SynAct Q4 2024: Successful Rights Issue Funds 2025
Research Update
2025-02-19
07:05
Analyst Q&A
Closed
Richard Ramanius answered 2 questions.
Redeye comments on Synact's Q4 report. Synact raised in total SEK65m from a combined rights and directed share issue in December-January. This will fund 2025 and the recruitment of 240 patients in the phase IIb study Advance.
Richard Ramanius
Contents
Investment Thesis
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SynAct initiated the phase IIb study ADVANCE of resomelagon in first-line rheumatoid arthritis in Q4 2024. The first patient has been recruited in the US. In Europe, the study has been approved in Moldova and the centralised EU application is under review with an expected approval and sites initiation by Q1 2025. SynAct is on schedule to recruit all patients by Q4 2025 with a first readout shortly thereafter. This is a short time in drug development and will be a major trigger for the share. We think positive results from the full readout in 2026 can lead to a licensing deal. Immunology is currently one of the hottest areas in pharma, as investors and larger pharmaceutical companies are turning away from oncology and rare diseases after years of over-investment. Immunology is attractive because patients are chronic, which means long and secure revenue streams. Furthermore, the loss of exclusivity of several major brands provides an avenue for new drugs. SynAct, with a full phase IIb study in RA, is perfectly positioned.
Resomelagon is tested in idiopathic membranous nephropathy (iMN). Twelve patients are currently in the study, but due to difficulties in recruitment, SynAct is considering closing the study unless the rate increases. Preclinical studies in arboviral infections have shown resomelagon's potential to moderate viral infections. A potential clinical study under the RESOVIR collaboration (which tested resomelagon in COVID-19) is being evaluated. Lastly, the peptide-agonist TXP-11 is undergoing pharmacological studies to be ready for phase I in 2026. We have not included it in our valuation as this study is not funded.
We have revised our licensing assumptions due to the increasing interest in immunology among pharma (discussed below). From a new benchmark table, we estimate a phase II deal can be worth USD60m upfront and USD700m in total deal value. Applying this assumption results in a base case of SEK20.
| Key Financials | |||||
|---|---|---|---|---|---|
| SEKm | 2023 | 2024 | 2025e | 2026e | 2027e |
| Total Revenue | 0.0 | 0.0 | 0.0 | 258.1 | 29.7 |
| Revenue Growth | nm. | nm. | nm. | nm. | -88.5% |
| EBITDA | -224.5 | -90.0 | -72.7 | 205.6 | 9.7 |
| EBIT | -224.5 | -90.0 | -72.7 | 205.6 | 9.7 |
| EBIT Margin | nm. | nm. | nm. | 79.7% | 32.7% |
| Net Income | -215.8 | -82.4 | -72.7 | 205.6 | 9.7 |
| EV/EBIT | -10.7 | -30.3 | -47.6 | 16.5 | 336 |
Case
Proof-of-concept study leads to a partner deal
Synact has initiated a new phase IIb study in RA (n=240) based on two unsuccessful phase II RA studies late in 2023, which nevertheless provided valuable information. The ongoing study uses this information to include only newly diagnosed patients with high disease activity, including signs of active inflammation (hsCRP ≥ 3mg/L), as they are most likely to respond. Convincing results can lead to a licensing deal. With a pro-forma cash position of cSEK80m, the company is likely funded until full enrolment in Q4 2025. Key results are expected shortly thereafter, and topline data in H1 2026. These readouts have the potential to be strong share price catalysts, with an upside reflected in our bull case of SEK47.
In the longer term, resomelagon holds vast potential as a pipeline-in-a-pill that resolves inflammation. We see equal potential in other inflammatory diseases and in viral infections. Success in RA would lead to such trials, for example in psoriasis arthritis. Given an out-licensing after phase IIb, SynAct would be able to concentrate on developing TXP-11 inhouse as organ protection in patients undergoing major surgery and other conditions. SynAct could thus develop into a speciality pharma company based on melanocortin biology in inflammation.
Evidence
Strong results in newly diagnosed patients with high-disease activity
The investment case hinges on SynAct replicating its positive results from a subgroup in EXPAND (2023) and from BEGIN (2021) in the ongoing phase IIb study. We estimate a probability of success of 40% in phase IIb, which is higher than the historical average of 34%.
Supportive Analysis
In the phase II EXPAND study, newly diagnosed patients with CRP>3mg/L had a significantly better ACR20 response than the placebo group after 12 weeks (82 vs 52). The same group had a statistically significant reduction in DAS28, the other major RA score. In the phase II BEGIN study which treated patients for four weeks, the ACR20 score was 60 for resomelagon compared with 33 for placebo. This trial was conducted in Scandinavia, where patients are treated earlier – a more ideal setting for resomelagon to show efficacy.
Challenge
Delivering a timely deal
A timely recruitment in the ongoing study is of essence to reach the goal of full enrolment in Q4 2025. We expect a positive share price reaction upon a positive phase IIb readout, but SynAct will have to follow this up by delivering a deal to maximise the long-term value of resomelagon. We have estimated a deal value of USD700m of which USD60m upfront.
Changing the 1st line treatment paradigm
Methotrexate and corticosteroids are well-established in the first-line treatment of RA. A challenge would be to convince payers and prescribers to substitute resomelagon for corticosteroids, which are inexpensive. Payers must be convinced to reimburse resomelagon with the price tag of a modern drug and prescribers to change practice. A partner will also have to be convinced of the possibility of this, which could mean they require cost-benefit analyses. On the other hand, the ACR and EULAR guidelines recommending limits on corticosteroid use would support resolution therapy as a substitute.
Valuation
Base case of SEK20
Using a risk-adjusted DCF model based on a summary of the parts, including resomelagon in RA and viral infections, and applying a WACC of 14%, our base case fair value amounts to SEK20 per share. Furthermore, our bull and bear cases are SEK3 and SEK47 per share, respectively. Our bull case represents positive phase II readouts in RA followed by a licensing deal in 2026, while our bear case represents failure in RA and viral infections. We foresee a major inflexion point with resomelagon’s phase IIb readout at year-end 2025/early 2026.
Disclosures and disclaimers
Contents
Investment Thesis
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