Karolinska Development Q3’20: Our Review of the Quarter
Redeye Research Note 2020/11/11
In Q3’20, KD reported a net result of SEK -169.4 (-14.6) mn. The heavy loss is attributed to the unrealized change in the listed Aprea Therapeutics holding, which we commented on earlier (link here). It is to be remembered that KD is an investment company, and we thus focus long-term on the ability to increase the Net Asset Value (NAV).
The net fair value at the end of the quarter amounted to SEK 675.8 mn, corresponding to a decrease by over SEK 200 mn compared to the beginning of the quarter, again an effect of the listed Aprea holding.
Investments in portfolio holdings amounted to SEK 29.1 during the quarter:
– SEK 4.0 mn in Umecrine Cognition (by KD)
– SEK 0.1 mn non-cash investment in Umecrine Cognition (by external investors)
– SEK 25 mn in Promimic (by external investors)
It is of utmost importance to finance the important Umecrine Cognition holding in the near-term, both to fund further clinical development and, from a KD perspective, to share risk. A 70% ownership in one holding is a too large stake, as is the case with Umecrine Cognition.
KD ended the third quarter with SEK 70 mn cash on hand. The bridge loan from Sino Pharmaceuticals has been extended to 31 December 2021.
Highlights in the Portfolio
A few selected highlights in the portfolio, past and upcoming, include:
– Aprea Therapeutics. APR-548, the next-generation oral p53 reactivator has been IND accepted by the FDA. Further, Aprea Therapeutics expects to present phase III study results with eprenetapopt (APR-246) in HMA-naïve TP53 mutant myelodysplastic syndromes (MDS) patients (n=154) before the end of the year, a significant catalyst that could have an incremental impact on KD:s holding.
– Dilafor. We expect Phase IIb results in labor induction in H1’21
– Forendo Pharma. We expect phase Ib results (FOR-6219) in endometriosis in H1’21 as well.
There’s been quite some delay in the case of Dilafor and Forendo Pharma’s ongoing trials, solely related to the Corona crisis.
Based on today’s report, we update accordingly:
– Net ownership in KD’s respective holdings. The main change is the holding in Promimic (26% earlier)
– We adjust the net cash position as well
– For the listed companies, Aprea Therapeutics and Ossdsign, we value them using 180 trading days VWAP with no discount applied. As we base the listed holdings on market prices, we don’t want to have a too large fluctuation in our valuation. Hence, we use a rather long period on our VWAP. The negative stock development for Aprea during the quarter has had a negative impact on approximately SEK 80 mn on our Net Present Value.
– Based on a peer valuation of listed companies in the preclinical stage, we include the direct ownership in SVF (an active investment)
We update our Base Case to SEK 2.3 (2.5) per share, effective immediately. It continues to imply a rather significant discount on NAV. Below are some triggers (0-6 months) that could potentially decrease our proposed NAV discount:
– Establish a clinical development path for golexanolone (Umecrine Cognition) and corresponding funding. It would do some SEK 1 per share on our Base Case as well
– Positive top-line results from Aprea’s phase 3 trial
– A pipeline update from Modus Therapeutics