Pipeline now wholly owned by OV

Oncology Venture 14 July 2020 Update
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Oncology Venture

Pipeline now wholly owned by OV

Business update

Pharma & biotech

14 July 2020

Price

SEK1.43

Market cap

SEK260m

SEK10.03/DKK6.81/US$

Net debt (DKKm) at 31 March 2020

DKK0.015

Shares in issue

181.6m

Free float

72%

Code

OV

Primary exchange

Nasdaq First North Stockholm

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(2.9)

16.9

(60.0)

Rel (local)

(10.6)

(1.2)

(63.4)

52-week high/low

SEK4.98

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

Late 2021

Analyst

Nathaniel Calloway

+1 646 653 7036

Oncology Venture is a research client of Edison Investment Research Limited

Oncology Venture continues to consolidate the ownership of its pipeline with the purchase of the remaining share of Oncology Venture US held by minority shareholders. This brings the PARP inhibitor 2X-121 fully under ownership of the company (as well as the deprioritised asset 2X-111). The company issued 12,383,770 shares at SEK1.52 to complete the transaction.

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

0.9

(124.4)

(0.67)

0.0

N/A

N/A

12/21e

0.9

(260.1)

(1.42)

0.0

N/A

N/A

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

Bringing it all under one roof

Historically Oncology Venture has engaged in a number of different ownership structures for its assets through its subsidiaries. However, with the assumption of the new management team in 2019 and the streamlining of the company’s pipeline, it has shifted its strategy to the consolidation of the ownership of its primary assets (2X121, Ixempra and dovitinib). Earlier in June 2020, we reported on the company acquiring the remaining interest in dovitinib. With the current transaction, the company has gained full ownership of these three assets.

A PARP paired with the DRP

2X-121 is a poly-ADP-ribose polymerase (PARP) inhibitor that the company is investigating for the treatment of metastatic breast and ovarian cancer in combination with its drug response predictor (DRP) diagnostic. The drug candidate is being studied in a Phase II clinical study at the Dana-Farber Cancer Institute with a target enrolment of 30 patients (eight enrolled). The drug was initially licensed from Eisai in 2017.

Deprioritised assets out-licensed

The company announced in June 2020 that it would be out-licensing two of its deprioritised assets 2X-121 and LiPlaCis to Smerud Medical Research, a CRO the company previously engaged to run LiPlaCis clinical studies. As part of the agreement, Oncology Venture is entitled to $30m in regulatory milestones and royalties on future sales (rate undisclosed).

Valuation: Increased to SEK1,212m, lower per share

Our valuation is increased to SEK1,212m from SEK1,179m due to the inclusion of the remaining share of 2X-121 in our valuation and increased net cash. However, it is lower on per share basis (SEK6.59 from SEK7.36) due to 9m new shares from financing and the 12.4m shares in the transaction.

Consolidation complete

The decision to buy out the remaining minority (16%) shareholders of Oncology Venture US (OVUS, formerly 2X Oncology) marks the final effort to consolidate the company’s ownership of its pipeline. The company now owns 100% of 2X-121, dovitinib and Ixempra, the three drugs it plans to focus its development efforts on. The company previously owned 84% of OVUS, although it effectively had 92% ownership due to undisclosed agreements associated with the subsidiary structure.

2X-121 is an orally bioavailable small molecule inhibitor of PARP-1/2 and TNKS-1/2 that was in-licensed from Eisai in July 2017 (previously named E7449). PARPs are a family of 17 enzymes that are involved in cellular metabolic regulation. PARP-1 is a critical anticancer target due to its role in DNA damage repair, maintenance of genomic stability and functions in transcriptional regulation. More specifically, PARP-1 and -2 nuclear enzymes are responsible for the majority of PARP activity in the cell where they are recruited to and triggered by sites of DNA damage. PARP enzymes repair single-strand DNA breaks; as a result, PARP inhibition causes double-strand breaks, which require BRCA1/2 for repair. PARP inhibition is therefore particularly lethal to cancer cells containing BRCA1/2 mutations. TNKS enzymes also belong to the PARP family and are involved in Wnt/β-catenin signalling, which plays a central role in cancer biology. Wnt overexpression contributes to tumour progression and, consequently, TNKS inhibition interferes with Wnt signalling.

OV plans to develop 2X-121 for the treatment of ovarian and breast cancer. A breast cancer trial started in June 2018 and an ovarian study was initiated in April 2019. The company reported in the announcement that eight (of 30) patients in the ovarian cancer study have been enrolled. The company has a planned expansion of the clinical study to Guy’s Hospital in the UK, which it previously reported was undergoing internal review.

We expect the recent transaction to make the company structure and relationships easier to present and market to future investors. The company is aiming to streamline itself, which includes both its pipeline and the corporate structure. Previously the company had a large number of development programs held partially or in whole by multiple subsidiaries, and the current transaction marks the final step of the overhaul to get a select few assets under one corporate roof.

Other assets out-licensed

On the other side of the company’s efforts to focus its clinical strategy, it has out-licensed two of its de-prioritised assets, 2X-111 and LiPlaCis, to Smerud Medical Research. Smerud was the CRO that was previously engaged by the company to run clinical studies of LiPlaCis, which are still ongoing. The transaction includes up to $30m in regulatory milestones to Oncology Venture and undisclosed royalties on future sales. Additionally, Smerud plans to continue to develop the assets in combination with the DRP diagnostic, which may provide additional future revenue streams to Oncology Venture if the products reach the market. The company previously returned the rights for its other deprioritised asset APO010, leaving a single asset, Irofulven, in its legacy portfolio.

Valuation

Our valuation is increased to SEK1,212m (from SEK1,179m) although it is lower on a per share basis at SEK6.59 (from SEK7.36). The increase in the valuation is due to increasing the ownership in 2X-121 to 100% (from the effective 92%) and increased estimated net cash (pro-forma SEK20.9m as of Q120, from SEK5.4m) due to the company’s ongoing financing efforts. The company raised SEK7.75m gross through its agreement with Global Corporate Finance (resulting in the issuance of 5.18m shares) and converted SEK8.0m in debt (leading to the issue of 6.84m shares) through its agreement with Negma since our 9 June 2020 report, combined resulting approximately 12.02m new shares. These transactions combined with the 12.4m shares issued for 2X-121 account for the decrease in the per share valuation. We currently do not include milestones and royalties associated with LiPlaCis and 2X-111 but may include these in the future if Smerud makes clinical progress with these programs. LiPlaCis has been in Phase II studies since shortly after it was acquired by Oncology Venture in 2016, and 2X-111 is not currently in clinical studies.

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%

2025

$138,000

122.1

215.4

100%

215.4

Dovitinib

Renal cancer

Phase Ib/II

35–50%

2024–25

$145,000

176.9

786.8

100%

786.8

Ixempra

Metastatic breast cancer

Phase II

50%

2025

$41,000

56.4

188.5

100%

188.5

Total

 

 

 

 

 

 

 

1,190.7

Net cash (pro-forma Q120 + debt conversion + GCF issuance, SEKm)

20.9

Total firm value (SEKm)

1,211.6

Total shares (m)

183.9

Value per basic share (SEK)

6.59

Dilutive warrants and options (m)

57.9

Fully diluted shares in issue (m)

241.8

Fully diluted value per share (SEK)

6.33

Source: Oncology Venture reports, Edison Investment Research

Financials

Our forecasts have been updated to include the recent financings and the acquisition of the minority share of OVUS. The recent financings have reduced our expected financing requirement to DKK1.015bn from DKK1.020m. We record and model this financing need as illustrative debt (DKK135m additional debt in 2020, DKK500m in 2021 and DKK380m in 2022), although we expect the company to finance near-term costs with its current facilities (Negma, Global Corporate Finance), and seek licensing arrangements to address much of the remaining costs.

Exhibit 2: Financial summary

DKK'000s

2018

2019

2020e

2021e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

2,147

801

901

901

Cost of Sales

0

0

0

0

Gross Profit

2,147

801

901

901

EBITDA

 

 

(32,258)

(66,502)

(123,598)

(258,713)

Operating Profit (before amort. and except.)

 

 

(32,471)

(148,102)

(124,650)

(259,765)

Intangible Amortisation

0

0

0

0

Exceptionals/Other

0

0

0

0

Operating Profit

(32,471)

(148,102)

(124,650)

(259,765)

Net Interest

(192)

(26,822)

218

(345)

Other

10,146

0

0

0

Profit Before Tax (norm)

 

 

(22,517)

(174,924)

(124,432)

(260,110)

Profit Before Tax (IFRS)

 

 

(22,517)

(174,924)

(124,432)

(260,110)

Tax

6,973

36,792

9,065

4,954

Deferred tax

0

0

0

0

Profit After Tax (norm)

(15,544)

(138,132)

(115,367)

(255,157)

Profit After Tax (IFRS)

(15,544)

(138,132)

(115,367)

(255,157)

Average Number of Shares Outstanding (m)

33.8

63.4

171.5

180.1

EPS - normalised (DKK)

 

 

(0.44)

(2.08)

(0.67)

(1.42)

EPS - IFRS (DKK)

 

 

(0.44)

(2.08)

(0.67)

(1.42)

Dividend per share (ore)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

237,096

158,895

196,822

195,826

Intangible Assets

236,733

155,978

194,838

194,838

Tangible Assets

363

2,917

1,984

988

Other

0

0

0

0

Current Assets

 

 

14,401

22,306

100,187

315,495

Stocks

0

0

0

0

Debtors

5,262

5,937

10,803

25,591

Cash

1,547

10,176

74,748

270,315

Other

7,592

6,193

14,636

19,589

Current Liabilities

 

 

(35,407)

(31,497)

(67,560)

(37,029)

Creditors

(16,515)

(27,919)

(67,538)

(37,007)

Short term borrowings

(18,892)

(3,578)

(22)

(22)

Long Term Liabilities

 

 

(34,234)

(8,370)

(141,436)

(641,436)

Long term borrowings

0

0

(135,000)

(635,000)

Other long term liabilities

(34,234)

(8,370)

(6,436)

(6,436)

Net Assets

 

 

181,856

141,334

88,013

(167,144)

CASH FLOW

Operating Cash Flow

 

 

(31,392)

(54,511)

(87,058)

(304,377)

Net Interest

(2,391)

(26,846)

363

0

Tax

6,159

8,942

13

0

Capex

0

(56)

(56)

(56)

Acquisitions/disposals

9,855

0

(38,925)

0

Financing

198

62,715

60,782

0

Dividends

0

0

0

0

Other

(3,299)

(4,253)

(1,914)

0

Net Cash Flow

(20,870)

(14,009)

(66,795)

(304,433)

Opening net debt/(cash)

 

 

(3,326)

17,345

(6,598)

60,274

HP finance leases initiated

0

0

0

0

Exchange rate movements

(199)

(98)

77

0

Other

398

38,050

(154)

0

Closing net debt/(cash)

 

 

17,345

(6,598)

60,274

364,707

Source: Oncology Venture reports, Edison Investment Research

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).

Australia

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.

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

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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

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).

Australia

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.

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

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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