Kancera Q3: Heartfelt ambitions
Research Update
2024-11-26
08:42
Redeye returns following Kancera’s strategic shift to focus on cardiovascular diseases and its Q3 report. We reassess our take on the case, reconsidering the timeline of future possible deals, lowering assumptions regarding the KANDOVA study, and raising assumptions regarding the myocardial infarction project. Updated capital needs assumptions, and an increased WACC, also impact our DCF valuation. Our fair value range is lowered.
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Filip Lindkvist
Martin Wahlström
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The Q3 report contained nothing new. R&D expenses amounted to SEK10.2m (9.2), which includes SEK6.3m in reversed accrued costs for the FRACTAL study. Cash flow from operations was SEK-17.8m (-8.8), and the operating loss for the quarter was SEK-11.5m (-10.5), which includes the positive effect from the reversal of accrued FRACTAL study costs. Cash was SEK57.8m, and in the report, Kancera states that it is financed “throughout” 2025, which we deem reasonable. However, the existing cash is insufficient to fund any new clinical development.
Recently, Kancera announced a strategic shift to concentrate its resources on cardiovascular diseases. The strategic shift is backed by earlier positive outcomes from the FRACTAL study, a phase 2a trial demonstrating KAND567’s favourable safety profile, tolerability and signals on clinically relevant cardio-protective effects in patients with ST-elevated myocardial infarction (STEMI) who undergo PCI (Percutaneous Coronary Intervention). Kancera intends to initiate a phase 2b study within this indication.
Our valuation is based on a 2024e–2042e DCF model using a 16% (increased from 15%) WACC derived from Redeye’s proprietary rating model. We factor in an equity issue of SEK75m-125m and materially reduced the NPV contribution from the ovarian cancer project, as the company will no longer put any more money into this beyond the KANDOVA study. We increase the price assumption in myocardial infarction (MI) from USD6k to USD16k per treatment and increase deal value assumptions within this indication. We anticipate a market launch in 2031e, compared to the earlier assumption of 2029e. We lower our base case to SEK1.5 per share (3.1). Bull and bear case come in at SEK4.4 (7.3) and SEK0.2 (0.8), respectively. However, potential licensing deals (one estimated in 2025e) and favourable news regarding the anticipated study in MI may impact our valuation range significantly, potentially making our bull case our base case next year.
Case
Upcoming events show the way forward
Kancera has promising results from the FRACTAL phase 2a study, showing safety, tolerability, and efficacy signals for KAND567 in patients with high-risk ST-elevated myocardial infarction (STEMI). Key catalysts going forward include partner deals, news regarding the design of a phase 2b study and the outcome of an anticipated pre-IND (pre-investigatory new drug) meeting with the FDA, which we expect in H1 2025e. This will clarify the size, and thereby cost, of a phase 2b study. We also see trigger potential in regional licensing deals in Asia, which can help fund a trial together with a plausible share issue. We think the current valuation is undemanding compared to peers on an EV basis but argue that the financing situation could act as a wet blanket. To close the gap to our base case, we argue that its balance sheet must first be strengthened. Once sorted, we believe more interest for the long-term case could increase.
Evidence
Supportive clinical data
The double-blinded, placebo-controlled FRACTAL study met the primary endpoint of safety and tolerability. The trial also showed effects on key biomarkers, including reduced intramyocardial haemorrhage (IMH). IMH is strongly associated with increased mortality and major adverse cardiovascular events (MACE) - a biomarker the FDA endorses. These biomarkers align with anticipated efficacy in future phase 2b/3 studies, supporting KAND567’s potential to address unmet needs in STEMI management.
Challenge
Capital need
Although we judge that Kancera’s cash runway extends throughout 2025e, we anticipate a share issue in H1 2025e for Kancera to partly fund its new clinical development plan, with a phase 2b study anticipated to start in 2026e. The company also works towards landing a deal in an Asian country (Japan, China or South Korea) to partly finance the study, and we have added a risk-adjusted one in 2025e. If no deal is made, we anticipate Kancera will have to raise more capital before such a trial.
Challenge
Inherent high-risk due to clinical development
As with all pre-revenue biotech companies, Kancera faces significant development risks, and we estimate the likelihood of approval for its head candidate within myocardial infarction to be 18%. However, Kancera has shown favourable safety and tolerability profiles and effects on key biomarkers in a phase 2a study.
Valuation
Undemanding valuation - but uncertainties in the short-term
We base our valuation of Kancera on a DCF model using a WACC of 16% and a forecast period between 2024e-2042e. With a share issue included, our base case comes in at SEK 1.5, with respective bull and bear cases of SEK4.4 (7.3) and SEK0.2 (0.8) per share. We think the current valuation is undemanding, but argue that the financing need could act as a wet blanket. To close the gap to our base case, a strengthened balance sheet is needed. We estimate peak sales to USD1.7b (in the US, Europe and Japan) in 2039e, and we assume a peak market share of 30%. This is a relatively high figure, but as the aimed indication lacks treatments today, and our adressable patient population is precisely defined, we view this as plausible.
We also highlight that the implicit expectations in the share price are low on a fundamental level (EV around SEK72m). Given the early clinical stage, the risk is high (11-18% likelihood of success), and securing capital (through deals or share issues) is key for the share price development in the short to mid-term.
Disclosures and disclaimers
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