DNB Markets – Isofol Medical: Full steam ahead
Isofol Medical had a pivotal Q3 in terms of clinical and commercial milestones. We expect results from the interim readout in Q1 2021e and the DSMB to recommend an expansion of the study to demonstrate statistical significance on PFS. On the back of two successful licensing deals, securing a path to the market should now be able to continue unhindered. We have raised our fair value to SEK14–28 (SEK10–23).
Q3 operating loss of cSEK32m. Operating costs were cSEK50m, versus our estimated cSEK54m. The main deviation was the upfront payment from the Japan deal, which was c2% of the total deal value compared to our assumption of c6%. The end-Q3 cash position was cSEK154m.
Inflection point in Q1 2020e. During Q3, 330 patients were included in the pivotal phase 3 study, enabling the start of the interim analysis. We expect the DSMB to announce its recommendation early in Q1 2021e. Of the three possible outcomes (close study due to futility, superiority (enough with 440 patients), or trending in statistical significance in PFS (expand study with 220 patents)), we believe the latter is the most likely outcome. The DSMB will only provide a recommendation on which pathway to take, and no other clinical information will be announced. If the study is expanded, we see a need for Isofol Medical to raise additional capital in H1 2021e.
Report cast some light on Japan deal structure, but visibility still low. Isofol Medical received an initial payment from Solasia in the form of an upfront payment (cSEK16m) and reimbursement relating to the study in Japan (cSEK2m). Going forward we expect additional reimbursements linked to the clinical development. We had hoped for some more flavour on the deal structure, but understand this is out of Isofol Medical’s hands. We have updated our assumptions on milestones.
Canada now included in our forecasts. Our out-licensing scenario now assumes cUSD500m of milestones and sales-related payments for the US, EU5, Japan and Canada, with an average royalty rate of 20%. We assume an upfront payment of cSEK4m (c2% of total deal value, similar to Japan) in Q4 2020e. We highlight that the timing of milestones is uncertain and note our royalty rate could be somewhat on the low side. However, due to the low visibility we feel a cautious stance is warranted. The ‘do-it-alone’ scenario assumes Isofol Medical will launch in the US and EU5 on its own, and includes the licensing deals for Japan and Canada.
Fair value raised to SEK14–28 (SEK10–23). We have updated our assumptions for the Japan deal and included the Canada deal in our forecasts; as a result, we have raised our fair value.
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Best regards
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David Martinsson | Markets | Equity Research | Healthcare
DNB Bank ASA, Filial Sverige
Visiting address: Regeringsgatan 59 | Stockholm | Sweden
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Patrik Ling | DNB Markets | Equity Research | Senior Analyst Healthcare
DNB Bank ASA
Regeringsgatan 59 | Stockholm | Sweden