Three active trials with two more on the horizon

Oncology Venture 4 December 2018 Update
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Oncology Venture

Three active trials with two more on the horizon

Financial update

Pharma & biotech

 

4 December 2018

Price

SEK6.88

Market cap

SEK346m

US$0.16/DKK, US$0.11/SEK

Net debt (SEKm) at 30 September 2018

0.8

Shares in issue

50.3m

Free float

82%

Code

OV.ST

Primary exchange

NASDAQ First North Stockholm

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(29.7)

(29.2)

(42.9)

Rel (local)

(28.2)

(22.8)

(42.0)

52-week high/low

SEK15.0

SEK6.9

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. To date, the company has in-licensed six drug candidates with the intent to conduct focused Phase II clinical trials and then out-license the revamped drugs.

Next events

Initiate 2X-121 Phase II in ovarian cancer

Q119

Phase II LiPlaCis trial top-line data

H119

Analysts

Nathaniel Calloway

+1 646 653 7036

Briana Warschun

+1 646 653 7031

 

Oncology Venture is a research client of Edison Investment Research Limited

Oncology Venture (OV) recently included the first patient in its irofulven Phase II trial in prostate cancer, marking its third currently active trial. OV is also planning to initiate its second 2X-121 Phase II trial in ovarian cancer at the beginning of next year. Moreover, the company recently submitted pre-IDE/IND paperwork to the US FDA as it is seeking approval for LiPLaCis via a single-arm pivotal study in ~100-200 patients. The recent debt deal of ~SEK200m should fund OV’s current clinical development.

Year end

Revenue (DKKm)

PBT* (DKKm)

EPS* (DKK)

DPS (DKK)

P/E (x)

Yield (%)

12/17

5.1

(31.0)

(1.27)

0.0

N/A

N/A

12/18e

3.2

(29.2)

(0.57)

0.0

N/A

N/A

12/19e

1.9

(205.8)

(3.82)

0.0

N/A

N/A

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

First patient included in irofulven Phase II trial

In October, OV announced that the first patient was included in its Phase II irofulven trial. OV is developing irofulven, a cytotoxic DNA binding agent for the treatment of prostate cancer utilising its drug response predictor (DRP) to select patients most likely to respond to treatment. The trial is expected to enrol 13-27 patients. OV hopes to see a response rate of ~20% in these patients; according to the company this should enable a marketing approval pathway.

2X-121 in breast and ovarian cancer

OV’s Phase II 2X-121 trial in breast cancer is ongoing. The company has stated that it plans to read out the first efficacy data as soon as patients have been enrolled long enough to demonstrate some response. However, an exact timeframe was not provided and will likely fall behind previous expectations (Q418). Moreover, OV is preparing to initiate a second 2X-121 Phase II trial in patients with ovarian cancer in Q119. As a reminder, 2X-121 is an orally bioavailable small molecule and a dual PARP-1/2 and TNKS-1/2 inhibitor.

Financing agreements in place to offset expenditure

We forecast significant capital requirements to bring all six anti-cancer programmes to Phase III out-licensing (DKK388m). OV recently announced an agreement with the European High Growth Opportunities Securitization Fund for up to SEK200m for convertible notes, and potentially an additional SEK100m if all warrants are exercised. The funding may be drawn down through the issuance of 20 tranches at SEK10m.

Valuation: SEK1,100.5m or SEK21.87 per share

We have slightly increased our valuation of OV to SEK1,100.5m or SEK21.87 per share (SEK20.5 per diluted share) from SEK1,078m or SEK21.44 per share, primarily driven by rolling forward our NPVs and in part offset by lower net cash at the corporate level. We expect to make further adjustments to our valuation of OV following feedback from the company’s six clinical programmes.

Multiple trials moving forward

OV recently reported its Q318 results, which included its consolidated financials post-merger and a brief update on some near-term clinical events. On 18 October 2018, OV announced that the first patient with prostate cancer was included in its Phase II irofulven clinical trial. OV’s unique irofulven DRP is first being used to screen ~300 patients with metastatic castration- and docetaxel-resistant prostate cancer (mCDRPC) to identify those most likely to respond to treatment. According to the company, interim data obtained from the first eight patients enrolled in the study (ie selected by the DRP algorithm to be sensitive to irofulven) will determine whether the company continues to develop this asset. If these select patients experience a particular response, the remainder of the Phase II trial will include 13-27 patients with the highest likelihood to respond to irofulven. OV expects to see a 20% or higher response rate to irofulven in these patients. This is roughly equal to or greater than current treatment options (ie hormonal therapy, chemotherapy, typically taxanes or CYP-17 inhibitors, the combination of chemotherapy and hormonal therapy, or immunotherapy) yielding a tumour response rate of 22.6% and corresponding to median progression-free survival (PFS) and overall survival (OS) of 7.6 months and 15.1 months, respectively.1

Akaza, H., et al. (2018). Metastatic Castration-Resistant Prostate Cancer Previously Treated With Docetaxel-Based Chemotherapy: Treatment Patterns From the PROXIMA Prospective Registry. Journal of Global Oncology,(4), 1-12.

OV also announced that it plans to initiate a second Phase II 2X-121 in patients with ovarian cancer in Q119 in the US and in Germany. OV previously received IDE and IND approvals for 2X-121 DRP technology and treatment protocol. As a reminder, 2X-121 is an orally bioavailable small molecule and a dual PARP-1/2 and TNKS-1/2 inhibitor. PARP enzymes repair single-strand DNA breaks and since BRCA1/2 mutated cells are incapable of double-strand break repair, PARP inhibition is particularly lethal and causes genomic instability and cell death. OV’s first Phase II 2X-121 open-label trial in patients with metastatic breast cancer (mBC) was initiated in June 2018 and the primary endpoint is overall tumour response according to RECIST at more than 24 weeks post-treatment. The company has stated that it plans to read out the first efficacy data as soon as patients have been enrolled long enough to demonstrate some response. We expect the results of this trial to elucidate whether the DRP can prospectively identify 2X-121 mBC responders.

The company recently submitted a pre-IDE/IND dossier to the US FDA to discuss the filing of an application for LiPlaCis in mBC clinical trials in the US. OV’s goal is to seek approval for LiPlaCis by a single-arm pivotal study in ~100-200 patients whereas the ongoing Phase II trial may serve as a bridge. Recruitment timelines will be updated following feedback from the FDA.

Valuation

We have increased our valuation of OV to SEK1,101m or SEK21.87 per share (SEK20.5 per diluted share) from SEK1,078m or SEK21.44 per share. This change is primarily driven by rolling forward our NPVs and is in part offset by lower net cash at the corporate level. According to the company, its three highest priority assets include LiPlaCis, 2X-121 and dovitinib and based on our estimates, we value these assets at SEK5.20, SEK3.09 and SEK5.10 per share, respectively. We expect to make further adjustments to our valuation of OV following feedback from the company’s six clinical programmes.

Exhibit 1: Valuation of OV

Development programme

Indication

Clinical stage

Prob. of success

Launch year

Launch pricing

Peak sales ($m)

rNPV (SEKm)

% owned by OV

OV rNPV (SEKm)

LiPlaCis

Metastatic breast cancer and metastatic prostate cancer

Phase II

25%

2023

$91,000

259.8

670.7

39%

261.6

Irofulven

Metastatic prostate cancer

Phase Ib/II

20%

2023

$129,000

52.6

60.1

100%

60.1

APO010

Multiple myeloma

Phase Ib/II

20%

2023

$143,000

80.9

98.1

100%

98.1

2X-121

Metastatic breast cancer and ovarian cancer

Phase II

25%

2023

$132,000

116.4

168.9

92%

155.4

2X-111

Glioblastoma and brain metastases from breast cancer

Phase Ib/II

25%

2024

$169,000

212.6

293.0

92%

269.6

Dovitinib

Renal and liver cancer

Phase Ib/II

35%

2024

$145,000

152.0

466.4

55%

256.5

Total

 

 

 

 

 

 

 

 

1,101.3

Net debt (at 30 September 2018) (SEKm)

(0.8)

Total firm value (SEKm)

1,100.5

Total shares (m)

50.3

Value per basic share (SEK)

21.87

Warrants and options (m)

3.3

Fully diluted shares in issue

53.6

Fully diluted value per share

20.5

Source: Edison Investment Research

Financials

OV recently reported its Q318 results, presenting the financials of the merged entity for the first time. Note that the historic numbers are not fully consolidated. The company recorded revenue of DKK104,000 for the quarter ending 30 September 2018, which is down significantly from the same period the previous year (DKK1.2m in Q317) and primarily attributable to the changed group structure. We have therefore decreased our revenue forecasts for FY18 and FY19 to reflect these changes and note that the revenue generated is not material to the company’s operations at this time. OV ended the quarter with DKK8.7m in cash and DKK9.3m in debt. The company reported a loss of DKK4.0m for the quarter, which we assume is primarily attributable to R&D. We have decreased our PBT loss forecasts for FY18 to DKK29.2m (from DKK39.6m), primarily driven by delaying the initiation of the LiPlaCis pivotal trial from 2018 to 2019 and the fact that the APO010 trial has not yet included any patients. We expect OV’s R&D expenditure to increase next year along with the initiation of the irofulven trial, initiation of the second 2X-121 Phase II trial in patients with ovarian cancer, and potentially the single-arm pivotal LiPlaCis study following FDA feedback. Our FY19e PBT loss increases marginally to SEK206m.

Our financial requirements for OV remain unchanged; however, we expect these to be significantly offset by the recent financing agreement with the European High Growth Opportunities Securitization Fund (EHGOSF) advised by Alpha Blue Ocean announced on 30 November 2018. According to the agreement, OV may receive up to SEK200m in convertible notes and warrants over the next 24 months bearing 2% fixed interest, and potentially an additional SEK100m if all warrants are exercised. The pricing of the convertible notes and warrants will be determined once they are drawn (95% and 150% of the average of the last 15 trading days, respectively) and there is 50% warrant coverage in each tranche. The funding may be drawn down through the issuance of 20 tranches at SEK10m (note, the size of tranche can be decreased to SEK7.5m) and EHGOSF may ask for five of these. These capital requirements may be further offset by DKK20m remaining available to the company attributed to the flexible loan facility established with Trention.

Exhibit 2: Financial summary

DKK'000s

2017

2018e

2019e

Year end 31 December

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

5,145

3,192

1,876

Cost of Sales

0

0

0

Gross Profit

5,145

3,192

1,876

EBITDA

 

 

(23,848)

(38,438)

(204,616)

Operating Profit (before amort. and except.)

 

(23,848)

(37,589)

(203,767)

Intangible Amortisation

0

0

0

Exceptionals/Other

0

0

0

Operating Profit

(23,848)

(37,589)

(203,767)

Net Interest

(7,132)

8,358

(2,015)

Other (change in fair value of warrants)

0

0

0

Profit Before Tax (norm)

 

 

(30,980)

(29,231)

(205,782)

Profit Before Tax (IFRS)

 

 

(30,980)

(29,231)

(205,782)

Tax

590

557

3,914

Deferred tax

0

0

0

Profit After Tax (norm)

(30,390)

(28,674)

(201,868)

Profit After Tax (IFRS)

(30,390)

(28,674)

(201,868)

Average Number of Shares Outstanding (m)

24.3

50.3

52.8

EPS - normalised (DKK)

 

 

(1.27)

(0.57)

(3.82)

EPS - IFRS (DKK)

 

 

(1.25)

(0.57)

(3.82)

Dividend per share (ore)

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

4,883

205,109

205,109

Intangible Assets

135

205,149

205,149

Tangible Assets

4,424

(40)

(40)

Other

324

0

0

Current Assets

 

 

8,102

29,463

63,138

Stocks

1,048

805

805

Debtors

3,048

5,758

20,222

Cash

3,326

5,797

21,093

Other

680

17,103

21,018

Current Liabilities

 

 

(10,540)

(6,019)

(29,314)

Creditors

(10,540)

(6,019)

(29,314)

Short term borrowings

0

0

0

Long Term Liabilities

 

 

0

(81,693)

(293,693)

Long term borrowings

0

(49,302)

(261,302)

Other long term liabilities

0

(32,391)

(32,391)

Net Assets

 

 

2,445

146,860

(54,760)

CASH FLOW

Operating Cash Flow

 

 

(10,702)

(58,158)

(195,855)

Net Interest

(170)

(252)

0

Tax

2,527

69

0

Capex

0

0

(849)

Acquisitions/disposals

(784)

14,457

0

Financing

7,478

177

0

Dividends

0

0

0

Other

(308)

(3,197)

0

Net Cash Flow

(1,959)

(46,904)

(196,704)

Opening net debt/(cash)

 

 

(5,488)

(3,326)

43,505

HP finance leases initiated

0

0

0

Exchange rate movements

(203)

(73)

0

Other

0

146

0

Closing net debt/(cash)

 

 

(3,326)

43,505

240,209

Source: Company 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 Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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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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Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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Frankfurt +49 (0)69 78 8076 960

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London +44 (0)20 3077 5700

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New York +1 646 653 7026

295 Madison Avenue, 18th Floor

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Sydney +61 (0)2 8249 8342

Level 12, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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 Edison analyst 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 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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

Neither this Communication nor any copy (physical or electronic) of it may be (i) taken or transmitted into the United States of America, (ii) distributed, directly or indirectly, in the United States of America or to any US person (within the meaning of regulations Regulation S made under the US Securities Act 1933, as amended), (iii) taken or transmitted into or distributed in Canada, Australia, the Republic of Ireland or the Republic of South Africa or to any resident thereof, except in compliance with applicable securities laws, (iv) taken or transmitted into or distributed in Japan or to any resident thereof for the purpose of solicitation or subscription or offer for sale of any securities or in the context where the distribution thereof may be construed as such solicitation or offer, or (v) or taken or transmitted into any EEA state other than the United Kingdom. Any failure to comply with these restrictions may constitute a violation of the securities laws or the laws of any such jurisdiction. The distribution of this Communication in or into other jurisdictions may be restricted by law and the persons into whose possession this document comes should inform themselves about, and observe, any such restrictions.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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