Healthcare: BiotechnologyDelMar Pharmaceuticals, Inc ... · 4Q - (0.09)E - YEAR (0.09)A (0.31)E...

Joseph Pantginis, Ph.D., (646) [email protected]

Deanna Bahel, (646) [email protected]

Sales (800) 933-6830, Trading (800) 933-6820

COMPANY NOTE | EQUITY RESEARCH | November 6, 2014

Healthcare: Biotechnology

DelMar Pharmaceuticals, Inc. | DMPI - $0.97 - OTC | Buy

Initiation of Coverage

Stock Data

52-Week Low - High $0.62 - $1.60Shares Out. (mil) 32.60Mkt. Cap.(mil) $31.63-Mo. Avg. Vol. 31,50212-Mo.Price Target $6.00Cash (mil) $4.8Tot. Debt (mil) $0.3

EPS $

Yr Jun —2014— —2015E— —2016E—Curr Curr

1Q - (0.07)E -2Q - (0.07)E -3Q - (0.08)E -4Q - (0.09)E -

YEAR (0.09)A (0.31)E (0.34)EP/E NM NM NM

Fiscal year to June from December in July 2014. Estimates above arefor fiscal 2015 starting quarter ended Sep 2014. 2014 EPS of ($0.09)represents 1H14 results prior to changing fiscal yearQuarterly EPS may not add to full year due to increases in share countand rounding

Revenue ($ millions)

Yr Jun —2014— —2015E— —2016E—Curr Curr

1Q - 0.0E -2Q - 0.0E -3Q - 0.0E -4Q - 0.0E -

YEAR 0.0A 0.0E 0.0E

1.801.601.401.201.000.800.600.40

Dec

-13

Jan-

14

Feb-

14

Mar

-14

Apr

-14

May

-14

Jun-

14

Jul-1

4

Aug

-14

Sep

-14

Oct

-14

Nov

-14

1.41.21.00.80.60.40.20.0

PriceVol (m)

DMPI One-Year Price and Volume History

DMPI: VAL-083; A Coming New Tool forGlioblastoma; Initiating Coverage at BuyWe are initiating coverage of DelMar with a Buy rating and $6 price target.Overall, we believe a disconnect exists in the current valuation for DelMarand upcoming catalysts should further increase visibility on the name anddrive focus on VAL-083 as a promising chemotherapeutic agent againstglioblastoma and other tumor indications. The drug was previously approved inChina and this also represents an upcoming source of revenue to the company.

We are initiating coverage of DelMar with a Buy rating and $6 price target.We believe that DelMar’s market cap does not reflect the value of its drugVAL-083 in glioblastoma. The company’s visibility has been limited, in ourbelief, by 1) the early stage nature of its product, 2) the market cap, 3)trading on the OTC and 4) need to establish thorough patent protection for theproduct. To this end, the company has been moving forward with a Phase I/II inrecurrent glioblastoma with encouraging safety and efficacy data to date. Thecompany will also be engaging the FDA to increase the target doses in thisdose escalation study based on the safety profile and no MTD having beenidentified. Upcoming data at the SNO conference in November 2014 shouldalso help to further strengthen the drug’s potential in the indication. Based onrecent warrant exchanges, the company is funded through at least December2015, according to management and we also expect to see uplisting to a newexchange in the near term.

VAL-083 has shown promising data to date in the difficult GBM indication.Historical clinical data to date demonstrate comparable incremental survivalbenefit and overall survival benefit comparable to standard of caretemozolomide (see below). In addition, the drug has already been approvedin China for CML and lung cancer, which further demonstrates the drug’santicancer activity.

DelMar is in the unique position of having a commercial opportunity, asVAL-083 is currently approved in China for NSCLC and leukemia. Thecompany plans to begin to capitalize in the near term from its partnership withGuangxi Wuxhou Pharmaceuticals. Guangxi will be initiating clinical studieswith world-leading key opinion leaders to help bolster the selling of VAL-083in China.

Overall, we believe a disconnect exists in the current valuation for DelMarand upcoming catalysts should further increase visibility on the name anddrive focus on VAL-083 as a promising chemotherapeutic agent againstglioblastoma and other tumor indications.

Important Disclosures & Regulation AC Certification(s) are located on page 23 to 24 of this report.Roth Capital Partners, LLC | 888 San Clemente Drive | Newport Beach CA 92660 | 949 720 5700 | Member FINRA/SIPC

DA

Restricted

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DELMAR PHARMACEUTICALS, INC. Company Note - November 6, 2014

Investment Case

DelMar Pharmaceuticals is a clinical-stage biopharmaceutical company that is focused on developing and

commercializing validated anti-cancer therapies in orphan indications. The company’s lead candidate is VAL-083,

which the company is developing for recurrent glioblastoma multiforme (GBM). VAL-083 is a novel, small-molecule

alkylating chemotherapy with first-in-class chemistry. The drug is orally available and crosses the blood-brain barrier.

The drug is currently in a Phase I/II study in recurrent GBM in the U.S. VAL-083 has previously been approved in

China for the treatment of leukemia and NSCLC. Additionally, over 40 clinical trials sponsored by the National Cancer

Institute have previously shown that the drug is safe and well tolerated with signals of clinical efficacy. With cGMP

commercial scale manufacturing in place, a near-term revenue opportunity in China, and a clinical trial underway in

an unmet medical need, we believe DelMar is on the verge of several near-term catalysts, which should reflect

positively on the stock, in our belief. The company was formed in 2009 through a reverse acquisition under the name

Berry Only Inc. and was incorporated in April 2010 as DelMar Pharmaceuticals. The company is based in Vancouver,

Canada.

Company Overview and Business Strategy

Following over 40 clinical studies of VAL-083 sponsored by the National Cancer Institute and previous approvals for

the drug in China for CLL and lung cancer, DelMar’s product development strategy is four-pronged: 1) develop VAL-

083 in GBM (currently in Phase I/II under Orphan Designation), 2) expand the drug into additional orphan indications,

3) create new revenue and partnering opportunities with expanded clinical data sets in China, and 4) collaborate with

big pharma companies to develop the drug in solid tumor indications. DelMar plans to begin capitalizing on its near-

term revenue opportunity in China in collaboration with its Chinese partner Guangxi Wuxhou Pharmaceuticals by year

end 2014. In addition, the company plans to announce additional data from its Phase I/II U.S. trial of ‘083 in GBM at

the Society of Neuro-Oncology conference in November 2014. We believe these data will further solidify the drug’s

potential role in treating recurrent GBM. DelMar plans to up-list to a major U.S. stock exchange as soon as possible,

which should provide additional liquidity and visibility to investors.

Key Investment Drivers

Lead product addresses a major unmet medical need – Glioblastoma multiforme still represents a major

unmet medical need. Initial treatment for the disease is surgery, though nearly all patients progress following

resection. Frontline therapy is temozolomide (Temodar) in combination with radiation, with 60% of patients

experiencing tumor progression within ~12 months of treatment. Avastin has been approved for cases of

GBM which progress following Temodar; however, only approximately 20% of these cases will respond to

Avastin. Altogether, approximately half (48%) of patients who receive surgery, Temodar, and Avastin will

continue to progress and are in great need of other options. VAL-086 could be a third-line option for patients

who fail both Temodar and Avastin therapy, which is a majority of glioblastoma patients.

Promising data to date for this difficult tumor type. VAL-083 has shown promising data to date in the

difficult GBM indication. Historical clinical data to date demonstrate comparable incremental survival benefit

and overall survival benefit comparable to standard of care temozolomide (see below). In addition, the drug

Page 3 of 24


has already been approved in China for CML and lung cancer, which further demonstrates the drug’s

anticancer activity.

Management’s proven track record in clinical development. DelMar’s clinical team developed the

marketed drug Synribo, which was acquired by TEVA and which was FDA approved in 2012. DelMar’s CEO,

Jeffrey Bacha, has over 20 years of experience in biotech and pharmaceutical companies, including as the

founding CEO of Inimex Pharmaceuticals. DelMar’s CSO, Dr. Dennis Brown, Ph.D., has over 30 years of

cancer drug discovery and development experience, including as founder of Matrix Pharmaceuticals

(acquired by Chiron) and founder of Chemgenex Pharmaceuticals (acquired by Cephalon), in addition to

academic appointments at Harvard and Stanford Medical Schools.

Near-term revenue opportunity in China. DelMar is in the unique position of having a commercial

opportunity, as VAL-083 is currently approved in China for NSCLC and leukemia. The company plans to

begin to capitalize in the near term from its partnership with Guangxi Wuxhou Pharmaceuticals. Guangxi will

be initiating clinical studies with world-leading key opinion leaders to help bolster the selling of VAL-083 in

China.

Key Risks

Single product risk and early stage U.S. program. VAL-083 is DelMar’s only clinical-stage asset.

Therefore, any unforeseen negative data or safety issues could pose a high risk to the company and its

stock. However, we believe this risk is mitigated by the fact that the drug is currently approved in China,

which represents not only a near term revenue opportunity, but also has provided safety validation. We also

believe DelMar’s development strategy to develop ‘083 in various indications mitigates its single product risk

over the course of the company’s development strategy. Over time as the company’s cash resources allow,

it may look to bring in additional development assets.

Difficult lead indication. We believe that DelMar’s lead indication of GBM is a risky indication, as there is a

high rate of historical failure of drugs in development for this indication. However, based on the difficulty of

the indication, we believe there is a large market for any drug that does get approved. We also believe

DelMar could benefit from the market exclusivity that is available for GBM as an orphan indication. In

addition, we believe the drug’s approval in China for NSCLC and CML bodes well for the drug’s success in

U.S. clinical trials.

Regulatory risk – Should DelMar's products successfully complete pivotal registrational studies, there is no

guarantee that regulatory agencies would approve these products. Unforeseen issues may arise during

clinical development which could impact the approvability of a therapeutic candidate.

Financing risk – As with all non-profitable biotechnology companies, funding is continuously necessary to

fund operations and ongoing clinical studies. Should DelMar encounter problems in raising sufficient funds

to continue its operations, this could significantly impact the stock’s valuation.

Upcoming Milestones

Updated data from the interventional Phase I/II, open-label, single-arm trial of VAL-083 in malignant glioma-

SNO Conference, November 2014

Discuss protocol amendments for the current Phase I/II and potential registration studies with the FDA

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Uplisting to national stock exchange

Achieve royalty revenue through sales of VAL-083 in China with partner Guangxi Wuxhou Pharmaceutcals-

YE 2014

Begin to develop new clinical data to support sales growth in China- YE 2014

DelMar’s Pipeline & Corporate Development Strategy for VAL-083

Source: DelMar Corporate Presentation May 2014

Valuation Methodology

We assign a Buy rating and $6 price target on shares of DelMar. Our valuation of DelMar is based on our probability-

weighted clinical net present value (NPV) model. We believe this method is appropriate in capturing the value of the

clinical stage pipeline. It allows for the flexing of assumptions based on key factors such as chance of success, peak

sales estimates, and year of commercial launch. Our current valuation of DelMar is based primarily on VAL-083 for

recurrent glioblastoma in the U.S. and a modest contribution from royalty revenue on VAL-083 from the partnership

with Guangxi Wuxhou Pharmaceuticals in China. A level of conservatism in our valuation model comes from our

assigned multiple and discount rate for which we apply the historical values for large pharma (17.0x P/E and 15%

discount rate) rather than the sometimes inflated non-profitable biotech multiples in the 30-40x range.

DelMar Clinical NPV Valuation Model

Source: ROTH Capital Partners estimates

Drug name Indication Status Launch SuccessPeak Sales

(WW$m)Economics Profitabil ity NPV (US$)

VAL-083 - U.S. Recurrent glioblastoma Phase I/II 2017 25% 350 100% 30% 4.76

VAL-083 - China CML & Lung cancer Approved 2016 40% 175 8% 100% 1.17

VAL-083 Front-line glioblastoma Phase II plan 2022 0% 0 100% 30% 0.00

Total 5.93

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Valuation upside potential – Our valuation of DelMar is based currently on VAL-083 for 1) recurrent GBM in the

U.S. and 2) anticipated royalty revenue from sales in China. We see upside potential to our valuation based on 1)

increasing the chance of success for a particular indication and increasing the peak sales numbers should any of the

products gain more market traction than expected and 2) including other products and indications into our valuation

as they enter clinical studies. In our NPV above, we purposefully assign a 0% chance of success for VAL-083 in front-

line glioblastoma in order to highlight our conservatism to our valuation approach. This does not reflect our positive

stance on the product and the opportunity in front-line patients.

Valuation downside potential – As with the majority of companies in clinical development, there exists the risk of

failed or inconclusive clinical trials, which could lead to downward pressure on the stock. While early stage products

increase the underlying risk, we believe that DelMar’s risk has been mitigated somewhat based on prior clinical

studies providing both a broad safety and efficacy database for VAL-083. Additionally, risk is potentially enhanced

based on the reliance of third parties for anticipated revenue out of China.

Financial Outlook and Summary

DelMar changed its fiscal year from December to June in July 2014. The company ended the period ending June

2014 with $4.76 million in cash. We are projecting losses of $10.4 million for F2015 and $12.3 million for F2016, or

($0.31) and ($0.34) per share, respectively. For F2015 and F2016 respectively, we expect R&D expenses of $2.8

million and $3.3 million and G&A expenses of $3.6 million and $4.0 million, as the company increases its clinical trial

efforts surrounding VAL-083. As of June 30, 2014, the company’s capitalization table was as follows:

June 30, 2014 Cap Table

Shares 28,947,760

Exchangeco 7,044,583

Warrants 18,732,485

Options 3,187,214

Total 57,912,042 Source: DelMar SEC filings

DelMar remains in ongoing negotiations with holders of the warrants on the stock in order to provide additional non-

dilutive funding to the company. Warrant exchanges have taken place already with up to a total $10.5 million

available. In June 2014, the company received $2.4 million in gross proceeds from warrant exercises at $0.65 per

warrant and an additional $0.5 million from an additional tender offer in August 2014. The current exchanges have

bolstered the company’s cash balance through the end of December 2015, in our view.

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Glioblastoma Multiforme (GBM)

Glioblastoma (GBM), is the most aggressive and rapidly developing brain tumor type. GBM develops from

tumorigenic glial cells, specifically astrocytes that undergo oncogenic transformation and become malignant. Once

these cells transform and acquire tumorigenic properties, they multiply and expand and invade the surrounding brain

matter, causing intracranial pressure and subsequently affect brain function. Ultimately, GBM will lead to death of

patients within a year of diagnosis unless treated. GBM accounts for ~15% of all brain tumors and more than 50% of

all gliomas. GBM occurs most frequently in adults ages 45-65, whereas it accounts for 9% of pediatric brain cancers.

Patients with newly diagnosed GBM have a median survival rate of 4.5 months without treatment. The two-year

survival rate is ~25% and the five-year survival rate is under 10% in newly diagnosed patients. In the U.S. there were

over 10,000 newly diagnosed GBM patients in 2010 and it is estimated that currently there are ~15,000 new cases

per year. The incidence rate in the U.S., which varies between states, is expected to continue growing based on an

aging population.

The current standard of care for GBM consists of surgery to remove the tumor bulk followed by radiation along with

six cycles of the chemotherapy agent, Temodar® (temozolomide, an alkylating agent approved in 2005). With this

SOC, newly diagnosed patients were shown to achieve OS of 14.6 months. This represents a 2.5 month survival

benefit over surgery and radiation alone. Global Revenues from Temodar® were ~$935 million in 2011, ~$880 million

in 2012 (Evaluate Pharma) and ~$708 in 2013 (Merck 10K for 2013). Temodar became generic on August 31, 2013.

Despite this first-line SOC treatment, most patients (~60%) will eventually undergo tumor progression within a year.

Additionally, patients with GBM tumor cells expressing the enzyme MGMT that negates temozolomide’s activity have

increased resistance to the drug, a worse prognosis and decreased overall survival as shown below.

Reduced OS rates in GBM patients with Unmethylated MGMT Promoter

Source: Hegi ME et al. N. Engl. J. Med. 2005

Avastin (bevacizumab) was approved in 2009 for patients progressing on temozolomide treatment, thereby

representing a second-line therapy. However, the response rate for bevacizumab in patients failing prior therapy was

~20-25% and consisted of partial responses lasting for about six months. Avastin did not provide any survival benefits

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in these patients. The contribution of GBM treatment revenues of Avastin is estimated to be at ~$200 million and

grow to $650 million in 2016 according to EvaluatePharma.

The market that DelMar is positioning itself for consists of GBM patients who failed front-line therapy and Avastin,

which the company estimates at ~48% of newly diagnosed GBM patients (figure below). There are no treatment

options for these patients, aside from palliative care and experimental drugs in clinical development.

Current GBM Treatment Paradigm

Source: DelMar S-1 Form

This paradigm does not portray the significant ongoing clinical efforts to develop cancer vaccines that sensitize the

immune system to recognize and attack tumor-specific antigens, thereby acting against tumor cells. We believe that

with time as these candidate drugs enter the market, they will be incorporated into SOC alongside existing

chemotherapy and other targeted therapies. There are multiple notable examples of glioma-directed immunotherapy

approaches in advanced stages, such as Celldex’s (CLDX-Buy) rindopepimut, Immunocellular Therapeutics’ (IMUC-

Buy) ICT-107, Northwest Biotherapeutics’ DCVax-L, Amgen’s AMG-595, Aduro Biotech’s ADU-623, Agenus’ HSPPC-

96 and Abbvie’s ABT-414. While these are promising approaches, there will still be a need for powerful, specific and

low-toxicity cytotoxic drugs that can attack cancer cells directly, irrespective of drug resistance and work in

combination with other targeted therapeutics, including immunotherapies. This is where we view VAL-083’s place as

a chemotherapeutic drug with a novel mechanism that can attack drug-resistant tumors and the potential to act in

synergy with target-specific drugs.

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VAL-083; Plenty of New Opportunities, in our Belief

DelMar’s clinical asset – VAL-083, a differentiated alkylating agent with potential to overcome chemotherapy-

resistance

VAL-083 is a novel bi-functional alkylating agent that differs from other approved alkylating agents, such as Temodar

used as frontline chemotherapy in GBM. The distinguishing factors of VAL-083 are its bifunctional mechanism of

action, causing N7-guanine inter-strand DNA cross-links (figure below) and its anti-tumor activity in chemotherapy-

resistant cancers.

The Inter-Strand Cross-Linked DNA Product of VAL-083

Source: Shih, KC et al., AACR/New Horizons in Cancer Research 2014

The proposed chemotherapy resistance-circumventing ability of VAL-083 is due to the distinct site of alkylation. DNA

repair enzymes, such as MGMT, do not repair the alkylation on the N7-guanine, unlike the temozolomide alkylation

site (O6-hydrogen) as shown below.

Differentiated Mechanism Relative to Temodar

Source: Hu, K et al., AACR 2012

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VAL-083 has been approved in China for treatment of CML and lung cancer. VAL-083 has been previously studied in

multiple NCI-sponsored studies in various tumor types more than three decades ago. A summary of these studies in

GBM is shown in the table below, comparing the data to historical outcomes of temozolomide and carmustine, which

are first-line GBM DNA-alkylating chemotherapies. Data in the table below show the improved clinical efficacy and

toxicity profiles of VAL-083 compared to these approved treatments.

Comparison of Historical Clinical Data of VAL-083, Temozolomide and Carmustine in GBM

Source: Shih, et al. ASCO 2014

The main distinguishing factor of VAL-083 is its demonstrated clinical activity in patient-derived cancer cell lines and

cancer stem cells that are resistant to other chemotherapy, whether through MGMT expression or other mechanisms.

Specifically, data first presented at AACR 2012 (updated in AACR 2013 and 2014) and shown below, demonstrated

that VAL-083 inhibited tumor growth in Temodar-sensitive (MGMT-negative, upper panel) and Temodar-resistant

(MGMT-positive, lower panel) adult patient-derived GBM cell lines (figure below). The population that DelMar intends

to focus with VAL-083 is the one represented in the lower panel, whose tumors are resistant to temozolomide but

inhibited by VAL-083.

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VAL-083 Activity Regardless of Temozolomide-Resistance and MGMT Status


Before we discuss the VAL-083 clinical program below, it is important to highlight one of the goals the company is

looking to address, namely dosing. The multiple prior NCI studies were based a 33-day cycle using five doses at 25

mg/m2. The dose escalation in the VAL-008 Phase I/II is to deliver six doses (cycles) of the drug testing doses

between 30-180 mg/m2 with the goal of hitting the tumor harder and more often. As is shown below, enrollment is

ongoing in the 50 mg/m2 cohort. The study was started at much lower doses, 1.5 mg/m2, based on an FDA request

to start at such a low dose based on patients on prior Avastin seeing an increased bleeding risk phenotype. The

“harder and more often” goal of treating with VAL-083 relative to the prior NCI regimen is found below.

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VAL-083 Dosing Goals vs. Prior NCI Dosing Regimen – “Harder and More Often”

Source: DelMar May 2014 investor presentation

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VAL-083 Clinical Program in GBM

DelMar is conducting a Phase I/II open-label, single-arm study of VAL-083 in patients with recurrent GBM after

treatment with both Temodar and Avastin. The study is designed as a 3+3 dose-escalation trial in which patients

receive VAL-083 IV on days 1, 2 and 3 of a 21-day cycle. The primary endpoint is to determine MTD and the

secondary endpoint is to assess tumor response and the PK profile of VAL-083. The study is comprised of multiple

dose cohorts (table below) and to date no DLTs were found in doses up to 40mg/m2. An additional dose cohort of

50mg/m2 is currently enrolling patients. As a comparison, the historical NCI-sponsored trials used a dose of

125mg/m2. The latest presentation of clinical data was at ASCO 2014.

Phase I/II Dose Escalation Progression and DLTs


* Revised based on discussions with FDA

** Cohorts 2 and 3 were expanded to allow for patient demand and to gather additional data on CNS metastases patients

VAL-083 was shown to have a dose-dependent plasma exposure and half-life in plasma was short, thereby

contributing to the lower toxicity profile compared to temozolomide. Importantly, the plasma concentrations reached

are those deemed effective against GBM cells in vitro. In contrast, VAL-083 crosses the brain-blood barrier and has a

long half-life in spinal fluid thereby contributing to durable drug exposure and higher anti-tumor activity. DelMar

reported that one out of three patients in cohort 6 (30mg/m2) and one out of three patients in cohort 7 (40mg/m

2)

achieved stable disease after one treatment cycle. Two patients displayed a response (SD or PR) in earlier cohorts,

achieving a duration of response of 28 cycles (84 weeks). The figure below shows a response from one patient with

recurrent GBM. “Before” scans appear on the left and “after” scans appear on the right. Note that thick confluent

regions of abnormal enhancement have diminished following VAL-083 therapy and appear more heterogeneous.

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Recurrent GBM Patient Response (after 2 cycles of VAL-083)

Source: Shih et al. ASCO 2014

The aim of the Phase I portion of this study is to determine the appropriate modernized dose of VAL-083 in order to

advance to the Phase II portion of the study, which is an efficacy phase. This portion of the study will enroll 14

additional GBM patients who will be dosed at MTD or lower and will be assessed for tumor response.

ASCO 2014 conclusions:

VAL-083 demonstrated promising clinical activity against newly diagnosed and recurrent GBM in historical

NCI-sponsored clinical trials

VAL-083 has potent MGMT-independent cytotoxic activity against GBM cell lines in vitro

Pharmacokinetic analyses show dose-dependent increase in exposure with a short plasma half-life and a

Cmax of <265 ng/ml (1.8 M) at 20 mg/m2 cohort is sufficient to inhibit glioma cell growth in vitro

VAL-083 therapy is well tolerated to date; no drug-related serious adverse events have been detected

MTD has not been reached after completion of cohort 6 (30 mg/m2); enrollment and analysis of cohort 7 (40

mg/m2) is ongoing

DelMar is filing an amendment with the FDA to allow dosing beyond 40 mg/m2 subject to not reaching MTD

in cohort 7

Next steps?

DelMar believes that an open-label registration-directed Phase II study in patients that are refractory to temozolomide

and bevacizumab could lead to approval of VAL-083. DelMar believes such a study would have radiographic

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response and OS as the primary endpoints. DelMar bases this view on other approved GBM therapies. DelMar is

prepared to file a protocol amendment in case MTD is not reached in cohort 9 (60mg/m2) to allow dosing at higher

concentration. Initiation of the registration-directed Phase II study is contingent on completion of the Phase I dose-

escalation study, discussions with the FDA and additional funding to operate the trial.

The company will also look to design and look to initiate a Phase II/III trial in front-line GBM, which could be part of

the global registration path for the drug. While the protocol has not been finalized yet, the study is expected to enroll

80-100 patients with primary endpoints of overall survival and radiographic response. Secondary endpoints in the

study are likely to be quality of life and safety/tolerability.

VAL-083 has been given Orphan drug designation by both the FDA and EMA and DelMar intends on pursuing a fast-

track designation from the FDA to allow filing for commercial approval while the study is ongoing, depending on

clinical responses as they occur.

VAL-083 development plans in hematological malignancies and lung cancer

DMPI plans on advancing the development of VAL-083 in leukemia, specifically in CML, and in lung cancer,

specifically NSCLC. VAL-083 is approved in China for treatment of CML and NSCLC patients. These development

plans are based on data from the clinical development in China as well as market data and on the NCI-sponsored

studies as well as on recent preclinical studies done by DelMar. These data indicate that VAL-083 has significant

clinical benefit in treating CML and NSCLC patients, particularly in patients whose tumors are resistant to standard of

care (SOC) tyrosine kinase inhibitors (TKI) for both tumor types. Since VAL-083 can freely cross the blood-brain

barrier, VAL-083 has a potential for targeting brain and CNS metastases from NSCLC. Based on all of these, DelMar

intends on developing VAL-083 for both indications in patients resistant to TKI. DelMar also plans on expanding the

hematological indications to include AML and ALL as these have similar characteristics of the blast stage of CML,

when the disease is in its most aggressive form.

Commercial and Development Partnership with Guangxi Wuzhou Pharmaceutical Group

A partnership was formed between DelMar and Guangxi in October 2012 with focus on the manufacturing and

development of VAL-083 in China. Guangxi will likely be playing many roles in this partnership. First, it will act as the

only licensed manufacturer for VAL-083, providing drug product for not only the U.S. studies but also the planned

studies and commercial launch in China. In short, Guangxi will be providing funding support for the clinical trials in

China and DelMar will be responsible for the development and commercialization. DelMar is also exploring potential

third party sales channels in China as a marketing partner for VAL-083 (discussed further below).

Over the next couple of quarters, clinical studies in lung cancer and front-line glioblastoma will be initiated with world-

leading key opinion leaders in those indications in order to support the commercial launch of the product with

additional data. With the drug already approved in China, the goal is to provide more “meat” to physicians with

additional clinical data. The clinical studies will be initiated in 1H15 with data expected in 2H15 and into 2016. While

the clinical data is being accumulated, the important goal is to have the sales infrastructure in place and this remains

an ongoing initiative for DelMar. We believe that DelMar is looking at relationships with companies which already

Page 15 of 24


have “boots on the ground” in China and adding VAL-083 would be an incremental positive to revenue growth. Three

companies who fit this description include BristolMyers (BMY-NC), Merck (MRK-NC) and SciClone (SCLN-NC). From

an economic standpoint, we believe DelMar would receive a “pass through” portion of the selling margin, which we

believe will be in the mid-to-high single digit range (we project an 8% royalty on sales of VAL-083 in China).

Supporting data in moving indications forward

DelMar presented new data at AACR in April 2014 showing the efficacy of VAL-083 in two established TKI-sensitive

and TKI-resistant murine xenograft models of NSCLC. The preclinical studies compared VAL-083 to cisplatin and

untreated controls. In a TKI-sensitive NSCLC cell line (A549) 3mg/kg of VAL-083 caused a 26-day growth delay vs. a

four-day growth delay in cisplatin-treated cells. Tumor volume was significantly smaller in VAL-083-treated cells

compared to the untreated control (p=0.001) (see figures below).

Survival Plot of Mice with TKI-sensitive NSCLC Xenograft

Source: Steino A. et al., AACR 2014

Efficacy Parameters in TKI-sensitive NSCLC Xenograft Mice

Source: Steino A. et al., AACR 2014 *MTV, mean tumor volume; TCR, tumor control ratio; TGD, tumor growth delay; TGI, tumor growth inhibition

** Unpaired t-test of tumor volume on day 68, treatment compared to untreated control

In a TKI-resistant NSCLC cell line (H1975), 4mg/kg of VAL-083 prolonged significantly the survival of mice with TKI-

resistant NSCLC xenografts compared to untreated and cisplatin-treated mice. Additionally, 4mg/kg of VAL-083

significantly inhibited tumor growth compared to the untreated control whereas treatment with cisplatin did not

achieve a statistically significant reduction in tumor volume compared to untreated control (figures below).

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Survival Plot of Mice with TKI-resistant NSCLC Xenograft

Source: Steino A. et al., AACR 2014

Efficacy Parameters in TKI-resistant NSCLC Xenograft Mice

Source: Steino A. et al., AACR 2014 *MTV, mean tumor volume; TCR, tumor control ratio;

** Unpaired t-test of tumor volume on day 68, treatment compared to untreated control

Intellectual Property In addition to its global commercial and development partnership with Guangzi Wuxhou Pharmaceutical company in China which provides global rights to VAL-083, DelMar is in the process of establishing global intellectual property around its lead candidate VAL-083. The company received its first new U.S. patent in June 2013, which provides worldwide protection through a patent cooperation treaty (PTC) in international jurisdictions. The company has also filed seven new patent applications, including 1) novel uses and claims, 2) new methods and manufacturing improvements claims, 3) claims on analytical methods required for cGMP, 4) mechanism of action and biological profile claims and 5) chemical composition of the drug product and API. The company also looks for protection the drug further with Orphan drug status (seven year exclusivity in the U.S. and 10 years in the E.U.).

Page 17 of 24


Management Jeffrey Bacha, B.Sc., M.B.A., Chairman, President & CEO/cofounder

Mr. Bacha is a seasoned executive leader with nearly 20 years of life sciences experience in the areas of operations,

strategy and finance. His background includes successful public and private company building from both a start-up

and turnaround perspective; establishing and leading thriving management and technical teams; and raising capital in

both the public and private markets. Mr. Bacha serves as a Director of Sernova Corp. (TSX-V: SVA), was the

founding CEO of Inimex Pharmaceuticals Inc and co-founder of XBiotech and Urigen Holdings Inc. He has also held

positions as an Exec. VP Corporate Affairs & Chief Operating Officer at Clera Inc., VP Corporate Development at

Inflazyme Pharmaceuticals Ltd. (TSE: IZP) and Senior Manager & Director at KPMG Health Ventures. Mr. Bacha has

been recognized as a "Top 40 under 40" executive by Business in Vancouver magazine and is active in the

community through volunteerism with the Leukemia & Lymphoma Society’s Team in Training program and as

Chairman of the Board for Covenant House Vancouver, an organization dedicated to assisting at-risk and homeless

youth to re-enter society. He received his M.B.A.(honors) from the Goizueta Business School at Emory University and

a B.Sc. in BioPhysics/Premed from the University of California, San Diego.

Dennis M. Brown, Ph.D., Chief Scientific Officer/cofounder

Dr. Brown has more than 20 years of drug discovery and development experience. He has served as Chairman of

Mountain View Pharmaceutical's Board of Directors since 2000 and is the President of Valent Technologies, LLC. In

1999 he founded ChemGenex Therapeutics, which merged with a publicly traded Australian company in 2004 to

become ChemGenex Pharmaceuticals (ASX: CXS/NASDAQ: CXSP), of which he served as President and a Director

until 2009. He was previously a co-founder of Matrix Pharmaceutical, Inc., where he served as VP of Scientific Affairs

from 1985-1995 and as VP, Discovery Research, from 1995-1999. He also previously served as an Assistant

Professor of Radiology at Harvard University Medical School and as a Research Associate in Radiology at Stanford

University Medical School. He received his B.A. in Biology and Chemistry (1971), M.S. in Cell Biology (1975) and

Ph.D. in Radiation and Cancer Biology (1979), all from New York University. Dr. Brown is an inventor on about 34

issued U.S. patents and applications, many with foreign counterparts.

Scott Praill, C.P.A., Chief Financial Officer

Mr. Praill has been Chief Financial Officer of the Company since January 2013 and previously served as a consultant

to the Company. Since 2004, Mr. Praill has been an independent consultant providing accounting and administrative

services to companies in the resource industry. Mr. Praill served as CFO of Strata Oil & Gas, Inc. from June 2007 to

September 2008. From November 1999 to October 2003 Mr. Praill was Director of Finance at Inflazyme

Pharmaceuticals Inc. Mr. Praill completed his articling at Price Waterhouse (now PricewaterhouseCoopers LLP) and

obtained his Chartered Accountant designation in 1996. Mr. Praill obtained his Certified Public Accountant (Illinois)

designation in 2001. Mr. Praill received a Financial Management Diploma (Honors), from the British Columbia

Institute of Technology in 1993, and a Bachelor of Science from Simon Fraser University in 1989.

Page 18 of 24


VALUATION

We assign a Buy rating and $6 price target. Our valuation of DelMar is based on our probability-weightedclinical net present value (NPV) valuation model. We believe that this method is appropriate in capturing thevalue of the clinical stage pipeline. It allows for the flexing of assumptions based on key factors such as chanceof success, peak sales estimates, and year of commercial launch. Factors that could impede the shares ofDMPI reaching our price target are negative data readouts from ongoing clinical studies, any perceived delayswith the clinical stage assets, as well as DelMar's ability to continue to fund its operations.

RISKS

■ Single Product Risk and early stage U.S. program. VAL-083 is DelMar’s only clinical-stage asset.Therefore, any unforeseen negative data or safety issues could pose a high risk to the company and itsstock. However, we believe this risk is mitigated by the fact that the drug is currently approved in China,which represents not only a near term revenue opportunity, but also has provided safety validation. We alsobelieve DelMar’s development strategy to develop ‘083 in various indications mitigate its single product riskover the course of the company’s development strategy. Over time as the company’s cash resources allow,it may look to bring in additional development assets.

■ Difficult Lead Indication. We believe that DelMar’s lead indication of GBM is a risky indication, as there isa high rate of historical failure of drugs in development for this indication. However, based on the difficulty ofthe indication, we believe there is a large market for any drug that does get approved. We also believe DelMarcould benefit from the market exclusivity that is available for GBM as an orphan indication. In addition, webelieve the drug’s approval in China for NSCLC and CML bodes well for the drug’s success in U.S. clinicaltrials.

■ Regulatory Risk – Should DelMar's products successfully complete pivotal registrational studies, there isno guarantee that regulatory agencies would approve these products. Unforeseen issues may arise duringclinical development which could impact the approvability of a therapeutic candidate.

■ Financing risk – As with all non-profitable biotechnology companies, funding is continuously necessary tofund operations and ongoing clinical studies. Should DelMar encounter problems in raising sufficient fundsto continue its operations, this could significantly impact the stock’s valuation.

COMPANY DESCRIPTION

DelMar Pharmaceuticals, Inc. focuses on the discovery and development of medicines with the potential totreat cancer patients who have failed modern targeted or biologic therapy. Its principal product candidateincludes VAL-083, a small-molecule chemotherapeutic agent, which is in Phase I/II study to evaluate thesafety, tolerability, pharmacokinetics, and anti-cancer activity in patients with glioblastoma multiforme, a formof brain cancer. The company has a strategic collaboration with Guangxi Wuzhou Pharmaceutical Companyfor the manufacture and sale of VAL-083 in China. DelMar Pharmaceuticals, Inc. was founded in 2010 andis headquartered in Vancouver, Canada.

Page 19 of 24


($ in millions except per share data)

Profit & Loss 2011A 2012A 2013A 2014E 2015E 2016E

Licensing 0.0 0.0 0.0 0.0 0.0 0.0

R&D collaborations 0.0 0.0 0.0 0.0 0.0 0.0

Product and Royalties 0.0 0.0 0.0 0.0 0.0 0.0

Other revenues 0.0 0.0 0.0 0.0 0.0 0.0

Revenues 0.0 0.0 0.0 0.0 0.0 0.0

CoGS 0.0 0.0 0.0 0.0 0.0 0.0

Gross Profit 0.0 0.0 0.0 0.0 0.0 0.0

Gross margin 0% 0% 0% 0% 0% 0%

G&A 0.2 1.2 4.0 6.0 3.6 4.0

R&D 1.1 1.6 2.3 2.6 2.8 3.3

Other op ex 0.0 0.0 0.0 0.0 0.0 0.0

EBIT (1.3) (2.7) (6.3) (8.6) (6.4) (7.3)

EBIT margin nm nm nm nm nm nm

Non operating expenses 0.0 0.0 0.0 0.0 0.0 0.0

Net Interest Income/Other (0.0) 0.3 (2.0) 0.0 (4.0) (5.0)

Interest expense 0.0 0.0 0.0 0.0 0.0 0.0

EBT (1.3) (2.4) (8.3) (8.6) (10.4) (12.3)

EBT margin nm nm nm nm nm nm

Provision for taxes 0.0 0.0 0.0 0.0 0.0 0.0

Net Income (1.3) (2.4) (8.3) (8.6) (10.4) (12.3)

Participation of preferred stock (0.0) (0.0) 0.0 0.0 0.0 0.0

Net Income to common (1.3) (2.4) (8.3) (8.6) (10.4) (12.3)

net margin nm nm nm nm nm nm

NoSH - basic 8.5 13.2 29.7 30.5 34.0 36.0

NoSH - diluted 13.2 29.7 30.5 34.0 36.0

EPS - basic (0.16) (0.18) (0.28) (0.28) (0.31) (0.34)

EPS - diluted (0.16) (0.18) (0.28) (0.28) (0.31) (0.34)

Source: SEC Filings and ROTH Capital Partners estimates

Joseph Pantginis, Ph.D. [email protected]

Fiscal year changed to Jun

from Dec in July 2014

Page 20 of 24


Quarterly P&L Sep Dec Mar Jun

Q1'14A Q2'14A H1'14A * FQ1'15E FQ2'15E FH1'15E FQ3'15E F9M'15E FQ4'15E FY'15E

Licensing 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0

R&D collaborations 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0

Product and Royalties 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0

Other revenues 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0

Revenues 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0

CoGS 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0

Gross Profit 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0

Gross margin nm nm nm nm nm nm nm nm nm 0%

G&A 0.97 0.79 1.76 0.82 0.87 1.69 0.92 2.61 0.99 3.6

R&D 0.62 0.37 0.99 0.64 0.68 1.32 0.70 2.02 0.74 2.8

Other op ex 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0

EBITDA (1.6) (1.2) (2.7) (1.5) (1.6) (3.0) (1.6) (4.6) (1.7) (6.4)

EBITDA margin nm

Non operating expenses 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0

Net Interest Income/Other (1.59) 1.54 (0.05) (0.75) (0.75) (1.50) (1.10) (2.60) (1.40) (4.0)

Interest expense 0.00 0.00 0.00 0.00 0.00 0.01 0.00 0.01 0.00 0.0

EBT (3.2) 0.4 (2.8) (2.2) (2.3) (4.5) (2.7) (7.2) (3.1) (10.4)

EBT margin nm

Provision for taxes 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0

Participation of preferred stock

Net Income to common (3.2) 0.4 (2.8) (2.2) (2.3) (4.5) (2.7) (7.2) (3.1) (10.4)

net margin nm

NoSH - basic 31.7 31.9 32.47 34.0 34.0 34.00 34.00 34.00 34.00 34.00

NoSH - diluted 31.7 31.9 32.47 34.0 34.0 34.00 34.00 34.00 34.00 34.00

EPS - basic (0.10) 0.01 (0.09) (0.07) (0.07) (0.07) (0.08) (0.07) (0.09) (0.31)

EPS - diluted (0.10) 0.01 (0.09) (0.07) (0.07) (0.13) (0.08) (0.21) (0.09) (0.31)


** Dilutive potential of common stock for outstanding unissued shares and warrants

Fiscal year changed from December to June on July 21, 2014

* SEC filing reporting 1H14 results for transition period

Page 21 of 24


Balance sheet 2011A 2012A 1H14A*

Assets

Cash and cash equ. 5.7 0.0 4.7597

Accounts receivable 5.0 0.0 0.0

Inventory 0.0 0.0 0.0

Other current assets 0.0 0.2 0.2

Current assets 10.7 0.2 5.0

Net PPE 0.0 0.0 0.0

Intangibles 0.0 0.0 0.0

LTA 0.0 0.0 0.0

Total assets 10.7 0.2 5.0

Liabilities

ST notes 0.0 0.0 0.0

Accounts payable 0.0 0.7 0.2

Other current liabilities 0.0 0.4 0.1

Current Liabilities 0.0 1.1 0.3

NTF 0.0 0.0 0.0

Debt 1 0.0 0.3 0.3

Debt 2 0.0 0.0 0.0

Debt 3 0.0 0.0 0.0

Deferred income 0.0 0.0 0.0

Other long-term liabilities 0.0 0.1 3.5

Total Liabilities 0.0 1.5 4.1

Shareholders equity

Common Stock 6.0 0.0 0.0

Retained earnings 43.6 2.5 19.5

Other equity accts (38.8) (3.8) (18.7)

Total SH equity 10.7 (1.3) 0.9

Total Liabilities & SH equity 10.7 0.2 5.0



* Fiscal year changed to June from December in July 2014

Page 22 of 24


Cash Flow Statement 2012A 2013A 1H14A

Cash flows from operating activities

Net loss (2.40) (8.29) (2.80)

Items not affecting cash

Accrued interest 0.01 0.01 0.00

Change in fair value of derivative liability (0.32) (1.32) 0.17

Change in fair value of derivative liability due to tender offer (0.11)

Shares issued to Valent for royalty reduction 0.60

Non-cash derivative issue costs 2.20

Units issued for services 0.18

Warrants issued for patents

Warrants issued for services 0.05 0.12

Stock-based compensation 1.13 2.15 0.89

Net cash used in operating activities (1.35) (4.54) (1.85)

Changes in non-cash working capital

Taxes and other receivables (0.01) 0.03 0.00

Prepaid expenses (0.01) (0.14) (0.06)

Accounts payable and accrued liabilities 0.87 (0.54) 0.10

Related party payables (0.07) (0.34) (0.05)

Net cash provided by investing activities (0.58) (5.52) (1.86)

Cash flows from financing activities

Net proceeds from the exercise of warrants 2.48

Net proceeds from the issuance of units 0.67 9.64

Deferred costs (0.09)

Net proceeds from the issuance of common shares

Net cash (used in) provided by financing activities 0.58 9.64 2.48

Net (decrease) increase in cash and cash equivalents 0.00 4.12 0.62

Cash and cash equivalents at beginning of period 0.02 0.02 4.14

Cash and cash equivalents at end of period 0.02 4.14 4.76



Page 23 of 24


Regulation Analyst Certification ("Reg AC"): The research analyst primarily responsible for the content of this report certifiesthe following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal viewsabout the subject company or companies and its or their securities. I also certify that no part of my compensation was, isor will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Disclosures:

Shares of DelMar Pharmaceuticals, Inc. may be subject to the Securities and Exchange Commission's Penny Stock Rules,which may set forth sales practice requirements for certain low-priced securities.

Shares of DelMar Pharmaceuticals, Inc. may not be eligible for sale in one or more states.

On September 28, 2010, ROTH changed its rating system in order to replace the Hold rating with Neutral.

On May 26, 2011, ROTH changed its rating system in order to incorporate coverage that is Under Review.

Each box on the Rating and Price Target History chart above represents a date on which an analyst made a change to arating or price target, except for the first box, which may only represent the first note written during the past three years.Distribution Ratings/IB Services shows the number of companies in each rating category from which Roth or an affiliatereceived compensation for investment banking services in the past 12 month.

Distribution of IB Services Firmwide

IB Serv./Past 12 Mos.as of 11/05/14

Rating Count Percent Count Percent

Buy [B] 195 80.91 117 60.00Neutral [N] 29 12.03 11 37.93Sell [S] 1 0.41 0 0Under Review [UR] 15 6.22 8 53.33

Our rating system attempts to incorporate industry, company and/or overall market risk and volatility. Consequently, at anygiven point in time, our investment rating on a stock and its implied price movement may not correspond to the stated 12-month price target.

Ratings System Definitions - ROTH employs a rating system based on the following:

Buy: A rating, which at the time it is instituted and or reiterated, that indicates an expectation of a total return of at least10% over the next 12 months.

Neutral: A rating, which at the time it is instituted and or reiterated, that indicates an expectation of a total return betweennegative 10% and 10% over the next 12 months.

Sell: A rating, which at the time it is instituted and or reiterated, that indicates an expectation that the price will depreciateby more than 10% over the next 12 months.

Under Review [UR]: A rating, which at the time it is instituted and or reiterated, indicates the temporary removal of theprior rating, price target and estimates for the security. Prior rating, price target and estimates should no longer be reliedupon for UR-rated securities.

Not Covered [NC]: ROTH does not publish research or have an opinion about this security.

Page 24 of 24


ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other businessrelationships with the covered companies mentioned in this report in the next three months. The material, information andfacts discussed in this report other than the information regarding ROTH Capital Partners, LLC and its affiliates, are fromsources believed to be reliable, but are in no way guaranteed to be complete or accurate. This report should not be used asa complete analysis of the company, industry or security discussed in the report. Additional information is available uponrequest. This is not, however, an offer or solicitation of the securities discussed. Any opinions or estimates in this report aresubject to change without notice. An investment in the stock may involve risks and uncertainties that could cause actualresults to differ materially from the forward-looking statements. Additionally, an investment in the stock may involve a highdegree of risk and may not be suitable for all investors. No part of this report may be reproduced in any form without theexpress written permission of ROTH. Copyright 2014. Member: FINRA/SIPC.

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