This report is published by Research Dynamics, an independent research boutique


Addressing diabetes and respiratory disease

Relief Therapeutics Holding AG is a Switzerland-based biotechnology company developing a rich pipeline of candidates, primarily aimed at diabetic complications and respiratory diseases. The company is currently developing two drug candidates; Aviptadil, set to enter a pivotal Phase III trial in sarcoidosis, and Atexakin alfa, aimed at peripheral neuropathies, which is slated to enter Phase II testing in patients with diabetic neuropathy. Both studies could start in the first half of 2017. Atexakin alfa is the subject of a worldwide exclusive license from Merck KGaA and was originally developed by Serono S.A.

Attractive potential in underserved markets
The company is developing drug candidates to address markets in which there currently are no approved effective therapies. While Aviptadil targets orphan disease indications, including sarcoidosis and acute lung injury (ALI), Atexakin alfa (recombinant human interleukin-6, or rhIL-6) targets larger markets, including peripheral diabetic neuropathy (PDN) and chemotherapy-induced peripheral neuropathy (CIPN). Given the benign safety profile of Aviptadil and the lack of existing treatments for sarcoidosis, we anticipate higher penetration rates and pricing power in future for Aviptadil targeted for sarcoidosis. Atexakin alfa, on the other hand, could constitute the basis for a new class of neuropathy-targeting anti-nociceptive (pain-suppressing) drugs that may treat both the pain-related and non-pain related symptoms due to diabetes-induced neuropathic complications. We believe this market is yet to be established and expanded, and could help the company to establish a substantial commercial franchise.

Commercial exclusivity through proprietary patents and orphan drug designations
Relief has 23 patent families and 10 orphan drug designations in the EU and the US for its candidates across a range of indications. For Aviptadil, the oldest patent expires in 2026, while for Atexakin alfa, the first patent (for DN) expires in 2022/2023, with potential for five years of term extension in the US under Hatch-Waxman rules. We also note that Atexakin alfa is a biologic agent, which would be entitled to a minimum of 10 years of market exclusivity in Europe and 12 years in the US. In our view, the company is well-positioned with lengthy commercial windows for both of its lead product candidates.

Strengthening the pipeline through acquisitions
Relief recently executed a term sheet to acquire FirstString Research Inc., a US-based biotechnology company, in an all-stock transaction. The proposed acquisition could reinforce Relief's pipeline by bringing in Granexin gel, a Phase III-ready drug candidate, indicated for the treatment of Diabetic Foot Ulcers (DFUs) and Venous Leg Ulcers (VLUs). We think that the company may seek to consummate similar acquisitions/ partnerships in future to consolidate its market position.

Valuation
We have valued Relief using a risk-adjusted Net Present Value (rNPV) approach. Using a discount rate of 22.9%, we have calculated an rNPV of CHF99.6mn for Aviptadil in sarcoidosis, based on favourable Ph II safety and efficacy data. We estimate peak sales for Aviptadil for sarcoidosis to be CHF290.0mn. Atexakin alfa for DN has been assigned an rNPV of CHF194.6mn using a 22.9% discount rate. Aviptadil for ALI has been assigned an rNPV of CHF96.8mn using the same discount rate. In summary, we derive a total firm value of CHF356.4mn or a share value of CHF0.19, based on 1,937 million shares as of September 2016. Under the condition that Relief Therapeutics will be able to raise sufficient funding for its current programs, we believe the stock offers attractive upside potential from current levels.