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Currency in SEK
Last close As at 24/03/2023
SEK11.00
▲ −0.22 (−1.96%)
Market capitalisation
SEK581m
Research: Healthcare
While clinical results from the mesdopetam (Phase IIb) and pirepemat (Phase IIb) trials are the near-term value drivers for IRLAB, in our view a growing preclinical/discovery pipeline and a robust screening platform offer the potential for long-term value. Additionally, we believe that a recent management change (appointing Richard Godfrey as CEO, with previous CEO Nicholas Waters moving to become executive vice president and head of R&D) demonstrates the company’s dedication to drug discovery and development. We reinstate our underlying assumptions and reintroduce our previous estimates for FY22 unchanged. We value IRLAB at SEK6.13bn or SEK118.5 per share (previously SEK5.5bn or SEK106/share).
IRLAB Therapeutics |
Clinical pipeline is tip of the iceberg |
Company update |
Pharma and biotech |
23 June 2022 |
Share price performance
Business description
Next events
Analysts
IRLAB Therapeutics is a research client of Edison Investment Research Limited |
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While clinical results from the mesdopetam (Phase IIb) and pirepemat (Phase IIb) trials are the near-term value drivers for IRLAB, in our view a growing preclinical/discovery pipeline and a robust screening platform offer the potential for long-term value. Additionally, we believe that a recent management change (appointing Richard Godfrey as CEO, with previous CEO Nicholas Waters moving to become executive vice president and head of R&D) demonstrates the company’s dedication to drug discovery and development. We reinstate our underlying assumptions and reintroduce our previous estimates for FY22 unchanged. We value IRLAB at SEK6.13bn or SEK118.5 per share (previously SEK5.5bn or SEK106/share).
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/20 |
0.4 |
(91.4) |
(1.92) |
0.0 |
N/A |
N/A |
12/21 |
207.9 |
91.1 |
1.76 |
0.0 |
N/A |
N/A |
12/22e |
42.9 |
(95.7) |
(1.85) |
0.0 |
N/A |
N/A |
12/23e |
0.3 |
(145.1) |
(2.80) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Clinical pipeline soon to be bolstered
We expect top-line data from the Phase IIb trial of mesdopetam in levodopa-induced dyskinesias in Parkinson’s disease (PD-LIDs) in H222, is the most important near-term event for IRLAB. If the data are positive, Ipsen will assume responsibility for further development of mesdopetam. The next catalyst will be the top-line readout from the Phase IIb study of pirepemat in the treatment of PD-related falls (PD-Falls), for which we expect results in H223. Management intends to restock the clinical pipeline by initiating Phase I studies with preclinical assets IRL757 and IRL942 in apathy in neurological conditions and mild cognitive impairment, respectively.
Company funded into 2024, past key readouts
We reinstate our financial estimates for FY22 unchanged. We estimate an increase in R&D expenses in 2022 and 2023 as new assets enter the clinical pipeline and pirepemat progresses through Phase IIb. With net cash of SEK368m at end Q122, and a Q122 cash burn of SEK33.1m even though we expect R&D costs to increase, we believe IRLAB is funded past near-term catalysts into 2024, with the potential for this to extend if it receives milestone payments from Ipsen.
Valuation: SEK6.13bn or SEK118.5 per share
We value IRLAB at SEK6.13bn or SEK118.5 per share (previously SEK5.5bn or SEK106/share) based on a risk-adjusted NPV of mesdopetam and pirepemat using a 12.5% discount rate and including net cash of SEK368m at end Q122. Value uplift was realised by rolling our model forward by three months and significant changes in our FX assumptions (US$/SEK10.10 versus US$/SEK8.47 previously).
Clinical pipeline expected to see growth in 2023
As a reminder, IRLAB has two clinical-stage assets: mesdopetam and pirepemat. Mesdopetam is a D3 receptor antagonist being investigated in an ongoing Phase IIb trial for PD-LIDs, for which top-line results are expected in H222. IRLAB successfully licensed global rights to mesdopetam to Ipsen in July 2021, receiving $28m upfront and remaining eligible for up to $335m in additional milestones plus low double-digit royalties on sales. Pirepemat, IRLAB’s second clinical asset, is currently being investigated for the reduction of PD-Falls in a Phase IIb trial (NCT05258071). The study is expected to take c 18 months to complete, with top-line data available in H223, after which we anticipate that IRLAB will seek a licensing partner. IRLAB has guided that a pivotal Phase III study for pirepemat could start in 2024.
Preclinical and discovery pipeline expanding
IRLAB has reported three programmes in the preclinical development/discovery phase:
■
IRL942 is in preclinical development for the treatment of cognitive impairment in central nervous system (CNS) disorders. The Centers for Disease Control and Prevention estimates that c 12% of adults aged 65 years or more experience cognitive decline in the United States, representing a significant potential market. IRLAB claims that IRL942 has shown an improvement in cognition function in animal models by activating frontal-subcortical circuits. It intends to initiate a Phase I trial with IRL942 for the treatment of cognitive impairment in 2023.
■
IRL757 was nominated as a new drug candidate in March 2022. It is in preclinical development for the treatment of apathy, a common symptom in most neurodegenerative disorders. IRLAB asserts that 10 million US patients and a similar number in the EU may be affected. We note that there are currently no drugs approved for the treatment of apathy in CNS disorders. IRLAB intends to initiate a Phase I trial for IRL757 in the treatment of apathy in early Q323.
■
P003 is focused on the discovery of novel molecules with superior efficacy and reduced side effects/treatment complications compared to levodopa (L-DOPA). The therapeutic response to L-DOPA in PD treatment can vary over time and the P003 programme aims to produce an L-DOPA replacement that effects a sustained optimal response in patients. The company sees this as a potential opportunity to disrupt the PD treatment market. However, we note that given the low cost, high efficacy and acceptable safety profile of L-DOPA, the bar for success in the P003 programme will be set high. IRLAB is planning to initiate a Phase I trial with a P003 candidate in 2023.
ISP platform drives pipeline momentum
IRLAB’s proprietary drug discovery engine, the Integrative Screening Process (ISP) platform, is based on a unique combination of systems biology (phenotypic screening) and efficient AI-based machine learning methods. Phenotypic screening selects compounds based on an observed biological effect (phenotype) irrespective of the mechanism by which it is caused. This approach can be especially valuable when the underlying pathophysiology of a condition is not well understood, for example in PD, Alzheimer’s disease (AD) and many other CNS conditions. The company asserts that the unique combination of phenotypic screening and machine learning allows precise, resource- and cost-efficient drug discovery of high-quality, CNS-targeting compounds.
The ISP platform is founded on a database of phenotypic, pharmacokinetic, safety and biomarker data from c 1,600 compounds, including c 400 known CNS therapeutics representing all CNS classes. These data are managed by an AI-based machine learning algorithm that allows IRLAB to link the chemical properties of compounds with potential CNS activity. Based on these links, the platform can make chemical structure predictions for potential drugs. The resulting structures are synthesised and tested in living organisms, using algorithms to analyse animal movement patterns. A large amount of biomarker data is also gathered and, regardless of results, the full set of findings are fed back into the ISP database for analysis. To date, the ISP platform has developed 12 drug candidates for development including mesdopetam, pirepemat and those in the preclinical pipeline. Currently, IRLAB’s strategy focuses on developing the ISP platform and using it to produce new drug candidates. However, given its unique nature, we believe the platform has the potential to be out-licensed to partners for their own drug discovery programmes.
Management change will boost focus
In Q222, the company announced the appointment of Richard Godfrey as its new CEO, replacing Nicholas Waters (one of IRLAB’s founders) who will become executive vice president and head of R&D. Richard brings a wealth of life science leadership experience, having spent 12 years as CEO of BerGenBio before becoming the COO at LifeArc, a leading medical research foundation. We believe the change will allow Nicholas to focus his expertise on IRLAB’s core activities, namely the research and discovery of novel CNS active compounds. We see this change as a sensible strategic decision by the company and believe it will put management experience to the most effective use.
Valuation and financials
We reinstate our previous underlying assumptions for the valuation of IRLAB unchanged (for details see our initiation report). We value the company at SEK6.13bn or SEK118.5 per share (previously SEK5.5bn or SEK106/share). Value uplift results from rolling our model forward by three months and significant changes to our underlying FX estimates (US$/SEK10.10 versus US$/SEK8.47 previously). We continue to use an rNPV of mesdopetam in PD-LIDs and PD-Psychosis and pirepemat in PD-Falls using a 12.5% discount rate and incorporating net cash of SEK368m at end Q122. A summary of our valuation is shown in Exhibit 1below.
Exhibit 1: IRLAB rNPV valuation
Product |
Launch |
Peak |
Peak sales ($m) |
Value |
Probability |
rNPV (SEKm) |
rNPV/share (SEK) |
Mesdopetam - PD-LIDs |
2026 |
2032 |
1,207.4 |
5,782.3 |
50% |
2,903.0 |
56.1 |
Mesdopetam - PD-Psychosis |
2027 |
2033 |
688.0 |
2,985.2 |
30% |
916.4 |
17.7 |
Pirepemat - PD-Falls (postural hypotension) |
2027 |
2033 |
1,036.2 |
6,563.9 |
30% |
1,944.6 |
37.6 |
Net cash at endQ122 |
|
|
368.0 |
100% |
368.0 |
7.1 |
|
Valuation |
|
|
15,699.4 |
|
6,132.0 |
118.5 |
Source: Edison Investment Research
We reinstate the estimates for FY22 essentially unchanged from our update note published on 30 March. Based on management’s R&D plans, we estimate total R&D expense of SEK60.5m in FY23, a decrease of 50% y-o-y (SEK122.4m in FY22e). We note that this does not include costs for two Phase I trials of new preclinical assets, which management intends to begin in 2023. We will review our estimates when the company provides more detail on these. In total, we estimate an operating loss of SEK95.2m in FY22 (we expect SEK42.9m in deferred revenue from the Ipsen deal to be recognised in FY22) and SEK144.3m in FY23, as pirepemat moves through Phase IIb and IRL757 and IRL942 enter Phase I trials. With net cash of SEK368m at end Q122, a Q122 cash burn of SEK33.1m (SEK32.8m in operating cash flow plus SEK0.3m in capex) and the expected increase in operating expenses in FY22 and FY23 (we estimate SEK138.1m and SEK144.5m, respectively), we believe the company is funded past near-term catalysts into 2024. We note that potential milestone payments from the Ipsen licensing deal for mesdopetam (up to $335m due), could extend our estimated cash runway.
Exhibit 2: Financial summary
Accounts: IFRS, year-end: 31 December, SEK’000s |
|
|
2019 |
2020 |
2021 |
2022e |
2023e |
PROFIT & LOSS |
|
|
|
|
|
|
|
Total revenues |
|
|
448 |
404 |
207,906 |
42,893 |
282 |
Cost of sales |
|
|
0 |
0 |
0 |
0 |
0 |
Gross profit |
|
|
448 |
404 |
207,906 |
42,893 |
282 |
Total operating expenses |
|
|
(96,296) |
(91,862) |
(155,330) |
(138,078) |
(144,535) |
Research and development expenses |
|
|
(79,381) |
(75,989) |
(97,436) |
(122,436) |
(60,505) |
EBITDA (reported) |
|
|
(92,916) |
(89,202) |
56,050 |
(91,445) |
(140,773) |
Operating income (reported) |
|
|
(95,848) |
(91,458) |
52,576 |
(95,185) |
(144,254) |
Operating margin % |
|
|
N/A |
N/A |
N/A |
N/A |
N/A |
Finance income/(expense) |
|
|
(272) |
(195) |
(795) |
(796) |
(796) |
Exceptionals and adjustments |
|
|
0 |
0 |
0 |
0 |
0 |
Profit before tax (reported) |
|
|
(96,120) |
(91,653) |
51,781 |
(95,980) |
(145,050) |
Profit before tax (normalised) |
|
|
(95,121) |
(91,394) |
91,131 |
(95,721) |
(145,050) |
Income tax expense (includes exceptionals) |
|
|
0 |
0 |
0 |
0 |
0 |
Net income (reported) |
|
|
(96,120) |
(91,653) |
51,781 |
(95,980) |
(145,050) |
Net income (normalised) |
|
|
(95,121) |
(91,394) |
91,131 |
(95,721) |
(145,050) |
Basic average number of shares, m |
|
|
40.6 |
47.7 |
51.7 |
51.7 |
51.7 |
Basic EPS (SEK) |
|
|
(2.37) |
(1.92) |
1.00 |
(1.85) |
(2.80) |
Adjusted EPS (SEK) |
|
|
(2.34) |
(1.92) |
1.76 |
(1.85) |
(2.80) |
Dividend per share (SEK) |
|
|
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
BALANCE SHEET |
|
|
|
|
|
|
|
Tangible assets |
|
|
5,919 |
4,317 |
8,348 |
8,582 |
8,816 |
Intangible assets |
|
|
82,270 |
82,011 |
42,661 |
42,402 |
42,402 |
Other non-current assets |
|
|
0 |
0 |
0 |
0 |
0 |
Total non-current assets |
|
|
88,189 |
86,328 |
51,009 |
50,984 |
51,218 |
Cash and equivalents |
|
|
110,527 |
277,009 |
401,897 |
256,585 |
111,577 |
Inventories |
|
|
0 |
0 |
0 |
0 |
0 |
Trade and other receivables |
|
|
9,351 |
6,732 |
19,542 |
19,542 |
19,542 |
Other current assets |
|
|
0 |
0 |
1 |
0 |
0 |
Total current assets |
|
|
119,878 |
283,741 |
421,440 |
276,127 |
131,119 |
Non-current loans and borrowings |
|
|
0 |
0 |
0 |
0 |
0 |
Non-current lease liabilities |
|
|
2,900 |
1,270 |
3,566 |
3,566 |
3,566 |
Other non-current liabilities |
|
|
0 |
0 |
0 |
0 |
0 |
Total non-current liabilities |
|
|
2,900 |
1,270 |
3,566 |
3,566 |
3,566 |
Accounts payable |
|
|
8,438 |
3,683 |
12,302 |
5,521 |
5,797 |
Non-current loans and borrowings |
|
|
0 |
0 |
0 |
0 |
0 |
Current lease liabilities |
|
|
1,643 |
1,657 |
3,034 |
3,034 |
3,034 |
Other current liabilities |
|
|
13,259 |
15,578 |
54,066 |
11,490 |
11,490 |
Total current liabilities |
|
|
23,340 |
20,918 |
69,402 |
20,045 |
20,321 |
Equity attributable to company |
|
|
181,826 |
347,879 |
399,481 |
303,501 |
158,451 |
CASH FLOW STATEMENT |
|
|
|
|
|
|
|
Operating income |
|
|
(95,848) |
(91,458) |
52,576 |
(95,185) |
(144,254) |
Depreciation and amortisation |
|
|
2,932 |
2,256 |
3,474 |
3,740 |
3,481 |
Share based payments |
|
|
0 |
0 |
0 |
0 |
0 |
Other adjustments |
|
|
(244) |
(195) |
38,296 |
(796) |
(796) |
Movements in working capital |
|
|
1,959 |
183 |
34,296 |
(49,357) |
276 |
Cash from operations (CFO) |
|
|
(91,201) |
(89,214) |
128,642 |
(141,598) |
(141,293) |
Capex |
|
|
(137) |
(394) |
(708) |
(551) |
(551) |
Acquisitions & disposals net |
|
|
0 |
0 |
0 |
0 |
0 |
Other investing activities |
|
|
0 |
0 |
0 |
0 |
0 |
Cash used in investing activities (CFIA) |
|
|
(137) |
(394) |
(708) |
(551) |
(551) |
Net proceeds from issue of shares |
|
|
68,970 |
257,706 |
(180) |
0 |
0 |
Movements in debt |
|
|
(1,547) |
(1,616) |
(2,865) |
0 |
0 |
Other financing activities |
|
|
0 |
0 |
0 |
(3,164) |
(3,164) |
Cash from financing activities (CFF) |
|
|
67,423 |
256,090 |
(3,045) |
(3,164) |
(3,164) |
Cash and equivalents at beginning of period |
|
|
134,442 |
110,527 |
277,009 |
401,898 |
256,585 |
Increase/(decrease) in cash and equivalents |
|
|
(23,915) |
166,482 |
124,889 |
(145,313) |
(145,008) |
Effect of FX on cash and equivalents |
|
|
0 |
0 |
0 |
0 |
0 |
Cash and equivalents at end of period |
|
|
110,527 |
277,009 |
401,898 |
256,585 |
111,577 |
Net (debt)/cash |
|
|
110,527 |
277,009 |
401,898 |
256,585 |
111,577 |
Source: IRLAB company accounts, Edison Investment Research
|
|
Research: Real Estate
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