Cereno Scientific — Differentiated approach in CVD with potential

Cereno Scientific is clinical-stage biotech focused on developing treatments for CVD with unmet medical needs. Cereno was listed on the Spotlight Stock Market in 2016 before moving its listing to the Nasdaq First North Growth Market in June 2023. The company’s portfolio comprises one clinical and two preclinical programmes. Lead candidate CS1 is in Phase II for the treatment of PAH, which is believed to be prevalent in c 100,000 people in the US and Europe. CS1 is a delayed immediate release formulation of VPA, a histone deacetylase inhibitor (HDACi) that has shown epigenetic modulation properties, indicating potentially disease-modifying capability in PAH. Top-line readouts from this study are expected in Q324 (previously in Q224). An Expanded Access Programme for patients on the Phase II trial was accepted by the FDA in January 2024. The current preclinical pipeline has been developed through research collaborations with the University of Michigan and includes CS014, also an HDACi, initially being developed for the treatment of thrombosis without increased risk of bleeding (a key limitation of the current standard-of-care antithrombotics). With preclinical studies completed in 2023, the drug is set to commence a Phase I study in H124. The other preclinical asset, CS585, is an IP agonist, currently under evaluation for different CVD indications backed by preclinical evidence of its potential in thrombosis without increased risk of bleeding.

Cereno is a pre-revenue company and has funded its operations through capital-raising. Following its IPO in 2016 (SEK32m in pre-IPO and IPO gross proceeds), the company has raised another c SEK350m net proceeds through three equity issuances (in 2019, 2020 and 2023) and warrant conversions (TO1 and TO2). In 2024, we expect SEK77m to flow in from conversion of the TO3 warrants and another SEK45m through a loan from Formue Nord Fokus (SEK45m received in 2023). Based on our estimated pro-forma (ie inclusive of the SEK45m loan and SEK77m warrant conversion) gross cash balance (c SEK209m), we expect the company to be funded into Q225 (not including repayment of the SEK90m loan due in May 2025) with an FY24e cash burn of c SEK130m.

We value Cereno at SEK2.32bn or SEK9.9 per share using a risk-adjusted NPV model (discount rate of 12.5%), reflecting contributions from its Phase II clinical candidate CS1 and the Phase I-ready asset CS014. We attribute a 25% probability of success to CS1 in PAH and estimate non-risk-adjusted peak sales of $2.1bn for the target indication and patient population. In 2026, we model the company seeking partnership opportunities and include an upfront payment of $150m (risk-adjusted) during the year. For CS014, we apply a 5% probability of success, assuming the target indications will be deep vein thrombosis (DVT), pulmonary embolism (PE) and stroke prevention in atrial fibrillation (SPAF) with an estimated peak sales potential of $1.9bn. If a partnership deal does not materialise, we estimate the company would need to raise a total of SEK750m from FY25–FY28 before becoming self-sustainable in FY29 following CS1’s launch.

Cereno is exposed to clinical, regulatory and financing risks typical of all biopharma companies. A key sensitivity, in our opinion, is the reliance on a single clinical asset (CS1) to drive the valuation (90% in our model). Phase II readouts are expected in 2024 and will direct the company’s plans. The indication targeted by CS1 (PAH) is a competitive space, with multiple approved drugs and several others in clinical development. A key differentiator of CS1 is its safety profile to date and positioning as a potentially disease-modifying agent. Approval, if received, would likely be for a combination treatment, and the company will have to prove compatibility with existing treatments to receive regulatory support. Another key risk for Cereno will be access to funding. Pivotal trials in PAH may be difficult to recruit and are likely to be costly (given the need for frequent follow-ups and testing), which may be challenging for a small biotech like Cereno to fund independently. The company will have to seek external funding, likely in the form of a partnership or out-licensing. If financings are achieved through equity issuances, the pricing may not be favourable for current shareholders and could lead to significant dilution.

Cereno’s clinical pipeline is focused on the development of innovative, effective and safe therapies for CVD (Exhibit 1). The company’s lead asset is CS1, a delayed immediate release formulation of VPA, an HDACi that has shown epigenetic modulation properties that could be beneficial for the treatment of CVD. CS1 is being developed for the treatment of PAH, an orphan indication characterised by high blood pressure in the lungs. CS1 is in a Phase II trial, supported by Abbott’s CardioMEMS Heart Failure (HF) System for continuous insights into pulmonary pressure and hemodynamics. Interim updates have included a review of the first 16 patients enrolled in the study, with encouraging results, in our view. Notably, the first patient completing the study demonstrated a material improvement in PAH symptoms and was reclassified to functional class I from functional class II as per the WHO classification of PAH patients, indicating disease reversal/modification. These results have led to an Expanded Access Programme (‘compassionate use’), which was accepted by the FDA in January 2024. While these updates may be a positive sign of things to come, top-line data for the trial is expected in Q324, and we believe this represents a major inflection point for Cereno.

The company’s second asset, CS014, also an HDACi, shows potential for the prevention of thrombosis, without increased risk of bleeding. The drug is backed by strong preclinical data, and Cereno is preparing to launch a Phase I clinical trial within H124. Cereno’s third asset, CS585, is in the earlier stages of preclinical development. It is a selective, potent and oral IP agonist, which management believes could be a best-in-class oral treatment in CVD. The positioning of CS585 within the company’s portfolio will be determined once preclinical studies are complete (expected by end-2024). We highlight that the potential of CS585 in CVD has been recognised with publication in Blood, discussion in Blood Podcast and a mention in the Journal of Thrombosis and Haemostasis (review article), which collectively suggests that there is interest within the scientific community in CS585’s potential promise for the next generation of CVD therapies.

CVD encompass various conditions that affect the structure or function of the heart and blood vessels. Despite a growing repertoire of treatments, CVD remains the most common cause of death worldwide, with 17.9 million people dying from CVD in 2019 (32% of global deaths). Thrombosis is a major complication of CVD, which is a leading cause of heart attack and stroke, which account for 85% of all CVD deaths. The World Health Organization (WHO) forecasts 22.2 million deaths in 2030 due to CVD (as cited by the World Heart Federation), double the mortality figures predicted for cancer (11.9 million). In the US, CVD is the cause of one in three deaths, with a related healthcare burden of $216bn annually. The bestselling CVD drugs belong to a category of drugs called direct oral anticoagulants, which are aimed at thrombosis (blood clots in the blood vessels), a key therapeutic area of focus for Cereno.

PAH is a rare form of pulmonary hypertension (PH), which although a well-recognised cardiovascular disease, has its roots in the lungs. While PH can originate from various pathophysiologic conditions, the underlying characterisation remains the same: higher than-normal blood pressure in the lungs or mean pulmonary artery pressure (mPAP) >20 mmHg at rest, pulmonary artery wedge pressure <15 mmHg and a pulmonary vascular resistance (PVR) ≥3 Wood units as measured by right heart catheterisation, the gold standard diagnostic for PH.

According to available estimates, PH affects 1% of the global population (c 80 million people), highlighting the significant disease burden. The World Symposium on Pulmonary Hypertension (WSPH) categorises pulmonary hypertension into five distinct groups, based on the underlying aetiology:

PAH is a complex and aggressive form of PH, where the arteries leading from the right side of the heart to the lungs become stiff, damaged or narrow, making it difficult for blood to flow to the lungs, forcing the right heart ventricle to pump harder, leading to right heart enlargement, damage and eventual failure. PAH is characterised by increasing vasoconstriction (narrowing) and vasculature remodelling (structural changes to the blood vessel wall) of the distal pulmonary arteries, which makes the disease progressive in nature. Common disease symptoms include shortness of breath, fatigue, dizziness and chest pain, which are associated with poor quality of life and significant morbidity and mortality as the disease progresses.

Studies have identified endothelial cell (cells lining the walls of arteries) dysfunction as having a crucial role in the initiation and progression of PAH. Endothelial cell proliferation leads to thickening and remodelling of the arteries, angiogenesis results in the formation of plexiform lesions and alternation in various endothelial mediators causes vasoconstriction.

A clear cause of PAH remains unknown. As noted, PAH can be idiopathic (c 50% of all cases), due to inherited genetic mutations (15–20% of the cases), caused by exposure to drugs or toxins, or because of congenital heart disease or other systemic diseases. PAH is most often diagnosed in women aged 30 to 60, and women are at least twice as likely as men to have PAH. While there is no clear reason for this predisposition, certain theories suggest the role of estrogen and relation to autoimmune conditions, also more prevalent in women.

PAH has an estimated prevalence of 10 people per 100,000 in the worldwide population. Available data indicate that there are c 100,000 PAH cases in the US and Europe. The condition has been classified across four functional classes (FC) by the New York Heart Association (NYHA) and the WHO, based on limitations to physical activity, which is a key element in assessing patients with PAH and an important driver of treatment choice. The two classification systems are similar and used interchangeably (Exhibit 2).

Given the non-specific symptoms at the initial stages of the disease, diagnosis is difficult, with a mean time to diagnosis of 2.3–3.9 years with most patients classified as FC II and III (c 80%). Despite treatment, prognosis for PAH remains poor, with an estimated survival of 70% and 50% at three and five years of diagnosis. The healthcare burden of PAH remains high, with reports citing direct healthcare costs per patient per month varying from $2,476 to $11,875. The need for efficacious treatment options continues to be felt strongly.

There are no curative treatments for PAH, with available options only addressing symptoms or slowing disease progression rather than treating the underlying cellular proliferation causing progression. The current standard of care is a category of drugs termed vasodilators, which widen blood vessels, allowing blood to flow more easily. These drugs target one of the three pathways contributing to pathogenesis of PAH (the endothelin pathway, the nitric oxide (NO) pathway and the prostacyclin pathway) and are classified under four distinct categories: endothelin receptor antagonists (ERA), phosphodiesterase type 5 inhibitors (PDE-5i), soluble guanylate cyclase (sGC) stimulators and prostacyclin analogues or prostacyclin receptor (IP) agonists.

The endothelial cells are implicated in the pathogenesis of PAH. When functioning normally, they release a range of molecules (endothelin, NO, prostacyclin) into the bloodstream, regulating pressure and flow in the arteries by either dilating/vasodilation (using NO and prostacyclin) or constricting/vasoconstriction (using endothelin) of the blood vessels. In PAH, these activities are disrupted (either reduced production of the vasodilators or increased production of vasoconstrictors). Drugs targeting these pathways focus on either inhibiting endothelin activity or stimulating the activity of NO and prostacyclin, to keep the blood vessels open to keep the blood flowing through and the pressure in check (Exhibit 3).

A total of 13 PAH-focused drugs have been approved by the FDA, all of which target one of the three pathways. The current market for PAH-targeting drugs is dominated by two companies, Janssen and United Therapeutics. Of the 13 drugs, five (one ERA, one sGC and three targeting the prostacyclin pathway) currently have market exclusivity. Exhibit 4 presents a snapshot of the available treatments for PAH.

The treatment algorithm has evolved over time from monotherapy to combinations, following real-world evidence suggesting improved outcomes using a combination of drugs. Data from two meta-analyses confirmed that combination therapy leads to a c 35% reduction in the relative risk of clinical worsening.

The latest treatment guidelines by the WSPH recommend treatments to be tailored on risk and patient status, established using validated risk assessment tools such as the WHO-FC stratification, the six-minute walk distance (6MWD) test and N-terminal pro-brain natriuretic peptide (NT-proBNP) levels. In addition, the Registry to Evaluate Early and Long-Term PAH Disease Management (REVEAL 2.0) risk scores and patient reported outcomes are also accepted as measurements in PAH

While low- and intermediate-risk patients are treated with a combination of oral non-prostacyclin therapies, high-risk patients (typically FC IV) are recommended triple combination therapy. Note that while prostanoids/prostacyclin analogues are considered to be potent vasodilators, they are often prescribed only on disease progression or in advanced cases (FC IV) due to their difficult side effect profile (nausea, vomiting, diarrhoea, dizziness, headache) and complex administration (IV, multiple daily dosing may be required).

Available treatment options have allowed the median survival in PAH to increase to seven years (post diagnosis) from 2.8 years without treatment. However, the lack of curative or disease-modifying options means that despite treatment, PAH remains a progressive condition with lung or lung-heart transplant as the eventual option. We believe that if novel therapies under development, such as Cereno’s CS1, display disease-modifying properties, they may usher in a shift in the treatment paradigm in PAH. The commensurate commercial potential is likely to be sizeable, in our opinion.

Two of Cereno’s three assets operate by an epigenetic mechanism of action. Epigenetics refers to the study of changes in how genes are expressed, without alteration of the underlying DNA. Epigenetic modifications influence how certain genes (sequences of DNA) are turned on or off, and can be caused by various external stimuli.

In the nuclei of cells, DNA is packed and organised into 23 pairs of chromosomes. These structures are comprised of DNA wrapped around histones (protein complexes), which compact the genes. The resultant structures, nucleosomes (DNA-wrapped histones), are the building blocks that make up chromatin, which in turn makes up chromosomes. Epigenetic modifications can disrupt the spatial organisation within these structures, changing which genes are accessible for transcription (expression) or inaccessible (silenced). Epigenetic regulation is a natural biological process, but can also be aberrant, contributing to the pathogenesis of various diseases. The term epigenetics encompasses three main types of modification: DNA methylation, histone modification and non-coding RNA.

While epigenetics is a relatively nascent field, the discovery, and approval, of HDACi mark a step toward validating the approach. Just as certain genetic mutations can make people more susceptible to cancer, certain epigenetic changes can also increase the risk of cancer. As such, the four HDACi drugs that have been approved by the FDA are focused on oncology, targeting rare forms of blood cancer.

While HDACi drugs have found utility in oncology, they may also be beneficial in CVD. In cancer, uncontrolled cell proliferation is an essential characteristic, and similarly, endothelial cell proliferation plays a role in the cause of PAH, leading to thickening and remodelling of arteries. VPA, approved by the FDA for the treatment of certain forms of epilepsy, has been shown to cause downregulation of cell proliferation, preventing and partly reversing the progression of PAH in animal models. There is a growing body of evidence to suggest that HDACi drugs may also exert antithrombotic and antifibrotic effects. As discussed in The Lancet Healthy Longevity, VPA has also shown promise in reducing blood pressure by epigenetic regulation, alongside myriad related conditions encompassed by CVD, with the potential for disease-modifying effects. With the pleotropic properties of Cereno’s two leading assets, we believe this may enable a host of possible applications, not necessarily limited to the primary indications being explored (Exhibit 5).

CS1 is a delayed-release oral formulation of VPA, which was approved by the FDA for the treatment of a form of epilepsy in 1978. VPA is also used off-label for the treatment of bipolar disorder and to prevent migraine headaches.

Given that VPA has FDA approval for the treatment of epileptic seizures, we believe this somewhat de-risks the clinical development of CS1 for Cereno as VPA has already demonstrated a desirable long-term safety and tolerability profile. This leads to key advantages for further clinical development efforts, including a potentially faster, and hence less costly, route to market, and a greater probability of success. To further corroborate the potential safety and tolerability of CS1 in PAH, we note that the range of doses being explored in the ongoing Phase II trial (480–1,920mg) is less than what is typically prescribed for the treatment of epilepsy and bipolar disorder (c 2,000mg per day, but if required, the dose may be increased to c 4,000mg per day). However, extrapolating VPA’s safety profile to CS1 is not assured, as CS1 is an optimised formulation of VPA, and may have different pharmacokinetic (PK)/pharmacodynamic properties.

In preclinical studies, CS1 demonstrated an improvement in the endogenous fibrinolytic system, supporting thrombolysis at sites of injury, without increased risk of bleeding. This side effect represents a key challenge in this field, as it is generally difficult to improve the fibrinolytic system without increasing the risk of bleeding, and the next generation of therapies are focused on finding this sweet spot. CS1 is believed to have a dual mechanism of action, as an HDACi that increases levels of tissue plasminogen activator (tPA) and reduces levels of plasminogen activator inhibitor 1 (PAI-1).

While CS1 was initially focused on thrombotic indications, its trajectory shifted to PAH. This was based on third-party research that demonstrated the ability of VPA to reduce pulmonary pressure by mitigating pulmonary vascular remodelling, also referred to as reverse-remodelling, through its effects on lung endothelial cells and vascular smooth muscle cells:

With a supportive body of evidence, we believe that CS1 has a promising multitargeted mechanism of action which may be advantageous as a novel treatment option for PAH.

The FDA has granted orphan drug designation (ODD) to CS1 for the treatment of PAH (awarded March 2020), which we believe provides some recognition of the drug’s plausible utility in this indication. In our view, this regulatory designation should help the company reap greater rewards for developing the drug in terms of drug pricing, tax benefits and lower overall costs of commercialisation, as well as providing a minimum assured period (seven years) of market exclusivity.

The Phase II trial for CS1 in PAH is a randomised, open-label, blinded endpoint, multi-centre study, with 10 specialist clinics in the US and one additional site currently in the late-stage start-up process. The trial, which aims to enrol 30 patients, is designed to evaluate the safety and tolerability of CS1 (primary endpoint), as well as PK, and exploratory efficacy of the drug across three doses (480mg, 960mg and 1,920mg) (see Exhibit 7). We note that patients continue taking their standard-of-care treatment in addition to CS1 as part of the study. A key feature of this trial is the collaboration with Abbott. Abbott’s CardioMEMS HF System is implanted in patients and will continuously monitor pulmonary pressure, alongside other measures of cardiopulmonary function.

First patient dosing took place in August 2022, and as of the latest update (February 2024), 25 evaluable patients had received CardioMEMS (in addition to two patients who already had CardioMEMS fitted), 23 patients were randomised and 19 had completed the 12-week treatment period. While a slower-than-expected recruitment pace was observed across recent months, management has communicated that top-line readouts are now expected in Q324 (previously Q224). In our view, these clinical trial results could represent the most significant upcoming catalyst for Cereno.

The innovative design for the Phase II CS1 clinical trial was recognised with a publication in Pulmonary Circulation, highlighting the comprehensive primary and secondary endpoints built into the design. This includes primary goals of safety and tolerability, alongside various functional, hemodynamic and structural measures and biomarkers, as well as patient-reported outcomes to inform on treatment effects and disease progression. Abbott’s CardioMEMS HF System is also an important component of the study (Exhibit 8). CardioMEMS is implanted in the pulmonary artery of every participant, whereby they can be remotely monitored each day for pulmonary hemodynamics and right heart ventricle function. The benefits of CardioMEMS in the trial include: unique efficacy data points, use of a relatively smaller patient population due to the insights and data sensitivity provided by the technology, and support in the determination of an optimal dose range for further clinical studies. We believe that the CardioMEMS HF System can provide valuable insights demonstrating safe and effective monitoring of pulmonary pressure over time.

Interim updates for this Phase II trial have been positive. In June 2023, Cereno reported a patient case study, initiated by a trial investigator. This focused on the first patient completing the treatment protocol, and was conducted to monitor the utility of the CardioMEMS HF System used in the trial. The patient (a 51-year-old female) had symptomatic PAH for three years (NYHA/WHO FC II) prior to enrolment. She was randomised to receive CS1 at the highest tested dose (1,920mg).

The outcome, based on measures across the 12-week treatment protocol, indicated a positive result in terms of pulmonary arterial pressure (PAP) and cardiac function (Exhibit 9). Mean PAP (mPAP, measured in mmHg) decreased by 30%, while cardiac output (measured in L/min) increased by 19%. Right ventricular stroke volume also increased with CS1 treatment, alongside stroke volume index and right ventricular efficiency. These changes were associated with reduced right ventricular stroke work, and a 43% reduction in total pulmonary resistance (measured in dynes.sec.cm-5). Importantly, these observations were not accompanied by any adverse events related to the CardioMEMS device or CS1 treatment. To further corroborate these signs of efficacy, the patient’s status improved from NYHA/WHO FC II to FC I at the end of the 12-week treatment period.

While encouraging, we acknowledge that this case study represents the outcome for just one patient, and is not representative of the full population.

In September 2023, a Data Quality Control Review (DQCR) was conducted (analysis released in October 2023), which focused on the data collected by CardioMEMS from the first 16 patients enrolled in the study. According to the DCQR, CardioMEMS measurements were deemed satisfactory, adhering to the protocol with the timely transfer of data from patient to clinic. Importantly, an early indicator of efficacy was also realised, whereby several patients included in the DQCR saw a clinically meaningful reduction in pulmonary pressure after three weeks of treatment, measured with the CardioMEMS HF System over time (evaluated by area under curve of mean PAP, AUC mPAP, mmHg days – an efficacy indicator in PAH). These improvements were either of a similar or greater magnitude as seen in the patient case study. The DQCR did not identify any concerning issues with the study. Other key insights included: >60% of patients (across all doses of CS1) showed a sustained reduction in mPAP; efficacy responses showed signs of following a dose-response pattern; an early onset of action was observed after week three for several patients; and a sustained reduction in mPAP was observed in the two-week follow-up period after treatment discontinuation (thus after the 12 weeks of treatment). In our view, these observations support the clinically meaningful efficacy of CS1, including potentially disease-modifying effects, in PAH patients in addition to the current standard-of-care treatment. However, more detailed conclusions cannot be drawn until the trial has been completed and an analysis is conducted on the full data.

In January 2024, the FDA granted Expanded Access (or ‘compassionate use’) to CS1 for PAH. This enables an Expanded Access Programme, making CS1 available for patients in an extension of the Phase II trial. It was requested following the positive interim updates from the case study and DQCR, alongside prompts from multiple investigators. The programme also allows Cereno to collect longer-term safety and efficacy data, which may facilitate future discussions with the FDA regarding fast track or breakthrough therapy designations, and even an application for pivotal trials. We also note that Cereno has signed an agreement with CordenPharma to manufacture CS1 for the EAP, as well as for future clinical trials, securing long-term availability of the drug. The granting of Expanded Access for CS1 marks a key milestone for Cereno, in our view. Attention now turns to the Phase II trial readouts, expected in Q324, and given the promising interim updates we are confident there is a high likelihood of positive efficacy findings.

While several PAH-specific drugs have entered the market in the last two decades, they all target the same three pathways (endothelial, NO and prostacyclin). With growing interest on targeting the underlying cause of PAH, research has intensified towards developing potentially disease-modifying treatments. Some of the targeted mechanisms of action include bone morphogenetic protein (BMPR2) signalling, tyrosine kinase receptors, epigenetics, serotonin metabolism, estrogen metabolism, extracellular matrix and angiogenesis. Exhibit 10 presents a selection of treatments in development for PAH, seeking disease modification.

Leading the category of potentially disease-modifying PAH treatments is Merck’s sotatercept, an activin signalling inhibitor monoclonal antibody, currently undergoing the FDA regulatory review process (PDUFA set for 26 March 2024). Sotatercept works by decreasing the proliferation of cells in the pulmonary artery walls, targeting the underlying arterial stiffening that causes PAH. Merck presented encouraging data for its pivotal Phase III STELLAR trial, a randomised, double-blind, placebo-controlled study with 324 FC II and FC III PAH patients, meeting the primary endpoint (improvement in 6MWD from baseline at 24 weeks) and eight of the nine secondary endpoints with statistical significance.

The second most advanced asset is the inhaled platelet-derived growth factor receptor (PDGFRα and PDGFRβ) inhibitor/tyrosine kinase inhibitor seralutinib (Gossamer Bio). In December 2022, Gossamer Bio reported top-line data from its Phase II trial, TORREY (n=86), which met its primary endpoint, reporting a 14.3% improvement in PVR from baseline to week 24. However, it did not meet the secondary endpoint, the 6MWD, where the improvement from baseline was not statistically significant. Management attributed this to the trial not being sufficiently powered and balanced for disease severity. Results for the subset of FC III patients were more promising (21% reduction in PVR and 37 metre improvement in 6MWD). In December 2023, the company initiated a Phase III study (PROSERA) with a modified design influenced by the Phase II results (enrolling patients categorised as FC II or FC III with higher risk scores, and lower 6MWD and higher PVR at baseline).

Given the current phase of clinical development and strength of data, we expect sotatercept and potentially seralutinib to enter the market before CS1. However, we believe that CS1’s favourable safety profile to date and its convenient dosing could be a key differentiator if disease modification is proved. Moreover, the given the heterogeneity of PAH and the different mechanism of actions of all three drugs, they could complement rather than compete with one another. The benefit of combination treatments is already evident in PAH and may hold true for other mechanisms of actions as well, in our opinion.

In the previous section, we alluded to the different mechanism of action and profile of CS1 compared to other disease-modifying drugs in development. Based on internal analyses conducted by Cereno, we present a relative comparison of CS1 versus other selected disease-modifying treatments in development for PAH (Exhibit 11). We note that these comparisons are based on available and observable data and not on direct head-to-head analysis. We highlight that CS1 has been designed to be dosed orally, offering advantages compared to the majority of competitors focused on injection- or inhaler-based therapies, most notably due to patient compliance.

CS014 was developed as part of a preclinical HDACi programme focused on epigenetic modulation. It was acquired from Emeriti Bio in March 2019 and has since been in development as part of a collaboration between Cereno and Emeriti Bio. CS014 is being developed as a potential treatment for thrombosis (protection against blood clots).

The global antithrombotic market was valued at c $29bn in 2022, and is projected to reach c $46bn by 2028. However, an ongoing challenge with the current standard of care in thrombosis is the risk of bleeding, as approved antithrombotic therapies target systemic inhibition of coagulation/platelet function. This may lead to an insufficient preventative effect with current treatment, potentially due to under dosing to avoid this side effect. We therefore see an opportunity for novel preventative approaches, with improved efficacy and reduced risk of bleeding.

Preclinical studies with CS014 have demonstrated its ability to prevent thrombosis (both venous and arterial thrombosis) through inhibition of platelet activity (reducing platelet accumulation and clotting) and increasing fibrinolytic capacity (removal of fibrin), without increased risk of bleeding. In one study, this was exemplified using an animal model (cremaster mouse model), whereby mice were either treated for five days with CS014 (at 100mg/kg), or saline as a control, and then subjected to a laser-induced vascular injury. Through in vivo intravital microscopy (Exhibit 12, left), the control shows significant clotting (platelets shown in green, fibrin shown in red). However, the animal treated with HDACi CS014 showed an inability to induce a significant clot following injury, with a notable reduction in platelets and fibrin. Inhibition of thrombosis was also confirmed to attenuate platelet activation and fibrin formation with high reproducibility (up to 40 experiments for each condition, Exhibit 12, right).

In a separate study focused on a low shear venous system, mice were subject to puncture injuries in the saphenous vein. As part of this re-bleeding injury experiment, the injury was repeated at 0, five and 10 minutes. In the control condition, significant spikes in platelet accumulation and fibrin formation were observed at the site of the injury, whereas in the animals treated with CS014, there was no clot formation (Exhibit 13, left and middle). Finally, a tail vein bleeding assay was performed to assess whether treatment with CS014 causes increased risk of bleeding. The results showed negligible difference in bleeding time, regardless of treatment with either control or CS014 (Exhibit 13, right).

Given the data published to date, we believe that CS014 has the potential to be an effective treatment option for both venous thrombosis and arterial thrombosis. We understand that management is in the process of finalising preclinical research that will guide which of these two indications will be pursued as a priority. The safety programme for CS014 has been successfully completed, and Cereno is now preparing to initiate Phase I studies for CS014 in H124; we plan to publish a more detailed analysis on this asset on its entry into the clinic.

CS585 was in-licensed from the University of Michigan in 2023 and, albeit in earlier stages in development, it has shown promise as a potential treatment for thrombosis prevention without increased risk of bleeding in preclinical research. CS585 is a novel IP receptor agonist. It is being developed for the treatment of CVD, and we note that the precise indication to be targeted has not yet been determined. However, data from preclinical studies have been encouraging, and some of this research has been recognised with publication in Blood. We highlight a key preclinical study demonstrating the potential of CS585 as a selective, potent and oral drug for thrombosis prevention without increased risk of bleeding (Exhibit 14). In human blood (ex-vivo), the data provide a visual representation of the effect of CS585 treatment in reducing platelet activation in a concentration-dependent manner. Preclinical studies are expected to continue throughout 2024.

Cereno is exposed to clinical, regulatory and financing risks typical of all biopharma companies. A key sensitivity, in our opinion, is the reliance on a single clinical asset (CS1) to drive the valuation (c 90% in our model). Phase II readouts are expected in Q324 and will direct the company’s plans. The indication targeted by CS1 (PAH) is a very competitive space, with multiple approved drugs and several others in clinical development. A key differentiator of CS1 is its strong safety profile to date, convenient oral dosing and positioning as a potentially disease-modifying agent. However, we believe the clinical results will have to display added benefits over the standard of care to unlock full commercial potential. Approval, if received, will likely be for an add-on combination treatment, and the company will have to prove compatibility with existing treatments (no drug-drug interaction) to receive regulatory support. The clinical pipeline for PAH has two other potentially disease-modifying treatments ahead of CS1 in clinical development, in particular sotatercept, which has a March 2024 PDUFA date. Another key risk for Cereno will be access to funding. Pivotal trials in PAH may be difficult to recruit and are likely to be costly, which may be challenging for a small biotech like Cereno to fund independently. The company will have to seek external funding, likely in the form of partnership or out-licensing, to progress the clinical development of CS1. If financings are achieved through equity issuances, the pricing may not be favourable for current shareholders and could lead to significant dilution.

We value Cereno at SEK2.32bn or SEK9.9 per share using a risk-adjusted NPV model (discount rate of 12.5%), reflecting contributions from its Phase II clinical candidate CS1 and the late-stage preclinical asset CS014. We also incorporate the latest available net cash position of SEK41.7m (as of 31 December 2023).

For CS1, we expect the Phase III development to commence in 2026. We believe that following the expected Phase II data readout in 2024, it will take another 12–15 months for the company to have a pre-Investigational New Drug meeting with the FDA, prepare the data package and subsequently file for and receive regulatory approval for the Phase III trial. We note that Cereno has faced delays in patient recruitment in the past, which resulted in the Phase II readout time being extended on three occasions. We have therefore conservatively embedded the possibility of further readout delays in our estimates. We believe, however, that the recent approval by the FDA in granting Expanded Access (although initially limited to patients who have completed the trial) will offset any impact from the delay given the additional longer-term data gathered, which should support building a stronger data package. We also note the possibility of the regulators asking for another Phase II study given the small patient cohort (n=30) of the current trial, although we acknowledge that utilising the CardioMEMS technology for continuous reading makes the data more sensitive, which could compensate for the need for a larger patient pool. For our model, we do not factor in a requirement for an additional Phase II trial before the initiation of a pivotal Phase III programme.

We model the company seeking partnership opportunities prior to commencement of Phase III studies in 2026. We estimate a deal value of $1.5bn with an upfront payment of $150m (risk-adjusted) during that year. We also assume that the remaining milestone payments of $1.35bn will be split 30:70 between development and sales milestone payments, which we have accounted for over the course of clinical development and subsequent commercialisation of CS1. We also include royalty payments on commercial scales assuming a flat 15% royalty rate. We note that the assumed deal value is higher than the average licensing deals in the space (see Exhibit 15) but highlight that these largely related to vasodilators. We believe that the disease-modifying potential of CS1 justifies a premium. For reference, the parent company for sotatercept, Acceleron Pharma, was acquired by Merck in 2021 for a $11.5bn consideration, with sotatercept described as a lead asset as part of this deal. We also highlight that the assumed deal dynamics are subject to revision and potentially upgrades, based on the strength of the data presented by the company on CS1 as clinical development progresses.

Based on the recent Phase III trial for sotatercept and the ongoing Phase III study for seralutinib, we assume that CS1 will also be targeting the patient cohort characterised as FC II and FC III as an add-on treatment for patients who progress on baseline therapy. We model for the US launch to happen in 2029 followed by Europe (EU and the UK) in 2030. We forecast sales to the end of exclusivity period (2040 expected), with peak sales estimated to be achieved in 2038. We attribute a 25% probability of success to CS1 in PAH and estimate non-risk-adjusted peak sales of $2.1bn for the target indication and patient population. This is based on an assumed list price of $250,000/patient/annum in the US, adjusted for a gross-to-net discount of 30%. The pricing is in line with the expected price for sotatercept and a premium to the c $125,000–200,000 price tag for the approved IP agonists. If successful, we highlight the possibility of label expansion to treatment for all functional classes (including FC I and FC IV), as well as related PH conditions, such as PH associated with interstitial lung disease, which would add to the upside potential.

For CS014, we apply a 5% probability of success, assuming the initial target indications will be DVT and PE (prevalence of 0.1% of global population) as well as SPAF (0.5% of global population), in line with the initial conditions targeted by antithrombotics. We restrict our geographic focus to the US and Europe for now. Note that these assumptions may change with clinical progression and further clarity on target areas. We estimate a peak sales potential of $1.9bn for CS014. As CS585 is still early in its preclinical journey, it is excluded from our valuation, but could further add to the upside on successful clinical transition.

Specific modelling related assumptions are detailed in Exhibit 16.

Our valuation for Cereno, detailed by assets, is presented in Exhibit 17.

Cereno is a pre-revenue company and has, until now, funded its operations through capital-raising. Following its 2016 IPO, which netted a total of SEK32m in pre-IPO and IPO gross proceeds, the company has raised further equity capital three times (in 2019, 2020 and 2023), along with additional capital from the exercise of related warrants. According to our calculations, the three raises and warrant conversions (TO1 and TO2) have netted the company an additional c SEK350m in funds. The most recent equity raise was a rights issue in May 2023, whereby Cereno raised SEK77m in funding. We expect another SEK77m to flow in from the expected conversion of the attached TO3 warrants (available for exercise between 19 February and 1 March 2024), which have a maximum exercise price of SEK1.6 (significantly lower than the current trading price of SEK4.50/share). In addition, the company has raised another SEK100m through loan issues to date (SEK10m raised in September 2020 and subsequently repaid), including a SEK90m loan raised from Formue Nord Fokus in November 2023. The loan can be drawn down in two equal tranches. The first was utilised immediately and the second tranche can be drawn down at the company’s discretion until August 2024. The loan is subject to a 5% set-up fee (recognised as interest expense in Q423) and carries an interest rate of the 3M Stibor+10% (equivalent to c 14%). The loan matures in May 2025.

In FY23, Cereno reported an operating loss of SEK44.7m, up 62.6% y-o-y from the FY22 figure of SEK27.5m. This was primarily driven by a 150% increase in personnel costs to SEK18.7m (due to the implementation of an incentive program in Q423 – 2023/2026 warrants), from SEK7.5m in the previous year. The company capitalises its R&D but we understand from the disclosed P&L figures that the amount is also shown as income (capitalised work for own account), offset by being included as part of other external costs. Based on these disclosures, we calculate the FY23 R&D expense to be SEK49.3m, down from SEK57.5m in FY22. The net loss for the period was SEK48.2m versus SEK27.6m in FY22. The FY23 free cash outflow was SEK82.2m, up 9.3% from the comparative figure of SEK75.3m. We expect R&D and other operating costs to continue to rise over the explicit forecast period (FY24 and FY25) as clinical work on CS1 continues and the preclinical pipeline transitions to the clinic (CS014 in H124). We estimate R&D expenses of SEK79.6m in FY24 and SEK87.0m in FY25 and operating losses of SEK42.7m and SEK44.9m for the two years, respectively. We note that the R&D costs are capitalised and will start amortising once the assets are commercialised. We project cash burn of SEK128.9m in FY24 and SEK135.0m in FY25.

The company exited FY23 with a gross cash balance of SEK87.1m, which included contributions from the equity issue as well as the debt raise during the year. We expect the series TO3 warrants to be converted if the current trading performance continues, bringing another SEK77m in funds. If the remaining SEK45m tranche from the SEK90m debt facility is drawn down, we expect the pro forma cash balance (c SEK209m, inclusive of the SEK77m and SEK45m amounts discussed above) to be sufficient to fund operations into Q225. We estimate the company needs to raise SEK150m by Q225 to fund operations for the year as well as service the SEK90m debt repayment due in May 2025, which we reflect as illustrative debt in our model. We assume a licensing deal in 2026, with the partner taking over development activity. However, should such a deal not materialise, and the company takes up self-development of its clinical programmes, we estimate the need to raise SEK200m per year starting in FY26, until the commercial launch of CS1 in 2029 (total of SEK750m between FY25 and FY28). If the company uses equity issues for this funding, we estimate the company would need to issue 166.7m shares (assuming the current share price of SEK4.50), which would result in our per-share valuation diluting to SEK5.7 per share, from SEK9.9 per share currently.