IRLAB Therapeutics — Progress across the pipeline in Q324

During Q324, IRLAB made tangible progress across its broad portfolio of candidates, which spans all stages of clinical development, from preclinical programmes through to its lead asset, mesdopetam, which is Phase III-ready (Exhibit 1).

Mesdopetam is a Phase III-ready candidate. The latest update showcased new market research, which involved interviews with healthcare professionals in the US and Europe to better understand the current standard of care and medical need for novel treatments to address levodopa-induced dyskinesias in Parkinson’s disease (PD-LIDs). The market research demonstrated that healthcare professionals have a strong willingness to pay for a novel and effective anti-dyskinetic drug, serving as a reminder of the commercial potential for the candidate in these regions. The company highlighted that European health providers, in particular, focused on mesdopetam as a potential treatment for disabling dyskinesia, which affects c 50% of all PD-LIDs patients and c 15% of PD patients and which currently has no treatments available. Management also alluded to the potential positioning and pricing benefits related to this with European regulators.

Encouragingly, the design of the Phase III programme is aligned with the interests of the healthcare providers. We highlight that the only FDA-approved drug for PD-LIDs is Adamas’s Gocovri, though this is associated with myriad side effects such as symptoms of psychosis (eg hallucinations). This may represent an opportunity for mesdopetam to offer differentiation, as while PD-LIDs is the primary target indication, the drug has previously shown promise for PD-Psychosis, which may represent an opportunity for label expansion, while addressing a limitation of Gocovri. Furthermore, a meta-analysis was recently presented at the International Congress of Parkinson's Disease and Movement Disorders, showcasing the anti-dyskinetic efficacy of mesdopetam without risk of motor function impairment and emphasising the potential for mesdopetam to provide a clinically meaningful benefit for PD patients. As discussed above, this update also reported the positive feedback from BfArM, the German regulatory authority, and Infarmed, its Portuguese counterpart. In accordance with the FDA, a consensus was reached on the patient population, trial endpoints, the protocol following regulatory guidelines of at least a three-month treatment period, inclusion/exclusion criteria, dose selection (7.5mg twice daily, as tested in the prior Phase IIb trial), number of participants, as well as details on safety evaluation and documentation requirements. We highlight that the purpose of these discussions was to ensure alignment on regulatory requirements for regions beyond the US and we note that IRLAB is preparing for similar upcoming interactions with the European Medicines Agency (EMA).

In September 2024, IRLAB announced it had been granted a new patent in Europe relating to a new salt of the drug, potentially extending market exclusivity to 2040 (from 2037 previously). We believe this adds to the commercial potential of the programme. The next inflection point will be securing a partner to finance the planned Phase III programme ahead of a (projected) launch in 2025.

Pirepemat is currently being evaluated in the Phase IIb React PD trial, a randomised, double-blind, placebo-controlled study (placebo; or 300mg pirepemat/day; or 600mg pirepemat/day) to assess the candidate as a potential treatment for PD-Falls (to improve balance and reduce falls in patients with PD), which affects nearly half of all PD patients. Following a successful safety review in July 2024, which concluded with the independent data and safety monitoring board unanimously recommending that React PD should continue without changes, IRLAB announced that it had completed patient enrolment in September 2024. Management also communicated that with over 100 patients included in the study, the blinded data thus far had demonstrated that the number of falls for the population had reduced by approximately one-third from baseline. As a reminder, a 25% reduction in falls compared to placebo is considered to be clinically meaningful, and the above data therefore provides early encouragement. We note, however, that while positive for the enrolled patients, since the study is blinded, it cannot be determined yet whether (and what proportion of) this is attributable to pirepemat. We look forward to more detailed conclusions, which will be available once the trial has been completed (anticipated at the end of Q125) and following data management, database locking and analysis of the data.

In September 2024, IRLAB reported the granting of an additional patent for pirepemat. The newly granted patent, which covers the salt of the candidate used in its ongoing clinical development efforts, has the potential to expand its protection in the US into the early 2040s. This is incremental to similar patents, and composition of matter patents, already granted in other key geographies such as Europe, Japan and China (predicted to expire in 2038), fortifying the robust patent portfolio for pirepemat.

IRL757 is being developed for apathy in PD and Alzheimer’s disease (AD) patients. It is currently in two active Phase I safety studies, the first of which is financed by the MJFF via a US$2m grant. In October 2024, the single-ascending dose portion of the study was completed with the initial results showing good absorption and exposure in the body, as well as desirable safety and tolerability. The multiple-ascending dose portion of the study is ongoing.

The second Phase I study, funded by the McQuade Center for Strategic Research and Development (MSRD) and evaluating IRL757 in healthy elderly subjects (over the age of 65), was initiated in October, triggering a US$2.5m (c SEK26.6m) milestone payment from MSRD, which will fund R&D efforts through to proof-of-concept. The second Phase I study is a single-ascending dose study and management has indicated this study will not include a multiple-ascending dose portion.

We believe the external involvement in the IRL757 programme highlights its potential to address the unmet medical need in the space (there are no approved drugs specifically for apathy, which effects 20–90% of all patients with PD or AD). Top-line results for these two Phase I studies are expected in late Q125, further potential upcoming catalysts for the company.

Preclinical assets: IRL942 and IRL1117 are being developed for cognitive impairment and as a once-daily PD treatment, respectively. Despite IRLAB’s highly active clinical pipeline, the advancement of these preclinical assets remains a strategic priority for the company, reflective of its mission to discover and develop effective treatments comprehensively covering the complexities of PD and neurological conditions. Management intends to advance IRL942 and IRL1117 to Phase I-ready status in 2025.

In our recent executive interview, Kristina Torfgård, who joined IRLAB as CEO in August 2024, outlined the company’s strategic priorities going into the final quarter of the year and upcoming inflection points (Exhibit 2).

IRLAB reported net revenues of SEK9.0m in Q324, which we believe were related to invoiced costs to MSRD for the pre-Phase I development work on IRL757, leading up to the commencement of the second Phase I study in elderly subjects in October 2024. We note that the company had invoiced and subsequently received a total of US$5.1m (c SEK55m) in development costs from MSRD in Q2/Q324, to be recognised as income over the next 12 months, in line with the costs incurred related to IRL757 development. Based on management updates, we understand that SEK21m of these have already been recognised in the income statement across Q2/Q324, with the remaining SEK34m earmarked for near-term development activity for IRL757 likely to recognised as income and costs over the next three quarters (until Q225). IRLAB recorded SEK7.6m in other operating income, which includes part of the grant received from the MJFF for the Phase I development of IRL757 (US$2m/c SEK21.3m) recognised as revenue. Of the total MJFF grant, IRLAB has received payments totalling SEK10.4m to date, including SEK3.4m in Q324.

Post period, IRLAB received a further US$2.5m (c SEK26.6m) milestone payment from MSRD related to the dosing of the first patient in the second Phase I safety study for IRL757 in healthy adults over the age of 65. This will be recorded as revenue in Q424.

Operating expenses for the quarter were reported at SEK46.0m, a c 12% increase over Q323 (SEK41.1m). This increase was attributed entirely to the higher R&D costs, particularly related to IRL757. The company reported SEK38.3m in R&D expenses in Q324 (+9.5% over the Q323 figure of SEK35.0m), of which c SEK10m was related to internally funded R&D, primarily attributed to pirepemat Phase IIb React PD trial expenses (IRL757 costs are financed by the MJFF and MSRD). With the last patient in the trial recruited in October 2024, we expect internal R&D expenses to fall significantly, likely from late Q225 or early Q325. Personnel expenses for the quarter were SEK9.4m, slightly down on the SEK9.9m recorded in Q323 and materially lower than the previous quarter’s figure of SEK13.5m. Overall operating loss for Q324 improved to SEK29.4m, versus SEK40.7m in Q323. The operating loss during Q224 was SEK5.1m, although this reflected the flow-through benefit from the US$3m (SEK32m) upfront payment received from MSRD.

Interest expenses during the period were SEK2.9m and we expect this figure to stay at similar levels up to Q225, before declining with the repayment of the SEK55m loan from Fenja Capital (formerly Formue Nord), which matures in May 2025. Net loss for Q324 was SEK31.7m (vs SEK38.4m in Q323 and SEK7.1m in Q224). Cash outflow from operations in Q324 improved materially to SEK6.8m from SEK36.7m, but we note that this was attributed primarily to the SEK34m in prepaid expenses from the MJFF and MSRD.

IRLAB ended Q324 with a gross cash position of SEK90.4m (net cash of SEK30.1m accounting for SEK60.3m in debt and leases outstanding). We note that this includes SEK34m in pre-paid expenses received from the MJFF and MSRD but not yet booked as revenues and expenses. Including the SEK26.6m milestone payment from MSRD, we estimate the gross funds at hand to be sufficient to fund operations into Q225, past top-line results from the Phase IIb React PD study for pirepemat and the Phase I study for IRL757, and, potentially, a licensing deal for mesdopetam (Phase III trial expected to start in 2025, contingent on securing a licensing/partnership deal).

Based on the Q324 results and post-period development, we have made certain adjustments to our short-term estimates. For FY24, we have increased our revenue estimate from SEK75.6m to SEK104.0m, reflecting the first nine months of FY24 (9M24) revenue contribution, potential further sales recognition from the costs already invoiced to MSRD and the MJFF and the US$2.5m (SEK26.6m) in milestone payment received from MSRD in October 2024. For FY25, we have raised our revenue estimate from SEK27.5m to SEK32.5m, expecting increased revenue recognition related to the recently commenced Phase I study in healthy elderly participants. We have made similar adjustments to our external expense estimates (raising the costs by the amounts invoiced). For personnel expenses, we have cut our FY24 estimate to SEK43.0m, from SEK50.5m previously, to reflect the 9M24 run rate. Similar adjustments have been made to the FY25 personnel expense estimates (SEK40.0m from SEK45.4m previously). Overall, our revised operating loss estimates for FY24 and FY25 are SEK112.8m and SEK165.9m, respectively (SEK151.6m and SEK174.1m previously). We note that our estimates do not currently account for potential additional activity-based milestone payments under the MSRD collaboration deal (US$3m remaining after the recent receipt of US$2.5m).

We value IRLAB using a standard risk-adjusted net present value (rNPV) approach for its three clinical stage programmes: mesdopetam, pirepemat and IRL757. For mesdopetam, we keep our underlying market and launch assumptions broadly unchanged for now (notwithstanding the more protracted partnering discussion), but extend the timelines to patent loss to 2040, from 2037 previously, following the recent announcement of the new patent in Europe. For pirepemat and IRL-757, we keep our long-term assumptions unchanged.

Based on the changes and reflecting the latest forex and pro forma net cash position (including SEK26.6m in milestone payments received post-period), our valuation adjusts upwards to SEK4.8bn or SEK92.0 per share (from SEK4.47bn or SEK86.2 per share previously). Exhibit 3 presents a breakdown of our rNPV valuation for IRLAB.

We note that our model assumes IRLAB will be able to secure a partnership for the next phase of development for mesdopetam before initiation of the Phase III trial in 2025. In the absence of a licensing deal for mesdopetam, we estimate the need to raise SEK500m before becoming self-sufficient in 2028, following the expected launch of mesdopetam. We account for this capital requirement as illustrative debt in our model, assuming a SEK250m raise in FY25 (likely Q225, prior to the May 2025 maturity of the SEK55m debt outstanding) and another SEK250m in FY26. Alternatively, if these funds were to be raised through an equity issue, IRLAB would have to issue 35.5m shares, which, assuming the current trading price of SEK14.1, would result in our per-share valuation decreasing to SEK60.4 from SEK88.7 (the number of shares outstanding would increase from 51.9m to 87.3m).