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Ipsen deal de-risks the strategy

IRLAB Therapeutics 12 August 2021 Update
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IRLAB Therapeutics

Ipsen deal de-risks the strategy

Update to mesdopetam

Pharma & biotech

12 August 2021

Price

SEK60.6

Market cap

SEK3,136m

SEK8.47/US$

Net cash (SEKm) at 31 March 2021

253.9

Shares in issue

51.7m

51.7m

Free float

56%

<Insert>

Code

IRLABA

IRLABA

Primary exchange

NASDAQ Stockholm

<Insert>

Secondary exchange

N/A

<Insert>

Share price performance

%

1m

3m

12m

Abs

34.2

54.8

109.7

Rel (local)

27.2

36.3

46.5

52-week high/low

SEK70

SEK28

Business description

IRLAB Therapeutics is a Scandinavia-based biotechnology company focused on developing novel drugs for the treatment of neurodegenerative diseases utilising its ISP technology platform. Its two lead assets are in late-stage clinical trials for the symptomatic treatment of Parkinson’s disease: mesdopetam (D3 antagonist) and pirepemat (PFC enhancer).

Next events

Pirepemat Phase IIb trial initiation

H221

Top-line data from mesdopetam US/EU Phase IIb/III PD-LIDs trial

H122

Analysts

Dr Susie Jana

+44 (0)20 3077 5700

Dr John Priestner

+44 (0)20 3077 5700

IRLAB Therapeutics is a research client of Edison Investment Research Limited

IRLAB Therapeutics has made substantial progress year to date with the mesdopetam (IRL790) global licensing deal with Ipsen. By partnering its lead asset mesdopetam, a D3 antagonist currently in a Phase IIb/III study in Parkinson’s disease (PD) patients with levodopa-induced dyskinesias (PD-LIDs), IRLAB has de-risked its strategy. Importantly, IRLAB has the financial flexibility in the near term to focus on Phase II asset, pirepemat, (IRL752) and broadening its clinical portfolio through the development of its preclinical assets (including IRL942 and IRL1009) and its ISP platform technology. We value IRLAB at SEK5.1bn or SEK99.4/share.

Year end

Revenue (SEKm)

PBT*
(SEKm)

EPS*
(SEK)

DPS
(SEK)

P/E
(x)

Yield
(%)

12/19

0.4

(95.1)

(2.34)

0.0

N/A

N/A

12/20

0.4

(91.4)

(1.92)

0.0

N/A

N/A

12/21e

237.7

129.7

2.51

0.0

N/A

24.1

12/22e

0.4

(137.8)

(2.66)

0.0

N/A

N/A

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

Ipsen a valuable partner with focus on neuroscience

Deal terms include a $28m upfront payment and up to $335m in development and sales milestones, plus double-digit royalties, which are commensurate with assets at this stage of development. Ipsen is a global, mid-sized pharmaceutical company, with a focus on neuroscience as one of its core competencies. It has historically been active in the research quest for PD treatments and will take over all future clinical development and global commercialisation of mesdopetam. Top-line data from the US/EU Phase IIb/III trial in PD-LIDs are expected in H122, and will define the pivotal trials required for approval. The Phase III trial could start in 2023.

Focus now on broadening proprietary pipeline

This deal provides external validation of IRLAB’s Integrative Screening Process (ISP) research platform, which discovered mesdopetam and Phase II asset pirepemat. Pirepemat (IRL752) is a first-in-class oral small molecule currently in development for the treatment of postural dysfunction (impaired balance) and falls in PD (PD-Falls), both of which are untapped markets and represent a significant burden on healthcare systems. We expect IRLAB to continue to focus on its core competency of research and development utilising its ISP platform, potentially expanding its discovery efforts beyond PD to include discovery/preclinical compounds for a range of neurological and psychiatric conditions.

Valuation: SEK5.1bn or SEK99.4/share

Our revised valuation is SEK5.1bn or SEK99.4/share from SEK4.8bn or SEK93.3/share previously. We update for mesdopetam deal terms including the $28m upfront payment and assume a 20% royalty rate plus development and sales milestones (PD-LIDs and PD-Psychosis) versus our prior 30% blended royalty rate assumption. Our peak sales are unchanged. We do not include the early-stage portfolio (preclinical assets IRL942 and IRL1009), nor the proprietary ISP platform technology in our valuation. We include reported net cash of SEK253.9m at 31 March 2021 plus the $28m upfront payment from Ipsen.

Ipsen a valuable partner at this stage of development

Ipsen is a global pharmaceutical company (market cap: €7.6bn) which focuses on neuroscience as one of its three core drivers. In addition to in-licensing mesdopetam, Ipsen has been active in the neuroscience space for 25 years and has recently expanded its neurodegenerative pipeline further with an exclusive collaboration agreement with US-based Exicure to research, develop and commercialise novel Spherical Nucleic Acids (SNAs) for Huntington’s disease and Angelman syndrome. Ipsen currently commercialises more than 20 products globally (FY20 sales of €2.6bn) and has a direct commercial presence in more than 30 countries. Importantly, it has experience in conducting late-stage clinical trials in neurodegenerative conditions, and we believe that mesdopetam could become a priority development candidate. Thus, in our view, this deal makes strategic sense for IRLAB.

The mesdopetam global licensing agreement with Ipsen is worth up to $363m plus double-digit royalties. IRLAB will receive a $28m upfront payment and is eligible to receive up to $335m in potential development, regulatory and commercial milestones (spread across multiple indications) plus low double-digit tiered royalties on net sales. IRLAB will continue development until the end of the current Phase IIb/III trial in PD patients with PD-LIDs. Ipsen will take over for the Phase III clinical development in PD-LIDs and is responsible for all future clinical development and global commercialisation. Top-line data from the mesdopetam US/EU Phase IIb/III trial in PD-LIDs, expected in H122, will define the pivotal trials required for approval. Depending on the FDA/EMA, the Phase IIb/III study could be supportive of an NDA filing, which means that only one additional Phase III pivotal study would be required before regulatory filings. This means a potential pivotal Phase III study could start in 2023, leading to approval and launch in 2026.

Mesdopetam is also being developed for psychosis in Parkinson's disease (PD-Psychosis), a condition characterised by hallucinations and sometimes delusions. This is a significant unmet medical need that can be debilitating and cause patients to discontinue treatments that may have procognitive effects. IRLAB had planned to initiate a Phase II study in PD-Psychosis in 2022–23, and we now expect Ipsen to start this trial given that preclinical studies have highlighted mesdopetam’s potential in psychosis and procognitive effects at the same therapeutic dose at which it is administered for LIDs.

ISP platform receives external validation

The mesdopetam deal with Ipsen validates the ISP technology, IRLAB’s unique, proprietary research platform at the heart of its drug discovery engine, which enables the discovery of novel drugs for central nervous system (CNS) related diseases. Other compounds discovered by the ISP platform include pirepemat and preclinical assets IRL942 and IRL1009, which could be developed for psychiatric, cognitive and motor symptoms associated with neurodegenerative diseases and ageing. The platform contains a growing database of almost 1,400 CNS drug-like compounds developed over 25 years. With the development of mesdopetam in Ipsen’s hands from the start of designing the Phase III programme, IRLAB can focus on the development of Phase II asset pirepemat, progressing preclinical compounds into clinical studies and the discovery of new molecular entities utilising ISP (Exhibit 1). We note that numerous other biotech and pharmaceutical companies have developed screening platforms, but the ISP platform is unique in combining measurements of both neurochemistry and behaviour through the use of AI-based analytics.

Exhibit 1: IRLAB milestones and catalysts 2020–26e

Source: IRLAB corporate presentation

Valuation

Our revised valuation of SEK5.1bn or SEK99.4/share versus SEK4.8bn or SEK93.3/share reflects the revisions made to our model with regards to mesdopetam. Our updated valuation includes net cash of SEK253.9m (at 31 March 2021) plus the $28m upfront payment from Ipsen, which provides funding in the medium term. It is based on a risk-adjusted NPV model for mesdopetam in PD-LIDs (SEK46.5/share), in PD-Psychosis (SEK14.2/share) and pirepemat in PD-Falls (SEK29.3/share). The breakdown of our NPV valuation, which uses a 12.5% discount rate, is shown in Exhibit 2. We do not include the early-stage portfolio (preclinical assets IRL942 and IRL1009), nor the proprietary ISP platform technology. We see uplift as assets move into clinical development.

Exhibit 2: IRLAB sum-of-the-parts valuation

Product

Indication

Launch

Peak sales
($m)

Value (SEKm)

Probability

rNPV
(SEKm)

rNPV/share (SEK)

Mesdopetam

PD-LIDs

2026

1,207

4,657.7

50%

2,404.6

46.5

Mesdopetam

PD-Psychosis

2027

688

2,350.2

30%

734.0

14.2

Pirepemat

PD-Falls
(postural dysfunction)

2027

1,036

5,190.8

30%

1,515.5

29.3

Net cash at 31 March 2021*

 

 

491.2

100%

491.2

9.5

Valuation

 

 

12,690.0

5,145.2

99.4

Source: Edison Investment Research. Note: *Plus $28m upfront payment from Ipsen.

For mesdopetam in PD-LIDs and PD-Psychosis in the US and EU5 only, we replace our blended tiered royalty rate of 30% with a flat 20% royalty on net sales, and include development and sales milestones totalling $290m relating to PD-LIDs and PD-Psychosis. We maintain our forecast R&D costs for completion of the Phase IIb/III study in PD-LIDs in 2021/22 and have removed all R&D costs associated with the potential start of a Phase II study in PD-Psychosis in 2022. We subsequently increase our unallocated R&D cost assumptions to reflect IRLAB’s increased focus on its portfolio of preclinical assets and ISP platform. We forecast launch in 2026 and unchanged peak sales of $1.2bn in the US/EU5 in 2032 for PD-LIDs. We forecast launch in 2027 and unchanged peak sales of $688m in the US/EU5 in 2033 for PD-Psychosis.

Our pirepemat assumptions are unchanged. We model treatment of PD-Falls in the US and EU5 only and forecast peak sales of $1.0bn in 2033 assuming launch in 2027. We also assume an out-licensing deal post Phase IIb data and use a blended tiered royalty rate of 30%, which considers any potential milestone value.

Exhibit 3: Financial summary

Accounts: IFRS, year-end: 31 December, SEK’000s

 

 

2018

2019

2020

2021e

2022e

PROFIT & LOSS

 

 

 

 

 

 

 

Total revenues

 

 

196

448

404

237,701

413

Cost of sales

 

 

0

0

0

0

0

Gross profit

 

 

196

448

404

237,701

413

Total operating expenses

 

 

(74,093)

(96,296)

(91,862)

(107,854)

(138,066)

Research and development expenses

 

 

(58,927)

(79,381)

(75,989)

(89,746)

(114,746)

EBITDA (reported)

 

 

(72,565)

(92,916)

(89,202)

133,195

(133,913)

Operating income (reported)

 

 

(73,897)

(95,848)

(91,458)

129,847

(137,653)

Operating margin %

 

 

N/A

N/A

N/A

N/A

N/A

Finance income/(expense)

 

 

(202)

(272)

(195)

(446)

(446)

Exceptionals and adjustments

 

 

0

0

0

0

0

Profit before tax (reported)

 

 

(74,099)

(96,120)

(91,653)

129,401

(138,099)

Profit before tax (normalised)

 

 

(73,359)

(95,121)

(91,394)

129,660

(137,840)

Income tax expense (includes exceptionals)

 

 

0

0

0

0

0

Net income (reported)

 

 

(74,099)

(96,120)

(91,653)

129,401

(138,099)

Net income (normalised)

 

 

(73,359)

(95,121)

(91,394)

129,660

(137,840)

Basic average number of shares, m

 

 

38.2

40.6

47.7

51.7

51.7

Basic EPS (SEK)

 

 

(1.94)

(2.37)

(1.92)

2.50

(2.67)

Adjusted EPS (SEK)

 

 

(1.92)

(2.34)

(1.92)

2.51

(2.66)

Dividend per share (SEK)

 

 

0.00

0.00

0.00

0.00

0.00

BALANCE SHEET

 

 

 

 

 

 

 

Tangible assets

 

 

1,197

5,919

4,317

10,282

10,295

Intangible assets

 

 

83,269

82,270

82,011

81,751

81,492

Other non-current assets

 

 

0

0

0

0

0

Total non-current assets

 

 

84,466

88,189

86,328

92,033

91,787

Cash and equivalents

 

 

134,442

110,527

277,009

407,316

270,689

Inventories

 

 

0

0

0

0

0

Trade and other receivables

 

 

6,028

9,351

6,732

6,732

6,732

Other current assets

 

 

0

0

0

0

0

Total current assets

 

 

140,470

119,878

283,741

414,048

277,421

Non-current loans and borrowings

 

 

0

0

0

0

0

Non-current lease liabilities

 

 

0

2,900

1,270

7,270

7,270

Other non-current liabilities

 

 

0

0

0

0

0

Total non-current liabilities

 

 

0

2,900

1,270

7,270

7,270

Accounts payable

 

 

5,997

8,438

3,683

4,295

5,520

Non-current loans and borrowings

 

 

0

0

0

0

0

Current lease liabilities

 

 

0

1,643

1,657

1,657

1,657

Other current liabilities

 

 

6,463

13,259

15,578

15,578

15,578

Total current liabilities

 

 

12,460

23,340

20,918

21,530

22,755

Equity attributable to company

 

 

212,476

181,826

347,879

477,280

339,181

CASH FLOW STATEMENT

 

 

 

 

 

 

 

Operating income

 

 

(73,897)

(95,848)

(91,458)

129,847

(137,653)

Depreciation and amortisation

 

 

1,332

2,932

2,256

3,349

3,740

Share based payments

 

 

0

0

0

0

0

Other adjustments

 

 

(202)

(244)

(195)

(446)

(446)

Movements in working capital

 

 

1,977

1,959

183

612

1,225

Cash from operations (CFO)

 

 

(70,790)

(91,201)

(89,214)

133,362

(133,134)

Capex

 

 

(1,052)

(137)

(394)

(266)

(330)

Acquisitions & disposals net

 

 

0

0

0

0

0

Other investing activities

 

 

0

0

0

0

0

Cash used in investing activities (CFIA)

 

 

(1,052)

(137)

(394)

(266)

(330)

Net proceeds from issue of shares

 

 

131,575

68,970

257,706

0

0

Movements in debt

 

 

0

(1,547)

(1,616)

0

0

Other financing activities

 

 

0

0

0

(2,789)

(3,164)

Cash from financing activities (CFF)

 

 

131,575

67,423

256,090

(2,789)

(3,164)

Cash and equivalents at beginning of period

 

 

74,709

134,442

110,527

277,009

407,316

Increase/(decrease) in cash and equivalents

 

 

59,733

(23,915)

166,482

130,307

(136,627)

Effect of FX on cash and equivalents

 

 

0

0

0

0

0

Cash and equivalents at end of period

 

 

134,442

110,527

277,009

407,316

270,689

Net (debt)/cash

 

 

134,442

110,527

277,009

407,316

270,689

Source: Company accounts, Edison Investment Research


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This report has been commissioned by IRLAB Therapeutics and prepared and issued by Edison, in consideration of a fee payable by IRLAB Therapeutics. 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.

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This report has been commissioned by IRLAB Therapeutics and prepared and issued by Edison, in consideration of a fee payable by IRLAB Therapeutics. 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 2021 Edison Investment Research Limited (Edison).

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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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Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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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

1185 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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