Lipigon Q1 2023: Preparing for Phase II

Research Update

2023-05-26

07:00

Redeye comments on Lipigon’s first-quarter report. After the end of Q1, all patients in the phase I study of Lipisense have been treated without any serious adverse events. The data is being analysed at the same time as a phase IIa study is being planned towards the end of the year.

Richard Ramanius

Contents

Investment thesis

Quality Rating

Financial results

Valuation

Financials

Rating definitions

The team

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Lipisense

In May, the last patient was treated in the phase I study of Lipisense. We are now awaiting an analysis of the results. At the same time, planning for the phase II study is ongoing. 25 patients with very high blood levels of triglycerides will be recruited; it should thus be possible to give a clear answer as to Lipisense’s triglyceride-lowering potential in this group. The quantity of drug material produced for the phase I trial is enough to supply the phase II trial as well. The two largest centres in Sweden for the treatment of lipid-related diseases will be involved in the trial, which means recruitment should be quick. The first patient is expected by Q4 2023. Topline results are expected by Q2 2024.

Rights Issue

In April, the rights issue was concluded. It was subscribed to 83% when including underwriting commitments, bringing in around SEK26m after costs and fees. This will finance the phase II study which is set to conclude by mid-2024. The warrants TO2 and TO3 might finance the company further.

We lower our Base Case

We have made several changes to our Base Case, including increasing the WACC to 16.5% (15.5%), reducing peak sales from USD770m to USD610m, adding a phase IIb part before a licensing deal in 2026 (2025) and assuming a one year later launch date in 2029 (2028). This results in a fully diluted Base Case of SEK2.0.

Key financials

SEKm	2020	2021	2022	2023e	2024e
Revenues	4.3	3.2	0.39	0.03	0.03
Revenue Growth	146%	-25.7%	-87.9%	-93.5%	10.0%
EBITDA	-7.7	-41.8	-37.7	-27.0	-27.0
EBIT	-8.7	-41.9	-37.7	-27.0	-27.0
EBIT Margin	-204%	-1317%	-9756%	-108167%	-98241%
Net Income	-9.0	-41.8	-37.6	-27.0	-27.0
EV/Revenue	-	5.6	11.2	342	1,106
EV/EBIT	-	-0.4	-0.1	-0.3	-1.1

Investment thesis

Case

Phase I may be a proof-of-concept trial

The reason for investing in Lipigon is its main candidate Lipisense, intended to reduce blood triglyceride levels, which is undergoing a phase I trial with around 54 participants. The single ascending dose (SAD, up to 144mg) and multiple ascending part (MAD, up to 36mg) recently finished, demonstrating a safe profile. Although it is a phase I trial with healthy volunteers, efficacy could still potentially be measured (blood fat reduction). We are awaiting the analysis of these results. The next step is a phase IIa trial with 25 patients that is planned to start in Q4 2023, which is fully funded. A phase IIb study will follow upon favourable results. If the results from the phase IIa study are excellent, a partner might be found that will finance this. Upon positive phase III results, Lipisense could then be on the market in 2029. Based on the FDA's and EMA's guidelines for the development of SHTG drugs, triglyceride reduction is likely to be the endpoint required for market approval. We believe a reduction in triglyceride levels of around 25-50 percent would be a reasonable benchmark for approval, depending on tolerability.

Evidence

Large deals for new cardiovascular/dyslipidemia therapies

In a benchmark with five deals for similar drugs in similar cardiometabolic areas, ranging from preclinical to the NDA stage, the median upfront payment was USD 175m, while the median total deal value was USD 825m. The large deal values demonstrate the high interest in the sector from larger pharmaceutical companies.

Challenge

Weak biotech sentiment and dependence on further financing

The macroeconomic environment is highly challenging. The rights issue this year will finance the phase IIa trial. However, more capital is likely needed before a partner could be found to finance Lipisense. This financing could come from TO2 and TO3.

Challenge

Efficacy results from phase I and IIa

A major investment point in Lipigon was the potential to demonstrate some measure of efficacy in the phase I trial. Thus far, no such results have has been communicated, though there could still be some indications of efficacy when the study is reported later in 2023. If no efficacy is demonstrated in the phase I study with healthy volunteers, it is possible in the phase IIa study with patients that suffer from an excess of blood triglycerides. It is crucial that the phase IIa study demonstrates some level of efficacy; otherwise we believe it will be challenging to obtain more funding. A potential weakness in the phase IIa study is the small size of this trial (n=25), as a partner might want to see data from more patients.

Valuation

Trading at a dysfunctional valuation

The weak sentiment in biotech combined with funding at at low share price has led to an extremely weak valuation. Any efficacy results in the phase I trial would be a trigger in the short term, otherwise the results from the phase IIa study by mid-2024 is a major trigger. For Lipisense, we assume peak sales of USD625m in severe hypertriglyceridemia, a deal for worth USD825, most of it commercial, with an upfront of USD35m paid in 2026, and royalties of 15%. We assume dilution from the warrants TO2 and TO3.Our fully diluted Base Case is SEK2.0.

Quality Rating

People: 2

The company has a small but focused management team, its main expertise being scientific. The board adds other important qualities, such as business development. The director Urban Paulsson, previously chairman, has “done it before”; he was the founder of Cormorant Pharmaceuticals, which was sold to BMS in 2016 for USD 520m, of which USD 100m was an upfront payment.

Business: 3

Lipigon develops candidates for conditions with abnormal lipids. This includes large cardiovascular diseases groups and conditions related to unhealthy lifestyles, which is a growing global problem. The company recently finished treating patients the with its main candidate in a phase I study.

Financials: 0

The company is in an early clinical stage of development and would need additional funds before a potential exit, which may become available through the warrant TO2 and TO3. Additional funds are likely needed for the phase IIb trial. A licensing deal after excellent phase IIa data in mid-2024, demonstrating triglyceride reduction, may be possible and would correct the company's financial situation.

Financial results

Operating costs were SEK-6.9m (SEK-9m), while the cash flow was SEK-5.4m due to a positive effect from working capital. This is in line with previous quarters (as can be seen below). The cash position was SEK4.3m as of Q1 (though equity is negative); around SEK26m will be added from the rights issue in Q2 2023. It should last into Q1 or Q2 2024. Subscriptions of TO2 and TO3 would prolong this.

Valuation

Due to a revision of Redeye’s rating model (v.2.2), we raise the weighted average cost of capital to 16.5% (15.5%). We have reduced the expected peak sales somewhat from USD770m to USD610m. This is because we have reconsidered the competitive landscape, expecting some competition from other triglyceride-lowering drugs such as Vascepa (Omega-3 FA), ARO-APOC3 (apo-C3 inhibitor) and ARO-ANG3 (ANGPTL3 inhibitor), among others. We believe a peak sales figure of USD610m is a more reasonable figure based on the limited data available from Lipisense as of now. Good efficacy and tolerability data are needed before raising our estimates. A phase IIb study will have to be performed before progressing to a phase III study. We have therefore prolonged the development with 1 year. We now forecast a licensing deal in 2026 instead of 2025. Finally, we assume a lower strike price of the warrants TO2 and TO3, at 70% of the current share price. This results in a new Base Case of SEK 2.0 (SEK3.3). Our Bull Case is SEK3.1, while our Bear Case (assuming a negative outcome of the phase IIa study) is 0.

All patients have completed the treatment schedule in the phase I study without any serious adverse events. However, we await the readout of the full study before raising the probability of success of phase I from 90% to 100%, which would increase the likelihood of approval from 15% to 16% and lead to an increase in our Base Case. Although we now assume a licensing deal in 2026 in our forecast, strong results in the phase I or phase IIa study could lead to a deal earlier than this.

Financials

Rating definitions

The team

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Contents

Investment thesis

Quality Rating

Financial results

Valuation

Financials

Rating definitions

The team

Download article