Selvita — SEL120 to enter clinical development in 2019

Selvita, founded in 2007, has become one of the largest independent drug discovery companies in Europe with a broad R&D pipeline of novel small molecules for oncology. The company is listed on the Warsaw Stock Exchange Main Market and operates in three business segments: Innovation, Services and Bioinformatics. Innovation is responsible for the progress of Selvita’s R&D pipeline, which can be broadly described by three platforms: targeted therapies, cancer metabolism and immunometabolism, and immunology and immunooncology. The remaining two segments provide drug discovery (contract chemistry, biology) and bioinformatics services (Ardigen also has an internal R&D programme). Selvita employs more than 550 staff and operates out of research facilities in Krakow and Poznan, Poland. Recently, Selvita announced 10-year expansion plans, which could substantially expand its laboratory and office space and double the employee count from the current level. Selvita continues executing its multi-year strategy to substantially boost R&D research following a successful share issue in March 2018, which raised PLN134m.

Our valuation is slightly lower at PLN1.24bn or PLN77.6/share vs PLN1.30bn or PLN81.2/share previously. We maintain our valuation approach and the assumptions listed in Exhibit 11 in accordance with Selvita’s updated R&D strategy. We use risk-adjusted NPV models with a discount rate of 12.5% for R&D projects in various stages. Separately, we use DCF-based calculations with a discount rate of 10% to value the core drug discovery services business and research collaborations.

Selvita reports in three business segments: Services, Innovation (income from the SEL24 out-licensing was included in this segment) and Bioinformatics. Selvita’s commercial revenues include external income from customers allocated to all three segments, while subsidies are allocated to each of the segments. In 9M18, commercial income was PLN56.6m (up 17%, adjusted for the SEL24 out-licensing) and subsidies were PLN20.1m (up 73% y-o-y). Operating profit of -PLN4.7m was somewhat lower than we expected, and we have therefore revised our operating profit estimates from -PLN6.6m to -PLN16.3m for 2018 and from -PLN4.6m to -PLN15.8m for 2019. Selvita is in the capacity expansion phase, which we have included in our model previously, and the current revision affected mainly near-term estimates, with minimal impact on long-term operating margin, which is now 32% (35% previously). Selvita reported cash of PLN153m at end-Q318, which includes proceeds of PLN134m gross from the share issue in Q118. It had PLN4.4m in debt and, according to our model, we do not currently envisage the need for further fund-raises.

Selvita operates a hybrid business model, with a largely de-risked research services business and higher-risk drug development in its innovation platform. Contract research is a highly competitive and increasingly global field, which may put pressure on this side of its business. Since our initiation in November 2014, assets from the innovations pipeline have progressed to the clinical stage, where the results can cause greater volatility in the share price. We have included estimates for deal metrics that Selvita could secure for SEL24 and SEL120, but these are indicative only, so the actual terms secured could differ materially.

Selvita’s Innovation segment can be described broadly as three discovery platforms focused on small molecules: targeted therapeutics, cancer metabolism and immunometabolism, and immunooncology. The company also expects to build biologic drug discovery capabilities in addition to its existing expertise in small molecules. Currently Selvita continues executing its multi-year strategy following a successful share issue in March 2018 that raised PLN134m. Additional funds from sales, subsidies and loans are expected to form a total budget of c PLN390m, which will help to accelerate the R&D strategy and expansion of other business areas over the next few years.

Selvita’s targeted therapeutics platform can be broadly divided into two types of projects: kinase inhibitors and synthetic lethality projects. The kinase inhibitor platform includes:

The other strategic area of focus in this platform is synthetic lethality. One of the disclosed targets is BRM/SMARCA2. A preclinical candidate BRM/SMARCA2 inhibitor is expected to be identified in 2020.

The most advanced asset, SEL24, or MEN1703 under Menarini, a dual inhibitor of PIM and FLT3 kinases, is undergoing a Phase I/II trial in relapsed/refractory AML patients, with results expected in 2019. The asset was out-licensed in March 2017 to Berlin-Chemie (part of the Menarini Group) for an upfront payment of €4.8m, a total of €89.1m in potential milestone payments, and non-specified single- to low double-digit royalties and cost sharing. Initially, Selvita continued to manage the Phase I/II trial, but the handover process was completed in June 2018, and the company’s resources and capacity can therefore now be dedicated to other projects in the pipeline. The Phase I/II study is an open-label, dose-escalation study. Part 1 of the trial aimed to establish the recommended dose, which is being evaluated in Part 2 for safety, but also for initial efficacy in several cohorts.

SEL24: Unique mechanism of action

SEL24 specifically inhibits PIM- and FLT3-related pathways and exhibits broader anti-tumour activity in AML compared to selective FLT3-ITD or PIM inhibitors. FMS-like tyrosine kinase receptor-3 gene internal tandem duplication (FLT3-ITD mutation) is one of the most common genetic lesions in AML (around 25% of newly diagnosed AML cases) and, although its inhibition has been shown to be effective in clinical trials, resistance to treatment develops rapidly. PIM kinases are major oncogenes and downstream targets with expression triggered by FLT3-induced STAT5 activity. The expression of PIM kinases amplifies FLT3’s oncogenic potential in addition to other pro-oncogenic signalling, thus presenting a rationale for a dual FLT3/PIM inhibition. Previously, third-party data have shown PIM expression increases cancer resistance to FLT3-ITD inhibitors, while PIM inhibition would restore cancer sensitivity to FLT3 inhibitors. Selvita’s SEL24, a first-in-class dual inhibitor of PIM and FLT3 kinases, can simultaneously inhibit both kinases and provides a novel treatment strategy.

The rationale of SEL24 mechanism of action has been tested by Selvita in various in vitro and in vivo studies comparing it to control or active treatment with standalone PIM (AZD1208, AstraZeneca) or FLT3-ITD (AC220/quizartinib, Daiichi Sankyo) inhibitors and recently published in an article in Oncotarget:

AML still an unmet need; changing treatment paradigm

AML normally originates in the bone marrow (where new blood cells are made), but often quickly moves into the blood, resulting in uncontrolled growth and accumulation of malignant white blood cells, which fail to function normally and interfere with the production of normal blood cells. AML is the most common type of acute leukaemia in adults and affects nearly 40,000 patients in the EU and US (new cases per year). The five-year survival rate for all AML patients, irrespective of age or genetic status, is around 23%. The standard-of-care treatment for AML has not changed significantly for many decades, primarily based on chemotherapy (cytarabine with anthracycline or mitoxantrone) and followed by a stem cell transplant where appropriate. The goal of treatment is to reduce the blasts in the bone marrow to below 5% and return the blood cell counts to normal levels. A bone marrow transplant is generally recognised as the only curative treatment option, but is not always appropriate.

Rydapt (midostaurin, Novartis) was the first approved drug that specifically targets FLT3 for the treatment of adults with newly diagnosed FLT3-ITD AML in combination with standard of care chemotherapy. This was the first large Phase III RATIFY trial to confirm a therapeutic benefit of FLT-ITD inhibition in AML patients. Overall survival was increased from approximately two years to just over six years and there was a 23% reduction in risk of death compared to the placebo arm (hazard ratio 0.77, p=0.0074). The FDA granted breakthrough therapy designation and a priority review into midostaurin’s NDA application and ultimately approved in April 2017. Consensus sales forecast Rydapt sales of $374m in 2024 (EvaluatePharma).

On 28 November 2018, the FDA approved gilteritinib (Xospata, Astellas) as monotherapy for adults with FLT3-positive AML in a relapsed or refractory setting. Approval was based on results of the Phase III ADMIRAL trial. Treatment with gilteritinib resulted in complete remissions (CRs), or CRs with partial haematologic recovery in 21% of patients (95% CI 14.5%–28.8%). Consensus forecast Xospata sales of $451m in 2024.

The latest significant achievement in the FLT3 inhibitor development area was Daiichi Sankyo’s results presentation from its Phase III QuANTUM-R study at the European Hematology Association (EHA), on 14-17 June in Stockholm, Sweden. The trial tested quizartinib as a salvage therapy in patients with relapsed/refractory AML with FLT3-ITD mutations after first-line treatment with or without haematopoietic stem cell transplantation. The results demonstrated that quizartinib significantly prolonged overall survival (OS) compared to standard-of-care salvage chemotherapy (27% versus 20% respectively, at week 52). The FDA granted priority review to quizartinib. Consensus sales forecast Rydapt sales of $374m in 2024 (still in the rapid growth phase).

Outside the FLT3 inhibitor space, the FDA approved two other novel drugs – glasdegib (Daurismo, Pfizer) in November 2018 and venetoclax (Venclexta, AbbVie/Roche). Daurismo, a hedgehog pathway inhibitor, was approved for use in combination with low-dose cytarabine for newly diagnosed, frail AML patients (aged 75 years or older and ineligible for intensive chemotherapy). Venclexta, a BCL-2 inhibitor, was approved for a similar group of newly-diagnosed, frail AML patients in combination with azacitidine or decitabine or low-dose cytarabine. Venclexta has received breakthrough designation from the FDA. While both novel drugs add to treatment options for AML, they target a specific group of patients, who are ineligible for more aggressive therapies. Even with this restriction, the consensus sales estimates for Daurismo are at $413m and at $812m for Venclexta in AML by 2024.

SEL120

SEL120 is a first-in-class selective CDK8 inhibitor. Depending on subtypes, cyclin-dependent kinases (CDKs) play varied roles in the control of cell cycle, proliferation and mRNA transcription. Specifically, CDK8 is uniquely differentiated and is a part of a multi-protein complex that regulates gene expression. So far, preclinical studies point to potential efficacy in haematological malignancies, which should be further explored in Phase I. Preclinical efficacy has also been established in solid tumours, such as colorectal cancer or triple-negative breast cancer, and in combination therapies with immunooncology products, which are all potential indications for expansion in later trials. Preparations for the clinical development of SEL120 are ongoing and Selvita plans to file an IND application in Q119, with a Phase I trial following subsequently.

SEL120 development supported by Leukemia & Lymphoma Society

In August 2017, Selvita announced a partnership agreement with the Leukemia & Lymphoma Society (LLS) to co-fund further preclinical development of SEL120 for AML patients. The rationale for this indication is that SEL120’s unique mechanism of action does not overlap with existing therapies and may allow the development of synergistic combination treatments. According to the deal terms, LLS will provide up to $3.25m in funding over the next four years. This should allow SEL120 to progress though IND-enabling studies through to Phase I in AML. Founded in 1949, LLS is headquartered in the US and has invested over $1bn in various projects so far.

CDK8 inhibitor mechanism of action

This year Selvita presented new preclinical data at multiple conferences, while previous data have been discussed in our past outlook reports. The results of Selvita’s collaboration with Lund University were presented during the annual American Society of Hematology (ASH) meeting in December 2018, one of the highest-profile research conferences in haematology-oncology. The presentation included in vivo results from murine AML model and human patient-derived xenograft (PDX) AML model. In the first instant, the treatment of leukemic mice with SEL120 resulted in reduced leukemia burden in bone marrow and blood. In the PDX model SEL120 completely eliminated circulating primitive CD45+/CD34+ leukemic cells in comparison to control animals (Exhibit 3A). Fewer CD34+ cells were observed in bone marrow in SEL120 treated group than control (Exhibit 3B) and spleen weight was also significantly lower in SEL120 group (spleen is enlarged in AML) (Exhibit 3C). These in vivo results demonstrate strong anti-leukaemic activity.

New preclinical data was also presented at the EORTC-NCI-AACR Molecular Targets and Cancer Therapeutics Symposium, 13–16 November 2018, Dublin, Ireland. The presentation included an overview of the recent preclinical data accumulated with SEL120 in both AML and acute lymphoblastic leukaemia (ALL) as a standalone therapy or in combinations. Some of the highlights include:

Selvita will continue testing SEL120 in preclinical proof of concept in vivo models to better inform clinical efficacy trials with humans. In plans are tests whether SEL120 treatment extends survival of mice with AML in syngeneic and patient-derived xenograft models. One of the more notable news in the CDK8 inhibitor area was Merck & Co licensing agreement for a selective CDK8/CDK19 inhibitor from Harvard University in March 2016. The deal included an upfront payment of $20m and tiered royalties, which was the largest licence fee for technology developed at the university. The agreement involved compounds derived from a natural compound, cortistatin A, and recently published articles showing anti-leukaemic in vitro and in vivo efficacy, which adds to Selvita’s preclinical data.

Primary indication for synthetic lethality projects are cancers bearing recurrent mutations in the SWI/SNF complex. The so called switch sucrose nonfermentable (SWI/SNF) complex is a large complex of proteins involved in chromatin (compact ‘strand’ of the DNA) remodelling.1 SMARCA2 (BRM) and SMARCA4 (BRG1) are two catalytic subunits essential for the function of the complex. An increasing number of cancers have been found to have inactivating mutations in the SMARCA4/ SMARCA2 genes. In malignant cells with the mutated SMARCA4 gene, non-mutated SMARCA2 becomes essential.2 Therefore the inhibition of SMARCA2 causes cell death if there is an oncogenic mutation in the SMARCA4 gene. This concept of a ‘biological genetic flaw’ complemented by an intervention with a drug, which results in cell death, is known as synthetic lethality. This approach is very specific and potentially offers better safety profile.

Selvita is developing a first-in-class, selective SMARCA2 small molecule inhibitor, has established in vitro proof-of-concept, has identified hit compounds and is currently in a hit-to lead optimisation process. The company believes that the advantage of its SMARCA2 inhibitor programme is that it targets ATPase domain of SMARCA2, as opposed to bromodomain, which is the target of other SMARCA2 inhibitors. For example, both bromodomain-targeting agents from Pfizer (PFI-3) and from Genentech failed to inhibit cell growth in vitro studies.3

When it comes to market opportunity, Selvita has indicated that the non-small cell lung cancer (NSCLC) patient population could be the first clearly defined target as SMARCA4 is mutated in around 6-8% of cases. This would correspond to more than 10,000 new patients in the US alone. Other solid tumours with inactivated SMARCA4 have also been identified. There is also the likelihood that SMARCA2 inhibition would show efficacy in tumours with mutations in other proteins from the SWI/SNF complex, which is 20% of all tumours, thus significantly expanding the market potential. In NSCLC the top 10 drugs, which include Keytruda (pembrolizumab, Merck & Co), Opdivo (nivolumab, Bristol-Myers Squibb) and Avastin (bevacizumab, Roche) among others, are expected by the consensus to bring in sales of $21.6bn in 2022. The significant upside is, however, in other indications as discussed.

The cancer metabolism and immunometabolism platform focuses on deregulated cancer cell metabolism due to oncogenic tumour mutations or the effect of small molecule metabolites on tumour microenvironment. Major disclosed targets from this platform are SHMT2 (serine catabolism) and A2A/A2B, CD73/CD39 (both with a role in adenosine immunosuppression). Selvita also has long-standing drug discovery collaboration with Merck KGaA within this platform.

Natural molecule adenosine is a key element in immune regulation and many cancers have the ability to accumulate it, which allows them to escape detection by the immune system. Antagonising adenosine receptors (A2A/A2B) or inhibiting the enzymes of the adenosine synthesis pathway (CD39/CD73, another project in Selvita’s portfolio) was shown to restore the adenosine-suppressed anti-tumour response of the immune system. Selvita has discovered novel A2A/A2B receptor antagonists with activity in picomolar concentrations, which makes them the most active compound known currently, according to the company. With its Q318 update Selvita indicated that pilot in vivo studies had been completed (data yet to be published), demonstrating that its A2A/A2B antagonist inhibited tumour growth in a dose-dependent manner and increased infiltration of immune cells (eg CD8+ T-cells). Earlier projects in this area include inhibitors of enzymes of extracellular adenosine synthesis pathway (CD39 and CD73).

While this type of technology is still mostly in early clinical development, over the past three years there have been multiple deals in the industry with values reaching $500m as large pharma in-license assets targeting this pathway. Earlier in 2018 Arcus Biosciences, a US-based biotech company, underwent a successful IPO, raising $120m. The company is running Phase I/II trials with its lead drug candidates AB928, a dual adenosine receptor antagonist, and AB122, a PD-1 antibody, and has an option agreement with Taiho for regional rights in Asia (excluding China), according to which Arcus will receive $35m over three years and could get $275m for each drug programme that Taiho in-licenses. Further news in this area came from a private Belgian biotech iTeos Therapeutics (A2A antagonist), which raised €75m from a consortium of investors in June 2018.

Selvita’s asset (SEL330) stands out, in our view, because of its dual A2A/A2B inhibition activity, while other technologies in the area mainly are selective A2A inhibitors. Selvita believes the relevant target populations could be broad, with the immunosuppressive environment prevalent in around 50% of all cancers. There is also a strong rationale for synergistic potential with checkpoint inhibitors, therefore Selvita is conducting various preclinical studies to establish which combinations would be optimal for the clinical trials. Selvita’s poster presentations at the AACR meeting in April and at the Society for Immunotherapy of Cancer (SITC) meeting in November 2018 included data describing the discovery process and some in vivo data. Main conclusions include:

Over-activation of the serine synthesis pathway and upregulation of Serine hydroxymethyltransferase (SHMT) makes cancer cells highly dependent on serine and has been described in over 20% of solid tumours. In cellular models, Selvita’s SHMT2 inhibitor SEL302 has shown specificity and efficacy at nanomolar levels. In the latest update together with Q318 results, the company indicated that the first promising in vivo proof-of-concept studies have been completed in oncological and non-oncological models. Research results were summarised during the recent poster presentations at the conference Mechanisms to Therapies: Innovations in Cancer Metabolism, 9–11 October 2018, Bilbao, Spain.

Serine hydroxymethyltransferase (SHMT) plays a key role in a so-called one-carbon pathway, a group of biochemical reactions involved in amino acid metabolism (Exhibit 7). SHMT catalyses the conversion of serine to glycine and also plays a role in the folate (vitamin B9) cycle. Selvita’s research focuses on the discovery of specific inhibitors of SHMT2, which is located in mitochondria (SHMT1 is found in cytoplasm). Over-activation of the serine synthesis pathway and upregulation of SHMT has been described in over 20% of solid tumours (eg breast, lung, colorectal cancers). Such cancer cells are highly dependent on serine.4 The target population for SHMT inhibition can be well defined by using oncogene c-Myc as a biomarker. c-Myc protein is a transcription factor involved in numerous cell process and c-Myc positive tumours have been correlated with poor prognosis.

As mentioned above, SHMT is also important in the folate cycle. Antagonists of folate metabolism or antifolates are an established chemotherapy in certain cancers. Folate antagonism disrupts cell division, DNA/RNA synthesis and protein synthesis. Pemetrexed (for non-small cell lung carcinoma, mesothelioma) and methotreaxate (for autoimmune conditions like rheumatoid arthritis and certain cancers) are two well established and effective antifolates. The main drawback with antifolates in cancer treatment, however, is the development of resistance. Therefore, Selvita sees potential synergism of SHMT inhibitor in combination with antifolates.

The immunooncology platform aims to provide novel immunotherapies mobilizing the immune system to attack tumours. This approach transforms ‘cold’ or resistant tumours into ‘hot’. The disclosed lead programme in this platform is STING pathway modulators. More recently, Selvita introduced a HPK1 kinase inhibitor project. HPK1 (MAP4K1) is one of the major proteins involved in the signalling cascade triggered by T-cell receptor (TCR) activation. Inhibition of HPK1 stimulates dendritic cells to antigen presentation and enhances the activation and proliferation of T-cells, which leads to an immune response directed against the cancerous cells.

The most advanced immunooncology project in this platform is STING (stimulator of interferon genes) pathway modulators. A STING receptor is a known mediator of the immune system, which when activated induces expression of type I interferon and other T-cell recruitment factors. This results in the activation of dendritic cells, which act as antigen presenting cells. The ultimate outcome is the specific immune response with ‘trained’ CD8+ T-cells attacking the cancer. The strategic opportunity for STING agonists could be patients not responding to checkpoint inhibitors (CPIs), but also there is potential for use in combination with CPIs. The strong rationale for combinations is based on the fact that CPIs act late in the immunity cycle (makes the tumour ‘visible’ to T-cells), while the STING pathway appears to prime the production of cancer-specific T-cells, so both technologies are potentially synergistic. Selvita identified a potentially first-in-class small molecule of the STING agonist, a direct protein binder. This unique structure and optimised ADME properties distinguish Selvita's compounds from the competitors that develop derivatives of nucleic acid which, due to their chemical nature, can mainly be used for inconvenient intratumoural injections. Selvita is optimising the lead series of molecules and has conducted initial in vivo proof-of-concept studies.

A project in the inflammation field, NLRP3 inflammasome inhibitors, was spun out to NodThera and seeded together with Epidarex Capital in 2016 (detailed overview). In June 2018, NodThera announced a £28m fund-raise from a consortium of investors co-led by Sofinnova Partners and 5AM Ventures with participation from Epidarex Capital and F-Prime Capital Partners. Selvita’s last reported ownership is 18.4% on a fully diluted basis. According to the recent newsflow, NodThera is now expanding its offices to Boston, MA and has hired an experienced CEO Adam Keeney, PhD. Dr Keeney has over 20 years’ experience in the pharmaceutical industry and joined NodThera from Sanofi Genzyme, where he served as global head of Sanofi Genzyme business development.

NodThera centres on NLRP3 inflammasome inhibitors, a first-in-class technology, based on the scientific programme originated and developed at Selvita since 2012. Inflammasomes have been identified as the molecular mechanism behind the activation cascade of interleukin (IL)-1. IL-1 is a family of pro-inflammatory cytokines that have been widely implicated in pain, inflammation and autoimmune conditions and more recently in cancer. Therefore, NodThera’s focus is currently rather broad as the asset is in a preclinical stage. This will be narrowed down once past the proof-of-concept clinical trials, for which the new funds should be sufficient, according to the company.

Since incorporation Selvita has seen rapid growth of its drug discovery business: 43% CAGR 2012-2016, while income in 2017 was boosted by the outlicensing of SEL24. We expect the Services business to continue on a high-growth revenue trajectory, but in our view the Innovation segment offers greater long-term potential upside, which could come from the development and licensing of a number of candidates from the diverse internal pipeline. Ardigen is recognized as a third business segment. The bioinformatics company was spun out in October 2015 (currently Selvita holds 52% of shares). The logic behind its spin out was to increase the range of services within the bioinformatics and IT solutions offering, but also to expand into new areas rapidly evolving with the global precision medicine trends. Ardigen now has stable existing business, which provides revenues and can explore expansion opportunities.

Going forward we find both macro trends and company specific characteristics as beneficial for Selvita to maintain the rapid organic growth. Main macro trends that support outsourcing in drug discovery include:

Selvita’s Services division operates out of a research facility in Krakow and Poznan, Poland. The division is split into two main units – Chemistry and Biology – each run as separate businesses within the group. Selvita’s client list for its services is extensive, ranging from big pharma, to generics, to biotech companies. A range of contract options are offered – fixed price, to FTE, to integrated – which generate increasing revenues, costs and complexity. Fixed price contracts normally involve fierce price competition from lower-cost Asian countries, while FTE contracts and integrated projects are more of a value proposition and compete with Western drug discovery services providers such as Evotec, Charles River Laboratories and Covance. In line with its strategy of moving away from fixed-priced contracts, Selvita has been increasing the percentage of FTE contracts signed. One of Selvita’s significant competitive edges is its lower cost base, while at the same time the country’s large population means that there should be enough MSc and PhD life sciences professionals to join the company during the expansion stage.

Selvita’s reported total 9M18 revenues of PLN77.2m (-4% y-o-y) were largely in line with our expectations. The slight decline y-o-y is a result of a large income recognised in Q117 after the company out-licensed SEL24 to Menarini Group. Selvita reports in three business segments: Services, Innovation (income from SEL24 was included in this segment) and Bioinformatics. Selvita’s commercial revenues include external income from customers allocated to all three segments, while subsidies are allocated to each of the segments. Total commercial 9M18 revenues, which exclude subsidies and the out-licensing upfront, were PLN56.6m (up 17% y-o-y) and subsidies were PLN20.1m (up 73% y-o-y).

We have made some modest revisions to our revenue estimates as shown in Exhibit 9 (overall 9M18 revenues were close to our expectations), with a small positive effect on our top-line forecasts for 2018. Operating profit of -PLN4.7m was below our expectations, but in line with Selvita guidance that the main focus following the successful fund-raise earlier in 2018 is creating value through R&D research, and R&D spending should therefore pick up. We have therefore revised our operating profit estimates from -PLN6.6m to -PLN16.3m for 2018 and from -PLN4.6m to -PLN15.8m for 2019. Selvita is in a capacity expansion phase, which we have included in our model previously, and the current revision affected mainly near-term estimates. One of the more notable cost drivers in 2019 will be the Phase I trial with SEL120, the results of which also represent a catalyst for the share price. Our projected long-term operating margin is c 32% (35% previously).

Selvita reported cash of PLN153m, which includes proceeds of PLN134m gross from the share issue in Q118. It had PLN4.4m in debt and, according to our model, we do not envisage the need for further fund-raises to run the existing R&D programmes we include in our model. Our financial forecasts do not include any subsequent milestone payments from Menarini Group.

Our valuation of Selvita is slightly lower at PLN1.24bn or PLN77.6/share versus PLN1.30bn or PLN81.2/share previously. The revision of the operating estimates resulted in a slightly lower DCF valuation, while rolling the model forward had a small positive effect on the rNPV values of the R&D projects. We maintain our valuation approach and assumptions listed in Exhibit 10 and discussed in detail in our last outlook report where we revised our R&D model in accordance with Selvita’s updated R&D plans. We use risk-adjusted NPV models with a discount rate of 12.5% for Selvita’s R&D projects in various stages. Separately, we use DCF-based calculations with a discount rate of 10% to value the core drug discovery services business and research collaborations.