Cantargia — Strong momentum in first nine months of FY22

Cantargia (OMX: CANT)

Currency in SEK

Last close As at 02/02/2023

SEK6.08

−0.27 (−4.25%)

Market capitalisation

SEK1,015m

Research: Healthcare

Cantargia — Strong momentum in first nine months of FY22

Cantargia’s development programme for its lead asset, nadunolimab (CAN04), continued to build momentum in Q322. The company’s results for the period report an operating loss of SEK74.2m, which was largely driven by R&D expenses of SEK69.7m. Cash outflow from operations for Q322 was SEK81.4m, bringing the total cash used in operations for 9M22 to SEK297.3m, up from SEK256.6m in 9M21, due to expanded clinical activities. Cantargia received net proceeds from the rights issue completed in August 2022 of SEK223.9m, resulting in a cash and short-term investment position of SEK496.5m at end-Q322. Our current forecasts for FY22 and FY23 see the company funded to mid-FY24, beyond commencement of important randomised late-stage trials in FY23. Our valuation of Cantargia is broadly unchanged at SEK7.5bn or SEK44.9 per share.

Soo Romanoff

Written by

Soo Romanoff

Managing Director - Head of Content, Healthcare

Healthcare

Cantargia

Strong momentum in first nine months of FY22

Q322 results

Pharma/biotech

11 November 2022

Price

SEK3.46

Market cap

SEK577m

SEK10.76/US$

Net cash and short-term investments (SEKm) at 30 September 2022

496.5

Shares in issue

166.99m

Free float

99%

Code

CANT

Primary exchange

Nasdaq Nordic

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.8)

(29.0)

(72.8)

Rel (local)

(15.1)

(28.4)

(66.2)

52-week high/low

SEK17.06

SEK3.42

Business description

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

Next events

PanCAN PDAC Phase III trial begins

2023

NSCLC Phase III trial begins

2023

Analysts

Soo Romanoff

+44 (0)20 3077 5700

Dr Harry Shrives

+44 (0)20 3077 5700

Cantargia is a research client of Edison Investment Research Limited

Cantargia’s development programme for its lead asset, nadunolimab (CAN04), continued to build momentum in Q322. The company’s results for the period report an operating loss of SEK74.2m, which was largely driven by R&D expenses of SEK69.7m. Cash outflow from operations for Q322 was SEK81.4m, bringing the total cash used in operations for 9M22 to SEK297.3m, up from SEK256.6m in 9M21, due to expanded clinical activities. Cantargia received net proceeds from the rights issue completed in August 2022 of SEK223.9m, resulting in a cash and short-term investment position of SEK496.5m at end-Q322. Our current forecasts for FY22 and FY23 see the company funded to mid-FY24, beyond commencement of important randomised late-stage trials in FY23. Our valuation of Cantargia is broadly unchanged at SEK7.5bn or SEK44.9 per share.

Year end

Revenue
(SEKm)

PBT*
(SEKm)

EPS*
(SEK)

DPS
(SEK)

P/E
(x)

Yield
(%)

12/20

0.0

(173.1)

(1.94)

0.0

N/A

N/A

12/21

0.0

(366.5)

(3.66)

0.0

N/A

N/A

12/22e

0.0

(322.8)

(2.41)

0.0

N/A

N/A

12/23e

0.0

(296.7)

(1.77)

0.0

N/A

N/A

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

Pipeline development continues

With Cantargia’s development pipeline generating supportive data for CAN04’s use in oncology, the company will look to leverage this to focus on the drug’s development in the treatment of non-small cell lung cancer (NSCLC) and pancreatic cancer (PDAC), two indications with large unmet medical need. Two key catalysts for the company, in our view, will be the initiation of randomised trials in these indications, both of which are expected to begin in FY23. We see the sustained pipeline momentum over FY22 as a very positive sign for the company.

Funding shores up cash runway to mid-2024

Proceeds from the August 2022 rights issue provided Cantargia with an important cash injection to fund key steps in the late-stage development of nadunolimab. In FY23 we expect the company to focus on the pipeline and reduce the number of clinical trials being run. As a result, we have reduced our estimated R&D spend. Combined, our new forecasts see the company’s operations sufficiently funded to mid-FY24 (previously into H124).

Valuation: SEK7.5bn or SEK44.9 per share

We have updated our valuation of Cantargia in light of Q322 results to SEK7.5bn or SEK44.9 per share (previously SEK7.35bn or SEK44.0 per share) The slight value uplift is due to rolling our model forward three months and updating our FX rate assumptions. Our valuation is based on a risk-adjusted NPV of nadunolimab in NSCLC and PDAC and includes a net cash and short-term investment position of SEK496.5m at end-September 2022.

Sustained pipeline momentum in Q322

FY22 has been a busy year for Cantargia. The company’s clinical development programme for nadunolimab (CAN04), an IL1RAP-targeting antibody, is involved in six separate clinical trials, in four oncology indications (Exhibit 1). Momentum in H222 is continuing as the Phase Ib CIRIFOUR trial (NCT04452214), evaluating CAN04 in first-line non-squamous NSCLC in combination with pembrolizumab and platinum-based chemotherapy, treated its first patient, and the Phase I CAPAFOUR (NCT04990037) and Phase I/II CESTAFOUR (NCT05116891) completed patient enrolment. Moving forward, management’s strategy will leverage data generated from the pipeline to mainly focus on nadunolimab’s development in PDAC and lung cancer, two areas with considerable unmet medical need. In our view, important near-term inflection points, namely the commencement of the Phase II/III clinical Precision Promise trial (in collaboration with PanCAN) and the planned randomised clinical trial in NSCLC, both due in 2023, mark the beginning of late-stage development for nadunolimab.

Exhibit 1: Cantargia development pipeline

Source: Cantargia report November 2022

New data support IL1RAP strategy

In November 2022, the company reported a handful of preclinical results that, in our view, support Cantargia’s strategy of pursuing IL1RAP in oncology and inflammatory diseases. The company presented data demonstrating nadunolimab (CAN04) reduced levels of tumour-promoting molecules in a PDAC microenvironment model with similar reductions having been observed in PDAC and NSCLC patients treated with nadunolimab. Importantly, an IL-1β targeting antibody showed no such effect (nadunolimab blocks both IL-1α and IL-1β activation). Investors will recall the failure of Novartis’s canakinumab (an anti-IL-1β antibody) to demonstrate meaningful survival benefits in Phase III trials for the treatment of NSCLC in October 2021. In our view, these data provide encouraging differentiation for nadunolimab’s mechanism of action (complete IL-1 pathway abrogation) in oncology.

Further, in November 2022 Cantargia reported new preclinical data that support the potential use of the company’s second IL1RAP-binding antibody CAN10 in the treatment of systemic sclerosis (SS), a life-threatening fibrotic disease with no cure. In the report, which has been selected for an oral presentation at American College of Rheumatology Convergence 2022 on 13 November, CAN10 produced a reduction in fibrosis and inflammation in skin and lung tissues in three different in vivo models of SS and reduced IL1RAP-stimulated inflammatory biomarkers. CAN10 is currently in preclinical development, with Cantargia planning to begin Phase I trials in SS and myocarditis in early-FY23. We see this new data as encouraging for CAN10’s potential use in SS and supportive of IL1RAP as a target of interest in inflammatory and fibrotic diseases. 

SS (also known as scleroderma) is rare autoimmune disease (global incidence is estimated at 1.4/100,000 people per year) characterised by fibrosis (scar-like tissue formation) in the skin and visceral organs. Symptoms can vary widely depending on the area affected and cases that affect the lungs, heart, kidneys or digestive system can have serious implications and are often fatal. At present no curative treatments exist for SS and current medications can only control symptoms of the disease, for example anti-hypertensives, immunosuppressants and pain relief.

Hence, we see an opportunity for Cantargia in SS, providing CAN10 can translate the reported preclinical model results into the clinic. We note, however, that it is inappropriate to make specific clinical efficacy assumptions from preclinical data. Nevertheless, the in vivo SS model data is, in our view, supportive of the company’s strategy to pursue the treatment of SS with CAN10 and adds to previous evidence gathered by the company on IL1RAP’s potential utility in inflammatory and fibrotic diseases. In line with company guidance, we expect Cantargia to initiate Phase I clinical trials with CAN10 in SS in early-2023. We do not currently include CAN10 in our valuation of Cantargia. However, we will revisit this once the asset begins Phase I trials.

Financials

In Q322, management reported R&D related costs of SEK69.7m, a reduction of c 31% from the same period a year prior (Q321: SEK100.8m) and down from the higher R&D run rate of H1. The reduction in R&D expenses was driven by Cantargia’s newly implemented focus in the pipeline, with NSCLC and PDAC randomised trials being the main goal. We now expect that R&D expenses for the year will be front loaded and have therefore reduced our operating cost estimates for FY22 and FY23. In FY22 we forecast R&D expenses of SEK313.6m (previously SEK372.7m) and in FY23 SEK282.3m (previously SEK350m). This brings our estimated total operating expenditure to SEK332.9m and SEK296.3m in FY22 and FY23, respectively. With new estimates and taking into account the recent rights issue, we now estimate a cash runway for Cantargia to mid-2024; however, any changes to clinical timelines may affect this estimate.

Exhibit 2: Financial summary

SEK'000s

2019

2020

2021

2022e

2023e

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

(97,477)

(158,396)

(352,709)

(313,615)

(282,253)

EBITDA

 

 

(111,577)

(170,697)

(366,821)

(330,830)

(293,957)

Operating Profit (before amort. and excepts.)

 

 

(111,589)

(173,945)

(370,267)

(332,871)

(296,249)

Exceptionals

0

0

0

0

0

Other

0

0

0

0

0

Operating Profit

(111,589)

(173,945)

(370,267)

(332,871)

(296,249)

Net interest

479

501

924

171

429

FX income/(expense)

301

359

2,839

10,774

0

Profit Before Tax (norm)

 

 

(110,809)

(173,085)

(366,504)

(322,826)

(296,721)

Profit Before Tax (reported)

 

 

(110,809)

(173,085)

(366,504)

(322,826)

(296,721)

Tax

0

0

0

0

0

Profit After Tax (norm)

(110,809)

(173,085)

(366,504)

(322,826)

(296,721)

Profit After Tax (reported)

(110,809)

(173,085)

(366,504)

(322,826)

(296,721)

Average Number of Shares Outstanding (m)

71.1

89.4

100.2

133.6

167.0

EPS - normalised (ore)

 

 

(155.74)

(193.65)

(365.80)

(240.98)

(177.15)

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

 

 

6,868

12,622

9,556

6,633

5,440

Intangible Assets

0

7,360

6,459

5,559

4,658

Tangible Assets

6,868

5,262

3,097

1,074

782

Investments

0

0

0

0

0

Current Assets

 

 

159,190

912,893

590,687

494,629

202,336

Stocks

0

0

0

0

0

Debtors

0

0

0

0

0

Cash

39,871

693,354

247,322

217,593

162,083

Other*

119,319

219,539

343,365

277,036

40,253

Current Liabilities

 

 

(23,785)

(30,469)

(66,607)

(63,795)

(63,795)

Creditors

(23,785)

(30,469)

(66,607)

(63,795)

(63,795)

Short term borrowings

0

0

0

0

0

Long Term Liabilities

 

 

0

(3,111)

(892)

(51)

(51)

Long term borrowings

0

0

0

0

0

Other long term liabilities

0

(3,111)

(892)

(51)

(51)

Net Assets

 

 

142,273

891,935

532,744

437,416

143,930

CASH FLOW

Operating Cash Flow

 

 

(111,255)

(156,387)

(346,446)

(339,711)

(289,976)

Purchase of intangibles

0

(8,112)

0

0

0

Capex

(6,880)

(890)

0

(17)

(2,000)

Proceeds from sale of PPE

0

0

(383)

0

0

Financing

98,037

918,514

0

223,945

(317)

Net (Purchase)/Sale of short-term investments

(16,743)

(100,000)

(102,046)

75,281

236,783

Effect of FX on cash

183

359

2,839

10,774

0

Net Cash Flow

(36,658)

653,484

(446,036)

(29,729)

(55,510)

Opening net debt/(cash)

 

 

(76,528)

(39,871)

(693,354)

(247,322)

(217,593)

HP finance leases initiated

0

0

0

0

0

Other

0

(1)

4

(0)

0

Closing net debt/(cash)

 

 

(39,871)

(693,354)

(247,322)

(217,593)

(162,083)

Source: company accounts, Edison Investment Research



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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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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.

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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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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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