CS1: New data to support FDA talks for Phase IIb

Following from the successful top-line results from the Phase IIa study in September 2024, we are excited by the recently presented incremental data, demonstrating potential disease-modifying characteristics (detailed later). While not conclusive, we believe it will support Cereno’s conversation with the FDA in the upcoming Type C meeting on 21 April to help formalise the design for the planned Phase IIb study, expected to commence in H126. Long-term data from the EAP (10 patients recruited) and additional insights from the collaboration with Fluidda (to visualise the effect of CS1 on inducing long-term reverse remodelling) may provide further validation to the drug’s potential ahead of pivotal-stage studies.

CS014: Moving closer to Phase II in IPF

CS014, a proprietary new chemical entity and deuterated valproic acid, is targeting idiopathic pulmonary fibrosis (IPF) as part of Cereno’s renewed focus on rare diseases. Following favourable safety outcomes from the single ascending dose (SAD) portion of the Phase I study, we await completion and topline data from the multiple ascending dose (MAD) part in mid-2025. If supportive, this will be followed by the Phase II trial in IPF in H126.

Valuation: SEK4.0bn or SEK14.2 per share

With Cereno deciding to pursue a Phase IIb study we have updated our CS1 projections, now anticipating a partnership deal before Phase III in 2028 and launch in 2031 (vs 2026 and 2029 previously). We raise our estimated licensing deal value to US$2bn (from US$1.5bn), expecting greater leverage from the Phase IIb data, should it be supportive. For CS014, we raise the PoS to 10%, from 7.5%, to reflect positive results from the SAD part of the Phase I trial. Our valuation shifts slightly to SEK3.98bn or SEK14.2/share, from SEK4.0bn or SEK14.3/share previously.

Clinical pipeline with a strategic focus on rare indications

Cereno’s clinical pipeline aims to develop innovative, effective and safe treatments to address indications with high unmet need (Exhibit 1). At its capital markets day (CMD) in October 2024, the company announced a strategic pivot towards the rare disease space for all three of its assets. We believe this is a logical approach for Cereno, given the associated R&D benefits such as smaller clinical trials and lower-risk capital, as well as regulatory benefits such as potentially accelerated routes to market and increased market exclusivity periods.

Exhibit 1: Cereno’s clinical development pipeline

Source: Cereno FY24 report

Clinical-stage candidates CS1 and CS014 constitute Cereno’s histone deacetylase inhibitor (HDACi) portfolio, which aims to leverage the principles of epigenetic modulation to achieve disease modification and reverse pathological remodeling (Exhibits 2 and 3). CS1 is a delayed immediate release formulation of valproic acid (VPA), an HDACi that holds promise as a disease-modifying treatment option for pulmonary arterial hypertension (PAH). CS014 is a deuterated analogue of VPA, backed by data showcasing its anti-fibrotic properties, for which Cereno is targeting IPF as the lead indication. We discuss CS1 and CS014 in further detail below.

Exhibit 2: CS1 is designed to be a disease-modifying treatment option for PAH

Source: Cereno FY24 report

Exhibit 3: CS014 has the potential to address unmet needs in IPF

Source: Cereno FY24 report

The company’s third asset is CS585, an oral, selective and potent agonist of the prostacyclin (IP) receptor. It is currently being evaluated in the preclinical stages of development, and while a precise indication is yet to be determined, it has shown promise as a potential treatment for thrombosis prevention without increased risk of bleeding, as recognised in a publication in Blood. As discussed at Cereno’s CMD, it is likely that, once determined, the target indication for CS585 will be a rare disease, with antiphospholipid syndrome emerging as a potential focus. In November and December 2024, Cereno presented new preclinical data for the candidate. In brief, the data demonstrated that CS585 inhibits platelet activation and clot formation for up to 24 hours after being administered, and showed that the candidate is highly selective for the IP receptor and provides sustained prevention of thrombus formation. Management has communicated that it intends to launch clinical studies for CS585 from 2026.

CS1: Approaching the next phase of development

Positive Phase IIa data supports further clinical evaluation

CS1 reported positive top-line results in September 2024 in the Phase IIa CS1-003 trial, which evaluated the candidate in PAH. CS1-003 was a randomised, open-label, blinded endpoint, multi-centre study, primarily assessing the safety and tolerability of CS1 (primary endpoint), while also investigating pharmacokinetics and potential efficacy (Exhibit 4). A key feature of the trial was the collaboration with Abbott, which provided access to its CardioMEMS heart failure (HF) system, enabling continuous monitoring of patient pulmonary pressure and other measures of cardiopulmonary function.

Exhibit 4: CS1-003 trial design

Source: Company resources

Importantly, the results from CS1-003 (safety: n=25; efficacy: n=21) showed no CS1-related serious adverse events at any of the tested doses, and only two patients discontinued treatment due to treatment-emergent adverse events, which were unrelated to CS1. We believe the safety and tolerability outcomes compare favourably with current available treatment options for PAH, which are often associated with challenging side effects. In terms of efficacy, while the trial was not powered for statistical significance, we are encouraged by the analyses of the various exploratory efficacy endpoints. In particular, Cereno shared results for three standard efficacy measures in PAH:

• Registry to Evaluate Early and Long-Term PAH Disease Management (REVEAL) risk scores.
• Functional class changes: PAH is classified under four functional classes by the New York Heart Association (NYHA) and World Health Organization, ranging from I (no symptoms) to IV (debilitating symptoms).
• Hemodynamics: mean pulmonary arterial pressure (mPAP), measured as area under curve (AUC).

The results showed that 43% of patients (9/21) reported at least a one-point improvement on the REVEAL risk score, with 71% of patients (15/21) exhibiting an improved or stable risk score (Exhibit 5). We highlight that this is particularly notable since a one-point reduction over a 12-week period is associated with a 23% reduction in relative risk of death after 12 months. We also note that 29% (6/21) of patients having stable scores may be considered meaningful, given that PAH is a fast-progressing condition that is not often associated with spontaneous improvements.

The second efficacy measure, change in the NYHA functional class (FC) from baseline, served as an indicator of the physical activity levels and movement of the patients. The 25 randomised patients involved in the trial were categorised as FC II (slight limitation of activity; 10 patients) and III (marked limitation of activity; 15 patients). Of the 21 evaluable patients, the CS1-003 results indicated that 33% (7/21) reported an improvement in FC, while 86% (18/21) achieved an improved or stable FC (Exhibit 6).

Exhibit 5: REVEAL risk score data showing changes from baseline

Source: Company resources

Exhibit 6: NYHA FC data showing changes from baseline

Source: Company resources

The third efficacy parameter for which data were reported was the change in mPAP. Through Cereno’s collaboration with Abbott, the CardioMEMS HF system was used to take daily readings of pulmonary pressure (85 readings, as an average over 20 seconds, per patient over the 12-week study duration), which provided a robust and objective basis for the analysis. Normal pulmonary artery pressure is 11–20mmHg at rest and a reading of >20mmHg is associated with PAH patients.

The results indicated that two-thirds (67%) of the patients had a sustained reduction in mPAP (14/21). Further, the reduction in mPAP was as high as 5mmHg for one of the patients, with the reduction ranging from 0.3–4.3mmHg for the other patients who reported improvement with the treatment (Exhibit 7). At the presentation of these results, management highlighted the strong correlation between reduction in estimated pulmonary artery diastolic pressure (ePAD, similar to PAP) and mortality rates, with some research indicating a 5mmHg reduction in ePAD from baseline over six months reduced mortality risk by 30%.

Exhibit 7: Changes in mPAP measured by CardioMEMS (AUC, day 1–85)

Source: Company resources

We highlight that the case shown in green in Exhibit 7 related to a patient case study, corresponding to the first patient to complete the treatment protocol. This patient reported significant improvement on all PAH measures, including a 30% reduction in mPAP, and improvement from FC II to FC I. The full study results highlight that 10 patients exhibited greater reductions in mPAP than this case study, highlighting the potential of CS1 to induce clinically meaningful benefits in PAH, in our view.

Incremental data bolster disease-modifying potential

Alongside Cereno’s FY24 results, the company announced additional Phase IIa data, made available after the completion of the clinical study report, supporting CS1’s potential to reverse vascular remodelling, backed by its potentially disease-modifying mechanism of action as an HDACi. The data, details of which were disclosed in a webcast on 4 March 2025, showed CS1’s positive impact on right-ventricular global longitudinal strain (RVGLS; a highly predictive indicator of right-ventricular remodelling at early stages of disease and future mortality), a gradual improvement over time (in the 12-week treatment period) on the REVEAL 2.0 risk score and the NYHA FC as well as improvement in pulmonary vascular resistance (PVR) for a subset of early-stage patients.

Disease modification is the overarching goal for many therapeutics under development, in particular for progressive conditions such as PAH. In this context, we view the latest data release by Cereno from the Phase IIa CS1-003 trial for CS1 as particularly encouraging. While the company had previously discussed achieving positive signals in exploratory efficacy parameters, the most recent trial data released provide more context on specific parameters related to vascular remodelling and right heart functioning (a key predictor of mortality in PAH), and CS1’s ability to reverse or stabilise these.

RVGLS, a measure of right heart function and treatment response. Given that PAH is characterised by high blood pressure in the pulmonary arteries, which leads to right ventricular dysfunction, RVGLS is a strong predictor of right heart functioning and clinical worsening, including mortality. Normal RVGLS values are in the range of -24.5 ± 3.8%, with lower values indicating impaired RV function. Further analysis of the Phase IIa data showed that CS1 was able to show improvement and/or stabilisation in RVGLS for the majority of patients in the Phase IIa study (Exhibit 8). Studies have shown that a 1% improvement in RVGLS was associated with a 5% decreased risk of mortality and Cereno’s management has highlighted other prior studies demonstrating that a 5% reduction in RVGLS resulted in a sevenfold lower mortality rate within four years.

Tricuspid regurgitation (TR) is a common complication of PAH, originating from increased pressure and volume overload in the right ventricle, which leads to the tricuspid valve not closing properly and blood flowing back to the right atrium. This is indicative of poor prognosis in PAH patients. CS1 was able to show an improvement and/or stabilisation in this parameter in 95% of the patients (Exhibit 9).

Exhibit 8: Improvement in RVGLS from baseline

Source: Cereno Scientific corporate presentation, March 2025

Exhibit 9: Improvement in TR from baseline

Source: Cereno Scientific corporate presentation, March 2025

PVR, characterised by increased vascular resistance due to narrowing or blockage of blood vessels in the lungs, forcing the heart to work harder to pump blood through them. CS1 demonstrated marked improvement in a sub-set of early-stage patients in the study. Management had previously communicated that 10 of the 21 patients who completed the Phase IIa study showed an improvement in PVR, with five showing significant improvement.

REVEAL 2.0 risk score and the NYHA FC, standard parameters used to assess disease severity in PAH. Management noted that CS1 showed a gradual improvement over time on these parameters during the 12-week study period. On the REVEAL risk score, while 20% of the patients reported an improvement (of at least one point on the 22-point scale) at week four, this proportion increased to 42.9% by week 12. Similarly, while 10% of the patients showed improvement in their NYHA FC at week four, 33.3% had noted an improvement by week 12 (Exhibit 10).

Exhibit 10: Improvement in the REVEAL risk score and NYHA functional class

Source: Cereno Scientific corporate presentation, March 2025

Quality of life (QoL). CS1 was able to demonstrate improvement in this parameter as measured by PAH-SYMPACT and Minnesota Living with Heart Failure Questionnaire (MLHFQ) (Exhibit 11). While PAH-SYMPACT is highly sensitive and specific to PAH, MLFHQ is a self-administered questionnaire for patients and relates to heart failure.

Exhibit 11: CS1’s impact on QoL in patients in the CS1-003 study

Source: Cereno Scientific corporate presentation, March 2025

While these results relate to a small patient population and therefore cannot be termed conclusive, we believe that the observations provide early evidence of CS1’s potentially disease-modifying properties and should support the company’s upcoming conversations with the FDA on the next stage of development.

Current ongoing activities and next steps

Extending beyond the CS1-003 study, CS1 is involved in the Expanded Access Programme (EAP) for patients who completed the 12-week treatment as part of the Phase IIa trial. The first patient was dosed as part of the EAP in August 2024, and as of December, nine additional patients had been enrolled. In February 2025, Cereno announced it had regulatory received clearance to launch its sub-study of the EAP using Fluidda’s technology, to enable the visualisation of the effect of CS1 on inducing long-term reverse remodelling in PAH. This sub-study is expected to enrol around five to seven of the 10 patients in the EAP and will involve three CT scans over a period of 12 months. Results from the sub-study are expected in Q126.

We understand that the additional data collected as part of the EAP will be used to support discussions with regulators and potential partners regarding the long-term safety and efficacy of CS1.

Following an FDA Type C meeting request in February, management is preparing to discuss its plans for a future Phase IIb trial for CS1 in PAH with the regulator. Type C meetings, which are typically scheduled within 75 days from receiving the request, are intended to allow the FDA to assess the risk-benefit profile of a drug candidate for the indication and patient group it is intended to address, and the regulator may provide specific feedback on the company’s development plan for the candidate. In its most recent newsflow, Cereno communicated that the meeting date has been finalised as 21 April 2025, and the discussion will focus on finalising the Phase IIb trial design and aligning on further clinical development steps. Cereno will update the markets on the results of the meeting following receipt of the written meeting minutes, expected within 30 days of the meeting. We believe this upcoming communication, expected towards the end of May 2025, to be a significant catalyst for the company.

CS014: All on track targeting IPF

CS014 was a key focus at the company’s CMD, where it was announced that IPF would be the target indication for the candidate, as part of Cereno’s wider strategic pivot to specialise in rare disease across its clinical development pipeline. For a more detailed discussion of the strategy and the target indication, we direct readers to our prior update note. As mentioned above, CS014 commenced Phase I in June 2024 and has since made steady headway. The Phase I trial has been designed to evaluate safety, tolerability, pharmacokinetics and efficacy parameters of CS014 in 48 healthy volunteers. The SAD portion of the study, which evaluated 30 of the enrolled patients, was completed in February 2025. This interim update confirmed that there were no safety concerns, which we considered an expected outcome after the safety monitoring committee gave the green light to commence the MAD portion of the Phase I study in November 2024.

Cereno’s management has communicated that trial completion and top-line results are on track for mid-2025, consistent with prior guided timelines. It then intends to initiate a Phase II trial in IPF from H126, provided that the results from Phase I continue to be supportive.

Financials

Operating performance broadly in line

In Q424, Cereno reported operating expenses of SEK38.7m, broadly in line with Q324’s figure of SEK39.1m and up 7.8% y-o-y (SEK35.9m in Q423). This included external costs of SEK30.1m (down 10.7% q-o-q and up 30.7% y-o-y) and personnel expenses of SEK7.8m (up 52.1% q-o-q and down 16.0% y-o-y). Of the external expenses, we calculate SEK11.6m to be related to R&D, down from SEK23.8m in Q324. We expect this decline to be a result of the completion of the Phase IIa CS1 study and subsequent data readout in Q324, with the expenses attributed to the Phase I trial costs for CS014 (which completed the SAD part of the study in February 2025; the MAD portion is ongoing and top-line results expected in mid-2025) and ongoing preclinical activities. Note that the company capitalises its R&D, which, as a result, does not have an impact on reported operating profitability. Interest and financial expenses rose materially during the quarter (SEK15.4m vs SEK7.5m in Q324) and we believe this increase to be largely driven by the 3.87% set-up fee associated with the SEK250m financing arrangement announced by the company in November 2024. This translated to a net loss for the period of SEK40.3m versus SEK22.7m in Q324. Free cash outflow for the period was SEK56.3m, broadly in line with the prior quarter’s figure of SEK56.8m.

Cash runway extends into 2026 with new financing

Cereno ended Q424 with a gross cash balance of SEK127.6m, supported by the receipt of the first cash tranche of SEK125m and the SEK75m convertible debt (total SEK200m) from the November 2024 bridge financing. As a reminder, Cereno secured SEK250m in short-term financing from US-based investor Arena Investors and Fenja Capital (split 55:45) in November 2024 to support the company’s operations and development activities into 2026, through key upcoming milestones such as completion of the Phase I CS014 trial (mid-2025), FDA acceptance of the CS1 Phase IIb study protocol (H125) and anticipated regulatory clearance for the CS014 Phase II study in IPF (H225). The new financing includes a cash loan of SEK175m across two tranches and SEK75m in convertible debt.

Note that these funds have been partially utilised to prepay the outstanding SEK90m loan from Fenja Capital in Q424, which had an original maturity date of April 2026. The pending SEK50m debt tranche will be made available to Cereno following FDA acceptance for the next clinical phase for CS1. With the Type C meeting finalised for 21 April we expect the company to be eligible for the receipt in Q225. Based on the year-end cash position and the additional SEK50m inflow, we estimate Cereno to have an operational runway into 2026, which we believe serves the immediate goal of providing increased liquidity ahead of the initiation of the new clinical phases for CS1 and CS014 in H126. Note that the new cash and convertible loans mature on 30 April 2026, and based on our assumption that Cereno will self-sponsor the Phase IIb study, we expect the company needing to raise fresh funds in early 2026. Including the SEK250m debt repayment in April 2026, we estimate that Cereno will require c SEK500m in funding (or refinancing the existing loan) in 2026 to support operations and clinical activities in 2026.

Estimate revisions

Based on the Q424 results, we have made slight adjustments to our FY25 estimates. Given the R&D expenses during the quarter (which primarily related to CS014) and the guided timeline for the next CS1 clinical trial (H126), we reduce our R&D expense estimates for FY25 to SEK65m, from SEK75.4m previously. We raise our estimates for personnel expenses and other external costs to SEK27.5m and SEK42.8m, respectively (from SEK23.6m and SEK39.4m previously). Overall, we now project an operating loss of SEK70.5m in FY25, from SEK63.3m previously. With the model roll-forward, we also introduce FY26 estimates, where we reflect a significant increase in R&D expenses, particularly related to the CS1 Phase IIb study, which is expected to commence in H126. Based on our discussions with management, we expect the Phase IIb study to be a randomised, placebo-controlled study, enrolling around 100 patients and costing the company c US$30m (c SEK300m). We have split the R&D expenses over 2026–28, estimating that SEK120m will be spent on the Phase IIb study in 2026. Since Cereno capitalises its R&D expenses, the impact on operating profitability is limited. We estimate an operating loss of SEK72.2m in FY26, broadly in line with the FY25 figure although the free cash outflow will be substantially higher at SEK252.2m (vs SEK155.1m in FY23). Note that these estimates are based on our assumption that Cereno would choose to self-sponsor the Phase IIb development (to help maximise the drug’s commercial potential ahead of discussions with prospective licensing partners). Any changes in this assumption would require a reassessment of our estimates for the deal value and commercial opportunity.

Valuation

We continue to adopt a risk-adjusted net present value (rNPV) approach to value Cereno’s ongoing clinical programmes, using appropriate probabilities of success (PoS) for the respective phases of development and a flat discount rate of 12.5%. The calculated enterprise value reflects contributions from the company’s clinical candidates CS1 (completed Phase IIa) and CS014 (Phase I ongoing).

For CS1, following clarity from the company on its plans to conduct a Phase IIb trial prior to a Phase III registrational study, we adjust our model to reflect two separate clinical trials ahead of the commercial launch. As highlighted previously, we assume that Cereno will choose to self-sponsor the Phase IIb study, which we estimate will take two years to complete. We project that the Phase III pivotal study will now be initiated in 2028, with a US commercial launch in 2031 (vs 2029 previously). We assume that the Phase III trial will be undertaken in partnership and have raised our estimate for the licensing deal value to US$2bn (including an upfront payment of US$100m) from US$1.5m previously reflected in our model. This is based on our hypothesis that the additional efficacy data generated from the Phase IIb trial, if supportive, should provide Cereno with additional leverage in negotiating deal terms with prospective partners.

We note that while other potentially disease-modifying treatments for PAH such as sotatercept (brand name Winrevair; FDA approval in March 2024 in PAH) and potentially seralutinib (Phase III registrational study expected to commence by mid-2025 under a global licensing agreement with the Chiesi Group) are leading CS1 in terms of clinical progress, VPA’s well-established safety and tolerability profile (CS1 is a controlled release formulation of VPA), CS1’s favourable safety profile to date in clinical studies, and its convenient dosing could be key differentiators if disease modification is proved.

Safety and tolerability are important considerations, given the co-morbidities related to PAH and fragility of patients. Most recently, Keros Therapeutics terminated its Phase II clinical trial (TROPOS) in PAH due to pericardial effusion adverse events seen during the trial. The approved drug Winrevair, while effective in patient subgroups, is also associated with significant adverse events, such as nosebleeds (epistaxis; 22.1%), telangiectasia (16.9%) and serious bleeding events (5.2%) as reported in the recently published SOTERIA trial results, an open label long-term follow-up study evaluating sotatercept in PAH. Notably, the independent Institute for Quality and Efficiency in Health Care, in a report commissioned by Germany’s Federal Joint Committee (G-BA), determined that sotatercept does not provide an added benefit for adult patients with PAH, which is classified as WHO Functional Class II to III. Moreover, the drug is administered through subcutaneous injections, which is less convenient than the oral dosing for CS1.

While market estimates for Winrevair peak sales potential are as high as US$5bn, we have used more conservative assumptions with CS1, projecting peak sales of US$2bn. We leave our peak sales estimates and PoS for CS1 unchanged for now, but will revisit our assumptions as the drug progresses through the clinic. Reflecting the aforementioned changes, our rNPV for CS1 updates to SEK12.6/share, from SEK13.1/share previously. Note that the biggest driver for this change is the pushback on the expected commercialisation timelines.

For CS014, we keep our long-term market assumptions unchanged, but raise our PoS to 10% (from 7.5% previously) to reflect the positive completion of the SAD portion of the Phase I study and the acceptable safety profile demonstrated to date. This results in our rNPV for the asset increasing to SEK1.8/share, from SEK1.3/share previously.

We continue to exclude CS585, the company’s preclinical asset, from our valuation, which should add to the upside potential on successful clinical transition. We await further updates on the clinical transition plans for this asset before incorporating it in our estimates.

We have rolled forward our model for the FY24 results and have updated our valuation to incorporate the updated clinical plan and timelines for CS1, the increased PoS for CS014 and the latest net debt figure (SEK62.8m at end-Q424, including SEK127.6m in gross cash and SEK190.4m in debt). Reflecting these changes, our valuation for Cereno shifts slightly to SEK14.2/share, from SEK14.3/share previously (Exhibit 12).

Exhibit 12: Cereno’s rNPV valuation

Source: Edison Investment Research. Note: The per share valuation is calculated on shares outstanding of 281m

As noted previously, our model now assumes a licensing deal in 2028 for CS1, with the partner taking over Phase III development and subsequent commercialisation. However, as an added sensitivity, if we were to assume no partnering deal, with Cereno opting to self-develop the asset, we estimate the company would need to raise SEK500m in FY26 to fund operations and service outstanding debt and a further SEK1.5bn between FY27 and FY30, until the commercial launch of CS1 in 2031 (a total of SEK2bn between FY26 and FY30). If the company uses equity issues for this funding, we estimate that it would need to issue c 392.9m shares (assuming the current share price of SEK5.09), which would result in our per-share valuation diluting to SEK8.9 per share, from SEK14.2 per share currently.

Exhibit 13: Financial Summary

Source: Company documents, Edison Investment Research