Lytix Biopharma: Funded Well into 2026
Research Update
2025-02-14
07:00
Analyst Q&A
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Richard Ramanius answered 2 questions.
Redeye comments on Lytix Biopharma's Q4 report. During the quarter, Verrica reported further progress in basal cell carcinoma, the first patient was treated in NeoLIPA and Lytix raised circa NOK110m.
Richard Ramanius
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Investment Thesis
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LTX-315 is licensed to Verrica in basal cell carcinoma. In Q4, Verrica reported further data from the phase II study – an objective response rate of 97% (a size reduction by at least 30%). Previously, it reported an overall size reduction of 86% and a clearance rate of 51%. The ORR is further evidence of the effectiveness of LTX-315, although we believe size reduction and clearance rate are more meaningful parameters in non-metastatic disease. Verrica recently had economic issues due to not reaching sales targets, so it could not raise more loans as planned. Verrica solved the situation by raising circa USD40m in December 2024, funding operations into Q1 2026. Series A warrants attached to the funding can net the company another USD25m to fund 2026. However, this only funds the commercialisation of YCANTH and not future clinical trials in BCC. Verrica will meet the FDA this spring to define the next step which can be a phase III study, including which patient population to include. We have assumed LTX-315 will be developed only for a small population with difficult to treat BCC, rendering peak sales of USD400m. Lytix thinks LTX-315 could be a frontline therapy as an alternative to surgery. This represents a much larger market and an upside to our valuation. Another important catalyst will be the immune response readout expected in Q12025.
Lytix raised NOK100m and EUR1m in a combined directed share issue and primary bid offering. This funds the company over important milestones for both Verrica and LTX-315 in adjuvant melanoma (NeoLIPA). The dilution was quite moderate compared with biotech peers as the number of shares only increased from 50m to 68m. Despite this, the share still trades below the NOK6 strike price as of this writing.
We do not believe Verrica will have the time to start a phase III study in basal cell carcinoma in 2025, so we have postponed its start to 2026. This results in delayed cash flows and a slight decrease in our base case to NOK13 (NOK14).
| Key Financials | |||||
|---|---|---|---|---|---|
| NOKm | 2023 | 2024 | 2025e | 2026e | 2027e |
| Total Revenue | 10.2 | 11.1 | 1.7 | 90.3 | 36.5 |
| Revenue Growth | -40.7% | 8.7% | -84.7% | 5211% | -59.6% |
| EBITDA | -96.8 | -95.0 | -58.2 | 26.2 | -26.2 |
| EBIT | -96.9 | -95.9 | -58.2 | 26.2 | -26.2 |
| EBIT Margin | -2427% | -861% | nm. | 29.0% | -71.9% |
| Net Income | -87.9 | -94.3 | -58.2 | 26.2 | -26.2 |
| EV/Sales | 36.1 | 24.7 | nm. | 3.5 | 9.6 |
| EV/EBIT | -1.5 | -2.9 | -6.1 | 12.0 | -13.3 |
Case
Progress for Verrica and in NeoLIPA will drive the share
Lytix is developing first-in-class oncolytic molecules. An investigator-sponsored trial in the neoadjuvant setting (NeoLIPA, n=27), which is very cost-effective, in combination with PD-1 started recruitment in Q4. The next catalyst affecting the share will be the first readout in Q3 2025. The primary endpoint is pathological complete response, which is a quick endpoint (~3 months). Historical controls are around 20-27%, so above 40% would be a success. Verrica's potential start of a phase III programme (likely in 2026), together with a milestone payment, would be a major catalyst.
Evidence
LTX-315 can shrink superficial and metastatic lesions
The main candidate LTX-315 demonstrated stable disease in 40% of patients with disease control up to 20 months and a partial response in 10% (out of 20 patients) in ATLAS-IT-05, a phase II of LTX-315 in combination with pembrolizumab in melanoma patients who progressed after treatment with checkpoint inhibitors. This is encouraging considering patients failed on average two previous lines. Superficial lesions decreased more, with 40% being completely cleared, which is promising for NeoLIPA. Lytix has outlicensed LTX-315 to Verrica in dermatological cancers (except melanoma and Merkel cell carcinoma) in a deal worth up to USD114m plus royalties. In Verrica's phase II study of basal cell carcinoma, 51% of lesions disappeared with an average reduction of 86% in all patients and an ORR of 97%, an excellent result.
Supportive Analysis
The company has a class-leading international scientific advisory board including Nobel Laureate (2018) Jim Allison, which has helped Lytix design the phase II trial in refractory melanoma and provided clinical sites (MD Anderson).
Challenge
Success in NeoLIPA
The phase II trial in neoadjuvant melanoma (n=27) will have to generate strong enough data to warrant a subsequent phase III or phase IIb trial, and do it without substantial delays. This is an investigator sponsored trial, so the timeline is not under Lytix' control. Together with Verrica's phase II study and ATLAS-IT-05, Lytix may have a good data package by 2026 which will assist partnering discussions, or attract investments for a study expansion.
More funding for Verrica
Lytix is relatively well financed after raising capital in December 2024. Verrica also raised capital in 2024, but mainly for its commercial drug YCANTH in molluscum contagiosum. Additional funds will be needed for a phase III study in basal cell carcinoma with LTX-315.
Valuation
LTX-315, Verrica and LTX-401
We value LTX-315 in the main indication of neoadjvuant melanoma. We include a licensing agreement worth USD600m (USD20m upfront and 13.5% in royalties) in 2026. For LTX-401, we include a licensing agreement worth USD300m (USD9m upfront and 12% in royalties). We value the deal with Verrica separately. Using a WACC of 15.5% our base case is NOK13, with a bear-bull range of NOK6-20.
Disclosures and disclaimers
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Investment Thesis
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