Well-funded and on track for Phase IIb

Early studies encouragingly showed that Staphylococcus aureus (S aureus) did not generate resistance to XF-73 after multiple exposures. There are currently no approved drugs for Prevention of post-surgical staphylococcal infection and few late stage candidates: so XF-73 could be first to a primary addressable market worth up to $1.2bn.

Following the recent Investigational New Drug (IND) opening, XF-73 is due to enter Phase IIb studies which should lead to data readout in H219. Destiny recently clarified the development plan for XF-73, which has already been trialled in 166 subjects over the course of five Phase I/II studies, detailing the standard safety studies required by FDA. In our view the three Phase I dermal safety studies detailed represent a relatively low risk hurdle towards completing the Phase III ready package.

The terms of Destiny's December commercialisation and development agreement with China Medical Systems (CMS) included exchange of Asian rights (ex-Japan) in return for a £6m equity stake and data sharing. This validates the XF platform clinical and commercial potential and could help Destiny to accelerate the development of XF-73 and the earlier stage products. China is the world's second largest consumer of antibiotics so it has a crucial role in managing the threat of AMR.

Our sum-of-parts DCF valuation of Destiny Pharma, using a 12.5% drug development discount rate, rises slightly to give a current worth of £117m (269p/share) after rolling our forecasts forwards and updating for end December 2017 cash. The current market cap implies a low probability of success in the lead program, despite the up to twofold likelihood of success in anti-infection indications vs the average rate.