Version 2.1 of CircVec produces almost 10x more protein compared to mRNA after 8 days (in vitro). Circio has also demonstrated durable expression of proteins from its CircVec 2.1 platform in mouse studies. In the technical validation study, luciferase-expressing circular RNA and mRNA were injected into one leg each. The leg injected with circular RNA (CircVec) expressed the luminescent protein for the entire period of the experiment, while the mRNA version expressed it for around one month. CircVec expressed 3-4 times more protein after 150 days. Statistical models even show the yield over 2 years would be 20 times higher (which is relevant for gene therapy).

Circio is now doing a similar experiment using AAV loaded with CircVec to express luciferase. An early pilot trial with CircVec 2.0 demonstrated solid expression in mice 14 days after injection. The next step is to compare AAV using mRNA versus CircVec in a larger study population over a longer period of time. This will be a crucial experiment for partners in gene therapy who use AAV as the administration modality.

Later versions of CircVec will likely be even more efficient. The latest version, 2.2, produced 2-4 times more protein than version 2.1 in validation testing (in vitro).

Circio believes gene therapy is the technology where CircVec has the best possibility of being licensed in the short term. There are 8 approved gene therapies as of today, of which six use AAV. These could potentially be improved with CircVec. It is more likely, however, that new gene therapies under development would benefit more. The lowest hanging fruit for Circio are those gene therapies in pre-clinical development that have to be abandoned because of toxicity. Using CircVec might save these programmes and enable further development. This is one of the first areas where we would not be surprised to see collaborations in the future.

IOVaxis did not utilise its option to in-license TG01 because it lacks funding, which resulted in its removal from our valuation. Three investigator-sponsored programmes are ongoing: in metastatic pancreatic and lung cancer (collaboration with Janssen), in multiple myeloma and in resected pancreatic cancer. The collaboration with Janssen is the most interesting one with a good potential for a deal upon a successful outcome – TG01 could help drive further sales of their best-selling antibody Darzalex (sales of USD10bn in 2023) through expanding into new indications.

Total operating expenses in H2 2023 amounted to NOK-28m, a drastic reduction from the NOK-73m in the first half. The staff level has been reduced to 10 from 23, which significantly lower costs. The company has guided for a burn rate of around NOK4m per month going forward. The net proceeds of NOK46m from the rights issue (if fully subscribed) were calculated to fund the company for another year.

Around 20% of the budget for the next twelve months is planned to be invested in circVec AAV experiments, 20% in the AATD programme, 20% on developing circVec 3.0, 15% on TG01 and 25% on general and commercial operations.

The cash position was NOK8m as of 31 March 2023; around NOK12m should have been spent since then (3 months). This makes the pro-forma cash position NOK9m after the rights issue. In connection with the rights issue, Atlas will be converting bonds worth NOK15m into shares. The value of the convertible bonds as of December 31 was NOK44.5m, although some bonds have been converted since then. As less than net NOK30m was obtained from the rights issue and warrants, necessitating the use of further Atlas tranches, TG01 will be used as collateral.

Warrants are included in the rights issue in the ratio 1:1 (7.2m). We have included them in the shares outstanding. They can be exercised in December at a 30% discount from the share price, with a floor of NOK0.6.

CircVec has taken slightly longer to reach a deal than we anticipated. For this reason, we have changed the timing and weighting of the assumed USD1000m deal value, with somewhat smaller milestone payments in the medium term, which has a negative effect on the base case.

We have reviewed several of our assumptions for TG01’s indications. We have decreased the relative weight of Europe and Japan in the sales estimates, as the growth prospects of the US are superior. We expect TG01 to have significantly better sales potential in the US, represented in higher pricing and market shares. We have changed the milestone assumptions for TG01, dividing them among the candidates, as shown in the valuation summary below, keeping the total of USD400m. We assume an average royalty rate of 12%. We further estimate Circio will have to pay a 10% royalty rate on all income to Agenus for using their adjuvant (Stimulon QS-21). Finally, we have removed the IOVaxis deal. This leads to an equity value that is still higher than when we wrote our initiation coverage. This is because the loan from Business Finland has been written of and a new TG01 indication (NSCLC) has been added.

We have included significant dilution in our base case as the convertible loans will eventually have to be converted into shares. However, it is challenging to predict the conversion price and the eventual number of shares. Our base case can therefore only be seen as a best estimate. The large loans from Atlas on the balance sheet have increased the risk significantly since our initiation coverage. This situation could necessitate a change in conditions allowing Atlas to freely dump shares on the market, or in a worst case scenario lead to bankruptcy. It is therefore important for the company to land a licensing deal so it can pay off as many convertibles as possible.

Our bull case of SEK15 assumes a positive outcome in CircVec's preclinical programme leading to a licensing deal and much less dilution. Our bear case of 0 represents the failure of CircVec or the inability to repay the loans to Atlas.