DNB Markets – Good momentum in Q2

Isofol Medical reported a Q2 operating loss that was slightly better than we expected. The company is fairly well financed after a successful cSEK180m capital raise during Q2. Despite pandemic-related difficulties, Isofol Medical achieved two significant milestones after the quarter. Firstly, 330 patients were recruited in the pivotal phase III study, enabling the interim analysis, with results expected in Q1 2021. Secondly, it announced a licencing deal for the development and commercialisation of arfolitixorin in Japan that entitles it to cUSD100m in upfront and sales-related payments. The structure of the deal has yet to be disclosed, making it the only possible negative wrinkle. We reiterate our fair value of SEK10–23.

Q2 operating loss of cSEK47m slightly bests our estimate of cSEK-52m. The main deviation was lower than expected R&D costs, probably linked to lower activity at clinics relating to the pandemic. We believe R&D costs will increase as the phase III study progresses, which is the type of cost we want to see for a company like Isofol Medical. The end-Q2 cash position was cSEK186m.

330 patients recruited – enabling interim analysis after 16 weeks of treatment. A DSMB will evaluate the data and we believe the results could be communicated in Q1 2021, with the most likely scenario being a recommendation to expand the study to 660 patients (from 440) to reach statistical significance. The company has communicated that the ambition is to have 440 patients recruited around the same time as the interim results, which to us sounds like development efforts will be intensified. This paired with the likely addition of 220 patients would increase the cash burn, implying a need to raise additional capital – likely in connection with the interim readout in our view.

Important commercial milestone achieved with cUSD100m licencing deal. As we stated earlier, we find it encouraging that management has delivered on the goal of finding a partner despite the difficulties relating to the pandemic. The company remains reluctant to share any further details of the deal, citing other ongoing discussions. From the market’s perspective, this lack of information might be viewed as negative.

We reiterate our fair value of SEK10–23. We have raised our cost assumptions as we believe development efforts will intensify. We have already included the licencing deal in our estimates but highlight we have low visibility of the deal.

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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

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