On 27 April 2018, NeuroVive announced that the planned rights issue was oversubscribed (104%), delivering SEK78.5m in gross proceeds and funding the operations into 2019. The fundraise allows NeuroVive to focus on the initiation of the NeuroSTAT (traumatic brain injury) Phase IIb trial (H218/H119) and the Phase Ib KL1333 (genetic mitochondrial diseases) trial in Europe (H218). The latter project was bolstered by the recent news from the South Korean partner, Yungjin Pharm, which reported a positive outcome in its own locally run Phase I trial with KL1333. Our updated valuation is SEK1.62bn or SEK17.7/share (SEK18.0/share previously).
Written by
NeuroVive Pharmaceutical |
KL1333 Ph I positive; rights issue oversubscribed |
Q118 company update |
Pharma & biotech |
4 June 2018 |
Share price performance
Business description
Next events
Analysts
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On 27 April 2018, NeuroVive announced that the planned rights issue was oversubscribed (104%), delivering SEK78.5m in gross proceeds and funding the operations into 2019. The fundraise allows NeuroVive to focus on the initiation of the NeuroSTAT (traumatic brain injury) Phase IIb trial (H218/H119) and the Phase Ib KL1333 (genetic mitochondrial diseases) trial in Europe (H218). The latter project was bolstered by the recent news from the South Korean partner, Yungjin Pharm, which reported a positive outcome in its own locally run Phase I trial with KL1333. Our updated valuation is SEK1.62bn or SEK17.7/share (SEK18.0/share previously).
Year end |
Revenue (SEKm) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16 |
0.0 |
(70.7) |
(172.3) |
0.0 |
N/A |
N/A |
12/17 |
0.6 |
(70.1) |
(149.3) |
0.0 |
N/A |
N/A |
12/18e |
0.6 |
(83.6) |
(132.6) |
0.0 |
N/A |
N/A |
12/19e |
0.6 |
(132.2) |
(170.7) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Phase I trial with KL1333 in South Korea positive
Recently, Yungjin reported positive results from the KL1333 Phase I trial in healthy volunteers performed by partner Yungjin Pharm in South Korea (n=60). The researchers found that KL1333 has a favourable PK profile and no serious adverse events were observed. This was a direct positive catalyst for NeuroVive’s share price, as the company is about to start a Phase Ib study with KL1333 in Europe (UK sites; NeuroVive owns the rights to territories outside Japan and South Korea). The study is planned to start in H218, with results expected in H119. As with Yungjin’s study, it will involve a dose escalation in healthy volunteers, but will also include a multiple ascending dosing (MAD) in healthy volunteers as well as patients with genetic mitochondrial disease generating the first-ever such human data. NeuroVive has received orphan drug designation by the FDA for KL1333 in mitochondrial diseases, in addition to the existing EMA designation. These could provide seven and 10 years of market exclusivity in the US and Europe, respectively, if KL1333 receives marketing authorisation before competitors.
Now financed into 2019, ramping up R&D
We maintain all our current forecasts but now include the full amount from the rights issue (SEK78.5m less costs), compared with the previous guaranteed amount (SEK55.0m). Adding this to the end-Q118 net cash results in approximately SEK94m, which according to our model should fund the company’s activities into 2019. Further capital may be required to complete the NeuroSTAT Phase IIb trial, but the results from the Phase I MAD study with KL1333 should be in H119 and the company is working on several potential funding sources (detailed below).
Valuation: Updated to SEK1.62bn or SEK17.7/share
Our updated valuation of NeuroVive is SEK1.62bn or SEK17.7/share, compared to SEK1.44bn or SEK18.0/share previously, mainly due to proceeds from the rights issue and the appreciation of the US$ versus the SEK. The initiation of the next trials with KL1333 and NeuroSTAT, and potential out-licensing of a preclinical asset NV556 (NASH) are near-term R&D events.
Financials and valuation
Q1 financial results
NeuroVive reported income of SEK174k and total operating expenses of SEK13.2m, which is largely in line with our model and lower than a year ago (SEK21.3m). The y-o-y decrease was mainly due to a one-off, non-cash cost item of SEK11.0m booked in Q117 relating to administrative expenses associated with the disposal of a subsidiary. We make no changes to our forecast of total opex of SEK84.2m for 2018 (versus reported SEK71.7m in 2017), with cash burn accelerating later in 2018 as NeuroVive initiates the clinical trials.
We now include the full amount from the rights issue (SEK78.5m less costs). Adding this to the end-Q118 cash (no debt) results in approximately SEK94.3m, which, according to our model, should fund the company’s activities into 2019. Further capital may be required to complete the NeuroSTAT Phase IIb trial, but the results from the Phase I MAD study with KL1333 should be in H119. In addition, the company indicated that it is also working towards securing co-funding for the Phase IIb NeuroSTAT trial, as well as non-dilutive funding from a potential licensing deal for NV556 (NASH) in H218 and potential further research grants. Furthermore, a total exercise of warrants exercisable in November 2018 could bring in another SEK37.3m gross in cash (strike price SEK3.80).
Valuation update
Our updated valuation of NeuroVive is SEK1.62bn or SEK17.7/share compared to SEK1.44bn or SEK18.0/share previously. The increase in absolute value and decrease in valuation per share reflect the higher number of shares outstanding after the rights issue. The main changes were the addition of the full amount of proceeds from the issue and a significant appreciation of the US$ versus the SEK from the start of this year (from SEK/US$8.2 to 8.9). We maintain the R&D assumptions described in our initiation report. As previously, in our valuation we include clinical-stage NeuroSTAT (traumatic brain injury) and KL1333 (genetic mitochondrial disorders) and the advanced preclinical products. We continue to exclude NVP025 (mitochondrial myopathy) and NVP022 (NASH) for the time being, as both are at an early stage.
Exhibit 1: NeuroVive sum-of-the parts valuation
Product |
Launch |
Peak sales* |
NPV |
NPV/share |
Probability |
rNPV |
rNPV/share |
NeuroSTAT |
2024 |
454 |
320.4 |
3.5 |
15% |
38.3 |
0.4 |
KL1333 |
2023 |
574 |
619.3 |
6.8 |
10% |
57.4 |
0.6 |
NVP015 |
2024 |
875 |
777.5 |
8.5 |
5% |
31.3 |
0.3 |
NV556 |
2026 |
1,716 |
185.7 |
2.0 |
8% |
37.2 |
0.4 |
NVP024 |
2029 |
702 |
31.8 |
0.3 |
3% |
6.5 |
0.1 |
Net cash at end-Q118 + the proceeds from rights issue |
10.5 |
0.1 |
100% |
10.5 |
0.1 |
||
Valuation |
|
|
1,945.2 |
21.2 |
181.1 |
2.0 |
|
SEKm |
SEK |
SEKm |
SEK |
||||
NeuroSTAT |
2,864.1 |
31.3 |
15% |
342.0 |
3.7 |
||
KL1333 |
5,536.9 |
60.5 |
10% |
512.8 |
5.6 |
||
NVP015 |
6,950.7 |
75.9 |
5% |
279.9 |
3.1 |
||
NV556 |
1,660.4 |
18.1 |
8% |
332.3 |
3.6 |
||
NVP024 |
283.9 |
3.1 |
3% |
57.9 |
0.6 |
||
Net cash at end-Q118 |
94.3 |
1.0 |
100% |
94.3 |
1.0 |
||
Valuation |
17,390.2 |
189.9 |
1,619.2 |
17.7 |
Source: Edison Investment Research. Note: *Peak sales reached six years after launch. WACC = 12.5% for product valuations.
Exhibit 2: Financial summary
SEK000s |
2016 |
2017 |
2018e |
2019e |
||
December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
14 |
585 |
585 |
585 |
Cost of Sales |
0 |
0 |
0 |
0 |
||
Gross Profit |
14 |
585 |
585 |
585 |
||
Research and development |
(12,000) |
(27,926) |
(57,170) |
(104,380) |
||
EBITDA |
|
|
(69,868) |
(67,897) |
(83,481) |
(132,031) |
Operating Profit (before amort. and except.) |
(70,989) |
(69,492) |
(83,623) |
(132,185) |
||
Intangible Amortisation |
0 |
0 |
0 |
0 |
||
Exceptionals |
(1,121) |
(1,595) |
0 |
0 |
||
Other |
0 |
56 |
0 |
0 |
||
Operating Profit |
(72,110) |
(71,031) |
(83,623) |
(132,185) |
||
Net Interest |
265 |
(571) |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(70,724) |
(70,063) |
(83,623) |
(132,185) |
Profit Before Tax (reported) |
|
|
(71,845) |
(71,602) |
(83,623) |
(132,185) |
Tax |
0 |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(70,724) |
(70,007) |
(83,623) |
(132,185) |
||
Profit After Tax (reported) |
(70,240) |
(66,727) |
(79,623) |
(128,185) |
||
Average Number of Shares Outstanding (m) |
42.0 |
50.2 |
66.1 |
79.8 |
||
EPS - normalised (ore) |
|
|
(172.27) |
(149.31) |
(132.64) |
(170.66) |
EPS - normalised & fully diluted (ore) |
|
(172.27) |
(149.31) |
(132.64) |
(170.66) |
|
EPS - reported (SEK) |
|
|
(1.67) |
(1.33) |
(1.21) |
(1.61) |
Dividend per share (SEK) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
100.0 |
100.0 |
100.0 |
100.0 |
||
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 |
|
|
84,645 |
87,579 |
87,579 |
87,579 |
Intangible Assets |
71,151 |
74,315 |
74,315 |
74,315 |
||
Tangible Assets |
274 |
162 |
162 |
162 |
||
Investments |
13,220 |
13,102 |
13,102 |
13,102 |
||
Current Assets |
|
|
94,901 |
30,560 |
20,728 |
1,568 |
Stocks |
0 |
0 |
0 |
0 |
||
Debtors |
0 |
0 |
0 |
0 |
||
Cash |
93,251 |
28,992 |
19,160 |
0 |
||
Other |
1,650 |
1,568 |
1,568 |
1,568 |
||
Current Liabilities |
|
|
(12,413) |
(14,259) |
(14,259) |
(14,259) |
Creditors |
(12,413) |
(14,259) |
(14,259) |
(14,259) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
0 |
0 |
0 |
(112,978) |
Long term borrowings |
0 |
0 |
0 |
(112,978) |
||
Other long term liabilities |
0 |
0 |
0 |
0 |
||
Net Assets |
|
|
167,133 |
103,880 |
94,048 |
(38,090) |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(57,614) |
(58,039) |
(83,481) |
(132,031) |
Net Interest |
237 |
(84) |
0 |
0 |
||
Tax |
0 |
0 |
0 |
0 |
||
Capex |
(139) |
(40) |
(141) |
(107) |
||
Acquisitions/disposals* |
0 |
(11,035) |
0 |
0 |
||
Financing |
77,332 |
9,031 |
73,790 |
0 |
||
Other |
(23,227) |
(4,092) |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
(3,411) |
(64,259) |
(9,832) |
(132,138) |
||
Opening net debt/(cash) |
|
|
(96,662) |
(93,251) |
(28,992) |
(19,160) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(93,251) |
(28,992) |
(19,160) |
112,978 |
Source: NeuroVive’s accounts, Edison Investment Research. Note: *Related to the disposal of a subsidiary in 2017, the net effect of which was neutral on cash flows.
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In a brief AGM update, Brady said that trading has been in line. Following a period of significant change, with new people hired and the business having been streamlined, the primary focus has shifted to re-engineering the software. The initial outcome of this was shown with the launch of the group’s first FAST START implementation offering in May. We will review our forecasts following tomorrow’s capital markets day. If Brady can successfully transition to the cloud, there is a lot to go for as E/CTRM is an attractive growth industry and Brady has a high-quality customer base.