Oncology Venture — Company consolidates ownership of dovitinib

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Research: Healthcare

Oncology Venture — Company consolidates ownership of dovitinib

Oncology Venture (OV) announced on 8 June 2020 that it acquired the remaining 37% minority stake in its dovitinib asset for SEK36m in stock (25.9m shares issued at SEK1.388 per share). The deal also includes a 10% royalty payment over the next 24 months following the signing (although we do not expect significant revenue from the asset during this period). The product’s new drug application is currently planned to be submitted to the FDA in H220.

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Written by

Healthcare

Oncology Venture

Company consolidates ownership of dovitinib

Earnings update

Pharma & biotech

9 June 2020

Price

SEK1.51

Market cap

SEK242m

SEK10.03/DKK6.81/US$

Net debt (DKKm) at 31 March 2020

0.015

Shares in issue

160.2m

Free float

89%

Code

OV

Primary exchange

Nasdaq First North Stockholm

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(15.1)

(34.5)

(64.0)

Rel (local)

(23.2)

(38.1)

(67.9)

52-week high/low

SEK4.98

SEK1.16

Business description

Oncology Venture is a Denmark-based biopharmaceutical company focused on oncology. Its patent-protected mRNA-based drug response predictor platform enables the identification of patients with gene expression highly likely to respond to treatment. The company is advancing the PARP inhibitor 2X-121, the TKI dovitinib and microtubule inhibitor Ixempra.

Next events

Ixempra study initiation

Q320

Dovitinib NDA submission

Late H220

2X-121 Phase II results

Late 2021

Analyst

Nathaniel Calloway

+1 646 653 7036

Oncology Venture is a research client of Edison Investment Research Limited

Oncology Venture (OV) announced on 8 June 2020 that it acquired the remaining 37% minority stake in its dovitinib asset for SEK36m in stock (25.9m shares issued at SEK1.388 per share). The deal also includes a 10% royalty payment over the next 24 months following the signing (although we do not expect significant revenue from the asset during this period). The product’s new drug application is currently planned to be submitted to the FDA in H220.

Year end

Revenue (DKKm)

PBT*
(DKKm)

EPS*
(DKK)

DPS
(DKK)

P/E
(x)

Yield
(%)

12/18

2.1

(22.5)

(0.44)

0.0

N/A

N/A

12/19

0.8

(174.9)

(2.08)

0.0

N/A

N/A

12/20e

0.9

(124.4)

(0.75)

0.0

N/A

N/A

12/21e

0.9

(260.1)

(1.59)

0.0

N/A

N/A

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

Executing on the new corporate strategy

We have already outlined the plan from the new management to prioritise its development programmes, which is part of a larger strategy to run the company and deliver value more efficiently. The company is winding down the clinical activity for the legacy programmes (such as LiPlaCis), but it guided toward these activities being completed in Q120 and for there to be reduced costs in Q220. Additionally, Oncology Venture has made efforts to recapitalise. In the year to date, Oncology Venture eliminated the previous outstanding debt and entered a new SEK100m convertible note agreement (of which SEK10m has been drawn) and a $5m (SEK50m) equity facility.

Company to investigate 2X-121 for COVID-19

Recent preclinical research has indicated that poly-ADP-ribose polymerase (PARP) inhibitors can potentially be used as a treatment for COVID-19. Such drugs may inhibit viral genome replication as well as limit the inflammatory response. Oncology Venture has initiated early-stage studies to investigate if its PARP inhibitor 2X-121 can replicate this activity seen with other drugs. We are not including this programme in our valuation given its very early stage and the unpredictable nature of the COVID-19 market, but see it as worthy of investigation and we are glad to see the company participate in the effort to combat the disease.

Valuation: SEK1,178.9m or SEK7.36 per basic share

We have increased our valuation to SEK1,178.9m or SEK7.36 per basic share, from SEK892.8m or SEK6.83. This is driven by adjusting dovitinib ownership to 100%. Additionally, we have rolled forward our NPVs and these changes are offset by lower net cash (SEK5.4m from SEK19.3m). We have delayed the clinical programme for 2X-121 on account of slow enrolment to date and the future impact of COVID-19. We forecast that Oncology Venture will fully utilise its remaining financing facilities in 2020 (SEK137m) to progress its clinical and regulatory programmes.

Dovitinib now 100% owned by OV

The company detailed in a press release on 8 June 2020 the details of its transaction to acquire the remaining portion of dovitinib rights (37%) from the other stakeholder in the drug, investor Sass & Larsen. The parties agreed to a transaction price of SEK36m, which was given to Sass & Larsen in the form of 25,936,599 OV shares at SEK1.388 each. This pricing was based on the closing market price on the day of the transaction. The deal also includes a 10% royalty payable on sales of the drug for the next two years following completion of the transaction. We currently do not expect significant sales of the drug during this period until after the approval of an sNDA to support its use in combination with the DRP (expected in 2024).

We assume that this transaction was made under the terms of a previous agreement entered into by OV and Sass & Larsen. Almost exactly one year ago in June 2019, OV acquired 8% of dovitinib for DKK5.4m and entered into an option agreement to acquire the remaining portion of the drug at a later date. We assume that the royalty provision was included in the deal terms in the event the dovitinib ownership consolidation transaction would occur closer to the drug’s commercial stage.

We view this transaction as very favourable for Oncology Venture. The implied valuation for the product based on the deal is SEK97m, which is substantially less than our risk-adjusted total NPV for the product (SEK786.8m). The company intends to submit an NDA for marketing approval for the drug to the FDA in late H220.

Financial update: Tightening the ship

On 29 May 2020, Oncology Venture outlined the progress it has made so far in its efforts to re-gear for future growth since the new management team joined in autumn 2019. Oncology Venture’s strategy has been focused on both identifying programmes with the best return on investment as well as eliminating operational and financial overhangs. We previously reported on the company’s efforts to reprioritise its pipeline towards three lead assets: dovitinib, 2X-121 and Ixempra. However, clinical studies for the deprioritised assets continue to be wound down and have contributed to costs. The operational loss for Q120 was DKK17.6m, which is comparable to averaged quarterly results from last year (Q119 DKK13.0m, Q219 DKK15.6m, Q319 DKK18.2m, Q419 not representative). Management stated that it expects reduced costs in Q220 as the winding down of these programmes is completed (although we expect operating costs to increase in subsequent periods with increased clinical and regulatory costs for the prioritised programmes). Additionally, the company stated that it has eliminated operational inefficiencies and reduced its headcount to improve costs. Finally, we expect some operational slowdowns on account of COVID-19 (more detail outlined below) to lead to a further reduction in costs. We have adjusted our estimates for the 2020 operating loss to DKK124.7m from a previous estimate of DKK151.1m.

Coupled with reducing costs is the strategy to refinance Oncology Venture under more attractive terms, which it has made significant progress toward in the year to date. Oncology Venture had DKK26.8m in interest and other financial expenses for 2019. However, recently it has eliminated its previous debt and entered into new financing facilities worth up to SEK150m. The first with Negma Group provides SEK100m of zero coupon convertible debt available to the company (drawable in 10 tranches of SEK10m each and convertible at 95% of the seven-day volume weighted average price (VWAP)), of which it has already drawn SEK10m (SEK2m has been subsequently converted). Because of the timing of this financing agreement around the close of the quarter, the company ended Q120 with only SEK7,000 in cash, a matter of days before drawing down the first tranche.

Additionally, the company entered an equity facility with Global Corporate Finance in May for $5m (SEK50m). The company will be able to draw five tranches up to $1m with shares issued at 95% of the five-day VWAP. Oncology Venture has already used this facility to eliminate an additional SEK3.4m in debt.

The above developments have reduced our expected financing requirement for Oncology Venture to DKK1.02bn from DKK1.10m. We record and model this financing need as illustrative debt (DKK140m additional debt in 2020, DKK500m in 2021 and DKK380m in 2022), although we expect the company to finance near-term costs with its current facilities (Negma, Global Corporate Finance) and seek partnering agreements to defray much of its remaining costs. The company has SEK137m remaining in the facilities, which corresponds to 95.5m new shares at 95% of the current share price (SEK1.50).

A PARP for COVID-19?

Oncology Venture announced on 22 April 2020 that it would test the activity of 2X-121 as an antiviral against COVID-19 in a study being conducted at the Pathogen and Microbiome Institute at Northern Arizona University. 2X-121 is of a class of drug (PARP inhibitors) that has found activity in the oncology setting (and are approved for ovarian, breast cancer and prostate cancer) but has not historically been investigated for antiviral activity. The company cited a recent preprint from a group in China that investigated the PARP mefuparib and found that it was more effective in vitro than remdesivir. Additionally, it was found that the drug supressed IL-6 production from immune cells, potentially reducing inflammation. Other scientists have published a review article in support of the idea (but without supporting data). These results are highly preliminary and the report has not been published in a peer reviewed journal yet, but they are encouraging and we believe the company is correct to follow up on this lead if there is any chance that PARP inhibitors may be effective against the disease.

Clinical and regulatory update

As the situation develops with the worldwide COVID-19 pandemic, there remains a high degree of uncertainty regarding the potential impacts on operating businesses, including Oncology Venture. The company remains in a relatively good position with regards to its development programmes. Given that progress with dovitinib is regulatory in nature, we see limited impacts on the company’s target to have an NDA submitted by the end of 2020. The company is still targeting starting the Ixempra Phase II study in Q320, although it has published cautionary statements that these plans may be affected by the disease. We remain cautiously optimistic that this programme can initiate on time, given that we forecast some lifting of quarantine restrictions by Q320. However, we are adjusting our clinical timeline for the ongoing Phase II studies of 2X-121. The company reported that eight patients (of a planned 30) have been enrolled to date, which is the same as was reported in November 2019. The company planned on starting a new clinical site at Guy’s Hospital in the UK (in addition to the current site at the Dana-Farber Cancer Institute), but this has not yet passed the hospital’s internal review. This compounded with the impact of COVID-19 on trial enrolment has prompted us to push back the expected date for top-line results from the study to late 2021 (from mid-2021 previously).

Valuation

We have increased our valuation to SEK1,178.9m or SEK7.36 per basic share, from SEK892.8m or SEK6.83. This increase is driven by the recognition of 100% of the value for dovitinib in our estimates and is offset by the inclusion of 25.9m new shares as part of the agreement.

Additionally, it is offset by lower net cash estimates (SEK4.4m – SEK0.02m net debt at Q120 end + SEK4.4m net cash from the subsequent Negma and Global Corporate Finance agreements, from SEK19.3m at YE19). There is risk to this valuation being diluted from these agreements. If the company were to fully utilise these facilities at the current stock price (95.5 new shares for SEK137m as described above) and fully convert its debt, this would increase our total valuation to SEK1,316m, but lower it to SEK5.14 on a per share basis. Our valuations for Ixempra and dovitinib have increased from rolling forward our NPVs, but the valuation of 2X-121 is lower as a result of incorporating the expected delays in the clinical programme. The expected initial launch of the product has been delayed to 2025 (from 2024/25 previously) and this decreased its valuation to SEK198.2m from SEK209.2m. We have not associated any valuation with the 2X-121 COVID-19 programme as it is at too early a stage and the potential market is highly competitive and unpredictable at this time.

Exhibit 1: Valuation of Oncology Venture

Development program

Indication

Clinical stage

Probability of success

Launch year

Launch pricing

Peak sales ($m)

rNPV (SEKm)

% rights held by OV

OV rNPV (SEKm)

2X-121

Metastatic breast cancer and ovarian cancer

Phase II

25%

2025

$138,000

122.1

215.4

92%

198.2

Dovitinib

Renal cancer

Phase Ib/II

35–50%

2024–25

$145,000

176.9

786.8

100%

786.8

Ixempra

Metastatic breast cancer

Phase II

50%

2025

$41,000

56.4

188.5

100%

188.5

Total

 

 

 

 

 

 

 

 

1,173.5

Net cash (Q120 + debt conversion, SEKm)

5.4

Total firm value (SEKm)

1,178.9

Total shares (m)

160.2

Value per basic share (SEK)

7.36

Dilutive warrants and options (m)

57.9

Fully diluted shares in issue (m)

218.1

Fully diluted value per share (SEK)

6.87

Source: Oncology Venture reports, Edison Investment Research

Exhibit 2: Financial summary

DKK'000s

2018

2019

2020e

2021e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

2,147

801

901

901

Cost of Sales

0

0

0

0

Gross Profit

2,147

801

901

901

EBITDA

 

 

(32,258)

(66,502)

(123,598)

(258,713)

Operating Profit (before amort. and except.)

 

 

(32,471)

(148,102)

(124,650)

(259,765)

Intangible Amortisation

0

0

0

0

Exceptionals/Other

0

0

0

0

Operating Profit

(32,471)

(148,102)

(124,650)

(259,765)

Net Interest

(192)

(26,822)

218

(345)

Other

10,146

0

0

0

Profit Before Tax (norm)

 

 

(22,517)

(174,924)

(124,432)

(260,110)

Profit Before Tax (IFRS)

 

 

(22,517)

(174,924)

(124,432)

(260,110)

Tax

6,973

36,792

9,065

4,954

Deferred tax

0

0

0

0

Profit After Tax (norm)

(15,544)

(138,132)

(115,367)

(255,157)

Profit After Tax (IFRS)

(15,544)

(138,132)

(115,367)

(255,157)

Average Number of Shares Outstanding (m)

33.8

63.4

153.6

161.3

EPS - normalised (DKK)

 

 

(0.44)

(2.08)

(0.75)

(1.58)

EPS - IFRS (DKK)

 

 

(0.44)

(2.08)

(0.75)

(1.58)

Dividend per share (ore)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

237,096

158,895

183,457

182,461

Intangible Assets

236,733

155,978

181,473

181,473

Tangible Assets

363

2,917

1,984

988

Other

0

0

0

0

Current Assets

 

 

14,401

22,306

98,745

314,053

Stocks

0

0

0

0

Debtors

5,262

5,937

10,803

25,591

Cash

1,547

10,176

73,306

268,872

Other

7,592

6,193

14,636

19,589

Current Liabilities

 

 

(35,407)

(31,497)

(67,560)

(37,029)

Creditors

(16,515)

(27,919)

(67,538)

(37,007)

Short term borrowings

(18,892)

(3,578)

(22)

(22)

Long Term Liabilities

 

 

(34,234)

(8,370)

(151,176)

(651,176)

Long term borrowings

0

0

(144,740)

(644,740)

Other long term liabilities

(34,234)

(8,370)

(6,436)

(6,436)

Net Assets

 

 

181,856

141,334

63,466

(191,691)

CASH FLOW

Operating Cash Flow

 

 

(31,392)

(54,511)

(87,058)

(304,377)

Net Interest

(2,391)

(26,846)

363

0

Tax

6,159

8,942

13

0

Capex

0

(56)

(56)

(56)

Acquisitions/disposals

9,855

0

(25,560)

0

Financing

198

62,715

36,235

0

Dividends

0

0

0

0

Other

(3,299)

(4,253)

(1,914)

0

Net Cash Flow

(20,870)

(14,009)

(77,977)

(304,433)

Opening net debt/(cash)

 

 

(3,326)

17,345

(6,598)

71,456

HP finance leases initiated

0

0

0

0

Exchange rate movements

(199)

(98)

77

0

Other

398

38,050

(154)

0

Closing net debt/(cash)

 

 

17,345

(6,598)

71,456

375,890


General disclaimer and copyright

This report has been commissioned by Oncology Venture and prepared and issued by Edison, in consideration of a fee payable by Oncology Venture. Edison Investment Research standard fees are £49,500 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.

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General disclaimer and copyright

This report has been commissioned by Oncology Venture and prepared and issued by Edison, in consideration of a fee payable by Oncology Venture. Edison Investment Research standard fees are £49,500 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.

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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.

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Sydney +61 (0)2 8249 8342

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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

1,185 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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Blue Cap — Steady increase in NAV and stable dividend

Blue Cap reported a strong set of FY19 results, with revenues up 28% and adjusted EBITDA up 67%. Portfolio NAV increased 8% to €128.6m or €32.31 per share, which was mainly driven by expansion in the plastics segment. The coronavirus crisis has affected Blue Cap as management now expects a low double-digit organic decline in revenues in 2020. This will not be fully compensated for by the revenue contribution of acquired Con-Pearl. 2021 is expected to be much stronger, assuming a post-coronavirus recovery leading to increased activity, and the restructuring benefits at Con-Pearl.

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