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Platform validated, pipeline momentum building

IRLAB Therapeutics 22 November 2021 Update
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IRLAB Therapeutics

Platform validated, pipeline momentum building

Q321 results

Pharma & biotech

22 November 2021

Price

SEK50.8

Market cap

SEK2,626m

SEK8.47/US$

Net cash (SEKm) at 30 Sep 2021

431.2

Shares in issue

51.7m

Free float

59%

Code

IRLABA

Primary exchange

NASDAQ Stockholm

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

13.4

(13.5)

9.6

Rel (local)

6.0

(18.2)

(20.3)

52-week high/low

SEK70

SEK35

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), which has been out licensed to Ipsen; and pirepemat (PFC enhancer).

Next events

Pirepemat Phase IIb trial initiation

H221

Mesdopetam Phase IIb/III top-line data

H122

Progression of preclinical programmes

2022

Analysts

Dr Sean Conroy

+44 (0)20 3077 5700

Dr Jonas Pecilius

+44 (0)20 3077 5700

IRLAB Therapeutics is a research client of Edison Investment Research Limited

The Ipsen deal for mesdopetam (IRL790) during Q321 was a significant achievement for IRLAB Therapeutics. It has provided strong external validation for IRLAB's ISP discovery platform and the $28m upfront payment has bolstered its cash runway. Moreover, with Ipsen now responsible for mesdopetam’s Phase III development, additional resource has been freed up for IRLAB to kick on with its other programmes and further enrich its pipeline. Next up on the agenda is pirepemat (IRL752), which is due to start a Phase IIb trial for treatment of postural dysfunction and falls in Parkinson’s disease (PD) by end-2021. IRLAB continues to make progress across its preclinical pipeline, with IRL942 potentially entering clinical development during 2022 for cognitive disorders. We value IRLAB at SEK5.2bn or SEK101/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

205.6

97.6

1.89

0.0

N/A

N/A

12/22e

39.7

(98.6)

(1.90)

0.0

N/A

N/A

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

Pirepemat Phase IIb trial initiation before year end

Pirepemat is a first-in-class oral small molecule being developed for the treatment of postural dysfunction (impaired balance) and falls in PD (PD-Falls). These are largely untapped markets and represent a significant burden on healthcare systems. Subject to clearance from regulators, a Phase IIb study in PD-Falls is expected to start before end-2021. The trial will enrol c 150 patients and investigate pirepemat as an add-on therapy. We expect top-line data could be available by end-2022, after which IRLAB will look at partnering options.

ISP discovery platform will continue to beat

At the heart of IRLAB is its Integrative Screening Process (ISP) platform, which enabled the discovery of mesdopetam and pirepemat. With resources freed up following the Ipsen deal, IRLAB can continue to focus on its core competency of research and development utilising this ISP platform, potentially expanding its discovery efforts beyond PD into a range of other neurological and psychiatric conditions. The most advanced preclinical asset, IRL942, is being developed for cognitive dysfunction and is currently undergoing the requisite regulatory studies for Phase I development, which could potentially start in 2022. We do not currently include the early-stage, preclinical portfolio or the ISP platform technology in our valuation, but highlight these could provide additional upside to our base-case.

Valuation: SEK5.2bn or SEK101/share

Our valuation is virtually unchanged at SEK5.2bn or SEK101/share (SEK5.1bn or SEK99/share previously). We have updated for reported net cash, FX and rolled forward our model in time. Mesdopetam remains the largest value contributor at c SEK62/share for its potential use in PD-LIDs and PD-Psychosis; pirepemat’s potential use in PD-Falls contributes c SEK31/share.

Valuation and financials

Our risk-adjusted net present value (NPV) model is virtually unchanged and we value IRLAB at SEK5.2bn or SEK101/share (SEK5.1bn or SEK99/share previously). We have rolled forward our model, and updated for FX and reported net cash. We forecast c $1.9bn peak sales for mesdopetam for its potential use in PD-LIDs and PD-Psychosis, contributing SEK46.5/share and SEK15.1/share respectively. We forecast c $1bn peak sales for pirepemat in PD-Falls for SEK31.3/share. We do not currently include preclinical assets (IRL942 and IRL1009), early-stage programmes (P003) or its proprietary ISP platform technology but see potential for uplift as assets move into clinical development.

Exhibit 1: 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

4,775.4

50%

2,407.0

46.5

Mesdopetam

PD-Psychosis

2027

688

2,508.7

30%

783.5

15.1

Pirepemat

PD-Falls

2027

1,036

5,540.8

30%

1,617.6

31.3

Net cash at 30 Sep 2021

 

 

431.2

100%

431.2

8.3

Valuation

 

 

13,256.0

5,239.3

101.2

Source: Edison Investment Research

The SEK240m ($28m) upfront payment from Ipsen has bolstered IRLAB’s balance sheet and provided it with a strong cash runway. SEK185m was fully recognised on receipt, with the remaining SEK55m deferred to reflect IRLAB’s responsibility to complete the ongoing Phase IIb/III, due to finish in 2022. In Q321, IRLAB’s reported revenues were SEK195.6m, comprised of the initial amount recognised from the upfront payment, SEK5.4m of deferred revenue and SEK5.0m relating to other services performed for Ipsen. We expect the remaining c SEK50m of deferred revenue will be recognised by end-2022 on a straight-line basis and have updated our forecasts to reflect this.

Reported cash and cash equivalents were SEK431.2m at 30 September 2021, and the company remains debt free. Operating expenses were artificially higher in Q321 at SEK74.1m (Q221: SEK26.5m) due to a one-off, non-cash cost of SEK39.1m resulting from the reversal of the booked value for mesdopetam and reflecting the technology transfer to Ipsen. R&D costs associated with mesdeptam’s development will begin winding up over the near term with completion of the ongoing Phase IIb/III in 2022, but we expect these will largely be offset by the planned Phase IIb trial for pirepemat and progression of preclinical assets into the clinic. Based on foreseeable R&D plans, we forecast a cash runway until at least 2024 and highlight subsequent milestone payments from Ipsen (up to $335m due) could potentially alleviate additional financing needs.

.

Exhibit 2: Financial summary

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

 

 

2018

2019

2020

2021e

2022e

PROFIT & LOSS

 

 

 

 

 

 

 

Total revenues

 

 

196

448

404

205,620

39,701

Cost of sales

 

 

0

0

0

0

0

Gross profit

 

 

196

448

404

205,620

39,701

Total operating expenses

 

 

(74,093)

(96,296)

(91,862)

(146,945)

(138,066)

Research and development expenses

 

 

(58,927)

(79,381)

(75,989)

(89,746)

(114,746)

EBITDA (reported)

 

 

(72,565)

(92,916)

(89,202)

62,023

(94,625)

Operating income (reported)

 

 

(73,897)

(95,848)

(91,458)

58,674

(98,365)

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)

58,229

(98,811)

Profit before tax (normalised)

 

 

(73,359)

(95,121)

(91,394)

97,579

(98,552)

Income tax expense (includes exceptionals)

 

 

0

0

0

0

0

Net income (reported)

 

 

(74,099)

(96,120)

(91,653)

58,229

(98,811)

Net income (normalised)

 

 

(73,359)

(95,121)

(91,394)

97,579

(98,552)

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)

1.13

(1.91)

Adjusted EPS (SEK)

 

 

(1.92)

(2.34)

(1.92)

1.89

(1.90)

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

42,660

42,401

Other non-current assets

 

 

0

0

0

0

0

Total non-current assets

 

 

84,466

88,189

86,328

52,942

52,696

Cash and equivalents

 

 

134,442

110,527

277,009

414,549

277,895

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

421,281

284,627

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

406,108

307,297

CASH FLOW STATEMENT

 

 

 

 

 

 

 

Operating income

 

 

(73,897)

(95,848)

(91,458)

58,674

(98,365)

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)

38,645

(446)

Movements in working capital

 

 

1,977

1,959

183

39,926

(38,089)

Cash from operations (CFO)

 

 

(70,790)

(91,201)

(89,214)

140,594

(133,160)

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

414,549

Increase/(decrease) in cash and equivalents

 

 

59,733

(23,915)

166,482

137,540

(136,654)

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

414,549

277,895

Net (debt)/cash

 

 

134,442

110,527

277,009

414,549

277,895

Source: Company accounts, Edison Investment Research


General disclaimer and copyright

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 £60,000 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.

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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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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

1185 Avenue of the Americas

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United States of America

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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

General disclaimer and copyright

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 £60,000 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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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

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

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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