The readout of the phase II study showed that treatment with sevuparin did not result in any meaningful benefit in the management of acute vaso-occlusive crisis (VOC) in patients with sickle cell disease (SCD). The trial was randomized, double-blind, placebo-controlled study and recruited a total of 144 patients. Considering the rigorous design, we view the results as highly indicative of the efficacy profile and believe that no further development is warranted in the indication.
Following the news, Modus is now considering new alternatives for further development of sevuparin. Karolinska Development (KD) reports that the company will return with more information as soon as a decision has been taken on the future strategy for the project. While we do not rule out that there could be a path forward for Modus, our current valuation of the company is based on continued development in SCD. We, therefore, exclude this indication from our valuation of Karolinska Development.
Our estimated project value of sevuparin was about SEK 1.2 billion prior to the readout. With high ownership for KD (49% in Q4’18), sevuparin in SCD represented the most valuable asset in our valuation of the investment entity’s total portfolio (40% of the risk-adjusted NPV). The exclusion will, therefore, have a significant impact on our valuation. Further, we recognize that Modus phase II results were one of the most significant catalysts in the expected newsflow from the portfolio companies and that the company likely was the best near-term chance for KD to generate a large cash payment (given that the phase II trial had resulted in a positive outcome).
The negative effect of the exclusion of Modus in our valuation is offset slightly by some changes in our valuation of KD:
Furthermore, OSSDSIGN is in the process of their IPO, where the first trading day is expected on May 24, 2019. Although sales of SEK 13.2 million came in short of our estimates (Est: SEK 20 million) in 2018, we have a positive view of the case. We continue to value the company on high, discounted sales multiples. We have updated our SOTP valuation to reflect KD’s post-IPO holdings, which will fall slightly under 20 percent. Read our comment on the OSSDSIGN IPO here.
The net effect of the changes in our model is substantially negative, due to our exclusion of sevuparin in SCD. We also recognize the financial distress and lack of visibility into the assumed, ongoing negotiations with the convertible note holders. It causes a high uncertainty when estimating the fair value of KD and further makes it difficult to predict the ongoing operations for the investment entity. We, therefore, provide indicative values of KD. Until we know the outcome of the negotiations with the convertible note holders and the overall financial situation, we don't see any rationale to provide a thorough update. Nonetheless, our new, indicative fair values are effective immediately:
Bear Case - SEK 0 (4) per share reflects the high uncertainty of KD:s financials
Base Case - SEK 2.5 (8.25) per share is mainly due to the Modus fail in SCD, which has an even bigger negative impact than the news per se due to the front-loaded agreement in the Rosetta deal. Our SOTP figure above reflects our Base Case in detail
Bull Case - SEK 5 (16) per share, we anticipate advancement in the current portfolio, mainly driven by OSSDSIGN and Aprea. However, we acknowledge the same outstanding amount of shares in this scenario as of today.
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