Island Pharmaceuticals Ltd (ASX:ILA)

Investment Memo:

Island Pharmaceuticals Ltd (ASX:ILA)

- LIVE

Opened: 21-May-2025

Shares Held at Open: 3,766,666

What does ILA do?

Island Pharmaceuticals (ASX:ILA) is a drug repurposing company focused on antiviral therapeutics for infectious diseases.

ILA is currently repurposing an old cancer drug for prevention and treatment of dengue fever and other mosquito borne diseases.

What is the macro theme?

Dengue fever affects ~400m people and causes ~40k deaths a year and currently has no treatment or preventative.

Dengue is predicted to become a major and growing problem as the world warms and mosquitos become more prevalent in latitudes further away from the equator.

It could apply to other infectious diseases.

Our Big Bet for ILA

“ILA re-rates to a $500M+ market cap by developing its dengue fever or Galidsiver drug”.

NOTE: our “Big Bet” is what we HOPE the ultimate success scenario looks like for this particular Investment over the long term (3+ years). There is a lot of work to be done, many risks involved - just some of which we list in our ILA Investment Memo. Success will require a significant amount of luck. There is no guarantee that our Big Bet will ever come true.

Why did we invest in ILA?

Big addressable market - dengue infects up to 400M per year, kills ~ 40k

Infectious diseases are usually undertreated. ILA’s current focus is dengue fever which infects ~100-400M people and kills ~40k people per year.

The dengue fever treatment market is worth ~US$2.14BN and expected to grow to US$3.66BN by 20234.

Dengue fever cases are growing globally, but no specific treatment or preventative

Globally, cases of dengue have doubled each year since 2021, and nearly tripled in 2024.

In April last year there was an emergency declaration by the CDC about rampant dengue fever in South East Asia and South America.

The US government and the US military have acknowledged that dengue fever is a major health crisis too.

Given there is no treatment or preventative, outbreaks could have disastrous consequences for populations.

ILA is backed by the Race Oncology team (went from 6.6c to $4 per share - a 60 bagger)

Founder of Race Dr William Garner holds 15.79% of ILA. Previous Chief Scientific Officer of Race, Dr Daniel Tillet holds 6.72% of ILA and one of the founding directors of Race, Chris Ntoumpelous, is a non-executive director of ILA and participated in the recent placement at 15c

Dengue fever clinical trial catalyst due in the next few weeks

Phase 2a/b clinical trials have all been paid for and completed.

Results are due inside the next few weeks, a positive outcome here will de-risk the drug’s efficacy and provide an indication whether ILA’s drug works and if it is better as a preventative or as a treatment.

ILA could be eligible for “Priority Review Voucher” (PRV) - worth ~ US$100M

If ILA can get its drug FDA approved it could be eligible for a “Priority Review Voucher”.

A PRV means ILA can get its drug to market quicker. A PRV is transferable and has sold for on average ~US$100M (A$155M) in recent years.

If awarded, this PRV alone could be worth many multiples of ILA’s current market cap of ~$43M (fully diluted), ILA can choose to sell this PRV to raise a substantial amount of non-dilutive capital.

The active ingredient in ILA’s drug has already been proven safe in multiple clinical trials

ILA’s main drug candidate ISLA-101 has an active ingredient called fenretinide. There have been multiple clinical trials using this active ingredient for cancer and respiratory conditions in humans - providing a bounty of safety data for ILA.

This means that ILA has been able to ‘skip’ Phase 1 clinical trials as the important ‘safety’ hurdle has been de-risked (source - fenretinide data).

The US Government and the US Army both supported ILA’s clinical trials

The US government recently provided US$625k in grant funding for ILA’s clinical trial and the US Army provided clinical support under a CRADA (Cooperative Research and Development Agreement).

Possibility to expand drug to other infectious disease indications

IF ILA’s drug works for dengue fever, it could be applied to treat/prevent other infectious diseases like Zika, Yellow Fever and West Nile fever.

ILA to enter Biodefense space.

ILA has an exclusive option to acquire a drug that can be repurposed to tackle Ebola, Marburg, Zika - the kind of viruses that can be weaponised in war and conflicts.

This gives ILA potential exposure to the government/military anti-viral stockpiling thematic.

This drug could also be eligible for PRV and has animal data and human phase 1 safety data.

What do we expect ILA to deliver?

Objective #1: Phase 2a/b study results

We want to see ILA’s results from the Dengue Fever phase 2a/b study. We want to see ILA show that its drug is effective enough to move into a phase 2/3 trial.

We also want to see whether or not ILA will be doing a phase 3 trial as a preventative (pre-infection) to Dengue OR as a therapeutic (post-infection).

Milestones

not done Phase 2a/b clinical trial results

not done ILA makes a decision to move into phase 3 trials

Objective #2: Phase 2/3 clinical trial design and completion

Based on the results from the phase 2a/b study, we want to see ILA set up a trial design and eventually start phase 2/3 trials.

Milestones

not done FDA meetings to determine endpoints for the trial

not done Clinical trial design completed

not done Clinical trial starts

not done Clinical trial completed

not done Clinical trial results

Objective #3: Partnership for Phase 2/3 trials.

Pending the results of Objective #2, we want to see ILA lock in some sort of partnership deal to help fund its phase 2/3 trials.

Milestones

not done Partnership deal

Objective #4: (Bonus) Galidesivir acquisition

We want to see ILA make a decision on the Galidesivir acquisition option.

Milestones

not done Option exercise

not done Forward plan

What could go wrong?

Development purgatory risk

With a big catalyst coming, any positive news may become a liquidity event that existing holders use to sell into.

ILA will likely have to run an additional Phase 2 or 3 trial(s), which will take time and cost money (see funding risk).

This could result in a quiet period while the company recruits new patients for the trial and may mean the ILA share price trades sideways or sells down on a lack of material newsflow.

Cap structure risk

Shares were issued inside the last 12 months at 6c and 7c. Both of those capital raises happened to have one-for-one options attached to them. This could create some short term selling pressure, which could take some time to churn through.

We also recognise there are ~50m 7c options in the money which could get converted and create more supply.

Clinical trial risk

It is important to be aware that clinical trials can be unsuccessful.

Here are some of the standard risks that are associated with biotechs that are undertaking clinical research:

Patient recruitment is delayed or fails
Ethics approval is delayed or fails
Clinical trial cost blowouts
The drug or treatment is ineffective at treating the particular disease (usually determined by clinical trial results in Phase II and Phase III)

The design of the trial is such that the regulatory body does not approve the drug/treatment.

There is a chance that one or more of ILA’s clinical trials fail to meet their primary or secondary endpoints, meaning the treatments fail to satisfy the criteria of the studies.

Any clinical trial results, if negative, could hurt the ILA share price.

ILA clinical trial achieves anti-dengue activity in humans [12-Jun-2025]

Funding risk

Pre revenue biotech companies regularly need to raise capital to fund their growth ambitions. Capital raises can cause dilution to existing shareholders.

As a pre-revenue company, ILA will likely need to raise capital at some stage in the future, potentially at a discount to the prevailing market prices to secure funding.

This will be contingent on clinical trial results and broader market sentiment (see next risk).

Phase 3 funding risk

If ILA’s Phase 2a/b trial is successful, it will need to conduct a larger Phase 3 trial.

This trial will likely need to be much bigger with human patients with dengue fever around the world, which could get expensive if setting up clinics in remote overseas locations.

If ILA is not able to find an institutional partner or fund willing to pay for the trials it may need to raise the money from the retail market.

Market risk

Broader market sentiment for small pre-revenue biotechs could deteriorate and the sector as a whole trades lower, taking ILA’s share price with it.

Alternatively, the entire equities market could sell down as well.

What is our investment plan?

We plan to hold a position in ILA for the next 3-5 years (and beyond) as it takes its dengue fever drug into phase 2/3 clinical trials.

We eventually may look to take some profits by selling up to ~20% of our holding (in line with our holding policy and escrow conditions) if the share price materially rerates on the company successfully delivering on the key objectives listed above.

Disclosure: Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 3,766,666 ILA Shares at the time of publishing this Investment Memo. The Company has been engaged by ILA to share our commentary on the progress of our Investment in ILA over time.