DNB Markets – Isofol Medical: Rights issue to secure clinical development

Isofol Medical plans to raise cSEK150m through a fully guaranteed rights issue, with an optional extra SEK30m. Net proceeds will primarily be used to fund the ongoing phase III study. So far the Covid-19 impact on clinical development appears limited. Gene expression data indicates benefits from arfolitixorin in a broader patient population. We reiterate our SEK14–42 fair value.

cSEK150m rights issue and potential SEK30m over-allotment option. A fully guaranteed preferential issue is intended, and an extraordinary general meeting is scheduled for around 5 May 2020 to decide on the issue. The over-allotment will be conditional upon the rights issue being oversubscribed. Net proceeds will primarily be used to fund the ongoing phase III study and enable interim analysis and enrolment of 440 patients as per protocol (both expected in H2 2020). Raising cSEK150m would extend the runway from mid-2020 until mid-2021 (and possibly further with the additional SEK30m). The ongoing phase III study has an adaptive design, which means, based on the interim analysis, there is an option to expand the study by an extra 220 patients to reach statistical significance. We consider it likely the company would expand the trial, which would require cSEK150m in additional capital, most likely raised on the back of the interim results expected around end-2020.

So far limited impact from Covid-19 on clinical development. The study is active at c80 sites in the US, Canada, Europe, Australia and Japan. It has included 260 patients (220 at the time of the Q4 2019 report), and at the current recruitment rate the company expects to reach 440 patients by Q4 2020. While patient recruitment so far seems somewhat unaffected by Covid-19, this situation may change and may also make it increasingly difficult to find a Japanese partner. The plan to open additional clinics is also likely to be pushed into the future.

Gene expression data indicates arfolitixorin benefit in broader population. Data analysed with the newly validated gene expression method showed that a larger proportion of patients have a low expression of certain folate genes. Patients with higher expression could have a PFS benefit compared to those with low expression, as the latter do not optimally benefit from the current treatment regimens. This strengthens the case for arfolitixorin, whose effect is not dependent on the expression of these genes.

We reiterate our fair value of SEK14–42. The rights issue is already included in our SOTP valuation. However, the impact on the fair value is difficult to estimate as this is dependent on subscription price and number of subsequent shares issued. Our estimated operating costs are also unchanged as we have poor visibility on the potential impact of Covid-19 on clinical development.

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Best regards 

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Patrik Ling | DNB Markets | Equity Research | Senior Analyst Healthcare

David Martinsson | Markets | Equity Research | Healthcare

DNB Bank ASA
Regeringsgatan 59 | Stockholm | Sweden

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