Karolinska Development: Our View on Missed Top-Line Results in the Aprea Holding

Background
Aprea announced phase 3 top-line results with its lead candidate, eprenetapopt, in TP53 mutant myelodysplastic syndrome (MDS). The phase 3 trial evaluated safety and efficacy in patients who received eprenetapopt and azacitidine (AZA) or AZA alone.
The trial did not meet the predefined endpoint of complete remission (CR):
– ‘In the intention-to-treat population of 154 patients, the CR rate in the eprenetapopt with AZA arm was 33.3% (95% CI: 23.1% – 44.9%) compared to 22.4% (95% CI: 13.6% – 33.4%) in the AZA alone arm (P = 0.13).’ (Aprea Therapeutics press release on December 28, 2020)

From the results above, we interpret the following:
– It appears to be a favor in treatment with eprenetapopt + AZA versus AZA alone, although not reaching the 95% typical threshold for statistical significance
– It was a rather large span in the CI in both arms

Although we thought eprenetapopt + AZA would perform better in its arm, the results might suggest some flaws in the study design, e.g., that it was underpowered. We intend to follow the in-depth analysis and results from the full dataset from this trial during H1’21. We argue that Aprea Therapeutics is built on strong science, targeting well-defined genetic populations and that there might still be a path forward for Aprea in targeting TP53 mutant malignancies.

Regardless, the trial missed the primary endpoint. The Aprea stock saw a severe reaction on this news, where the market sent it down by almost 80% on intraday. It means that the stock trades virtually on par with the cash position. We believe it is a bit unfair, considering:

– While it is a miss on the primary endpoint, it is not a clear miss. The top-line results merit further analysis, and we expect more data in H1’21
– Aprea Therapeutics runs a broad pipeline in TP53 mutant malignancies, which includes ongoing phase 2 trials
– Aprea is relatively well-funded following their US IPO, reporting cash of above USD 100 million in their latest report

The KD Perspective and Valuation
We present our SOTP-model in conjunction with KD’s interim reports (Q3’20 link here). As the Aprea news is so material for the case, we present an updated SOTP-model already in this note.
We use a 180 days VWAP for its listed holdings to mitigate too large fluctuations. Besides some fine-tuning, the most significant change relates to the Aprea holding. As the phase 3 result and corresponding stock price reaction changes the game plan radically, we are left with no choice to abandon our 180 days VWAP and use yesterday’s closing price. Hence, we attribute no value to the KD Invest portfolio holding at present. It also follows the ‘front-loaded’ waterfall structure to Rosetta’s advantage.

Our updated Base case is SEK 1.2 per share, effective immediately. Our updated Bear- and Bull Case are SEK 0.8 and SEK 3 per share, respectively.

In H1’21, we expect to take part in news flow that could change the perception of this currently knocked down equity story:
– A better macro environment could start activities on the Chinese market again, where KD has an initiative together with Sino Biopharma to open up the Asian market with Nordic innovations
– Dilafor will present phase 2 results
– Establish a clinical development path for golexanolone (Umecrine Cognition) and corresponding funding
– Updates on further development for Modus Therapeutics
– Other pipeline updates and new investments
– Efforts to strengthen KD’s balance sheet

We will follow the news flow closely and stand ready to review our valuation. For now, we see a ‘curtains closed’-case.