Alzecure: Q4 comment

Research Update

2023-02-27

12:45

Redeye return with a short update following the Q4 report. We reiterate our base case and will soon return with a research update.

Fredrik Thor

Contents

Investment thesis

Quality Rating

Financials

Rating definitions

The team

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Key figures from the report:

Net sales for the period amounted to SEK0m (0m)

Operating loss amounted to SEK-11m (-22.6m)

Cash and cash equivalents at the end of the quarter amounted to SEK25.5m (41.7m), not including net proceeds of SEK40m from recent rights issue

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

Report as expected

We conclude that the financial report came in as expected and that the news flow indicated continued progress with the company’s pipeline. Alzecure states in its report that it has cash into 2024, indicating a stable cash burn compared to 2022. We assume that the company will raise an additional SEK40m in late 2023/early 2024.

Newsflow during the quarter

The company shared new data during the Alzheimer's conference "CTAD" about its Alzheimer’s drug ACD856, both through presentations and abstracts. Furthermore, the company also unveiled new data at the ISMND Conference. Additionally, the company made an announcement regarding a rights issue that was later oversubscribed, resulting in net proceeds of approximately SEK40m. After Q4, it was announced that Alzecure had chosen a candidate drug for its second project within the preventive Alzheimer’s platform Alzstatin, ACD680. The candidate drug will now be evaluated in the pre-clinical stage. Alzecure states that this builds on the company’s strategy to develop several candidates in tandem, in order to choose the optimal candidate for clinical development. ACD680, for example, has a more attractive patent life. We expect further progress with Alzstatin this year and will likely dig deeper into the platform once it is getting closer to the clinic. Finally, the company announced last-patient-in in its phase II study with pain drug candidate ACD440, well in line with our expectations. We expect results this summer.

Outlook 2023

We conclude that the company has an exciting year ahead, perhaps most notably with the phase II readout within pain this summer. We also note that Alzecure reiterates its stance that it hopes to out license one of its candidates by 2023 -an impressive goal, we argue. We do some model housekeeping but reiterate our base case following the report. We will return with a more extensive "case reminder" shortly, where we also will may adjust our valuation further.

Key financials

SEKm	2022	2023e	2024e
Revenues	0.00	0.00	44.3
EBIT	-56.4	-65.7	-10.7

Investment thesis

Case

Well Diversified Neurology Play

Alzecure offers significant upside thanks to the market’s continued under-estimation of the strong fundamental value in the company, shadowed by a period of relatively few significant catalysts and selling pressure in the wake of the recent rights issue. Alzecure is a neurology platform case focused on developing first-in-class small molecule drugs. The company’s R&D projects are split into three research platforms addressing Alzheimer’s disease and pain: two key therapy areas of significant unmet medical need in the central nervous system.

Evidence

Strong R&D team and distinguished approach

We view the company’s internal R&D capacity and experienced management team (with Big Pharma origins) as an asset that differentiates Alzecure from peers at the same development stage. The company’s in-house expertise in the discovery and development of small molecules—a process that has generated most of the company’s lead projects—should not be under-estimated and forms a compelling part of the investment case in Alzecure. Small molecules are more flexible, convenient (can be taken orally), and can naturally penetrate the blood/brain barrier, a key obstacle when developing drugs for the central nervous system. Furthermore, after recent setbacks with antibody treatments for Alzheimer’s, the strong need for additional treatments and modalities appears even more convincing.

Supportive Analysis

Alternatives to current treatments for Alzheimer’s disease—a progressive and ultimately deadly neurodegenerative disease—represent perhaps the most significant unmet medical need today and are expected to grow significantly in the upcoming decades due to an aging population and the cost of this, which will severely burden healthcare systems. The disease burden in the US alone (today USD 355bn) is expected to increase to USD 1tn by 2050. Alzecure has a holistic approach to the disease but has consistently focused on convenient, orally formulated drugs through its promising (but early-stage) preventive treatment (Alzstatin) and its symptomatic treatment addressing cognitive decline (Neurorestore). Preventing the progression of Alzheimer’s, especially in the pre-symptomatic stage, has very strong health economic benefits given the high costs at later stages of the disease. We also see a good rationale for improving the quality of life for Alzheimer’s patients—given a situation that will persist for many years to come

Challenge

Additional Funding Required

Alzecure is a platform company with an active agenda. To fully reap the benefits of the vast pipeline potential, it will need additional funding in the upcoming 12-18 months, in our view. The most prominent catalyst to close this gap is a licensing deal with non-dilutive upfront payments – but our base case today includes a rights issue to stay conservative.

Challenge

Risky Inflection Points in Key Projects Remain

Alzecure business model revolves around early clinical development within Alzheimer’s disease and pain – two indications with historically low success rates. At this stage, risky inflection points (most notably phase II readouts) remain in the company. On the positive side, we note that Alzecure is a platform company with strong R&D expertise – thus not a one-trick -pony dependent on a single readout. Furthermore, early out-licensing could be an option to mitigate risk

Valuation

Ample Upside Remains

We judge that the stock has been punished by the weak biotech sentiment over the past year as well as by a period with relatively few significant triggers. Still, we are impressed by the strong interest in the share price recently and Alzecure's most recent capital injection. We land at an adjusted Base Case of SEK 12.

Quality Rating

People: 3

Business: 3

Financials: 0

Financials

Income statement
SEKm	2022	2023e	2024e
Revenues	0.00	0.00	44.3
Cost of Revenue	0.00	0.00	0.00
Operating Expenses	56.4	65.7	55.0
EBITDA	-56.4	-65.7	-10.7
Depreciation	0.00	0.00	0.00
Amortizations	0.00	0.00	0.00
EBIT	-56.4	-65.7	-10.7
Shares in Associates	0.00	0.00	0.00
Interest Expenses	0.00	0.00	0.00
Net Financial Items	0.20	0.08	0.00
EBT	-56.2	-65.6	-10.7
Income Tax Expenses	0.00	0.00	0.00
Net Income	-56.2	-65.6	-10.7

Rating definitions

The team

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Contents

Investment thesis

Quality Rating

Financials

Rating definitions

The team

Download article