During the past few months, the stock of Initiator Pharma has maintained a relatively steady share price, with only a minor decrease overall. Moving ahead, we anticipate a stream of positive news that will help the share regain its upward momentum and bring it closer to our fair value Base Case. In the short term, the top-line outcomes from three important trials - phase IIb trial with IPED2015 (expected in H2 2023), phase IIa trial with IP2018 (expected in Q2 2023), and phase I pharmacokinetics study with IP2015 (expected in Q2 2023) - will act as significant turning points and may trigger a re-evaluation of the share price.

IPED2015
IP2015 is currently being investigated in an ongoing phase IIb trial in the IPED2015 program for organic erectile dysfunction (ED) in 120 otherwise healthy patients. Patients are divided into three arms receiving different doses of IPED2015 and placebo for four weeks, where frequent assessments of erectile dysfunction, safety, and pharmacokinetics are conducted.

Following a slower-than-expected recruitment rate in the ongoing phase IIb trial, Initiator Pharma has taken measures and increased activities in order to optimize patient recruitment. Some of the measures have already been fruitful in increasing the recruitment rate, according to the company itself. As we have previously communicated, while delays in the development process are always costly, we argue that it is essential that the quality of the trial and the data is not sacrificed for the benefit of time. The dosing part of the study is expected to be completed in the first half of 2023, and topline data are anticipated in the second half of 2023. We argue that this will constitute a major inflection point for the company.

IPTN2021

IP2015 is also in clinical development as a potential treatment for neuropathic pain, specifically trigeminal neuralgia. In 2022, the company announced the final data from a clinical phase I study to assess pain-reducing effects, comprising 24 healthy male subjects challenged with the pain-inducing ingredient (capsaicin). IP2015 demonstrated effects on multiple pain measures (hyperalgesia, allodynia, and subjects’ pain rating) without any observations of unexpected adverse events. Following a thorough review of the final dataset, Initiator Pharma initiated a phase I pharmacokinetic (PK) study in healthy subjects testing new oral solid dosage forms of the compound earlier this year. This is expected to bridge previous data sets into new future clinical studies, with draft PK results anticipated in Q2 2023.

IP2018
IP2018 is being developed for the treatment of psychogenic ED and is currently being studied in a phase IIa trial. The study is a randomized, double-blind, placebo-controlled, 3-way crossover trial studying the efficacy and safety of IP2018 in young, depressed ED patients. The study is being conducted in 24 patients at the MAC Phase I unit in Manchester, UK.

Following some protocol adjustments to accelerate patient recruitment, Initiator Pharma announced in March 2023 that it had completed the study with the planned number of eligible patients and assessments. Accordingly, data analysis is now in progress as the company expects to present first draft results toward the end of Q2 2023.

Operating expenditures for the period amounted to DKK8.7m (15.1m). While being somewhat lower than our expectations of DKK-9.6m, this is not a significant difference in the long run. Similarly, the Q1 free cash flow of DKK-5.4m (-8.0m) was less negative than our expectations of DKK-7.8m. This was primarily due to slightly lower R&D costs than expected and a positive change in working capital.

We argue that the current cash position of the company remains robust, standing at DKK33.7m, which is slightly above our initial projection of DKK31.3m. Based on this assessment, we are confident that the current financial resources will be sufficient to support the company's operations until 2024. However, we believe that Initiator Pharma may seek to bolster its financial position further by raising capital later in the year. This measure would serve to preempt any potential financial challenges and ensure the company's continued stability. Accordingly, in our comprehensive valuation model, we have factored in a proposed share issue in the range of SEK35m-40m (before the deduction of transaction costs).

We estimate the sales potential in each program in the company’s clinical pipeline and the 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 Initiator Pharma:

IPED2015 – phase IIb study results

The phase IIb study results for IPED2015 are expected in H2 2023; a positive outcome would propel it as a serious contender for PDE5i non-responders. This could attract interest from Big Pharma, and we believe a partnership deal for the phase III trial and onwards is likely.

Timeframe: 3-6 months

Impact: Major

IP2018 – top-line results from PoC phase IIa trial

We also expect top-line results from the company's second ED treatment program, IP2018, in Q2 2023. The trial studies the efficacy and safety of IP2018 in young, depressed patients with ED. Satisfactory data from the study would be a short-term catalyst for the stock.

Timeframe: 0-3 months

Impact: Moderate

IPTN2021 – Phase I pharmacokinetic

The preliminary results from the ongoing phase I pharmacokinetic study with IP2015 (in the IPTN2021 program) is an inflection point in the near future that could act as minor positive trigger for the stock price.

Time frame: 0-6 months

Impact: Minor