$68M capped ILA - $200-500M revenue in the next 12 months…. how?

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 3,766,666 ILA Shares at the time of publishing this article. The Company has been engaged by ILA to share our commentary on the progress of our Investment in ILA over time. This information is general in nature about a speculative investment and does not constitute personal advice. It does not consider your objectives, financial situation, or needs.

How is a $68M capped biotech company armed with only Phase 1 clinical data able to generate $200 - $500M in cash within the next 12 months?

We will show you today.

It involves:

• An “Animal Rule” decision from the FDA (we will know this next quarter)
• A Priority Review voucher (worth hundreds of millions)
• An upfront government stockpiling contract to protect against bioterrorism (potentially worth hundreds of millions)...

(We will explain what all this all means shortly.)

We will know if Island Pharmaceuticals (ASX:ILA) is successful in this strategy within the next 12 months (with that FDA decision next quarter the next big ‘unlock’).

Those steps above are the perfect future that ILA’s Chairman (and 12.28% holder) Jason Carroll sees for its anti-viral drug Galidesivir.

(Like anything in life, there are no guarantees they will be successful.)

This week ILA confirmed it will be meeting with the FDA next quarter to see if:

• The Animal Rule can be applied to its treatment of the deadly Marburg Disease (88% mortality rate, no existing treatment),
• ILA is eligible for a Priority Review Voucher (a saleable asset worth circa US$150M).

Immediately after that, ILA plans to begin its animal trial to evaluate the efficacy of its drug on Marburg disease.

The US Government has previously spent US$70M developing ILA’s drug, and it has already shown to be safe in humans and effective against ~20 viruses in lab tests.

Many of these viruses that ILA’s drug Galadisvir has shown to be effective against sit in the “weaponisable” category for bioterrorism like Marburg, Ebola and Zika viruses.

In order to encourage the development of effective defences against these severe viruses, so that the US Government can stockpile them and save lives in the event of an outbreak, the FDA has a little known rule that can fast track drugs to market.

This is called the Animal Rule.

The Animal Rule is a little known rule that can fast track drugs to market because of how deadly these conditions can be (and the urgency around defending against bioterrorism and bioweapon threats).

So how does ILA get to $200-$500M in revenue within the next 12 months?

• FIRST, The FDA will need to allow the use of the Animal Rule for ILA to fast track its drug to market (the FDA meeting to find this out is expected to occur next quarter)
• THEN, ILA will need to conduct a short, low-cost clinical trial on non-human primates (trial expected to cost circa $4M. ILA held $7.25M cash at June 30 so is funded for this) to evaluate if its drug is effective at treating Marburg disease.
• THEN, Submit to the FDA for an IND approval of its drug (6 month review timeframe)
• IF APPROVED...
• SECURE a Priority Review Voucher, which is a tradeable asset worth on average ~US$150M (think of this like a ‘thank you’ for developing the drug - more on this later)
• SECURE commercial stockpiling contracts with the US Department of Defence for protection against bioweapons. These contracts can be very lucrative. You can see examples of contract size and duration in this webinar - (in summary they are all worth six figures and some are rolling contracts.)

ILA officially kicked off the above process this week by making a Type C meeting request with the FDA to align with the regulator on whether it would be eligible for fast tracked approvals.

We should know the FDA decision by October, with the animal trial to start the very next day.

(These timelines were provided by ILA Chairman Jason Carroll in his TechKnow presentation in Melbourne in late August.)

A big part of our initial Investment in ILA is the team behind it

Two of ILA’s biggest shareholders (Garner and Tillett) and one of ILA’s directors (Ntoumenopoulos) were part of the Race Oncology team that took that company’s share price from ~6.6c to $4 per share.

Race, like ILA, was also a drug repurposing company...

We are backing this team to deliver similar success for ILA.

The past performance is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

Here are the ILA substantial shareholders and board members:

(Source)

The journey for ILA to get a drug to market in under 12 months

ILA recently completed the acquisition of the drug Galidesivir.

Galidesivir has already been shown to be effective against ~20 viruses in lab tests - many of which sit in the “weaponisable” category (Marburg, Ebola and Zika).

But the one we are most interested in is the Marburg virus - which is what ILA will be targeting as an effective treatment first...

Marburg disease is classified as a Category A bioterrorism threat (the highest level threat) by the US government. (source)

(for Category A bioterrorism threats, governments around the world will generally maintain a stockpile of vaccines or treatments to quickly deploy).

So we would assume if ILA can demonstrate its drug is effective against Marburg, the US government will take an interest in the drug and ILA’s drug could become a potential defence against bioweapons and deadly viruses.

Marburg is a highly dangerous virus that causes severe hemorrhagic fever in humans, with a fatality rate up to 88%.

There is no current vaccine or cure for Marburg.

For weaponisable viruses like Marburg, Ebola and Zika, ILA’s new drug has shown (in animal studies) survival rates of up to 100% versus 0% survival in placebo (24-48 hours after infection):

Every year the US government spends hundreds of millions of dollars stockpiling treatments for bioweapons like anthrax, small pox and other deadly viruses.

Because of how deadly Marburg virus is, ILA could be eligible for a fast-tracked approval under the “animal rule”.

The FDA Animal Rule is a little known rule that can fast track drugs to market because of how deadly these conditions can be (and the urgency around defending against bioterrorism and bioweapon threats).

Here is how it applies:

• Animal trials are used for viruses that are are so deadly that running human trials would be unethical or too risky
• The Animal Rule only requires efficacy to be proven in animals through a pre-clinical trial where the results can be applied to humans (so using chimpanzees or other non-human primates)
• Safety will still need to be proven in humans (Galidesivir has a rich safety profile from multiple phase 1 studies)

This meeting with the FDA will give ILA much more clarity as to how the animal rule applies to its newly acquired drug.

IF the FDA approves the use of the animal rule, it could be less than 12 months before ILA brings its Galidesivir drug to market (making it eligible for stockpiling by the US Government).

Also, if ILA gets its drug approved by the FDA it could be eligible for a Priority Review Voucher (A Priority Review Voucher is a “reward” for biotech companies that develop drugs that the FDA are targeting like Marburg disease).

PRVs are tradeable assets which have fetched up to US$350M (and normally priced at US$150M).

Read our deep dive on Priority Review Vouchers here: More on Priority Review Vouchers.

This next FDA meeting is a crucial one for ILA, and we are looking forward to the outcome next quarter.

What’s the size of the prize?

There are two ways in which ILA develops value from this product.

1. Priority Review Voucher

A priority review voucher is a “reward” for biotech companies that develop drugs that the FDA are targeting... in particular:

• Neglected tropical diseases
• Rare pediatric diseases
• Medical countermeasures (e.g. for bioterrorism or pandemics)

FDA Priority Review Vouchers can either be used for the specific drug that the company is seeking to be approved OR be used on the next drug that the company is looking to develop (like a bonus ‘thank you’ for getting approved).

The priority review reduces the review time frame from 10 months down to 6 months.

The reason PRVs are so valuable is because:

1. A drug can get put into market a lot quicker than the traditional commercialisation strategy. Time is money.
2. Once a company is granted PRV status for a drug, that status can be transferred to another product of choice without having to qualify for a priority review.

That time saving is obviously valuable for companies who can get into market ~4 months earlier (versus going through the priority review process).

Particularly to big pharma, where new drugs can generate billions of dollars in revenue a year and there is a 7-year exclusivity timeframe before generics hit the market.

PRVs have sold for as high as US$350M (source).

ILA is hoping to fast track approvals and secure a PRV for Galidesivir because of:

• The existing safety and pharmacogenetic data conducted in two Phase 1 clinical trials by BioCryst (the company ILA bought the drug rights from),
• The “Animal Rule” which allows effective drugs to be approved just from animal trials.

These two factors may significantly shorten the timeframe for ILA to secure FDA approval and the coveted PRV.

A couple of weeks ago, the FDA Commissioner highlighted the potential for new Priority Vouchers to be granted to “companies supporting the US National Interest”.

(Source)

There were four broad categories that were identified by the FDA as “US National Interest”:

• Addressing a health crisis in the U.S.
• Delivering more innovative cures for the American people.
• Addressing unmet public health needs.
• Increasing domestic drug manufacturing as a national security issue.

While these categories don’t necessarily give a specific direction to the market as to which types of drugs will be eligible, the prize is big.

However, the possibility that ILA is eligible for two different Priority Vouchers is a big prize worth chasing.

2. Government Stockpiling

The big upside is that Galidesivir could make ILA a “stockpiling play”.

This is where the drug is of such interest and importance to public health that governments have a strong interest in stockpiling a reserve “in case of emergency”.

The best way to think about it is if we could have foreseen a big COVID outbreak in 2020 and the vaccine already existed, governments could have used their stockpile to prevent the spread of the outbreak.

This would have avoided all of the disruptions caused by the lockdowns and vaccine rollout.

OR even worse, in the event a bioweapon is used in war...

Governments wouldn’t be scrambling for a defensive vaccine/treatment if they had stockpiles.

Here are some government stockpiling deals that have been awarded in the last few years:

• Emergent BioSolutions up to $911 million through 2021 for BioThrax (the only FDA anthrax vaccine). BARDA also awarded Emergent $100 million for BioThrax.
• Bavarian Nordic- $120million for JYNNEOS (smallpox and mpox vaccine) in 2023
• Bavarian Nordic- $140million for JYNNEOS in 2024; BARDA also awarded them $63 million
• Bavarian Nordic- $140million for JYNNEOS in 2025

Key Catalysts for ILA in the next 6-9 months

JUNE: ILA completes the acquisition of Galidisivir ✅

August: ILA requests meeting with the FDA ✅

Q4 2025: ILA makes a submission to the FDA on whether the drug is eligible for animal approval and priority review voucher (source)

THE NEXT DAY: Commence animal trial for deadly Marburg disease (source)

NEXT: Results of animal trial

NEXT: (Assuming results are good) Submit to FDA for commercial approval and access to Priority Review Voucher

It is a 6 to 12 month timeline to valuation that all depends on whether the FDA will approve application of the animal rule for ILA’s treatment of Galidesivir.

That FDA meeting (which ILA says should be scheduled for next quarter) is the key risk point for investors, to know whether ILA has a fast track approval.

THEN the next risk point will be whether the animal trials will give ILA enough data to commercialise its product.

But if ILA meets these two hurdles it could have a Priority Review Voucher worth circa US$150M and in-market drug that is eligible to be sold to the US Government for stockpiling.

What’s next for ILA?

Animal trial for Marburg Disease

Now that ILA has completed the acquisition of Galidesivir, we want to see the company work with the FDA to develop an animal trial to determine efficacy on Marburg Disease.

🔲 FDA meetings to determine the application of the Animal Rule.

🔲 Clinical trial design completed

🔲 Clinical trial starts

🔲 Clinical trial completed

🔲 Clinical trial results

We think this should be a fairly quick process assuming ILA gets a favourable FDA Animal Rule outcome and it doesn't need to run trials in humans.

What are the risks?

Galidesivir (Marburg Disease)

The primary risk for ILA is regulatory uncertainty.

While the FDA’s Animal Rule provides a potential fast-track pathway for Galidesivir, it is not guaranteed.

ILA must meet with the FDA to determine if the existing non-human primate efficacy data and Phase 1 human safety data from the previous owner are sufficient to proceed.

If not, the company may be required to conduct new studies, increasing both costs and timelines.

The second risk for ILA is efficacy risk, although there is some good early stage data, ILA will need to prove in a larger clinical trial that Galidesivir is effective.

The third risk is commercialisation risk, even with approval, there is no certainty that ILA will receive a Priority Review Voucher or secure government stockpiling contracts.

The fourth risk is competition risk, there are other drugs being developed for Marburg, and if they make it to market first, it may affect the commercial potential of Galidesivir.

Our ILA Investment Memo

You can read our ILA Investment Memo here. We use this memo to track the progress of all our Investments over time.

Our ILA Investment Memo covers:

• What does ILA do?
• The macro theme for ILA
• Our ILA Big Bet
• What we want to see ILA achieve
• Why we are Invested in ILA
• The key risks to our Investment Thesis
• Our Investment Plan