Lytix Q1 2024: Verrica Readout Imminent
Research Update
2024-05-31
14:16
Analyst Q&A
Closed
Richard Ramanius answered 2 questions.
Redeye comments on the Q1 report 2024. The rest of 2024 is funded through the recent rights issue, including the readout of Verrica's phase II study that may change the investment case.
RR
Richard Ramanius
Contents
Investment thesis
Quality Rating
Financial Results
Valuation
Financials
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The team
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Lytix raised gross NOK50m in an equity issue that will fund the rest of 2024. With a current pro-forma cash position of around NOK70m, this will fund the company into 2025, past the Verrica readout, the second readout from ATLAS-IT-05 and the start of NeoLIPA (in adjuvant melanoma).
As an investigator-sponsored trial, costs will be very limited fror NeoLIPA. The Norwegian Medical Products Agency approved this study in April. It is a phase II study in neoadjuvant advanced resectable melanoma in combination with pembrolizumab. The first patient will be recruited in mid-2024. The study will take around 18 months with the first readout in H1 2025.
We have removed LTX-315 in later-stage refractory melanoma patients from the base case while maintaining it in our bull case. This has a minor negative impact of around NOK1 per share since we maintain the assumed USD600m deal value and the potential neoadjuvant population is much larger. The readout from Verrica's phase II study in basal cell carcinoma is expected in June. It could change the investment case, potentially making this the most valuable programme. The readout will likely have a major impact on our base case, with an estimated immediate upside potential of around 50% on positive results.
NOKm | 2022 | 2023 | 2024e | 2025e | 2026e |
Revenues | 17.3 | 10.2 | 6.3 | 13.0 | 231.5 |
Revenue Growth | -33.1% | -40.7% | -38.5% | 107% | 1678% |
EBITDA | -65.7 | -96.8 | -76.7 | -46.8 | 173.8 |
EBIT | -65.7 | -96.9 | -76.7 | -46.8 | 173.8 |
EBIT Margin | -380% | -2427% | nm. | -413% | 75.1% |
Net Income | -56.0 | -87.9 | -76.7 | -46.8 | 173.8 |
EV/Sales | 9.6 | 36.1 | nm. | 29.7 | 0.5 |
EV/EBIT | -2.5 | -1.5 | -3.8 | -7.2 | 0.7 |
Case
Basa cell carcinoma may become the most valuable project in 2024
Evidence
LTX-315 can shrink superficial and metastatic lesions
Challenge
Success in ATLAS-IT-06
Challenge
Extending funding
Valuation
LTX-315, Verrica deal and LTX-401
People: 3
Lytix has a management team that has been working together for a long time and a long experience of its technology platform. Inside ownership from management is limited, however. The shareholder structure provides solidity to operations, as two major shareholder are represented on the board (33%) and there is a sizeable group of long-term oriented owners.
Business: 3
Pharmaceuticals is a high-margin industry in which there is clear product protection for companies' projects through patents. It is generally a non-cyclical industry. For research companies like Lytix, the situation is different, with risks associated not just with clinical development but also with the (cyclical) stock market, where capital requirements are large and often handled via new issues.
Financials: 0
As of Q4 2023, Lytix had a cash position of cNOK50m, which finance operations into mid-2024, before which additional capital will have to be raised. Being a research company, it will likely take some time before becoming cash flow neutral.
Operating costs (our estimates), were NOK-20m, a decrease compared with the previous quarter (shown below). We have excluded the costs of producing LTX-315 for Verrica, which Lytix includes in operating costs. We classify them as cost of goods sold, which we estimate at around NOK9m. Lytix had income of NOK10.5m for sales of LTX-315 to Verrica. Together with financial income of NOK0.5m, this leads to a net result of NOK-18m. The cash flow in the period was NOK-24m. Positive cash flow came from the rights issue in Q2, which we include in our valuation. The cash and cash equivalents position increased to NOK72m (NOK51m in Q4) when including the net proceeds from the rights issue.
Operating expenses
We have removed LTX-315 in later-stage refractory melanoma patients from the base case. We maintain it in our bull case. The focus will be on earlier-stage melanoma in the medium-term, which makes the sales potential in metastatic disease more uncertain. There will be no further development in the short term after ATLAS-IT-05 concludes with 20 patients. We have also increased the costs for developing LTX-315 in 2024. This has a minor impact of around NOK1 per share since we maintain the assumed USD600m deal value (all of it for neoadjuvant melanoma) and the potential neoadjuvant population is much larger.
Programme | Indication | LoA | Royalties | Peak Sales | Est. launch | Deal Size | rNPV |
(USDm) | (USDm) | (NOKm) | |||||
LTX-315 (neoadjuvant) | Melanoma | 13% | 13.5% | 1550 | 2032 | 600 | 633 |
LTX-315 (refractory) | Melanoma | 0% | 13.5% | 470 | 2032 | 0 | |
Verrica | BCC | 20% | 12% | 380 | 2028 | 113.5 | 260 |
LTX-401 | HCC | 4% | 12% | 780 | 2034 | 300 | 94 |
Project value (NOKm) | 988 | ||||||
Net cash | 73 | ||||||
Shared costs incl. tax (NOKm) | -362 | ||||||
Fair value (NOKm) | 699 | ||||||
Shares outstanding | 50 | ||||||
Value per share (NOK) | 14 | ||||||
Fully diluted | 13 | ||||||
Source: Redeye Research |
Our bull case is NOK27 while our bear case is NOK7.
Income statement | ||||
NOKm | 2023 | 2024e | 2025e | 2026e |
Revenues | 10.2 | 6.3 | 13.0 | 231.5 |
Cost of Revenue | -6.3 | -6.3 | -1.7 | 0.00 |
Operating Expenses | 107.1 | 83.0 | 59.8 | 57.8 |
EBITDA | -96.8 | -76.7 | -46.8 | 173.8 |
Depreciation | 0.00 | 0.00 | 0.00 | 0.00 |
Amortizations | 0.00 | 0.00 | 0.00 | 0.00 |
EBIT | -96.9 | -76.7 | -46.8 | 173.8 |
Shares in Associates | 0.00 | 0.00 | 0.00 | 0.00 |
Interest Expenses | 0.00 | 0.00 | 0.00 | 0.00 |
Net Financial Items | 8.9 | 0.00 | 0.00 | 0.00 |
EBT | -87.9 | -76.7 | -46.8 | 173.8 |
Income Tax Expenses | 0.00 | 0.00 | 0.00 | 0.00 |
Net Income | -87.9 | -76.7 | -46.8 | 173.8 |
Balance sheet | ||||
Assets | ||||
Non-current assets | ||||
NOKm | 2023 | 2024e | 2025e | 2026e |
Property, Plant and Equipment (Net) | 0.11 | 0.11 | 0.11 | 0.11 |
Goodwill | 0.00 | 0.00 | 0.00 | 0.00 |
Intangible Assets | 0.00 | 0.00 | 0.00 | 0.00 |
Right-of-Use Assets | 0.44 | 0.44 | 0.44 | 0.44 |
Other Non-Current Assets | 0.00 | 2.3 | 2.3 | 2.3 |
Total Non-Current Assets | 0.55 | 2.8 | 2.8 | 2.8 |
Current assets | ||||
NOKm | 2023 | 2024e | 2025e | 2026e |
Inventories | 0.00 | 0.00 | 0.00 | 0.00 |
Accounts Receivable | 12.8 | 0.00 | 1.9 | 38.1 |
Other Current Assets | 0.00 | 0.00 | 0.91 | 18.5 |
Cash Equivalents | 50.5 | 55.8 | 11.1 | 225.5 |
Total Current Assets | 63.3 | 55.8 | 13.9 | 282.1 |
Total Assets | 63.9 | 58.7 | 16.8 | 284.9 |
Equity and Liabilities | ||||
Equity | ||||
NOKm | 2023 | 2024e | 2025e | 2026e |
Non Controlling Interest | 0.00 | 0.00 | 0.00 | 0.00 |
Shareholder's Equity | 51.3 | 54.6 | 7.8 | 181.6 |
Non-current liabilities | ||||
NOKm | 2023 | 2024e | 2025e | 2026e |
Long Term Debt | 0.00 | 0.00 | 0.00 | 0.00 |
Long Term Lease Liabilities | 0.04 | 0.04 | 0.04 | 0.04 |
Other Non-Current Lease Liabilities | 0.00 | 0.00 | 0.00 | 0.00 |
Total Non-Current Liabilities | 0.04 | 0.04 | 0.04 | 0.04 |
Current liabilities | ||||
NOKm | 2023 | 2024e | 2025e | 2026e |
Short Term Debt | 0.00 | 0.00 | 0.00 | 0.00 |
Short Term Lease Liabilities | 0.45 | 0.00 | 0.00 | 0.00 |
Accounts Payable | 0.00 | 0.00 | 3.7 | 76.1 |
Other Current Liabilities | 12.1 | 3.6 | 4.7 | 26.7 |
Total Current Liabilities | 12.5 | 3.6 | 8.4 | 102.8 |
Total Liabilities and Equity | 63.9 | 58.2 | 16.3 | 284.5 |
Cash flow | ||||
NOKm | 2023 | 2024e | 2025e | 2026e |
Operating Cash Flow | -96.9 | -74.7 | -44.7 | 214.4 |
Investing Cash Flow | 2.3 | 0.00 | 0.00 | 0.00 |
Financing Cash Flow | -0.94 | 80.0 | 0.00 | 0.00 |
Disclosures and disclaimers
Contents
Investment thesis
Quality Rating
Financial Results
Valuation
Financials
Rating definitions
The team
Download article