Scandion Oncology — A defining year ahead for SCO-101

Scandion Oncology (OMX: SCOL)

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Research: Healthcare

Scandion Oncology — A defining year ahead for SCO-101

Scandion’s Q422 and FY22 results highlighted the significance of the upcoming year, with key clinical milestones expected for its lead asset SCO-101. The first of these comes in the form of top-line readouts from the Phase Ib PANTAX study in pancreatic cancer (PC), which is expected in H123. These will be closely followed by top-line results from part 3 of the Phase IIb CORIST study in metastatic colorectal cancer (mCRC), expected in Q323. Management has communicated that patient recruitment in each of these studies is continuing as planned, which, in our view, is a positive indicator that the trials are on track to deliver readouts against these timelines. At end-December 2022 Scandion had a net cash position of DKK77.6m, which management has guided will provide a cash runway into FY24. We have updated our estimates and rolled our model forward and now value Scandion at SEK238.2m or SEK5.8/share (versus SEK241.1m or SEK5.9/share previously).

Soo Romanoff

Written by

Soo Romanoff

Managing Director - Head of Content, Healthcare

Healthcare

Scandion Oncology

A defining year ahead for SCO-101

Pharma and biotech

24 February 2023

Price

SEK2.08

Market cap

SEK85m

SEK10.4/US$; SEK1.48/DKK

Net cash (DKKm) at end-December 2022

77.6

Shares in issue

40.7m

Free float

86%

Code

SCOL

Primary exchange

Nasdaq First North Growth Market

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(20.0)

1.4

(84.0)

Rel (local)

(19.8)

(3.8)

(83.7)

52-week high/low

SEK17.6

SEK1.9

Business description

Scandion Oncology is a biotechnology company focused on the development of add-on therapies to reverse chemotherapy resistance in oncology. The company’s lead asset, SCO-101, is in Phase II trials for mCRC and Phase Ib trials for pancreatic cancer.

Next events

PANTAX top-line data

H123

CORIST part 3 top-line data

Q323

Analysts

Soo Romanoff

+44 (0)20 3077 5700

Dr Adam McCarter

+44 (0)20 3077 5700

Nidhi Singh

+44 (0)20 3077 5700

Scandion Oncology is a research client of Edison Investment Research Limited

Scandion’s Q422 and FY22 results highlighted the significance of the upcoming year, with key clinical milestones expected for its lead asset SCO-101. The first of these comes in the form of top-line readouts from the Phase Ib PANTAX study in pancreatic cancer (PC), which is expected in H123. These will be closely followed by top-line results from part 3 of the Phase IIb CORIST study in metastatic colorectal cancer (mCRC), expected in Q323. Management has communicated that patient recruitment in each of these studies is continuing as planned, which, in our view, is a positive indicator that the trials are on track to deliver readouts against these timelines. At end-December 2022 Scandion had a net cash position of DKK77.6m, which management has guided will provide a cash runway into FY24. We have updated our estimates and rolled our model forward and now value Scandion at SEK238.2m or SEK5.8/share (versus SEK241.1m or SEK5.9/share previously).

Year end

Revenue
(DKKm)

PBT*
(DKKm)

EPS*
(DKK)

DPS
(DKK)

P/E
(x)

Yield
(%)

12/21

0.8

(57.2)

(1.61)

0.0

N/A

N/A

12/22

2.1

(82.2)

(1.88)

0.0

N/A

N/A

12/23e

0.6

(65.3)

(1.47)

0.0

N/A

N/A

12/24e

0.6

(69.4)

(1.57)

0.0

N/A

N/A

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

CORIST and PANTAX on track for readouts in FY23

FY23 is poised to be an important year for SCO-101 with readouts expected across Scandion’s two active clinical programs, the Phase Ib PANTAX trial and part 3 of the Phase IIb CORIST trial. Safety and tolerability are the key endpoints for PANTAX, which, following an extension to the trials dosing schedule, provide encouraging signs for the trial meeting its safety endpoints, in our view. Following the results of CORIST part 2, Scandion has pressed on with part 3, which aims to identify an optimised dosing schedule of SCO-101 and management believes it may offer improvements in efficacy over the protocol employed in part 2.

Cash runway into FY24

With the projected conclusion of the PANTAX study in H123 we expect R&D costs to decrease slightly in FY23; however, we anticipate the extent of the decrease will be dampened somewhat due to the ongoing CORIST study and the potential initiation of CORIST part 4. The company expects its net cash position of DKK77.6m at end-Q422 will fund it past clinical readouts in FY23 into FY24.

Valuation: SEK238.2m or SEK5.8 per share

We value Scandion at SEK238.2m or SEK5.8/share, based on a risk-adjusted NPV analysis using a 12.5% discount rate and net cash of SEK115.8m (DKK77.6). Our valuation has been adjusted by rolling our model forward four months, updating our FY23 and FY24 estimates and using a lower net cash position, but our underlying long-term assumptions remain unchanged.

SCO-101 remains in focus for FY23

Scandion continues to progress with the development of its lead clinical asset, SCO-101. SCO-101 is being investigated as an add-on therapy as a method of overcoming acquired chemotherapy resistance in mCRC and unresectable PC. The Phase IIb CORIST study in mCRC is investigating the effect of SCO-101 in tumours that have become resistant to treatment with FOLFIRI (folinic acid + fluorouracil + irinotecan), representing last-line therapy, while the Phase Ib PANTAX trial in PC is assessing SCO-101 in combination with nab-paclitaxel and gemcitabine (common first- and second-line therapies). Top-line results from part 3 of the CORIST study are expected in Q323, with top-line data from the PANTAX trial anticipated in H123, representing the most near-term potential catalysts for Scandion.

Exhibit 1: Development pipeline

CORIST part 2 makes way for part 3

As a reminder, the Phase IIb CORIST study is a multi-centre, open-label, dose-escalation study of SCO-101 in combination with FOLFIRI. CORIST is targeting last-line mCRC treatment, in which enrolled patients will have failed all prior chemotherapy due to resistance and are in the terminal stages of the disease. The study consists of four parts, of which part 1 and part 2 have concluded. CORIST part 1 was a dose-escalation (3+3) study to identify the maximum tolerated dose (MTD) of SCO-101, which was followed by part 2 to assess the efficacy of SCO-101 in combination with FOLFIRI in mCRC patients harbouring the wild-type RAS gene, Exhibit 2.

Exhibit 2: Phase IIb CORIST trial design

The most significant clinical news reported by Scandion in FY22 was the top-line results from CORIST part 2, in which the trial failed to reach the +30% tumour reduction threshold defined as its primary endpoint. The SCO-101/FOLFIRI combination did, however, show evidence of tumour reduction, with prolonged progression-free survival (PFS) and stable disease. While the results from CORIST part 2 were ultimately disappointing for Scandion, we note that patients have continued treatment past the eight-week endpoint and longer-term results will be important in definitively assessing efficacy.

Following the results of part 2, Scandion has now initiated part 3 of the CORIST study. Part 3 aims to enrol up to 36 patients to identify a new dosing schedule for the SCO-101/FOLFIRI combination, based on pharmacokinetic and pharmacodynamic data from CORIST parts 1 and 2. SCO-101 in combination with FOLFIRI will be administered once daily on days one to six and FOLFIRI administered on days two to four of each treatment cycle. The company expects this protocol may be more efficacious than previous regimens as the drug has consistently demonstrated a good safety profile, suggesting higher doses may be tolerated and may deliver potentially better efficacy. However, we note that higher doses do not necessarily result in increased efficacy and may also result in undesirable side effects. Additionally, part 3 intends to recruit both wild-type and mutant RAS mCRC patients, with mutant RAS representing c 50% of mCRC incidences, and may significantly enhance the addressable market population for SCO-101 if successful. Patient enrolment for part 3 began in October 2022 and is ongoing as planned. Scandion expects to provide an update on trial recruitment at end Q123 and still expects top-line results to be reported in Q323.

CORIST part 4 will then look to recruit up to 24 patients to assess the efficacy of the optimised SCO-101/FOLFIRI dosing protocol identified in part 3. We expect part 4 could begin as early as Q323 and will use a similar trial design to that used in part 2. The study (part 4) would run for six months, bringing the earliest potential top-line readout to Q224. Following completion, the results from the overall CORIST study will be evaluated to determine the next steps for the clinical development of SCO-101 in mCRC.

Readouts from PANTAX on track in H123

The next key catalyst for Scandion will be top-line results in H123 from the Phase Ib PANTAX study in PC. The trial is primarily assessing the safety and tolerability of the SCO-101/gemcitabine/paclitaxel combination; however, we note that as SCO-101’s mechanism of action is the same in both mCRC and PC, there may be potential read across between the two indications. Key secondary endpoints from the study including objective response rate (ORR), PFS and overall survival (OS) will therefore be a critical focus. Should positive results be achieved from the study, management intends to initiate randomised Phase II trials in PC; however, we believe Scandion may prioritise clinical development of SCO-101 in mCRC and wait for results from CORIST before pursuing follow-on studies in PC.

Fresh management for FY23

In Q422 Scandion announced that it had appointed Francois Martelet, MD, as CEO, effective from 2 January 2023, when he took over from acting CEO and CFO Johnny Stilou. Francois brings more than 30 years of pharmaceutical industry experience to Scandion. Previously, Francois held a number of biotech CEO positions and has extensive leadership experience at large pharmaceutical companies. Additionally, in January 2023 Scandion also appointed Jan Stenvang as chief scientific officer. Jan was one of the co-founders of Scandion with 20 years of experience in cancer research and has played a critical role in the development of SCO-101, from early through to clinical studies. In our view, this management restructure provides Scandion with stability that will support the continued execution of SCO-101’s clinical development strategy.

Valuation

We value Scandion based on a risk-adjusted net present value (rNPV) analysis using a 12.5% discount rate, including end-Q422 net cash of SEK115.8m. Our current valuation is wholly attributed to SCO-101 in both mCRC and PC and excludes pre-clinical assets (SCO-201), which may offer further upside on successful clinical progress. Following the results of CORIST part 2 we made significant changes to our valuation assumptions, estimating a potential launch date for SCO-101 in 2028, and we continue to assume that a global out-licensing deal for SCO-101 across all indications will be secured by end-2026. Our updated valuation now stands at SEK238.2m or SEK5.8/share (SEK241.1m or SEK5.9/share per share previously), which incorporates net impact of lower net cash position, rolling forward of the model by four months, updated FY23 estimates, along with introduction of FY24 estimates. Our underlying long-term assumptions remain unchanged.

Exhibit 3: Scandion Oncology valuation

Product

Indication

Launch

Peak

Peak sales ($m)

Value (SEKm)

Probability

rNPV (SEKm)

rNPV/
share (SEK)

SCO-101

mCRC

2028

2032

297.3

775.0

10%

57.3

1.4

SCO-101

PC

2029

2033

456.7

795.7

10%

65.1

1.6

Reported net cash at end December 2022

 

 

 

115.8

100%

115.8

2.8

Valuation

 

 

 

1,686.0

238.2

5.8

Source: Edison Investment Research

Financials

Scandion reported operating losses for FY22 of DKK80.2m, a 44.8% increase from FY21’s figure of DKK55.4m. This increase was primarily driven because of Scandion’s continued clinical development activities with the ongoing part 2 CORIST study, initiation of CORIST part 3 and dose escalation of PANTAX. External R&D expenses therefore increased significantly compared to the previous year (DKK65.1m versus DKK47.7m in FY21). However, with the anticipated winding down of the PANTAX study in H123, we expect R&D expenses to be slightly lower in the coming year and we estimate FY23 R&D expenses to amount to DKK60m. General and administrative (G&A) expenses increased in FY22 to DKK17.1m, a 109% increase from DKK8,3m in FY21. This increase was attributed to severance accruals to former employees; however, management expects G&A expenses to decrease in the coming year following a reduction in employee headcount in Q422.

To adjust for reduction in employee headcount from 15 (FY21) to 10 (FY22), we have reduced G&A expenses to DKK6.5m in FY23 (from DKK16.9m), considering FY21 employee costs and FY22 G&A expenses were outliers due to inclusion of severance costs. Operating cash outflows for FY22 totalled DKK69.4m, which we estimate will decrease in FY23 to DKK59.3m due to anticipated reduction in R&D and G&A expenses. We have updated our FY23 estimates and have introduced FY24 estimates as we roll forward our model. With a net cash position of DKK77.6m at the end of December 2022, and based on our cash burn projections and in line with management guidance, we expect this to provide a cash runway into Q124. We estimate that Scandion will be required to raise c DKK200m in FY24–25 to fund operations into FY26, at which point our model assumes that Scandion will secure a global out-licensing for SCO-101 by end-2026 with no material R&D expenses associated with clinical development after this point. We account for this financing as illustrative debt in our model. Alternatively, if the funding is realised through an equity issue instead (assuming at the current trading price of SEK2.08/share), Scandion would have to issue 96.2m shares, resulting in our per share valuation coming down to SEK1.7 from SEK5.8 currently (shares outstanding would increase from 40.7m to 136.9m).

Exhibit 4: Financial summary

Accounts: IFRS, Yr end: December 31, DDK:000s

 

 

2021

2022

2023e

2024e

PROFIT & LOSS

 

 

 

 

 

 

Total revenues

 

 

797

2,057

600

600

Cost of sales

 

 

0

0

0

0

Gross profit

 

 

797

2,057

600

600

Total operating expenses

 

 

(56,164)

(82,223)

(66,548)

(70,179)

Research and development expenses

 

 

(47,711)

(65,065)

(60,000)

(63,500)

SG&A

 

 

(8,453)

(17,158)

(6,548)

(6,679)

EBITDA (normalized)

 

 

(54,763)

(79,284)

(65,311)

(68,993)

Operating income (reported)

 

 

(55,367)

(80,166)

(65,948)

(69,579)

Operating margin %

 

 

N/A

N/A

N/A

N/A

Finance income/(expense)

 

 

(1,846)

(2,034)

684

159

Exceptionals and adjustments

 

 

0

0

0

0

Profit before tax (reported)

 

 

(57,213)

(82,200)

(65,264)

(69,420)

Profit before tax (normalised)

 

 

(57,213)

(82,200)

(65,264)

(69,420)

Income tax expense (includes exceptionals)

 

 

5,508

5,500

5,500

5,500

Net income (reported)

 

 

(51,705)

(76,700)

(59,764)

(63,920)

Net income (normalised)

 

 

(51,705)

(76,700)

(59,764)

(63,920)

Basic average number of shares, m

 

 

32.1

40.7

40.7

40.7

Basic EPS (DKK)

 

 

(1.61)

(1.87)

(1.47)

(1.57)

Adjusted EPS (DKK)

 

 

(1.61)

(1.87)

(1.47)

(1.57)

Dividend per share

 

 

0.00

0.00

0.00

0.00

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

Tangible assets

 

 

386

659

807

1,000

Intangible assets

 

 

0

0

0

0

Right-of-use assets

 

 

1,215

1,597

1,279

986

Other non-current assets

 

 

314

290

258

229

Non-current tax receivables

 

 

0

0

0

0

Total non-current assets

 

 

1,915

2,546

2,344

2,215

Cash and equivalents

 

 

105,710

77,605

18,043

54,253

Current tax receivables

 

 

5,500

5,500

5,500

5,500

Trade and other receivables

 

 

2,018

3,023

3,023

3,023

Other current assets

 

 

1,076

727

727

727

Total current assets

 

 

114,304

86,855

27,293

63,503

Non-current loans and borrowings

 

 

0

0

0

100,000

Non-current lease liabilities

 

 

500

820

820

820

Other non-current liabilities

 

 

84

0

0

0

Total non-current liabilities

 

 

584

820

820

100,820

Accounts payable

 

 

4,580

4,895

4,895

4,895

Illustrative debt

 

 

0

0

0

0

Current lease obligations

 

 

723

776

776

776

Other current liabilities

 

 

5,791

12,583

12,583

12,583

Total current liabilities

 

 

11,094

18,254

18,254

18,254

Equity attributable to company

 

 

104,541

70,327

10,563

(53,356)

 

 

 

 

 

 

 

CASH FLOW STATEMENT

 

 

 

 

 

 

Operating income

 

 

(55,367)

(80,166)

(65,948)

(69,579)

Depreciation and amortisation

 

 

604

882

637

586

Share based payments

 

 

0

0

0

0

Other adjustments

 

 

2,899

3,466

6,184

5,659

Movements in working capital

 

 

2,066

6,375

0

0

Cash from operations (CFO)

 

 

(49,798)

(69,443)

(59,127)

(63,334)

Capex

 

 

(318)

(414)

(435)

(456)

Acquisitions & disposals net

 

 

(167)

25

0

0

Other investing activities

 

 

0

0

0

0

Cash used in investing activities (CFIA)

 

 

(485)

(389)

(435)

(456)

Capital changes

 

 

150,690

42,487

0

0

Debt Changes

 

 

0

0

0

100,000

Other financing activities

 

 

(511)

(760)

0

0

Cash from financing activities (CFF)

 

 

150,179

41,727

0

100,000

Cash and equivalents at beginning of period

 

 

5,814

105,710

77,605

18,043

Increase/(decrease) in cash and equivalents

 

 

99,896

(28,105)

(59,562)

36,210

Effect of FX on cash and equivalents

 

 

0

0

0

0

Cash and equivalents at end of period

 

 

105,710

77,605

18,043

54,253

Net (debt)/cash

 

 

105,710

77,605

18,043

54,253

Source: Scandion company accounts

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This report has been commissioned by Scandion Oncology and prepared and issued by Edison, in consideration of a fee payable by Scandion Oncology. 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.

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General disclaimer and copyright

This report has been commissioned by Scandion Oncology and prepared and issued by Edison, in consideration of a fee payable by Scandion Oncology. 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.

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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

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Alkane Resources — Tomingley Gold Extension Project approved

As expected, the NSW Minister for Planning has approved Alkane’s Tomingley Gold Extension Project, allowing both open-cut mining at the Roswell and San Antonio deposits (including underground mining at the former) and extending the mine life to 2032. The approval accepts a processing rate of up to 1.75Mtpa, with underground mining due to commence at Roswell before the end of CY23. Financing has been secured via A$50m of debt funding from Macquarie Bank, together with 100koz of gold hedging at a weighted average price of A$2,825/oz (US$1,928/oz).

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