cells

Funded to execute Phase IIb study as planned

RhoVac 18 September 2019 Update
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RhoVac

Funded to execute Phase IIb study as planned

Q219 update

Pharma & biotech

18 September 2019

Price

SEK15.82

Market cap

SEK301m

Net cash (SEKm) at end Q219

174.5

Shares in issue

19.0m

Free float

85%

Code

RHOV

Primary exchange

Spotlight Stockholm

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(2.9)

(17.4)

(61.8)

Rel (local)

(9.4)

(19.8)

(58.9)

52-week high/low

SEK42.2

SEK15.2

Business description

RhoVac is an immunotherapy company listed on the Spotlight stock market in Sweden, with a 100%-owned subsidiary in Denmark. It is developing a peptide-based immunotherapy, RV001, which aims to train the immune system to specifically target cancer cells with metastatic potential. This is a novel approach that could have utility across a range of cancer settings.

Next events

Initiation of Phase IIb study

Q319

Q319 results

15 November 2019

Analyst

Jonas Peciulis

+44 (0)20 3077 5728

RhoVac is a research client of Edison Investment Research Limited

The past few months have been transformative for RhoVac. The company completed a large rights issue, published final follow-up results from its Phase I/II trial with RV001 in prostate cancer and is about to enrol the first patient to a new controlled efficacy Phase IIb trial. On the corporate side of the business, a new CEO was appointed, bringing a wealth of business development expertise, a strategic fit given RhoVac’s priorities over the next two to three years. The recently received EU Horizon 2020 grant of €2.5m will not only provide a financial support from the EU Commission, but we also view it as a form of external validation. We have increased our valuation to SEK885.1m or SEK46.5/share (vs SEK37.2/share previously).

Year end

Revenue (SEKm)

PBT*
(SEKm)

EPS*
(SEK)

DPS
(SEK)

P/E
(x)

Yield
(%)

12/17

0.0

(12.9)

(1.34)

0.0

N/A

N/A

12/18

0.0

(20.2)

(1.95)

0.0

N/A

N/A

12/19e

0.0

(49.6)

(3.47)

0.0

N/A

N/A

12/20e

0.0

(59.4)

(3.12)

0.0

N/A

N/A

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

Final Phase I/II study follow-up results

On 4 July 2019, RhoVac released long-term follow-up results of the Phase I/II trial with RV001. In this study, safety and immunological response were assessed at three, six, nine and 12 months. Positive results after the three- and six-month follow-ups have been reported previously. The July announcement was the final 12-month update, which confirmed that treatment with RV001 was safe and elicited a longstanding immune response. RhoVac is now running a larger Phase IIb study to explore efficacy in the same patient group. The trial is expected to enrol the first patient imminently. Most of the study centres are in Europe, but RhoVac confirmed it will open several US centres. The final data are expected in H221.

New CEO appointed

RhoVac announced on 2 September 2019 it had appointed Anders Månsson as the new CEO. Former CEO, Anders Ljungqvist, will continue working as chief operating officer. Mr Månsson joined RhoVac in May 2019 as deputy CEO and chief business officer. We believe his expertise is a good fit strategically because RhoVac’s areas of focus over the next three years will be executing the ongoing Phase IIb study and business development activities, with the ultimate goal of finding a suitable partner for the late-stage development of RV001.

Valuation: SEK885.1m or SEK46.5/share

We have increased our valuation of RhoVac to SEK885.1m or SEK46.5/share from SEK708m or SEK37.2/share previously. This was mainly due to rolling our model forward and a higher probability of success (15% vs 10% previously), which we have increased as the rights issue has removed the previous funding risk for the Phase IIb trial. The enrolment of the first patient to the Phase IIb study and Phase I/II data publication in a peer-reviewed article are some of the potential R&D newsflow in the near term. According to our model, a successful Phase IIb outcome would result in an increase in RhoVac’s rNPV to SEK2.0bn or SEK107.1/sh.

R&D update

Phase I/II final follow-up

On 4 July 2019, RhoVac released long-term follow-up results of the Phase I/II trial with RV001. The 22 prostate cancer patients who were enrolled to the trial received 11 subcutaneous injections over 30 weeks. The primary objective was to evaluate safety and tolerability, while the secondary objective looked at immune response. The patients were monitored for 12 months. Treatment-related reactions and immunological response (measured by IFNγ ELIspot analysis) were assessed at three, six, nine and 12 months (positive findings after the three- and six-month follow-ups had already been reported). The July announcement was the final update on patient follow-up in the Phase I/II trial. In summary:

All 22 patients completed the follow-up and no treatment-related adverse reactions were observed. In total 21 patients were evaluable for immune activation.

As reported previously, 18 out of 21 patients (86%) showed significant treatment-related immunological response after treatment with RV001. This significant response was maintained in the same 18 patients at three-, six- and nine-month follow-up. At the 12-month point, 17 patients still showed significant immunological response.

Exhibit 1: Phase I/II follow-up results

Source: RhoVac

We view the Phase I/II results as positive, as RV001 looks to be a very safe treatment and elicits a long-lasting immune response in a large majority of patients. So, RV001 appears to do what it was designed for. The question of whether immune activation will translate into clinical efficacy will be addressed in a controlled trial that is already underway. RhoVac should publish the Phase I/II results in a peer-reviewed article in the near future.

Phase IIb first patient to be enrolled imminently

Following publication of positive initial Phase I/II data, RhoVac has designed a larger Phase IIb study to explore efficacy in the same patient group (Exhibit 2). The trial is expected to enrol the first patient any time now. Most of the study centres are in Europe, but RhoVac has confirmed it plans to open several US centres. The therapy will be administered as 12 subcutaneous injections over several months and final data are expected in H221. Exhibit 2 summarises the trial design.

Exhibit 2: Planned Phase IIb trial design

Summary design

A Phase II, double-blind, placebo-controlled study of RV001V in adult males with biochemically relapsed prostate cancer following definitive local therapy (eg prostatectomy, radiotherapy)

Objective

To investigate whether a vaccination regimen with multiple subcutaneous administrations of RV001 0.1mg/mL (RV001V) can reduce prostate-specific antigen (PSA) progression compared to the control group

Number of patients

150 (will enrol 180 in order to have 150 evaluable patients)

Treatment groups

Experimental treatment arm: RV001 (12 subcutaneous vaccinations: priming period of six vaccinations – one every two weeks, then a boosting period of five vaccinations – one vaccination every four weeks, then final vaccination given six months after the 11th vaccination)
Control: placebo (same dosing as RV001)

Endpoints

Primary endpoint: time to documented PSA progression or clinical recurrence, death of any cause
Secondary endpoints: safety and tolerability, time to subsequent antineoplastic therapy, disease-free survival
Exploratory endpoints: relationship between immune-response and anti-tumour efficacy, identification of predictive biomarkers, metastasis-free survival

Key inclusion criteria

Biochemical recurrence within three years of radical prostatectomy (PSA ≥0.2ng/mL, PSA doubling time >3 months and <12 months, history of Gleason 7 (4+3) or higher) or definitive radiotherapy (same definitions except PSA >nadir + 2ng/mL)

Key exclusion criteria

No distant metastasis or locoregional recurrence
No castration-resistant prostate cancer
Not receiving androgen-deprivation therapy
PSA>10ng/mL

Clinical trial sites

Denmark and other European countries

Sponsor

RhoVac

Timelines

Study start: Q319
Study duration (approximate): two years (one-year enrolment, one-year follow-up)

Expected data readout: H221

Source: RhoVac

New CEO

On the corporate side of the business, RhoVac announced on 2 September 2019 that Anders Månsson had been appointed as the new CEO. Former CEO Anders Ljungqvist will continue working as chief operating officer. Mr Månsson joined RhoVac in May 2019 as deputy CEO and chief business officer. He has extensive experience in the pharmaceutical and biotech industries and has worked in senior positions in major pharmaceutical companies in Sweden, Denmark, the UK and Switzerland. His focus was on sales and marketing, as well as on business development including distribution, licence agreements, divestments and acquisition agreements worth over several billion SEK. In recent years, he also held a number of board positions in biotech/life science companies and was the CEO of a stem cell company in Lund.

We believe Mr Månsson’s expertise is a good fit strategically because RhoVac’s areas of focus over the next three years will be executing the ongoing Phase IIb study and business development activities, with the ultimate goal of finding a suitable partner for the late-stage development and global launch of RV001. The fact that former CEO and co-founder Anders Ljungqvist is staying on as COO is also very positive as RhoVac will maintain the expertise it has accumulated in RV001 technology.

Significant EU grant received

On 22 August 2019, RhoVac announced that the EU Commission had granted it €2.5m from the EU framework programme Horizon 2020. Over the next 36 months, RhoVac will receive grant payments to support the Phase IIb trial with RV001 in prostate cancer and RhoVac’s business development activities. This is substantial support for RhoVac, bearing in mind that the recently completed rights issue amounted to SEK181m, which is expected to be sufficient to fund budgeted activities until 2022. In addition to the financial benefit, we view the grant as a form of external validation, since proposed business plans and technology are subject to scrutiny by the EU Commission.

Financials and valuation

RhoVac reports no income, while the operating spend was SEK30.1m in H119, up from SEK7.9m in H118, mainly because of the preparations and initiation of the Phase IIb study. We already expected operating expenditure to increase as the Phase IIb accelerates after the right issue. Our previous operating loss estimates were SEK37m and SEK50m for 2019 and 2020 respectively, which we now revise to SEK50m and SEK60m.

RhoVac received SEK5.1m in tax credits in H119. In June 2019, it completed a rights issue raising a total of SEK180.9m gross (SEK166.2m net). In total, 9,523,551 shares were issued (a 100% increase in the number of shares outstanding) at a price of SEK19/share (vs SEK34.9/share on the day before the announcement). The rights issue was guaranteed by commitments from a group of investors. The newly raised funds should be sufficient to fund RhoVac’s operations for the next three years. With its H119 report, RhoVac reported SEK68.8m in cash and no debt. SEK105.7m was booked in receivables, as the rights issue was completed in July 2019.

We have increased our valuation of RhoVac to SEK885.1m or SEK46.5/share from SEK708m or SEK37.2/share previously. This was mainly due to rolling our model forward and increasing the success probability to 15% from 10%. As we discussed in our initiation report, we had assumed a somewhat more conservative success probability prior to the rights issue, as the project required substantial funding commitments. Now the rights issue has been successfully resolved, funding risk is lower and we increased the success probability to our standard 15% (Phase II to approval for oncology projects). We maintain all other assumptions in our risk-adjusted NPV model as published in our recent initiation report. Our valuation is based on RV001 in prostate cancer only, specifically in patients with biochemical recurrence following radical prostatectomy or radiotherapy.

According to our model, a successful Phase IIb outcome would result in RhoVac’s rNPV increasing to SEK2.04bn or SEK107.1/share (not including the net cash estimate). This would include setting the probability of success at 40% as a Phase III-ready asset and changing the date of the valuation to the start of 2022 but leaving all other inputs unchanged.

Exhibit 3: Sum-of-the-parts RhoVac valuation

Product

Launch

Peak sales
(US$m)

Unrisked NPV (SEKm)

Technology probability (%)

rNPV
(SEKm)

rNPV/share (SEK)

RV001 – prostate cancer

2027

888

3,272.3

15%

710.6

37.3

Net cash at end-H119

174.5

100%

174.5

9.2

Valuation

3,446.8

885.1

46.5

Source: Edison Investment Research. Note: WACC = 12.5% for product valuations.

Exhibit 4: Financial summary

SEK'000s

2017

2018

2019e

2020e

December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

0

0

0

0

Cost of Sales

0

0

0

0

Gross Profit

0

0

0

0

Research and development

(12,243)

(19,154)

(50,000)

(60,000)

EBITDA

 

 

(12,857)

(20,148)

(50,000)

(60,000)

Operating Profit (before amort. and except.)

(12,857)

(20,148)

(50,000)

(60,000)

Intangible Amortisation

0

0

0

0

Exceptionals

0

0

0

0

Other

0

0

0

0

Operating Profit

(12,857)

(20,148)

(50,000)

(60,000)

Net Interest

(5)

(64)

382

577

Profit Before Tax (norm)

 

 

(12,861)

(20,212)

(49,618)

(59,423)

Profit Before Tax (reported)

 

 

(12,861)

(20,212)

(49,618)

(59,423)

Tax

1,911

2,936

0

0

Profit After Tax (norm)

(10,950)

(17,276)

(49,618)

(59,423)

Profit After Tax (reported)

(10,950)

(17,276)

(49,618)

(59,423)

Average Number of Shares Outstanding (m)

8.2

8.9

14.3

19.0

EPS - normalised (SEK)

 

 

(1.34)

(1.95)

(3.47)

(3.12)

EPS - normalised and fully diluted (SEK)

 

(1.34)

(1.95)

(3.47)

(3.12)

EPS - (reported) (SEK)

 

 

(1.34)

(1.95)

(3.47)

(3.12)

Dividend per share (SEK)

0.0

0.0

0.0

0.0

Gross Margin (%)

N/A

N/A

N/A

N/A

EBITDA Margin (%)

N/A

N/A

N/A

N/A

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

2,342

2,848

2,848

2,848

Intangible Assets

2,342

2,848

2,848

2,848

Tangible Assets

0

0

0

0

Investments

0

0

0

0

Current Assets

 

 

13,598

20,372

161,245

101,822

Stocks

0

0

0

0

Debtors

1,141

240

240

240

Cash

9,428

16,060

150,762

91,339

Other

3,029

4,071

10,243

10,243

Current Liabilities

 

 

(2,177)

(4,380)

(28,616)

(28,616)

Creditors

(2,177)

(4,380)

(28,616)

(28,616)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

(505)

(596)

(613)

(613)

Long term borrowings

0

0

0

0

Other long term liabilities

(505)

(596)

(613)

(613)

Net Assets

 

 

13,258

18,245

134,864

75,441

CASH FLOW

Operating Cash Flow

 

 

(13,853)

(17,097)

(31,918)

(60,000)

Net Interest

(6)

(64)

382

577

Tax

1,945

2,229

0

0

Capex

0

0

0

0

Acquisitions/disposals

0

0

0

0

Financing

1,182

21,756

166,237

0

Other

(241)

(191)

0

0

Dividends

0

0

0

0

Net Cash Flow

(10,973)

6,632

134,701

(59,423)

Opening net debt/(cash)

 

 

(20,401)

(9,428)

(16,060)

(150,762)

HP finance leases initiated

0

0

0

0

Other

0

(0)

0

(0)

Closing net debt/(cash)

 

 

(9,428)

(16,060)

(150,762)

(91,339)

Source: RhoVac’s accounts, Edison Investment Research


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This report has been commissioned by RhoVac and prepared and issued by Edison, in consideration of a fee payable by RhoVac. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

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This report has been commissioned by RhoVac and prepared and issued by Edison, in consideration of a fee payable by RhoVac. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

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New Zealand

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. 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 (i.e. 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.

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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