In 2021 Cereno Scientific carried out its TO1 warrant exercise, which generated SEK95.3m before issue cost. The company's warrants of series TO2 generated SEK61.3m before issue costs in September 2022. The capital injections aimed to prepare, initiate and conduct the clinical phase IIa trial with CS1 for treating pulmonary arterial hypertension (PAH) and also continue the development of the two preclinical programs CS014 (HDACi) and CS585 (IP agonist) within cardiovascular disease.

At the end of Q4 2022, Cereno held some SEK67m of cash on its balance sheet. According to Cereno Scientific, the company mainly invested in activities related to the clinical phase II trial with CS1 in PAH, in the production of clinical supplies, and preclinical GLP toxicology studies.

Although CS1 clinical phase II trial top-line data is now expected at the end of 2023, we believe Cereno Scientific is using the raised capital efficiently to progress the clinical development of its portfolio. However, our projections imply that the combined cash holdings will fund the company at least through 2023. Given the relatively high costs for a pivotal phase IIb/III trial (we estimate some USD20m-25m), we believe the company will have to raise additional capital to finance the trial.

In July 2022 Cereno Scientific enrolled the first patient in its clinical phase II trial with CS1 in pulmonary arterial hypertension. During the last few months, the company has focused on activating centres and implementing measures to simplify and increase patient recruitment. According to Cereno Scientific, all nine sites are now activated and are actively recruiting patients. Three patients have been randomized and entered the treatment period. Cereno Scientific has updated its plan, and the clinical phase II trial is expected to be completed at the end of 2023, and top-line data will be shared thereafter.

Therefore, we have updated our timeline and projections. Following positive clinical phase II results, we estimate Cereno Scientific may commence a pivotal phase IIb/III trial in H1 2025e. Our projections include the company running the trial in-house, likely necessitating an additional capital raise before commencing the trial. However, other options, like conducting the trial in partnership, constitute viable alternatives. Consequently, we project market launch of CS1 in 2029e.

After the end of the fourth quarter, only a week ago, Cerene Scientific confirmed that the company selected prevention of thrombosis, both concerning the prevention of venous and arterial thrombosis as target indications for further clinical development of its preclinical drug candidate CS014.

To recap, CS014 is a novel HDAC inhibitor which acts as an epigenetic modulator. CS014 is currently In preclinical studies, CS014 has demonstrated anti-thrombotic properties supporting the selection of target indications to prevent thrombosis. The drug candidate is currently in the final stages of its preclinical development, wherein toxicological studies and preparations for initial clinical studies are ongoing. Moreover, according to Cereno Scientific, the safety profile for CS014 has shown to be favourable as it does not increase the risk of bleeding in preclinical studies. Further preclinical and clinical studies are needed to decide the initial thrombosis indication, according to the company.

A brief outlook suggests that the anti-thrombotic drug market was valued at USD42m in 2021 and expects to reach some USD73m-77m by 2030, registering a CAGR of 6-8% according to various market analyses. Key drivers of the anti-thrombotic drugs market include an ageing population and, in particular, the side effects associated with anti-thrombotic drugs, wherein bleeding is the dominant adverse event.

Thus, there is an unmet need for anti-thrombotic drugs which do not increase the risk of bleeding. However, a new class of drugs called Factor XIa (FXIa) inhibitors is currently being investigated and could represent a new approach to thrombosis management. By selectively modulating coagulation, Factor XI(a) inhibitors can potentially prevent thromboembolic events without increasing the risk of bleeding compared to standard-of-care. Anthos Therapeutics, a clinical-stage biopharma company, is currently investigating abelacimab, a dual-acting, fully human monoclonal antibody targeting both Factor XI and Factor XIa. It is the only Factor XI inhibitor under evaluation in a clinical phase III trial.

According to Datamonitor Healthcare, six ongoing clinical trials investigates bleeding, among other endpoints. However, according to our brief initial outlook, CS014 may be the only epigenetic modulator in development for the prevention of thrombosis. Furthermore, it could potentially represent a new drug class for preventing thrombosis without increased risk for bleeding. Should Cereno Scientific, in the future, obtain positive top-line clinical phase II data with CS014, we believe CS014 may have the potential to possibly become a significant player in the market.

We do not include preclinical projects in our valuation but may consider doing so once they enter clinical development.

We believe phase IIa top-line data from Cereno’s PAH trial with CS1 is the most critical catalyst for the share in the coming 12 months. We judge that positive results would warrant initiating a potentially pivotal phase IIb/III trial in H1 2025e. We will particularly scrutinize exploratory efficacy readouts as we do not anticipate any surprises regarding the primary endpoint safety and tolerability. Phase IIa data may give an initial indication of CS1’s potential clinical efficacy in PAH.

CS014 and CS585 currently undergo preclinical development in partnership with the University of Michigan. Cereno targets having both drug candidates ready for clinical development in 2024e. We project that the company will potentially finish INDs for both drug candidates in H2 2023e before starting phase I clinical trials in H1 2024e. We understand that it is currently unclear which indications the company will target with CS014 and CS585. Bringing both drug candidates into clinical trials would diversify Cereno’s clinical pipeline considerably, subject to successful preclinical development and available financing to run phase I trials in-house or in partnership.

Subject to positive phase IIa results, we estimate Cereno will start a pivotal phase IIb/III trial in H1 2025e. Our current projections include the company running the trial in-house, likely necessitating an additional capital raise before commencing the trial. However, other options, like conducting the trial in partnership, constitute viable alternatives.

We adjust our base case to SEK5.1 per share with a valuation range of SEK1.8-9.6 (1.9-12.2). A positive readout from the coming phase II trial with CS1 in PAH could potentially increase our base case fair value estimate to some SEK10-12 per share. Furthermore, we consider clinical phase II trial data of CS1 in PAH to constitute the most critical catalyst for Cereno Scientific’s share in the coming 12 months. CS014 and CS585 could enter the clinic in 2024e, which could potentially induce a share price re-rating and lead us to revise our current valuation assumptions.

We project that Cereno Scientific will need to conduct an additional capital raise to fully finance its phase IIb/III trial with CS1 in PAH.

We do not include preclinical projects in our valuation but will consider doing so once they enter clinical development, i.e., around the time Cereno Scientific obtains an approved IND and targets a specific indication.

Our Base Case implies CS1 standing a decent chance of phase II success in PAH, setting the
stage for late-stage trials, and opening up the possibility of introducing HDACi into the PAH
treatment algorithm:

• CS1’s estimated likelihood of phase II success in PAH amounts to 32%
• CS1’s estimated LoA in PAH amounts to 20%
• Licensing deal worth some USD550m (USD50m upfront) upon successful phase IIb/III completion in 2027e
• We use a weighted-average cost of capital (WACC) of 14.5%

Our Bull Case implies strong phase II data with CS1 in PAH, including promising exploratory
efficacy readouts. Cereno advances to its planned phase IIb/III trial with the drug candidate in
PAH:

• CS1’s estimated likelihood of phase II success in PAH amounts to 70%
• CS1’s estimated LoA in PAH amounts to 44%
• Licensing deal worth some USD550m (USD50m upfront) during phase IIb/III in 2026e
• We lower our WACC to 13%

Our Bear Case implies ambiguous phase II data with CS1 in PAH with weak or no indications
of potential efficacy. This scenario would make it uncertain whether advancing to phase IIb/III
would be worth it, considering development risk:

• CS1’s estimated likelihood of phase II success in PAH amounts to 10%
• CS1’s estimated LoA in PAH amounts to 6%
• Licensing deal worth some USD525m (USD25m upfront) after phase IIb/III in 2027e
• We increase our WACC to 15%