Arovella Therapeutics — Progressing on all fronts

Arovella Therapeutics (ASX: ALA)

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Research: Healthcare

Arovella Therapeutics — Progressing on all fronts

FY22 has been a year of transition for Arovella as it pivots its strategic focus towards immunotherapy, in particular invariant natural killer T (iNKT) cell-based therapies. Another major development during the period was the first commercial launch of ZolpiMist, the flagship product from its legacy OroMist portfolio. With first sales expected in Q3 CY22 for ZolpiMist and steady progress of the lead iNKT asset ALA-101 towards the clinic, we expect FY23 to be eventful for Arovella. The FY22 results were broadly in line with expectations with the significantly higher R&D figure (A$2.6m, five times the FY21 number) signalling the oncology-focus. The year-end cash balance of A$6.1m should provide a 12-month runway based on the current run rate, but we estimate the need to raise another A$5m in FY24. Our valuation remains largely unchanged at A$31m or A$0.05/share.

Soo Romanoff

Written by

Soo Romanoff

Managing Director - Head of Content, Healthcare

Healthcare

Arovella Therapeutics

Progressing on all fronts

Financial update

Pharma and biotech

5 September 2022

Price

A$0.025

Market cap

A$17m

A$1.45/US$

Net cash (A$m) at 30 June 2022

6.1

Shares in issue

669.9m

Free float

98.4%

Code

ALA

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0

(28.6)

(54.5)

Rel (local)

2.3

(25.1)

(49.9)

52-week high/low

A$0.06

A$0.02

Business description

Arovella Therapeutics is a biotech company focused on the areas of oncology and CNS diseases through its cell therapy and OroMist platforms. It recently acquired a CAR-iNKT programme for haematological malignancies and a DKK1 antibody that has potential in multiple myeloma and solid tumours. The legacy platform, OroMist, is focused on developing oromucosal spray versions of established medicines. It has ex-North America rights to ZolpiMist, the spray version of Ambien for insomnia.

Next events

ZolpiMist first commercial sales

Q3 CY22

Analyst

Soo Romanoff

+44 (0)20 3077 5700

Jyoti Prakash, CFA

+44 (0)20 3077 5700

Arovella Therapeutics is a research client of Edison Investment Research Limited

FY22 has been a year of transition for Arovella as it pivots its strategic focus towards immunotherapy, in particular invariant natural killer T (iNKT) cell-based therapies. Another major development during the period was the first commercial launch of ZolpiMist, the flagship product from its legacy OroMist portfolio. With first sales expected in Q3 CY22 for ZolpiMist and steady progress of the lead iNKT asset ALA-101 towards the clinic, we expect FY23 to be eventful for Arovella. The FY22 results were broadly in line with expectations with the significantly higher R&D figure (A$2.6m, five times the FY21 number) signalling the oncology-focus. The year-end cash balance of A$6.1m should provide a 12-month runway based on the current run rate, but we estimate the need to raise another A$5m in FY24. Our valuation remains largely unchanged at A$31m or A$0.05/share.

Year end

Revenue
(A$m)

PBT*
(A$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/21

0.3

(3.4)

(1.15)

0.0

N/A

N/A

06/22

0.3

(7.4)

(1.42)

0.0

N/A

N/A

06/23e

2.4

(5.6)

(0.87)

0.0

N/A

N/A

06/24e

6.2

(2.1)

(0.35)

0.0

N/A

N/A

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

Pipeline making progress

Arovella’s lead iNKT programme ALA-101 (targeting CD-19 expressing cancer cells) has been making steady progress, with two critical manufacturing steps achieved during the year: the selection of a plasmid and vector manufacturer (manufacturing commenced in January 2022) and a manufacturer for the iNKT cells to be used in clinical trials (deal signed with Q-Gen in April 2022). Management aims to commence Phase I clinical trials for ALA-101 in the next 12–18 months following the required regulatory clearances. The year also marked the launch of ZolpiMist (through its Australian market partner STADA) and Q123 (Q3 CY22) is expected to deliver the first commercial sales, a key milestone for the company.

Clear cash runway to end FY23

Arovella ended FY22 with net cash of A$6.1m, supported by two equity raises in FY22 contributing gross proceeds of A$6.6m. The first round of financing raised A$4.6m through institutional investors and the second round raised A$2.0m through a share purchase plan. We expect the available capital pool to extend the cash runway to end FY23 but estimate the need to raise another A$5m in FY24.

Valuation: A$31m or A$0.05 per basic share

We roll forward our model and increase the probability of success for ZolpiMist to 80% from 70% previously, following launch in the Australian market in Q2 CY22. However, the upside generated has been offset by a lower net cash balance of A$6.1m. Overall, our valuation remains largely unchanged at A$31m or A$0.05 per basic share (from A$30.5m or A$0.05 per basic share).

Exhibit 1: Financial summary

A$'000s

2020

2021

2022

2023e

2024e

Year end 30 June

AIFRS

AIFRS

AIFRS

AIFRS

AIFRS

PROFIT & LOSS

Revenue

 

 

533

257

296

2,447

6,242

Cost of Sales

(201)

(223)

(207)

(248)

(298)

Gross Profit

332

35

89

2,198

5,944

Sales, General and Administrative Expenses

(4,259)

(3,529)

(4,538)

(4,719)

(4,908)

Research and Development Expense

(285)

(542)

(2,596)

(2,700)

(2,808)

EBITDA

 

 

(3,413)

(3,129)

(7,045)

(5,221)

(1,772)

Operating Profit (before amort. and excepts.)

 

(3,636)

(3,332)

(7,241)

(5,357)

(1,909)

Intangible Amortisation

(349)

(449)

(356)

(275)

(275)

Other

799

907

0

0

0

Exceptionals

(5,973)

(1,239)

(833)

0

0

Operating Profit

(9,958)

(5,021)

(8,430)

(5,633)

(2,184)

Net Interest

22

(27)

(191)

(199)

(206)

Other

0

0

0

0

0

Profit Before Tax (norm)

 

 

(3,613)

(3,359)

(7,432)

(5,556)

(2,115)

Profit Before Tax (FRS 3)

 

 

(9,936)

(5,047)

(8,621)

(5,831)

(2,390)

Tax

0

0

0

0

0

Deferred tax

(0)

(0)

(0)

(0)

(0)

Profit After Tax (norm)

(3,613)

(3,359)

(7,432)

(5,556)

(2,115)

Profit After Tax (FRS 3)

(9,936)

(5,047)

(8,621)

(5,831)

(2,390)

Average Number of Shares Outstanding (m)

142.3

330.9

549.6

669.9

676.6

EPS - normalised (c)

 

 

(2.78)

(1.15)

(1.42)

(0.87)

(0.35)

EPS - Reported ($)

 

 

(0.07)

(0.02)

(0.02)

(0.01)

(0.00)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

4,673

3,344

2,625

2,780

2,937

Intangible Assets

4,251

2,911

2,253

2,509

2,765

Tangible Assets

365

381

266

166

67

Other

57

52

105

105

105

Current Assets

 

 

2,035

7,343

6,588

804

3,299

Stocks

22

0

0

0

0

Debtors

869

534

36

44

44

Cash

977

6,717

6,071

281

2,775

Other

166

92

480

480

480

Current Liabilities

 

 

(2,022)

(1,695)

(1,509)

(1,672)

(1,672)

Creditors

(2,010)

(1,689)

(1,441)

(1,604)

(1,604)

Short term borrowings

(12)

(6)

(67)

(67)

(67)

Long Term Liabilities

 

 

(550)

(11)

(87)

(87)

(5,087)

Long term borrowings

(4)

(3)

(77)

(77)

(5,077)

Other long-term liabilities

(545)

(8)

(9)

(9)

(9)

Net Assets

 

 

4,135

8,982

7,617

1,826

(522)

CASH FLOW

Operating Cash Flow

 

 

(2,884)

(3,545)

(6,268)

(5,223)

(1,936)

Net Interest

0

0

0

0

0

Tax

0

0

0

0

0

Capex

(388)

(515)

(566)

(567)

(569)

Acquisitions/disposals

0

0

0

0

0

Financing

0

9,856

6,256

0

0

Dividends

0

0

0

0

0

Other

0

0

0

0

0

Net Cash Flow

(3,272)

5,797

(578)

(5,790)

(2,505)

Opening net debt/(cash)

 

 

(4,260)

(961)

(6,709)

(5,926)

(136)

HP finance leases initiated

0

0

0

0

0

Exchange rate movements

0

0

0

0

0

Other

(27)

(50)

(205)

0

0

Closing net debt/(cash)

 

 

(961)

(6,709)

(5,926)

(136)

2,369

Source: Company reports, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Arovella Therapeutics and prepared and issued by Edison, in consideration of a fee payable by Arovella Therapeutics. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Arovella Therapeutics and prepared and issued by Edison, in consideration of a fee payable by Arovella Therapeutics. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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