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Research: Healthcare
Q123 has been an active quarter for Scandion Oncology with completion of the Phase 1b PANTAX (dose-finding) study and management’s decision to expand the scope of SCO-101 into acute myeloid leukaemia (AML). With many upcoming catalysts, including an update on AML preclinical work in H223, top-line results for CORIST part 3 in H223, and full top-line data for PANTAX by H124, if favourable, we expect material progression of the company’s pipeline. Scandion reported an operating loss of DKK12.0m in Q123 (vs DKK16.3m in Q122) mainly due lower R&D expenses, reflecting the impact of cost control measures announced by management in H222. After updating the net cash position and incorporating the impact of foreign exchange, our valuation of Scandion stands at SEK240.0m or SEK5.9/share (vs SEK238.2m or SEK5.8/share previously).
Scandion Oncology |
An active quarter with AML plans in the mix |
Q123 update |
Pharma and biotech |
30 May 2023 |
Share price performance
Business description
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Analysts
Scandion Oncology is a research client of Edison Investment Research Limited |
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Q123 has been an active quarter for Scandion Oncology with completion of the Phase 1b PANTAX (dose-finding) study and management’s decision to expand the scope of SCO-101 into acute myeloid leukaemia (AML). With many upcoming catalysts, including an update on AML preclinical work in H223, top-line results for CORIST part 3 in H223, and full top-line data for PANTAX by H124, if favourable, we expect material progression of the company’s pipeline. Scandion reported an operating loss of DKK12.0m in Q123 (vs DKK16.3m in Q122) mainly due lower R&D expenses, reflecting the impact of cost control measures announced by management in H222. After updating the net cash position and incorporating the impact of foreign exchange, our valuation of Scandion stands at SEK240.0m or SEK5.9/share (vs SEK238.2m or SEK5.8/share previously).
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/21 |
0.8 |
(57.2) |
(1.61) |
0.0 |
N/A |
N/A |
12/22 |
2.1 |
(82.2) |
(1.87) |
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.
AML a third shot on goal for SCO-101
A highlight of Q123 was the announcement that Scandion will expand SCO-101 into AML. The company is currently conducting preclinical research on SCO-101’s potential in this indication, using cells from AML patients and looking at synergistic effects with chemotherapies. An update on this is expected in H223, representing a significant catalyst, in our view. Provided the data are positive, the company then plans to initiate a Phase Ib trial to assess the safety of SCO-101 in combination with chemotherapy and establish the maximum tolerated dose (MTD).
Positive PANTAX readout and on course for CORIST
The Phase Ib PANTAX trial in pancreatic cancer has reached its primary endpoint, establishing the MTD of SCO-101 in combination with chemotherapy at 200mg for six consecutive days every two weeks. The final analysis of the PANTAX data will be shared in H124. SCO-101 is also being assessed in the Phase II CORIST trial in colorectal cancer, part 3 of the study, to determine the optimised dosing regimen. Patient recruitment is ongoing, and expected to be complete with top-line results in H223. We believe that management will wait for both these updates before confirming further clinical development plans for SCO-101 in these indications.
Valuation: SEK240.0m or SEK5.9 per share
We value Scandion at SEK240.0m or SEK5.9/share, slightly up from SEK238.2m or SEK5.8/share previously. While our long-term assumptions remain unchanged, the increase in valuation is mainly driven by an updated exchange rate (DKK0.64/SEK from DKK0.67/SEK) and rolling forward our model by three months, partially offset by lower net cash of SEK94.0m at end March 2023, from SEK115.8m previously.
Valuation
We value Scandion based on a risk-adjusted net present value (rNPV) analysis using a 12.5% discount rate. Our current valuation is wholly attributed to SCO-101 in both metastatic colorectal cancer (mCRC) and pancreatic cancer (PC) and excludes pre-clinical assets (SCO-201) and a possible third indication for SCO-101, AML, which may offer further upside on successful clinical progress. Following Q123 results, our forecasts and long-term assumptions remain unchanged. Our updated valuation now stands at SEK240.0m or SEK5.9/share (SEK238.2m or SEK5.8/share previously), which incorporates the impact of a lower net cash position (SEK94.0m at end Q123 vs SEK115.8m in Q122), foreign exchange (DKK0.64/SEK from DKK0.67/SEK previously) and rolling forward the model by three months.
Exhibit 1: Scandion Oncology valuation
Product |
Indication |
Launch |
Peak |
Peak sales ($m) |
Value (SEKm) |
Probability |
rNPV |
rNPV/share (SEK) |
SCO-101 |
mCRC |
2028 |
2032 |
297.3 |
850.3 |
10% |
69.6 |
1.7 |
SCO-101 |
PC |
2029 |
2033 |
456.7 |
868.9 |
10% |
76.4 |
1.9 |
Net cash at end 31 March 2023 |
|
|
|
|
94.04 |
100% |
94.0 |
2.3 |
Valuation |
|
|
|
|
1,813.2 |
|
240.0 |
5.9 |
Source: Edison Investment Research
Exhibit 2: Financial summary
Accounts: IFRS; year end: 31 December; 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 (DKK) |
|
|
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: Company reports, Edison Investment Research
|
|
Research: Metals & Mining
In its operational update, released last week, Pan African Resources (PAF) reduced its production guidance for FY23 by c 12.5% from 195–205koz to 175koz. The reduction was due to instability and disruptions in the electricity supply to PAF’s operations (c 10koz), a slower ramp up to continuous operations at Barberton and faulting at the Kimberley reef at Evander, coupled with a delay in transitioning to full production at 24 Level. In addition, we anticipate that PAF will record a small loss of US$5.3m on account of the synthetic forward sale of ounces announced in February regarding its Mintails financing. However, these effects have also been mitigated by a weak rand and a strong gold price such that, while we have reduced our FY23 normalised EPS forecast by 8.4% (from 4.17c/share to 3.82c/share) our core valuation of PAF has risen by 4.8% (see below).