Multiple catalysts expected throughout 2025

We expect the Phase IIb results for pirepemat (to improve balance and reduce falls in Parkinson’s disease (PD-Falls)) to be a near-term inflection point. The last patient completed treatment in January 2025 and the readout is due in Q125. With PD-Falls an important (affecting c 45% of PD patients), albeit relatively under-explored area in the central nervous system (CNS) space, management expects the data will be valuable in determining the next stages of development. IRL757, being developed for apathy, is approaching Phase I completion (expected in Q125) following encouraging interim safety data. With the development pathway derisked to proof of concept with the backing of the MSRD, we expect swift progress through the clinic if the data are supportive.

Search for a mesdopetam partner remains a priority

Preparing mesdopetam for Phase III is a priority in 2025, as is securing a partner; we expect an update in the coming months. In October 2024, IRLAB reported support from regulators in Germany and Portugal for the planned Phase III design, which should complement upcoming discussions with the EMA. We believe the recent waiver from the EMA for paediatric studies (analogous to the decision given by the FDA) should support talks with potential partners given the resource savings.

Valuation: SEK5.0bn or SEK97.1 per share

Following the FY24 results, we make slight adjustments to our near-term estimates, keeping longer-term assumptions unchanged, pending upcoming results for pirepemat and a partnering agreement for mesdopetam. Our valuation adjusts to SEK5.0bn or SEK97.1 per share (from SEK4.8bn or SEK92.0 per share), reflecting the benefits from the model roll-forward, which offset the lower net cash position. We estimate IRLAB is funded into Q225 based on current cash on hand, meaning new financing will be required in the near term.

Pipeline positioned to address all stages of Parkinson’s disease

IRLAB’s R&D pipeline, powered by its Integrative Screening Process (ISP) discovery platform, has been built with the aim of addressing all major aspects of PD (Exhibit 1). The condition is complex and progressive, characterised by a triad of cardinal motor symptoms (rigidity, bradykinesia and tremor), but non-motor symptoms (including psychosis, dementia and cognitive impairment) can be equally debilitating and remain under-addressed. PD is estimated to effect around one million people in the US alone and over 10 million people across the globe, with the global figure projected to double by 2040. The mainstay treatment option at present is levodopa (a dopamine replacement agent), but while effective for many patients, it is associated with a multitude of side effects and longer-term use can cause dyskinesia, which is characterised by hyperkinetic movements (including chorea, dystonia and athetosis). It is our opinion that there is a sizeable opportunity for IRLAB to develop new and effective treatments that aim to provide more favourable patient outcomes, covering all stages of the condition.

Mesdopetam for PD-LIDs

Mesdopetam is a D3 antagonist designed to address levodopa-induced dyskinesias in Parkinson’s disease (PD-LIDs), which is estimated to afflict up to 40% of PD patients after four to six years of treatment with levodopa. Following a successful end-of-Phase II meeting with the FDA in March 2024, it is a Phase III-ready candidate. It is a strategic priority for management, with preparatory activities for Phase III unfolding throughout 2024 and into 2025. Notably, in October 2024, IRLAB announced several advancements in the programme. This included positive feedback regarding IRLAB’s plans for Phase III from BfArM, the German regulatory authority, and Infarmed, the Portuguese regulator, on:

• the patient population,
• trial endpoints,
• the protocol following regulatory guidelines of at least a three-month treatment period,
• inclusion and exclusion criteria,
• dose to be assessed (7.5mg bid, which was previously assessed in Phase IIb),
• the number of participants, and
• details on safety evaluation and documentation requirements.

The October update also highlighted new payor market research based on interviews with healthcare professionals across the US and Europe. The research confirmed that there is a strong willingness from insurers to pay a premium for a novel and effective drug with anti-dyskinetic properties. IRLAB reported that the research indicated a potentially sizeable commercial opportunity for mesdopetam in these key regions, should it be approved. The research also demonstrated that management’s plans for the design of the Phase III programme aligned with the desires of the healthcare funders. The third update from October referred to a meta analysis that was presented at the International Congress of PD and Movement Disorders, which highlighted the potential of mesdopetam to be efficacious in dyskinesias, while avoiding risks of motor function impairment ultimately showcasing the candidate’s propensity to provide a clinically meaningful benefit.

We believe that, if mesdopetam is successful with regulatory approval, it has the potential to offer a point of difference compared to Adamas Pharmaceuticals’s Gocovri, the only FDA-approved drug for PD-LIDs. We highlight that while Gocovri can be effective for PD patients, it is also associated with various unpleasant side effects (such as psychosis and hallucinations), which limit the overall patient benefit. While IRLAB is focused primarily on developing mesdopetam for PD-LIDs, the drug is also backed by data showing potential to address PD-Psychosis. Therefore, this may represent an opportunity for label expansion. However, we note that the strategy at this stage will likely be determined by the selected partner for the drug candidate.

While the search for a mesdopetam partner has been ongoing, we believe partnering activity in the space is likely to increase in 2025, as discussed in our recent thematic piece on healthcare-focused trusts. Notably, big pharma is showing a keen interest in the CNS space: GSK signed a US$570m biobuck deal in late-2024 with Vesalius for a PD programme, and more recently during the JPM Healthcare Conference in January 2025, J&J reported its acquisition of CNS biotech Intra-Cellular for US$14.6bn.

Pirepemat for PD-Falls

Pirepemat is a prefrontal cortex enhancer being developed for PD-Falls, which is believed to affect c 45% of PD patients. It is currently involved in the REACT PD trial, which is a randomised, double-blind, placebo-controlled Phase IIb study, investigating the candidate at 300mg/day or 600mg/day. In September 2024, IRLAB announced that patient enrolment had been completed. As part of this announcement, management communicated that, based on over 100 patients at the time, the blinded data had thus far shown that fall frequency had reduced by approximately one-third from baseline. Since management has guided that a 25% reduction in falls compared to placebo would represent a favourable result based on the available literature, this was an encouraging sign of pirepemat’s potential, in our view. However, while this is positive for the patients involved in REACT PD, since the study is blinded, it was not conclusive to what extent this observation was attributable to pirepemat. We believe investors will be paying close attention to the detailed results now that the study is nearing completion. In January 2025, IRLAB reported that all patients involved in the trial had completed their final follow-up, and confirmed that the top-line results are due to be published within Q125, which could be an important near-term catalyst for IRLAB, in our view.

IRL757 for apathy in PD and Alzheimer’s disease

IRL757 is in clinical development as a potential treatment for apathy, a condition characterised by indifference, resignation and lack of responsiveness. Importantly, IRLAB is targeting apathy in both PD and Alzheimer’s disease (AD) populations, expanding the company’s reach to multiple neurodegenerative conditions. This is a strategic decision intended to maximise the commercial potential of the candidate, while aiming to address a common co-condition that affects the quality of life of patients with PD and AD. Precise prevalence estimates can vary, primarily due to challenges in diagnosis due to an overlap with symptoms of depression, but it is estimated to afflict 20–70% of PD patients and 20–90% of AD patients. Since there are, at present, no approved drugs specifically designed to treat apathy, it is our opinion that there could be a sizeable opportunity in this space.

The drug candidate is in Phase I, and involved in two separate studies. The first study is focused on healthy younger volunteers, and is financed by the Michael J Fox Foundation (MJFF) through a US$2m (c SEK22m) grant. In October 2024, IRLAB announced an encouraging update, stating that the single ascending dose (SAD) portion of the study had successfully been completed, with the data showing desirable absorption and exposure in the body, as well as a favourable safety and tolerability profile. The subsequent stage is the multiple ascending dose (MAD) portion of the trial. This is ongoing, and management recently communicated that results are on track to be reported within Q125.

The second Phase I study is focused on healthy individuals aged 65 and older, and is funded under a separate collaboration with the McQuade Center for Strategic Research and Development (MSRD), with the organisation providing financial support for the programme through to proof-of-concept. The dosing of the first patient prompted a US$2.5m milestone payment from MSRD in October 2024. Similarly to the MJFF-sponsored study, this trial aims to evaluate the pharmacokinetics, safety and tolerability of IRL757. Encouragingly, in January 2025, IRLAB reported that the MSRD-sponsored Phase I study had been completed, with positive top-line results. This outcome was favourable, and supportive of further clinical development efforts, in our view, especially given the early-stage validation from two separate external groups. We expect IRLAB to promptly advance IRL757 through the clinic following Phase I completion.

Preclinical candidates

IRL942 and IRL1117 originated from the ISP platform and are being developed for cognitive impairment and as a once-daily PD treatment, respectively. For IRL942, the current focus is on preclinical studies and ongoing manufacturing efforts. For IRL1117, early data have shown rapid onset and more than 24 hours of sustained effect, highlighting its potential to serve as a levodopa adjuvant or to be used as a monotherapy; preclinical research is ongoing. While IRLAB’s clinical pipeline is highly active, the progression of these preclinical assets still forms an important component of the company’s operations, reflecting its commitment to develop effective treatments to comprehensively address the complexities of PD and other neurological conditions. According to the FY24 results update, management plans to advance IRL942 and IRL1117 to Phase I-ready status in 2025, consistent with prior guided timelines for these two programmes.

Financials: Broadly in line with expectations

IRLAB exited FY24 with a gross cash position of SEK66.9m (net cash of SEK6.5m accounting for SEK60.4m in debt and leases outstanding). We note that the cash balance includes c SEK17m in pre-paid expenses from the MJFF and the MSRD earmarked for IRL757. Based on our estimated burn rates, we expect the gross cash on hand to support operations into Q225, past top-line results from the Phase IIb React PD study for pirepemat. We expect the company will need to raise further funds by end-Q125/early Q225 to service the SEK55m debt maturing in May 2025 (or renegotiate the terms and timelines with Fenja Capital) as well as to support operating activities.

IRLAB reported FY24 net revenues of SEK94.6m, which were fully attributable to the upfront and milestone payments from the MSRD, as well as invoiced costs related to pre-Phase I and Phase I development work for IRL757. We note that the company has invoiced a total of US$5.1m (c SEK55m) in development costs to the MSRD to be recognised as income over Q224–Q125, in line with the costs related to IRL757 development. Taking into account the total milestone payments in FY24 (US$5.5m (c SEK58m), including an upfront payment of US$3.0m in May 2024 and a milestone payment of US$2.5m in October 2024), we estimate the invoiced costs recognised during the year to be c SEK36m. Given the completion of the Phase I part of the study funded by the MSRD, we expect the remaining SEK19m to be accounted as revenue/costs in Q125. IRLAB also recorded SEK19.5m as other operating income, which comprises a major part of the grant received from the MJFF for the Phase I development of IRL757 in healthy younger volunteers (US$2.0m/c SEK21.3m) recognised as revenue. Of the total MJFF grant, IRLAB has received payments totalling SEK14.1m to date, including SEK3.7m in Q424.

Operating expenses for the year were SEK189.2m, 1.5% y-o-y growth over FY23 (SEK186.5m); of this 86.5% (SEK163.7m vs SEK151.3m in FY23) was attributed to R&D expenses. This increase was primarily due to R&D costs related to the IRL757 programme (for which the company has received external funding). Management has indicated that internal opex (which includes clinical development costs for pirepemat, personnel expenses and other overheads) has remained broadly stable at c SEK30.0m per quarter following active cost controls by the company. With top-line readouts for pirepemat due in Q125, we expect internal opex to fall further in FY25, pending the initiation of any other clinical programmes. Personnel expenses for FY24 were SEK46.2m (SEK53.1m in FY23), and given the stable headcount, we expect these to remain in this range in FY25. The overall operating loss for FY24 was reported at SEK75.1m, down from SEK151.3m in FY23. Interest expenses during the period were SEK10.5m and related to the SEK55m loan from Fenja Capital (formerly Formue Nord). The debt matures in May 2025, and we therefore expect a year-on-year decline in interest costs in FY25. Reflecting the operating performance and an improved working capital position (due to pre-paid expenses from the MSRD on the books), cash outflow from operating activities improved materially to SEK65.6m in FY24, from SEK164.9m in the previous year.

Changes to estimates

Following the release of the FY24 results, we adjust our FY25 projections and introduce FY26 estimates. For FY25, we now estimate net revenues of SEK19m (previously SEK27m), reflecting the pending pre-paid expenses from the MSRD, from the initial SEK55m invoiced. Note that we currently do not include any further payments from the MSRD related to subsequent development activities, such as the initiation of the Phase II study for IRL757, which could potentially take place in H225. For our model, however, we conservatively assume that the Phase II study will commence in early 2026. We will reassess our estimates as we gain more clarity on timelines. We also include c SEK2.0m as other operating income related to the pending payment from the MJFF (previously SEK5.5m). For FY26, we project total revenues of SEK32.6m, which corresponds to the remaining SEK3.0m milestone payment from the MSRD, which we believe may be triggered by the initiation of the Phase II trial.

We also adjust our operating expenses estimates to reflect the FY24 performance and updated information on the company’s development plans. With the pirepemat and IRL757 trials nearing completion, we reduce our estimates for external costs, but raise our personnel expense expectations. Overall, our FY25 estimate for total operating expenses adjusts to SEK162.3m (SEK198.4m previously). We now estimate an operating loss of SEK141.3m in FY25, versus SEK165.9m previously. For FY26, we forecast an operating loss of SEK135.7m. Note that our estimates do not currently account for potential upfront payments from partnering deals related to either mesdopetam or pirepemat.

Valuation

We continue to value IRLAB using a risk-adjusted net present value (rNPV) approach for its three clinical-stage programmes: mesdopetam, pirepemat and IRL757. We keep our underlying market estimates and launch timelines unchanged from our last update (refer to our previous update note for details) but will revisit the assumptions as we get further clarity on potential partnering news for mesdopetam, as well as the top-line results for pirepemat, which we believe are two biggest upcoming catalysts for the company.

Our overall valuation for IRLAB adjusts slightly to SEK5.0bn or SEK97.1 per share (from SEK4.8bn or SEK92.0 per share), reflecting the benefits from the model roll-forward, which more than offset the lower net cash position. Exhibit 3 presents a breakdown of our rNPV valuation for IRLAB.

Our model assumes that IRLAB will be able to secure a partnership for the next phase of development for mesdopetam before initiation of the Phase III trial in 2025. Note that instead of assuming the standard upfront milestone and royalty payment from a licensing deal, our model assumes a higher blended royalty rate of 20%. If such a deal does not materialise and further development is funded internally, we estimate that IRLAB would need to raise SEK475m before becoming self-sufficient in 2028, following the expected commercial launch. We account for this capital requirement as illustrative debt in our model, assuming a SEK150m fund raise in FY25 (likely in Q225, prior to the May 2025 maturity of the SEK55m debt outstanding), SEK150m in FY26 and SEK175m in FY27. Alternatively, if these funds were to be raised through an equity issue, IRLAB would have to issue 34.9m shares, which, assuming the current trading price of SEK13.6, would result in our per-share valuation decreasing to SEK63.5 from SEK97.1 (the number of shares outstanding would increase from 51.9m to 86.8m).