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Research: Healthcare
On 10 December 2018, NeuroVive announced a rights issue (subject to EGM approval) aiming to raise up to SEK123.8m gross at a price of SEK1.35 per share, of which 80% (SEK99m) is guaranteed. Our model suggests this would cover operating costs for 2019 and into 2020, if the total amount is raised. NeuroVive outlined a number of operational goals achievable during this period, while potential share price catalysts include KL1333 Phase Ib initial results, the start of the NeuroSTAT Phase II clinical trial and the planned out-licensing of NV556. Our updated valuation is SEK1.51bn or SEK9.2/share, which includes the guaranteed amount of the rights issue.
Written by
NeuroVive Pharmaceutical |
SEK124m rights issue underway 80% guaranteed |
Rights issue |
Pharma & biotech |
17 December 2018 |
Share price performance
Business description
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On 10 December 2018, NeuroVive announced a rights issue (subject to EGM approval) aiming to raise up to SEK123.8m gross at a price of SEK1.35 per share, of which 80% (SEK99m) is guaranteed. Our model suggests this would cover operating costs for 2019 and into 2020, if the total amount is raised. NeuroVive outlined a number of operational goals achievable during this period, while potential share price catalysts include KL1333 Phase Ib initial results, the start of the NeuroSTAT Phase II clinical trial and the planned out-licensing of NV556. Our updated valuation is SEK1.51bn or SEK9.2/share, which includes the guaranteed amount of the rights issue.
Year end |
Revenue (SEKm) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16 |
0.0 |
(70.7) |
(1.7) |
0.0 |
N/A |
N/A |
12/17 |
0.6 |
(70.1) |
(1.5) |
0.0 |
N/A |
N/A |
12/18e |
1.5 |
(69.7) |
(1.0) |
0.0 |
N/A |
N/A |
12/19e |
1.5 |
(133.0) |
(1.1) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Financed to KL1333 Phase Ia/b trial readout
The proceeds from the planned rights issue will be used to advance the clinical and preclinical programmes, with one of the key trials being the Phase Ia/b study testing KL1333 for mitochondrial diseases. KL1333, a small molecule NAD+ modulator, was tested in healthy volunteers in a Phase I trial (single ascending dose) by the licensor Yungjin Pharm in South Korea, which found the compound safe, with a favourable PK profile. NeuroVive recently received the green light from regulatory authorities to proceed with its own Phase I trial (single and multiple ascending doses), which will include healthy volunteers and patients. We therefore believe the likelihood of confirming the safety profile has increased, but additional interesting insights could be obtained from patient data. Results are expected in H219.
NeuroSTAT Phase II trial to start in 2019
With the new funds, NeuroVive will also initiate the Phase II trial with NeuroSTAT for a proof-of-concept study in traumatic brain injury (TBI) where there is no specific, approved therapeutic treatment. Additional funding will be required to complete the trial, which management indicated could be done via non-dilutive funding or a partnership. Out-licensing common disease preclinical assets in the non-core portfolio, especially NV556 (NASH), is another potential catalyst and a source of cash. Our recently published outlook report describes the ongoing R&D programmes in detail.
Valuation: SEK1.51bn or SEK9.2/share
Our updated, risk-adjusted NPV valuation of NeuroVive is SEK1.51bn or SEK9.2/share compared to SEK1.64bn or SEK17.9/share previously. The positive effect of increased cash from the guaranteed part of the proposed rights issue was offset by revising parts of the R&D programme, where we moved the trial initiations from 2018 to 2019. The decrease in valuation per share is mostly technical adjustment after including the guaranteed part of the rights issue.
NeuroVive Pharmaceutical is a research client of Edison Investment Research Limited
Financials
The rights issue could raise up to SEK123.8m gross at a price of SEK1.35 per share and is structured in a similar way to the last issue in April 2018, in that a large portion (80%) of the amount is guaranteed (equal to SEK99m gross) by existing and external investors. NeuroVive plans to issue a total of 91,697,076 shares (the same amount as the current number of outstanding shares). Therefore, the maximum dilution for non-participating shareholders is 50%.The subscription period ends on 6 February 2019 and the outcome will be announced on 11 February 2019.
With its Q318 results, NeuroVive reported Q318 R&D expenses of SEK11.2m (vs SEK9.8m in Q317) and personnel expenses of SEK3.2m (vs SEK3.0m in Q317). R&D costs were somewhat lower than our expectations, but we believe this is mainly related to timing for the initiations of clinical trials for KL1333 and NeuroSTAT, which are now planned after the rights issue. Our estimates for 2019 are therefore largely unchanged. As of end-September Q318, cash was SEK38.4m.
Valuation
Our updated, risk-adjusted NPV valuation of NeuroVive is SEK1.51bn or SEK9.2 per share compared to SEK1.64bn or SEK17.9 per share previously. We include an estimated net guaranteed amount of SEK93m in our model which, when added to estimated end-2018 cash, is SEK125m. We have also updated our R&D model assumptions, mainly focusing on timelines to reflect listed management goals for 2019, together with the rights issue. To maintain realistic timelines, we have added one year of development to our estimated project timelines which, on an absolute basis, had an offsetting effect after including 80% of the rights issue in our valuation. The significant decrease in valuation per share is mainly a technical adjustment, reflecting the increased number of shares outstanding (we currently include the guaranteed new shares only, ie 73,357,661). For our valuation, we currently use 165m shares.
Exhibit 1: 2019 milestones
H119 |
H219 |
|
KL1333 |
• Initiate Phase Ia/b study |
• Top-line data expected • Prepare for Phase II study |
NeuroSTAT |
• Secure non-dilutive financing for Phase II study • IND application • Initiate Phase II study |
• Secure non-dilutive financing for Phase II study • IND application • Initiate Phase II study |
NVP015 |
• Further preclinical studies including in vivo dose-response, toxicology |
• Further preclinical studies including in vivo dose-response, toxicology |
NV556 |
• Out-licensing activities for NASH |
|
NVP024 |
• Candidate selection |
|
NVP025 |
• Candidate selection |
|
NVP022 |
• Preclinical dose-response studies in NASH disease model |
|
Rights issue |
• 17 January EGM • 23 January subscription period starts • 6 February subscription period ends • 11 February announcement of the outcome of the rights issue |
Source: NeuroVive Q318 report, NeuroVive rights issue press release, Edison Investment Research. Note: Bold indicates key catalysts (efficacy data, marketing authorisation).
We maintain all other R&D assumptions described in our recent outlook note and initiation report. As previously, in our valuation we include clinical-stage NeuroSTAT (TBI) 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 2: NeuroVive sum-of-the parts valuation
Product |
Launch |
Peak sales* |
NPV |
NPV/share |
Probability |
rNPV |
rNPV/share |
NeuroSTAT |
2025 |
454 |
278.0 |
1.7 |
15% |
31.7 |
0.2 |
KL1333 |
2024 |
574 |
573.6 |
3.5 |
10% |
53.1 |
0.3 |
NVP015 |
2025 |
875 |
683.0 |
4.1 |
5% |
27.3 |
0.2 |
NV556 |
2027 |
1,716 |
182.0 |
1.1 |
8% |
38.4 |
0.2 |
NVP024 |
2029 |
702 |
29.7 |
0.2 |
3% |
6.8 |
0.0 |
Net cash est-Q418 + 80% of the planned rights issue + exercised warrants |
14.1 |
0.1 |
100% |
14.1 |
0.1 |
||
Valuation |
|
|
1,760.5 |
10.7 |
171.4 |
1.0 |
|
SEKm |
SEK |
SEKm |
SEK |
||||
NeuroSTAT |
2,455.1 |
14.9 |
15% |
280.0 |
1.7 |
||
KL1333 |
5,064.6 |
30.7 |
10% |
469.1 |
2.8 |
||
NVP015 |
6,031.2 |
36.5 |
5% |
240.7 |
1.5 |
||
NV556 |
1,607.4 |
9.7 |
8% |
339.0 |
2.1 |
||
NVP024 |
262.5 |
1.6 |
3% |
60.0 |
0.4 |
||
Net cash est end-Q418 + 80% of the planned rights issue + exercised warrants |
124.7 |
0.8 |
100% |
124.7 |
0.8 |
||
Valuation |
15,545.5 |
94.2 |
1,513.5 |
9.2 |
Source: Edison Investment Research. Note: *Peak sales reached six years after launch. WACC = 12.5% for product valuations.
Exhibit 3: Financial summary
SEK'000s |
|
2016 |
2017 |
2018e |
2019e |
|
December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
14 |
585 |
1,500 |
1,500 |
Cost of Sales |
0 |
0 |
0 |
0 |
||
Gross Profit |
14 |
585 |
1,500 |
1,500 |
||
Research and development |
(12,000) |
(27,926) |
(40,560) |
(103,243) |
||
EBITDA |
|
|
(69,868) |
(67,897) |
(69,310) |
(132,815) |
Operating Profit (before amort. and except.) |
(70,989) |
(69,492) |
(69,452) |
(132,968) |
||
Intangible Amortisation |
0 |
0 |
0 |
0 |
||
Exceptionals |
(1,121) |
(1,595) |
(1,942) |
0 |
||
Other |
0 |
56 |
0 |
0 |
||
Operating Profit |
(72,110) |
(71,031) |
(71,394) |
(132,968) |
||
Net Interest |
265 |
(571) |
(200) |
0 |
||
Profit Before Tax (norm) |
|
|
(70,724) |
(70,063) |
(69,652) |
(132,968) |
Profit Before Tax (reported) |
|
|
(71,845) |
(71,602) |
(71,594) |
(132,968) |
Tax |
0 |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(70,724) |
(70,007) |
(69,652) |
(132,968) |
||
Profit After Tax (reported) |
(70,240) |
(66,727) |
(67,594) |
(128,968) |
||
Average Number of Shares Outstanding (m) |
42.0 |
50.2 |
72.0 |
128.4 |
||
EPS - normalised (SEK) |
|
|
(1.72) |
(1.49) |
(1.02) |
(1.07) |
EPS - normalised fully diluted (SEK) |
|
(1.72) |
(1.49) |
(1.02) |
(1.07) |
|
EPS - reported (SEK) |
|
|
(1.67) |
(1.33) |
(0.94) |
(1.00) |
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 |
32,757 |
1,568 |
Stocks |
0 |
0 |
0 |
0 |
||
Debtors |
0 |
0 |
0 |
0 |
||
Cash |
93,251 |
28,992 |
31,189 |
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 |
(8,635) |
Long term borrowings |
0 |
0 |
0 |
(8,635) |
||
Other long term liabilities |
0 |
0 |
0 |
0 |
||
Net Assets |
|
|
167,133 |
103,880 |
106,077 |
66,253 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(57,614) |
(58,039) |
(71,252) |
(132,815) |
Net Interest |
237 |
(84) |
(200) |
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 |
93,098 |
||
Other |
(23,227) |
(4,092) |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
(3,411) |
(64,259) |
2,197 |
(39,824) |
||
Opening net debt/(cash) |
|
|
(96,662) |
(93,251) |
(28,992) |
(31,189) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(93,251) |
(28,992) |
(31,189) |
8,635 |
Source: NeuroVive accounts, Edison Investment Research
|
|
Research: Investment Companies
Aberdeen New Thai Investment Trust (ANW) was launched in 1989 and is the only Thailand-focused investment trust listed in London. It aims to deliver a high level of long-term capital growth through investing in a relatively concentrated portfolio of quality companies, following a disciplined bottom-up approach. The Thai equity market has been relatively resilient this year compared to MSCI AC Asia ex-Japan and MSCI Emerging Markets, reflecting Thailand’s solid economic fundamentals. The manager believes Thai companies are particularly well-placed to benefit from the fast-growing neighbouring economies of Cambodia, Laos, Myanmar and Vietnam, and ANW offers some indirect exposure to these markets. The trust has delivered strong absolute returns over the past 10 years; an annualised NAV total return of 20.5%. Recent returns, however, have lagged the benchmark and the shares have traded at a persistently wide discount to cum-income NAV. In May 2018, the board announced a package of changes to address these issues which, if successful, should support further narrowing of the discount.