Income statement

The sales for Q2 came in at SEK0.2m (SEK2.6m). We expected a licensing deal for ICOpre during the quarter, where we anticipated an upfront payment of SEK40m. Excluding the projected upfront payment, we estimated sales of SEK3.1m during the quarter. Furthermore, we learned that the sales during the quarter came from two projects. We do not draw any conclusions about the sales; however, we highlight that Iconovo anticipates an ICOpre licensing deal during Q3 2024 as the company is currently in negotiations.

Moreover, operating expenses (excluding “work for own use”) amounted to SEK-14.3m (SEK-18.8m) compared to our estimate of SEK-19.7m. The operating expenses mainly consisted of personnel costs (SEK-7.8m), which was a bit lower than our estimate of SEK-9.5m. The decreased personnel costs were an effect of the reversal of expenses for two long-term incentive programs; however, as this is a one-time adjustment, we argue that personnel costs will be a bit higher during the next quarters. Overall, we were a bit high in our OPEX estimate; however, Iconovo’s expenses have varied a lot historically, and line items, such as “Raw materials and supplies”, usually correlate with project sales. As the sales came in lower than anticipated, we are not surprised that the expenses came in lower as well. However, note that investments in intangibles (primary investments in the ICOpre and ICOcap platforms during the quarter) amounted to SEK-7.3m (SEK-5.7m) compared to our estimate of SEK-4.5m.

Lastly, EBIT came in at SEK-9.7m (SEK-13.1m) compared to our estimate of SEK24.6m. However, excluding the anticipated upfront payment (ICOpre), our EBIT estimate would have been SEK-15.4m, which we argue is a better comparable.

Cash position

Furthermore, the cash flow from operating activities was SEK-7.0m (SEK-10.3m), and by the end of the quarter, the cash and cash equivalents amounted to SEK23.9m. We argue that Iconovo’s cash position throughout 2024 will be highly dependent on the upcoming ICOpre deal. We estimate that Iconovo will receive SEK40m in an upfront payment. With that amount, we estimate the company will have a sufficient cash position until the end of 2024e. In our model, we previously anticipated a capital raising of SEK20m at the end of 2024e, followed by a capital raising of SEK30m in 2025e (in total SEK50m). However, we change our assumption and expect a capital injection of SEK50m only in 2025e instead. Note that this change does not have any effect on our valuation. Furthermore, note that, with these estimates, Iconovo will have a relatively solid cash position. As the company has a solid shareholder list and track record when it comes to raising capital, we argue there are no reasons to let the cash position come close to zero.

Our overall thought of the report

Overall, the report did not include any major surprises. We are positive about Iconovo’s ongoing negotiations regarding a licensing deal for ICOpre and argue the deal is an important milestone for the company as well as a near-term trigger for the share. Moreover, we look forward to updates regarding Iconovo’s obesity treatment initiative as the GLP-1 receptor antagonists market is major. We learned that Iconovo plans to license selected products to medium-sized pharmaceutical companies for further development and commercialization after achieving preclinical proof of concept. We believe that the full process before a potential outlicensing will take around 2-3 years. We are also positive that the initial part of the process will not significantly affect the company’s costs, which decreases the risk of the initiative.

ICOres patent in China

Iconovo's application for a patent on the ICOres inhalation platform has received preliminary approval from the Chinese Patent Office. ICOres, already utilised in various customer projects, will now have enhanced intellectual property protection, supporting future pharmaceutical product launches based on this innovative inhaler.

With the issuance of a Notice of Allowance from the Chinese Patent Office, ICOres is set to receive patent protection in China through 2040, following a series of administrative procedures. This complements existing patents for ICOres in Europe, Sweden, India, Japan, and the USA.

GLP-1 patent application

In May, Iconovo announced it had filed a broad patent application for inhaled GLP-1 receptor agonists, signalling the launch of a new initiative to create more convenient and cost-effective treatments for obesity. Utilising its proprietary inhalers, Iconovo plans to license selected products after achieving preclinical proof of concept. The market for inhaled GLP-1 is anticipated to grow significantly, with projections reaching USD90bn by 2029.

Iconovo’s inhaled GLP-1 products will be developed using the company’s proprietary inhalers, targeting primarily obesity and potentially other metabolic conditions such as type 2 diabetes, fatty liver disease, cardiovascular disease, and sleep apnea. We also learned that the initial development phase investments are expected to be limited. Furthermore, we argue this is an exciting market to enter and look forward to updates regarding the initiative.

The Iconovo share is down c25% during 2024 and c65% in the last 12 months. We argue that the current share price level does not represent the potential in Iconovo. However, the stock market climate has been particularly challenging for unprofitable companies, and we argue the importance of showing rising sales.

Furthermore, we argue that the upcoming ICOpre licensing deal could act as a solid trigger for the share from a short-term perspective (we anticipate a deal during Q3 2024). Currently, there is a significant gap of c180% between current share price levels and our base case. We do not believe that a solid licensing deal for ICOpre could close the valuation gap. However, a solid deal, together with a better stock market climate and ICOres sales from 2025e, should be positive for the share price development, which could close the valuation gap during the next 12-18 months.

As Iconovo has not reached a licensing deal for ICOpre yet, we push our anticipated upfront payment of SEK40m forward one quarter (from Q2 to Q3). Furthermore, we only make some minor changes in our 2024e estimates (a decrease of SEK2m in the “Raw materials and supplies” line item). As a result, we now expect full-year 2024e sales of SEK50.5m (including an ICOpre upfront payment of SEK40m) and full-year EBIT of SEK-13.4m.

Q3 2024e preview

We are still waiting for the outlicensing deal for ICOpre and anticipate a deal during Q3 2024e, including an upfront payment of SEK40m. The upcoming deal could act as a solid trigger for the share and is essential for our forecasts and investment case. Furthermore, we expect increasing project sales during the quarter. Including the upfront payment, we project Q3 sales of SEK43.7m. Furthermore, we expect OPEX to rise during the quarter (because of higher project sales and personnel costs in line with Q1 2024), resulting in an EBIT of SEK23.1m.

The minor estimate changes that we have made do not affect our fair value range, based on our DCF (Discounted cash flow) model between 2024e-2036e, applying a WACC of 15% and a terminal growth of 2% and a terminal EBIT margin of 35%. However, since our last update, the share price has increased. This affects our capital raising assumption, which has an effect on our valuation. Our updated fair value range consists of a base case of SEK25 (24), a bull case of SEK45 (43), and a bear case of SEK7 (7). The Iconovo share is currently traded close to our bear case. We argue that an upcoming outlicensing deal for ICOpre is the share's number one short-term trigger, which should decrease the valuation gap to our base case.

Base case: SEK25 (24)

In our base case scenario of SEK25, we anticipate a significant boost in sales, reaching SEK50.5m in 2024e due to the licensing fee associated with ICOpre. This growth trajectory continues with the European launch of ICOres (Symbicort) by Amneal in 2025e, followed by Iconovo Pharma’s launch in the Nordic region in 2026e. We project Amneal secures a market share of 20% by 2032e, assuming a royalty rate of 7.5% for Iconovo. Additionally, we estimate a 7% market share for Iconovo Pharma by 2032e, translating into sales of SEK85.5m. Anticipating a licensing agreement for ICOpre during Q3 2024e, we assume a signing fee of SEK40m. In our base case, ICOpre (Breo/Relvar) debuts in Europe in 2027e upon expiry of the European patent. We project a royalty rate of 7.5%, with the partner potentially attaining a 10% market share by 2032e, resulting in Iconovo royalties of SEK112m. Iconovo Pharma is also expected to handle the Nordic market, capturing a 2.5% market share by 2032e, amounting to sales of SEK58m.

Our projections for ICOcap (Ultibro/Seebri) indicate minor sales starting from 2026e, totalling around SEK2m–9m. Additionally, Iconovo aims to secure 3–5 CDMO agreements annually. In this scenario, we estimate net three agreements per year, with an average value of SEK2.5m. Overall, we anticipate total sales reaching SEK186m by 2027e, reflecting a 126% sales CAGR between 2023 and 2027e. We expect the company to achieve positive EBIT by 2026e, reaching SEK13m, and for profitability to rise by 2027e, with an EBIT margin of 30.8%. Our model incorporates capital raises totalling SEK50m, using a 20% discount to current share price levels. Additionally, we include a terminal growth rate of 2% and a terminal EBIT margin of 35% in our analysis.

Bull case: SEK45 (43)

In our more optimistic bull case, valued at SEK45, we project Iconovo’s products capturing a greater market share than in our base case. This heightened market presence is attributed to a higher prioritisation and increased investment commitment from Iconovo’s partners, leading to more rapid sales ramp-up. Note, however, that in this optimistic scenario, we anticipate Iconovo’s costs to be approximately 10–15% higher throughout the forecasting period.

Specifically, we anticipate Amneal securing a market share of 25% for ICOres by 2032e, assuming a royalty rate of 7.5%. This translates into royalties of SEK135.5m by 2032e. We also expect Iconovo Pharma to gain a 10% market share in the Nordic market, contributing to substantial sales estimated at SEK122.2m. Moreover, we project a licensing deal for ICOpre in Q3 2024e, including a signing fee of SEK50m and annual milestones (SEK15m per year) until the European launch of ICOpre (Breo/Relvar) in 2027e. For the European and Nordic markets, we expect respective market shares of 12% and 5% by 2032e. This corresponds to European sales of SEK134m (assuming a 7.5% royalty rate) and Nordic sales via Iconovo Pharma totalling SEK117m. In this bullish scenario, we continue to expect minor ICOcap (Ultibro/Seebri) sales throughout the forecasting period, with sales up to SEK10m. Additionally, Iconovo should enter into net four feasibility agreements (CDMO) annually, each valued at an average of SEK2.5m per year. As a result, we anticipate total sales reaching SEK257m by 2027e. Furthermore, we predict the company will achieve profitability in 2026e, with sales totalling SEK148m and EBIT reaching SEK19m. Lastly, our model incorporates a terminal growth rate of 2% and a terminal EBIT margin set at 40%.

Bear case: SEK7

In our more pessimistic bear case scenario valued at SEK7, we expect Iconovo’s products to secure a smaller market share than in our base case. This reduced market presence is due to lower prioritisation and investment commitment from Iconovo’s partners, leading to a slower sales ramp up.

Specifically, we assume Amneal will capture a 15% market share for ICOres by 2032e, assuming a royalty rate of 7.5%. This results in sales of SEK81m by 2032e. We also expect Iconovo Pharma to gain a 4% market share in the Nordic market, contributing to sales estimated at SEK49m. Moreover, we project a licensing deal for ICOpre in 2024e, including a signing fee of SEK30m and annual milestones of SEK10m until the European launch of ICOpre (Breo/Relvar) in 2027e. We anticipate respective 8% and 1.5% market shares by 2032e for the European and Nordic markets. This corresponds to European sales of SEK60m (assuming a 7.5% royalty rate) and Nordic sales via Iconovo Pharma, totalling SEK35m.

In this bearish scenario, we still anticipate minor ICOcap (Ultibro/Seebri) sales at around SEK1m– 6m throughout our forecasting period. Additionally, we project Iconovo to enter into two net feasibility agreements (CDMO) annually, each valued at an average of SEK2.5m. Consequently, we expect total sales to reach SEK126m by 2027e and project the company to become profitable in 2028e, with sales totalling SEK165m and EBIT reaching SEK20m. Moreover, in this scenario, we estimate Iconovo will raise SEK70m (SEK50m in our base case) through rights issues, and we assume a discount of 40% (20% in our base case) to current share price levels. Lastly, our model includes a terminal growth rate of 2% and a terminal EBIT margin set at 30%.