The new study design was disclosed in the conference call (below). A total of 225 patients will be recruited. Two doses will be given at first in two arms, and the best will be chosen to continue the study after an interim futility analysis. In practice, this only means the addition of one arm with 25 patients given another dose at the start of the trial with no impact to timelines as the 100 next patients will be seamlessly recruited to the trial with no break. ORR will be the main endpoint, which has the advantage of being slightly quicker to reach. The reason for changing from PFS, as was the original plan, is that ORR is the standard surrogate endpoint for accelerated approvals from the FDA. PFS will still be measured and form part of the evidence package handed in to the FDA. There are two major reasons for believing such a trial will be considered by the FDA for an accelerated approval: i, there is no approved second-line treatment after Tecentriq + Avastin; ii, the trial is placebo controlled, with the potential to show a statistically significant difference in outcomes.

We believe Medivir has chosen it positioning as a second-line treatment with Lenvima very wisely, as there is no established treatment after progressing on Tecentriq plus Avastin. In fact, clinical trials are the recommended treatment option. Lenvima is also a recommendation, but it is not reimbursed in many countries. Furthermore, fostrox has the potential for indication expansions into the first line and loco-regional (non-advanced) liver cancer.

New results from EMERALD-1 were published in January. It is a study in a slightly earlier stage of cancer than metastatic/advanced, where fostrox is positioned, for which TACE, transarterial chemoembolization, is the prefered treatment. A combination of TACE and durvalumab (anti-PD-L1) + bevacizumab was evaluated. The combination showed a significant improvement versus TACE; median progression-free survival increased to 15 months from 8.2 months, and the ORR to 44% versus 30%. This suggests immunotherapy will expand into this setting. Patients progressing from this treatment should move directly to the second line instead of the first line, which would increase the market for fostrox. Longer-term, it would be logical to replace TACE with fostrox, if the current development programme is successful.

Revenue in the quarter was below SEK1m and had a minor impact on the net result. Operating costs, SEK-28m, were in line with our forecasts. The cash position was SEK150m at the end of Q1 2024. Cash will fund the completion of the ongoing phase IIa study and current and planned operations until Q1 2025.

We changed the launch year of fostrox to 2028 (2027). Medivir has communicated 2027/2028 as the time for a potential accelerated approval. Considering the phase IIb trial is set to begin in 2025 and an approval process should take 10 months, we believe a market launch would be closer to 2028 than 2027.

The development of birinapant, which is combined with aplitabart, is currently on hold. IGM, the licensee, awaits results from aplitabart in colon cancer, expected this year, before green-lighting the further study of birinapant. We therefore retain birinapant in our valuation, but if the aplitabart study is unsuccessful, we will have to remove it.

We restate our base case of SEK10, with a bull case of SEK20 and a bear case of SEK5.

In our bull case, we assume 7 months average treatment time, 70% progression rate from 1^st to 2^nd line, 70% market share in the 2^nd line, 15% market share in the 1^st line (this is different from Medivir’s assumptions) and a likelihood of approval of 23% (vs 18% in the base case); this results in a peak sales figure of USD2.7bn. Furthermore, we assume no dilution. This renders a bull case of SEK20.

In our bear case, we consider a failure of fostrox in the short-term highly unlikely, maintaining the LOA of the base case of 18%. Instead, we assume a failure of birinapant and the Tango project, and another rights issue later in 2024 of SEK150m to finance the phase IIb study with a discount of 40% on the current share price (SEK3). This renders a diluted bear case of SEK5.

*For the valuation of fostrox, we have used the patient-based forecasts from Datamonitor (2021) except for China, where we have assumed an incidence of 360,000 cases (Zheng et al. 2030) increasing by 1% per year. Most hepatocellular cancers occur in Asia, so in our forecasts, the Chinese market is the most important one, followed by the US. We assume 70% of all first-line patients progress to the second line in the US and 50% in the rest of the world. We assume 20% of intermediate-stage patients progress into the advanced stage. Our price estimation is USD10,000 per month, based on the price of Lenvima, with a 50% discount in Europe and Japan and a 70% discount in China, assuming an average treatment period of 9 months in the first line and 6 months in the second, and an inflation rate of 2%. We assume the main use will be as a second-line treatment with a market penetration rate of 50% and 5% in the first line.