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Research: Healthcare
NeuroVive’s recent Q217 report described R&D activities progressing according to plan. The company is preparing for the next clinical studies with the two most advanced assets – NeuroSTAT for traumatic brain injury and KL1333 for genetic mitochondrial disorders. With regard to the portfolio for out-licensing, NeuroVive indicated that discussions with potential partners for NV556 (NASH and liver tumours) will be initiated in the autumn, although partnering is usually a rather lengthy process. We value NeuroVive at SEK1.4bn (SEK27.0/share) vs SEK1.5bn previously.
Written by
NeuroVive Pharmaceutical |
R&D progress on track; new investor on board |
Q217 results |
Pharma & biotech |
25 August 2017 |
Share price performance
Business description
Next events
Analyst
NeuroVive Pharmaceutical is a research client of Edison Investment Research Limited |
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NeuroVive’s recent Q217 report described R&D activities progressing according to plan. The company is preparing for the next clinical studies with the two most advanced assets – NeuroSTAT for traumatic brain injury and KL1333 for genetic mitochondrial disorders. With regard to the portfolio for out-licensing, NeuroVive indicated that discussions with potential partners for NV556 (NASH and liver tumours) will be initiated in the autumn, although partnering is usually a rather lengthy process. We value NeuroVive at SEK1.4bn (SEK27.0/share) vs SEK1.5bn previously.
Year end |
Revenue (SEKm) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/15 |
2.5 |
(89.6) |
(3.00) |
0.0 |
N/A |
N/A |
12/16 |
0.0 |
(70.7) |
(1.72) |
0.0 |
N/A |
N/A |
12/17e |
0.0 |
(80.0) |
(1.72) |
0.0 |
N/A |
N/A |
12/18e |
0.0 |
(95.9) |
(1.94) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
New institutional investor
On 18 July 2017, NeuroVive announced a private placement with Esousa Holdings, which is expected to raise SEK9m in total in two equal tranches, with the first tranche already completed. The first transaction involved the issue of c 1.1m units (2.2% of the total outstanding number of shares before the placement) at SEK4.17 (20% discount to the previous day’s closing price) consisting of one NeuroVive share and one warrant (exercisable over five years to acquire one share at a 20% discount). NeuroVive indicated that the second tranche should be completed by the end of 2017 on the same terms. We therefore add the total investment to our model. While the placement was small overall, more important, in our view, is that Esousa, a US-based institutional, life-sciences-focused investor, may be able to provide support to the company in the future.
R&D progress on track
Following the positive initial results announcement from the Phase II trial and an additional experimental study with NeuroSTAT (a novel ciclosporin A formulation), NeuroVive continues preparations to initiate a Phase IIb proof-of-concept trial. The second most advanced product, KL1333 (NAD+ modulator), was in-licensed in May 2017 from Yungjin Pharm, which is currently running a Phase I trial, while NeuroVive will initiate its own Phase I study. We provided a detailed assessment of NeuroVive’s R&D portfolio in our recent initiation report.
Valuation: rNPV SEK1.4bn or SEK27.0/share
We value NeuroVive at SEK1.4bn or SEK27.0/share versus SEK1.5bn or SEK30.0/share previously, mainly due to a lower cash position and SEK depreciation versus the US$, while our valuation in dollar terms is slightly up at US$172.1m (US$169.5m previously). NeuroVive’s initiation of the proof-of-concept Phase IIb trial with NeuroSTAT in TBI and initiation of its own Phase I study with KL1333 (Yungjin is already recruiting to its own Phase I) are the near-term R&D-related events. Meanwhile, potential out-licensing of NV556 could be a substantial trigger for the share price.
Financials
NeuroVive’s Q217 results were largely in line with our expectations. The company has changed its assessment of the timing for the capitalisation of development costs and will expend all R&D costs until the related product gains market approval. We have adjusted our model accordingly and our estimated total operating expenses booked in the P&L in 2017 and 2018 are now higher at SEK80.3m and SEK95.9m versus SEK62.3m and SEK51.4m previously. That includes our R&D cost estimates of SEK31.1m in 2017 and SEK56.5m in 2018. We have not made any changes to our underlying assumptions and therefore there are no substantial revisions to our estimated cash reach besides the fact that the fund-raise announced in July 2017 should bring in SEK9m gross (we include SEK8.6m net). NeuroVive had cash and cash equivalents of SEK47.0m at the end of Q217 and was debt free. We expect a cash positon of SEK18.6m by end-2017. NeuroVive does not provide guidance but, according to our model and based on current R&D plans, the cash reach is into Q118. We estimate that the company’s need for additional funds in 2018 is around SEK77m, which we include as illustrative long-term debt in our financial forecasts. Notably, we do not take into account revenues from any potential licensing-related income in our financial forecasts.
Valuation
Our updated valuation of NeuroVive is SEK1.4bn or SEK27.0/share compared to SEK1.5bn or SEK30.0/share previously. A lower cash position and the rather sharp depreciation of SEK vs the US$ were the main reasons for the slight decrease in our valuation, which was partially mitigated by rolling our model forward. Our valuation in US$ terms is slightly higher at $172.1m vs $169.5m previously (on a per-share basis it is slightly lower at $3.3/share vs $3.4/share, reflecting the share issue). We maintain all our R&D assumptions, as described in our initiation report. As previously, in our valuation we include the clinical-stage NeuroSTAT (traumatic brain injury) and KL1333 (genetic mitochondrial disorders) and the advanced preclinical products. We exclude NVP025 (mitochondrial myopathy) and NVP022 (NASH) for the time being as both are at an early stage.
Exhibit 1: NeuroVive sum-of-the parts valuation
Product |
Launch |
Peak sales* |
NPV |
NPV/share |
Probability |
rNPV |
rNPV/share |
NeuroSTAT |
2024 |
454 |
293.3 |
5.7 |
15% |
35.0 |
0.7 |
KL1333 |
2023 |
574 |
566.2 |
11.0 |
10% |
51.6 |
1.0 |
NVP015 |
2023 |
875 |
931.4 |
18.0 |
5% |
39.4 |
0.8 |
NV556 |
2026 |
1,716 |
172.9 |
3.3 |
8% |
33.8 |
0.7 |
NVP024 |
2029 |
702 |
29.3 |
0.6 |
3% |
5.5 |
0.1 |
Net cash |
6.9 |
0.1 |
100% |
6.9 |
0.1 |
||
Valuation |
|
|
1,999.9 |
38.7 |
|
172.1 |
3.3 |
SEKm |
SEK |
SEKm |
SEK |
||||
NeuroSTAT |
2,372.9 |
45.9 |
15% |
283.3 |
5.5 |
||
KL1333 |
4,579.6 |
88.7 |
10% |
417.1 |
8.1 |
||
NVP015 |
7,534.0 |
145.9 |
5% |
318.7 |
6.2 |
||
NV556 |
1,398.2 |
27.1 |
8% |
273.5 |
5.3 |
||
NVP024 |
237.1 |
4.6 |
3% |
44.3 |
0.9 |
||
Net cash |
55.5 |
1.1 |
100% |
55.5 |
1.1 |
||
Valuation |
16,177.4 |
313.2 |
|
1,392.5 |
27.0 |
Source: Edison Investment Research. Note: WACC = 12.5% for product valuations. Peak sales reached six years after launch. SEK8.09/US$ vs SEK8.72/US$ previously.
Exhibit 2: Financial summary
SEK'000s |
2014 |
2015 |
2016 |
2017e |
2018e |
||
December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
7,152 |
2,502 |
14 |
0 |
0 |
Cost of Sales |
0 |
0 |
0 |
0 |
0 |
||
Gross Profit |
7,152 |
2,502 |
14 |
0 |
0 |
||
Research and development |
(13,738) |
(12,200) |
(12,000) |
(31,061) |
(56,490) |
||
EBITDA |
|
|
(44,372) |
(89,066) |
(69,868) |
(80,196) |
(95,758) |
Operating Profit (before amort. and except.) |
(44,813) |
(90,266) |
(44,813) |
(90,266) |
(70,989) |
||
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
(441) |
(1,200) |
(1,121) |
0 |
0 |
||
Other |
(1) |
0 |
0 |
0 |
0 |
||
Operating Profit |
(45,255) |
(91,466) |
(72,110) |
(80,337) |
(95,916) |
||
Net Interest |
580 |
665 |
265 |
314 |
0 |
||
Profit Before Tax (norm) |
|
|
(44,233) |
(89,601) |
(70,724) |
(80,023) |
(95,916) |
Profit Before Tax (reported) |
|
|
(44,675) |
(90,801) |
(71,845) |
(80,023) |
(95,916) |
Tax |
0 |
0 |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(44,234) |
(89,601) |
(70,724) |
(80,023) |
(95,916) |
||
Profit After Tax (reported) |
(44,675) |
(90,801) |
(71,845) |
(80,023) |
(95,916) |
||
Average Number of Shares Outstanding (m) |
27.3 |
27.3 |
30.1 |
42.0 |
50.5 |
||
EPS - normalised (SEK) |
|
|
(1.70) |
(3.00) |
(1.72) |
(1.72) |
(1.94) |
EPS - normalised and fully diluted (SEK) |
|
(1.70) |
(1.70) |
(3.00) |
(1.72) |
(1.72) |
|
EPS - (reported) (SEK) |
|
|
(1.72) |
(3.04) |
(1.75) |
(1.72) |
(1.94) |
Dividend per share (SEK) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
100.0 |
100.0 |
100.0 |
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 |
|
|
79,945 |
75,369 |
84,645 |
86,774 |
86,807 |
Intangible Assets |
79,601 |
74,904 |
71,151 |
73,233 |
73,233 |
||
Tangible Assets |
344 |
316 |
274 |
321 |
354 |
||
Investments |
0 |
149 |
13,220 |
13,220 |
13,220 |
||
Current Assets |
|
|
51,323 |
99,558 |
94,901 |
19,570 |
1,000 |
Stocks |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
502 |
528 |
0 |
0 |
0 |
||
Cash |
49,698 |
96,662 |
93,251 |
18,570 |
0 |
||
Other |
1,123 |
2,368 |
1,650 |
1,000 |
1,000 |
||
Current Liabilities |
|
|
(23,427) |
(20,148) |
(12,413) |
(10,170) |
(10,170) |
Creditors |
(23,427) |
(20,148) |
(12,413) |
(10,170) |
(10,170) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
0 |
0 |
0 |
0 |
(77,379) |
Long term borrowings |
0 |
0 |
0 |
0 |
(77,379) |
||
Other long term liabilities |
0 |
0 |
0 |
0 |
0 |
||
Net Assets |
|
|
107,841 |
154,779 |
167,133 |
96,174 |
258 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
(44,171) |
(67,885) |
(57,614) |
(70,303) |
(95,758) |
Net Interest |
539 |
665 |
237 |
314 |
0 |
||
Tax |
0 |
0 |
0 |
0 |
0 |
||
Capex |
(178) |
(245) |
(139) |
(187) |
(190) |
||
Acquisitions/disposals* |
0 |
0 |
0 |
(11,035) |
0 |
||
Financing |
76,599 |
138,406 |
77,332 |
8,559 |
0 |
||
Other |
10,421 |
(23,977) |
(23,227) |
(2,028) |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
43,210 |
46,964 |
(3,411) |
(74,681) |
(95,948) |
||
Opening net debt/(cash) |
|
|
(6,488) |
(49,698) |
(96,662) |
(93,251) |
(18,570) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(49,698) |
(96,662) |
(93,251) |
(18,570) |
77,379 |
Source: Edison Investment Research, NeuroVive Pharmaceutical accounts. Note: *Related to the disposal of a subsidiary in 2017, the net effect of which was neutral on cash flows.
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