Vicore: Our Q3 Comment

Research Update

2022-11-03

13:34

Redeye comments on Vicore’s Q3 report, which came in as expected. We slighly tweak our base case and expect a very exciting Q4 - most notably the second interim readout within IPF.

Fredrik Thor

Download article

Key figures from the report:

Net sales for the period amounted to SEK 0m (-0m)

Cash flow from operating activities amounted to SEK -66.7m (-68.4m)

Cash and cash equivalents at the end of the quarter amounted to SEK 169.8m (446.9m)

R&D costs as a share of operating costs were 85.5% (93.5%)

(The numbers in parenthesis refer to the corresponding quarter of last year)

Negative Covid-19 Results

In September, it was announced that Vicore Pharma’s phase III trial “ATTRACT-3” (n=272) in Covid-19 failed to meet its primary endpoint, a reduction in overall mortality at 60 days. The study did also not meet its secondary endpoints related to disease progression and discharge. The company stated that a change in virus characteristics related to mutation was a cause, as the later versions had a milder disease progression and affected the lungs more superficially, which made C21s mode of action less relevant. We also note that reduction in mortality was a difficult endpoint in such a small patient population, especially since the later (and less severe) variations took over, where mortality (thankfully) is less common. On the positive side, Vicore stated that no safety signals were detected, which is a good confirmation (although the treatment period in IPF is much longer). As we had not included Covid-19 in our valuation, it did change our view of the company and we saw the initial reaction (down more than 30%) as an overreaction.

Promising Results with Digital Therapy "Almee"

After the quarter, we were also encouraged to learn that Vicore’s digital therapy “Almee” reduced anxiety by almost 50% in a pilot study (n=10) on IPF patients, an early indication of a clinically meaningful treatment effect. The next stage of the trial is the pivotal phase (n=250), expected to start in Q4. We currently don’t include Almee in our valuation, but see synergies from the program that include an increased understanding of the disease (IPF) and better interactions with patients, patient organizations, and physicians.

Data from C21 Blood Flow Study

In September, Vicore announced results from a blood-flow study in healthy volunteers. The results indicated a vascular function in humans, where C21 increased blood flow by 63% (p=0.026) without reducing systemic pressure or other side effects, likely through nitric oxide release (a process closely related to many vascular diseases). This further demonstrates C21s (and VP03/new generation ATRAGs) mode of action in IPF (antifibrotic and vascular effect) as well as strengthens the rationale in PAH (“pulmonary arterial hypertension”) and the other potential indications that Vicore will target with the new generation of ATRAGs (VP03 program). Our impression is that this study, which showed a dose-dependent increase according to the release, also will be used to model the correct dose for the VP03 program.

Case

Well-diversified lung disease play

We continue to see significant upside (200 percent) in Vicore following a volatile year for the stock, which has at times seemingly been unaffected by the stable and strong pipeline progress in the lead indication (idiopathic pulmonary fibrosis (IPF), a rare and deadly lung disorder) and the company’s increased ambitions for additional indications. Outflows from generalist funds and a risk-off sentiment in the biotech sector sent the stock downward in 2021 and it required strong interim data from the ongoing phase II IPF study and stabilized ownership to regain previous levels. Even though the stock has rallied 60+ percent YTD, we believe the market still underestimates the value in Vicore. We believe the company could potentially initiate a pivotal trial in IPF as early as 2023 ,which if confirmed would derisk the case further and warrant further upward revisions of our base case of SEK 78 per share.

Evidence

Compelling potential in lead indication IPF

C21 has been shown to be safe and tolerable in multiple clinical trials and without the gastrointestinal side effects and skin-related events that are frequent in today’s standard of care. Early in 2022, Vicore presented strong interim data from its ongoing phase II AIR trial, indicating a remarkable treatment effect compared to today’s SoC. If this effect can be sustained throughout development, we estimate that VP01 could exceed today’s SoC, Ofev and Esbriet, in annual sales (USD 1.5-2bn).

Supportive Analysis

In February, Vicore Pharma surprised the market with a solid interim readout from its open-label phase II IPF study. The complete study will enroll 60 patients and evaluate the effect of 2x 100mg daily dosing of drug candidate C21 in treatment-naïve IPF patients for 24 weeks (followed by 12 weeks of optional treatment extension). The primary efficacy endpoint is the change in forced vital capacity (FVC) at week 24 from baseline. At 24 weeks (n=9), the reported FVC in the study showed an increase of 251 ml compared to -120 ml in the historical untreated FVC trend. In the seven patients who continued to the treatment extension, five saw a further increase and two remained stable. These are outstanding improvements compared to approved drugs for IPF today (Ofev and Esbriet), which can slow the rate of decline in lung function (FVC) but ultimately cannot stabilize it. While early and indicative, we think the data are compelling and send a strong signal that C21 likely has treatment potential in IPF patients.

Challenge

Breaking new regulatory ground

While the time to market is typically shorter for orphan drug projects, the exact requirements are often less defined from the beginning and are thus dependent on data and regulatory interactions as the project progresses. Our base case remains that Vicore can proceed to a pivotal trial (although we still risk-adjust the phase II trial) following full data from the ongoing phase II AIR study, but we acknowledge that the FDA could potentially require an additional randomized, dose-finding study ahead of approval, which would delay time to market by one to three years depending on study design. While it would not have a major impact on the fundamentals (ten to 20 percent, we judge), it would be a setback that could impact sentiment around the stock negatively for the subsequent year.

Challenge

Additional funding required

We estimate that Vicore needs additional funding to take lead project VP01 in IPF through late-stage development, as we assume the project would be fully developed in-house in order to reap the better part of future revenues. Vicore likely has funding through H1 2023, and we assume it would need additional funds of SEK 400-600m to finance the R&D costs related to the pivotal trial in IPF. Vicore has a very strong ownership structure and a successful history of raising cash efficiently, including directed issues in 2020 (SEK 185m) and 2021 (SEK 335m) at small premiums to the market price. However, we acknowledge that the current market conditions and risk-off sentiment have made it more difficult to raise cash, adding some uncertainty to the investment case at this stage.

Valuation

SOTP Suggests Upside

Our Base Case for Vicore is SEK 78 per share. We value Vicore using a risk-adjusted sum-of-the-parts (SOTP) analysis. At current levels, we argue the market severely underestimates recent data that de-risk Vicore’s lead program in IPF, which holds the potential for market approval as early as 2026/2027.

Pipeline Progress

C21 in IPF

In February, Vicore Pharma surprised the market with a very solid encouraging readout from its open-label phase II IPF study that exceeded our expectations. The complete study will enroll 60 patients and evaluate the effect of 2x 100mg daily dosing of drug candidate C21 in treatment-naïve IPF patients for 24 weeks (followed by 12 weeks of optional treatment extension). The primary efficacy endpoint is the change in forced vital capacity (FVC) at week 24 from baseline. At 24 weeks (n=9), the reported FVC in the study showed an increase of 251 ml compared to - 120 ml in the historical untreated FVC trend. Of the seven patients who continued with the treatment extension, five saw a further increase, and two remained stable. These are outstanding improvements compared to approved drugs for IPF today (Ofev and Esbriet), which can slow the rate of decline in lung function (FVC) but ultimately cannot stabilize it. Vicore will present additional interim data in Q4, and if a similar treatment effect could be replicated in more patients, it would be a major trigger and derisk the project further (we estimate an increase in our base case between SEK 10-35 per share on additional positive data alone). Our impression is also that Vicore will share the remaining clinical program, which likely either will be a dose-finding phase IIb-trial followed by a pivotal phase III trial, a pivotal trial directly or a combination of the two (a two-stage pivotal clinical trial that would start with finding an optimal dose, for example). While it won’t be critical to our valuation, it will impact the time to market – which we believe could impact investor sentiment somewhat.

C21 in PAH

In today’s report, we learn that Vicore aims to initiate a phase IIa trial in pulmonary arterial hypertension (“PAH”) in H1 2023. PAH similar to IPF in that it is a rare, devastating, and progressive disease with increasing morbidity (in the end leading to premature death). It is one form of pulmonary hypertension (of five), which means high blood pressure in the lungs.

VP03 Program

We remain impressed by the rapid development of Vicore’s new generation of ATRAGs (angiotensin II type 2 receptor agonists) in its VP03 program, including yesterday’s announcement of new drug candidate, C103. As stated in the release, it has a very high affinity to the AT2 receptor compared to the AT1 receptor, making it especially suitable for indications such as preeclampsia. The company will now initiate a toxicology program with the hope of taking C103 into the clinic by H2 2023.

Valuation

We largely reiterate our previous valuation but make some minor tweaks:

Increase the SEK/USD rate to 10.5 (9.5) which has a positive impact on our valuation

Increase the risk-free rate to 2.5% (2%) per Redeye’s policy due to increased market rates and raise our WACC to 13.5% (13%)

We still include a capital injection of SEK 600 million during 2023 but expect a slightly lower dilution due to the higher share price since our May update. We will adjust this post after we learn more about Vicore’s remaining clinical program in IPF - likely lower the expected injection if the next step is a phase IIb trial.

This leads to a new base case of SEK 78 (75) per share, which represents a significant upside from today’s levels of SEK 27 per share.

People: 4

Business: 3

Financials: 0

Disclosures and disclaimers

Premium Plan required to unlock

Download article