Cereno Scientific — CMD highlights a ‘rare’ portfolio refocus

Cereno’s recent CMD provided greater insights into its development pipeline and refreshed business strategy. While the company reiterated its focus on developing novel treatments in the cardiovascular space, the role of collaborations (such as those with Abbott’s CardioMEMS and Fluidda) in drawing greater insight from trial data was emphasised. However, the key takeaway was Cereno’s pivot towards rare diseases, which was highlighted as a potential opportunity across all three of its development programmes (Exhibit 1). We believe this move was strategically driven, to leverage the disease-modifying potential of the company’s HDACi programme and mitigate risk due to the supportive regulatory environment and lower capital requirements associated with addressing rare diseases. While the rare disease space is characterised by small patient populations (US: a disease affecting less than 200,000 people; Europe: a disease affecting less than one in 2,000 people), global legislation provides incentives like research grants, tax credits, lower regulatory fees and longer market exclusivity periods, making it appealing for drug developers to pursue such indications. Targeting areas of significant unmet need and with limited available options also tends to increase the attractiveness of these assets to bigger pharma companies, a number of which are facing patent cliffs and are looking to refill their pipelines with external R&D. Cereno has been open about its willingness to seek partnering opportunities in the form of either licensing, M&A or collaborations and we see this refreshed strategy as being aligned to that objective.

We believe Cereno’s business focus will be on advancing its pipeline to proof-of-concept or further along the clinical pathway, subsequently seeking partnering opportunities in the form of out-licensing, collaborations or M&A. We present the highlights from the CMD across its three-asset pipeline below.

CS1, Cereno’s lead asset, is a histone deacetylase HDAC inhibitor (HDACi), which aims to leverage the principles of epigenetic modulation to achieve disease modification in PAH. As part of the CMD presentation, Dr. Raymond Benza, system director of pulmonary hypertension at Mount Sinai Icahn School of Medicine, highlighted the epidemiology of PAH and the significant unmet need for safe, effective and disease-modifying treatments. This was followed by the Cereno team discussing the CS1 programme in PAH, the recently announced positive Phase IIa data and the forthcoming development plans for the asset.

Dr. Benza discussed the progressive nature of PAH (characterised by high blood pressure in the lungs) and lack of effective treatment options. The current standard of care is a category of drugs termed vasodilators, which provide symptomatic relief by widening blood vessels, without modifying the underlying pulmonary vasculature. These drugs target one of the three pathways contributing to the pathogenesis of PAH (endothelin, nitric oxide and prostacyclin) and are classified under four distinct categories: endothelin receptor antagonists, phosphodiesterase type 5 inhibitors, soluble guanylate cyclase stimulators and prostacyclin analogues or prostacyclin receptor agonists. Dr. Benza noted that despite these available treatments, mortality rates remain unacceptably high (median survival of seven years versus three years prior to the availability of these treatments). A key highlight from his presentation was the increasing need for triple-combination treatment, in the absence of which more than 50% of patients remain high risk, post treatment (Exhibit 2). However, even with upfront triple therapy, the three-year mortality rate remains more than 20%. Moreover, c 50% of patients experience significant adverse events from the treatment, resulting in high discontinuation rates.

Dr. Benza noted the requirement for new and improved treatments that explore newer pathways to target PAH (current treatments only target a subset of available disease-specific pathways). He also talked about the importance of tracking multiple diagnostic parameters for PAH and highlighted the advantages of using Registry to Evaluate Early and Long-Term PAH Disease Management (REVEAL) risk scores as an assessment and tracking tool for disease severity and progression. Using REVEAL risk scores is an approach that assigns scores based on a range of 12 distinct variables (including demographic data, clinical characteristics, laboratory data and hemodynamic results) to predict survival in patients with PAH. The risk scores range from 0 to 22, with the latter representing the highest risk. Patients with a risk score of 1–6 are considered low risk (12-month mortality risk of ≤2.6%), 7–9 are termed intermediate risk (12-month mortality risk of 6–7%) and those with a score of ≥9 are labelled high risk (12-month mortality risk of ≥10.7%). Based on various studies, Dr. Benza highlighted that a one-point reduction in the REVEAL risk score at week 12 was associated with a 62% decrease in risk of clinical worsening and a 26% reduction in relative risk of death after 12 months.

Curative or disease-modifying treatments are the holy grail of drug development. Given the progressive nature of PAH, a treatment that can potentially reverse or even halt disease progression would likely be a game changer. During the CMD, Cereno’s chief medical officer and head of R&D, Dr. Rahul Agrawal, touched on the potentially disease-modifying characteristics shown by CS1 in preclinical models (such as reverse remodelling of pulmonary vasculature, anti-thrombotic, anti-fibrotic and anti-inflammatory properties), which was supported by the recently presented CS1-003 trial data. While the Phase IIa study (safety: n=25; efficacy: n=21) was primarily a safety study and was not powered for statistically significant tests of efficacy-related parameters, exploratory signals were encouraging: 43% of patients reported improved REVEAL risk scores (with 71% improved or stable), 33% of patients improved in functional class (with 86% improved or stable) and 67% of patients had sustained pressure reduction per mean pulmonary arterial pressure (mPAP, Area under the curve) measured using Abbott’s CardioMEMS Heart Failure (HF) System. Importantly, 24% (5/21) of the patients responded to CS1 with notably large reductions in pulmonary vascular resistance (PVR), consistent with the proposed reversal of pathological vascular remodelling. For a more detailed analysis of the Phase IIa top-line readouts, please see our most recent update note.

Cereno is also running an expanded access programme (EAP) for CS1 for patients who have completed the 12-week Phase IIa study. The EAP, which was approved by the FDA in January 2024, dosed its first patient in August and we expect long-term data from this in H125, which we believe should help Cereno bolster its data package as it prepares to commence pivotal studies in 2026. This could be either a Phase IIb or a Phase IIb/III study and we look forward to further updates on this from management. As noted previously, it is unclear whether a second Phase III study would also be required. For our analysis of the programme, we assume one pivotal trial will be sufficient for now. This is subject to modification as new information emerges on the development plans.

One key aspect that distinguishes the CS1 programme is the collaborative use of medical technology to generate efficiencies and draw additional insights. The Phase IIa study was undertaken in cooperation with Abbott, allowing the use of the CardioMEMS HF system to monitor pulmonary pressure on a daily basis, generating multiple and concurrent data points to aid analysis.

Following the release of the Phase IIa top-line data, Cereno announced an agreement with medical technology company Fluidda to help visualise the impact of CS1 on inducing long-term reverse remodelling in PAH, using Fluidda’s respiratory imaging solutions in a clinical trial setting. Discussions on an investigator-initiated trial studying CS1 in collaboration with Fluidda are ongoing.

During the CMD, Fluidda’s CEO Jan De Backer provided details on how the Fluidda technology provides the tools to create functional three-dimensional visualisations of the pulmonary vasculature from standard CT scan imaging, allowing greater insights to be extracted. This should enable investigators to study and measure the impact of therapeutic interventions and possibly establish responder phenotypes to aid better therapeutic outcomes. As an example, the Fluidda CEO presented images of the lung vasculature and blood vessel volume, as well as quantified measurements of a healthy subject versus one with PAH (Exhibits 3 and 4).

As shown in Exhibit 3, the PAH subject had a noticeable reduction in the small blood vessels (denoted by the reduced red zones) and higher volumes in the large blood vessels (denoted by the blue zones) relative to the healthy subject. These data were further analysed using the technology to establish that an increase in pulmonary pressure (an indicator of disease severity) was associated with lower small blood vessel volume and higher large vessel volume. Similarly, higher PVR was correlated with lower small blood vessel volume and higher large vessel volume (Exhibit 4). We expect insights like these to support Cereno in analysing the real-time and/or differential impact of CS1 on subjects with PAH and potentially optimise the treatment modality.

A key highlight of the CMD was Cereno’s announcement of its decision to pursue development of CS014, the second HDACi in its portfolio and a valproic acid (VPA) analogue (with a similar pharmacology profile to CS1), in the rare disease IPF, versus the broad label of thrombosis previously. We believe the decision was driven by a combination of factors, including clinical, commercial and strategic. Cereno recently presented encouraging preclinical data for CS014, which, although it related to a PAH model, demonstrated a robust, reversal of fibrosis and dose-dependent reverse remodelling of pulmonary vasculature, including plexiform lesions and small vessel-related fibrosis, which are also key pathological features of IPF. As part of the CMD, management also presented previously reported scientific publications and preclinical data. Preclinical data were also presented on CS014’s ability to reduce fibrosis and thrombosis (discussed in further detail below).

As noted above, we believe that Cereno’s decision to pursue IPF as the target indication was driven by a combination of factors. We believe that a key clinical driver was the recent preclinical data (three-week study) showing anti-fibrotic activity as well as a dose-dependent reduction of occlusion of lung arterioles, endothelial cell proliferation and plexiform lesions, which, although seen in a PAH model (Sugen/hypoxia model), can also be relevant to IPF since up to 50% of IPF patients develop pulmonary hypertension. At the CMD, Cereno’s chief scientific officer, Dr. Björn Dahlöf, presented scientific studies supporting HDAC inhibition as a potential therapeutic target in IPF and preclinical data highlighting the effectiveness of VPA in ameliorating fibrosis in IPF. We believe that this provides a solid scientific basis for the company to target this indication as the development focus for CS014.

Dr. Dahlöf also highlighted the anti-thrombotic effects of CS014 from three separate preclinical models (Cremaster arteriole laser-induced injury model, FeCl3-induced injury of the carotid artery assay and saphenous vein rebleeding assay), noting that patients with IPF have twice the risk of thromboembolic events compared to healthy individuals and therefore CS014 has potential incremental benefits. We expect this to provide another differentiation to CS014’s targeting of IPF.

IPF is a serious chronic lung disease, characterised by thickening of the lung tissue through excessive production and deposition of extracellular matrix components (without any underlying reason, and hence termed idiopathic), which worsens over time, leading to fibrosis/scarring. This results in breathing difficulties, which can progress to life-threatening conditions like respiratory failure. IPF is the most common form of interstitial lung disease (ILD), a group of more than 200 conditions characterised by progressive inflammation and fibrosis in the lungs, primarily around the alveoli (air sacs). IPF accounts for c 20–50% of all ILDs and has a prevalence of c 300,000 across the US and Europe (EU4 plus the UK). The disease burden remains high with 30,000 to 50,000 new cases diagnosed in the US each year. Despite available treatments, life expectancy is generally limited to three to five years, with a five-year survival rate of c 45%, lower than several types of cancers (Exhibit 5), highlighting the significant unmet need in the space.

While idiopathic in nature, IPF generally affects men over the age of 50, with smokers at a higher risk of receiving the diagnosis. Specific viral infections, genetics, air pollution and certain workplace exposures also increase the risk factors for IPF. Common symptoms include shortness of breath, dry cough, tiredness, weight loss, muscle aches and clubbing (widening and rounding) of the tips of the fingers or toes (a sign of poor oxygenation). These symptoms are similar to other lung conditions, making the diagnosis of IPF challenging, requiring a battery of tests, including:

IPF generally worsens over time, although progression can vary among patients given the heterogenous nature of the disease. Patients with IPF also tend to present with co-morbidities such as pulmonary hypertension, gastroesophageal reflux disease (GERD), obstructive sleep apnoea and lung cancer. As mentioned above, pulmonary hypertension affects up to 50% of all IPF cases and these patients tend to have an even poorer prognosis.

Despite the progressive nature of the condition, treatments targeting underlying disease pathology are limited (discussed below), with most therapeutic options aimed at managing symptoms such as inflammation, cough and GERD. Only two anti-fibrotic drugs are currently approved – Esbriet (pirfenidone) and Ofev (nintedanib) – and c 70% of IPF patients are treated with one of them. Ofev is a tyrosine kinase inhibitor that targets growth factors implicated in the proliferation of fibroblasts in pulmonary fibrosis. The drug was developed by Boehringer Ingelheim and approved for IPF in 2014 in the US, followed by Europe, and is patent protected to 2029. Ofev was also approved for the treatment of progressive pulmonary fibrosis in 2022 in patients who have failed standard management for fibrotic ILD, other than IPF. Esbriet is a synthetic pyridone drug that works by inhibiting the production and activity of fibroblasts by regulating the transforming growth factor-beta (TGFβ) and other growth factors. The drug was developed by InterMune, which was subsequently acquired by Roche in 2015 for US$8.3bn. Esbriet was approved for the treatment of IPF in Europe in 2011 and in the US in 2014.

Both drugs are approved for patients with mild, moderate and severe IPF and, while effective in slowing down the pace of scarring and deterioration in lung functioning (as indicated by measurements of forced vital capacity, which showed a 40–50% reduction in relative decline versus placebo across both drugs), they are unable to halt or reverse disease progression. In addition, the drugs are not associated with improvement in certain physical outcomes like day-to-day functioning, fatigue or the six-minute walk test.

Moreover, both drugs are associated with significant gastrointestinal side effects, such as diarrhoea, nausea, stomach pain and vomiting. While one-third of patients on Esbriet are affected by nausea, as many as two-third of patients on Ofev experience diarrhoea. According to published data, discontinuation rates within one year for Ofev and Esbriet were as high as 50% and 48.5%, respectively, and average survival rates remain low at three to five years. Lung transplantation is the last course of action.

Despite these shortcomings and the high unmet need, we note that no new drugs have been approved for IPF in the last decade following the aforementioned approvals. Under this scenario, we believe that drugs with novel mechanisms of action that demonstrate evidence of disease reversal or stabilisation will be highly coveted and could have significant commercial potential. For context, Ofev reported annual revenues of US$3.8bn (€3.5bn) in 2023 and Esbriet reported peak sales of US$1.1bn (CHF1.0bn) in 2021, before going off-patent.

While there are several new treatments under development for IPF across all clinical stages, it is unclear if any are seeking to address disease reversal. The most advanced clinical programme is Boehringer Ingelheim’s PDE-4B inhibitor nerandomilast (BI 1015550), which recently reported positive top-line data from the registrational Phase III study in IPF (FIBRONEER-IPF). The primary endpoint of the study was the absolute change from baseline in forced vital capacity at week 52 versus placebo. Full efficacy data from the study are expected in H125 and the company is planning to file a new drug application (NDA) with the FDA. We note that in a previous 12-week Phase II trial, median changes for patients taking nerandomilast showed an improvement in forced vital capacity, albeit slight, versus a decline in the placebo group. Exhibit 6 presents a selection of the most advanced assets under development for IPF.

Despite the various ongoing trials in IPF, we believe treatments offering the potential to halt or reverse disease progression will be of particular interest to the market. While CS014 is still in the early stages of development, if it were to demonstrate this signal in human trials, we see significant partnering and commercial potential for the drug on successful clinical progression (discussed in more detail in the valuation section). We add the caveat that drug development is inherently risky and IPF in particular has recently seen a spate of late-stage trial failures such as FibroGen’s pamrevlumab, Roche’s Zinpentraxin Alfa (PRM-151) and Galapagos’s ziritaxestat.

The company’s third asset, CS585, is in the earlier stages of development and, while it has not yet been assigned a specific target indication, it is backed by preclinical research showing promise in thrombosis prevention without increased risk of bleeding. The candidate is an oral, selective and potent agonist of the prostacyclin receptor (IP).

During the CMD, the potential of CS585 to address rare disease was discussed by Dr. Michael Holinstat, associate professor at the University of Michigan Medical School and Cereno’s director of translational research. In the presentation, Dr. Holinstat highlighted how antiplatelet therapies have reduced the risk of morbidity and mortality by >26%, but noted that morbidity and mortality due to cardiovascular events remain unacceptably high. The challenge stems from novel antiplatelet therapies that need to decrease both platelet activation and thrombosis, while also limiting the risk of bleeding and intracranial haemorrhage. Notably, CS585 as an IP agonist has been shown to inhibit the aggregation of platelets from multiple pathways and, encouragingly, preclinical data have shown that this translates to the inhibition of clots (Exhibits 7 and 8). In addition, CS585 appears to target the IP receptor more selectively than existing IP agonists, according to Dr. Holinstat, who highlighted that these competitors are also challenged by short half-lives and by their utility in the blood, hindering their clinical application to indications such as pulmonary hypertension.

In line with Cereno’s refreshed business strategy to focus on niche areas, the CMD presentation focused on the unmet need in rare thrombotic diseases that lack effective treatment options. These include:

Management discussed the potential of CS585 to address these rare indications, with a particular emphasis on APS. Characterised by reduced levels of cyclic adenosine monophosphate (cAMP, an intracellular signalling molecule), this is a condition whereby antiphospholipid antibodies are produced leading to the activation of the immune system and platelets, resulting in neutrophil extracellular traps in the blood (NETosis) and platelet-mediated thrombosis. This leads to clotting in the microvasculature (an integral component of all tissues required for maintaining tissue health and function through blood perfusion) and multiple organ failure. Currently, there are no approved drugs specifically for the treatment of APS, although current standard of care uses anticoagulants (vitamin K antagonists). However, these are only c 80% effective for thrombosis prevention in large vessels and they provide no protection from thrombosis in microvasculature in major organs, meaning that organ dysfunction and failure remains an ongoing risk. Management noted how CS585’s mechanism has the potential to address this in APS through alterations in cAMP, inhibition of neutrophils and NETosis, as well as inhibition of platelet activation and thrombosis (Exhibit 9).

This section of the CMD concluded by highlighting that one in 2,000 people exhibit some form of APS, and that the condition is responsible for up to 1% of thrombosis cases globally. Given the unmet medical need in the space, CS585 may hold potential as a novel candidate to target APS. We believe this could represent a sensible strategic decision, as Cereno refreshes its focus on rare diseases. While we await further details on the plans for CS585, management has communicated that it is targeting Phase I studies from 2026.

Following the announcement by Cereno to focus on IPF as the target indication for CS014 (previously thrombosis), we have updated our estimates and risk-adjusted net present value (rNPV) for the asset, resulting in our valuation rising to SEK4.03bn or SEK14.3/share, from SEK3.89bn or SEK13.9/share previously. For CS1, our estimates are unchanged since the last update. Our assumptions for CS014 are:

Exhibit 10 presents a breakdown of our overall valuation of Cereno.