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Currency in SEK
Last close As at 02/06/2023
SEK4.68
▲ 0.06 (1.30%)
Market capitalisation
SEK782m
Research: Healthcare
In February 2020, Cantargia raised SEK410m gross. This is an impressive amount of capital for a pure-play European biotech with assets in early- to mid-stage development, and is underpinned by the successful progression of its R&D pipeline. In recent months, the company reported positive interim data from the ongoing Phase IIa trial with lead asset CAN04, an anti-IL1RAP antibody, announced the first clinical trial in the US (IND accepted) and introduced CAN10, a preclinical project in inflammation (Phase I study start likely in 2022). Tailwinds in the industry include Novartis initiating multiple Phase I–III trials with its canakinumab (anti-IL-1beta) in oncology after a surprising discovery in a large cardiovascular outcomes study and deals involving assets targeting the IL-1 pathway (in cancer and inflammation). Our valuation post the share issue is SEK3.48bn or SEK38.2 per share.
Written by
Jonas Peciulis
Cantargia |
Great equity story underpins large share issue |
Company update |
Pharma & biotech |
6 May 2020 |
Share price performance
Business description
Next events
Analyst
Cantargia is a research client of Edison Investment Research Limited |
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In February 2020, Cantargia raised SEK410m gross. This is an impressive amount of capital for a pure-play European biotech with assets in early- to mid-stage development, and is underpinned by the successful progression of its R&D pipeline. In recent months, the company reported positive interim data from the ongoing Phase IIa trial with lead asset CAN04, an anti-IL1RAP antibody, announced the first clinical trial in the US (IND accepted) and introduced CAN10, a preclinical project in inflammation (Phase I study start likely in 2022). Tailwinds in the industry include Novartis initiating multiple Phase I–III trials with its canakinumab (anti-IL-1beta) in oncology after a surprising discovery in a large cardiovascular outcomes study and deals involving assets targeting the IL-1 pathway (in cancer and inflammation). Our valuation post the share issue is SEK3.48bn or SEK38.2 per share.
Year end |
Revenue (SEKm) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/18 |
0.0 |
(91.2) |
(1.38) |
0.0 |
N/A |
N/A |
12/19 |
0.0 |
(110.8) |
(1.56) |
0.0 |
N/A |
N/A |
12/20e |
0.0 |
(138.0) |
(1.69) |
0.0 |
N/A |
N/A |
12/21e |
0.0 |
(138.5) |
(1.52) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Update on COVID-19 impact
In April 2020, Cantargia provided an update on the potential impact of the COVID-19 pandemic. The key Phase I/IIa CANFOUR clinical trial with CAN04 in non-small cell lung cancer (NSCLC) and pancreatic ductal adenocarcinoma (PDAC) has been progressing as expected as of the update (7 April 2020). The dose escalation part has been completed in both indications. Recruitment of the remaining patients is ongoing. Due to COVID-19, future timelines are difficult to estimate, but assuming the situation will normalise by the end of Q220, Cantargia expects that the last patient in each arm will be recruited in Q320 (PDAC) and Q420 (NSCLC), later by one quarter – not a major delay given the circumstances.
IND approved for the US study with CAN04 plus CPI
In 2019, Cantargia announced a major expansion of its clinical programme, with plans to initiate a Phase Ib study in the US. The company filed an investigational new drug (IND) application in April 2020, which was approved in May and the trial could start in Q320 (depending on progression of the COVID-19 outbreak). The goal is to explore the potential of CAN04 in combination with checkpoint inhibitors (CPIs) in four indications (NSCLC, head and neck cancer and urothelial cancer or malignant melanoma).
Valuation: SEK3.48bn or SEK38.2 per share
Our updated valuation of Cantargia is higher at SEK3.48bn vs SEK2.94bn previously due to a higher cash position after the private placement and rolling the model forward. On a per share basis, the valuation is lower at SEK38.2 per share vs SEK40.4 per share due to dilution. We keep our R&D assumptions unchanged.
R&D progress update and COVID-19 impact
Lead asset CAN10: Dose escalation part complete
As of the latest update from Cantargia (7 April 2020), the Phase IIa CANFOUR trial is progressing according to plan (Exhibit 1). So far, in the combination therapy arms, 17 patients with PDAC and seven patients with NSCLC have started therapy. The dose escalation part was completed and the 5mg/kg dose was selected in both indications where CAN10 is administered in combination with standard-of-care (SoC) chemotherapies. The interim data reported in December 2019 (described in detail in our previous report) were derived using the same dose. This dose level was deemed sufficient for IL1RAP targeting and no new safety/tolerability issues were reported.
With regards to the impact of COVID-19 on the CANFOUR trial, Cantargia highlighted that despite restrictive measures in place, all recruited patients are continuing the treatment. Recruitment of new patients is also ongoing, although the number of active sites has decreased, causing temporary restrictions on new patient recruitment. Timelines are difficult to estimate, but assuming that the situation normalises in Q220, Cantargia expects that the last patient in each arm will be recruited in Q320 (PDAC) and Q420 (NSCLC). Previously, guidance was for Q220 and Q320, so this is certainly not a major delay given the circumstances, in our view. Cantargia also planned to release biomarker data from this trial, which will likely be delayed by several months. The supply of CAN10 has not been interrupted so far, and planning and preparations for subsequent studies remains on track.
As a reminder, the CANFOUR study is an open-label, three-arm Phase I/IIa trial with CAN04 in NSCLC and PDAC as monotherapy and in combination with first-line chemotherapy regimens. The trial consists of two parts – Phase I and Phase IIa. Full Phase I data were presented at ASCO on 2 June 2019, which showed that CAN04 was generally safe and well tolerated, and inflammatory biomarkers were reduced, in line with the proposed mechanism of action. The ongoing Phase IIa study includes initial efficacy endpoints, among others. The first results from the combination with chemotherapy arm were reported in December 2019 (see our last published report for a detailed review). These results support the hypothesis that CAN04 is synergistic with the SoC chemotherapy.
The key readouts (progression-free survival and overall survival) from the combination arms are likely to be available in 2021 (depending on the impact of the COVID-19 outbreak).
|
Exhibit 1: Phase IIa CANFOUR trial design |
|
|
Source: Cantargia |
Next step with CAN04: Combination with CPI study
Cantargia filed an IND application in April 2020, which was approved in May 2020, and plans to initiate a Phase Ib clinical trial in the US. This is a major R&D expansion as the combination will involve CPIs. The rationale is based on several observations:
■
Myeloid suppressive cells, such as tumour-associated macrophages or myeloid-derived suppressor cells, express IL1RAP and play a substantial role in PD-1 resistance.
■
IL-1 upregulates PD-L1 on macrophages and induces downstream factors, such as IL-6, which add to immunosuppression in the tumour microenvironment.
■
IL-1beta blockade has been shown to reverse tolerance to anti-PD-1 in an in vivo setting.
The indications (NSCLC, head and neck cancer and urothelial cancer or malignant melanoma) were selected because the tumours express IL1RAP and are relatively immunogenic, therefore suitable for treatment with CPIs. In addition, the checkpoint inhibitor, Keytruda, is a standard therapy in these indications. The patients in the trial will be eligible if they have progressed on prior PD1/PDL-1 antibody therapy (second-line positioning). The trial plans to include up to 18 patients. Endpoints will include typical safety evaluation, as well as exploratory biomarkers and initial efficacy. The trial could start in Q320 (depending on the progression of the COVID-19 outbreak).
CAN10: Parts of preclinical programme on hold, but in vivo efficacy studies ongoing
Cantargia disclosed its second drug candidate last year. This antibody is in preclinical development for systemic sclerosis and myocarditis. Animal studies in inflammatory disease are ongoing. Other parts of the programme (biochemistry, production) are affected since they are performed with suppliers in the US that have been forced to temporarily close their facilities. The start of the clinical trial is now expected in 2022 (we previously expected it in 2021). Since this asset is still in preclinical development, we believe most of Cantargia’s value is in CAN04. We therefore do not include it in our valuation.
Financials and valuation
With its Q419 results, Cantargia reported an operating loss of SEK36.4m versus SEK28.1m in Q418. R&D costs in Q419 were SEK32.8m versus SEK24.7m in Q418, an increase due to the Phase IIa CANFOUR study advancing, higher spending on CAN04 production development (CMC) and the maturing preclinical pipeline (CAN10 and CANxx).
FY19 R&D costs were SEK97.5m compared to SEK77.0m the year before, while FY19 operating loss was SEK111.6m vs SEK93.3m in FY18 (with the same reasons for the increase as above). Cantargia will continue its Phase IIa study in 2020, but also plans to initiate the combination with CPIs study (Phase Ib) in the US later this year (depending on the progression of the COVID-19 outbreak) and preclinical development is also accelerating. We have therefore increased our R&D cost estimates for 2020 and 2021 by a similar amount as in 2019 vs 2018, ie up 27% to SEK123.5m from SEK99.6m. This led to operating loss increase to SEK139m from SEK114m in 2020 and 2021. We note that until the outcome of the COVID-19 pandemic is known, spending visibility is decreased due to multiple possible effects. For example, if the combination study in the US is delayed, associated costs could also be delayed. The reported cash position at end Q419 was SEK150m (including short-term investments) plus the share issue of SEk410m gross in Q120.
Our updated valuation of Cantargia is higher at SEK3.48bn vs SEK2.94bn previously due to a higher cash position after the private placement and rolling the model forward. On a per share basis, the valuation is lower at SEK38.2 per share vs SEK40.4 per share due to dilution. We keep our R&D assumptions uncaged. Potential catalysts for Cantargia’s share price in the near term include:
■
initiation of the US trial with CAN04 in combination with checkpoint inhibitors (2020, depending on the progression of the COVID-19 outbreak);
■
Phase IIa CANFOUR trial combination results in PDAC and NSCLC:
•
further response, biomarker and safety data in 2020;
•
progression-free survival and overall survival in 2021;
■
Phase IIa CANFOUR trial monotherapy biomarker/biopsy results (2020); and
■
CAN10 preclinical development update.
Exhibit 2: Sum-of-the-parts Cantargia valuation
Product |
Launch |
Peak sales |
Unrisked NPV (SEKm) |
Unrisked NPV/ |
Technology probability (%) |
rNPV |
rNPV/share (SEK) |
CAN04 – NSCLC |
2026 |
3,100 |
6,830.2 |
75.1 |
18.0% |
1,260.7 |
13.9 |
CAN04 – pancreatic cancer |
2024 |
2,100 |
6,930.7 |
76.2 |
18.0% |
1,679.9 |
18.5 |
Net cash (FY19) plus share issue (Q120) |
539.5 |
5.9 |
100% |
539.5 |
5.9 |
||
Valuation |
14,300.4 |
157.1 |
3,480.0 |
38.2 |
|||
Source: Edison Investment Research. Note: WACC = 12.5% for product valuations.
Exhibit 3: Financial summary
SEK'000s |
2018 |
2019 |
2020e |
2021e |
||
December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
0 |
0 |
0 |
0 |
Cost of Sales |
0 |
0 |
0 |
0 |
||
Gross Profit |
0 |
0 |
0 |
0 |
||
Research and development |
(76,951) |
(97,477) |
(123,478) |
(123,478) |
||
EBITDA |
|
|
(93,306) |
(111,590) |
(138,015) |
(138,451) |
Operating Profit (before amort. and except.) |
|
|
(93,306) |
(111,590) |
(138,015) |
(138,451) |
Intangible Amortisation |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Operating Profit |
(93,306) |
(111,590) |
(138,015) |
(138,451) |
||
Net Interest |
2,145 |
780 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(91,161) |
(110,810) |
(138,015) |
(138,451) |
Profit Before Tax (reported) |
|
|
(91,161) |
(110,810) |
(138,015) |
(138,451) |
Tax |
0 |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(91,161) |
(110,810) |
(138,015) |
(138,451) |
||
Profit After Tax (reported) |
(91,161) |
(110,810) |
(138,015) |
(138,451) |
||
Average Number of Shares Outstanding (m) |
66.2 |
71.1 |
81.9 |
91.0 |
||
EPS - normalised (ore) |
|
|
(137.73) |
(155.74) |
(168.51) |
(152.13) |
Dividend per share (ore) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
N/A |
N/A |
N/A |
N/A |
||
EBITDA Margin (%) |
N/A |
N/A |
N/A |
N/A |
||
Operating Margin (before GW and except.) (%) |
N/A |
N/A |
N/A |
N/A |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
2,957 |
6,868 |
6,868 |
6,868 |
Intangible Assets |
0 |
6,868 |
6,868 |
6,868 |
||
Tangible Assets |
0 |
0 |
0 |
0 |
||
Investments |
2,957 |
0 |
0 |
0 |
||
Current Assets |
|
|
168,486 |
159,189 |
411,686 |
274,698 |
Stocks |
0 |
0 |
0 |
0 |
||
Debtors |
0 |
0 |
0 |
0 |
||
Cash |
76,528 |
39,870 |
292,367 |
155,379 |
||
Other* |
91,958 |
119,319 |
119,319 |
119,319 |
||
Current Liabilities |
|
|
(16,398) |
(23,785) |
(23,785) |
(23,785) |
Creditors |
(16,398) |
(23,785) |
(23,785) |
(23,785) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
0 |
0 |
0 |
0 |
Long term borrowings |
0 |
0 |
0 |
0 |
||
Other long term liabilities |
0 |
0 |
0 |
0 |
||
Net Assets |
|
|
155,045 |
142,272 |
394,769 |
257,781 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(105,165) |
(111,853) |
(138,015) |
(138,451) |
Net Interest |
478 |
597 |
1,463 |
1,463 |
||
Tax |
0 |
0 |
0 |
0 |
||
Capex |
0 |
(6,880) |
0 |
0 |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
||
Financing |
0 |
98,037 |
389,048 |
0 |
||
Other |
31,434 |
(16,559) |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
(73,253) |
(36,658) |
252,497 |
(136,988) |
||
Opening net debt/(cash) |
|
|
(149,781) |
(76,528) |
(39,870) |
(292,367) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(76,528) |
(39,870) |
(292,367) |
(155,379) |
Source: Cantargia accounts, Edison Investment Research
|
|
Research: TMT
Riber’s Q120 revenues reinforce the point we made in April that travel restrictions are causing delays in signing contracts. We adjust our FY20 estimates to reflect longer sales cycles and the lower than expected gross margin for molecular beam epitaxy (MBE) systems reported in the FY19 accounts, cutting revenue and EPS estimates by 7% and 26% respectively.
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