Yesterday, Active Biotech announced a rights issue of SEK51m before transaction costs, which will be comparatively low as there are no guarantor fees. The main shareholders have provided commitments to subscribe to their pro-rata and guarantee some additional shares for a total of SEK27.6m or 54%. This rights issue is similar to the last one. Thanks to strong ownership, the company was able to raise money at low transaction costs then. The last issue was subscribed to 86%, which was a good result.

Clinical and preclinical results from the study of Laquinimod were presented at the International Ocular Inflammation Society (IOIS) in September.

The new eye drop formulation (10mg/mL) was well tolerated in single doses of up to 1.2 mg and multiple doses of up to 0.6mg once daily for 21 days. The safety profile was good: the few adverse events were mild and resolved (eye staining) except for just one moderate case of headache (withdrawn). Furthermore, intraocular distribution was studied in five rabbits from 30min up to 8 hours after the last dose after one week of daily treatment. At 30min tasquinimod was only detected in the cornea and surrounding tissues, at high concentrations. At 8 hours it was detectable in the retina/choroid and sclera as well in the posterior part of the eye. The conclusion of the poster is that the results warrant clinical studies in patients with eye inflammation, which could make it an attractive acquisition target upon positive phase II (or potentially after phase III) data.

In september, tasquinimod completed dose optimisation in multiple myeloma and will advance into the phase IIa expansion cohort. We commented on this in a note.

Preclinical results with tasquinimod in myelofibrosis will be presented at ASH on 11 December. The abstract describes how treatment with tasquinimod leads to the loss of viability of certain cancer cell lines. It also describes greatly improved survival after tasquinimod treatment of immunodeficient NSG mice injected with secondary acute myeloid leukaemia patient-derived xenografts cells expressing mutant calreticulin, which are thought to express a disease mechanism in myelofibrosis. As a comparison, mice treated with a JAK inhibitor (Jakavi) or a BRD-inhibitor (OTX-015) showed little to no improvement compared to a placebo.

In September, Ojjaara (momelotinib) was approved in the US for myelofibrosis patients with anemia. It is a JAK1/JAK2 inhibitor owned by GSK. GSK gained momelotinib with the acquisition of Sierra Oncoloy in 2022 for a total consideration of USD1.9bn.

We have previously mentioned SOBI's acquisition of CTI Biopharma for USD1.7bn, the main asset being JAK2 inhibior Vonjo (pacritinib), approved in 2022 in the US for myelofibrosis patients with severe thrombocytopenia. According to Datamonitor, analysts expect peak sales of USD0.5bn-1bn from Vonjo.

These transactions demonstrate the ongoing high interest in late-stage assets in myelofibrosis. Tasquinimod is differentiated (targeting S100A9) and could potentially affect the disease rather than improving symptoms as is the case with the current drugs on the market.

Costs have decreased and are at their lowest point since Q1 2021 at SEK-11m (as shown below), which is very positive in the current tough market for financing and demonstrates cost discipline. This is mainly due to the completion of the clinical study of laquinimod - the costs for the development of naptumomab and tasquinimod are mainly born by partners. The net result for Q3 was SEK-11m, with a similar cash flow of SEK-10m, and with an ending cash position of SEK5.6m. The company has loan guarantees of SEK20m which have been used to finance the company into Q4 until the rights issue brings in more cash. If the rights issue is fully subscribed, it will finance around another year of operations assuming no radical increase in costs occurs.

We have made several changes to our valuation model in this update:

We have increased the WACC by 0.5% to 15% and the USD/SEK exchange rate to 10.5.

We have added one year of development time to tasquinimod with a launch date in 2029 (2028).

We have also added one year to laquinimod with a launch date in 2029 (2028).

We have reevaluated the likelihood of approval assumptions of laquinimod, which were based on somewhat older data from Ophthalmology BIO. In a more recent overview (Clinical Development and Success Rates and Contributing Factors 2011-2020, from BIO), the success rates are lower, phase II = 36%, phase III = 51% and NDA = 91%. We will use the phase II and NDA figures while increasing the phase III rate to 60% in recognition of the good long-term safety data available from previous studies. This results in a new LOA of 19% (24%).

We have made a positive change to the peak sales estimate to USD320m (USD230m) for laquinimod as the good safety profile bodes well for a broader adoption.

We have lowered the upfront payment related to laquinimod to USD2.5m (USD10), but put it earlier in 2025, making the deal structure somewhat more back heavy.

The overall effect is a decrease in the value of laquinimod by around SEK30m.

As shown above, our diluted base case is SEK1.8. Our bull case is SEK3.5 and our bear case is SEK1.0.