Defining year as partnerships progress on track

Nuevolution 28 September 2017 Update
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Nuevolution

Defining year as partnerships progress on track

FY17 results

Pharma & biotech

28 September 2017

Price

SEK19.7

Market cap

SEK845m

SEK8.018/US$

Net cash (SEKm) at 30 June 2017

175.2

Shares in issue

42.9m

Free float

56%

Code

NUEV

Primary exchange

Nasdaq First North Premier

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

27.9

22.4

96.0

Rel (local)

22.1

24.0

73.5

52-week high/low

SEK20.3

SEK9.6

Business description

Nuevolution is a Copenhagen-based biopharmaceutical company. Its patent protected Chemetics drug discovery platform enables the selection of drugs to an array of tough-to-drug disease targets. To date it has entered into 17 agreements with major pharmaceutical companies.

Next events

Up-list to Nasdaq Stockholm Main Market

FY18

Sign new out-licence/risk-sharing collaboration

FY18

Move one programme into the clinic

2018

Analysts

Dr Daniel Wilkinson

+44 (0)20 3077 5734

Dr Susie Jana

+44 (0)20 3077 5700

Nuevolution is a research client of Edison Investment Research Limited

FY17 has been a defining year for Nuevolution as it looks to further validate its unique Chemetics drug discovery platform. Highlights include the Amgen development collaboration, out-licensing the RORγt inverse agonist (dermatology and psoriatic arthritis indications) to Almirall and the progression of the internally generated pipeline assets. We anticipate at least one further out-licensing or risk-sharing collaboration in FY18. We value the company's recent deals with Amgen, Almirall and Janssen at SEK902m ($113m). Our valuation does not include the technology, other pipeline assets and future deal opportunities.

Year end

Revenue (SEKm)

PBT*
(SEKm)

EPS*
(SEK)

DPS
(SEK)

P/E
(x)

Yield
(%)

06/16

21.3

(151.9)

(4.0)

0.0

N/A

N/A

06/17

120.3

(9.4)

(0.6)

0.0

N/A

N/A

06/18e

174.8

40.0

0.6

0.0

N/A

N/A

06/19e

126.6

(13.8)

(0.2)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

FY17: A major step forward in the Grand Plan

Positive progression on technical (creation of a 40 trillion screening library), business (signing of Almirall and Amgen deals) and pipeline (eg RORγt inverse agonist and BET BD1) fronts has defined Nuevolution’s first full financial year on the equity market. In the medium term, Nuevolution is aiming to transition from a preclinical company to a multi-asset clinical business through rapid progression of at least one programme into the clinic. It is also looking to strength its shareholder base and to move to the Nasdaq Stockholm Main Market (in FY18).

Almirall, Amgen and Janssen: Big pharma lines up

Multiple deals in FY17 further endorse the business model and are pivotal in defining value. Nuevolution’s collaboration with Amgen (up to $410m per target plus tiered royalties) continues according to our initial expectations, with two programmes hitting in vitro proof of concept. We expect the RORγt inverse agonist, which was transferred to Almirall (up to €442m plus tiered royalties), to enter the clinic in 2018. In March, Janssen added a new target to its ongoing collaboration ($0.6m payment).

Financials: Strong cash position into FY20

FY17 revenues of SEK120.3m (FY16: SEK21.3m) benefited from the gross SEK109m Almirall upfront. Operating expenses decreased to SEK130.8m (FY16: SEK173.2m). However, underlying costs increased by SEK18m. Net cash of SEK175.2m (at 30 June 2017) will be sufficient to fund Nuevolution into FY20 even if no further milestone payments are achieved.

Valuation: rNPV of SEK902m (SEK21.0/share)

Our valuation of SEK902m($113m) vs SEK901m previously is exclusively based on a risk-adjusted model of the future milestone payments we expect from the Almirall (SEK8.9/share) and Amgen (SEK7.6/share) deals plus net cash (SEK4.1/share). In addition, our valuation now includes the Janssen deal (SEK0.4/share).

FY17 setting the foundations for future growth

Nuevolution’s business model embodies continuous revenue generation and risk mitigation, executed through a ‘multiple shots on goal’ approach to drug development. FY17 was a pivotal year, notably on business development, as Nuevolution signed a major collaboration deal with Amgen, out-licensed its RORγt inverse agonist (in dermatology and psoriatic arthritis indications) to Almirall and expanded its agreement with Janssen. In addition, multiple research achievements in FY17, including the generation of a 40 trillion molecule Chemetics library, have kept Nuevolution’s drug discovery technology at the cutting edge.

Amgen, Almirall and Janssen: Executing on track

In the 2016/17 full year results, Nuevolution noted that two of the programmes in its partnership with Amgen (signed in October 2015) have obtained in vitro proof of concept. Of these, one programme was part of the original targets agreed on, while the other was originally part of Nuevolution’s own pipeline. This second programme has been transferred to the collaboration, where Amgen now has the option to license the product candidate at a future date.

The RORγt inverse agonist programme (in dermatology and psoriatic arthritis indications) has been transferred to Almirall and we expect the lead molecule to enter Phase I trials in 2018. Nuevolution received €11.2m (SEK109m) gross as an upfront licence payment (before the Spanish withholding tax of SEK20.9m). The deal could provide Nuevolution with up to €172m (SEK1.7bn) in development and regulatory milestones, and €270m (SEK2.6bn) in commercial sales milestones and tiered royalties on future net sales. Almirall is a major player in dermatology (€389.8m in worldwide dermatology sales in FY16) and well placed to maximise the potential of the RORγt inverse agonist.

The Janssen agreement represents an older-style technology access agreement, which has lower economic value compared to the newer collaborations: specifically, the Almirall and Amgen agreements. While lower value, it is highly encouraging to see progress in the collaboration and it serves as ongoing validation of the Chemetics technology platform. The original agreement was signed in October 2015 (undisclosed upfront) and to date Nuevolution has twice publicly announced an expansion of the agreement, receiving two payments of $0.6m each in June 2016 and March 2017.

Research collaborations advance the platform

In December 2016, Nuevolution entered into a three-year collaboration with the group of Professor Kristian Helin at the University of Copenhagen. Innovation Fund Denmark will contribute up to DKK16.4m (SEK21.6m) to the three-year project, which has a total budget of DKK24.4m (SEK32.3m). Nuevolution will contribute to the project and could additionally receive up to DKK 5.2m (SEK6.8m) in funding over the project period. The project aims to find small molecules to NSD proteins that are hyper-active in certain cancers including multiple myeloma, acute myeloid leukaemia and acute lymphatic leukaemia.

In January 2017, the group of Nobel Laurette Dr Robert J Lefkowitz (Duke University) in collaboration with Nuevolution published a paper titled Allosteric “beta-blocker” isolated from a DNA-encoded small molecule library. The paper described the selection of an antagonist against β2-adrenergic receptor. Importantly, the paper outlined a broadly applicable technique for screening DNA-encoded libraries against the classically hard to drug GPCR transmembrane proteins.

In February 2017, Nuevolution announced that it had successfully created and validated a Chemetics library containing 40tn compounds, which the company believes to be the largest synthetic library ever created. The library was validated by screening it against HIV protease, where it revealed compounds with high binding affinity. For an in-depth look at the Chemetics platform, please see our initiation note, Chemetics proof is in the deal making.

Pipeline overview: Aiming for the clinic

Nuevolution continues to progress its internally generated pipeline towards the clinic. It has numerous publicly announced programmes alongside up to 10 earlier-stage undisclosed programmes in various stages from screening to hit validation and early hit optimisation. Of the main pipeline, the RORγt inverse agonist and the BRD1 programmes are the most advanced, while earlier-stage assets including cytokine X and GRP78 continue to progress well. We anticipate that Nuevolution will progress one or more of its unpartnered assets into the clinic in the next 24 months.

Exhibit 1: Nuevolution’s development pipeline

Indication

Stage

Target

Ownership

Notes

Chronic inflammatory diseases

Preclinical

RORγt inverse agonist

Partner Almirall in dermatology and psoriatic arthritis.

RORγt plays an important part in the generation of mature T-cells and the subsequent production of cytokines, notably IL-17. IL-17 is a key pro-inflammatory cytokine that plays a role in multiple inflammatory and autoimmune conditions and in certain circumstances cancer. Injectable antibodies against IL17 have demonstrated good efficacy for treatment of psoriasis in humans. Nuevolution’s RORγt inverse agonists are oral-based therapeutics that offer the ability to down regulate IL-17. The lead candidate is partnered with Almirall for dermatology and psoriatic arthritis. Clinical development in dermatology is expected to commence in 2018.

Other indications 100% ownership NUE

Nuevolution retains rights to other non-dermatological indications. Proof-of-concept studies in mice are ongoing in indications outside dermatology, with initial data expected in mid-2017.

Inflammatory diseases

Discovery: lead optimisation

BET bromodomain inhibitors

100% ownership NUE

The BET sub-family of bromodomains is a novel biological disease target class offering a new mode of action for treatment of cancer and inflammatory diseases.

Inflammatory diseases

Discovery: hit-to-lead

Cytokine X

100% ownership NUE

The cytokine X (target undisclosed) programme demonstrated proof-of-concept in an animal model for inflammation. The cytokine X programme looks to offer tablet-based replacement for currently available but costly injectable medicines.

Cancer

Discovery: hit-to-lead

GRP78

50% ownership*

GRP78 is a member of the chaperone family of proteins; it is over expressed in many tumour types including breast cancer and brain tumours.

Cancer

Discovery: hit optimisation

RORγt agonist (inhibition)

100% ownership NUE

RORγt agonists may provide the immune system with a novel tumour attacking mechanism.

Various

Discovery: various

Various

100% ownership NUE

15+ discovery programmes in a range of undisclosed indications including oncology, inflammatory diseases and immuno-oncology.

Source: Nuevolution, Edison Investment Research. Note: *Collaboration with CRT and ICR.

RORγt inverse agonist: Progress outside of Almirall indications

The discovery of retinoid-acid receptor-related orphan receptor gamma t (RORγt) as an important master control switch of immune system activation translates to a potential novel class of drugs for the treatment of autoimmune diseases (by immune suppression) and for cancer immunotherapy (by immune activation). RORγt plays a critical role in the generation of mature T-cells, particularly Type 17 effectors that produce an array of cytokines, notably IL-17A (IL-17A enables the recruitment of key immune components to sites of inflammation). Nuevolution has retained the rights to develop the RORγt inverse agonist (inhibitor) in indications not covered by the Almirall deal and has been testing it in Inflammatory Bowel disease (IBD) models. In two separate chemically induced IBD models (Exhibit 2), a lead compound demonstrated dose-dependent improvements in colon parameters. Importantly, the compound produced data on a par with a mouse antibody against IL-17A. Nuevolution has now started production of the active pharmaceutical ingredient (API).

RORγt has become a hot target with large pharma and biotechs keen to rapidly progress programmes (Exhibit 3). One of the most advanced RORγt inverse agonist programmes in development is by Allergan (through the acquisition of Vitae Pharmaceuticals for $639m in cash). In May 2016, Vitae Pharmaceuticals reported top-line results from its Phase IIa clinical trial testing its small molecule RORγt inverse agonist (VTP-43742) in psoriatic patients. In the low dose cohort (350mg), VTP-43742 reported a 23% improvement in the Psoriasis Area and Severity Index (PASI) score at day 28 from baseline (p<0.015); this compared favourably to a 1% deterioration for patients on placebo. Patients on the higher dose cohort demonstrated a 29% improvement from baseline at day 28 (p=0.003). There were no reported serious adverse events at all dose levels. At the highest dose tested (700mg), reversible transaminase elevations were observed in 5/34 patients. No dose limiting toxicities were seen in any of the Phase Ia, Ib and IIa trials. In the Phase Ib trial, some nausea and headache was observed at the maximum dose of 1,400mg, however, it was not dose limiting. These data are the first Phase II data to confirm the validity of RORγt as a drug target for the treatment of psoriasis. On acquisition, Allergan confirmed the plan to initiate a 16-week Phase II trial to determine the effect of VTP-43742 over a longer time period. No further details have been released since the acquisition in September 2016.

Exhibit 2: Effect of NUE compound (RORγt inverse agonist) in TNBS (left) and DSS (right) animal models

Source: Nuevolution

RORγt agonist: Target receives first clinical validation

Instead of supressing the immune system with an inverse agonist, activation of RORγt with an agonist is believed to stimulate the immune system and could be beneficial in treating cancers. To date, Nuevolution has selected compounds that stimulate RORγt and demonstrate a dose-dependent secretion of IL-17A. The company is currently upscaling production and conducting pharmacokinetic testing for in vivo stability. Once a compound is selected, Nuevolution plans to test it as both a monotherapy and in combination with relevant checkpoint inhibitors in various cancer models.

Recently, the target was clinically validated by Lycera, which has presented positive Phase I data for its RORγt agonist LYC-55716 in advanced, relapsed or refractory solid tumours. It is currently the only RORγt agonist in the clinic and the positive data presented significantly de-risk the entire class. The Phase I trial currently consists of 15 patients divided into three cohorts, with a total of 25 patients expected to be enrolled. It is a 3+3 study design and the drug is orally administered with the primary endpoints being safety and maximum tolerated dose; the secondary endpoints include objective response according to RECIST v1.1 criteria. No serious adverse events were reported as of data cut-off and in the first two cohorts (n=11) eligible for efficacy assessment, four patients had stable disease. At time of data cut-off two of the patients had stable disease for greater than seven months and remain on treatment. The study expects to be fully enrolled by mid-2018 and, if successful, Lycera plans to enrol 70 patients in a Phase IIa study. To our knowledge, few RORγt agonists exist in preclinical or clinical development. We expect interest in the space to pick up following the initial validation of the target by Lycera. Nuevolution plans to report further on its RORγt agonist programme in the latter part of 2017.

Exhibit 3: RORγt inverse agonists in development

Drug

Company/partner

Delivery

Status

Indication(s)

Notes

Development programme

Nuevolution/ Almirall

Oral

Preclinical

Almirall: dermatology and psoriatic arthritis indications.
Nuevolution: Other indications. Most advanced in IBD.

Signed in December 2016. Deal contains €172m (SEK1.7bn) in development and regulatory milestones, €270m (SEK2.6bn) in commercial sales milestones and tiered royalties on future net sales. Nuevolution received €11.2m (SEK109m) gross as an upfront licence payment (before the Spanish withholding tax of SEK20.9m). Nuevolution retains the right to develop RORγt inverse agonist compounds outside of the Almirall indications (in dermatology and psoriatic arthritis indications).

GSK-2981278

GSK

Topical

Phase II

Psoriasis

Has completed a Phase II and Phase I trial for the topical treatment of plaque psoriasis. At its Q217 results, GSK announced it will terminate, partner or divest GSK-2981278.

VTP-43742

Allergan

Oral

Phase II

Psoriasis

Allergan, through the acquisition of Vitae Pharmaceuticals for $639m, is developing an oral RORγt inverse agonist (previously known as VTP-43742). In an ongoing Phase II trial. Has another RORγt inverse agonist (VTP-45489) in earlier undisclosed development.

ARN-6039

Arrien Pharmaceuticals/ undisclosed

Oral

Phase I

Autoimmune disorders

In June 2017, Arrien announced a worldwide licence agreement with an undisclosed, US-based pharmaceutical company. The agreement covers development in psoriasis and other autoimmune disorders. The deal includes an undisclosed upfront, development milestone, sales milestone and royalties on net sales. ARN-6039 has completed a Phase I trial.

AZD-0284

AstraZeneca

Oral

Phase I

Psoriasis

Phase I study in plaque psoriasis vulgaris has completed in healthy patients.

JTE-451

Japan Tobacco

Oral

Phase I

Psoriasis

As of 2 August 2017 it is still in development. Previously had JTE-151 in development, which had been terminated as of 2 May 2016.

BBI-6000

Orca Pharmaceuticals/ Brickell Biotech

Topical

Preclinical

Psoriasis

Acquired worldwide rights from Orca in November 2015 for a series of topical RORγt inhibitors (undisclosed deal terms). Company expects to initiate a proof-of-concept clinical trial in psoriasis (topical) by early 2018.

LYC-56056

Lycera/Celgene

Oral

Preclinical

Autoimmune disorders

Celgene has to date paid $82.5m upfront as part of the collaboration deal and $17.5m to license the ex vivo RORγt agonists.
Separately in February 2013, in the expansion of an earlier agreement, Merck set out a $300m R&D, regulatory and commercial milestone package that was based around RORγt and Th17 cells. At the time of writing Merck now has the exclusive rights for a single undisclosed target and is advancing that internally.

INV-17

Innovimmune Biotherapeutics

Oral

Preclinical

Psoriasis

Most recently presented preclinical psoriasis data (topical treatment) at the 2017 European Academy of Dermatology and Venereology (EADV) annual meeting in Geneva.

IMU-366

Immunic Therapeutics

Oral

Preclinical

Psoriasis

No public information released on current status or preclinical results of the product.

Development programme

Phenex Pharma/
Janssen

Oral

Phase I

Autoimmune disorders

Development programme with Janssen worth up to $135m. Recently announced the payment of a $6m milestone payment from Janssen for the initiation of Phase I trial with a RORγt inverse agonist.

Development programme

Lead Pharma/Sanofi

Oral

Preclinical

Autoimmune disorders

Signed February 2015. Undisclosed deal value. Plan to be in clinical trials within 3-4 years of starting the research collaboration. Lead Pharma received an upfront payment and is eligible to receive milestones on research, development, regulatory and commercial progress. Sanofi is responsible for commercial development. Lead Pharma has to date received two undisclosed milestones from Sanofi, most recently in February 2017.

Development programme

Orca Pharmaceuticals/ AstraZeneca

Oral

Unknown

Autoimmune disorders

Three-year collaboration (signed in 2015) to develop inhibitors of RORγt. Total deal value worth $122.5m. Includes unknown upfront, AZ retains the rights to acquire the compounds at the end of the collaboration.

Development programme

Exelixis/ Bristol-Myers Squibb

Oral

Unknown

Autoimmune disorders

Joint discovery programme. Research period with Bristol-Myers Squibb (BMY) has ended, BMY now has had sole responsibly for its development.

Development programme

Karo Pharma/ Pfizer

Oral

Unknown

Autoimmune diseases

Signed a deal in December 2011 to develop new treatments for autoimmune diseases based on RORγt. Karo is entitled to milestones of over $200m plus royalties on sales. In May 2017 it received a $2m milestone from Pfizer.

Source: Edison Investment Research

BRD BD1

Nuevolution’s second most advanced internal programme is focused on the first bromodomain (BD1) of the bromodomain and extra-terminal domain (BET) family of proteins. The most advanced molecule in the programme, NUE7770 was tested in various animal inflammatory disease models in FY17. In a pristane-induced (chemically induced) lupus model (Exhibit 4), NUE7770 reported a dose-dependent reduction in the number of antibodies against double-stranded DNA (biomarker used for diagnosis of human lupus) and with efficacy on a par with prednisolone (steroid used to treat lupus). Based on this success, it was then tested in a genetic model (Exhibit 4). The genetic model involves inducing a mutation that prevents normal control of the immune system and results in its overstimulation (symptoms are similar to human lupus). It was able to dose-dependently reduce the concentration of anti-DNA antibodies to close to a non-diseased state. NUE7770 was additionally tested in other disease models in FY17 and demonstrated positive results in a collagen-induced arthritis mouse model, a severe lung disease idiopathic pulmonary fibrosis model and in a mouse toxicology model. In the mouse toxicology model it demonstrated a safety profile that was significantly better than a competing non-selective bromodomain inhibitor JQ-1. No negative findings were observed at all dose levels (30,100, 300 and 600 milligram per kilogram [mpk]) for NUE7770 compared to JQ-1 which demonstrated adverse effects at all dose levels including an elevated mortality rate at the highest dose (100mpk). Further data are expected to be presented later in 2017 including the selection of both the lead compound and lead indication.

We note that an array of BET BRD inhibitors are in development; however, the most advanced clinical candidates are generally non-specific in nature and target the majority of BET BRD proteins. Three of the most advanced BET inhibitors are BMS-986158 (Phase I/II) from Bristol-Myers Squibb, GS-5829 (three ongoing Phase I/II trials) from Gilead and INCB057643 (Phase I/II) from Incyte.

Non-selective BET BRD inhibitors have to date demonstrated dose limiting toxicities due to their non-specific nature. Published data on a Phase I dose ranging study with OTX015 (acquired by Merck, now designated MK-8628), a BRD2, BRD3 and BRD4 inhibitor, highlighted these problems. Dose limiting toxicities were observed across all concentrations and even at the recommended dose for the Phase II study, a seven-day interval is required after every 14 days of daily treatment. Nuevolution’s selective BRD BD1 inhibitor NUE7770 has so far demonstrated a clean pre-clinical safety profile and may demonstrate a significantly improved clinical profile compared to current BET BRD inhibitors, however, caution should be noted on predicting clinical effects from preclinical data.

Exhibit 4: NUE7770 response in a pristane-induced lupus model (left) and a genetic lupus model (right)

Source: Nuevolution

Multiple shots on goal with broad pipeline

In FY17 several lead compounds had been tested in the cytokine X programme (undisclosed target) including in human disease mouse models. These efforts have been guided by the generation of multiple X-ray co-crystal structures throughout the year and Nuevolution aims to be first in class with its cytokine X programme.

The GRP78 programme is being conducted in collaboration with Cancer Research Technology (CRT) UK and the Institute of Cancer Research (ICR) UK. The programme is aiming to identify compounds that target GRP78, an intracellular protein that is believed to support cancer cell survival. Compounds selected by Nuevolution are being tested by CRT/ICR in cancer cell lines and data are expected later in 2017.

Sensitivities: Clinical validation required

Nuevolution is subject to drug development risks, including clinical development delays or failures. However, Nuevolution’s large number (15+) of compounds in parallel development helps to reduce the risks typically associated with pure-play biotech. Additional sensitivities exist around IP protection, regulatory risks, competitor successes, partnering setbacks, and financing and commercial risks. While Nuevolution’s strategy minimises the business risk associated with drug development by partnering early in development, general risk still remains in the partner’s willingness to progress these partnerships. One of the key sensitivities for Nuevolution relates to the successful transition of molecules discovered by its Chemetics programme into clinical-stage development; this will enable further validation of its technological capabilities. Financing needs depend on milestone revenues from existing partners and potential new partnering activities; delay or failure to receive future milestones would generate a funding gap during FY19.

Valuation: rNPV of SEK21.0/share or SEK902m ($113m)

Our valuation of Nuevolution has increased slightly to SEK902m ($113m) (vs SEK901m previously) including net cash of SEK175m ($22m, SEK4.1/share). We have added the Janssen deal (SEK0.4/share) into our risk-adjusted model, which already includes the Almirall (SEK8.9/share) out-license and the Amgen (SEK7.6/share) collaboration. We use a 12.5% discount rate. Our valuation does not include the technology, other pipeline assets and future deal opportunities due to the lack of visibility on milestone payment and structure. Specifically for the Amgen deal, our valuation is based purely on potential development milestones, with no value included from product launches. Due to the inherent confidentiality of the collaboration agreement, it is difficult to predict future milestones. However, we forecast that Amgen will license one programme in FY18 and as such Nuevolution will benefit from an upfront payment, which we assume will be in the same region as the Almirall upfront.

For Almirall, the majority of the value lies in milestone payments (65%), given the long time frame to potential launch of the product, with a smaller contribution from royalties on sales (35%). We have not ascribed value at this point to the unique platform and multiple candidates at an early stage in preclinical development; consequently, we see uplift potential as further deals are made and/or assets move into clinical development. For a full breakdown of our valuation methodology for the Amgen and Almirall deals please see our initiation note, Chemetics proof is in the deal making.

We have added the Janssen collaboration into our valuation as we believe recent newsflow including the $600k (SEK5.45m) technology access fee payment validates the Chemetics platform further. We estimate that Nuevolution currently has three Janssen assets in development, which we assume could be worth up to $30m per asset in milestone payments if they reach the market. However, due to the inherent risks in drug development we assume none of the products in development is approved and that one asset each starts a Phase I trial, a Phase II trial and a Phase III trial. As such the total milestones per asset are adjusted to reflect the relative progress. We currently do not forecast royalties as the indications are unknown. As such, this could provide further upside to our valuation.

Financials FY17

Net cash at end June 2017 was SEK175.2m ($22.0m), which was boosted by the proceeds of both the Almirall (SEK109m) and Janssen payments (SEK5.45m). Revenues in FY17 were reported at SEK120.3m (FY16: SEK21.3m). R&D costs decreased to SEK107.6m in FY17 from SEK115.7m in FY16. However, we note that FY16 was affected by one-off costs related to the 2015/21 warrant programme of SEK24.2m (R&D costs include R&D staff compensation and costs). As such, recurring year-on-year R&D costs increased by SEK16.1m predominately due to increased development costs for the RORγt and BET inhibitor programmes, in addition to increases in patent application and personnel costs.

SG&A costs dropped significantly year-on-year from SEK57.5m in FY16 to SEK23.2m in FY17. This was due to exceptional items in FY16 relating to the IPO and the warrant programme (non-cash). An underlying increase in SG&A of SEK1.9m resulted from the ongoing costs of being a publicly listed company.

Corporate tax had a significant negative impact in FY17 to the tune of SEK16.0m compared with the positive tax benefit in FY16 of SEK6.9m. Tax implications with Spain from the Almirall payment (Spain and Denmark do not have a tax agreement) resulted in Nuevolution incurring Spanish holding tax of SEK20.9m. This was offset slightly by the utilisation of Danish tax credit, adjustments for deferred tax and a FY17 tax reimbursement.

The net loss in FY17 decreased to SEK25.5m (FY16 loss: SEK145.0) as a result of the large increase in revenues year-on-year, notably from the SEK109m payment from Almirall.

Our model suggests that current cash is sufficient to fund operations into FY19, assuming current burn rates and if there were no additional revenues from milestones. After that, financing needs will depend on the exact status of the internal pipeline; progressing one or more candidates into the clinical stage could require additional funding. The cash runway to FY19 is not dependent on our expected milestone payments in the period.

We forecast that revenues should benefit from milestone payments through the ongoing collaborations with Amgen and Almirall and we forecast total revenues of SEK174.8m in FY18 (versus SEK120.3m reported in FY17) and SEK126.6m in FY19. We forecast R&D expenditure of SEK113.0m in FY18 (SEK107.6m FY17) and SEK118.6m in FY19. We expect costs to increase modestly from FY17 to FY18 as we expect one programme to enter the preclinical stage and discovery work to ramp up.

Exhibit 5: Financial summary

Accounts: IFRS, Year-end: June, SEK000s

 

 

2016

2017

2018e

2019e

Income Statement

Total revenues

 

 

21,314

120,318

174,825

126,574

Reported gross profit

 

 

21,314

120,318

174,825

126,574

SG&A (expenses)

 

 

(57,493)

(23,216)

(23,448)

(23,683)

R&D costs

 

 

(115,707)

(107,587)

(112,966)

(118,615)

Adjusted EBIT

 

 

(151,886)

(10,485)

38,410

(15,724)

Reported EBIT

 

 

(151,886)

(10,485)

38,410

(15,724)

Finance income/ (expense)

 

 

(22)

1,045

1,575

1,941

Adjusted PBT

 

 

(151,908)

(9,440)

39,985

(13,782)

Reported PBT

 

 

(151,908)

(9,440)

39,985

(13,782)

Income tax expense

 

 

6,911

(16,046)

(13,995)

4,824

Adjusted net income

 

 

(144,997)

(25,486)

25,990

(8,959)

Reported net income

 

 

(144,997)

(25,486)

25,990

(8,959)

Earnings per share

 

 

Basic EPS (SEK)

 

(4.0)

(0.6)

0.6

(0.2)

Diluted EPS (SEK)

 

(4.0)

(0.6)

0.6

(0.2)

Adjusted basic EPS (SEK)

 

(4.0)

(0.6)

0.6

(0.2)

Adjusted diluted EPS (SEK)

 

(4.0)

(0.6)

0.6

(0.2)

Average number of shares – basic (m)

 

36.5

42.9

42.9

42.9

Average number of shares – diluted (m)

 

36.5

43.6

43.6

43.6

 

 

 

 

 

 

 

Balance sheet

 

 

Property, plant and equipment

 

 

5,494

5,538

5,761

5,973

Other non-current assets

 

 

8,585

6,397

1,665

6,489

Total non-current assets

 

 

14,079

11,935

7,426

12,462

Cash and equivalents

 

 

205,955

179,595

216,224

201,230

Trade and other receivables

 

 

367

93

93

93

Other current assets

14,564

10,032

2,902

2,902

Total current assets

 

 

220,886

189,720

219,219

204,225

Non-current loans and borrowings

 

 

3,482

2,939

2,939

2,939

Total non-current liabilities

 

 

3,482

2,939

2,939

2,939

Trade and other payables

 

 

12,162

10,986

10,986

10,986

Current loans and borrowings

 

 

1,222

1,482

1,482

1,482

Other current liabilities

 

 

20,044

16,286

15,286

14,286

Total current liabilities

 

 

33,428

28,754

27,754

26,754

Equity attributable to company

 

 

198,055

169,962

195,952

186,994

 

 

 

 

 

 

 

Cash flow statement

 

 

Profit before tax

 

 

(151,908)

(9,440)

39,985

(13,782)

Depreciation of tangible assets

 

 

1,328

1,703

277

288

Share based payments

 

 

48,528

(153)

0

0

Other adjustments

 

 

22

(1,045)

(1,575)

(1,941)

Movements in working capital

 

 

19,594

(962)

0

0

Net cash from operating activities (pre-tax)

 

 

(82,436)

(9,897)

38,687

(15,436)

Interest paid / received

 

(224)

(798)

1,575

1,941

Income taxes paid

 

 

1,210

(12,520)

(2,133)

0

Cash from operations (CFO)

 

 

(81,450)

(23,215)

38,129

(13,494)

Capex (includes acquisitions)

 

 

(504)

(715)

(500)

(500)

Other investing activities

 

 

(51)

(9)

0

0

Cash used in investing activities (CFIA)

 

 

(555)

(724)

(500)

(500)

Net proceeds from issue of shares

 

 

242,061

0

0

0

Other financing activities

 

 

(1,119)

(1,253)

(1,000)

(1,000)

Cash from financing activities (CFF)

 

 

240,942

(1,253)

(1,000)

(1,000)

Increase/(decrease) in cash and equivalents

 

 

158,937

(25,192)

36,629

(14,994)

Cash and equivalents at beginning of period

 

 

46,250

205,955

179,595

216,224

Cash and equivalents at end of period

 

 

205,955

179,595

216,224

201,230

Source: Edison Investment Research, Nuevolution accounts

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Nuevolution and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

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Germany

London +44 (0)20 3077 5700

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United Kingdom

New York +1 646 653 7026

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US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Nuevolution and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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