NeuroVive Pharmaceutical — R&D progress on track; new investor on board

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Research: Healthcare

NeuroVive Pharmaceutical — R&D progress on track; new investor on board

NeuroVive’s recent Q217 report described R&D activities progressing according to plan. The company is preparing for the next clinical studies with the two most advanced assets – NeuroSTAT for traumatic brain injury and KL1333 for genetic mitochondrial disorders. With regard to the portfolio for out-licensing, NeuroVive indicated that discussions with potential partners for NV556 (NASH and liver tumours) will be initiated in the autumn, although partnering is usually a rather lengthy process. We value NeuroVive at SEK1.4bn (SEK27.0/share) vs SEK1.5bn previously.

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Written by

Healthcare

NeuroVive Pharmaceutical

R&D progress on track; new investor on board

Q217 results

Pharma & biotech

25 August 2017

Price

SEK4.03

Market cap

SEK204m

SEK8.09/US$

Net cash (SEKm) at end Q217 + first tranche of SEK4.5m of funding (second tranche expected to add 1.1m shares with SEK4.5m gross by end 2017).

55.5

Shares in issue

50.6m

Free float

80%

Code

NVP

Primary exchange

Nasdaq Stockholm

Secondary exchange

OTCQX

Share price performance

%

1m

3m

12m

Abs

(18.6)

(5.2)

(26.7)

Rel (local)

(16.8)

0.8

(32.7)

52-week high/low

SEK7.0

SEK3.0

Business description

NeuroVive Pharmaceutical is a Swedish biopharmaceutical company with deep expertise in mitochondrial medicine. It has a diversified portfolio in terms of indications and employs a dual strategy: it develops a core portfolio of assets for orphan diseases and seeks to out-license proprietary products for non-orphan indications. NeuroSTAT (neurotrauma, Phase IIb ready) and KL1333 (genetic mitochondrial diseases) are the most advanced assets.

Next events

R&D day

19 September 2017

NeuroVive initiation of KL1333 Phase I

H118

NeuroVive initiation of NeuroSTAT
Phase IIb

2018

Analyst

Jonas Peciulis

+44 (0)20 3077 5728

NeuroVive Pharmaceutical is a research client of Edison Investment Research Limited

NeuroVive’s recent Q217 report described R&D activities progressing according to plan. The company is preparing for the next clinical studies with the two most advanced assets – NeuroSTAT for traumatic brain injury and KL1333 for genetic mitochondrial disorders. With regard to the portfolio for out-licensing, NeuroVive indicated that discussions with potential partners for NV556 (NASH and liver tumours) will be initiated in the autumn, although partnering is usually a rather lengthy process. We value NeuroVive at SEK1.4bn (SEK27.0/share) vs SEK1.5bn previously.

Year end

Revenue (SEKm)

PBT*
(SEKm)

EPS*
(SEK)

DPS
(SEK)

P/E
(x)

Yield
(%)

12/15

2.5

(89.6)

(3.00)

0.0

N/A

N/A

12/16

0.0

(70.7)

(1.72)

0.0

N/A

N/A

12/17e

0.0

(80.0)

(1.72)

0.0

N/A

N/A

12/18e

0.0

(95.9)

(1.94)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

New institutional investor

On 18 July 2017, NeuroVive announced a private placement with Esousa Holdings, which is expected to raise SEK9m in total in two equal tranches, with the first tranche already completed. The first transaction involved the issue of c 1.1m units (2.2% of the total outstanding number of shares before the placement) at SEK4.17 (20% discount to the previous day’s closing price) consisting of one NeuroVive share and one warrant (exercisable over five years to acquire one share at a 20% discount). NeuroVive indicated that the second tranche should be completed by the end of 2017 on the same terms. We therefore add the total investment to our model. While the placement was small overall, more important, in our view, is that Esousa, a US-based institutional, life-sciences-focused investor, may be able to provide support to the company in the future.

R&D progress on track

Following the positive initial results announcement from the Phase II trial and an additional experimental study with NeuroSTAT (a novel ciclosporin A formulation), NeuroVive continues preparations to initiate a Phase IIb proof-of-concept trial. The second most advanced product, KL1333 (NAD+ modulator), was in-licensed in May 2017 from Yungjin Pharm, which is currently running a Phase I trial, while NeuroVive will initiate its own Phase I study. We provided a detailed assessment of NeuroVive’s R&D portfolio in our recent initiation report.

Valuation: rNPV SEK1.4bn or SEK27.0/share

We value NeuroVive at SEK1.4bn or SEK27.0/share versus SEK1.5bn or SEK30.0/share previously, mainly due to a lower cash position and SEK depreciation versus the US$, while our valuation in dollar terms is slightly up at US$172.1m (US$169.5m previously). NeuroVive’s initiation of the proof-of-concept Phase IIb trial with NeuroSTAT in TBI and initiation of its own Phase I study with KL1333 (Yungjin is already recruiting to its own Phase I) are the near-term R&D-related events. Meanwhile, potential out-licensing of NV556 could be a substantial trigger for the share price.

Financials

NeuroVive’s Q217 results were largely in line with our expectations. The company has changed its assessment of the timing for the capitalisation of development costs and will expend all R&D costs until the related product gains market approval. We have adjusted our model accordingly and our estimated total operating expenses booked in the P&L in 2017 and 2018 are now higher at SEK80.3m and SEK95.9m versus SEK62.3m and SEK51.4m previously. That includes our R&D cost estimates of SEK31.1m in 2017 and SEK56.5m in 2018. We have not made any changes to our underlying assumptions and therefore there are no substantial revisions to our estimated cash reach besides the fact that the fund-raise announced in July 2017 should bring in SEK9m gross (we include SEK8.6m net). NeuroVive had cash and cash equivalents of SEK47.0m at the end of Q217 and was debt free. We expect a cash positon of SEK18.6m by end-2017. NeuroVive does not provide guidance but, according to our model and based on current R&D plans, the cash reach is into Q118. We estimate that the company’s need for additional funds in 2018 is around SEK77m, which we include as illustrative long-term debt in our financial forecasts. Notably, we do not take into account revenues from any potential licensing-related income in our financial forecasts.

Valuation

Our updated valuation of NeuroVive is SEK1.4bn or SEK27.0/share compared to SEK1.5bn or SEK30.0/share previously. A lower cash position and the rather sharp depreciation of SEK vs the US$ were the main reasons for the slight decrease in our valuation, which was partially mitigated by rolling our model forward. Our valuation in US$ terms is slightly higher at $172.1m vs $169.5m previously (on a per-share basis it is slightly lower at $3.3/share vs $3.4/share, reflecting the share issue). We maintain all our R&D assumptions, as described in our initiation report. As previously, in our valuation we include the clinical-stage NeuroSTAT (traumatic brain injury) and KL1333 (genetic mitochondrial disorders) and the advanced preclinical products. We exclude NVP025 (mitochondrial myopathy) and NVP022 (NASH) for the time being as both are at an early stage.

Exhibit 1: NeuroVive sum-of-the parts valuation

Product

Launch

Peak sales*
($m)

NPV
($m)

NPV/share
($)

Probability

rNPV
($m)

rNPV/share
($)

NeuroSTAT

2024

454

293.3

5.7

15%

35.0

0.7

KL1333

2023

574

566.2

11.0

10%

51.6

1.0

NVP015

2023

875

931.4

18.0

5%

39.4

0.8

NV556

2026

1,716

172.9

3.3

8%

33.8

0.7

NVP024

2029

702

29.3

0.6

3%

5.5

0.1

Net cash

6.9

0.1

100%

6.9

0.1

Valuation

 

 

1,999.9

38.7

 

172.1

3.3

SEKm

SEK

SEKm

SEK

NeuroSTAT

2,372.9

45.9

15%

283.3

5.5

KL1333

4,579.6

88.7

10%

417.1

8.1

NVP015

7,534.0

145.9

5%

318.7

6.2

NV556

1,398.2

27.1

8%

273.5

5.3

NVP024

237.1

4.6

3%

44.3

0.9

Net cash

55.5

1.1

100%

55.5

1.1

Valuation

16,177.4

313.2

 

1,392.5

27.0

Source: Edison Investment Research. Note: WACC = 12.5% for product valuations. Peak sales reached six years after launch. SEK8.09/US$ vs SEK8.72/US$ previously.

Exhibit 2: Financial summary

SEK'000s

2014

2015

2016

2017e

2018e

December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

7,152

2,502

14

0

0

Cost of Sales

0

0

0

0

0

Gross Profit

7,152

2,502

14

0

0

Research and development

(13,738)

(12,200)

(12,000)

(31,061)

(56,490)

EBITDA

 

 

(44,372)

(89,066)

(69,868)

(80,196)

(95,758)

Operating Profit (before amort. and except.)

(44,813)

(90,266)

(44,813)

(90,266)

(70,989)

Intangible Amortisation

0

0

0

0

0

Exceptionals

(441)

(1,200)

(1,121)

0

0

Other

(1)

0

0

0

0

Operating Profit

(45,255)

(91,466)

(72,110)

(80,337)

(95,916)

Net Interest

580

665

265

314

0

Profit Before Tax (norm)

 

 

(44,233)

(89,601)

(70,724)

(80,023)

(95,916)

Profit Before Tax (reported)

 

 

(44,675)

(90,801)

(71,845)

(80,023)

(95,916)

Tax

0

0

0

0

0

Profit After Tax (norm)

(44,234)

(89,601)

(70,724)

(80,023)

(95,916)

Profit After Tax (reported)

(44,675)

(90,801)

(71,845)

(80,023)

(95,916)

Average Number of Shares Outstanding (m)

27.3

27.3

30.1

42.0

50.5

EPS - normalised (SEK)

 

 

(1.70)

(3.00)

(1.72)

(1.72)

(1.94)

EPS - normalised and fully diluted (SEK)

 

(1.70)

(1.70)

(3.00)

(1.72)

(1.72)

EPS - (reported) (SEK)

 

 

(1.72)

(3.04)

(1.75)

(1.72)

(1.94)

Dividend per share (SEK)

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

100.0

100.0

100.0

N/A

N/A

EBITDA Margin (%)

N/A

N/A

N/A

N/A

N/A

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

79,945

75,369

84,645

86,774

86,807

Intangible Assets

79,601

74,904

71,151

73,233

73,233

Tangible Assets

344

316

274

321

354

Investments

0

149

13,220

13,220

13,220

Current Assets

 

 

51,323

99,558

94,901

19,570

1,000

Stocks

0

0

0

0

0

Debtors

502

528

0

0

0

Cash

49,698

96,662

93,251

18,570

0

Other

1,123

2,368

1,650

1,000

1,000

Current Liabilities

 

 

(23,427)

(20,148)

(12,413)

(10,170)

(10,170)

Creditors

(23,427)

(20,148)

(12,413)

(10,170)

(10,170)

Short term borrowings

0

0

0

0

0

Long Term Liabilities

 

 

0

0

0

0

(77,379)

Long term borrowings

0

0

0

0

(77,379)

Other long term liabilities

0

0

0

0

0

Net Assets

 

 

107,841

154,779

167,133

96,174

258

CASH FLOW

Operating Cash Flow

 

 

(44,171)

(67,885)

(57,614)

(70,303)

(95,758)

Net Interest

539

665

237

314

0

Tax

0

0

0

0

0

Capex

(178)

(245)

(139)

(187)

(190)

Acquisitions/disposals*

0

0

0

(11,035)

0

Financing

76,599

138,406

77,332

8,559

0

Other

10,421

(23,977)

(23,227)

(2,028)

0

Dividends

0

0

0

0

0

Net Cash Flow

43,210

46,964

(3,411)

(74,681)

(95,948)

Opening net debt/(cash)

 

 

(6,488)

(49,698)

(96,662)

(93,251)

(18,570)

HP finance leases initiated

0

0

0

0

0

Other

0

0

0

0

0

Closing net debt/(cash)

 

 

(49,698)

(96,662)

(93,251)

(18,570)

77,379

Source: Edison Investment Research, NeuroVive Pharmaceutical accounts. Note: *Related to the disposal of a subsidiary in 2017, the net effect of which was neutral on cash flows.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by NeuroVive Pharmaceutical and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers’ exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by NeuroVive Pharmaceutical and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers’ exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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