Cantargia — Next phase of clinical development in sight

Cantargia (OMX: CANTA)

Currency in SEK

Last close As at 22/09/2023

SEK4.24

−0.14 (−3.20%)

Market capitalisation

SEK665m

Research: Healthcare

Cantargia — Next phase of clinical development in sight

Following a period of increased clinical activity, Q422, as we noted previously, saw Cantargia narrow its development focus to its three most promising/advanced programmes. In our opinion, this was driven by a combination of financing considerations (given the bearish biotech sentiment) and early efficacy signals. The clinical focus in FY23 will be on progressing it lead asset, nadunolimab (CAN04), in controlled, randomised trials in pancreatic cancer (PDAC), non-small cell lung cancer (NSCLC) and triple negative breast cancer (TNBC), although the first two trials are likely to start about six months later than our prior estimates. The FY22 operating loss of SEK381.5m (SEK370.3m in FY21) was largely due to R&D expenses of SEK364.7m (up 3% y-o-y). End-FY22 net cash (SEK426.7m, including short-term investments) provides a runway to mid-2024, per our projections. We have rolled forward our model and adjusted our estimates, resulting in a valuation of SEK6.6bn or SEK39.6/share (SEK7.5bn or SEK44.9/share previously).

Soo Romanoff

Written by

Soo Romanoff

Managing Director - Head of Content, Healthcare

Healthcare

Cantargia

Next phase of clinical development in sight

FY22 results

Pharma and biotech

27 February 2023

Price

SEK6.81

Market cap

SEK1bn

SEK10.4/US$

Net cash and short-term investments (SEKm) at 31 December 2022

426.7

Shares in issue

166.99m

Free float

99%

Code

CANTA

Primary exchange

Nasdaq Nordic

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(2.3)

85.7

(51.7)

Rel (local)

(1.1)

79.0

(51.5)

52-week high/low

SEK15.81

SEK3.01

Business description

Cantargia is a clinical-stage biotechnology company based in Sweden. It is developing two assets targeting IL1RAP, CAN04 and CAN10. CAN04 is being studied in several solid tumours with a main focus on NSCLC, pancreatic cancer and triple negative breast cancer. The most advanced trial is in Phase II.

Next events

PanCAN PDAC Phase II/III trial begins

2023

NSCLC Phase II/III trial begins

2023

Analysts

Soo Romanoff

+44 (0)20 3077 5700

Jyoti Prakash, CFA

+44 (0)20 3077 5700

Dr Adam McCarter

+44 (0)20 3077 5700

Cantargia is a research client of Edison Investment Research Limited

Following a period of increased clinical activity, Q422, as we noted previously, saw Cantargia narrow its development focus to its three most promising/advanced programmes. In our opinion, this was driven by a combination of financing considerations (given the bearish biotech sentiment) and early efficacy signals. The clinical focus in FY23 will be on progressing it lead asset, nadunolimab (CAN04), in controlled, randomised trials in pancreatic cancer (PDAC), non-small cell lung cancer (NSCLC) and triple negative breast cancer (TNBC), although the first two trials are likely to start about six months later than our prior estimates. The FY22 operating loss of SEK381.5m (SEK370.3m in FY21) was largely due to R&D expenses of SEK364.7m (up 3% y-o-y). End-FY22 net cash (SEK426.7m, including short-term investments) provides a runway to mid-2024, per our projections. We have rolled forward our model and adjusted our estimates, resulting in a valuation of SEK6.6bn or SEK39.6/share (SEK7.5bn or SEK44.9/share previously).

Year end

Revenue
(SEKm)

PBT*
(SEKm)

EPS*
(SEK)

DPS
(SEK)

P/E
(x)

Yield
(%)

12/21

0.0

(366.5)

(3.66)

0.0

N/A

N/A

12/22

0.0

(371.8)

(2.90)

0.0

N/A

N/A

12/23e

0.0

(306.6)

(1.84)

0.0

N/A

N/A

12/24e

0.0

(292.6)

(1.75)

0.0

N/A

N/A

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

Randomised trials in focus for FY23

Cantargia’s October 2022 decision to focus its clinical efforts on the three most advanced indications – PDAC (as one of the trial arms in PanCAN’s ongoing Phase II/III adaptive study, Precision Promise), NSCLC (randomised study following the Phase I/IIa CANFOUR study) and TNBC (randomised Phase II part of the Phase Ib/II TRIFOUR study) – allows the company to maximise the pipeline’s potential while preserving cash. We view the initiation of randomised studies for each of these indications as potential inflection points with interim readouts, if positive, opening the door for potential partnering/licensing opportunities.

TNBC data encouraging

The swift advancement of the TRIFOUR trial to the randomised stage (n=98) is another significant development for Cantargia, particularly given the early efficacy signals – of the 12 evaluable patients, there was one complete response, five partial responses and four patients with stable disease. Additional data from the study will be presented in H223 but we expect the focus will be on the interim futility analysis in Q423, which will likely map the course for subsequent trial progression.

Valuation: SEK6.6bn or SEK39.6 per share

We have rolled forward our model and revised our forecasts for the FY22 results and our updated clinical timeline estimates. Our revised valuation is SEK6.6bn or SEK39.6/share (previously SEK7.5bn or SEK44.9/share) and includes the updated net cash position of SEK426.7m at end-FY22. Based on our projected cash burn rates, we estimate the balance to be sufficient to fund operations to mid-2024.

Randomised studies on the horizon in FY23

2023 is set to be a busy year for Cantargia as it continues to progress the clinical development of its lead IL1RAP-targeting antibody candidate, nadunolimab (CAN04). CAN04 is currently being investigated in combinational treatment regimens across a range of solid tumours; however, management intends to focus strategically on three key indications: PDAC, NSCLC and TNBC, Exhibit 1.

Exhibit 1: Cantargia’s strategic priorities

Source: Cantargia corporate website

More specifically, Cantargia intends to prioritise bringing CAN04 into randomised clinical studies in 2023 across these three tumour indications. This includes a potentially significant Phase II/III study (Precision Promise) in PDAC in collaboration with the Pancreatic Cancer Action Network (PanCAN), the Phase I/II TRIFOUR study in TNBC supported by Spanish breast cancer group GEICAM, and a planned follow-on randomised study in NSCLC. Cantargia intends to use the funding from its mid-2022 rights issue (c SEK250m raised) to finance these clinical activities. Given the encouraging clinical data reported from the CANFOUR study in PDAC and NSCLC patients, we view management’s decision to prioritise these indications within its portfolio as sensible, particularly in light of the ongoing capital market tightness.

CANFOUR data pave the way in PDAC and NSCLC

The most significant clinical news for Cantargia in FY22 came in the form of positive interim data presented at the American Society of Clinical Oncology from the CANFOUR study, consisting of a Phase IIa arm in NSCLC and a Phase I/IIa arm in PDAC.

In first- or second-line NSCLC, CAN04, in combination with gemcitabine and cisplatin, reported an overall response rate (ORR) of 53% (30 evaluable patients), a significant improvement over the ORRs of 22–28% historically seen with chemotherapy only. This was supported by an 83% disease control rate (ORR + stable disease), median progression-free survival (mPFS) of 6.8 months and overall survival (OS) of 13.7 months. The results were even more pronounced in the 16 patients with non-squamous NSCLC (the largest NSCLC sub-group, accounting for 75–80% of all NSCLC cases) with an ORR of 56% and mPFS of 7.3 months. While the data are still maturing, we see this as an encouraging sign for the CAN04-chemotherapy combination, given historical response rates. The study was expanded in February 2022 to include another open-label arm, specifically targeting patients with non-squamous NSCLC. The arm is expected to recruit up to 40 patients (across seven countries) and management has indicated that patient recruitment will continue at least into Q123, following which the company will decide the next steps. Cantargia had earlier expected to complete patient enrolment by end H123, with plans to commence randomised trials in NSCLC thereafter. We see this recent communication as being more cautious in terms of committing to a timeline for the randomised study. On the premise that the randomised trial will now start in H124 versus our previous expectation of H223, we now estimate commercial launch in H127 versus 2026 previously.

Another area of focus for Cantargia is PDAC, for which the company had reported promising interim results from the Phase I/IIa arm of the CANFOUR trial in first-line PDAC. This extended interim analysis brings the number of patients assessed to 73. The combination of CAN04 with gemcitabine and nab-paclitaxel demonstrated an OS of 12.7 months and an mPFS of 7.2 months. Against historical averages for first-line gemcitabine and nab-paclitaxel treatment in PDAC (OS: 8.5 months; mPFS: 5.5 months), we see this as a positive result. Additional long-term data from both the PDAC and NSCLC arms are expected in Q223, along with new biomarker data.

In January 2022, Cantargia announced its decision to take part in PanCAN’s Precision Promise adaptive clinical Phase II/III trial and one of Cantargia’s key priorities for FY23 is to initiate the randomised study. Being part of the adaptive study comes with funding advantages (as the study will primarily be funded by PanCAN) and the benefit of access to a diverse patient pool across centres, which could result in more robust data sets, although the offset is that Cantargia is likely to have little control over the clinical process and timelines. We note that initiation of the CAN04 study arm has been delayed, with the company still in discussions with the FDA on details for the study protocol, and we expect more clarity on this in the coming months. At the time of the initial announcement in January 2022, Cantargia expected the trial results to become available in 2027, but given the ongoing discussions with the FDA we now estimate a launch in the PDAC indication in 2028.

TRIFOUR study underway

Cantargia is also developing CAN04 (in combination with chemotherapy) for the treatment of TNBC, which is being investigated in the Phase I/II TRIFOUR trial. This study is divided into two phases: Phase Ib, which is single arm, and Phase II, which will be randomised. The main goal of the Phase Ib portion was to ensure that the combination of CAN04 plus chemotherapy (gemcitabine plus carboplatin) was safe and to determine the maximum tolerated dose of CAN04. With the announcement of the FY22 results, Cantargia reported a favourable safety profile for the treatment. Importantly, the company also announced encouraging early signs of efficacy following an initial analysis of the Phase Ib part of the trial. Of the 12 evaluable patients (n=15), one showed confirmed complete response and five showed confirmed partial response, corresponding to a preliminary response rate of 50%. This compares favourably to the historical response rate of approximately 30% reported for gemcitabine and carboplatin. Among the other six evaluated patients, four showed stable disease and two showed progressive disease. Cantargia now plans to expand the trial to a randomised Phase II, which will assess the efficacy of CAN04 combined with gemcitabine and carboplatin chemotherapy compared to gemcitabine plus carboplatin only. The study plans to recruit up to an additional 98 patients (n=49 in each arm) and an interim futility analysis planned for Q423 will determine if the study will be continued.

CAN10 progressing towards the clinic

Cantargia’s potential second clinical asset is CAN10, a IL1RAP-binding antibody for the treatment of systemic sclerosis (SS). SS (also known as scleroderma) is a rare autoimmune disease that affects 1.4/100,000 people per year and is characterised by fibrosis (scar-like tissue formation) in the skin and visceral organs. To date, there are no curative treatments for SS and existing therapies only control the symptoms of the disease, for example anti-hypertensives, immunosuppressants and pain relief. We therefore see an opportunity for Cantargia to differentiate with CAN10 in the SS treatment market, if it can demonstrate efficacy or a disease-modifying effect.

In November 2022 Cantargia reported encouraging preclinical data in which CAN10 was found to elicit a reduction in fibrosis and inflammation in skin and lung tissues in three different in vivo models of SS, while also reducing IL1RAP-stimulated inflammatory biomarkers. To further support CAN10’s progression into clinical development, the company announced in January 2023 the results of a Good Laboratory Practice toxicity study in which CAN10 was found to be well tolerated when administered over six weeks. Management has communicated that it intends to use the preclinical data packages to support the initiation of Phase I studies in SS and myocarditis in H123 (filing expected in Q123). While we acknowledge that preclinical results may not necessarily translate into clinical utility, the encouraging preclinical data are, in our view, supportive of the company’s strategy to pursue the treatment of SS with CAN10 and add to previous evidence gathered by the company on IL1RAP’s potential utility in inflammatory and fibrotic diseases.

Valuation

We value Cantargia using a risk-adjusted NPV approach for its lead clinical asset CAN04 across two indications – NSCLC and PDAC. Following the recent management announcements and improved visibility on development timelines, we have pushed out our launch assumptions for both indications by a year: to 2027 (from 2026) for NSCLC and to 2028 (from 2027) for PDAC. Our model also assumes a lower probability of success for NSCLC versus PDAC (25% vs 40% respectively; unchanged from previously) given the highly competitive lung cancer space with multiple novel therapeutics vying for market share. Furthermore, we continue to leave out the TNBC indication from our valuation for now; we may include it following data from the interim futility analysis in Q423, which offers the potential for upside. Our estimates also do not include consideration for other clinical/preclinical assets and programmes, which may offer incremental upside on successful clinical progress. Our valuation benefits from rolling forward our model by a year but is offset by the revised timelines for the expected launches of CAN04 in NSCLC and PDAC and a lower net cash position (SEK426.7m, including short-term investments, versus SEK496.5m previously). Overall, our valuation resets to SEK6.6bn or SEK39.6/share, from SEK7.5bn or SEK44.9/share. Of this, 54% of the valuation is attributable to the PDAC indication (rNPV SEK3.55bn or SEK21.3/share) and 40% is attributable to NSCLC (rNPV SEK2.64bn or SEK15.8/share). Our key assumptions are summarised in Exhibit 2.

Exhibit 2: Cantargia valuation breakdown

Product

Launch

Peak sales ($m)

NPV (SEKm)

NPV/share (SEK)

Probability

rNPV (SEKm)

rNPV/share (SEK)

CAN04 – NSCLC

2027

3,000

10,400.4

62.3

25.0%

2,641.7

15.8

CAN04 – PDAC

2028

2,000

7,890.5

47.3

40.0%

3,550.7

21.3

Net cash at end FY22 (including short-term investments)

426.7

2.6

100%

426.7

2.6

Valuation

18,717.5

112.1

6,619.1

39.6

Source: Edison Investment Research

Financials

FY22 total operating expenses of SEK381.5m represented 3% y-o-y growth versus the FY21 figure of SEK370.3m and were higher than our expectation of SEK333.8m. With multiple trials ongoing, R&D-related expenses made up the bulk of the operating expenses (>95%). FY22 R&D costs were SEK364.7m, up 3.5% y-o-y, although the Q422 figure of SEK88m was marginally lower than the quarterly run-rate in FY22. We attribute this to management’s decision to focus its R&D on three core programmes for CAN04 in October 2022 and we anticipate R&D costs to decrease in FY23 as a result. Cash flows from operations were SEK358.9m in FY22, 3.6% higher than the FY21 figure of SEK346.6m, again reflecting the higher R&D spend. We have updated our FY23 estimates for R&D and other operating expenses based on the Q422 trend and current visibility on clinical programmes and we introduce FY24 estimates. We estimate R&D expenses of SEK291.7m and SEK277.2m respectively in FY23 and FY24 (previously SEK282.3m for FY23). The company ended the year with a cash balance of SEK189.6m (supported by c SEK223.9m in net proceeds from the July 2022 rights issue), which along with an additional SEK237.1m in short-term investments should be sufficient to fund operations into Q224, based on our projected cash burn rates. We anticipate the need to raise another SEK300m in H224 if a partnership/licensing deal is not signed by then. Assuming this fund-raise is effected through an equity issue at the 23 February 2023 closing price (SEK6.03/share), the company will have to issue an additional 49.8m shares, resulting in our per share valuation reducing to SEK30.5/share from SEK39.6/share currently.

Exhibit 3: Financial summary

SEK'000s

2020

2021

2022

2023e

2024e

Year end 31 December

PROFIT & LOSS

Revenue

 

 

0

0

0

0

0

Cost of Sales

0

0

0

0

0

Gross Profit

0

0

0

0

0

Research and development

(158,396)

(352,709)

(364,686)

(291,749)

(277,161)

General and administrative

(14,919)

(15,309)

(14,964)

(13,468)

(13,872)

Other operating expenses

(630)

(2,249)

(1,899)

(1,709)

(1,760)

EBITDA

 

 

(170,697)

(366,821)

(377,857)

(302,149)

(286,878)

Operating Profit (before amort. and excepts.)

 

 

(173,945)

(370,267)

(381,549)

(306,926)

(292,793)

Exceptionals

0

0

0

0

0

Other

0

0

0

0

0

Operating Profit

(173,945)

(370,267)

(381,549)

(306,926)

(292,793)

Net interest

501

924

483

374

235

FX income/(expense)

359

2,839

9,252

0

0

Profit Before Tax (norm)

 

 

(173,085)

(366,504)

(371,814)

(306,552)

(292,558)

Profit Before Tax (reported)

 

 

(173,085)

(366,504)

(371,814)

(306,552)

(292,558)

Tax

0

0

0

0

0

Profit After Tax (norm)

(173,085)

(366,504)

(371,814)

(306,552)

(292,558)

Profit After Tax (reported)

(173,085)

(366,504)

(371,814)

(306,552)

(292,558)

Average Number of Shares Outstanding (m)

89.4

100.2

128.0

167.0

167.0

EPS - normalised (ore)

 

 

(193.65)

(365.80)

(290.43)

(183.58)

(175.20)

Dividend per share (ore)

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

N/A

N/A

N/A

N/A

N/A

EBITDA Margin (%)

N/A

N/A

N/A

N/A

N/A

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

12,622

9,556

12,954

10,177

7,262

Intangible Assets

7,360

6,459

5,559

5,559

5,559

Tangible Assets

5,262

3,097

7,395

4,618

1,703

Investments

0

0

0

0

0

Current Assets

 

 

912,893

590,687

461,844

154,605

167,510

Stocks

0

0

0

0

`

Debtors

0

0

0

0

0

Cash

693,354

247,322

189,573

119,429

132,334

Short-term investments

210,019

312,064

237,095

0

0

Other including short-term investments

9,520

31,301

35,176

35,176

35,176

Current Liabilities

 

 

(30,469)

(66,607)

(85,090)

(77,676)

(76,271)

Creditors

(30,469)

(66,607)

(85,090)

(77,676)

(76,271)

Short term borrowings

0

0

0

0

0

Long Term Liabilities

 

 

(3,111)

(892)

(24)

(24)

(300,024)

Long term borrowings

0

0

0

0

(300,000)

Other long term liabilities

(3,111)

(892)

(24)

(24)

(24)

Net Assets

 

 

891,935

532,744

389,684

87,083

(201,524)

CASH FLOW

Operating Cash Flow

 

 

(156,387)

(346,446)

(358,915)

(305,239)

(284,096)

Purchase of intangibles

(8,112)

0

0

0

0

Capex

(890)

(383)

(7,089)

(2,000)

(3,000)

Proceeds from sale of PPE

0

0

0

0

0

Capital Financing

917,545

0

223,934

0

0

Others

969

0

0

0

0

Effect of FX on cash

359

2,839

9,352

0

0

Net Cash Flow

753,484

(343,990)

(132,718)

(307,239)

(287,096)

Opening net debt/(cash)*

 

 

(149,890)

(903,373)

(559,386)

(426,668)

(119,429)

HP finance leases initiated

0

0

0

0

0

Other

0

0

0

0

0

Closing net debt/(cash)*

 

 

(903,373)

(559,386)

(426,668)

(119,429)

167,666

Source: Company accounts, Edison Investment Research. Note: *Includes short-term investments.


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

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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General disclaimer and copyright

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

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

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Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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London, WC1R 4PS

United Kingdom

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