Over the last six months, the Lipum stock has generally traded at a quite stable share price with a slight decline overall. Going forward, we expect an encouraging news flow to regain the positive momentum in the share and take it closer to our fair value Base Case. Primarily, we judge that interim- and topline data from the phase I SAD & MAD studies and in-depth preclinical data on further potential indications could induce share price re-ratings in the coming 12 months.

Clinical study initiation

Lipum announced in November 2022 that it had launched the initial clinical trial of SOL-116, its lead candidate. This trial is a single ascending dose (SAD) phase I, double-blind, randomized, placebo-controlled study consisting of up to six groups of eight healthy volunteers (HV) and aims to determine the safety and tolerability of the candidate, with a secondary objective of studying its pharmacokinetics. Between each separate patient group, there is an escalation in dose level, given that the previous dose level did not infer any safety issues. Additionally, a group of rheumatoid arthritis (RA) patients will participate in the study to investigate possible differences in effects between HV and RA patients. Exploratory endpoints includes the effect of SOL-116 on BSSL and inflammatory biomarkers.

Lipum recently released a study status update, indicating that the trial is proceeding as planned. After a fourth dose escalation, a safety evaluation was carried out, which confirmed that SOL-116 is still safe and well-tolerated. As a result, the trial is continuing with the fifth HV group receiving a higher dose level. The study is also approaching the stage where RA patients will be included, which will be a vital step in providing guidance for the design of subsequent studies.

We will closely monitor the trial's progress and anticipate further updates from Lipum in the future. The topline results of the study are expected in Q4 2023, 12 months after trial initiation, and will be a significant milestone for the company.

Favourable directed share issue

In October 2022, Lipum carried out a directed share issue to anchor investor Flerie Invest, alongside other long-term oriented investors such as Lars Stenlund and Torgny Stigbrand. The issue consisted of 2,601,732 shares at a subscription price of SEK 14.99 per share, representing a 6.3% premium compared to the previous day’s close, and was fully subscribed. Through the share issue, Lipum raised gross proceeds of approximately SEK 39m. Furthermore, the overall transaction costs represented a mere 2% of the issue.

Given the development stage the company is in and the market conditions, we judge this capital raise as truly impressive. Managing to raise a necessary amount of capital without imposing any rebated subscription prices or hefty issue costs is a true testament to the management’s executive abilities and the company’s solid ownership base. The ability to raise capital in a sustainable manner is one the most important attributes for a biotech company in R&D stage. We believe that this directed share issue has created long-term shareholder value and induced confidence in shareholders ahead of potential rights issues in the future.  

Operating expenditures for the period amounted to SEK12.9m (29.7m). While being somewhat lower than our expectations of SEK14.2m, this is not a significant difference in the long run. Accordingly, the Q4 EBIT of SEK-12.9m (-29.1m) was lower in absolute terms than our expectations of SEK-14.2m. This was primarily due to somewhat lower external expenses (R&D costs) than expected. However, following this, we have made some downwards adjustments to our future estimates for operational costs.

Following the directed share issue, we argue that the reported cash position of the company was in a healthy position at SEK32.8m, in line with our expectations. Our Belief is that this will be enough to finance operations until the backend of Q3 2023. Accordingly, we believe that Lipum will perform a capital raise sometime during the coming months to avoid ending up in a financially precarious situation. Therefore, we factor in a share issue in the range of SEK40m (before the deduction of transaction costs) later this year in our valuation model.

We estimate the sales potential in each program in the company's clinical pipeline along with an associated likelihood of reaching market approval. We then incorporated this into a sum-of-the-parts (SOTP) valuation model based on a risk-adjusted discounted cash flow (DCF) model, which provides us with our fair value Base Case.

Summary of the changes to our valuation of Lipum:

Topline data from the ongoing first clinical study of SOL-116 will be a major milestone for the company, an analysis of the results is expected in the last quarter of this year.

Timeframe: 6-9 months

Impact: Major

Following the initial phase I SAD study, Lipum is planning a phase Ib Multiple Ascending Dose (MAD) trial further studying safety, immunogenicity and selected biomarkers in RA patients. Top-line data is expected in 2024 and should have a big impact on the share.

Timeframe: 12-18 months

Impact: Major

Lipum is establishing a platform of preclinical data on the therapeutic effect of SOL116 in several other diseases and targets. This could potentially lead to the discovery of further possible indications for the candidate.

Time frame: 6-18 months

Impact: Moderate