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AzurRx BioPharma, Inc. (NASDAQ: AZRX) is “One to Watch”

With more than a century of combined experience spanning the gamut from pancreas/GI tract issues in hepato-gastroenterology and infectious disease to the development of novel non-systemic (localized) therapeutic biologics and proteomics (protein engineering), the AzurRx BioPharma, Inc. (NASDAQ: AZRX) core science team is the real strength behind the company’s developing portfolio of recombinant therapies. AzurRx has come quite a long way on the strength of its science-driven approach and today stands tall upon the IP foundation of its two main pipeline programs. The lead candidate of which, MS1819 lipase, is currently in ongoing, open-label Phase IIa trials in EPI (exocrine pancreatic insufficiency) associated with chronic pancreatitis (CP). Human trialing where this novel, orally delivered, non-systemic (non-absorbable, locally-acting, does not reach systemic circulation), yeast-derived recombinant enzyme has already shown solid dose responses at various levels with no apparent safety issues.

Given such positive Phase IIa in vivo study data (reported in mid-April 2017), where the efficacy of MS1819 is characterized by a 20 percent increase in the coefficient of fat absorption in all patients (or CFA, the primary efficacy endpoint), AZRX is confident that its lead candidate will continue to show a marked superiority to currently marketed, porcine-derived pancreatic enzyme replacement therapies (PERTs). With an anticipated completion of the MS1819 Phase IIa in the third-quarter of 2017 and strong applications for the drug in EPI associated with CF (cystic fibrosis), as well as demonstrably apparent efficacy in CP-associated EPI, the $8.50 valuation set by Zacks Small-Cap Research earlier this year (January, April) looks well within striking distance (given that the projection is based on a 2020 launch of MS1819).

A recent report from April of 2017 by GlobalData paints a bullish picture for the broader CF market with a CAGR of around 13.6 percent through 2025 when it will reach upwards of $7.6 billion on the strength of new drugs becoming available. This is exciting news when contrasted with the Transparency Market Research projection from last year, which depicts the EPI space alone to be worth around $2.85 billion by 2023, on a CAGR of some 8.3 percent, with the U.S. representing roughly 57 percent of that global pie. The PERT market is currently dominated by a small handful of players, with the AbbVie (NYSE: ABBV) drug Creon accounting for the lion’s share, and newer, more technologically advanced entrants such as Allergan’s (NYSE: AGN) Ultresa currently being seen by analysts as having the highest future growth rate.

However, these drugs and other PERTs such as Nutrizym, Pancrease and Pancrex are derived from pig pancreas gland extracts, carry a pork viral contamination risk, and thus represent a biopharma niche that is ripe for disruption by an innovator like AZRX.

PERT Demand May be Larger than Expected

Somewhere from 10 to 12 million people in the U.S. are estimated to carry the defective CF gene that leads to CF, and while the patient population is only around 30,000 or more, it can be inferred from CDC statistics that there are approximately 400 or more new cases in the U.S. alone each year (around 1,000 worldwide). CF is also no longer considered a childhood disease like it was only a few decades ago, because patients are now able to more effectively manage the disease via therapy and have an average life expectancy of around 37 years. EPI is observed to occur in 85 to 90 percent of CF patients according to research done by one of the most trusted names in pathology, Robbins Basic Pathology.

With the rate of CP around 50/100,000, and a growing awareness of the influence of diabetes on pancreatic exocrine function, the emergence of a yeast-derived recombinant enzyme therapy such as MS1819 is really something to take note of, especially due to the fact that AZRX’s offering has shown high potency in low pH environments (stable in protease and bile salt environments), and activity in long chain fats. EPI affects as many as half of all the people with insulin-dependent diabetes by some estimates, and it is well-known that CP patients typically develop type 3c diabetes. The key takeaway in all of this is that there is a growing market for MS1819, a drug which is now clearly underscoring the success of earlier Phase Ib in vitro work, during in its ongoing Phase IIa in vivo trial.

Phase IIb Enabling Trial & Successful Placement Very Bullish

CEO of AzurRx BioPharma, Thijs Spoor, was clearly pleased by extant Phase IIa results with MS1819, pointing to the observably robust dose-response pattern and overall safety characteristics. Anticipation is high that MS1819 will prove to be a more effective and safer alternative to existing PERTs. Given the warm reception by patients, as well as physicians noted by the Clinical Investigator, this drug could gobble up market share very quickly.

It’s little wonder then that the recent private placement financing (closing announced June 8) went so well, with the issuance designed to fund the MS1819 program being over-subscribed, allowing AZRX to rake in gross proceeds of some $5 million. The $3.50 priced units in the placement consisted of a share of common stock, one Series A Warrant for 0.25 shares at $4.00 (exercisable through Dec 31, 2017), and one Series A-1 Warrant for 0.75 shares at $5.50 (exercisable six months after closing through June 6, 2022).

Potential Sleeper Hit in the Wings

The second program under development by AZRX at this time is another oral non-systemic, AZX1101 (recombinant beta-lactamase derived from a bacterial source), which is in the preclinical stage for localized shielding of the GI tract against HAIs (hospital-acquired infections) associated with broad-spectrum beta-lactam antibiotic use. Beta-lactam antibiotics (especially penicillins and cephalosporins) have really come into their own as the drugs of choice for many infections, but their use is also frighteningly threatened by the emergence of increasingly resistant strains of bacteria.

This could be a nice one-two punch lineup for AZRX, with MS1819 commercialization supercharging the development ramp for AZX1101, amid a global infection control market that is on-track to run a 6.5 percent CAGR through 2021, reaching around $17.78 billion on the dominance of factors such as the growing prevalence of HAIs. It is worth noting that the Zacks Small-Cap Research doesn’t even factor the potential upside from AZX1101 into its $8.50 price target, despite the admittedly substantial market opportunity.

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