Appili Therapeutics has a 175 per cent upside, says Leede Jones Gable

Halifax-based infectious disease drug developer Appili Therapeutics (TSX:APLI) received a coverage initiation from Leede Jones Gable analyst Douglas W. Loe on Wednesday, with the analyst starting the stock off with a “Speculative Buy” rating and $2.75 target price. Loe said Appili’s partnership on a COVID-19 antiviral drug could start generating revenue as early as next year.

Appili is advancing a range of anti-infectives targeting bacterial, fungal and virally-induced pathologies and has as its flagship antiviral drug, the partnered favipiravir, for which Appili is part of a consortium currently sponsoring late-stage clinical trials evaluating favipiravir for the treatment and prevention of COVID-19.

Micro-cap stock Appili, which began trading on the TSX Venture in June of 2019 and graduated to the senior board this past September, has seen its share price bounce around over its two-and-a-half years. Last year the stock jumped from $0.60 to as high as $1.90 in the early days of COVID-19 before finishing 2020 up 69 per cent. So far in 2021 APLI is down about ten per cent.

Appili announced in October that it had entered into a collaboration with partners Dr. Reddy’s and Global Response Aid (GRA), an international medical supply chain management organization, to develop favipiravir as a treatment and prevention of COVID-19. Favipiravir or T-705 is a small-molecule antiviral developed by Japan-based specialty company FUJIFILM Toyama Chemical and it has already been approved (since 2014) as an influenza drug in Japan under the brand name Avigan. Appili is currently assessing favipiravir for COVID-19 in Phase 2 and Phase 3 trials.

Last week, Appili gave an update on its Phase 3 PRESECO trial on favipiravir as an early treatment of COVID-19, saying the company is actively recruiting participants in 12 of 20 sites in the US, with a plan to recruit about 826 eligible participants and with enrolment to be completed by late March. Appili said it’s also pursuing regulatory approvals to expand PRESECO into sites in Mexico, Brazil and Colombia.

“Similar to the way our public health system uses both antivirals and vaccines to stem the impact of influenza, we believe that there is a critical place in the coronavirus treatment arsenal for antivirals — like favipiravir — that can be orally administered in homes and community settings shortly after onset of an infection,” said Dr. Armand Balboni, CEO of Appili Therapeutics, in a January 28 press release. “Our PRESECO study is designed to answer the critical question, ‘does favipiravir work for COVID- 19 patients early in the outpatient setting?’”

On favipiravir’s role in fighting COVID-19, Loe said it could be the first oral antiviral approved in Canada, which could happen as early as this first quarter 2021.

“Almost without exception, favipiravir is detailed in recent review articles on the state of COVID-19 pharmacology as being one of the higher-profile antiviral therapies in formal clinical testing, and we agree with the status it has earned on that theme,” Loe wrote.

“Separately, this could represent the first oral antiviral targeting COVID-19 treatment in North America, and if approved, the drug’s novel design/ administration could be competitive with Gilead’s IV-infused antiviral therapy Veklury, which as of this writing is the sole small-molecule antiviral drug approved for this condition,” Loe said.

“Our forecasts project that Appili could generate substantial favipiravir-driven top-line sales as early as next year (F2022 forecast of C$88.7 million), with our model assuming lower-but-stable favipiravir sales in future years if/when global COVID-19 prevalence itself stabilizes at sub-pandemic levels,” Loe wrote.

Loe said there are few players in the antifungal drug development space, which has seen a decline in clinical initiatives in recent years even as global demand has risen.

“As one of the few publicly-listed peers in the antifungal therapeutics space, Appili Therapeutics offers pure-play exposure to North America antifungal drug development alongside higher pricing power,” Loe wrote.

Appili last reported its financials in November where its fiscal second quarter 2021 featured no revenue and a net loss of $5.1 million or $0.09 per share for the six months ended September 30, 2020, compared to a loss of $2.9 million or $0.09 per share a year earlier. By the end of the fiscal Q2 Appili had cash and short-term investments of $22.9 million.

Loe has forecasted APLI to generate no revenue in fiscal 2021, $88.9 million in fiscal 2022 and $39.3 million in fiscal 2023, with EBITDA going from negative $6.2 million in 2021 to $82.1 million in 2022 to $32.1 million in 2023. At the time of publication, Loe’s $2.75 target represented a projected 12-month return of 175 per cent.

As for milestones, Loe said he is focused on favipiravir, which should produce interim Phase 3 data by the end of Appili’s fiscal fourth quarter 2021 and then final data by the end of the company’s fiscal first 2022, both of which the analyst is expecting to result in positive data.

“We are separately focused on timelines for Appili and its CRO partner CATO Research to commence a second and equally sizable 1,156-patient Phase III COVID-19 infection trial (the PEPCO trial), probably before end-of-FQ122, with PEPCO designed to assess favipiravir impact on vulnerable subjects (so elderly patients, or younger patients with at least one co-presenting pathology suggesting probability of developing severe symptoms) who have been exposed to a COVID-19-positive individual in recent days,” Loe said.

“We see upside to favipiravir’s market prospects if it can demonstrate prophylactic activity in such patients in addition to demonstrating disease mitigation in already-symptomatic COVID-19 patients,” he wrote.