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SEK197m
Research: Healthcare
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.
Written by
IRLAB Therapeutics |
External validation boosts quarterly recap |
Q124 results |
Pharma and biotech |
13 May 2024 |
Share price performance
Business description
Next events
Analysts
IRLAB Therapeutics is a research client of Edison Investment Research Limited |
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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* |
EPS* |
DPS |
P/E |
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 |
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
|
|
Research: Metals & Mining
Wheaton’s (WPM’s) Q124 results exceeded both our and the market’s forecasts. It produced more (with the single exception of gold, which recorded a small negative variance in production) and sold more at higher prices than our prior expectations for the period. This led to a positive 5.6% (US$15.8m) variance in sales that was minimally counteracted by a US$0.8m negative variance in costs (including G&A costs) to result in a US$15.3m (10.3%) positive variance in pre-tax profits that, to all intents and purposes, fell straight through to the bottom line.