetes: a global scourge .............................................................................................................. 12

3.1.1. The pathology and therapeutic paradigm ...................................................................... 12 3.1.2. Adocia’s responses to its issues ....................................................................................... 17 3.1.3. An onrushing pandemic ................................................................................................... 23

3.2. Complications related to diabetes: another scourge! ................................................................. 25

3.2.1. Diabetic foot ulcer, a highly valued market .................................................................. 25 3.2.2. Adocia positions itself as a novel challenger ................................................................ 27

4. rNPV Valuation ........................................................................................................................................ 30

4.1. A confirmed business model ......................................................................................................... 30

4.2. Projects under development .......................................................................................................... 31

4.2.1. Eli Lilly is already a success: 1st agreement with Eli Lilly proves Adocia’s capacity to monetize its technology platform ...................................................................................................... 31 4.2.2. BioChaperone-human insulin project (HinsBet) ......................................................... 32 4.2.3. BioChaperone-Combo project ........................................................................................ 33 4.2.4. BioChaperone-PDGF-BB project: diabetic foot ulcer ............................................... 34

4.3. Conclusion ........................................................................................................................................ 35

4.3. Newsflow .......................................................................................................................................... 37

Disclaimer ........................................................................................................................................................ 38

Bryan Garnier stock rating system............................................................................................................... 41

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1. Investment Case

The reason for writing now The company "celebrates" its first anniversary of trading on the market. The year of recession has demonstrated the ability of management to meet its objectives and refine the potential future development of the platform BioChaperone. In 2013, Adocia should accelerate the development of its pipeline and meanwhile position itself for new licensing agreements.

Valuation Adocia is valued at EUR121m, a fair value of EUR19.5 per share is composed in the following way: BC-analog (EUR5.7) BC-human (EUR2.2) BC-Combo (EUR3.4) BC-PDGF (EUR3.3) and net cash (EUR4.9).

Catalysts The year 2013 is claimed to be a particularly active year for Adocia with the plan of launching new clinical studies, but also with the plan of business development in the constantly moving diabetes market. The business model of Adocia provides numbers of "options" with considerable concrete progress that could increase the value of the company in the coming quarters.

Difference from consensus In this report, we investigate all development opportunities and all applications of the proprietary platform of reformulation BioChaperone. A thorough analysis is conducted divided by geographic regions (developed and emerging countries) in order to understand the actual competitive advantages (value proposition) of projects under development in a pharmacoeconomic context full of changes. Lastly, the “combo” project, not currently take into account by investors, is in our view a material asset in the value creation of the company.

Risks to our investment case BC-Humalog project, which we believe is the most valuable program at present in this company, is now being developed under the control of partner Eli Lilly. Delays and / or lack of communication on this project would have a mechanical and immediate impact on our valuation. Regarding to other projects, their future valuations are dependent on the signing of licensing agreements which is unpredictable at this stage.

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2. BioChaperone, an innovative technology platform

Adocia has designed and developed a technology platform from innovative polymers, named BioChaperone. These polymers have the ability to bind spontaneously with certain therapeutic proteins.

Adocia has positioned itself as a unique player in the conception of new drugs with the ambitious to create "Best-in-Class" products on a basis of new formulations of already approved therapeutic proteins.

2.1. The formulation as the source of innovation The formulation is the set of operations that can give substantial properties that facilitate application. For a drug, the formulation is characterized by the methodology of design of the drug through the assembly of the active ingredient and the excipient.

The excipient is to a certain extent the substance of the entire drug package. It should not have self-biological activities, besides, it should be able to:

Enable the preparation and the conservation of the drug

Enable the drug administration (oral, subcutaneous injection, intravenous injection…)

Control the release of the active ingredient over time

Control the distribution of the active ingredient by allowing it to reach its therapeutic target

An innovative formulation also enables companies to:

Propose a better differentiated product than competitors

Extend the lifecycle of a product, to endow it with new properties (better solubility, better absorption, etc.) by commercializing new formulations of identical molecule once patents expire.

This fulfills a dual interest which is to maintain market share without incurring huge expenditure on R & D, as the development of a new formulation is much less expensive, less risky and much faster than that of the original product. In addition, the reformulation of a "Blockbuster" allows the company to continue to run one or more plant (s) built specially for the drug.

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Fig. 1: comparison of development of original products vs. reformulations

Development of a new therapeutic

protein Development of a new formulation of

an approved therapeutic protein

Duration of development till sales license

obtained 10 to 15 years 5 to 8 years

Average cost on development USD1.4bn* USD50m to USD100m

* = failures taken into account


In effect it seems that the strategy of management of product lifecycle has become a major issue for large pharmaceutical companies who are facing the expiration of their numbers of patents on "Blockbusters". Market share of new active ingredients is steadily declining for 20 years. Generic products account for a growing part of FDA approvals, whereas the percentage of new formulations tends to hold at around 40% to 45%. This shows that the major interest is the formulation for the pharmaceutical industry.

Although this market is not always quantifiable, according to a study published in 2011 by BCC Research, it is estimated at nearly USD13bn in 2011 and expected to exceed USD175bn in 2016.

Since its foundation in 2005, the management of Adocia has strategically positioned the company on the reformulation market. This challenge was brought up due to its top scientific team in this field and this strategy has already been proven effective in other companies (ex: Flamel Technologies).

2.2. An industrialized technology platform Adocia has developed a unique platform grounded in new formulations of therapeutic proteins which have already proven their efficacy and their innocuity and already been granted for marketing authorization. Adocia has accordingly capitalized on its expertise by developing innovative proprietary polymers through reformulation.

A polymer is a macromolecule formed by assembly of a large number of identical or distinct molecules. There are many polymers used as pharmaceutical excipient. Some of these are natural polymers such as alginates used as viscosity in gels, while others are synthetic such as PLAGA which is used in formulations to slowly release protein or peptide.

The R&D team of Adocia has developed a platform on a basis of a natural polymer, dextran, known for its innocuity after being used for 40 years as blood substitute. Dextran is soluble in water and is widely used in emergency medicines for treatment of hemorrhagic shock, as a solution "filler" to maintain blood volume before and during surgery.

The proprietary polymers BioChaperone are obtained through simple chemical modifications of dextran in order to bring them anionic charges and hydrophobic groups. The modified dextran could better physically interact with proteins to form complexes shown in Figure 2. Some members of BioChaperone family have already been tested in clinical trials on humans. Due to the absence of self-

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biologic activities, BioChaperone polymers are qualified for excipients. The proprietary polymer BioChaperone therefore ensures its role as carrier and protector of therapeutic proteins.

The BioChaperone-protein complexes form spontaneously when the two components are mixed in water. This formation does not require heat or addition of organic solvent. They are formed simply due to hydrophobic and electrostatic interactions between the groups added to the dextran skeleton and specific areas of the protein. The combinations between the protein and BioChaperone are reversible, they form when the concentration of protein is high and they break when the concentration decreases, which allows the protein to release gradually in the body.

Fig. 2: Schematic of functionalized BioChaperone polymer by adding specific groups

Source: Adocia

Also, BioChaperone-protein complex demonstrates specific properties that could bring significant therapeutic advantages.

Fig. 3: Specific properties of BioChaperone-protein complex

Compared molecules Avantages Drawbacks

BioChaperone-Protein complex Increase solubility of proteins

Protection against enzymatic degradation

Increase stability of proteins

Possible combination with proteins with a wide range of size and weight

Need to develop a new polymer for each target protein


Adocia has developed a database of more than 250 BioChaperone polymers in order to select the best candidate to combine with a given protein. This large database (increasing constantly) of developed polymers shows the versatility of its technologyplatform and the capability to industrialize its innovation process for numerous applications.

To date, three classes of proteins have been applied for advanced developments by Adocia: hormones, growth factors and monoclonal antibodies.

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Fig. 4: Main target proteins of BioChaperone

Hormones (ex : insuline)

Growth factor (ex : PDGF-BB)

monoclonal antibodies (immunoglobulin)

Source: Adocia.

Interactions between BioChaperone and wide range of proteins show the versatility of this platform.

2.3. Comprehensive patent protection Adocia has built a portfolio of nearly 150 patents and patent applications in 25 classes which cover two main fields of innovation:

Different types of BioChaperone polymers

Developed BioChaperone-protein complexes and their therapeutic applications

Fig. 5: Fields of intellectual protection of Adocia’s technology

Source: Adocia

The first major patent covers the formulation of PDGF-BB and BioChaperone which was obtained in May 2012 in Europe and in the US.

Almost all inventions of Adocia (24 out of 25 classes) are protected until at least 2025. Besides, major patents are likely to benefit from an extension up to 5 years in line with their duration of product development.

Patents on BioChaperone® polymer

Patents on BioChaperone®-Protein complexes

25 classes of patents

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Adocia has developed a strategy of international patent protection with a PCT filing in Europe and in the United States as well as extensions to emerging countries according to partnership opportunities. This strategy aims at achieving the first patents more rapidly in target areas and placing each innovation in a strong position to get the most effective protection in all these countries.

It is noteworthy that in commercial perspective, to launch products based on BioChaperone polymer, the information and validation of the excipient BioChaperone need to be included in regulatory documents.

2.4. Target markets have high potentials

Management of Adocia made the strategic choice to focus on mass markets each of which accounts for several billion dollars and whose market value of target pathologies are destined to increase as the population of patients (prevalence) impacted by these chronic diseases grows continuously.

As a matter of fact, faced with innovation issues of leading pharmaceutical companies in developed countries and treatment cost issues for developing countries, Adocia has positioned itself early on the markets of diabetes and wound healing.

Fig. 6: Size of Adocia’s target markets

Market Estimated targeted market size

BioChaperone – growth factor complex PDGF-BB

Treatment of diabetic foot ulcer EUR1.0bn

BioChaperone-Insulin

Human insulin EUR2.5bn

Fast-acting BioChaperone-Insulin analog EUR5.4bn

Premix EUR3bn

BioChaperone mAbs

monoclonal antibodies > EUR13bn

Source: Evaluate Pharma; Bryan, Garnier & Co ests.

Adocia began by developing a novel formulation for the treatment of diabetic foot ulcers. The first protein launched by Adocia in clinical trials is PDGF-BB (Platelet Derived Growth Factor), which is a growth factor in the composition of existing drugs dedicated to the healing of chronic wounds. The drug BioChaperone-PDGF-BB will enter into Phase III in India in Q3 2013 and another Phase III study is also planned a bit later in Europe and then in the US. Backed by the positive results obtained in Phase II on the treatment of diabetic foot ulcers, Adocia decided to decline its BioChaperone-PDGF for the treatment of venous ulcers, chronic wounds as DFU. This complex could also be declined in the treatment of bedsores and burns.

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Next, Adocia devoted to the development of new insulin formulations for diabetes therapy. Adocia has developed a whole package of solutions to satisfy the therapeutic needs of diabetics:

Prandial therapy used to regulate blood sugar after a meal with BioChaperone-human insulin and BioChaperone-insulin analog complexes

Basal and prandial therapy with BioChaperone-Combo complex with fast-acting insulin and basal insulin

At last Adocia targeted the monoclonal antibodies market. This market grows at nearly 10% per year and could reach nearly USD60bn in 2014. The treatments based on monoclonal antibodies realized the fastest growth in pharmaceutical industry because of the pathologies cured by these drugs and the industrialization of production techniques. Practically, monoclonal antibodies are used primarily in oncology, autoimmune and inflammatory diseases such as rheumatoid arthritis and Crohn's disease.

This opens a brand new potential market for Adocia, which enables it to diversify in promising therapeutic solutions in the future.

Adocia already conducted pre-clinical trials on several antibodies which confirmed the initiation of using BioChaperone-MAbs to improve:

The stability of antibodies

The solubility of the antibodies to enable subcutaneous injection (vs. intravenous).

In order to develop this new approach, Adocia is currently conducting two confidential development programs with leading pharmaceutical companies in this market to create new formulations for their antibodies. In this context, the research expenditures of Adocia and the provision of the BioChaperone platform are covered by partners. To date, the amount is totaled to more than one million euros. These collaborations may eventually end up with signing of licensing agreements on new formulations without any development costs engaged to Adocia. And developments on antibody seem to be a free option (self-financing) to Adocia.

To sum up, Adocia develops its reformulation technology on developed products and carries on clinical studies to optimize novel formulations of the product which intervene in phase I or II. Today Adocia displays an abundant clinical pipeline as shown in the graph below.

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Fig. 7: Adocia’s product pipeline

Source : Adocia

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3. Pertinent offers in the field of diabetes

As therapeutic solutions in the field of diabetes, Adocia’s products benefit from important markets not only in developed countries (EU and US) but also in emerging countries (China and India). In fact, prevalence of diseases is rising sharply in these countries and forecasts predict an acceleration of this phenomenon. Diabetes is the most concrete example, with 371 million people infected worldwide, 80% of which live in developing countries (source: International Diabetes Federation). This disease caused 4.8 million deaths in 2012. With more than 92 million diabetics, China is the country most affected by this disease while the United States has nearly 24 million.

3.1. Diabetes: a global scourge

3.1.1. The pathology and therapeutic paradigm Diabetes is a chronic disease related to abnormally high blood sugar. If remain untreated, complications will cause serious consequences, especially on blood vessels. Diabetes is also a major cause of heart attack, blindness and amputation of legs.

There are two types of diabetes:

Type 1 diabetes occurs primarily among young people and is characterized by lack of insulin secretion by pancreatic cells. The percentage of patients with type 1 diabetes in the total diabetic population is estimated at 10%

Type 2 diabetes is characterized primarily by resistance to insulin, the insulin-resistance. The generation of this hormone tends to decrease even in elderly patients. Diabetics suffering from type 2 diabetes accounts for 90% of total cases. Furthermore, type 2 diabetes is often associated with complications such as obesity, cardiovascular disease and hypertension.

Global trends of epidemic diabetes are serious:

Increasing triggers (diet, physical inactivity)

Growth in emerging countries

Diffusion of detection test

Migration of market from specialists towards general practitioners

Constant therapeutic innovation

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Diabetes market is constantly expecting novel products. Over the evolution of the disease, therapies lose their efficacy and diabetics must use new products to maintain their blood sugar at a normal level.

At present, therapeutic protocols include initial prescription of diet and sport. If this proves to be insufficient, the first medical treatment will be an oral drug, normally sulfonylurea or metformin, then after a few months, a second treatment is required if HbA1c (blood glucose) is above recommended level. According to the recommendations in effect, the most commonly used combinations are: sulfonylurea + another category (usually metformin). If it doesn’t work, a third product will be added (glitazone) however often without significant effect. Eventually, ten years after diagnosis, type II diabetic patients will have to start using therapeutic arsenal, the insulin injections.

Today, the trend is to add insulin therapy into earlier stage of regimen, starting with injections of long-acting insulin or premix.

Fig. 8: Paradigm of diabetes therapy


According to a study carried out by Evaluate Pharma, diabetes therapy with insulin (insulin-therapy) represents approximately 50% of anti-diabetes drug market with more than USD15bn revenues generated in 2012. Insulin is adopted increasingly early during the treatment of the disease, annual growth in market value is expected to be 6% by 2018.

Beta

cel

lsfu

nctio

nev

olut

ion

Diet and exercise

Oral antidiabetic drugs (OAD)(66%)

OAD/Insulin(7%)

Insulin therapy(27%)

Type 1 – Immediat insulin prescription

Insulin adoption increasingly earlier

GLP-1

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Fig. 9: Evolution of insulin therapy market

Source: Evaluate Pharma.

There are primarily three types of therapies based on insulin:

Prandial therapy (1 : Fast acting) which aims to control blood glucose level after a meal

The postprandial glucose is a measure of blood sugar level after a meal. Ingestion of foods will naturally raise blood glucose level in all individuals, but in diabetics, the blood sugar level rises higher and takes longer to recover. Better control of postprandial glucose is essential to fight against long-term effects of diabetes. To suppress postprandial glucose, pharmaceutical companies have developed fast-acting insulin therapies to lower the blood glucose level.

The first insulin available to patients was of porcine origin but with slow action compared to a normal physiological response. The commercialization of human insulin was a major step because it has an effect closer to the normal physiological response. However, to regulate postprandial glucose even more effectively, faster action is necessary. Pharmaceutical companies have developed fast-acting insulin analogs to lower blood glucose level faster than human insulin.

Fig. 10: Variation of blood insulin level over the day

Source : Bryan, Garnier & Co

Injections of fast-acting insulin

Injections of long-acting insulin

CAGR 6.2%

Breakfast Lunch Dinner

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Basal and prandial therapy (2 : Premix) which aims to control daily blood glucose level with a single product

Premix consists of fast-acting insulin which is partly crystalized, one part is in solution and the other is in solid form. The goal of crystallization is slow down the action through gradual release of insulin. This treatment of insulin Premix controls glucose level with a single product and requires only two injections a day. However, this treatment leads to a higher risk of hypoglycemia, especially at night, and weight gain.

Basal therapy (3: Long acting) is designed to maintain a constant glucose level

The last category of insulin therapy allows an extended release of insulin all day long and maintains a sufficient blood insulin level to regulate blood sugar. This treatment is prescribed either as initially intended, to jointly use with oral anti-diabetes drugs, or as part of multi-injection treatment consists of fast-acting insulin before meals and long-acting insulin in the evenings and mornings.

Fig. 11: Actions of different types of insulin

Source: Novo Nordisk

Insulin market is led by an oligopoly of three pharmaceutical companies: Novo Nordisk (world leader), Eli Lilly and Sanofi. These three players have developed therapies of fast-acting insulin and long-acting insulin. However Sanofi is the only one not having commercialized insulin analog premix and Eli Lilly doesn’t yet have basal insulin on the market.

Insulin therapy market is dominated by insulin analogs which amounts USD12.5bn whereas human insulin is USD3bn or nearly 20% of the insulin therapy market (source: Evaluate Pharma).

(1)

(3)

(2)

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Fig. 12: Major insulin therapy products on the market

Prandial therapy

(fast-acting insulin) Basal therapy

(long-acting insulin)

Prandial-basal therapy (fast and long acting insulin)

Premix

Regulate post meal blood sugar Regulate blood sugar constantly Single injection with both prandial and

basal effect

Novo Nordisk

Insulin analog NovoRapid® (USD2.5bn) Levemir® (USD1.3bn) Novomix® (USD1.5bn)

Expiration of patents 2017* 2019* 2017*

Tresiba® (Degludec) Rysodeg® (Degludec +Aspart)

Human Insulin Actaprid Actaprid NPH

Eli Lilly

Insulin analog Humalog® (USD2.4bn) Humalogmix

Expiration of patents 2013*

Glargine (Phase III)

Human insulin Humulin Humulin NPH

Sanofi

Insulin analog Apidra® (USD0.6bn) Lantus® (USD5.5bn)

Expiration of patents 2017* 2015*

Human insulin Insuman Insuman NPH

*= expiry date of patent


The three major players in this highly competitive market are constantly searching for innovations. In fact, despite the existence of many "Blockbusters", as shown in the table above, there exist many issues and sources of improvements:

Expiration of patents

Several patents on "Blockbusters" will expire in four years as shown in the table above. Patent owners will therefore have to establish a strategy to maintain their market share and confront the competition from generics.

Cost of treatment

As we mentioned the cost of developing a new product exceeds billions of dollars, this directly influences the cost of treatments charged to diabetic patients. Pharmaceutical companies hence are responding to global need in two ways:

o In developed countries like the United States and Europe, the preferred treatment is a combination of fast-acting and long-acting insulin because it is the most effective way, but also the most expensive. This multiple injections treatment also requires attentive monitoring by doctor which can hardly be realized in emerging countries.

o In emerging countries such as China and India, the preferred treatment is Premix due to lower cost of treatment and less compulsive dosage (1-2 injections per day).

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However, pharmaceutical companies fail to find access to emerging markets with insulin analogs because they are too expensive.

Technical limitations of existing treatments

Insulin therapy as all other drugs has specific features that can sometimes prevent their combination with other drugs because of biological interactions. There are also limitations related to the molecular characteristics of a princeps. For example, the long-acting insulin of Sanofi, Lantus ® cannot be mixed with fast-acting insulin which is a serious barrier for Sanofi because even if Lantus ® is a leader in long-acting insulin market, Sanofi does not have premix of insulin analog. As a matter of fact, the only Premix commercialized by Sanofi is Insuman NPH which is a mixture of free and crystallized human insulin. It is the same for Levemir ® of Novo Nordisk who had to develop another basal insulin product: Tresyba ® (Degludec insulin)

Similarly, marketed premixes are all composed of a mixture of free insulin (human or analog) and crystallized insulin with protamine (NPH). These treatments lead to weight gain and increased risk of hypoglycemia. In addition, the solubility of these products is restricted due to the crystallization of insulin and the releases of insulin over time are not identical from one injection to another.

Pharmaceutical companies are looking for solutions allowing them to mix their fast-acting insulin and long-acting into a single product without causing formation of a precipitate or alteration of the activities of each protein. For the moment, only Novo Nordisk has developed a new premix consisting of a mixture of fast and slow acting insulin analog, named Ryzodeg ®. This premix was developed in conjunction with new basal insulin Tresiba® because it is a mixture of NovoRapid ® (insulin action) and Tresiba ® (long-acting insulin). Both products have been granted for marketing authorization in Europe January 21, 2013 and Tresiba will be authorized in Japan in February. However, following the concerns aroused during the ADCOM in November 2012 on cardiovascular risk of Tresiba and hence of Ryzodeg, FDA requested for further clinical trial before authorization to the U.S. market. This announcement may cause delay of two to three years to the launches of these two insulins in the United States. The will and ambitions shown by Novo Nordisk in the field of Premix reflect the interest of the market and possible improvements on existing therapies.

3.1.2. Adocia’s responses to its issues

To meet the needs for innovations from pharmaceutical companies in diabetes therapy, Adocia has developed a portfolio of BioChaperone in partnership in combination with different insulin commercialized by these companies.

BioChaperone-Insulin analog complex: value already increased by a deal

Adocia is interested in insulin analog segment by developing the polymers that are capable of combining with these special insulins. A pre-clinical study has been carried out on animals with the formulation of BioChaperone-Humalog, while Humalog is an insulin analog commercialized by Eli Lilly. The action of BioChaperone-Humalog was compared with that of Humalog only.

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Fig. 13: Results of preclinical trials of BioChaperone-Humalog vs. Humalog only

Source: Adocia

This study demonstrated that the complex developed by Adocia has a considerably higher action speed than Humalog ® alone and better absorption of insulin by human body. Shorter onset time enables better control of postprandial hyperglycemia, and faster elimination of insulin prevents the hypoglycemic phenomenon.

Fig. 14: Comparative table of the results on BioChaperone-Humalog vs. Humalog only

Treatment Advantages Drawbacks

Humalog®

(Insulin Analog)

Action speed higher than human insulin Cost of treament

Injection 15 min before meals

BC-Humalog Action speed higher than Humalog® only

Injection during meal

Treatment cost equals to that of Humalog


These results enable Adocia to sign a first licensing agreement in December 2011 with Eli Lilly in order to develop the fastest insulin analog on the market (“Best-In-Class” product). This new formulation of Humalog ® enters fully into the lifecycle management of this drug, once it succeeds, Eli Lilly will be able to maintain its market share in this segment. With the patent on Humalog ® expiring this year, we can estimate that Eli Lilly wishes to accelerate the development of this product to launch it by 2018.

The segment of the fast-acting insulin analogs is strategic for companies like Eli Lilly because it is primarily located in the United States and in Europe and it holds, in volume, nearly a quarter of insulin therapy market (Source: Novo Nordisk). Moreover, Novo Nordisk has developed a new formulation of NovoRapid (fast acting analog) that will enter into Phase III at the end of the year.

BC-Humalog

eliminates more

rapidly

Time post injection (min)

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BioChaperone-Human Insulin (HinsBet): to conquer emerging markets

In insulin therapy market, insulin analogs are increasingly more preferable than human insulin. Indeed, in the prandial treatment insulin analogs have a faster onset of action compared to that of human insulin with an intake several minutes before meals vs. 20 to 30 minutes for human insulin. In the US this market is declining for years, therefore human insulin aims primarily at emerging markets because their production costs are lower than that of insulin analogs. Adocia has also conducted studies to develop a BioChaperone-human insulin complex in order to demonstrate the non-inferiority compared to insulin analog.

Adocia achieved a polymer with the ability to combine with human insulin, this complex is named HinsBet (acronym for Human Insulin is Better). A phase I study was conducted at the end of 2010 on 12 healthy volunteers to compare the efficacy of HinsBet vs. Novolog (Fast-acting insulin analog Aspart of Novo Nordisk known as NovoRapid) and Actaprid (human insulin also produced by Novo Nordisk).

The results published in 2011 showed that:

The onset time of HinsBet is 20 min shorter than that of Actaprid (human insulin). In addition, HinsBet has an onset time no longer than that of Novolog (insulin analog) in the critical period of first sixty minutes post-injection

All the injections of HinsBet were well tolerated and no side effect was observed

Fig. 14: Results of phase I study on BioChaperone-human insulin complex

Source: Adocia

With these results, Adocia launched in June 2011 a Phase IIa study conducted in Germany on 20 patients with type 1 diabetes (vs. healthy volunteers in Phase I in 2010). This study aimed to test the variability of the control of blood glucose in comparison with the use of NovoLog (insulin analog). In fact, each patient was administered HinsBet during the first test, and was then administered Novolog in a second test to compare the efficacy of two treatments on the same patient.

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Fig. 15: Results of phase IIa study between HinsBet and NovoLog

Source: Adocia

The results presented in the graph above shows that the BioChaperone-Human insulin complex has an effect no less than that of insulin analog alone on patients with type 1 diabetes.

HinsBet has several qualities:

It does not cause side effects. The use of human insulin was the first preferred choice before the use of insulin analogs and side effects studies are based on years of therapeutic use

The presumption based on Phase I trials is an action speed no less than that of insulin analog

The cost of production of the compound is much lower than that of insulin analogs (estimated to be 30% lower). Adocia could demonstrate a strong therapeutic value proposition with a product of similar efficacy and sold at a much lower price than insulin analogs

=BC-human insulin =Novolog

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Fig. 16: Comparative table between HinsBet, human insulin and insulin analog

Treatment Advantages Inconveniences

Human Insulin Treatment cost

Same insulin as physiologic insulin

Low action speed

Insulin analog High action speed Cost of treatment

HinsBet Treatment cost (30% lower than insulin analog)

Fast action speed equivalent to that of analogs


The R & D team of Adocia is currently working on the optimization of BioChaperone-human insulin complex formula to further improve the onset time of the hormone. Another phase IIa study is planned in India in Q3 2013 using this new optimized version of HinsBet to prove the therapeutic value of the product. The results of these studies could attract the attention of local pharmaceutical companies in high potential emerging countries such as China and India.

BioChaperone-Combo: more than a joker on Premix market

Today, the preferred basal insulin is Glargine insulin, marketed by Sanofi and named as Lantus. This insulin has the distinction of being soluble at acidic pH and insoluble at neutral pH. Its slow action results from precipitation of Glargine insulin after subcutaneous injection as it is immediately neutralized. However, this feature prevents it from mixing with rapid insulins which are unstable in acidic pH and therefore formulated at neutral pH.

Adocia has demonstrated in vitro that BioChaperone can solubilize Glargine insulin at neutral pH thus making it possible to mix with fast-acting insulins. This combination allows maintaining the performance of each insulin, fast-acting insulin with short action time and slow-acting insulin with long action time. To illustrate this invention, several combinations were produced by mixing Glargine insulin Glargine with different fast-acting insulins:

Human insulin

Glulisine insulin, Apidra (Sanofi)

Lispro insulin, Humalog (Eli Lily)

Lantus will be launched in 2015 and Eli Lilly has already initiated a clinical program to approve another insulin Glargine with identical protein structure to that of Sanofi. Same combination could therefore be developed with insulin of Eli Lilly.

To testify the efficacy of this combo BioChaperone-Glargine insulin and Humalog, it was compared with HumalogMix Premix consists of a fraction of free Humalog (25%) and a fraction crystallized in a preclinical study on the dog model.

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This study was able to prove:

Complete solubility of this complex without formation of aggregates

Faster onset time of fast-acting insulin than the free part of Premix

Longer duration of action of BC-Combo than Premix HumalogMix

Fig. 17: Results of Preclinical study of BioChaperone-Lantus-Humalog complex

Source: Adocia

The objective of Adocia is to verify the results of pre-clinical trials on human in clinical study. The Complex BioChaperone Combo Lantus Humalog will be compared with premix in a Phase I / II study scheduled in Q3 2013. The main objective of this trial is to demonstrate the improvement of treatment with BioChaperone combo compared to Premix while providing the same comfort for the patient.

A product like human insulin will enable Adocia to target at emerging areas. As a matter of fact, Premixes are prescribed principally in emerging countries and play an ever more important part in the insulin therapy in these countries. For example, in China, Premix accounts for 66% of insulin market (source: Novo Nordisk)

Action of fast-acting

insulin

Action of slow-acting insulin

Better efficacy of BC-Combo

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Fig. 18: Evolution of China insulin therapy market by segments


The predominant use of Premix in China is due to:

Less restrictive dosage because Premix assembles the effects of basal and prandial insulin. Patient only need to intake one product to execute the treatment

Reduced injections (twice a day) compared to multiple injections treatments that require four to five injections per day

Reduced cost of treatment results from two previous points. Moreover, Premix is cheaper than the referential basal insulin (Lantus)

The prescription treatment is executed in hospitals while it is executed by endocrinologists in developed countries

3.1.3. An onrushing pandemic According to International Diabetes Federation (IDF)’s estimate, the population of diabetics will reach 552 million in 2030. The two most affected countries are China and India respectively with 130 million and 101 million diabetics. As shown in the map below, emerging countries show a high prevalence of the disease. For example, in China the prevalence is 8.8%, in India it stands at 9% and it reaches event 10.5% in Brazil.

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Fig. 19: World map of prevalence of diabetes (%) in 2011 (20 to 79 yrs old)

Source: International Diabetes Federation

Fig. 20: World map of healthcare expenses (USD/ patient) related to diabetes in

2011 (20 to 79 yrs)

Source: International Diabetes Federation

Despite huge related costs, there exists great regional disparity in spending. Expenses related to the treatment of diabetes and the prevention of complications amounted to USD465m, in 2011 and will exceed USD595m in 2030. Faced with this situation, despite an average annual expenditure of USD1,274 per patient worldwide, the spending in each country varies (see map below).

In fact, while in most developed countries like the United States or France the average annual expenditures related to diabetes exceed USD5,000 per person, this figure is USD194 in China and only USD68 in India.

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Fig. 21: Estimates of diabetics worldwide in 2012

Country Number of cases of diabetes (20-79 yrs) in millions

Prevalence (%) Annual expenses related to diabetes per person (in USD)

China 92.3 8.82 194

India 63 9.01 68

Russia 12.7 9.74 650

Brazil 13.4 10,52 1,031

US 24.1 9.35 8,478

France 3.5 5,62 5,601

World 371.3 8.30 1,270

Source: International Diabetes Federation.

Adocia develops a range of products aiming to be either an "at the same cost" innovation focusing on western countries or to obtain a lower production cost than present products on the market to cater to emerging countries.

3.2. Complications related to diabetes: another scourge!

3.2.1. Diabetic foot ulcer, a highly valued market Diabetes is by nature a chronic pathology which develops many complications during the evolution of the disease. Cardiovascular complications are the leading causes of death among diabetic patients but they are not alone. In fact, the number of diabetics suffering from diabetic foot ulcer in the world is estimated at 10 million, including one million in the United States and one million in Europe. According to IDF, the diabetic foot ulcer (DFU) is the leading cause of hospitalization for diabetic patients. The major risk is amputation, 85% of implemented amputations on diabetics are caused by foot ulcers which amounts to more than one million cases each year in the world.

This pathology has two main causes:

Damage on foot nerves which will possibly result in the destruction of nerve fibers which is called neuropathy

Arterial obstruct of legs which is called arteriopathy

There are few different treatments for this complication. In fact, the first sign is the pain of foot resulting in bed rest and use of specific shoes. This is accompanied by local care with antiseptic, dressings, bandages and antibiotics in case of infection. When there is tissue necrosis, it is necessary to execute a debridement of the wound to delimit the necrosis. Then it is possible to treat the wound with a gel to stimulate healing through growth factor: PDGF-BB (Platelet Derived Growth Factor - BB). Finally there are other types of treatments under this situation. The main alternative treatments are therapies that use cellular skin substitutes for the reconstruction of the dermis and the epidermis.

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This market has experienced for years several materialized effervescences through a large-scale of operations carried out by pharmaceutical companies. Smith & Nephew announced in November 2012 the acquisition of Healthpoint Biotherapeutics for USD782m. Healthpoint Biotherapeutics is specialized in wound healing and tissue repair, primarily sells three products:

Regranex ® which is a gel containing growth factor PDFG-BB. Healthpoint Biotherapeutics had acquired the product Regranex for USD730m in June 2011 from Systagenix (spin-off of Johnson & Johnson). It is prescribed initially intended for diabetic foot ulcers resulting from neuropathic which account for 40% of the cases. The sales of Regranex, which peaked at USD100m in 2003, have been steadily declining and are now around USD60m. Regranex was withdrawn from European market at the moment but Smith & Nephew foresees a new launch in 2013.

Santyl ® is an ointment with enzymatic effect, and it can clean wounds by removing necrotic tissues. This product is prescribed to patients with diabetic foot ulcers, venous ulcers, bedsores and burns

Oasis ® is a skin substitute used for diabetic foot ulcers and venous ulcers

Pharmaceutical company Shire acquired Dermagraft ® in June 2011 from Advanced BioHealing for USD750m. Dermagraft ® is a product based on human cells, and it’s used as substitutes for skin, this treatment is already approved by the FDA and it has generated USD105m revenues in 2011. Shire predicts an increase in its market share to be 10% in the next ten years to peak at USD350m, with the estimation of global diabetic foot ulcer market be USD3bn. In addition, studies are being conducted on the use of Dermagraft for patients with venous ulcers. In both conditions, the main competitor of Dermagraft is Apligraf which was approved for the treatment of diabetic foot ulcers and venous ulcers. Apligraf is developed by Organogenesis and generates less than USD50m revenues.

Nevertheless, these cellular therapies have a very high cost (USD5,700 for Dermagraft vs. USD1,700 for Regranex), they are generally designed for a second-line prescription in cases of wounds resistant to conventional treatments (Regranex ® ...). These two treatments are therefore positioned on different market segments.

Other treatments are still under development:

• Fiblast ® is a spray using the growth factor FGF-2 (fibroblast growth factor 2). This product, developed by Olympus, is marketed in Japan and a phase III clinical trial is ongoing in Europe

• DSC 127 is an analog of angiotensin under development for diabetic foot ulcer. This product, developed by Derma Sciences, will begin Phase III clinical trials this year.

• Healor develops a product (phase II / III) using a precursor of protein kinase C (PKC) to treat diabetic foot ulcers and venous ulcers.

Adocia is oriented in the development of a product using the therapeutic properties of the growth factor PDGF-BB for neuroischemic diabetic foot ulcers (60% of cases) allowing it to address a significant portion of the DFU market while having very little competition because Regranex is only indicated for neuropathic DFU. There is currently no approved treatment for neuroischemic ulcers which are the most complicated wounds and often lead to amputation. Urgo announced its intention

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27

to conduct a clinical study on its dressing, Urgo start, which is already approved for the treatment of venous ulcers, to treat neuroischemic diabetic foot ulcers. Adocia’s strategy could also court envies of present players in conventional therapy market (dressing ...), due to its ambition to achieve the upmarket, which is the experts in cellular therapies are willing to expand the market share in target markets.

Fig. 22: Diabetic foot ulcer market and Adocia’s position

Source: Company data; Bryan, Garnier & Co ests.

3.2.2. Adocia positions itself as a novel challenger Adocia developed a polymer being able to associate spontaneously with growth factor PDGF-BB. The product of Adocia was developed in spray form because of its high solubility, so it will be applied once every two days unlike Regranex, who requires daily application.

A preclinical study was conducted on animals to compare the effects of BioChaperone-PDGF-BB with referred product Regranex. This study showed comparable efficacy between the two products both in healing and in quality of tissue formation. A head-to-head study of Phase II was launched in India in June 2010 in collaboration with Virchow Biotech laboratory (producer of PDGF-BB since 2005) on 192 patients. Conducted in 11 investigation centers, this study analyzed the effects of BioChaperone-PDGF-BB at different doses compared to that of Regranex (reference product) at standard dose. The results show significantly higher cure rate of ulcer at least equivalent to patients treated with PDGF-BB at a lower concentration than that of Regranex (divided by 3), both in 10 or 20 weeks.

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Fig. 23: Comparison of healing between BioChaperone-PDGF-BB and Regranex

Source: Adocia

Fig. 24: Comparative table between Regranex and BioChaperone-PDGF-BB

Compared products Advantages Inconveniences

Regranex Proved efficacy and marketed product

Reduce the rate of amputation for 30%

High direct cost : €1050 of Regranex

Indirect cost: nursing

Conservation at + 4°C

Cannot be prescribed to

neuroischemic ulcers (60% of total

cases)

BioChaperone-PDGF-BB efficacy at least equivalent to Regranex in phase II studies

Application once every two days

Only 1/3 of dosage of PDGF compared to Regranex

Ease of use by spray

Application once every two days

Conservation at room temperature

Cannot be prescribed for neuropathic

ulcers (40% of total cases)


Next steps for the development of BioChaperone-PDGF-BB spay: A phase III study is planned in India in Q3 2013. The results of this study will support an

application for authorization to market in India for the treatment of foot ulcers of arteriopathy origin. This authorization is expected to be granted in 2016.

A phase III study is planned in Europe and in the United States in 2014

A phase II study is planned in India for the treatment of venous ulcer with BioChaperone-PDGF-BB. Venous ulcer caused by vascular dysfunction provokes venous hypertension. This results in a wound appearing on medial malleolus. The similarities between this disease and diabetic foot ulcer make it possible to be treated by BioChaperone-PDGF-BB.

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29

Briefly speaking, Technology platform BioChaperone could help develop treatments from BioChaperone-PDGF-BB complex on all diseases or injuries, which cause the occurrence of chronic wounds which are hard to heal. The spray formulation developed by Adocia would be particularly useful for treating the scabs or in cases of burns.

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4. rNPV Valuation

4.1. A confirmed business model

Adocia aims to establish the "Proof of Concept" for the treatments it develops to be able to sign partnerships with pharmaceutical companies. These partnerships take the form of a licensing agreement with a payment of an initial fee ("Upfront Payment") and the staged payments depending on the progress of clinical studies ("Milestones") and a commission on revenues generated by the commercialization of the product ("Royalties ").

Furthermore, Adocia ensures the transfer of the full clinical development to partners. In fact, the company has no plans to commercialize its innovations. Moreover, Adocia uses a CMO (Contract Manufacturing Organization) for the industrial production of its various BioChaperone polymers. The company will provide the polymers in form of powder therefore pharmaceutical companies will no longer have to solubilize them with active ingredients.

The CEO of Adocia Gérard Soula, PhD in organic chemistry, was the founder of Flamel Technologies, a company listed on Nasdaq and it also specializes in the formulation of existing drugs. He was the CEO and Director of Research until 2005, when he left the capitalization of Flamel Technologies was USD500m. The success of this company is based on the development of a platform for extended release of therapeutic proteins (Medusa) and another platform for controlled release of oral drugs (Micropump).

Gérard Soula has rich experience in negotiating licensing agreements with major pharmaceutical companies such as Novo Nordisk, Bristol-Myers Squibb and GlaxoSmithKline. Moreover, when he led Flamel Technologies, he already worked with Valérie Danaguezian, present CFO of Adocia, and had already signed a partnership with GlaxoSmithKline for the development of Coreg CR ® (alpha / beta blocker) which was launched in the US in 2007. He is assisted by his son Oliver Soula, Doctor in Physical chemistry of polymers. Previously he was research director at Flamel Technologies where he directed the development of the platform Medusa.

The great experiences of this management team make us believe that it will be capable of monetizing its technology platform, like the way they already knew in the past with Flamel Technologies and more recently in Adocia with Eli Lilly.

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4.2. Projects under development

To calculate the market potential of Adocia’s different projects we firstly divide the market into three main zones which are the United States, Europe and rest of the world. Then, we used the estimates of IDF on population of people diagnosed with diabetes and in each region we applied an annual growth rate of 2%. Among these diabetics, we estimate an average percentage lower than 30% under insulin therapy based on data from Novo Nordisk. The population of patients under insulin therapy is used in basic calculation to determine the market potential by categories of different insulin under development.

Fig. 27: Distribution of diabetes market


Regarding the BC-PDGF project on diabetic foot ulcer, an average prevalence of 5% was applied to the diagnosed diabetic population. Within this population, we estimated the average 60% of diabetic foot ulcers are from arteriopathy origin, which is Adocia’s target market. At last, all the prices of treatment are adjusted with annual an inflation rate of 1%.

4.2.1. Eli Lilly is already a success: 1st agreement with Eli Lilly proves Adocia’s capacity to monetize its technology platform

This strategy has already realized its first success upon signing the licensing agreement and collaboration with Eli Lilly. This agreement covers the development and commercialization of BioChaperone-Humalog complex. Humalog is the flagship of Eli Lilly fast-acting insulin analogs category. It should be mentioned that agreement had been reached when BioChaperone-Humalog was in preclinical phase.

Financial terms of this agreement prepare the followings for this product in phase I:

Initial payment of USD10m realized in January 2012 (upfront payment)

Additional staged payments (milestones) up to USD156m and subject to the performances of different steps related to the development

The fees (royalties) related to the sales of the product by the partner

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The Costs of product developments are covered by the partner

According to the terms of this agreement, we believe that this new product will launch in 2018 and will be accompanied by an average of 6% royalties on revenues generated, which is estimated to be more than EUR2bn. Recall that Humalog has achieved a turnover of EUR2.4bn in 2012. The price of treatment at present is estimated at EUR450 in the United States, EUR315 in Europe and EUR225 in rest of the world. Given the status of the project (phase I) we estimate the probability of success to be 20%. Upon these assumptions, the value of this project is estimated to be EUR35m.

Fig. 28: Project valuation : BioChaperone-Humalog=EUR35m

(In EURm) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

TOTAL SALES

141 490 952 1 239 1 549 1 882 2 141 2 316

R&D

Royalties (6%)

8 29 57 74 93 113 128 139

Upfronts/Milestones 7.7 5

15

20 20 10 15

15

15

Economics to Adocia 8 5

15

20 28 39 72 74 108 113 143 139

EBIT 8 5

15

20 28 39 72 74 108 113 143 139

Tax (15%) (1) (1) - (2)

(3) (4) (6) (11) (11) (16) (17) (22) (21)

NOPAT 7 4 - 13 - 17 24 33 61 63 92 96 122 118

Sum of discounted FCF 175

WACC 12%

Growth to infinity 1%

Value per share 28.2

Success rate 20%

rNOV€/share 5.7

rNOV(EURm) 35.0


4.2.2. BioChaperone-human insulin project (HinsBet)

Regarding to this project, Adocia forecasts phase IIa study to be completed in the third quarter of 2013. Adocia could then reach a licensing agreement with a local pharmaceutical company in 2015, after the publication of Phase IIa results. Adocia could get the upfront payment of EUR30m and milestones spreading over 6 years. The authorization for launch of the product will be granted, according to our estimation, in 2017 which allows Adocia to collect an average 10% royalty on revenues generated, which are estimated to peak above EUR150m. The price of treatment is estimated to be EUR300 in the United States, EUR225 in Europe and EUR180 in the rest of world. We consider that the success rate of this project is 40%. In line with these assumptions the value of the project amounts EUR13.2m.

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Fig. 29: Valuation of BioChaperone-human insulin project (HinsBet)= EUR13.5m

(mEUR) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

TOTAL SALES 5 47 84 121 140 153 163 169 141

R&D -0,2 -0,2

Royalties (10%) - - 0 5 8 12 14 15 16 17 14

Upfronts/Milestones 5 5 10 5 5

Economics to Adocia - (0,2) (0,2) 5 5 10 5 13 17 14 15 16 17 14

EBIT - (0,2) (0,2) 5 5 10 5 13 17 14 15 16 17 14

Tax (15%) - 0,0 0,0 (1) (1) (2) (1) (2) (3) (2) (2) (2) (3) (2)

NOPAT - (0,2) (0,2) 4 4 9 4 11 15 12 13 14 14 12


WACC 12%


Value per share 5,45

Success rate 40%

rNOV€/share 2,2

rNOV (mEUR) 13,5


4.2.3. BioChaperone-Combo project

Adocia aims to develop an insulin combo consists of a fast-acting insulin and long-acting insulin. This medicine represents an innovation compared to present Premix therapies. Clinical trials to be carried out by Adocia in the coming years should confirm the results obtained on animals and establish the proof of efficacy of the complex formed by BioChaperone polymer and two different fast-acting insulins ( Lantus + Humalog or Apidra) in diabetic patients.

Considering the progress of this project with the expected PhI/II results early 2014, we expect a partnership as of 2014 (scenario confirmed by the management). Adocia could thus be entitled to upfront and milestones payments of EUR85m in total. We anticipate a launch in 2018 although the product could be on the market in 2017 if the partner is able to accelerate the process by moving directly in phase III (similar to the Novo Nordisk project). Adocia could benefit 10% royalty from sales which could exceed EUR1.5bn in 2025. The prices of treatment are estimated to be EUR400 in the United States, EUR320 in Europe and EUR240 in the rest of world. The Phase I clinical study has not started therefore we retain a success rate of 15%, which will be significantly lift after positive phase I/II results. The value of this project is estimated to be EUR21.2m, representing 18% of the company valuation, the second most valuable asset for Adocia.

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Fig. 30: Valuation of BioChaperone-Combo project = EUR21.2m

(mEUR) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

TOTAL SALES - - - 10 78 320 624 867 1 123 1 364 1 532

R&D -0,2 -2

Royalties (10%) - - - 1 8 32 62 87 112 136 153

Upfronts/Milestones 10 20 20 20 15 10

Economics to Adocia (0,2) (2,0) 10 - 20 - 21 28 32 77 87 112 136 163

EBIT (0,2) (2,0) 10 - 20 - 21 28 32 77 87 112 136 163

Tax (15%) 0,03 0,30 (1,50) - (3) - (3) (4) (5) (12) (13) (17) (20) (24)

NOPAT (0,2) (1,7) 9 - 17 - 18 24 27 66 74 95 116 139

Sum of discounted FCF 141,4

WACC 12%


Value per share 22,8

Success rate 15%

rNOV€/share 3,4

rNOV (mEUR) 21,2


4.2.4. BioChaperone-PDGF-BB project: diabetic foot ulcer

In this project, Adocia plans to launch a Phase III clinical study in India this year and then in Europe and in the United States in 2014. The results of these studies should allow Adocia to sign a licensing agreement with payments of EUR30m including upfront and milestones. Adocia should be able to get a 20% royalty on revenues generated by this product. The price of treatment is estimated to be EUR250 in the United States, EUR150 in Europe and EUR93 in the rest of world. Therefore the potential sales are estimated to be EUR93m, an amount reached by Regranex and already exceeded by Dermagraft. Evidence of efficacy has already been established thus we consider this project to have a success rate of 65%. The signing of this licensing agreement it predicted to be in 2014 and it would hence enable a launch in 2016. The low risk of failure on this project allows us to estimate a value of EUR20.7m.

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Fig. 31: Valuation of BioChaperone-PDGF-BB project = EUR20.7m

(EURm) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

TOTAL SALES

1 3 7 18 43 60 71 81 91 93

R&D costs

-1.5 -3 -4

Royalties (20%)

0.1 0.6 1.3 3.6 8.6 12 14 16 18 19

Upfront/Milestones

5

5 5 5

5

5

Economics to Adocia

(1.5) 2 (4) 5 6 6 4 9 17 14 16 18 24

EBIT

(1.5) 2 (4) 5 6 6 4 9 17 14 16 18 24

Tax (15%)

(0) (0) (0) (1) (1) (1) (1) (1) (3) (2) (2) (3) (4)

NOPAT

(1.5) 2 (3) 4 5 5 3 7 15 12 14 15 20


WACC 12%


Value per share 5.2

Success rate 65%

rNOV€/share 3.3

rNOV (EURm) 20.7


4.3. Conclusion: A company valuation at EUR121m

Fig. 32: Conclusive valuation of Adocia by segment

Projects Indication Phase Success rate Predicted year of

launch Discounted

cashflow (EURm)

BC-insulin analog (Eli Lilly) diabetes I 20% 2018 35.0

BC-human insulin (HinsBet) diabetes IIa 40% 2017 13,5

BC-Combo diabetes PC 15% 2018 21,2

BC-PDGF-BB Diabetic foot ulcer II 65% 2016 20.7

Potential total value 90,4

Net cash (till 31/12/2012, in EURm) 30,5

Total target value(EURm) 120,9


The sum of discounted cash flow of each project amounts EUR90.4m. Adocia held EUR30.5m cash at the end of 2012 enables it to self-finance clinical trials for several years. Note that the conservative assumptions used do not take into account ongoing developments in the field of monoclonal antibodies. In addition, we do not take into account the possibility of applications of the BioChaperone-PDGF-BB in treatments of venous ulcers or bedsores.

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Fig. 33: Valuation of Adocia by segment ( in EUR/share)


On a basis of 6.2 million shares, it can be derived that Adocia has a fair value at EUR19.5 which shows an upside potential of 52%.

5.7

2.2

3.4

3.3

4.9

19.5

02468

101214161820

(EUR per share)

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37

4.3. Newsflow


Year Projects Important events Consequences

2013 BC-Humalog : Eli Lilly Publication of phase I results Milestone payments by Eli Lilly (EUR5m)

BC-human insulin : HinsBet Launch of 2nd phase IIa trial at Q3 2013

BC-Combo Launch of phase I trial

BC-PDGF : DFU Launch of phase III trials in India

2014 BC-Humalog : Eli Lilly Launch of phase II trials

BC-human insulin : HinsBet Publication of 2nd phase IIa trials results

BC-Combo Results of phase I trial

Launch of phase II trials

BC-PDGF : DFU Results of phase III trial in India Signing of licensing agreement : upfront

payment (EUR5m)

Launch of phase III trials in Europe and in US

2015 BC-Humalog : Eli Lilly Publication results of phase II Milestone payment by Eli Lilly (EUR15m)

BC-human insulin : HinsBet Partnership with a local company (emerging

countries) : upfront payment (EUR10m)

BC-Combo Publication of phase IIa trial results of BioChaperone-

Lantus-Humalog complex

BC-PDGF : DFU Results of phase III trials in Europe and in US Milestone payment (EUR5m)

Submission to Indian regulatory authorities to launch the

product

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Adocia

40

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CORPORATE RESEARCH Adocia · 2013. 3. 8. · therapeutic proteins. The first candidate is the...

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