NeuroVive Pharmaceutical — SEK124m rights issue underway 80% guaranteed

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Research: Healthcare

NeuroVive Pharmaceutical — SEK124m rights issue underway 80% guaranteed

On 10 December 2018, NeuroVive announced a rights issue (subject to EGM approval) aiming to raise up to SEK123.8m gross at a price of SEK1.35 per share, of which 80% (SEK99m) is guaranteed. Our model suggests this would cover operating costs for 2019 and into 2020, if the total amount is raised. NeuroVive outlined a number of operational goals achievable during this period, while potential share price catalysts include KL1333 Phase Ib initial results, the start of the NeuroSTAT Phase II clinical trial and the planned out-licensing of NV556. Our updated valuation is SEK1.51bn or SEK9.2/share, which includes the guaranteed amount of the rights issue.

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Written by

Healthcare

NeuroVive Pharmaceutical

SEK124m rights issue underway 80% guaranteed

Rights issue

Pharma & biotech

17 December 2018

Price

SEK1.36

Market cap

SEK125m

SEK8.83/US$

Net cash (SEKm) at 30 September 2018

38.4

Shares in issue (does not include potential new 91.7m shares in the ongoing rights issue)

91.7m

Free float

95%

Code

NVP

Primary exchange

NASDAQ Stockholm

Secondary exchange

OTCQX

Share price performance

%

1m

3m

12m

Abs

(54.6)

(65.1)

(54.0)

Rel (local)

(53.7)

(61.1)

(51.2)

52-week high/low

SEK5.6

SEK1.4

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

Start of Phase Ib with KL1333 (MAD EU)

H119

Initiation of NeuroSTAT Phase IIb

2019

Analysts

Jonas Peciulis

+44 (0)20 3077 5728

Alice Nettleton

+44 (0)20 3077 5700

On 10 December 2018, NeuroVive announced a rights issue (subject to EGM approval) aiming to raise up to SEK123.8m gross at a price of SEK1.35 per share, of which 80% (SEK99m) is guaranteed. Our model suggests this would cover operating costs for 2019 and into 2020, if the total amount is raised. NeuroVive outlined a number of operational goals achievable during this period, while potential share price catalysts include KL1333 Phase Ib initial results, the start of the NeuroSTAT Phase II clinical trial and the planned out-licensing of NV556. Our updated valuation is SEK1.51bn or SEK9.2/share, which includes the guaranteed amount of the rights issue.

Year end

Revenue (SEKm)

PBT*
(SEKm)

EPS*
(SEK)

DPS
(SEK)

P/E
(x)

Yield
(%)

12/16

0.0

(70.7)

(1.7)

0.0

N/A

N/A

12/17

0.6

(70.1)

(1.5)

0.0

N/A

N/A

12/18e

1.5

(69.7)

(1.0)

0.0

N/A

N/A

12/19e

1.5

(133.0)

(1.1)

0.0

N/A

N/A

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

Financed to KL1333 Phase Ia/b trial readout

The proceeds from the planned rights issue will be used to advance the clinical and preclinical programmes, with one of the key trials being the Phase Ia/b study testing KL1333 for mitochondrial diseases. KL1333, a small molecule NAD+ modulator, was tested in healthy volunteers in a Phase I trial (single ascending dose) by the licensor Yungjin Pharm in South Korea, which found the compound safe, with a favourable PK profile. NeuroVive recently received the green light from regulatory authorities to proceed with its own Phase I trial (single and multiple ascending doses), which will include healthy volunteers and patients. We therefore believe the likelihood of confirming the safety profile has increased, but additional interesting insights could be obtained from patient data. Results are expected in H219.

NeuroSTAT Phase II trial to start in 2019

With the new funds, NeuroVive will also initiate the Phase II trial with NeuroSTAT for a proof-of-concept study in traumatic brain injury (TBI) where there is no specific, approved therapeutic treatment. Additional funding will be required to complete the trial, which management indicated could be done via non-dilutive funding or a partnership. Out-licensing common disease preclinical assets in the non-core portfolio, especially NV556 (NASH), is another potential catalyst and a source of cash. Our recently published outlook report describes the ongoing R&D programmes in detail.

Valuation: SEK1.51bn or SEK9.2/share

Our updated, risk-adjusted NPV valuation of NeuroVive is SEK1.51bn or SEK9.2/share compared to SEK1.64bn or SEK17.9/share previously. The positive effect of increased cash from the guaranteed part of the proposed rights issue was offset by revising parts of the R&D programme, where we moved the trial initiations from 2018 to 2019. The decrease in valuation per share is mostly technical adjustment after including the guaranteed part of the rights issue.

NeuroVive Pharmaceutical is a research client of Edison Investment Research Limited

Financials

The rights issue could raise up to SEK123.8m gross at a price of SEK1.35 per share and is structured in a similar way to the last issue in April 2018, in that a large portion (80%) of the amount is guaranteed (equal to SEK99m gross) by existing and external investors. NeuroVive plans to issue a total of 91,697,076 shares (the same amount as the current number of outstanding shares). Therefore, the maximum dilution for non-participating shareholders is 50%.The subscription period ends on 6 February 2019 and the outcome will be announced on 11 February 2019.

With its Q318 results, NeuroVive reported Q318 R&D expenses of SEK11.2m (vs SEK9.8m in Q317) and personnel expenses of SEK3.2m (vs SEK3.0m in Q317). R&D costs were somewhat lower than our expectations, but we believe this is mainly related to timing for the initiations of clinical trials for KL1333 and NeuroSTAT, which are now planned after the rights issue. Our estimates for 2019 are therefore largely unchanged. As of end-September Q318, cash was SEK38.4m.

Valuation

Our updated, risk-adjusted NPV valuation of NeuroVive is SEK1.51bn or SEK9.2 per share compared to SEK1.64bn or SEK17.9 per share previously. We include an estimated net guaranteed amount of SEK93m in our model which, when added to estimated end-2018 cash, is SEK125m. We have also updated our R&D model assumptions, mainly focusing on timelines to reflect listed management goals for 2019, together with the rights issue. To maintain realistic timelines, we have added one year of development to our estimated project timelines which, on an absolute basis, had an offsetting effect after including 80% of the rights issue in our valuation. The significant decrease in valuation per share is mainly a technical adjustment, reflecting the increased number of shares outstanding (we currently include the guaranteed new shares only, ie 73,357,661). For our valuation, we currently use 165m shares.

Exhibit 1: 2019 milestones

H119

H219

KL1333

Initiate Phase Ia/b study

Top-line data expected

Prepare for Phase II study

NeuroSTAT

Secure non-dilutive financing for Phase II study

IND application

Initiate Phase II study

Secure non-dilutive financing for Phase II study

IND application

Initiate Phase II study

NVP015

Further preclinical studies including in vivo dose-response, toxicology

Further preclinical studies including in vivo dose-response, toxicology

NV556

Out-licensing activities for NASH

NVP024

Candidate selection

NVP025

Candidate selection

NVP022

Preclinical dose-response studies in NASH disease model

Rights issue

17 January EGM

23 January subscription period starts

6 February subscription period ends

11 February announcement of the outcome of the rights issue

Source: NeuroVive Q318 report, NeuroVive rights issue press release, Edison Investment Research. Note: Bold indicates key catalysts (efficacy data, marketing authorisation).

We maintain all other R&D assumptions described in our recent outlook note and initiation report. As previously, in our valuation we include clinical-stage NeuroSTAT (TBI) and KL1333 (genetic mitochondrial disorders), and the advanced preclinical products. We continue to exclude NVP025 (mitochondrial myopathy) and NVP022 (NASH) for the time being as both are at an early stage.

Exhibit 2: NeuroVive sum-of-the parts valuation

Product

Launch

Peak sales*
($m)

NPV
($m)

NPV/share
($)

Probability

rNPV
($m)

rNPV/share
($)

NeuroSTAT

2025

454

278.0

1.7

15%

31.7

0.2

KL1333

2024

574

573.6

3.5

10%

53.1

0.3

NVP015

2025

875

683.0

4.1

5%

27.3

0.2

NV556

2027

1,716

182.0

1.1

8%

38.4

0.2

NVP024

2029

702

29.7

0.2

3%

6.8

0.0

Net cash est-Q418 + 80% of the planned rights issue + exercised warrants

14.1

0.1

100%

14.1

0.1

Valuation

 

 

1,760.5

10.7

171.4

1.0

SEKm

SEK

SEKm

SEK

NeuroSTAT

2,455.1

14.9

15%

280.0

1.7

KL1333

5,064.6

30.7

10%

469.1

2.8

NVP015

6,031.2

36.5

5%

240.7

1.5

NV556

1,607.4

9.7

8%

339.0

2.1

NVP024

262.5

1.6

3%

60.0

0.4

Net cash est end-Q418 + 80% of the planned rights issue + exercised warrants

124.7

0.8

100%

124.7

0.8

Valuation

15,545.5

94.2

1,513.5

9.2

Source: Edison Investment Research. Note: *Peak sales reached six years after launch. WACC = 12.5% for product valuations.

Exhibit 3: Financial summary

SEK'000s

 

2016

2017

2018e

2019e

December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

14

585

1,500

1,500

Cost of Sales

0

0

0

0

Gross Profit

14

585

1,500

1,500

Research and development

(12,000)

(27,926)

(40,560)

(103,243)

EBITDA

 

 

(69,868)

(67,897)

(69,310)

(132,815)

Operating Profit (before amort. and except.)

(70,989)

(69,492)

(69,452)

(132,968)

Intangible Amortisation

0

0

0

0

Exceptionals

(1,121)

(1,595)

(1,942)

0

Other

0

56

0

0

Operating Profit

(72,110)

(71,031)

(71,394)

(132,968)

Net Interest

265

(571)

(200)

0

Profit Before Tax (norm)

 

 

(70,724)

(70,063)

(69,652)

(132,968)

Profit Before Tax (reported)

 

 

(71,845)

(71,602)

(71,594)

(132,968)

Tax

0

0

0

0

Profit After Tax (norm)

(70,724)

(70,007)

(69,652)

(132,968)

Profit After Tax (reported)

(70,240)

(66,727)

(67,594)

(128,968)

Average Number of Shares Outstanding (m)

42.0

50.2

72.0

128.4

EPS - normalised (SEK)

 

 

(1.72)

(1.49)

(1.02)

(1.07)

EPS - normalised fully diluted (SEK)

 

(1.72)

(1.49)

(1.02)

(1.07)

EPS - reported (SEK)

 

 

(1.67)

(1.33)

(0.94)

(1.00)

Dividend per share (SEK)

0.0

0.0

0.0

0.0

Gross Margin (%)

100.0

100.0

100.0

100.0

EBITDA Margin (%)

N/A

N/A

N/A

N/A

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

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

84,645

87,579

87,579

87,579

Intangible Assets

71,151

74,315

74,315

74,315

Tangible Assets

274

162

162

162

Investments

13,220

13,102

13,102

13,102

Current Assets

 

 

94,901

30,560

32,757

1,568

Stocks

0

0

0

0

Debtors

0

0

0

0

Cash

93,251

28,992

31,189

0

Other

1,650

1,568

1,568

1,568

Current Liabilities

 

 

(12,413)

(14,259)

(14,259)

(14,259)

Creditors

(12,413)

(14,259)

(14,259)

(14,259)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

0

0

0

(8,635)

Long term borrowings

0

0

0

(8,635)

Other long term liabilities

0

0

0

0

Net Assets

 

 

167,133

103,880

106,077

66,253

CASH FLOW

Operating Cash Flow

 

 

(57,614)

(58,039)

(71,252)

(132,815)

Net Interest

237

(84)

(200)

0

Tax

0

0

0

0

Capex

(139)

(40)

(141)

(107)

Acquisitions/disposals*

0

(11,035)

0

0

Financing

77,332

9,031

73,790

93,098

Other

(23,227)

(4,092)

0

0

Dividends

0

0

0

0

Net Cash Flow

(3,411)

(64,259)

2,197

(39,824)

Opening net debt/(cash)

 

 

(96,662)

(93,251)

(28,992)

(31,189)

HP finance leases initiated

0

0

0

0

Other

0

0

0

0

Closing net debt/(cash)

 

 

(93,251)

(28,992)

(31,189)

8,635

Source: NeuroVive accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by NeuroVive Pharmaceutical and prepared and issued by Edison, in consideration of a fee payable by NeuroVive Pharmaceutical. Edison Investment Research standard fees are £49,500 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 Edison analyst 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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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.

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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 (nor will such persons be able to purchase shares in the placing).

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General disclaimer and copyright

This report has been commissioned by NeuroVive Pharmaceutical and prepared and issued by Edison, in consideration of a fee payable by NeuroVive Pharmaceutical. Edison Investment Research standard fees are £49,500 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 Edison analyst 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 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “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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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

295 Madison Avenue, 18th Floor

10017, New York

US

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

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Research: Investment Companies

Aberdeen New Thai Investment Trust — Strong long-term absolute performance

Aberdeen New Thai Investment Trust (ANW) was launched in 1989 and is the only Thailand-focused investment trust listed in London. It aims to deliver a high level of long-term capital growth through investing in a relatively concentrated portfolio of quality companies, following a disciplined bottom-up approach. The Thai equity market has been relatively resilient this year compared to MSCI AC Asia ex-Japan and MSCI Emerging Markets, reflecting Thailand’s solid economic fundamentals. The manager believes Thai companies are particularly well-placed to benefit from the fast-growing neighbouring economies of Cambodia, Laos, Myanmar and Vietnam, and ANW offers some indirect exposure to these markets. The trust has delivered strong absolute returns over the past 10 years; an annualised NAV total return of 20.5%. Recent returns, however, have lagged the benchmark and the shares have traded at a persistently wide discount to cum-income NAV. In May 2018, the board announced a package of changes to address these issues which, if successful, should support further narrowing of the discount.

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