Cereno Scientific — A productive period with plenty more to come

Cereno Scientific (OMX: CRNO-B)

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Research: Healthcare

Cereno Scientific — A productive period with plenty more to come

Cereno Scientific has released its Q324 results, marking a productive and strategically significant period. Following the positive top-line data from the Phase IIa safety study of CS1 in pulmonary arterial hypertension (PAH), Cereno decided to concentrate its development programmes on rare diseases. Key developments included the selection of idiopathic pulmonary fibrosis (IPF) as the target indication for second asset, CS014, and the positioning of its preclinical asset, CS585, towards rare disease indications. In November 2024, Cereno announced a SEK250m capital raise, extending its cash runway into 2026. This funding secures financial resources to advance several key milestones, including FDA acceptance of the CS1 Phase IIb/III study and completion of the Phase I trial for CS014. We believe these developments de-risk Cereno’s clinical pathway and strengthen its position for potential partnering opportunities. We adjust our estimates for the Q3 results, with the increased debt servicing costs and higher net debt offsetting roll-forward benefits, resulting in our valuation remaining unchanged at SEK4.0bn or SEK14.3/share.

Jyoti Prakash

Written by

Jyoti Prakash

Analyst, Healthcare

Healthcare

Cereno Scientific

A productive period with plenty more to come

Q324 results

Pharma and biotech

28 November 2024

Price

SEK4.92

Market cap

SEK1,384m

SEK11.02/US$

Net debt at 30 September 2024

SEK16.6m

Shares in issue

281.0m

Free float

93%

Code

CRNO B

Primary exchange

First North Growth Market

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(10.1)

(23.6)

0.1

Rel (local)

(6.9)

(21.0)

(13.1)

52-week high/low

SEK8.40

SEK3.57

Business description

Cereno Scientific is a clinical-stage biotech based in Sweden, focused on the development of innovative, effective and safe treatments for indications with high unmet needs. Lead asset CS1 is an HDAC inhibitor that acts as an epigenetic modulator. Cereno recently reported positive top-line results from the Phase IIa study in pulmonary arterial hypertension. Second asset CS014, a CS1 analogue, will be tested in idiopathic pulmonary fibrosis, and preclinical asset CS585 is likely to target rare thrombosis related indications.

Next events

CS1: FDA clearance decision for pivotal study

H125

CS014: Phase I initial data

Mid-2025

Analysts

Jyoti Prakash, CFA

+44 (0)20 3077 5700

Dr Arron Aatkar

+44 (0)20 3077 5700

Cereno Scientific is a research client of Edison Investment Research Limited

Cereno Scientific has released its Q324 results, marking a productive and strategically significant period. Following the positive top-line data from the Phase IIa safety study of CS1 in pulmonary arterial hypertension (PAH), Cereno decided to concentrate its development programmes on rare diseases. Key developments included the selection of idiopathic pulmonary fibrosis (IPF) as the target indication for second asset, CS014, and the positioning of its preclinical asset, CS585, towards rare disease indications. In November 2024, Cereno announced a SEK250m capital raise, extending its cash runway into 2026. This funding secures financial resources to advance several key milestones, including FDA acceptance of the CS1 Phase IIb/III study and completion of the Phase I trial for CS014. We believe these developments de-risk Cereno’s clinical pathway and strengthen its position for potential partnering opportunities. We adjust our estimates for the Q3 results, with the increased debt servicing costs and higher net debt offsetting roll-forward benefits, resulting in our valuation remaining unchanged at SEK4.0bn or SEK14.3/share.

Year end

Revenue (SEKm)

PBT*
(SEKm)

EPS*
(SEK)

DPS
(SEK)

P/E
(x)

Yield
(%)

12/22

0.0

(27.6)

(0.20)

0.0

N/A

N/A

12/23

0.0

(46.4)

(0.20)

0.0

N/A

N/A

12/24e

0.0

(78.8)

(0.28)

0.0

N/A

N/A

12/25e

0.0

(87.0)

(0.31)

0.0

N/A

N/A

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

Progress recorded across the pipeline

H224 so far has seen activities intensify across Cereno’s portfolio, backed by a strategic repositioning towards rare cardiovascular and pulmonary indications. Lead asset CS1, an HDAC inhibitor (HDACi) targeting PAH, reported positive Phase IIa data, paving the way for a Phase IIb or pivotal Phase IIb/III study in 2026. Second HDACi CS014 is progressing through Phase I, with the multiple ascending dose part recently initiated, and a Phase II study in IPF planned for 2026. Preclinical asset CS585, a novel IP receptor agonist, is also progressing and Cereno recently presented new preclinical data at the American Heart Association conference. We expect 2025 to be a busy period, with several catalysts on the horizon.

New SEK250m funding secures runway into 2026

We believe the new SEK250m financing (refer to our previous note for more details) comes at an opportune time for Cereno as it prepares to accelerate its clinical development efforts towards late-stage studies for its HDACi programmes and clinical entry for CS585. We also believe the merits outweigh the slight dilution effect (between 4% and 6%), with proceeds from the funding extending the cash runway into 2026, positioning Cereno strongly for subsequent partnering discussions.

Valuation: SEK4.0bn or SEK14.3/share

We adjust our estimates for the Q324 results and latest net debt figure, while keeping our long-term assumptions unchanged. The roll-forward benefits have been offset by the higher net debt (SEK16.6m vs SEK40.2m net cash in Q224), resulting in our valuation remaining unchanged at SEK4.0bn or SEK14.3/share.

Active pipeline with a renewed focus on rare disease

Cereno’s clinical pipeline has been designed to address indications with high unmet needs (see Exhibit 1). The two most advanced candidates, CS1 and CS014, form the company’s histone deacetylase inhibitor (HDACi) portfolio, aiming to leverage the principles of epigenetic modulation to achieve disease modification.

CS1 reported positive data from a Phase IIa study (CS1-003) in PAH in September 2024. The primary endpoint of safety and tolerability was met with no CS1-related serious adverse events at any of the tested doses. Data from exploratory efficacy measures was also encouraging: 71% of patients improved or had stable Registry to Evaluate Early and Long-Term PAH Disease Management (REVEAL) risk scores; 86% improved or had stable functional class; and 67% had sustained reduction in pulmonary arterial pressure. Collectively, the data provide a robust foundation for the next stages of development, in our view, and management anticipates a regulatory decision on its plans for a subsequent potentially pivotal trial (Phase IIb or Phase IIb/III) in H125, followed by a potential study in H126. Meanwhile, the expanded access programme (first patient dosed in August 2024) is ongoing and should be further supported by the Fluidda agreement to visualise the effect of CS1 on inducing long-term reverse remodelling under a planned investigator-initiated trial.

The period also saw Cereno strengthening its patent protection for CS1 with new patents issued in the US (third family), Brazil (third family) and New Zealand (second family). In September 2024, CS1 received the Orphan Medicinal Product Designation in the EU, complementing the Orphan Drug Designation granted by the US FDA in 2020. This will allow CS1 10 years and seven years of market exclusivity in the US and EU, respectively, following marketing authorisation. For a more detailed discussion of the CS1 Phase IIa clinical results, see our previous update note.

Cereno’s second clinical asset, CS014 (currently in Phase I clinical development), was the focus of the company’s recent capital markets day (CMD), where IPF was announced as the primary indication targeted by the asset. This decision forms part of the company’s wider strategic pivot, whereby it will focus on the rare disease space across its development pipeline. This space is characterised by small patient populations (US: a disease affecting fewer than 200,000 people; Europe: a disease affecting fewer than one in 2,000 people) and government incentives such as research grants, tax credits, lower regulatory fees and longer market exclusivity periods, as well as reduced outlays for clinical trials (given the smaller trial size), making it appealing for drug developers to pursue such indications. Further details on the strategy and the target indication IPF can be found in our previous note. Cereno also made steady progress on the ongoing Phase I safety study, commencing the multiple ascending dose (MAD) part of the study in November 2024. This comes after the directive from the Safety Monitoring Committee that the safety profile in the single ascending dose part was within acceptable limits. The Phase I trial, which plans to recruit 48 subjects, is an open-label study designed to explore the safety, tolerability, pharmacokinetics and efficacy parameters of CS1 in healthy volunteers. Results from the Phase I trial are expected in mid-2025, with plans to initiate the Phase II study in IPF in H126.

Cereno’s third asset, CS585, is an oral, selective and potent agonist of the prostacyclin receptor, currently in the early stages of clinical development. While a definitive indication is yet to be finalised, management has indicated that CS585 is likely to target a rare disease, with antiphospholipid syndrome emerging as a potential focus. This strategic alignment with rare conditions underscores the company’s commitment to underserved markets. Phase I studies for CS585 are planned to commence in 2026, and further updates on development plans are anticipated, which may provide additional clarity on its market potential.

Exhibit 1: Cereno’s clinical development pipeline

Source: Cereno Scientific Q324 report

Financials

Operating loss narrows while net loss jumps on higher interest

In Q324, Cereno reported total operating expenses of SEK39.1m, versus SEK43.5m in Q224 and SEK16.9m in Q323. We believe these to be mainly related to clinical development activities for CS1 (which completed Phase IIa patient recruitment at the end of June 2024 and reported positive top-line data in September 2024) and CS014 (which commenced the Phase I study in June 2024 and recently moved to the MAD part of the study) as well as ongoing preclinical work on CS585. The company’s reporting of operating expenses includes SEK33.7m in other external costs (primarily R&D) and SEK5.1m in personnel expenses, both lower than the previous quarter’s figures of SEK36.4m and SEK6.6m, respectively. We note that Cereno capitalises part of its R&D (reflected as income from capitalised work; SEK23.8m in Q324), resulting in a reported operating loss figure of SEK15.3m in Q324 versus a loss of SEK19.6m in Q224. With the CS1 Phase IIa trial now complete and preparatory work ongoing for regulatory discussions for the next phase of development, we expect the R&D expenses to decline in Q424.

The net loss for the period was SEK22.7m, versus SEK21.2m in Q224, driven by the increased interest expenses (SEK7.5m vs SEK1.6m in Q224), which we believe were related to the drawdown of the second SEK45m tranche of the original SEK90m bridge loan from Fenja Capital, raised in November 2023. We expect the interest expenses to rise significantly in Q424 with the recently announced SEK250m debt financing (discussed in further detail below). Free cash outflow for the quarter was SEK56.8m, rising materially from SEK37.2m in Q224, with the benefit from lower operating losses more than offset by increased working capital outflows.

New SEK250m loan extends cash runway into 2026

In November 2024, Cereno announced a SEK250m short-term financing arrangement to support the company’s operations and development activities into 2026, through key upcoming milestones such as completion of the Phase I CS014 trial (H125), FDA acceptance of the CS1 Phase IIb or Phase IIb/III study (H125) and regulatory clearance for the CS014 Phase II study in IPF (H225). Secured from Fenja Capital and Arena Investors, the new financing includes a cash loan of SEK175m across two tranches and SEK75m in convertible debt. While the first cash tranche of SEK125m and the SEK75m convertible debt (total SEK200m) is likely to be available to Cereno immediately, the second SEK50m payout is conditional on lead asset CS1 receiving FDA acceptance for the next clinical phase as well as certain other financial conditions. The financing comes with a 3.87% set-up fee. Tranche 1 will be partially used to pre-pay the outstanding c SEK91m loan from Fenja Capital, which matures in April 2026. Following the debt repayment and set-up fee, management expects net proceeds from tranche 1 and the convertible debt of c SEK99m. We expect this, along with current cash on hand (SEK73.8m at end-Q324), to be sufficient to fund operations into H225, past the H125 timeline for the FDA’s expected acceptance for the CS1 Phase IIb or potentially pivotal Phase IIb/III study, which will trigger the remaining SEK50m. Combined these funds should extend Cereno’s cash runway into 2026, in line with management guidance.

The financing is split 55:45 between US-based investor Arena Investors and Fenja Capital. The SEK75m convertible debt can be converted into 12.3m company shares (at SEK6.09/share, a c 24% premium to the last closing price of SEK4.9/share) during the term of the loan. Assuming full conversion, this would dilute existing shareholders by 4.2%. The agreement also mandates Cereno issuing 5,749,017 warrants to the financiers, which can be converted to shares at a subscription price of SEK6.82/warrant until 30 April 2029 (currently out of the money). This would lead to another 2% dilution to current shares outstanding, assuming 100% conversion (netting the company SEK39.2m in exchange).

We note that the new loan is due for repayment on 30 April 2026, by which time we expect the company to potentially secure a licensing deal for CS1 (contingent on FDA acceptance for the clinical study in 2025), which should support debt servicing. The new financing also de-risks the development pathway for Cereno, which should help optimise partnering discussions, in our opinion.

Estimate revisions

We have adjusted our near-term estimates for the performance in the first nine months of 2024 (9M24), the latest debt raise and near-term operational expectations. While we continue to expect lower R&D expenses in Q424, we raise our operating expense estimate for FY24 to SEK148.8m, from SEK131.8m previously, to reflect the higher-than-expected opex in Q324. The FY25 figure remains broadly unchanged at SEK138.7m (SEK140.6m previously). We also increase our estimate for interest expense to account for the SEK250m loan, resulting in our FY24 and FY25 net loss estimates rising to SEK78.8m and SEK87.0m, respectively, from SEK58.9m and SEK56.0m previously.

Valuation

Our valuation for Cereno is based on a risk-adjusted net present value (rNPV) approach, using appropriate probabilities of success for the respective phases of development and a flat discount rate of 12.5%. The calculated enterprise value reflects contributions from the company’s clinical candidates CS1 (completed Phase IIa) and CS014 (Phase I). We note that our valuation currently excludes CS585, the company’s preclinical asset, which should add to the upside potential on successful clinical transition. We recently updated our estimates for CS014, following the finalisation of IPF as the target indication, and we direct readers to our recent note for more detail. For CS1, our assumptions remain unchanged since our previous update note.

We have rolled forward our model for the Q324 results and updated our valuation for the latest net debt figure (SEK16.6m at end-Q324, including SEK73.8m in gross cash and SEK90m in debt). Our model currently assumes no conversions under the new SEK75m convertible debt facility or new warrants issued and hence the end-Q324 net debt figure is not affected. The roll-forward benefits have been offset by higher debt (following the drawdown of the second SEK45m tranche under the November 2023 loan), resulting in our valuation for Cereno remaining unchanged at SEK4.0m or SEK14.3 per share (Exhibit 2).

Exhibit 2: Valuation of Cereno (rNPV)

Asset

Indication

Development phase

Launch

Peak sales
($m)

Peak sales year

NPV (SEKm)

Probability

rNPV
(SEKm)

rNPV/share
(SEK)

CS1

PAH

Phase II

2029

2,113

2038

9,169.5

40%

3,667.8

13.1

CS014

IPF

Phase I

2031

2,123

2042

4,735.2

7.5%

355.1

1.3

Total

13,904.6

4,022.9

14.3

Net debt at 30 September 2024

16.6

(0.1)

Valuation

4,006.4

14.3

Source: Edison Investment Research. Note: The per-share valuation is based on outstanding shares of 281m.

Our model assumes a licensing deal in 2026 for CS1, with the partner taking over development activity. However, if such a deal does not materialise and the company takes on self-development of its clinical programmes, we estimate it would need to raise SEK300m in FY26 to fund operations and service outstanding debt and a further SEK200m each in FY27 and FY28, until the commercial launch of CS1 in 2029 (a total of SEK700m between FY26 and FY28). If the company uses equity issues for this funding, we estimate that it would need to issue c 142.1m shares (assuming the current share price of SEK4.9), which would result in our per-share valuation diluting to SEK11.1 per share, from SEK14.3 per share currently.

Exhibit 3: Financial summary

Accounts: K3; year end: 31 December; SEK:000s

 

2021

2022

2023

2024e

2025e

PROFIT & LOSS

 

 

 

 

 

 

Net sales

 

0

0

0

0

0

Capitalised work for own account

 

44,805

57,538

49,277

85,775

75,410

Total revenues

 

44,805

57,538

49,277

85,775

75,410

Cost of sales

 

0

0

0

0

0

Gross profit

 

44,805

57,538

49,277

85,775

75,410

Total operating expenses

 

(59,811)

(85,037)

(93,927)

(148,840)

(138,745)

R&D and other expenses

 

(57,797)

(76,620)

(71,152)

(124,979)

(115,006)

Of which - R&D expenses

 

(44,805)

(57,538)

(49,277)

(85,775)

(75,410)

Of which - other expenses

 

(12,815)

(18,899)

(21,658)

(38,985)

(39,374)

Personnel costs

 

(1,789)

(7,514)

(18,763)

(22,627)

(23,739)

Other operating items

 

(226)

(903)

(4,012)

(1,234)

0

Operating income (reported)

 

(15,006)

(27,499)

(44,650)

(63,065)

(63,335)

EBITDA (normalized)

 

(14,992)

(27,485)

(44,636)

(62,937)

(63,219)

Finance income/(expense)

 

(1,245)

(149)

(3,456)

(15,699)

(23,623)

Exceptionals and adjustments

 

0

0

0

0

0

Profit before tax (reported)

 

(16,251)

(27,649)

(48,106)

(78,764)

(86,958)

Profit before tax (normalised)

 

(16,251)

(27,649)

(46,436)

(78,764)

(86,958)

Income tax expense (includes exceptionals)

 

(4)

(6)

0

0

0

Net income (reported)

 

(16,255)

(27,654)

(48,106)

(78,764)

(86,958)

Net income (normalised)

 

(16,255)

(27,654)

(46,436)

(78,764)

(86,958)

End of period number of shares, '000

 

105,262

137,515

233,775

281,702

281,702

Basic EPS (SEK)

 

(0.15)

(0.20)

(0.21)

(0.28)

(0.31)

Adjusted EPS (SEK)

 

(0.15)

(0.20)

(0.20)

(0.28)

(0.31)

BALANCE SHEET

 

 

 

 

 

 

Intangible Assets

 

89,449

146,987

196,264

282,039

357,449

Fixtures, tools and installation

 

43

29

14

1,159

1,043

Other long-term receivables

 

8

10

9

9

9

Total non-current assets

 

89,500

147,025

196,287

283,207

358,501

Other receivables

 

1,363

1,248

1,124

1,305

1,336

Prepaid expenses and accrued income

 

240

335

407

407

407

Cash and bank balance

 

89,635

67,046

87,169

144,285

31,257

Total current assets

 

91,238

68,629

88,699

145,997

33,000

Accounts Payable

 

2,884

9,411

6,930

10,982

10,237

Other Current Liabilities

 

2,589

4,331

16,231

16,231

16,231

Short-term Debt

 

4,800

0

0

0

0

Total current liabilities

 

10,273

13,742

23,162

27,214

26,469

Long-term Debt

 

0

0

45,000

200,000

250,000

Other debt

 

400

400

400

400

400

Total non-current liabilities

 

400

400

45,400

200,400

250,400

Equity attributable to company

 

170,065

201,511

216,424

201,590

114,632

CASH FLOW STATEMENT

 

 

 

 

 

 

Net profit

 

(16,255)

(27,654)

(48,106)

(78,764)

(86,958)

Depreciation

 

14

14

14

129

116

Translation difference

 

(321)

(90)

34

0

0

Accrued costs

 

1,230

450

777

0

0

Share based payments

 

0

0

1,671

0

0

Taxes paid

 

(1)

(4)

0

0

0

Movements in working capital

 

2,196

8,669

8,695

3,871

(776)

Cash from operations (CFO)

 

(13,137)

(18,615)

(36,915)

(74,764)

(87,618)

Purchase of intangible assets

 

(44,805)

(57,538)

(49,277)

(85,775)

(75,410)

Purchase of PPE

 

0

0

0

(1,274)

0

Other investing activities

 

0

0

0

0

0

Cash used in investing activities (CFIA)

 

(44,805)

(57,538)

(49,277)

(87,049)

(75,410)

Loans received

 

0

0

45,000

245,000

50,000

Loan repayments

 

(5,000)

(5,000)

0

(90,000)

0

Equity issued

 

91,398

58,791

61,315

63,930

0

Other Financing Cash Flows

 

(4,825)

(226)

0

0

0

Cash from financing activities (CFF)

 

81,573

53,564

106,315

218,930

50,000

Cash and equivalents at beginning of period

 

66,004

89,635

67,046

87,169

144,285

Increase/(decrease) in cash and equivalents

 

23,630

(22,589)

20,123

57,117

(113,028)

Cash and equivalents at end of period

 

89,635

67,046

87,169

144,285

31,257

Net (debt)/cash

 

84,435

66,646

41,769

(56,115)

(219,143)

Source: Company reports, Edison Investment Research


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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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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