Active Biotech Q1 2024: Approching Naptumomab Topline Data in Lung Cancer
Research Update
2024-05-13
13:45
Analyst Q&A
Closed
Richard Ramanius answered 2 questions.
Redeye provides its view of Active Biotech's first quarter report of 2024.
RR
Richard Ramanius
Contents
Investment thesis
Quality Rating
Outlook
Financial Results
Valuation
Financials
Rating definitions
The team
Download article
Biodistribution study with laquinimod eye drops started
In April, the investigator-sponsored phase I study of laquinimod began enrollment with results expected in H2 2024. The goal is to demonstrate laquinimod reaches the posterior parts of the eye. Positive results will set laquinimod up for a phase II study and potentially a partner deal. It is the asset closest to realising value.
Laquinimod & naptumomab
The two trials in myelofibrosis are about to start, the US one conducted by MD Anderson in Q2 and the EU one by Oncode Institute and the HOVON network in Q3. The investigator-sponsored trial in multiple myeloma, which began in 2020, is expected to finish this year. It will not be a major catalyst, as multiple myeloma is no longer in focus, but the data generated might be utilised in the myelofibrosis programme. The readout from naptumomab's phase IIa study in lung cancer is expected around the middle of this year and is the closest share catalyst. Strong results could potentially enable the programme to proceed to a phase III study (though we judge an initial dose-finding part might be required), which would have to be conducted in partnership with a third party. A sub-licensing agreement is essential to unlock the full value of naptumomab. The principal value for Active Biotech lies in the favourable royalty rate (with the current agreement).
Base Case SEK1.5
We assume additional funds will be needed to fund operations later this year, so we have included some dilution to our DCF valuation. We have also added one year to the naptumomab programme, now with a launch in 2030 (2029). This renders a new diluted base case of SEK1.5 (SEK1.9).
Key financials
| SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Revenues | 0.00 | 0.00 | 0.00 | 15.6 | 47.9 |
| Revenue Growth | nm. | nm. | nm. | nm. | 206% |
| EBITDA | -57.9 | -46.5 | -43.0 | -35.3 | 7.8 |
| EBIT | -57.9 | -46.5 | -43.0 | -35.3 | 7.8 |
| EBIT Margin | nm. | nm. | nm. | -226% | 16.4% |
| Net Income | -58.4 | -45.8 | -42.8 | -35.3 | 7.8 |
| EV/Sales | nm. | nm. | nm. | 17.2 | 5.5 |
| EV/EBIT | -3.2 | -2.8 | -5.5 | -7.6 | 33.3 |
Investment thesis
Case
Readouts from collaborations will drive the share
Evidence
Repurposed, well-studied compounds reduce risks
Supportive Analysis
Challenge
More funding needed
Challenge
Delays
Valuation
Base case could be reached with strong readouts followed by deals
Quality Rating
People: 3
Management consists of a small, experienced team with extensive experience in clinical and business development. The CEO was previously Chief Scientific Officer at the company and led the research and clinical development of Active Biotech’s projects in neurodegenerative diseases and cancer. The board brings extensive and relevant international bio-pharma experience. The company has strong institutional backing, with institutions controlling around 50% of the shares, Mats Arnhög being the main holder with 28% and Peter Thelin number two with 7%; they have has supported the company in previous rights issues.
Business: 3
Active Biotech is an early to mid stage clinical-stage biotech company, developing first-in-class treatments in oncology and inflammatory eye disorders. Current commercial and academic partnerships enable low-cost development of tasquinimod (myelofibrosis), laquinimod (uveitis) and naptumomab (solid tumors).
Financials: 0
Active Biotech has never generated any income from product sales and has not been profitable on an annual basis since 2001. It raised SEK45m to fund operations in 2023. It raised another SEK42m in late 2023 to fund the company through most of 2024. Another funding round in 2024 will be needed before the most probable next value creating step, a potential outlicensing of laquinimod.
Outlook
We commented on the start of laquinimod's biodistribution study in a note.
Large investments are being made in myelofibrosis. A new transaction is about to take place after the EUR2.7bn cash bid from Novartis to acquire MorphoSys AG in February 2024. The main asset is elabresib, a late-stage BET inhibitor for myelofibrosis (MF). It is about to file for approval in the US as a first-line treatment in combination with ruxolitinib after a successful phase III study. This further underlines the attractiveness of the indication, which is likely underdiagnosed and under-served by current treatments and therefore of interest for pharmaceutical companies.
We have previously mentioned SOBI's acquisition of CTI Biopharma for USD1.7bn, the main asset being JAK2 inhibior Vonjo (pacritinib), approved in 2022 in the US for myelofibrosis patients with severe thrombocytopenia. We have also mentioned momelotinib, a JAK1/JAK2 inhibitor for myelofibrosis, purchased by GSK through the acquisition of Sierra Oncoloy in 2022 for a total consideration of USD1.9bn.
An important work that has been accomplished up until 2023 is the strengthening of the patent portfolio, as discussed in the 2023 annual report. The substance patents' of Active Biotech's candidates have expired. New patents and patent applications valid until 2041-2042 are now in place protecting tasquinimod for use in myelofibrosis, multiple myeloma and myelodysplastic syndrome. Tasquinimod already has orphan drug designation in multiple myeloma and myelofibrosis. Several new patent applications protecting naptumomab and laquinimod until 2040-2042 have also been submitted (by NeoTX for naptumomab). This means the IP situtation has been significantly improved since Active Biotech refocused its strategy to hematology for tasquinimod and ophthalmology (eye disease) for laquinimod, which is important for business development.
Financial Results
Operating costs (SEK-11m) were in line with previous quarters. The cash position of SEK25m should fund slightly more than two more quarters.
Operating costs
Valuation
NeoTX is located in Israel, whose economy and business environment has been negatively affected by the ongoing war. This impacts NeoTX' ability to refinance negatively. The second a phase IIa study, in combination with durvalumab, needs additional funding for the esophageal cohort, while the study in combination with pembrolizumab has been canceled. It is likely the development of naptumomab will experience delays. We have again added one year to the development programme with an estimated potential commercial launch in 2030.
The current cash position will not fund the company through the rest of 2024 (only around two more quarters). We have therefore added dilution by assuming an equity issue this year at a certain discount with net SEK45m being obtained, similar to the funding rounds in 2022 and 2023. Our new bear case is SEK0.7 (1.0) while our new bull case is SEK2.6 (3.5).
| Sum-of-the-parts | Valuation | Column2 | Column3 | Column4 | Column5 | Column6 |
| Programme | Indication | Peak Sales (USDm) | LOA | Royalty | Launch | rNPV (SEKm) |
| Tasquinimod | Myelofibrosis | 600 | 14% | 10% | 2030 | 354 |
| Naptumomab | Solid tumors | 550 | 11% | 17% | 2030 | 190 |
| Laquinimod | Ophthalmology | 320 | 19% | 15% | 2029 | 277 |
| Total | 1470 | 821 | ||||
| Shared costs, incl. taxes | -172 | |||||
| Net cash | 25 | |||||
| Total | 674 | |||||
| Shares outstanding | 362 | |||||
| Value per share | 1.9 | |||||
| Equity Issue, net | 45 | |||||
| Fully diluted base case | 1.5 | |||||
| Source: Redeye Research, USD/SEK=10.5, WACC=15% |
Financials
| Income statement | ||||
| SEKm | 2023 | 2024e | 2025e | 2026e |
| Revenues | 0.00 | 0.00 | 15.6 | 47.9 |
| Cost of Revenue | 0.00 | 0.00 | 0.00 | 0.00 |
| Operating Expenses | 46.5 | 43.0 | 51.0 | 40.0 |
| EBITDA | -46.5 | -43.0 | -35.3 | 7.8 |
| Depreciation | 0.00 | 0.00 | 0.00 | 0.00 |
| Amortizations | 0.00 | 0.00 | 0.00 | 0.00 |
| EBIT | -46.5 | -43.0 | -35.3 | 7.8 |
| Shares in Associates | 0.00 | 0.00 | 0.00 | 0.00 |
| Interest Expenses | 0.00 | 0.00 | 0.00 | 0.00 |
| Net Financial Items | 0.70 | 0.20 | 0.00 | 0.00 |
| EBT | -45.8 | -42.8 | -35.3 | 7.8 |
| Income Tax Expenses | 0.00 | 0.00 | 0.00 | 0.00 |
| Net Income | -45.8 | -42.8 | -35.3 | 7.8 |
| Balance sheet | ||||
| Assets | ||||
| Non-current assets | ||||
| SEKm | 2023 | 2024e | 2025e | 2026e |
| Property, Plant and Equipment (Net) | 0.00 | 0.00 | 0.00 | 0.00 |
| Goodwill | 0.00 | 0.00 | 0.00 | 0.00 |
| Intangible Assets | 0.25 | 0.25 | 0.25 | 0.25 |
| Right-of-Use Assets | 4.7 | 4.7 | 4.7 | 4.7 |
| Other Non-Current Assets | 0.38 | 0.38 | 0.38 | 0.38 |
| Total Non-Current Assets | 5.3 | 5.3 | 5.3 | 5.3 |
| Current assets | ||||
| SEKm | 2023 | 2024e | 2025e | 2026e |
| Inventories | 0.00 | 0.00 | 0.00 | 0.00 |
| Accounts Receivable | 0.62 | 0.00 | 1.3 | 3.8 |
| Other Current Assets | 1.9 | 0.00 | 1.3 | 3.8 |
| Cash Equivalents | 36.2 | -6.6 | -41.8 | -33.6 |
| Total Current Assets | 38.7 | -6.6 | -39.3 | -26.0 |
| Total Assets | 44.0 | -1.3 | -33.9 | -20.6 |
| Equity and Liabilities | ||||
| Equity | ||||
| SEKm | 2023 | 2024e | 2025e | 2026e |
| Non Controlling Interest | 0.00 | 0.00 | 0.00 | 0.00 |
| Shareholder's Equity | 30.7 | -12.1 | -47.5 | -39.6 |
| Non-current liabilities | ||||
| SEKm | 2023 | 2024e | 2025e | 2026e |
| Long Term Debt | 0.00 | 0.00 | 0.00 | 0.00 |
| Long Term Lease Liabilities | 0.00 | 0.00 | 0.00 | 0.00 |
| Other Non-Current Lease Liabilities | 3.0 | 3.0 | 3.0 | 3.0 |
| Total Non-Current Liabilities | 3.0 | 3.0 | 3.0 | 3.0 |
| Current liabilities | ||||
| SEKm | 2023 | 2024e | 2025e | 2026e |
| Short Term Debt | 1.5 | 0.00 | 0.00 | 0.00 |
| Short Term Lease Liabilities | 0.00 | 0.00 | 0.00 | 0.00 |
| Accounts Payable | 0.00 | 0.00 | 1.9 | 5.7 |
| Other Current Liabilities | 8.8 | 8.6 | 9.4 | 11.0 |
| Total Current Liabilities | 10.4 | 8.6 | 11.3 | 16.7 |
| Total Liabilities and Equity | 44.0 | -0.53 | -33.2 | -19.9 |
| Cash flow | ||||
| SEKm | 2023 | 2024e | 2025e | 2026e |
| Operating Cash Flow | -45.7 | -42.8 | -35.2 | 8.2 |
| Investing Cash Flow | 0.00 | 0.00 | 0.00 | 0.00 |
| Financing Cash Flow | 40.2 | 0.00 | 0.00 | 0.00 |
Rating definitions
The team
Disclosures and disclaimers
Contents
Investment thesis
Quality Rating
Outlook
Financial Results
Valuation
Financials
Rating definitions
The team
Download article