Oncology Venture |
Pipeline now wholly owned by OV |
Business update |
Pharma & biotech |
10 September 2020 |
Share price performance
Business description
Next events
Analyst
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* |
EPS* |
DPS |
P/E |
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-111 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
|
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