IRLAB Therapeutics — External validation boosts quarterly recap

IRLAB Therapeutics (OMX: IRLAB-A)

Last close As at 19/06/2024

SEK13.50

0.20 (1.50%)

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Research: Healthcare

IRLAB Therapeutics — External validation boosts quarterly recap

In its Q124 report, IRLAB recapped its efforts in targeting major aspects of Parkinson’s disease (PD). The update was enhanced by the recently announced R&D collaboration for IRL757, which is anticipated to fully fund all development activities through clinical proof-of-concept and support the advancement of the development programme through efficacy signal readouts in both PD and Alzheimer’s patient populations. IRLAB will take the compound into a Phase I study, funded by the MJFF, later this month. Both of IRLAB’s most advanced assets continue to progress through the clinic, with management gearing up for Phase III for mesdopetam and ongoing patient enrolment for pirepemat (Phase IIb). Gross cash at end Q124 of SEK73.1m, with receipt of the US$3.0m upfront payment from the McQuade Center for Strategic Research and Development (MSRD) and drawdown of the remaining SEK25m (SEK55m facility), should see operations into Q125, past key events. Our valuation increases to SEK4.25bn or SEK81.9/share from SEK4.04bn or SEK77.9/share.

Soo Romanoff

Written by

Soo Romanoff

Managing Director - Head of Content, Healthcare

DSF9408

Healthcare

IRLAB Therapeutics

External validation boosts quarterly recap

Q124 results

Pharma and biotech

13 May 2024

Price

SEK13.05

Market cap

SEK529m

SEK10.87/US$

Net cash (SEKm) at 31 March 2024 (ex-lease liabilities)

47.6

Shares in issue

51.9m

Free float

61.5%

Code

IRLAB-A

Primary exchange

Nasdaq Stockholm

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.7)

(10.3)

45.0

Rel (local)

(7.0)

(19.4)

21.5

52-week high/low

SEK19.6

SEK5.9

Business description

Based in Sweden, IRLAB Therapeutics is focused on developing novel drugs for the treatment of neurodegenerative diseases utilising its ISP technology platform. Its two lead assets are in late-stage clinical trials for the symptomatic treatment of Parkinson’s disease: mesdopetam (D3 antagonist) and pirepemat (PFC enhancer).

Next events

IRL757 Phase I initiation

May 2024

Mesdopetam out-licensing deal

2024

Top-line Phase IIb pirepemat data

Q424 or Q125

Analysts

Soo Romanoff

+44 (0)20 3077 5700

Dr Arron Aatkar

+44 (0)20 3077 5700

Jitisha Malhotra

+44 (0)20 3077 5700

IRLAB Therapeutics is a research client of Edison Investment Research Limited

In its Q124 report, IRLAB recapped its efforts in targeting major aspects of Parkinson’s disease (PD). The update was enhanced by the recently announced R&D collaboration for IRL757, which is anticipated to fully fund all development activities through clinical proof-of-concept and support the advancement of the development programme through efficacy signal readouts in both PD and Alzheimer’s patient populations. IRLAB will take the compound into a Phase I study, funded by the MJFF, later this month. Both of IRLAB’s most advanced assets continue to progress through the clinic, with management gearing up for Phase III for mesdopetam and ongoing patient enrolment for pirepemat (Phase IIb). Gross cash at end Q124 of SEK73.1m, with receipt of the US$3.0m upfront payment from the McQuade Center for Strategic Research and Development (MSRD) and drawdown of the remaining SEK25m (SEK55m facility), should see operations into Q125, past key events. Our valuation increases to SEK4.25bn or SEK81.9/share from SEK4.04bn or SEK77.9/share.

Year end

Revenue (SEKm)

PBT*
(SEKm)

EPS*
(SEK)

DPS
(SEK)

P/E
(x)

Yield
(%)

12/22

61.3

(113.1)

(2.18)

0.0

N/A

N/A

12/23

5.7

(177.8)

(3.43)

0.0

N/A

N/A

12/24e

32.6

(160.0)

(3.08)

0.0

N/A

N/A

12/25e

0.0

(188.0)

(3.62)

0.0

N/A

N/A

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

Key FY24 milestones ahead for clinical-stage assets

IRLAB continues to progress its two lead assets, including mesdopetam, which received positive FDA feedback to enter Phase III studies (announced in March 2024) based on the prior Phase IIb data and successful end-of-Phase II (EoP2) meeting with the regulators. The company’s second clinical asset, pirepemat, generated new insights from the ongoing Phase IIb trial. Patient recruitment remains on track (Q324), with top-line results expected in Q424 or Q125.

IRL757 set to enter the clinic

IRLAB also advanced its preclinical pipeline. Most notably, IRL757 (treatment of apathy) is anticipated to advance into the clinic (Phase I) funded by the Michael J Fox Foundation (MJFF), which is due to start recruitment this month. The announced R&D collaboration with the MSRD follows on the heels of the clearance by European regulatory authorities to conduct this first clinical study with IRL757.

Valuation: SEK4.25bn or SEK81.9 per share

As we roll our model forward, we increase our valuation to SEK4.25bn or SEK81.9 per share, up from SEK4.04bn or SEK77.9/share previously (a positive FX partially offset by lower cash levels). There is potential upside for the inclusion of IRL757, which has not yet been included. We will revisit our estimates with the initiation of the Phase I trial. The SEK73.1m gross cash at end Q124, with receipt of the US$3.0m (SEK32.6m) upfront payment from the MSRD and drawdown of the remaining SEK25m of SEK55m facility, should see operations into Q125, past key upcoming events such as a potential licensing deal for mesdopetam and results of the Phase IIb pirepemat trial.

Multiple inflection points anticipated in 2024

IRLAB is dedicated to developing novel treatments for PD, as well as other neurodegenerative conditions, and has a therapeutic pipeline targeting all major aspects of PD (Exhibit 1). As expected, the company remained active in Q124. Provided plans progress as anticipated, IRLAB’s pipeline will span all stages of clinical development by end 2024.

Exhibit 1: IRLAB pipeline

Source: IRLAB Q124 report

We expect the remainder of 2024 to be eventful and highlight the following key milestones for each of the company’s assets:

Mesdopetam is a Phase III-ready D3 antagonist being developed for levodopa-induced dyskinesias (PD-LIDs). In March 2024, IRLAB announced the outcome of a successful EoP2 meeting with the FDA, confirming the FDA’s alignment on the plans for mesdopetam and reaching an agreement for the design of the Phase III programme. This programme will recruit 200–250 patients for a treatment duration of 12 weeks, at a dosage of 7.5mg BID. The primary endpoint will be based on parts 1, 3 and 4 of the Unified Dyskinesia Rating Scale (UDysRS), the same clinical measure that formed the basis of the Gocovri approval (Adamas). Secondary endpoints will be based on sub-sections of UDysRS, the MDS Unified Parkinson’s Disease Rating Scale and 24-hour patient motor diaries. Following the encouraging outcome of the FDA EoP2 meeting, management is preparing for meetings with European regulatory agencies and is engaged in intensified discussions with potential collaboration/out-licensing partners. We understand that a partnership will be required to advance this programme to the final stages of development. While we expect a material update on timelines once this has been finalised, management has noted that, although subject to possible delays, a partner could be signed and the Phase III trial could commence by end-2024.

Pirepemat is a prefrontal cortex enhancer currently being investigated in a Phase IIb trial (REACT-PD) as a potential treatment to improve balance and reduce falls in PD patients (PD-Falls). As discussed in our FY23 results note, the latest update for this programme revealed insights on severity in the PD-Falls study population. An analysis of the baseline data showed that participants were two to three times more likely to experience falls than anticipated. It was also found that individual fall rates were notably consistent throughout the one-month study run-in before commencing pirepemat treatment. As this creates an increased probability of demonstrating treatment-dependent effects, IRLAB requested the trial protocol to be amended, reducing the number of patients required to complete the study while aiming to retain the pre-agreed statistical power. As part of its Q124 results, management confirmed that regulators accepted these amendments and noted that patient recruitment remains on track to be completed in Q324. There will be a one-month baseline period and a three-month treatment period with follow-up visits. We expect top-line results in either Q424 or Q125.

IRL757 is ready for first-in-human studies, as per the recent news that the MSRD will fully fund all development activities through clinical proof-of-concept and support the advancement of the development programme through efficacy signal readouts in both PD and Alzheimer’s patient populations. Under the deal terms, the MSRD will pay IRLAB US$3m in upfront payments and up to US$5.5m in potential milestone payments. The MSRD will also have the opportunity to extend the collaboration, subject to negotiations. If the agreement is not extended, the MSRD could be entitled to low single-digit royalties under certain circumstances. We highlight that the current collaboration with the MSRD is not a licence agreement and does not give the MSRD the right to commercialise a potential future drug. Contingent on the clinical data, both parties may choose to enter a customary licence agreement at a later stage, which could potentially generate significant milestone and royalty income for IRLAB. We note that the planned Phase I trial will be funded by the US$2m grant received from the MJFF, announced in December 2023. Patient enrolment is due to commence in May 2024.

IRL942 and IRL1117 are earlier in the development process, currently in the preclinical stages of development:

IRL942 is being developed to improve cognitive impairment for neurological conditions, with the current focus on manufacturing the candidate for IND-enabling studies. More specifically, management aims to have conducted toxicology and safety studies during 2024 and, subject to delays, IRL942 could be Phase I-ready by end-2024 or in H125, dependent on time slots with the designated contract research organisation. While the MSRD was evaluating the possibility of a collaboration for IRL942, we understand the announced collaboration will focus solely on IRL757.

IRL1117 is being developed as a once-daily PD treatment, either as a monotherapy with the potential to replace levodopa or as an adjuvant. In-house activities for this programme are expected to progress throughout 2024, and we expect more material updates from management as information becomes available.

Financials

In Q124, IRLAB recorded operating expenses of SEK37.6m, 36.8% lower than the SEK59.5m reported in Q123. This reduction was driven by a material decline in personnel and R&D costs. Personnel costs decreased by 48.1% y-o-y to SEK11.0m, driven by a SEK10.6m one-off cost recorded last year associated with the exit of the former CEO. R&D expenses (which were disclosed separately from the income statement) were down 30.7% y-o-y in Q124 due to conclusion of the Phase IIb mesdopetam study in early 2023, and stood at SEK28.9m, which corresponded to 77% of the group’s total operating expenses (versus a 70% share in Q123). In the absence of any revenue in this quarter, the operating loss was equivalent to total operating expenses, and stood at SEK37.6m (vs SEK59.5m in Q123). Operating cash outflows for Q124 amounted to SEK38.2m, slightly lower than SEK41.5m in Q123.

Reflecting receipt of the US$3m (or SEK32.6m) upfront payment from the announced R&D collaboration agreement with the MSRD for IRL757, we have increased our FY24 revenue forecast. For now we have kept our operating expense assumptions relatively unchanged (we make a minor adjustment to our depreciation forecast) and plan to reassess with the potential inclusion of IRL757 to our valuation and the upcoming commencement of its Phase I trial. As a result, our FY24 operating loss estimate improves to SEK157.6m, from SEK189.0m previously. Our FY25 operating loss estimates are largely unchanged, although we note that there is upside from the potential receipt of the US$5.5m activity-based milestone payments under the MSRD collaboration deal.

IRLAB ended Q124 with a gross cash position of SEK73.1m and a net cash position of SEK47.6m. We note that the company still holds the right to exercise the remaining SEK25m (from the SEK55m loan facility announced in December 2023). We estimate that the current gross cash balance, plus the draw down of the remaining SEK25m tranche and the SEK32.6m upfront payment received under the MSRD deal (pro forma gross cash of SEK130.7m) is expected to support the company’s operations into Q125, past key upcoming events including securing a potential licensing deal for mesdopetam and the results of Phase IIb pirepemat trial, in line with management expectations.

In the absence of any mesdopetam partnership, we continue to estimate that management will need to raise approximately SEK600m through FY26 before becoming self-sustainable in FY28 (with the projected launch of mesdopetam). We account for this capital requirement as illustrative debt in our model, assuming a SEK200m raise each year from FY24 to FY26. Alternatively, if it raises these funds through an equity issue, IRLAB would have to issue 46.0m shares (assuming the current trading price of SEK13.05), resulting in our per-share valuation decreasing to SEK49.6 from SEK81.9 currently (the number of shares outstanding would increase from 51.9m to 97.8m).

Valuation

Our updated long-term assumptions and valuation drivers (presented in a prior update note), remain unchanged (following the Q124 results). However, we note the positive impact of rolling our model forwards and updated FX rate (US$/SEK rate changed to 10.87 from 10.86 previously), which is slightly offset by the reduction in the net cash figure to SEK47.6m (versus SEK86.8m previously). As a result of these adjustments, our valuation increases to SEK4.25bn or SEK81.9 per share from SEK4.04bn or SEK77.9 per share previously, based on a risk-adjusted net present value (rNPV) approach.

We note the potential upside to our valuation given the new R&D collaboration deal in place for IRL757 (Phase I ready). We plan to reassess our estimates following the commencement of its Phase I trial and clarity on material trial details such as trial size/design.

Exhibit 2: IRLAB Therapeutics rNPV valuation

Product

Indication

Launch

Peak

Peak sales
(US$m)

Value (SEKm)

Probability

rNPV (SEKm)

rNPV/share (SEK)

Mesdopetam

PD-LIDs

2028

2034

1,268.5

5,031.9

40%

2,019.0

38.9

Mesdopetam

PD-Psychosis

2032

2038

726.5

1,231.2

20%

233.1

4.5

Pirepemat

PD-Falls (postural hypotension)

2029

2035

1,057.2

6,526.0

30%

1,950.7

37.6

Net cash at 31 March 2024

 

 

 

47.6

100%

47.6

0.9

Valuation

 

 

 

12,836.8

4,250.5

81.9

Source: Edison Investment Research

Exhibit 3: Financial summary

Accounts: IFRS, year-end: 31 December, SEK’000s

 

 

2021

2022

2023

2024e

2025e

PROFIT & LOSS

 

 

 

 

 

 

 

Total revenues

 

 

207,906

61,277

5,720

32,609

0

Cost of sales

 

 

0

0

0

0

0

Gross profit

 

 

207,906

61,277

5,720

32,609

0

Total operating expenses

 

 

(155,330)

(174,386)

(186,486)

(190,191)

(174,762)

Research and development expenses

 

 

(129,748)

(146,178)

(151,312)

(152,153)

(140,000)

EBITDA (reported)

 

 

56,050

(108,330)

(176,450)

(152,918)

(173,615)

Operating income (reported)

 

 

52,576

(113,109)

(180,766)

(157,583)

(174,762)

Operating margin %

 

 

N/A

N/A

N/A

N/A

N/A

Finance income/(expense)

 

 

(795)

(297)

2,927

(2,374)

(13,194)

Exceptionals and adjustments

 

 

0

0

0

0

0

Profit before tax (reported)

 

 

51,781

(113,406)

(177,839)

(159,956)

(187,956)

Profit before tax (normalised)

 

 

91,131

(113,147)

(177,839)

(159,956)

(187,956)

Income tax expense (includes exceptionals)

 

 

0

0

0

0

0

Net income (reported)

 

 

51,781

(113,406)

(177,839)

(159,956)

(187,956)

Net income (normalised)

 

 

91,131

(113,147)

(177,839)

(159,956)

(187,956)

Basic average number of shares, m

 

 

51.7

51.8

51.9

51.9

51.9

Basic EPS (SEK)

 

 

1.00

(2.19)

(3.43)

(3.08)

(3.62)

Adjusted EPS (SEK)

 

 

1.76

(2.18)

(3.43)

(3.08)

(3.62)

Dividend per share (SEK)

 

 

0.00

0.00

0.00

0.00

0.00

BALANCE SHEET

 

 

 

 

 

 

 

Tangible assets

 

 

8,348

8,009

6,671

2,306

1,459

Intangible assets

 

 

42,661

46,862

46,862

46,862

46,862

Other non-current assets

 

 

0

0

0

0

0

Total non-current assets

 

 

51,009

54,871

53,533

49,168

48,321

Cash and equivalents

 

 

401,897

252,776

111,309

177,662

135,553

Inventories

 

 

0

0

0

0

0

Trade and other receivables

 

 

19,543

15,908

12,278

12,278

12,278

Other current assets

 

 

0

0

0

0

0

Total current assets

 

 

421,440

268,684

123,587

189,940

147,831

Non-current loans and borrowings

 

 

0

0

24,511

249,511

394,511

Non-current lease liabilities

 

 

3,566

381

115

0

0

Other non-current liabilities

 

 

0

0

0

0

0

Total non-current liabilities

 

 

3,566

381

24,626

249,511

394,511

Accounts payable

 

 

4,634

0

0

0

0

Non-current loans and borrowings

 

 

0

0

0

0

0

Current lease liabilities

 

 

3,034

3,595

2,940

0

0

Deferred Income

 

 

42,576

0

0

0

0

Other current liabilities

 

 

19,158

28,748

33,792

33,792

33,792

Total current liabilities

 

 

69,402

32,343

36,732

33,792

33,792

Equity attributable to company

 

 

399,481

290,830

115,764

(44,192)

(232,148)

CASH FLOW STATEMENT

 

 

 

 

 

 

 

Operating income

 

 

52,576

(113,109)

(180,766)

(157,583)

(174,762)

Depreciation and amortisation

 

 

3,474

4,779

4,316

4,665

1,147

Share based payments

 

 

0

0

0

0

0

Other adjustments

 

 

38,295

(297)

2,927

(2,374)

(13,194)

Movements in working capital

 

 

34,296

(33,985)

8,673

0

0

Cash from operations (CFO)

 

 

128,641

(142,612)

(164,850)

(155,292)

(186,809)

Capex

 

 

(708)

(2,876)

(293)

(300)

(300)

Acquisitions & disposals net

 

 

0

(500)

0

0

0

Other investing activities

 

 

0

0

0

0

0

Cash used in investing activities (CFIA)

 

 

(708)

(3,376)

(293)

(300)

(300)

Net proceeds from issue of shares

 

 

(180)

0

0

0

0

Movements in debt

 

 

(2,865)

(3,134)

20,905

221,945

145,000

Other financing activities

 

 

0

0

2,771

0

0

Cash from financing activities (CFF)

 

 

(3,045)

(3,134)

23,676

221,945

145,000

Cash and equivalents at beginning of period

 

 

277,009

401,897

252,776

111,309

177,662

Increase/(decrease) in cash and equivalents

 

 

124,888

(149,122)

(141,467)

66,353

(42,109)

Effect of FX on cash and equivalents

 

 

0

1

0

0

0

Cash and equivalents at end of period

 

 

401,897

252,776

111,309

177,662

135,553

Net (debt)/cash

 

 

401,897

252,776

86,798

(71,849)

(258,958)

Source: Company accounts, Edison Investment Research


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General disclaimer and copyright

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

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