DNB Markets – Isofol Medical: Still on track to deliver in Q4
Q1’s operating loss was larger than expected, mainly due to higher R&D spending. The impact from Covid-19 appears limited and management cautiously reiterated timelines. The company plans to strengthen its financial situation through a rights issue that would extend the runway to mid-2021. We believe the gene expression method adds value for Isofol Medical. We have cut our estimated fair value to SEK8–22 (SEK14–42) as a result of the planned increase in share count.
Q1 operating loss was cSEK58m, above our estimate of cSEK41m. Increased R&D spending was the main reason for the deviation. We see no drama in this, especially as the money was spent driving clinical development forward. The end-Q1 cash position was cSEK72m, for a quarterly burn rate of cSEK57m.
Seemingly limited impact from Covid-19 on operations. Recruitment in the pivotal phase III study continued undiminished, with 264+ recruited at end-Q1 (220 at end-Q4). However, a slowdown in recruitment related to Covid-19 was noted in April. On the positive side, the company also notes that previously closed sites have started recruitment in May. Timelines were reiterated, albeit with reservations due to the poor visibility, and the company still aims to have results from the interim readout in Q4. Efforts to find a Japanese partner continue, and given the well-established contacts the company has garnered over the past year, we believe Isofol Medical could succeed in finding a partner before end-2020 despite the difficulties associated with Covid-19.
Securing clinical development through fully guaranteed rights issue. Isofol Medical will raise cSEK150m and possibly an additional cSEK30m in an over-allotment option. Net proceeds are set to be used primarily to fund the ongoing phase III study and enable interim analysis and enrolment of 440 patients as per protocol (both expected in H2). Raising cSEK150m would extend the runway from mid-2020e until mid-2021e (and possibly further with the additional SEK30m).
Scope for interesting opportunities. Data analysed with Isofol Medical's gene expression method supports that a larger proportion of patients may benefit from treatment with arfolitixorin. Today’s treatment, leucovorin needs to be metabolised within cells to transform into its active state. Low expression of certain genes has been linked to poor conversion into the active state, indicating patients do not fully benefit from the current treatment. Arfolitixorin is the active metabolite, and its effect is not dependent on the expression of these genes, opening up for potential uses in a broader population.
Given the plans for a right issue, we have cut our fair value to SEK8–22 (14–42). With the rights issue fully guaranteed, we have updated our SOTP for the planned increase in shares (excluding the over-allotment), lowering our fair value. We have also raised our operating cost estimates to better reflect the ongoing trends.
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David Martinsson | Markets | Equity Research | Healthcare
Patrik Ling | DNB Markets | Equity Research | Senior Analyst Healthcare
DNB Bank ASA, Filial Sverige
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