The butterfly effect
Neovacs (PARIS:ALNEV) is now focused on IFNα-Kinoid in lupus (SLE) and plans to start Phase II lupus studies in mid-2015. The Phase IIb rheumatoid arthritis (RA) trial with TNFα-Kinoid did not show efficacy. Neovacs plans to fund one Phase III trial and now aims to retain a greater economic share if approved (co-promote US/self-commercialise EU). The company has stated that a possible Asian partner may fund a second Phase III. Edison forecasts about €5.5m year-end cash, but a further investment of €7m up to late 2016 will be required. Further equity funding of €16.5m is potentially available. The pre-dilution indicative value is now €39.9m based on lupus.
Phase IIb trial in Systemic lupus erythematosus (SLE)
Neovacs is planning a 160-patient European, Asian and Latin American Phase IIb in SLE using a detailed composite clinical efficacy measure. This trial is planned to start in mid-2015 and might report by late 2016. A smaller Phase IIa in the US with 50 patients is also planned, starting in early 2016, possibly also reporting by late 2016. The business strategy is now to fund at least one Phase III directly, with an Asian partner sought to fund the second Phase III. This could allow Neovacs to sell direct in key markets. AstraZeneca’s sifalimumab, an anti-IFNα mAb, met its primary efficacy endpoint in a 431-patient SLE Phase II trial reported in May 2014. This validates the concept of anti-IFNα targeting as an SLE therapy.
Financials: Equity line of about €16.5m remaining
In late November, Neovacs arranged a contingent equity line with Kepler Cheuvreux for up to €20m. An estimated €3.5m (1.2m shares) was drawn down by December 2014, indicating year-end cash of about €5.5m. Neovacs can issue up to 2.6m further shares to Kepler under the current share limit. Neovacs can draw down a further €3.5m under the current tranche, depending on the share price, by November 2015. Two further €6.5m tranches are possible after that.
Valuation: Risk adjusted pre-dilution NPV of €39.3m
Our risk-adjusted, pre-dilution, post-tax indicative value is now €39.9m. The previous value of €101m included TNFα-Kinoid. Our indicative valuation now rests entirely on IFNα-Kinoid for lupus. The probability of success remains at 20%. The value scenario has been extended to 2033 to incorporate US biological exclusivity. Management assumes there will be a 60:40 profit share with a US marketing partner and envisages direct sales in the commercially smaller EU market. An estimated further €7m of investment will be required until the lupus Phase II data, expected by end 2016; further funding will be needed from 2017.
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