By David Bautz, PhD

NASDAQ:MTP

READ THE FULL MTP RESEARCH REPORT

Financial Update

On April 24, 2019, Midatech Pharma (MTP) announced financial results for 2018. The company generated total gross revenue of £1.94 million, which included both collaboration income and grant revenue. R&D expenses in 2018 were £9.4 million compared to £8.3 million in 2017. The increase was primarily due to higher activity for both the MTD201 and MTX110 programs with both commencing key first-in-human studies in 2018. Administrative costs for 2018 were £4.4 million compared to £4.3 million in 2017. The increase was primarily due to loan redemption penalties and other costs associated with repaying the loan agreement with MidCap. Net loss from continuing operations was -£10.4 million. The loss from discontinued operations (which consists of the loss from the Midatech US business that was sold in Nov. 2018) was £4.7 million.

Midatech exited 2018 with approximately £2.3 million in cash and cash equivalents and a tax credit receivable of £2.0 million. In January 2019, Midatech announced a strategic licensing deal with Chinese Medical Systems (CMS) that included an equity investment. The license agreement grants CMS the exclusive rights to Midatech’s clinical and preclinical assets (MTD201, MTX110 [subject to consent from Novartis], MTX102, MTR103, MTD119) in mainland China, Hong Kong, Macau, and Taiwan. In exchange, Midatech will receive a manufacturing margin in the low double digits for products it supplies to CMS and is also eligible to receive regulatory milestone payments, sales-based milestone payments, and a low double-digit royalty rate (MTX110 will have a net single digit royalty since Midatech must pay Novartis a royalty). In addition, CMS may also identify further product opportunities where Midatech would perform the initial development and then transfer the compound to CMS for further development. If those products go on to be approved, CMS would own the rights in the same territories with Midatech retaining the rights in the rest of the world.

Along with the license agreement, CMS entered into an agreement to purchase 207,792,206 Units at 3.85 pence per Unit, with each Unit comprising one common share of stock and one warrant to purchase a common share of stock at 50 pence per warrant. The net proceeds from this equity investment were approximately £7.4 million.

On February 26, 2019, the company announced that a total of £13.4 million in gross proceeds (£12.5 million net) were raised through the investment from CMS along with a private placement and open offer, all at the same terms. In Jan. 2019 the company announced the receipt of €1.5 million in the form of a loan from the Basque regional government to support the manufacturing facility in Bilbao, Spain and in Mar. 2019 announced it received notification from the Spanish government for a loan in the amount of €6.6 million for the same project. The money will go toward the commercial scale-up of MTD201. Provisions of the loan include Midatech providing a €2.6 million guarantee, which will likely come from bank financing. We anticipate that the company now has sufficient capital to fund operations through the first quarter of 2020.

Following the most recent financing, Midatech has 409,399,613 common shares outstanding that trade on the London stock exchange, with CMS owning approximately 51% of the shares. The company also has American Depository Receipts (ADRs) that trade on the Nasdaq Capital Market. Each ADR represents twenty of the company’s ordinary shares, following a ratio change in April 2019. When factoring in the approximately 4.5 million stock options and approximately 314 million warrants, the company currently has a fully diluted share count of approximately 728 million.

Business Update

Ready to Advance MTD201

On January 25, 2019, Midatech announced it has received feedback from the FDA on the regulatory path forward for MTD201 (Q-Octreotide), the company’s lead development program that utilizes the company’s Q-Sphera™ sustained release technology. Previously in 2018, the company announced positive results from an exploratory first-in-human study of MTD201 (discussed below). In regards to the next step for MTD201, the FDA indicated that a single dose pharmacodynamic study in healthy volunteers would not be sufficient to support a new drug application (NDA). Thus, the company will need to perform either a multi dose study in healthy volunteers or a study in patients. In addition, the company will need to determine whether to establish equivalence between MTD201 and Sandostatin® LAR® (SLAR), the market leader in this $2 billion market, or whether to develop MTD201 as a differentiated product with an improved clinical profile. While a final decision has yet to be made, we anticipate that Midatech will choose to develop MTD201 as a differentiated product (see potential advantages of MTD201 compared to SLAR below). Regardless, the company is planning to initiate the next clinical trial in the second half of 2019 and submit for marketing authorization in 2021.

Positive Interim Data for MTD201

Earlier in 2018, Midatech announced positive interim results from a proof-of-concept study for MTD201. This first in-human, double blind, randomized, parallel group study enrolled 24 healthy volunteers and was designed to compare the sustained release profile between MTD201 and SLAR both pharmacokinetically (PK data on octreotide levels in the blood) and pharmacodynamically (PD data on growth hormone biomarker levels).

Results showed that MTD201 produced a favorable clinical profile and represents a potentially better product compared to Novartis’ SLAR. The following figure shows average plasma octreotide levels for the subjects administered SLAR and MTD201. Interestingly, MTD201 has a smooth uptake and trajectory with almost no initial “burst” phase or dose dumping, while SLAR has poorly controlled bimodal release kinetics characterized by two peaks over the first 7 days before the product settle down, as shown in the following figure.


View Exhibit I

The large error bars evident for the SLAR data shows the high variability of plasma octreotide release, which is in stark contrast to the very small error bars for the MTD201 data. This is exemplified in the following graphs that shows plasma octreotide levels for each individual subject. Following the initial burst phase, plasma octreotide levels in those administered SLAR vary by up to 100-fold. The graphs for each subject administered MTD201 are consistent, tightly grouped, and linear, which is in stark contrast to the unpredictable and variable graphs for those administered SLAR.


View Exhibit II

The following figure shows the average level of plasma octreotide over 63 days for those administered MTD201 and SLAR. The plasma level of octreotide for those administered MTD201 steadily rises, settles at a plateau for the duration of the treatment period, then slowly tapers off, while the plasma level of octreotide peaks at approximately day 1, again at day 5, and then tapers off for those administered SLAR.


View Exhibit III

These differences in plasma octreotide level between those administered MTD201 and SLAR translates into differences in the clinical outcome of growth hormone reduction, the pathology afflicting acromegaly patients. As part of the trial, healthy volunteers were given growth hormone releasing hormone (GRHR) and the % reduction in growth hormone (GH) level was recorded following administration of MTD201 or SLAR. The following table shows that MTD201 resulted in at least comparable normalization of GH levels and perhaps even a greater reduction as judged by the area under the curve (AUC) and Cmax.


View Exhibit IV

Additional features in which MTD201 may be superior to SLAR include:

1) A faster reconstitution time (10 min for MTD201 vs. 40 min for SLAR);
2) Additional time to use the product (up to two hours post reconstitution for MTD201 vs. needing to use immediately post reconstitution for SLAR);
3) Potential for longer dosing interval (6-8 weeks for MTD201 vs. 4 weeks for SLAR)
4) Potential for higher dose (up to 45 mg for MTD201 vs. up to 30 mg for SLAR)
5) Subcutaneous dosing (compared to intramuscular dosing for SLAR)
6) The ability to use a smaller gauge needle (21G needle used to administer MTD201 vs. 19G needle used to administer SLAR, although sometimes an 18G needle must be used due to blockages of 19G needles)

The last point above was exemplified by the fact that compared to SLAR, those administered MTD201 had much lower rates of pain at injection site (8% vs. 25%) and injection site tenderness (8% vs. 83%).

Q-Sphera™ Overview

The Q-Sphera™ platform was designed to address several problems associated with microencapsulation and polymer-depot based drug delivery. The high energy reactor-based emulsion processes such as those used to manufacture SLAR require a long duration (4-6 weeks), a large infrastructure, and are more wasteful in that they produce large quantities of unusable particles (i.e., either too large or too small). In addition, these emulsion processes use large volumes of unfavorable organic solvents (such as ethyl acetate and dichloromethane). Particles produced from these solvent solutions must be rigorously evaporated and washed to remove residual traces of solvent. The proprietary ‘printer’ approach MTP takes is unique in that it ‘prints’ the microspheres at several million spheres per second, uses non-toxic solvents easily removed via extraction, requires limited infrastructure, and a decreased manufacturing time.

The key advantage that the Q-Sphera™ approach offers is product monodispersity and homogeneity. Very tight particle size distributions can be produced, which increases the usable product yield and leads to an improved clinical profile and injectability characteristics compared to traditional manufacturing methods. For example, the Q-Sphera™ platform results in products with the lack of a burst phase, lower variability, and reduced injection site pain (as seen in the results from the MTD201 proof-of-concept study) through the use of smaller gauge needles allowed by the homogeneous particle sizes. The end result of the Q-Sphera™ process is a formulation that produces consistent and reproducible drug concentrations in the body within very narrow limits.