Cereno Scientific — CS014 (second asset) crosses into the clinic

Cereno Scientific (OMX: CRNO-B)

Last close As at 17/07/2024

SEK6.29

0.19 (3.11%)

Market capitalisation

SEK1,714m

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Research: Healthcare

Cereno Scientific — CS014 (second asset) crosses into the clinic

The European Medicines Agency (EMA) has approved Cereno Scientific’s Clinical Trial Application (CTA) for CS014, a novel HDAC inhibitor with epigenetic effects. CS014 targets thrombosis prevention and is expected to do so without increased risk of bleeding, a key limitation of currently approved antithrombotics. Management has communicated that the drug product has been shipped to the trial sites and work on patient recruitment has begun. The Phase I trial will assess the safety and tolerability of the drug in healthy volunteers. This will be the company’s second asset to enter the clinic after its lead asset, CS1. Following this regulatory milestone, we have updated our probability of approval from 5% to 7.5%, resulting in a lift to our valuation for Cereno to SEK2.54bn or SEK9.0/share, from SEK2.46bn or SEK8.8/share, previously.

Soo Romanoff

Written by

Soo Romanoff

Managing Director - Head of Content, Healthcare

Healthcare

Cereno Scientific

CS014 (second asset) crosses into the clinic

Clinical update

Pharma and biotech

21 June 2024

Price

SEK4.38

Market cap

SEK1,230m

SEK10.50/US$

Pro-forma net cash (SEKm) at 31 March 2024 (including funds from warrant conversions announced in March 2024)

77.4

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

16.1

(1.4)

739.9

Rel (local)

19.0

(4.2)

617.0

52-week high/low

SEK5.4

SEK0.5

Business description

Cereno Scientific is a clinical-stage biotech based in Sweden, focused on the development of innovative, effective and safe treatments for cardiovascular diseases with unmet medical needs. Lead asset CS1 is an HDAC inhibitor that acts as an epigenetic modulator. It is currently being investigated in a Phase II clinical trial for the treatment of pulmonary arterial hypertension.

Next events

CS1: Phase II top-line data

Q324

CS014: Phase I trial launch

Mid-2024

Analysts

Soo Romanoff

+44 (0)20 3077 5700

Jyoti Prakash, CFA

+44 (0)20 3077 5700

Cereno Scientific is a research client of Edison Investment Research Limited

The European Medicines Agency (EMA) has approved Cereno Scientific’s Clinical Trial Application (CTA) for CS014, a novel HDAC inhibitor with epigenetic effects. CS014 targets thrombosis prevention and is expected to do so without increased risk of bleeding, a key limitation of currently approved antithrombotics. Management has communicated that the drug product has been shipped to the trial sites and work on patient recruitment has begun. The Phase I trial will assess the safety and tolerability of the drug in healthy volunteers. This will be the company’s second asset to enter the clinic after its lead asset, CS1. Following this regulatory milestone, we have updated our probability of approval from 5% to 7.5%, resulting in a lift to our valuation for Cereno to SEK2.54bn or SEK9.0/share, from SEK2.46bn or SEK8.8/share, previously.

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

(48.1)

(0.20)

0.0

N/A

N/A

12/24e

0.0

(49.4)

(0.18)

0.0

N/A

N/A

12/25e

0.0

(47.0)

(0.17)

0.0

N/A

N/A

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

CS014’s EMA approval strengthens clinical pipeline

CS014, a histone deacetylase inhibitor (HDACi) with epigenetic properties, aims to target thrombosis prevention, which accounts for over 50% of the global cardiovascular drugs market, while addressing the limitation of increased risk of bleeding associated with currently available antithrombotics. The regulatory announcement comes on the back of positive preclinical data, where the drug demonstrated encouraging antithrombotic activity by modulating platelet activity, local fibrinolysis and clot stability. Thrombosis prevention through HDAC inhibition is a novel approach and, should the drug demonstrate disease-modifying potential (akin to CS1), we expect the commercial potential could be significant.

Phase I expected to commence by mid-2024

While we await further details on the Phase I study design, we understand that the trial will be a one-week, open-label, dose-finding study, with single and multiple ascending dose groups. The study objective will be to evaluate the safety, tolerability, pharmacokinetics and pharmacodynamics of CS014 in healthy volunteers. Management have communicated that the drug product has been shipped to the trial sites and work on patient enrolment has commenced. We expect initial data from the Phase I study in H125. It is unclear which indications will be targeted, but we tentatively assume venous thromboembolism (VTE) and stroke prevention in atrial fibrillation (SPAF) in our model. This is subject to modification as more data become available.

Valuation: SEK2.54bn or SEK9.0 per share

Following the EMA clearance, we conservatively update our probability of success for CS014 to 7.5%, from 5%, resulting in our valuation increasing to SEK2.54bn or SEK9.0/share, from SEK2.46bn or SEK8.8/share. We expect the next major catalyst to be the Phase II topline results for CS1, expected in Q324.

CS014 marches into the clinic

Cereno filed the CTA for CS014 In April 2024 and we see the EMA approval to initiate clinical studies as a positive step in furthering the company’s development efforts. CS014 is the second clinical asset in Cereno’s pipeline and, like lead asset CS1, is an HDACi, with epigenetic properties. The drug is aimed at thrombosis (blood clots) prevention, but is expected to do so without the increased risk of bleeding, a key limitation of the currently approved antithrombotics. Thrombosis is a major complication of cardiovascular disease (CVD), and is a leading cause of heart attack and stroke, which account for 85% of all CVD deaths. The global antithrombotic market was valued at c $29bn in 2022, and BCC Research projects it to reach c $46bn by 2028. The current thrombosis prevention and treatment landscape consists of anticoagulants (which slow down the formation of clots), antiplatelets (which prevent platelets in the blood from fusing together to form clots) and thrombolytics (which break down clots that have formed already). Interestingly, two of the bestselling CVD drugs, Eliquis/apixaban (Bristol Myers Squibb/Pfizer; $12.2bn revenue in 2023) and Xarelto/rivaroxaban (Bayer/J&J; €4.1bn revenues in 2023) are oral anticoagulants, highlighting the market potential for thrombosis treatments.

As mentioned above, CS014 plans to target thrombosis through a novel HDAC inhibition mechanism, while preventing the risk of excessive bleeding. A lower risk of bleeding may also support dose optimisation, which could potentially improve outcomes for patients. CS014’s potential is backed by robust preclinical data, where the drug demonstrated its ability to prevent thrombosis (both venous and arterial) through inhibition of platelet activity (reducing platelet accumulation and clotting) and increased fibrinolytic capacity (removal of fibrin), without increased risk of bleeding (refer to our initiation note on Cereno for more details on the preclinical studies).

Following the regulatory go-ahead, we understand that Cereno has shipped the drug to the clinical trial sites and the contract research organisation has initiated the work on patient recruitment. The study will be a one-week, open-label, two-stage study (single ascending and multiple ascending dose groups), investigating the safety, tolerability, pharmacokinetics and pharmacodynamics of CS014 in healthy volunteers. We expect further details on the study design and clinical plan in the coming weeks and expect initial data to be announced in H125.

Valuation

Following the regulatory clearance, we have upgraded our probability of success estimate for CS014 to 7.5%, from 5% previously, resulting our valuation adjusting to SEK2.54bn or SEK9.0/share, from SEK2.46bn or SEK8.8/share previously. All other assumptions remain unchanged and are listed below. Note that our assumptions are subject to modification as more data (particularly on target indications) are provided by the company.

Target population: we assume initial target indications of venous thromboembolism (prevalence of 0.1%) and stroke prevention in atrial fibrillation (prevalence of 0.5%). We assume a target population of around four million people across the US and Europe. We expect CS014 to be positioned as first-line treatment, with a peak penetration of 10%.

Pricing: we assume list prices of $6,000 per patient in the US (gross/net discount of 50%) and $1,500 in Europe (no discount to list price).

Trial timeline and R&D costs: we assume the Phase I trial commences by mid-2024. We assume Cereno would fund clinical development to the end of the Phase II trial, estimated to be in 2027. We assume the Phase III trial is undertaken under an out-licensing partnership from 2027. We assume US launch in 2031 and Europe in 2032. We expect total R&D expenses of c $10m for Phase I and Phase II studies and assume that the asset will be out-licensed thereafter for subsequent development and commercialisation. We estimate peak sales of c $1.9bn, achieved in 2042.

Out-licensing assumptions: We assume that CS014 will be out-licensed following completion of Phase II studies and have modelled a partnering agreement in 2027, with total deal value of US$1bn, including an upfront payment of US$100m. We also assume a 15% royalty rate on sales.

Exhibit 1 presents a breakdown of our overall valuation of Cereno.

Exhibit 1: Cereno valuation

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

8,694.3

25%

2,173.6

7.7

CS014

Thrombosis

Phase I

2031

1,863

2042

3,816.4

7.5%

286.2

1.0

Total

12,510.7

2,459.8

8.8

Pro forma net cash at 31 March 2024*

77.4

0.3

Valuation

2,537.2

9.0

Source: Edison Investment Research. Note: *Includes SEK73.6m in net proceeds from the post-period TO3 warrants exercise. The per share valuation is based on shares outstanding of 281m (post warrants exercise).

Note that our valuation for Cereno does not include its third asset, CS585, which is currently in preclinical development and may add to the upside potential on clinical progression. Unlike the other two assets in the portfolio, which are HDAC inhibitors, CS585 is a novel, selective prostacyclin (IP) receptor agonist. While the precise indication for the candidate is yet to be determined, preclinical data support its positioning as a treatment for indications such as pulmonary hypertension (PH) and thrombosis prevention without increased risk of bleeding.

The company recently presented preclinical data for CS585 at the European Hematology Association (EHA) conference, which indicated CS585’s superior selectivity towards the IP receptors in the regulation of platelet activation and thrombosis (vs the FDA-approved IP agonists iloprost and selexipag) using ex-vivo (human blood) and in-vivo (mouse) models. Note that in April 2024, Cereno secured extended patent protection (Notice of Allowance) in Europe for CS585. We expect the selection of a clinical indication within the broader CVD area for CS585 by end-2024, with clinical entry possible in 2025.

As explained in our prior note, following the SEK73.6m cash inflow for the conversion of the TO3 warrants in April 2024, we calculate the company’s pro forma net cash balance to be SEK77.4m (gross cash balance of SEK122.8m net of SEK45.4m of debt outstanding). Provided the remaining SEK45m tranche from the SEK90m debt facility is also drawn down in H224, we expect the pro forma gross liquidity (SEK167.8m) to be sufficient to fund operations through Q225 (excluding debt repayments). We continue to estimate the need for the company to raise SEK150m by Q225 to fund further operations as well as service the SEK90m debt repayment due in May 2025, which we reflect as illustrative debt in our model. We assume licensing deals in 2026 for CS1 and 2027 for CS014, with the partner taking over development activity. However, if these deals do not materialise and the company takes on self-development of its clinical programmes, we estimate it would need to raise SEK200m per year starting in FY26, until the commercial launch of CS1 in 2029 (a total of SEK750m between FY25 and FY28). If the company uses equity issues for this funding, we estimate that it would need to issue c 171.4m shares (assuming the current share price of SEK4.38), which would result in our per share valuation diluting to SEK7.3 per share, from SEK9.0 per share currently.

Exhibit 2: Financial summary

Accounts: K3, year end 31 December, SEK000s

 

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

79,615

87,007

Total revenues

 

44,805

57,538

49,277

79,615

87,007

Cost of sales

 

0

0

0

0

0

Gross profit

 

44,805

57,538

49,277

79,615

87,007

Total operating expenses

 

(59,811)

(85,037)

(93,927)

(122,276)

(131,777)

R&D and other expenses

 

(57,797)

(76,620)

(71,152)

(102,576)

(111,107)

Of which - R&D expenses

 

(44,805)

(57,538)

(49,277)

(79,615)

(87,007)

Of which - other expenses

 

(12,815)

(18,899)

(21,658)

(22,741)

(23,878)

Personnel costs

 

(1,789)

(7,514)

(18,763)

(19,700)

(20,670)

Other operating items

 

(226)

(903)

(4,012)

0

0

Operating income (reported)

 

(15,006)

(27,499)

(44,650)

(42,661)

(44,770)

EBITDA (normalised)

 

(14,992)

(27,485)

(44,636)

(42,646)

(44,770)

Finance income/(expense)

 

(1,245)

(149)

(3,456)

(6,761)

(2,206)

Exceptionals and adjustments

 

0

0

0

0

0

Profit before tax (reported)

 

(16,251)

(27,649)

(48,106)

(49,422)

(46,976)

Profit before tax (normalised)

 

(16,251)

(27,649)

(46,436)

(49,422)

(46,976)

Income tax expense (includes exceptionals)

 

(4)

(6)

0

0

0

Net income (reported)

 

(16,255)

(27,654)

(48,106)

(49,422)

(46,976)

Net income (normalised)

 

(16,255)

(27,654)

(46,436)

(49,422)

(46,976)

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)

(0.18)

(0.17)

Adjusted EPS (SEK)

 

(0.15)

(0.20)

(0.20)

(0.18)

(0.17)

BALANCE SHEET

 

 

 

 

 

 

Intangible Assets

 

89,449

146,987

196,264

275,879

362,886

Fixtures, tools and installation

 

43

29

14

0

0

Other long-term receivables

 

8

10

9

9

9

Total non-current assets

 

89,500

147,025

196,287

275,888

362,895

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

78,657

5,343

Total current assets

 

91,238

68,629

88,699

80,368

7,086

Accounts Payable

 

2,884

9,411

6,930

9,022

9,723

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

25,254

25,955

Long-term Debt

 

0

0

45,000

90,000

150,000

Other debt

 

400

400

400

400

400

Total non-current liabilities

 

400

400

45,400

90,400

150,400

Equity attributable to company

 

170,065

201,511

216,424

240,602

193,627

CASH FLOW STATEMENT

 

 

 

 

 

 

Net profit

 

(16,255)

(27,654)

(48,106)

(49,422)

(46,976)

Depreciation

 

14

14

14

14

0

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

1,911

670

Cash from operations (CFO)

 

(13,137)

(18,615)

(36,915)

(47,497)

(46,306)

Purchase of intangible assets

 

(44,805)

(57,538)

(49,277)

(79,615)

(87,007)

Purchase of PPE

 

0

0

0

0

0

Other investing activities

 

0

0

0

0

0

Cash used in investing activities (CFIA)

 

(44,805)

(57,538)

(49,277)

(79,615)

(87,007)

Loans received

 

0

0

45,000

45,000

150,000

Loan repayments

 

(5,000)

(5,000)

0

0

(90,000)

Equity issued

 

91,398

58,791

61,315

73,600

0

Other Financing Cash Flows

 

(4,825)

(226)

0

0

0

Cash from financing activities (CFF)

 

81,573

53,564

106,315

118,600

60,000

Cash and equivalents at beginning of period

 

66,004

89,635

67,046

87,169

78,657

Increase/(decrease) in cash and equivalents

 

23,630

(22,589)

20,123

(8,512)

(73,313)

Effect of FX on cash and equivalents

 

0

0

0

0

0

Cash and equivalents at end of period

 

89,635

67,046

87,169

78,657

5,343

Net (debt)/cash

 

84,435

66,646

41,769

(11,743)

(145,057)

Source: Company reports, Edison Investment Research


General disclaimer and copyright

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

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General disclaimer and copyright

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

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

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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 Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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.

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London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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Research: Industrials

Severfield — Performing well with improving outlook

Severfield’s FY24 results demonstrate robust profit growth despite declining revenue, and management highlighted the positive outlook in its key markets of the UK, Continental Europe and India. The total order book has also remained at elevated levels despite the loss of the £50m Sunset Studios order, highlighting the underlying future earnings visibility. The FY25e P/E rating of 8.1x is comfortably below the long-term average of c 10x, implying material risk is discounted in the rating. The stock yields over 5% despite a recent bounce in the share price, an added attraction.

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