D. Western Therapeutics Institute Inc. Impact of Glaukos ...

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D. Western Therapeutics Institute Inc. (4576 JASDAQ) Issue date: Nov. 16, 2020

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Impact of Glaukos joint research contract

The Glaukos expansion strategy

Glaukos Corporation is a global maker of ophthalmic devices. At present its main products are the minimally invasive devices for the treatment of glaucoma, iStent® and iStent Inject®. These achieved a 10-fold increase in sales in a mere 6 years. For the treatment of ophthalmic diseases, it is not easy to apply regular and continuous eye drops, and therefore drug sustained-release devices and aqueous humor draining devices are building big growth markets. Until 2018 Glaukos focused on the development of devices, such as drug administration devices for glaucoma, but since 2019, it has pursued an opportunity to expand its product portfolio in the promising area of corneal disorders and retinal diseases. It therefore acquired Avedro Inc. and DOSE Medical Corp., and concluded a technology license agreement with Intratus Inc., thereby becoming a leading maker of a broad range of devices and drugs in ophthalmology, a market valued at USD 54 billion.

Why did Glaukos choose DWTI?

In September 2020, Glaukos amended the joint research contract and license agreements it had concluded in 2018, expanding the area of indications and signing new license agreements. Why did Glaukos twice select DWTI as its joint research partner? The target of the 2018 joint research was related to iDose, a device which could provide a long-term sustained release of DWTI's drug (a ROCK inhibitor) for the treatment of glaucoma. In the September 2020 agreement, indications were expanded to cover corneal disorders and retinal diseases, and the agreements incorporated milestone payments upon several events during product development and royalties after product launch. Glaukos highly evaluated the potential of DWTI’s ROCK inhibitors and other kinase inhibitors and the fact that DWTI’s drug discovery technology was capable of creating device-suitable drugs (such as long-term stability of the chemical structure, low water solubility, and affinity of new DDS techniques such as gels).

What does the new contract bring to DWTI?

The two joint research and licensing agreements were not the result of aggressive marketing by DWTI but the result of a decision of Glaukos to select DWTI when Glaukos was expanding its strategy. Therefore, it seems likely that the size of the milestone payments and royalty rates to be generated by the contracts could overturn DWTI’s former image. DWTI is presently gradually extending the labeled indications of its existing products on the market and the geographic territories where they are sold, but at the same time, during the interval until its next in-house product is launched, the company also is extending the geographic market territories of their products and the surgery targets which it has in-licensed from other companies in order to stabilize its earnings. In other words, the company is securing multiple sources of stable earnings, and furthermore, is now at the stage that it can license out new drugs developed in house after completing early clinical studies. We therefore infer that adding in the impact of products jointly researched with Glaukos will be significant.

Follow-up Report

Fair Research Inc.

Tsuyoshi Suzuki

Company Outline

Location Nagoya

President Yuichi Hidaka

Established Feb. 1999

Capital JPY556 mil.

Listed Oct. 2009

URL www.dwti. co.jp

Industry Pharmaceuticals

Employees 17 (consol)

Key Indicators (as of 2020/11/13)

Share Price 326

52week High 699

52week Low 301

Shares

Outstanding 29,251thou.

Trading Unit 100 shares

Market Cap JPY9,536mil.

Dividend (est.) 0

EPS (est.) -12.94 JPY

Forecast PER NA

Actual BPS 53.02 JPY

Actual PBR 4.17X

Results Revenues JPY mil

YoY ％

Op. Income

JPY mil

YoY JPY mil

R.P. JPY mil

YoY ％

Net Income JPY mil

YoY ％

EPS JPY

Share Price

High Low

2015/12 Actual 61 - -290 NM -295 NM -296 NM -12.99 1,069 520

2016/12 Actual 168 171.8 -319 NM -304 NM -253 NM -10.46 862 362

2017/12 Actual 254 51.2 -633 NM -668 NM -1,563 NM -59.89 829 404

2018/12 Actual 292 15.3 -786 NM -796 NM -748 NM -28.51 715 387

2019/12 Actual 580 98.2 117 NM 109 NM 133 NM 5.07 699 312

2020/12 Forecast 310 -46.6 -390 NM -410 NM -340 NM -12.94

Note: EPS、PER、BPS、and PBR calculated on non-treasury shares outstanding.

D. Western Therapeutics Institute, Inc.(4576 JASDAQ) Issued: Nov.16, 2020

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A research and

development-oriented drug

discovery company with a

focus on rho kinase (ROCK)

inhibitors

Different companies have

individualized approaches to

the development of kinase

inhibitors

Research on intracellular

signal transduction systems

has led to successful

products

Isoquinoline derivatives

constitute the core of

DWTI’s product pipelines

Rock inhibitors are involved

in contraction and

cytoskeletal movement

ROCK inhibitors are

involved in aqueous humor

outflow in the trabecular

meshwork of the eye. It

has also been suggested that

long-term administration

enhances the effect of

lowering intraocular

pressure

Succesful licensing-out of

ROCK inhibitor to Kowa in 2002

In 2014 the world’s first

ROCK inhibitor for the

<Business model>

D. Western Therapeutics Institute, Inc. (DWTI) is a bio-venture from a university

background specialising in the research and development of ROCK inhibitors. It

focuses on ophthalmic diseases, an area with relatively few competitors.

A feature of DWTI’s approach is its use of a well-stocked library of chemical

compounds with kinase-inhibiting properties to create promising new pharmaceutical

compounds.

While the development of chemical compounds to inhibit targeted kinases is regarded

as relatively uncomplicated with modern chemical techniques, pharmacokinetic issues,

such as absorption and metabolism, and side effects, can present problems. It is thought

that the main cause of side effects is the effect on kinases other than those targeted, and

so a major effort is now dedicated to the development of highly selective inhibitors

which act only on the target.

The origin of DWTI's technology comes from the long years of research done by its

founder, Hiroyoshi Hidaka (current chairman and chief scientific officer), on

intracellular signalling systems using protein kinase inhibitors at Mie University and

Nagoya University. Chairman Hidaka has a worldwide reputation in the fundamentals

of pharmacology, particularly for his “Cellular level studies on calcium ions”, and for

his contribution to two novel products developed and brought to market in

collaboration with Japanese pharmaceutical companies. One of these is fasudil

hydrochloride (Asahi Kasei Pharma: indicated for delayed cerebral vasospasm after

subarachnoid hemorrhage), the world’s first ROCK inhibitor. Fasudil hydrochloride is

a kind of isoquinoline sulfone amide compound, and even now, remains one of the

more potent compounds of the specific inhibitor of rho kinase. Similar chemical

structures are recognisable in many of the drugs currently being developed by DWTI.

Rho kinase, is a type of serine threonine kinase (STK) that acts as a mediator of the

MAPK pathway. Previous studies have shown that rho kinase is deeply involved in

such physiological cell functions as contraction, proliferation, migration and gene

expression induction. Among them, phosphorylation of various proteins such as

myosin, adducin, and the erm family of proteins, is involved in contraction by actin-

myosin polymerization, movement of cytoskeleton, remodelling of extracellular

matrix, etc. have been linked to drug discoveries. For example, fasudil hydrochloride,

mentioned earlier, inhibits ATP from competing with phosphatases such as rho kinase,

which prevents phosphorylation of myosin light chains and prevents actin and myosin

from polymerizing and contracting, thereby expanding contracted blood vessels.

When it was verified in the early years of this century that ROCK inhibitors reduce

intraocular pressure, there was a significant increase in applied research into glaucoma.

It was found that contraction due to actin-myosin polymerization, cytoskeleton

movement, and extracellular matrix remodeling are involved in aqueous humor

outflow in the trabecular meshwork pathway of the eye.

DWTI was established in 1999 with the aim of researching and developing kinase

inhibitors. As early as September 2002, the ROCK inhibitor glaucoma treatment K-115

and antiplatelet agent K-134 were successfully licensed out to Kowa Company, Ltd.

(at the basic research stage) with Kowa becoming the main developer of these two

products. In September 2014, K-115 (ripasudil; trade name Glanatec®) was approved,

and in December of the same year, was launched as the world's first ROCK inhibitor therapeutic agent for glaucoma. Meanwhile, in October 2009, DWTI was listed on

JASDAQ. (The second ROCK inhibitor for treating glaucoma is netarsudil (trade name

Company Outline and Philosophy


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treatment of glaucoma

(Glanatec®) received

approval

In the interval before a

product could start

producing profits following

Glanatec® the company

secured the licensing-in of

products in its core area of

ophthalmology

Outside the area of

ophthalmology, the

company looked to stabilize

revenues by licensing-in

candidates with the potential

for an early market launch

Expediting the development

of in-house products while

Glanatec® and licensed-in

products provide stable

revenues

H-1337 is also a type of

isoquinoline derivative and

DWTI seeks to show

lowering effects on

intraocular pressure through

the mechanism of ROCK

and LRRK2 inhibition.

Now developing new

products with device maker

Glaukos

Stable sources of earnings

and expanded indications

and geographical regions of

use should lead to growth

Rhopressa®) from the US company, Aerie Pharmaceuticals Inc. (approved in 2017).

(This is referred to below.)

DWTI continued to promote the development of its own in-house products but, in the

interval before such a product could start producing profits on a stable basis and to

diversify risk, in 2015 it licensed-in an ocular painkiller. Also, in 2017, it licensed in

the eye surgery adjunct business (DW-10028 (BBG250)) from Helios Co., Ltd (the

former was licensed out to Rohto Pharmaceutical in 2019, the Japanese rights to the

latter to Wakamoto Pharmaceutical, and the US/European rights to DORC B.V.)

The company also plans to use its knowledge and experience of drug development in

in-licensing products under development outside ophthalmology which have the

potential for an early market launch, thereby stabilizing revenues. In April 2020, the

company concluded a joint development agreement with a Japanese company, MEDRx

Co., Ltd. This related to a lidocaine tape preparation (MRX-5LBT; DWTI development

code: DW-5LBT; target indication: neuralgia following shingles), which MEDRx has

been developing in the US. An NDA was submitted to the FDA in August 2020 and its

receipt was confirmed on October 27. The FDA’s review process is likely to be

completed in a year or so. After launch, DWTI will receive royalties on the sales.

As noted above, DWTI is promoting the development of several of its own new

compounds, with Glanatec® already on the market and products acquired externally

beginning to earn a certain level of stable revenues.

In particular, the multi-kinase inhibitor H-1337 showed favorable results in Phase 1/2a

clinical trial in the US in 2018 and DWTI is seeking out-license opportunity while

doing further in-house development.

Further, the company has, since 2018, been undertaking joint R&D with Glaukos, using

a new ROCK inhibitor to develop a product to treat glaucoma. Furthermore, in the

recent joint research and development agreement concluded with Glaukos (September

2020), target indications aside from glaucoma have been added (glaucoma => corneal

disorders and retinal diseases) and new license agreements have been concluded. We

will discuss the significance of this expansion in detail later.

In addition, the company is proceeding with an expansion of indications and areas of

indication for existing products, mainly with product licensees.

Glanatec® (out-licensed to Kowa, which took over the later development) received

authorization to import and sell into South Korea in February 2019, and from August

Kowa submitted NDAs to four Asian countries, one of which, Singapore, approved in

March 2020. Additionally, in August 2019 a Phase 2 trial began in the US for Fuchs

endothelial corneal dystrophy. Further, in February, began the development of a fixed

dose combination product (K-232, Japan) containing Glanatec® and a different

existing glaucoma drug.

DW-1002 is an in-licensed drug originally for use in Europe. Wishing to expand its

indications an NDA was submitted in the US in April 2019, followed by an NDA in

Canada in October. The approval in the US came in December 2019 and sales in the

US began in April 2020. In terms of expanding indications, Phase 3 investigator-

sponsored trials in Japan on cataract surgery were completed in August 2018, and in

February 2019 the Japanese rights for the indication was out-licensed to Wakamoto

Pharmaceutical.

Thus, DWTI is engaged in R&D related to ophthalmic indications as its intensive

research field. In addition to the above, it is conducting research to expand indications


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Challenging new modalities

for H-1337 beyond glaucoma including systemic diseases and is seeking out new drug

candidates for retinal diseases with its research and in-licensing strategy.

Further, the company’s subsidiary, Japan Innovative Therapeutics, Inc. (JIT), shares a

patent on the diagnosis and treatment of premature infant retinopathy with the Tokyo

University of Agriculture and Technology. Together with the university and the Tokyo

Biomarker Innovation Research Association (TOBIRA) the company has promoted

joint research aimed at the development of diagnostic agents and drugs for treating

premature infant retinopathy. In October 2020, JIT concluded a sub-license agreement

with Hong Kong’s Splendor Health International Ltd. regarding exclusive rights to use

a patent covering diagnosis and detection of retinopathy of prematurity and

anaphylactic shock in mainland China, Hong Kong and Taiwan.

In addition, the company has started research on a new modality, targeted protein

degradation inducers rather than kinase inhibitors, in collaboration with UBIENCE

Co., Ltd. (October 2019).

Reference: DWTI’s Product Pipeline

Source: DWTI

In-house products

Code IndicationDevelopment

stageRegion

Partner

(code)

Glanatec® Glaucoma　　　　　　　　　・ Launched Japan Kowa

Applic. For

approval

S. Korea, Sing.,

Malaysia, Thailand

Viet Nam

K-321

Corneal endothelium disorder

（Fuchs corneal endothelial

degeneration）

Phase 2 USKowa

（K-321)

Ripasudil

hydrochloride

hydrate/Brimo

nidine tartrate

K-232Glaucoma

・High ocular pressurePhase 3 Japan

Kowa

（K-232)

H-1337Glaucoma

・High ocular presssurePhase 1/2a US DWTI alone

K-134 ー Phase 2　＊ JapanKowa

（K-134)

*

Ripasudil

hydrochlori

de hydrate

K-134 has been targeted arteriosclerosis obliterans as indication, developed and completed phase 2 by Kow a Company,

Ltd.. Meanw hile, Kow a is now considering another target disease.

Licenced in

Code Indications Stage RegionPartner

(origin)

DW-1002 Peeling of inner limining membrane Launched EuropeDORC

（Kyushu Univ.）

Peeling of inner limining membrane Launched USDORC

（Kyushu Univ）

Peeling of inner limining membrane NDA CanadaDORC

（Kyushu Univ）

Staining of inner limining membrane Phase　3 JapanWakamoto

（Kyushu Univ.）

Cataracts surgery Phase　3 JapanWakamoto

（Kyushu Univ.）

DW-1001 Ophthalmic therapy (not public) Preclinical JapanRoht

（UK　Corp.）

DW-5LBT Neuropathic pain afer shingles NDA USMedrx

co-development

Japan Innovative Therapeutics, Inc.

Code Indication Stage RegionPartner

(origin)

Retinopathy of prematurity Preclinical Japan

JIT Development

（ Tokyo University

of Agriculture and

Technology）

Therapeutic agent for

Retinopathy of

prematurity


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(Reference)

Santen Pharmaceutical licenses Rhopressa® and Rocklatan® from Aerie

Pharmaceuticals Inc.

On October 28, 2020 Santen Pharmaceutical in-licensed from Aerie Pharmaceuticals an

exclusive development and commercialization rights in Japan and several other Asian

countries of Rhopressa® and Rocklatan® (a combination agent with the PG agent

latanoprost). Santen plans to start the Phase 3 clinical study with Rhopresssa® in

Japan by the end of 2020. Under the agreement Santen will pay to Aerie a lump sum

contract payment of USD50 million, maximum milestone payments of USD99 million,

and 25% royalties. Santen’s acquisition of this ROCK inhibitor could have the following

implications:

1. Although by now Glanatec has been the only ROCK inhibitor in the domestic anti-

glaucoma market, Santen’s in-license of ROCK inhibitor is expected to enhance the

recognition of ROCK inhibitor in the anti-glaucoma market and expand the whole

market.

2. H-1337 (ROCK inhibitor) under development by DWTI will be paid much attention

and depending on the data to be obtained by DWTI, the compound could be highly

valued on out-licensing, given the Santen-Aerie contract.


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Global ophthalmic device

maker, Glaukos

Sustained drug release

devices and devices to drain

aqueous humor are a growth

area because of difficulty

patients have in medicating

regularly and continuously

After developing the

iStent® device for the

treatment of glaucoma,

regulatory approval was

given for a second product,

iStent inject®, in 2012

<The Glaukos strategy>

Glaukos is a worldwide ophthalmic device maker, founded in 1998 with the purpose

of developing ophthalmic devices. The company’s main products at the present time

are iStent® and iStent inject®, which are used in the treatment of glaucoma. Eye drops

are the most commonly used therapy in ophthalmology but many patients are of

advanced years and find it difficult to medicate regularly and continuously This

problem led to growing interest in developing sustained-release devices and devices

that drain aqueous humor to reduce intraocular pressure.

.

Focused its efforts on glaucoma until 2018

After developing the first micro-stent model for glaucoma in 1999 Glaukos redoubled

its research and development efforts and in 2012 received approval from the FDA for

iStent®, the first minimally invasive device for the treatment of glaucoma. In the

following year, iStent® became eligible for Medicare coverage, and in 2014 a second-

generation, iStent inject®, was approved and launched in Germany. (Incidentally,

iStent® was approved in Japan in 2016 and iStent inject® received approval in 2019).

Glaukos Timeline

Source: Fair Research Inc. using the Glaukos website

Glaukos sales in 2013 barely totaled USD21 million but by 2019 had grown more than

ten-fold to USD237 million. The company has rolled out a direct sales network in more

than 17 countries and has announced 13 pipelines under development. Additionally, in

2019 there were more than 500,000 implants of iStent® devices sold by the company

worldwide (the size of the world market for glaucoma therapies is estimated at around

JPY400 billion, within which ophthalmological devices account for an estimated

JPY30 billion).

Year

1998 Glaukos established

1999 Develops first MicroStent for glaucoma

2012 iStent® is first minimally invasive device approved in US

2013 iStent® gets Medicare coverage

2014 iStent inject® launched in Germany

2015 Listed

2016 iStent® approved (Japan), iStent® launched (Aust., Canada)

2017 iStent® approved Brazil, Israel, Saudi, Singapore

iDose® Travoprast Phase 2 start

2018 iStent inject® approved, launched in US, iDose Travoprast Phase 3 start in US

iStent infinite® clinical trial application (US)

Conclusion of ROCK inhibitor (glaucoma) joint research contract with DWTI

2019 Transplants worldwide using iStent devices exceed cumulative 500,000

Acquires Avedro, Inc. (corneal procedures)

Acquires sole US market rights to microshunt from Santen

Signs dev and market rights licensing contract for dry-eye DDS agents with Intratus Inc.

Acquires DOSE Medical Corp.(AMD-related)

iStent inject® approved in Japan

2020 Extends joint research agreement with DWTI to corneal and retinal diseases


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Glaukos has grown its sales

by a factor of 10 in just six

years

Glaucos is now working to

enhance its range of

glaucoma-related devices

Source: Compiled from Glaukos Securities Report filings

Glaukos’s strategy until 2018 was to concentrate on developing devices for the

treatment of glaucoma. Even now it is promoting devices to succeed iStent® and iStent

inject® (iStent infinite and iStent SA). iStent® and iStent inject® are approved for use

on patients with low-moderate field of vision impairment undergoing combo-cataract

surgery for both glaucoma and cataracts. iStent SA, however, is a candidate for

glaucoma surgery alone on patients with low-medium field of vision impairment, and

iStent infinite™ is a candidate for use on patients with serious field of vision

impairment. Additionally, in 2019 the company acquired sole US sales rights to Santen

Pharmaceuticals’ micro-shunt PRESERFLO™ for the treatment of late-stage

glaucoma. It has thereby lined up the full range of minimally invasive devices for the

treatment of glaucoma.

Glaukos’s minimally invasive stents for a wide range of glaucoma indications

Source: abstract from Glaukos presentation materials, August 2020

Ref: Stent®

The iStent® device consists of a body with a pointed tip for inserting and fixing in the

Schlemm’s canal, which acts as a drainage groove in the eye, and a water valve called a

snorkel. It has an L-shape with a length of 1 mm.

The iStent inject® is a 0.36 mm sized I-shaped body, two of which are inserted vertically

into the Schlemm’s canal. It has a greater intraocular pressure-lowering effect than the

iStent®, and it is said to have the same intraocular pressure lowering effect as surgery

to remove the trabecular meshwork.

In addition to devices for draining aqueous fluid the company is promoting the

development of iDose®, a sustained release device for treating patients with a wide

range of indications from mild to severe. In 2017, iDose® Travaprost underwent Phase

2 clinical trials and in 2018 Phase 3 trials were initiated (now in patient registration).

The company subsequently undertook research into successor drugs, iDose® TREX

0

50

100

150

200

250

2013 2014 2015 2016 2017 2018 2019

Glaukos Salesmillion USD


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Aside from minimally

invasive stents the company

is now developing

combinations of sustained

release capsules and drugs

DWTI’s ROCK ihhibitor is

the promissing candidate of

these developments

and iDose® ROCK. iDose® consists of a titanium capsule measuring a mere 0.3mm

into which is inserted the relevant ophthalmic drug (typically PG drugs like Travaprost

or a ROCK inhibitor) for porting into the eye for sustained release over a period of

years.

In 2018 Glaukos entered into a joint research and development agreement with DWTI

to develop iDose® ROCK, focusing its attention on that DWTI’s ROCK inhibitors.

DWTI was selected as the company with capability to invent the compounds satisfying

the various requirement such as Long-term stability realizing sustained release over

several years, low water solubility keeping concentration in aqueous humor and non-

deterioration of receptor affinity even after long-term administration, etc.

Glaukos’s iDose® system

Source: Glaukos web site

The size of the US market is shown on the right of the chart below. Glaukos estimates

this is made up of 1.3 million minimally invasive stents (of which, 600,000 are for

combined cataracts and glaucoma and 700,000 for glaucoma alone). It further estimates

the iDose® market at 3 million eyes. The global market could become perhaps twice

the size of the US market. In value terms, Glaukos posits worldwide market size

potentially at USD13 billion.

Development status and market size for products to treat glaucoma

Source: Glaukos presentation materials, August 2020


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The global market for

glaucoma therapeutic

devices and drugs is valued

at USD13 billion

Since 2019 the company has

been expanding its

involvement in non-

glaucoma areas

For that purpose, has been

acquiring companies with

the required technology, and

licensing in

Acquires Avedro, Inc. for its

corneal disorders therapy

Since 2019 – aiming to become an all-round maker of ophthalmic devices and

drugs

① Expanding into corneal disorders

In 2019, Glaukos changed its emphasis on glaucoma and greatly expanded its area of

interest. This change started with the acquisition of Avedro, Inc. in 2019 and its entry

into the area of corneal disorders.

Keratoconus

From Avedro, Inc. comes Photrexa Epi-off, the sole FDA-approved treatment available

for patients with keratoconus. In this treatment, the deformed corneal epithelium is

excised, and drops of the bioactive drug Photrexa® are administered and exposed to

ultraviolet rays to form a new cornea. Avedro is also now conducting trials of a follow-

on therapy called Epi-on, which does not require removal of the corneal epithelium

(the value of the US market for keratoconus therapies is estimated at around USD3

billion).

Photrexa Epi-off Epi-on

Source: Glaukos presentation, August 2020

Presbyopia

In addition, Avedro is developing a bio-active drug, PiXL™, for the treatment of

presbyopia, which is now in Phase 2 trials. The treatment seems to be derived from

Photrexa, involving as it does alter the thickness of the cornea with eye-drops of the

drug administered to the eye and irradiating the relevant part with ultraviolet light. The

technique can also be used for myopia and in the future could replace LASIK surgery

(Glaukos estimates the value of the US market for presbyopia at USD13 billion).

Dry eye

In August 2019 Glaukos acquired exclusive development and sales rights worldwide

for the Intratus Inc. drug delivery system. This involves the application of

pharmaceutically active lotion on the eyelids for delivery to the cornea, thus obviating

the need for troublesome eye drops. The company has specified dry eye as the

indication targeted, but it seems to have many applications. Glaukos estimates the

worldwide value of the dry eye market at USD4 billion.


10/21





Aquires technology which

makes possible a therapy for

the huge presbyopia market

Now developing an eyelid

application lotion, licensed

in from Intratus Inc., to treat

dry eye

Lotion to treat corneal disorders


Development status of products to treat corneal disorders


② Expanding to retinal diseases

The development of drugs for the posterior segment of the eye, such as the retina, is

very difficult in terms of drug reach and in the difficulty of conducting clinical trials

(such as the time required to measure the effect). Typical retinal diseases are age-

related macular degeneration (AMD) and diabetic macular edema (DME). The cause

of DME is diabetes, but the clinical symptoms are often similar to those of wet-AMD,

and the therapeutic agents are often common to both.

Age-related macular degeneration

AMD is a retinal disease in which the macula is damaged by aging and it becomes

difficult to see. In Europe and the United States, it is the number one cause of blindness

in adults, and in Japan it is number four. There is a wet-AMD type and a dry-AMD

type, with different onset mechanisms.

There is a single layer of cells called the retinal pigment epithelium (RPE cells) in the

lower part of the retina, and underneath it is tissue called the choroid, which is lined

with blood vessels. In wet-AMD, inflammation occurs in the retinal pigment

epithelium due to various causes such as aging, ultraviolet rays, and tobacco smoke,

and abnormal new blood vessels (choroidal neovascularisation or CNV) form under the retinal pigment epithelium or between the retinal pigment epithelium and

photoreceptor cells, impairing their functioning due to bleeding from the cells and


11/21





Entering the field of retinal

diseases such as age-related

macular degeneration

(AMD) and diabetic

macular edema (DME)

leakage of blood components.

Currently, in the wet-AMD market, vascular endothelial growth factor (VEGF)

inhibitors such as Lucentis®, Eylea®, and Beovu® have established themselves as

first-line drugs (global sales of approximately JPY1 trillion). Many patients have

injections in the eyeballs of these drugs on a monthly or 2-monthly basis. However,

some one-third of wet-AMD patients are non-responsive to VEGF inhibitors.

Additionally, even for many of those patients who are responsive, there occurs a

gradually lesser effectiveness in the course of lengthy treatment, with loss of vision the

end result (the drug effect lasts around 2 years). The main causes of this may be the

acquisition of resistance to VGEF inhibitors or scar formation (fibrosis) in the retina,

but there is currently no therapeutic agent to prevent it.

Glaukos acquired Dose Medical Corporation in May 2020. Glaukos aims to develop a

minimally invasive, bio-friendly device that can continuously reach the posterior

segment of the eye over a long period of time using the drug transmission system

developed by Dose, rather than injections in the eye. It has an anti-VEGF effect and a

scar-suppression effect and renders gel-like a multi-kinase inhibitor with a stable

structure that does not denature for a long time. The therapy under development

appears to involve the placement of the gel in a small cannula (tube) and implant

in the eye.

Gel implants to treat AMD

Source: Glaukos presentation, August 2022

Retinal pigment epithelium

Retina

Bruch membrane

New blood vessels

Choroi


12/21





The company acquired Dose

Medical Corporation,

acquiring the technology to

mix drug with gel and

implant in the eye

Becoming a comprehensive

ophthalmic device and drug

maker involved not only in

the anterior segment of the

eye but also the cornea and

posterior segment. The

market targeted has a

potential value of about

USD54 billion

Glaukos estimates there are 29 million people suffering from retinal diseases in the US,

of whom an estimated 89% have AMD or DME. The value of the market is around

USD13 billion and, because of population ageing, further growth (9.3% annually) is

predicted. A market launch is planned for 2025 or after.

It is apparent that Glaukos is interested not only in anterior ocular diseases, like

glaucoma, but in corneal disorders and posterior ocular diseases, such as AMD and

DME. It is aiming to become a leading maker worldwide of a broad range of devices

and pharmaceuticals for the treatment of these diseases. The target market is therefore

growing more than four-fold.

Target market to expand from USD13 billion to USD54 billion

Source: Glaukos presentation on takeover of Avedro, August 2019


13/21





DWTI now doing joint

research with Glaukos, a

global leader in ophthalmic

devices, on the development

of sustained release devices

Plans to provide novel

ROCK inhibitors

DWTI’s ROCK inhibitor

seems to have anti-VEGF

effect

DWTI technology highly valued by Glaukos

DWTI has on two occasions, 2018 and 2020, concluded joint research agreements and

license agreements with Glaukos which aims to become the global ophthalmic leader

covering widely devices and pharmaceuticals. These agreements were not the result of

aggressive promotion of DWTI. This is because Glaukos select DWTI by themselves

focusing on the highly valued potential of DWTI’s ROCK inhibitors applicable to the

devices of Glaukos and DWTI’s ability to invent such compounds.

① ROCK inhibitors’ potential as the anti-VEGF agent

ROCK inhibitors have already been marketed indicating glaucoma through their effect

of reducing ocular pressure. ROCK is also present in the trabecular meshwork cells of

the eye and the Schlemm’s canal endothelium. Activation of the ROCK signal

promotes actin polymerization and cell adhesion, causing tissue contraction and

reducing aqueous humor outflow. ROCK inhibitors have a mechanism to suppress this

signal and modulate the ocular pressure.

In addition to decreasing ocular pressure it is thought that some ROCK inhibitors have

some anti-VEGF and fibrosis-suppressing effects. For example, one DWTI’s

compound, H-1337 has the effects to suppress VEGF secretion and retinal pigment

epithelial cell migration (announced in ARVO2015). Additionally, H-1129 has the

effect to suppress VEGF production and epithelial-mesenchymal transition (EMT),

andVEGF secretion and fibrosis through binding to Hsp90 (presented in ARVO 2017).

We believe the Glaukos research collaboration is likely to lead to novel device-suitable

compounds (ROCK inhibitors)

H-1337’s ability to suppress VEGF secretions

Source: ARVO 2015

H-1129’s suppression of VEGF secretions

Source: ARVO 2017


14/21





DWTI's ROCK inhibitor

was adopted as an initial

candidate for sustained-

release capsules for

glaucoma in 2018

In September 2020, the

company broadened

indications to targets beyond

glaucoma to corneal

disorders and retinal

disorders

This was because of

Glaukos’s high evaluation of

the potential of DWTI’s

ROCK inhibitors and

DWTI’s technical ability to

invent device-suitable drugs

② Joint research agreement with Glaukos in 2018

In August 2018 DWTI concluded a joint research agreement with Glaukos, targeting

the creation of new intra-ocular products for the treatment of glaucoma. Under this

agreement, in addition to receiving joint research funding, DWTI grants Glaukos a

worldwide license to develop, manufacture and sell, and to receive up-front fees,

milestones and royalties if the product is approved by the FDA.

Glaukos selected DWTI’s new ROCK inhibitor as the candidate drug for iDose®

ROCK, one of the company’s iDose® series sustained release devices for treating

glaucoma. Glaukos confirmed its effect to reduce intra-ocular pressure in an

experimental rabbit model and a prototype is now being developed. In addition, the

company plans to proceed with verification of drug properties, etc. applicable for

iDose® system. DWTI expects that the clinical trials of iDose® ROCK will start within

the next 2-3 years.

DWTI will receive annual development collaboration fees (estimated at tens of

millions yen) and, it is expected, will additionally receive milestone payments upon

the certain events related to the progress of commercialization in the US. After launch

it stands to receive royalties on sales.

Concluded a joint research agreement and license agreement in August 2018

Source: IR release from DWTI

In 2020 revises joint research agreement and concludes new license agreements

Since the above-mentioned iDose® ROCK development is proceeding smoothly,

Glaukos and DWTI have decided to expand the research target beyond glaucoma as

including corneal disorders and retinal diseases using DWTI’s compounds and revised

the existing joint research contract and license agreements to reflect the additional

indications. This means an increase in development collaboration fees. It also means

the generation of revenue as the milestone payments and royalty related to intravitreal

administration devices.

Joint research and license agreements: Post–Sept. 2020 revisions

Source: IR release from DWTI

Joint Research Licensing

Research fees receivable

Ind

ica

tion

Glucoma

Products for administration to

ocular anterior chamber

Products for topical

administration (option rights)

Move to licensingcontract under certain conditions

Joint Research Agreement Licensing Agreement

Products for eye anterior chamber administration

Topical administration products (option rights)

Vitreal retainer administration products

Vitreal retainer administration products (option rights)

＊Research fees receivable (amount increase)

Ta

rge

t diso

rde

r Retinal disorders

Glaucoma、　　Corneal

disorders Licenseagreement continues under certain


15/21





It is possible to envision a retinal disorder (e.g. AMD) being treated using DWTI

ROCK inhibitors or other kinase inhibitors as the API, which is then mixed with gel

made with DOSE technology and injected into the eye for sustained release.

Note:

The US company, Aerie Pharmaceuticals’, AR-13503

One product which is similar to that described above is AR-12503, under

development by the US company, Aerie Pharmaceuticals, to treat AMD and DME This

is a multikinase inhibitor combining ROCK and protein kinase C mixed with gel and

injected into the eye. It is now at the pre-clinical stage.

(The yellow area on the penny is the size of the AR-13503 implant on the left)

Source: ARVO 2018, Aerie Pharmaceuticals


16/21





Revenues up to the third

quarter in line with the

company’s plan

Excluding the JPY100

million milestone payment

to MEDRx in the 4th quarter,

R&D spending for the year

should be around JPY300

million or less, in line with

the midterm plan

<Revenues/financial structure>

Results for the third quarter of the fiscal year ending in December 2020 were released

on November 12, 2020. Sales stood at JPY240 million, some JPY200 million below

the JPY451 million posted in the same period of the previous year. The previous year’s

figures had been boosted by revenues from Wakamoto Pharmaceutical, particularly

milestone payment revenue when H-1129 (development subsequently suspended)

moved to Phase 3, and lump sum received on the out-licensing of additional indication

(cataract) DW-1002. Both revenues were from Wakamoto Pharmaceutical and the

amount was JPY 200 million in total. We surmise the sales amounts up to the third

quarter were almost in line with the projection of the company.

R&D expenditures up to the third quarter stood at JPY180 million, approximately the

same level as the third quarter of the previous year. However, for the year as a whole,

the company is planning expenditures of JPY420 million. We assume this takes into

account the milestone payments of JPY100 million payable to MEDRx flowing from

the FDA acceptance of the NDA for DW-5LBT in October. It probably also reflects

R&D strengthening (development of H-1337 and acceleration of new projects) and the

goodwill amortization related to DW-1002 which was explained in the documents

accompanying the 10th issue of stock warrant (on August 7, 2020).

Trend in P&L

Source: Fair Research using company’s securities report filings, etc.

（JPY-mil）

2015 2016 2017 2018 2019 2020 2020/3Q 2019/3Q

(DWTI plan)

Sales 61 168 254 292 580 310 240 451

　Kowa 61 97 119 138 158

　Wakamoto 0 50 50 0 209

　DORC 63 96 88

　Glaukos 38 62

COGS 0 5 7 13 25 11 16

SG&A 352 482 880 1,065 437 376 328

　R&D 143 226 603 795 249 420 184 181

　Misc. 209 256 277 270 188 192 147

Op. Profit -290 -319 -633 -786 117 -390 -147 107

Non-Op. Profit 4 25 1 0 0 2 0

Non-Op. costs 9 10 36 11 8 19 8

Rec. Profit -295 -304 -668 -796 109 -410 -164 99

Extra. Profit 0 0 103 1 0 0 0

Extra. Losses 0 0 1,040 6 0 0 0

DW-1002 Impairment

Net Profit -296 -253 -1,563 -748 133 -340 -150 119

Inc. JPY100 mil

to MEDRx


17/21





The company has enough

cash in hand considering

repaymebts of bank loan

through exercise of stock

warrant. The strong

financial foundation for

continuous invention its

own new products has been

prepared.

No.10 new share options – uses of funds revised

Note: Portions in red denote uses of funds raised by exercise of the 10th issue of stock

warrant. The Glaukos project costs will be covered by research collaboration fees

from Glaukos and is not related to this fund raising.

Source: DWTI’s Timely Disclosure related to the 10th private placement stock warrant

(July 22, 2020)

Cash on the balance sheet at the end of September 2020 stood at around JPY2.5 billion.

This is above the level at the end of 2019 because of JPY 1 billion proceeds from the

issue of No. 10 stock warrant and its exercise up to the end of September (56.5%

exercised). Bank loan repayments have also proceeded and balance at the end of

September was JPY390 million. We assume therefore that net cash stands at JPY2.1

billion. This is well above the cumulative losses (JPY880 million – JPY500 million)

of the mid-term plan (2020-2022), and demonstrates that DWTI has the necessary

financial foundation to proceed to its third stage in which it invents a series of new

products in-house continuously.

Balance sheet

Source: Fair Research using company’s securities report filings, etc.

Pipeline Region Phase Licence Pipeline Region Phase Licence

Japan On sale Europe/US On sale

S. Korea, Sing.,

Malaysia,

Thailand

Approved Canada Appproved

Viet Nam Applied Japan P3

K-321 US P2 DW-1001 Japan Pre-clinical

K-232 Japan P3 DW-5LBT US P3Medrx co-

development

K-134 Japan P2

Drug for

retinopathy of

prematurity

Japan Pre-clinical not decided

H-1337 US P2a In-House

Increase (new R&D projects)

Increase (pipeline acquisition)

Glantec®

Out-

Licensed

In development Joint R&D partners

Industry-academia-government collaboration course with Mie University + joint

dev. with other universitiesSignal transduction inhibitor project

Out-LicensedDW-1002

Inc

rea

se (c

rea

tion

of n

ew

dru

g c

an

did

ate

s)

New device dev. project Glaukos Corporation

Target proteolysis induction project UBIENCE

（JPY-mil）

2015/12 2016/12 2017/12 2018/12 2019/12 2020/9

Liquid assets 2,024 2,776 2,515 1,764 1,715 2,517

　Cash, etc. 1,747 2,291 2,132 1,584 1,540 2,302

　Securities 182 353 0 0 0 0

Fixed assets 115 136 361 309 265 236

　Tangible fixed 4 25 15 4 3 5

　Intangible fixed 1 1 330 291 249 218

Investments, etc. 109 109 16 12 12 11

Total assets 2,140 2,912 2,877 2,073 1,981 2,754

Liquid liabs 27 35 156 268 189 170

　S-T loans 0 0 0 120 120 120

Fixed liabs 0 0 625 505 384 294

　L-T loans 0 0 600 480 360 270

Net assets 2,112 2,877 2,095 1,300 1,408 2,289

　Shareholders equity 1,886 2,722 1,999 1,259 1,393 2,286

（Ref.）

Income from issue

of new share

options and

exercise

87 1,071 824 0 0 1,031


18/21





Reference: Medium term management plan – sales/P&L

Source: DWTI “Notification of amendments to medium term management plan”,

August.13, 2020

Note: The company’s August 20, 2020 revised medium-term management plan only

revised the development plan of DW-1001 (licensed out to Rohto Pharmaceuticals and

currently in pre-clinical trials) which is to start Phase 1 in 2022. No amendments were

made to the various ‘management coefficients’.

Source: DWTI Results meeting materials, August 2020

(JPY-mil)

Sales R&D expenditure Operating Profits Recurring Profits Net Income

2019 actual 580 249 117 109 133

2020 forecast 310 420 △390 △410 △340

2021 target 420~580 560 △460~△310 △480~△320 △420~△270

2022 target 450~750 300 △170~100 △170~100 △120~110

Pre-amendment

Pipeline RegionBasic

ResearchPre-Clinical Phase1 Phase2 Phase3 NDA Approval Launch

DW-1001

(eye therapy

drugs）

Japan

Post-amendment

Pipeline RegionBasic

ResearchPre-Clinical Phase1 Phase2 Phase3 NDA Approval Launch

DW-1001

(eye therapy

drugs）

Japan


19/21





It used to be that out-license

conditions were not always

particularly advantageous

for DWTI

However, it seems likely

that the agreements with

Glaukos will show DWTI in

a new light in terms of out-

licensing

Investors should look not

only at DWTI’s multiple

sources of stable revenues

but at its in-house products

and the contribution to

revenues from the Glaucos

collaboration

<Conclusion>

DWTI is focused on ophthalmological disorders, a niche area with relatively high

barriers to entry, and uses its proprietary well-stocked library of chemical compounds

with kinase inhibiting properties to create a platform of promising new drug candidates.

It already has one product on the market, Glanatec®, which it has successfully licensed

out. However, Glanatec® was licensed out at the basic research stage in 2002 when the

company was at an early stage in its development and specialising in basic research,

and hence the licensing-out terms were not particularly attractive from DWTI’s point

of view.

Meanwhile, Glaukos is implementing its strategy to become an ophthalmic full-range

maker of ophthalmic devices and medical drugs and had, in 2018 and 2020, twice

concluded joint research and license agreements with DWTI. These were not the result

of aggressive promotion of DWTI. Rather, Glaukos selected DWTI when it was

launching its expansion strategy because of the potential it saw in DWTI’s ROCK

inhibitors and the high regard in which it held DWTI’s ability to invent drugs offering

a good ‘fit’ with Glaukos devices. For this reason, the size of the milestone paymentss

and level of royalty rates generated under the new agreements may be far beyond

DWTI’s previous agreements.

The company is presently steadily expanding indications of its existing products and

geographic territory of itsmarketing. It is also expanding the geographic territory and

indicated surgical operations for products it has in-licensed to provide earnings stability

until its next in-house product goes to market. That is to say, while securing several

sources of earnings DWTI will be able to pursue the development of its own new drugs

up to the early clinical stage and then out-licensing. We surmise the impact of the

products derived from the collaboration with Glaukos will be substantial.


20/21





Note: This report is the English-language version of the original Japanese-language report issued on November 16th, 2020, to

which you should refer for precise details

Fair Research Inc.

BIZ Smart Kayabacho 4F, Shinkawa 1-3-21,Chuo-ku, Tokyo

Email: [email protected]

Tel: 03-6869-6518

mailto:[email protected]


21/21





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