New management unveils new strategy

Oncology Venture 15 April 2020 Update
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Oncology Venture

New management unveils new strategy

Earnings update

Pharma & biotech

15 April 2020

Price

SEK1.38

Market cap

SEK180m

SEK10.03/DKK6.81/US$

Net cash (DKKm) at YE19

6.6

Shares in issue

130.7m

Free float

80.4%

Code

OV

Primary exchange

Nasdaq First North Stockholm

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(8.0)

(45.5)

(74.5)

Rel (local)

(18.2)

(35.8)

(73.4)

52-week high/low

SEK5.23

SEK1.16

Business description

Oncology Venture is a Denmark-based biopharmaceutical company focused on oncology. Its patent-protected mRNA-based drug response predictor platform enables the identification of patients with gene expression highly likely to respond to treatment. The company is advancing the PARP inhibitor 2X-121, the TKI dovitinib, and microtubule inhibitor Ixempra.

Next events

Ixempra study initiation

Q320

Dovitinib NDA submission

Late H220

2X-121 Phase II results

2021

Analyst

Nathaniel Calloway

+1 646 653 7036

Oncology Venture is a research client of Edison Investment Research Limited

Oncology Venture recently hired new upper management to streamline and focus its operations. This involves a prioritisation of its programmes towards its most attractive assets, which were determined to be the PARP 2X-121, the TKI dovitinib, and the microtubule disruptor Ixempra (ixabepilone). The company has provided updated timelines for its assets, all of which have major upcoming catalysts. We view this shift in focus as highly strategic and are encouraged by the company’s new direction.

Year end

Revenue (DKKm)

PBT*
(DKKm)

EPS*
(DKK)

DPS
(DKK)

P/E
(x)

Yield
(%)

12/18

2.1

(22.5)

(0.44)

0.0

N/A

N/A

12/19

0.8

(174.9)

(2.08)

0.0

N/A

N/A

12/20e

2.7

(151.7)

(1.17)

0.0

N/A

N/A

12/21e

1.8

(332.7)

(2.45)

0.0

N/A

N/A

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

Focus is based on lower risk and faster returns

Oncology Venture selected three priority assets, based on which programmes can deliver value to investors and the market. The company’s other assets, such as LiPlaCis, remain in ongoing clinical studies, but the progress of these studies will continue to the planned conclusion of the current clinical study. We are confident that the three chosen assets will be able to advance significantly more quickly through the clinical and regulatory process.

Ixempra advancing to the clinic

The company previously obtained an option for the European rights to Ixempra from R-Pharm in April 2019 and recently announced it would be advancing the programme to clinical trials in Q320. The company proposed a 40-person clinical study in European centres for treatment of breast cancer; we expect it can complete the study in early 2021. In accordance with this, we have added the product to our model with an initial valuation of SEK183m.

FDA: Dovitinib can be submitted on non-inferiority

Oncology Venture announced the outcome of its pre-NDA meeting with the FDA regarding its plan to submit an NDA for dovitinib on the basis of non-inferiority to sorafenib (Bayer). Management indicates the agency said that it would accept such an application and that progression free survival could be used as the endpoint for non-inferiority. This is good news because the company will not need to do any additional studies to submit the application, which it is planning for late in H220.

Valuation: SEK893m or SEK6.83 per basic share

After the strategy change, we arrive at a new valuation of Oncology Venture of SEK893m or SEK6.83 per basic share. The company in Q419 completed a SEK100.6m rights offering and has entered into a separate SEK100m convertible loan facility. We expect current clinical programmes to require DKK1.1bn in additional financing, although we expect significant partnering efforts to offset this.

A new company direction

Oncology Venture announced in September 2019 that the board had appointed a new CEO and CFO to ‘facilitate a focused commercial strategy’. The new management has delivered on its promises to overhaul the company’s strategy and focus on three of its most high-value assets. The company will now focus its future development activity on 2X-121, dovitinib and Ixempra. These three assets were chosen because the company believes that they will provide the fastest and lowest-risk generation of value to investors. We concur with this assessment, as these three assets stand out from the field of other programmes in a number of ways.

The selection of assets

We have previously commented on some of the difficulties the company has faced in enrolling and advancing its clinical studies. For instance, the APO010 clinical study has not enrolled any patients since its inception in 2017 and the irofulven study has not reported any results. Although management has reported some results from its ongoing Phase II LiPlaCis study (the latest in February 2019), progress has been behind schedule. However, we do not expect these limitations from the three now-prioritised lead programmes for a range of reasons.

For instance, the company may be able to secure an approval for dovitinib without the need for additional clinical data on the basis of non-inferiority to sorafenib, which would substantially elevate the value of this asset. To this end, the company recently had a meeting with the FDA to discuss this pathway forward (a pre-NDA meeting), in which the agency agreed with the company that it could submit an NDA on the basis of non-inferiority. Moreover, management indicated that the agency will accept an application with the endpoint for non-inferiority being progression free survival (PFS). This is important because non-inferiority on PFS is well supported by the previous studies.1 Although we do not expect the drug to be marketed following this initial approval, it would substantially lower the hurdle for future dovitinib approvals in combination with the company’s Drug Response predictor (DRP) technology. The company plans to submit the NDA in late H220.

  Motzer RJ, et al. (2014) Dovitinib versus sorafenib for third-line targeted treatment of patients with metastatic renal cell carcinoma: an open-label, randomised phase 3 trial. Lancet Oncol 15, 286-296.

The situation with Ixempra is similar in that a large body of clinical data has already been gathered on the product, as it is approved in the US to treat metastatic and locally advanced breast cancer. The product is a microtubule disrupting agent, similar in function to taxane, and is approved for use in patients who are refractory to taxane or anthracycline. We know the product has activity in this population and the DRP has the potential to identify the strongest responders. The company secured an option for the European rights to the product in April 2019, which it plans to utilise and advance the product to the clinic in Q320.

The 2X-121 product is a poly-ADP ribose polymerase (PARP) inhibitor, a class of drugs that has recently seen multiple approvals. The lead compound in the class is Lynparza (olaparib, AstraZeneca), which had $647m in sales in 2018. This is an attractive asset to pair with the DRP, because the activity of the drug is already known to be contingent on genetic mutations that affect a cell’s ability to respond to DNA damage, with current labels limited to patients’ expression of mutations in the genes BRCA1 and -2. There is some speculation, however, that drugs of this class can be used in a broader range of patients with other mutations or in combination with other drugs that may enhance their effects. 2X-121 is in a Phase II clinical trial for ovarian cancer at the Dana-Farber Cancer Institute, which recently expanded to a new clinical site at Guy’s Hospital in London. The target enrolment for the study is 30, with eight enrolled as of 12 November 2019. The drug is also being studied for breast cancer in a Phase II clinical study at sites across Denmark. We expect the company to report results from these studies in 2021. The company expects to initially develop the product for ovarian cancer, but as with other PARP inhibitors, we expect this to expand to breast cancer if it is successful in this initial indication. This compound is one of the few PARP inhibitors under development that has not been partnered with a big pharma company.

Path forward and the future

The prior management had expressed the intention to in-license assets, develop them through early proof of concept and early clinical stages and then out-license these products for further development and approval. This strategy, however, has the risk of limiting the viable options it could take forward, because it lacked the capacity to run large registrational clinical studies. Moreover, any potential partners would have much greater leverage over Oncology Venture given that the company had few options besides seeking partners, which may have negatively affected deal terms. We believe this was in part the reason why the company was exploring a departure from this strategy and was in discussions with the FDA regarding advancing LiPlaCis to Phase III internally. The new management has changed this strategy expressly and intends to advance its key assets either internally or through partners opportunistically. The new management has significant experience in clinical development and we believe it can deliver on these promises, if it can secure financing.

The company has also provided a roadmap to the expansion of the DRP commercial strategy. The goal is to use these initial clinical programmes to demonstrate the value of the diagnostic, which can then be paired with the assets of other companies. The track record of the DRP identifying patients who are responders is well established in the literature and it continues to expand this proof of utility, as with the recent presentation at the European Society for Medical Oncology on using the product to predict responses to fluorouracil. What the company needs to demonstrate is that this can be used to support the approval of drugs paired with the test and, if it can, this could be very valuable to other companies interested in expanding the value of their products.

One factor that could potentially affect the ability of the company to deliver on these plans is the ongoing COVID-19 pandemic, which has had wide reaching impacts on the economy more generally and specifically on the healthcare industry. The company has stated that it does not expect long-lasting impacts from the disease on its development plan, but admits that ultimately these factors are hard to predict and that it is watching the situation closely. The most immediate impact that we could envision is a delay in the clinical development of 2X-121 and Ixempra, as it may be difficult to open trial sites or enrol patients. We will be keeping tabs on the progress of these programs to see if any changes need to be made to our models on account of COVID-19, but as of now we do not expect major delays.

Valuation

We have overhauled our model for the company to align it with the new clinical development strategy, which involves reducing the pipeline, and we have arrived at a new valuation of SEK893m or SEK6.83 per basic share. This is lower than our previous valuation (SEK1,271m) but carries lower risk. We have added Ixempra to our model with an initial valuation of SEK183m. This valuation assumes the product will be used in the top 20% of DRP responders with metastatic or locally advanced breast cancers and that it will be able to achieve 25% penetration into this potential market. Based on data provided by EvaluatePharma on Medicare patients, US revenue per patient has been between $13,000 and $16,000 in the period where data was available (until 2016). This corresponds to approximately three three-week courses per patient. We expect a European launch in 2025 and assign a probability of success of 50% on the basis that the drug is already approved in the US. We have also adjusted our timeline for 2X-121 and expect an initial approval in 2024 and a potential breast cancer follow-on indication in 2025. The effect of the reduced pipeline of our valuation is offset by rolling forward our NPVs and exchange rate effects (SEK10.03/DKK6.81/US$ from SEK9.11/DKK6.41/US$).

Exhibit 1: Valuation of Oncology Venture

Development program

Indication

Clinical stage

Prob. of success

Launch year

Launch pricing

Peak sales ($m)

rNPV (SEKm)

% rights held by OV

OV rNPV (SEKm)

2X-121

Metastatic breast cancer and ovarian cancer

Phase II

25%

2024-25

$135,000

122.2

227.4

92%

209.2

Dovitinib

Renal cancer

Phase Ib/II

35-50%

2024-25

$145,000

176.9

763.9

63%

481.3

Ixempra

Metastatic breast cancer

Phase II

50%

2025

$41,000

56.4

183.0

100%

183.0

Total

 

 

 

 

873.5

Net cash (YE19 + cash from EHGO, SEKm)

19.3

Total firm value (SEKm)

892.8

Total shares (m)

130.7

Value per basic share (SEK)

6.83

Dilutive warrants and options (m)

57.9

Fully diluted shares in issue (m)

188.6

Fully diluted value per share (SEKm)

6.43

Source: Oncology Venture reports, Edison Investment Research

Financials

Oncology Venture reported an operating loss of DKK148m for 2019, of which DKK81.6m was a write down on the value of the company’s newly deprioritized assets. The company ended the year with only DKK10.2m in cash (and DKK3.6m in debt), but management announced on 31 March that it has entered into a convertible debt agreement worth up to SEK100m with Negma Group Ltd and Park Partners GP (rolling conversion price of 95% of the lowest closing volume weighted average of the last seven trading days). The program will be in place for 24 months and is separated into 10 SEK10m tranches (callable by Oncology Venture). This is following the rights offering of the company in Q419 of SEK100.6m (net proceeds were about SEK84m). The fully subscribed offering included 50.3m units at SEK2.00 per unit of one share and one warrant exercisable at SEK6.00. The company also completed a debt conversion of SEK0.89m (DKK0.63m) in which 287,500 shares were issued at SEK2.20. The company was also able to reduce its short-term debt from DKK37.7m in Q319 to DKK3.6m at year end.

Post-year end (February 2020) the company issued 9.3m shares and 4.0m warrants (at SEK3.30) for SEK10.5m gross in a final payment in the financing agreement with European High Growth Opportunities Securitization Fund (EHGO).

Exhibit 2: Financial summary

DKK'000s

2018

2019

2020e

2021e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

2,147

801

2,698

1,810

Cost of Sales

0

0

0

0

Gross Profit

2,147

801

2,698

1,810

EBITDA

 

 

(32,258)

(66,502)

(151,084)

(332,033)

Operating Profit (before amort. and except.)

 

 

(32,471)

(148,102)

(151,084)

(332,033)

Intangible Amortisation

0

0

0

0

Exceptionals/Other

0

0

0

0

Operating Profit

(32,471)

(148,102)

(151,084)

(332,033)

Net Interest

(192)

(26,822)

(644)

(644)

Other

10,146

0

0

0

Profit Before Tax (norm)

 

 

(22,517)

(174,924)

(151,728)

(332,677)

Profit Before Tax (IFRS)

 

 

(22,517)

(174,924)

(151,728)

(332,677)

Tax

6,973

36,792

2,890

6,336

Deferred tax

0

0

0

0

Profit After Tax (norm)

(15,544)

(138,132)

(148,839)

(326,341)

Profit After Tax (IFRS)

(15,544)

(138,132)

(148,839)

(326,341)

Average number of shares outstanding (m)

33.8

63.4

127.1

133.5

EPS - normalised (DKK)

 

 

(0.44)

(2.08)

(1.17)

(2.45)

EPS - IFRS (DKK)

 

 

(0.44)

(2.08)

(1.17)

(2.45)

Dividend per share (ore)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

237,096

158,895

158,951

159,007

Intangible Assets

236,733

155,978

155,978

155,978

Tangible Assets

363

2,917

2,973

3,029

Other

0

0

0

0

Current Assets

 

 

14,401

22,306

134,387

333,355

Stocks

0

0

0

0

Debtors

5,262

5,937

14,928

32,731

Cash

1,547

10,176

110,377

285,206

Other

7,592

6,193

9,083

15,418

Current Liabilities

 

 

(35,407)

(31,497)

(25,330)

(50,695)

Creditors

(16,515)

(27,919)

(21,752)

(47,117)

Short term borrowings

(18,892)

(3,578)

(3,578)

(3,578)

Long Term Liabilities

 

 

(34,234)

(8,370)

(268,370)

(768,370)

Long term borrowings

0

0

(260,000)

(760,000)

Other long term liabilities

(34,234)

(8,370)

(8,370)

(8,370)

Net Assets

 

 

181,856

141,334

(362)

(326,703)

CASH FLOW

Operating Cash Flow

 

 

(31,392)

(54,511)

(166,886)

(325,115)

Net Interest

(2,391)

(26,846)

0

0

Tax

6,159

8,942

0

0

Capex

0

(56)

(56)

(56)

Acquisitions/disposals

9,855

0

0

0

Financing

198

62,715

7,143

0

Dividends

0

0

0

0

Other

(3,299)

(4,253)

0

0

Net Cash Flow

(20,870)

(14,009)

(159,799)

(325,171)

Opening net debt/(cash)

 

 

(3,326)

17,345

(6,598)

153,201

HP finance leases initiated

0

0

0

0

Exchange rate movements

(199)

(98)

0

0

Other

398

38,050

0

0

Closing net debt/(cash)

 

 

17,345

(6,598)

153,201

478,372

Source: Oncology Venture reports, Edison Investment Research

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This report has been commissioned by Oncology Venture and prepared and issued by Edison, in consideration of a fee payable by Oncology Venture. 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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General disclaimer and copyright

This report has been commissioned by Oncology Venture and prepared and issued by Edison, in consideration of a fee payable by Oncology Venture. 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 2020 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2020. “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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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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.

United Kingdom

This document is prepared and provided by Edison 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.

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.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

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

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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