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Oncology Venture (OV) recently included the first patient in its irofulven Phase II trial in prostate cancer, marking its third currently active trial. OV is also planning to initiate its second 2X-121 Phase II trial in ovarian cancer at the beginning of next year. Moreover, the company recently submitted pre-IDE/IND paperwork to the US FDA as it is seeking approval for LiPLaCis via a single-arm pivotal study in ~100-200 patients. The recent debt deal of ~SEK200m should fund OV’s current clinical development.
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Oncology Venture |
Three active trials with two more on the horizon |
Financial update |
Pharma & biotech |
4 December 2018 |
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Oncology Venture (OV) recently included the first patient in its irofulven Phase II trial in prostate cancer, marking its third currently active trial. OV is also planning to initiate its second 2X-121 Phase II trial in ovarian cancer at the beginning of next year. Moreover, the company recently submitted pre-IDE/IND paperwork to the US FDA as it is seeking approval for LiPLaCis via a single-arm pivotal study in ~100-200 patients. The recent debt deal of ~SEK200m should fund OV’s current clinical development.
Year end |
Revenue (DKKm) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/17 |
5.1 |
(31.0) |
(1.27) |
0.0 |
N/A |
N/A |
12/18e |
3.2 |
(29.2) |
(0.57) |
0.0 |
N/A |
N/A |
12/19e |
1.9 |
(205.8) |
(3.82) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
First patient included in irofulven Phase II trial
In October, OV announced that the first patient was included in its Phase II irofulven trial. OV is developing irofulven, a cytotoxic DNA binding agent for the treatment of prostate cancer utilising its drug response predictor (DRP) to select patients most likely to respond to treatment. The trial is expected to enrol 13-27 patients. OV hopes to see a response rate of ~20% in these patients; according to the company this should enable a marketing approval pathway.
2X-121 in breast and ovarian cancer
OV’s Phase II 2X-121 trial in breast cancer is ongoing. The company has stated that it plans to read out the first efficacy data as soon as patients have been enrolled long enough to demonstrate some response. However, an exact timeframe was not provided and will likely fall behind previous expectations (Q418). Moreover, OV is preparing to initiate a second 2X-121 Phase II trial in patients with ovarian cancer in Q119. As a reminder, 2X-121 is an orally bioavailable small molecule and a dual PARP-1/2 and TNKS-1/2 inhibitor.
Financing agreements in place to offset expenditure
We forecast significant capital requirements to bring all six anti-cancer programmes to Phase III out-licensing (DKK388m). OV recently announced an agreement with the European High Growth Opportunities Securitization Fund for up to SEK200m for convertible notes, and potentially an additional SEK100m if all warrants are exercised. The funding may be drawn down through the issuance of 20 tranches at SEK10m.
Valuation: SEK1,100.5m or SEK21.87 per share
We have slightly increased our valuation of OV to SEK1,100.5m or SEK21.87 per share (SEK20.5 per diluted share) from SEK1,078m or SEK21.44 per share, primarily driven by rolling forward our NPVs and in part offset by lower net cash at the corporate level. We expect to make further adjustments to our valuation of OV following feedback from the company’s six clinical programmes.
Multiple trials moving forward
OV recently reported its Q318 results, which included its consolidated financials post-merger and a brief update on some near-term clinical events. On 18 October 2018, OV announced that the first patient with prostate cancer was included in its Phase II irofulven clinical trial. OV’s unique irofulven DRP is first being used to screen ~300 patients with metastatic castration- and docetaxel-resistant prostate cancer (mCDRPC) to identify those most likely to respond to treatment. According to the company, interim data obtained from the first eight patients enrolled in the study (ie selected by the DRP algorithm to be sensitive to irofulven) will determine whether the company continues to develop this asset. If these select patients experience a particular response, the remainder of the Phase II trial will include 13-27 patients with the highest likelihood to respond to irofulven. OV expects to see a 20% or higher response rate to irofulven in these patients. This is roughly equal to or greater than current treatment options (ie hormonal therapy, chemotherapy, typically taxanes or CYP-17 inhibitors, the combination of chemotherapy and hormonal therapy, or immunotherapy) yielding a tumour response rate of 22.6% and corresponding to median progression-free survival (PFS) and overall survival (OS) of 7.6 months and 15.1 months, respectively.1
Akaza, H., et al. (2018). Metastatic Castration-Resistant Prostate Cancer Previously Treated With Docetaxel-Based Chemotherapy: Treatment Patterns From the PROXIMA Prospective Registry. Journal of Global Oncology,(4), 1-12.
OV also announced that it plans to initiate a second Phase II 2X-121 in patients with ovarian cancer in Q119 in the US and in Germany. OV previously received IDE and IND approvals for 2X-121 DRP technology and treatment protocol. As a reminder, 2X-121 is an orally bioavailable small molecule and a dual PARP-1/2 and TNKS-1/2 inhibitor. PARP enzymes repair single-strand DNA breaks and since BRCA1/2 mutated cells are incapable of double-strand break repair, PARP inhibition is particularly lethal and causes genomic instability and cell death. OV’s first Phase II 2X-121 open-label trial in patients with metastatic breast cancer (mBC) was initiated in June 2018 and the primary endpoint is overall tumour response according to RECIST at more than 24 weeks post-treatment. The company has stated that it plans to read out the first efficacy data as soon as patients have been enrolled long enough to demonstrate some response. We expect the results of this trial to elucidate whether the DRP can prospectively identify 2X-121 mBC responders.
The company recently submitted a pre-IDE/IND dossier to the US FDA to discuss the filing of an application for LiPlaCis in mBC clinical trials in the US. OV’s goal is to seek approval for LiPlaCis by a single-arm pivotal study in ~100-200 patients whereas the ongoing Phase II trial may serve as a bridge. Recruitment timelines will be updated following feedback from the FDA.
Valuation
We have increased our valuation of OV to SEK1,101m or SEK21.87 per share (SEK20.5 per diluted share) from SEK1,078m or SEK21.44 per share. This change is primarily driven by rolling forward our NPVs and is in part offset by lower net cash at the corporate level. According to the company, its three highest priority assets include LiPlaCis, 2X-121 and dovitinib and based on our estimates, we value these assets at SEK5.20, SEK3.09 and SEK5.10 per share, respectively. We expect to make further adjustments to our valuation of OV following feedback from the company’s six clinical programmes.
Exhibit 1: Valuation of OV
Development programme |
Indication |
Clinical stage |
Prob. of success |
Launch year |
Launch pricing |
Peak sales ($m) |
rNPV (SEKm) |
% owned by OV |
OV rNPV (SEKm) |
|
LiPlaCis |
Metastatic breast cancer and metastatic prostate cancer |
Phase II |
25% |
2023 |
$91,000 |
259.8 |
670.7 |
39% |
261.6 |
|
Irofulven |
Metastatic prostate cancer |
Phase Ib/II |
20% |
2023 |
$129,000 |
52.6 |
60.1 |
100% |
60.1 |
|
APO010 |
Multiple myeloma |
Phase Ib/II |
20% |
2023 |
$143,000 |
80.9 |
98.1 |
100% |
98.1 |
|
2X-121 |
Metastatic breast cancer and ovarian cancer |
Phase II |
25% |
2023 |
$132,000 |
116.4 |
168.9 |
92% |
155.4 |
|
2X-111 |
Glioblastoma and brain metastases from breast cancer |
Phase Ib/II |
25% |
2024 |
$169,000 |
212.6 |
293.0 |
92% |
269.6 |
|
Dovitinib |
Renal and liver cancer |
Phase Ib/II |
35% |
2024 |
$145,000 |
152.0 |
466.4 |
55% |
256.5 |
|
Total |
|
|
|
|
|
|
|
|
1,101.3 |
|
Net debt (at 30 September 2018) (SEKm) |
(0.8) |
|||||||||
Total firm value (SEKm) |
1,100.5 |
|||||||||
Total shares (m) |
50.3 |
|||||||||
Value per basic share (SEK) |
21.87 |
|||||||||
Warrants and options (m) |
3.3 |
|||||||||
Fully diluted shares in issue |
53.6 |
|||||||||
Fully diluted value per share |
20.5 |
|||||||||
Source: Edison Investment Research
Financials
OV recently reported its Q318 results, presenting the financials of the merged entity for the first time. Note that the historic numbers are not fully consolidated. The company recorded revenue of DKK104,000 for the quarter ending 30 September 2018, which is down significantly from the same period the previous year (DKK1.2m in Q317) and primarily attributable to the changed group structure. We have therefore decreased our revenue forecasts for FY18 and FY19 to reflect these changes and note that the revenue generated is not material to the company’s operations at this time. OV ended the quarter with DKK8.7m in cash and DKK9.3m in debt. The company reported a loss of DKK4.0m for the quarter, which we assume is primarily attributable to R&D. We have decreased our PBT loss forecasts for FY18 to DKK29.2m (from DKK39.6m), primarily driven by delaying the initiation of the LiPlaCis pivotal trial from 2018 to 2019 and the fact that the APO010 trial has not yet included any patients. We expect OV’s R&D expenditure to increase next year along with the initiation of the irofulven trial, initiation of the second 2X-121 Phase II trial in patients with ovarian cancer, and potentially the single-arm pivotal LiPlaCis study following FDA feedback. Our FY19e PBT loss increases marginally to SEK206m.
Our financial requirements for OV remain unchanged; however, we expect these to be significantly offset by the recent financing agreement with the European High Growth Opportunities Securitization Fund (EHGOSF) advised by Alpha Blue Ocean announced on 30 November 2018. According to the agreement, OV may receive up to SEK200m in convertible notes and warrants over the next 24 months bearing 2% fixed interest, and potentially an additional SEK100m if all warrants are exercised. The pricing of the convertible notes and warrants will be determined once they are drawn (95% and 150% of the average of the last 15 trading days, respectively) and there is 50% warrant coverage in each tranche. The funding may be drawn down through the issuance of 20 tranches at SEK10m (note, the size of tranche can be decreased to SEK7.5m) and EHGOSF may ask for five of these. These capital requirements may be further offset by DKK20m remaining available to the company attributed to the flexible loan facility established with Trention.
Exhibit 2: Financial summary
DKK'000s |
2017 |
2018e |
2019e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||
Revenue |
|
|
5,145 |
3,192 |
1,876 |
Cost of Sales |
0 |
0 |
0 |
||
Gross Profit |
5,145 |
3,192 |
1,876 |
||
EBITDA |
|
|
(23,848) |
(38,438) |
(204,616) |
Operating Profit (before amort. and except.) |
|
(23,848) |
(37,589) |
(203,767) |
|
Intangible Amortisation |
0 |
0 |
0 |
||
Exceptionals/Other |
0 |
0 |
0 |
||
Operating Profit |
(23,848) |
(37,589) |
(203,767) |
||
Net Interest |
(7,132) |
8,358 |
(2,015) |
||
Other (change in fair value of warrants) |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(30,980) |
(29,231) |
(205,782) |
Profit Before Tax (IFRS) |
|
|
(30,980) |
(29,231) |
(205,782) |
Tax |
590 |
557 |
3,914 |
||
Deferred tax |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(30,390) |
(28,674) |
(201,868) |
||
Profit After Tax (IFRS) |
(30,390) |
(28,674) |
(201,868) |
||
Average Number of Shares Outstanding (m) |
24.3 |
50.3 |
52.8 |
||
EPS - normalised (DKK) |
|
|
(1.27) |
(0.57) |
(3.82) |
EPS - IFRS (DKK) |
|
|
(1.25) |
(0.57) |
(3.82) |
Dividend per share (ore) |
0.0 |
0.0 |
0.0 |
||
BALANCE SHEET |
|||||
Fixed Assets |
|
|
4,883 |
205,109 |
205,109 |
Intangible Assets |
135 |
205,149 |
205,149 |
||
Tangible Assets |
4,424 |
(40) |
(40) |
||
Other |
324 |
0 |
0 |
||
Current Assets |
|
|
8,102 |
29,463 |
63,138 |
Stocks |
1,048 |
805 |
805 |
||
Debtors |
3,048 |
5,758 |
20,222 |
||
Cash |
3,326 |
5,797 |
21,093 |
||
Other |
680 |
17,103 |
21,018 |
||
Current Liabilities |
|
|
(10,540) |
(6,019) |
(29,314) |
Creditors |
(10,540) |
(6,019) |
(29,314) |
||
Short term borrowings |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
0 |
(81,693) |
(293,693) |
Long term borrowings |
0 |
(49,302) |
(261,302) |
||
Other long term liabilities |
0 |
(32,391) |
(32,391) |
||
Net Assets |
|
|
2,445 |
146,860 |
(54,760) |
CASH FLOW |
|||||
Operating Cash Flow |
|
|
(10,702) |
(58,158) |
(195,855) |
Net Interest |
(170) |
(252) |
0 |
||
Tax |
2,527 |
69 |
0 |
||
Capex |
0 |
0 |
(849) |
||
Acquisitions/disposals |
(784) |
14,457 |
0 |
||
Financing |
7,478 |
177 |
0 |
||
Dividends |
0 |
0 |
0 |
||
Other |
(308) |
(3,197) |
0 |
||
Net Cash Flow |
(1,959) |
(46,904) |
(196,704) |
||
Opening net debt/(cash) |
|
|
(5,488) |
(3,326) |
43,505 |
HP finance leases initiated |
0 |
0 |
0 |
||
Exchange rate movements |
(203) |
(73) |
0 |
||
Other |
0 |
146 |
0 |
||
Closing net debt/(cash) |
|
|
(3,326) |
43,505 |
240,209 |
Source: Company reports, Edison Investment Research
|
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