Cantargia Q3 2023: TRIFOUR and CAN10 are the Value Drivers
Research Update
2023-11-13
07:10
Redeye comments on Cantargia's third quarter report. In the next twelve months, the most obvious value drivers of the share are the phase II study in breast cancer (TRIFOUR) and the first clinical study of CAN10 intended for inflammatory diseases.
RR
Richard Ramanius
Contents
Investment thesis
Quality Rating
Events since our last comment
Financial results
Valuation
Financials
Rating definitions
The team
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Nadunolimab
New results from the monotherapy pancreatic cancer patients in CANFOUR were presented. IL1RAP high patients had more than twice the overall survival of IL1RAPlow patients; the same is true for median progression-free survival, though the data set is very small (17 patients). A new positive readout from TRIFOUR (breast cancer) was presented in October. The objective response had increased to 60% so Cantargia will proceed with the full recruitment of the study, which will have a placebo-controlled group. Results from this study late in 2024 will be a major catalyst for Cantargia. A phase IIb pancreatic cancer trial, PANFOUR, is under planning and could start in 2024 but it will need additional funding. The CIRIFOUR and CESTAFOUR studies are being wrapped up and results will be presented after the databases are locked.
CAN10
CAN10 entered phase I in September. It is a safety study, but some psoriasis patients will also be recruited. Autoimmune and inflammatory disease is a large and attractive pharmaceutical area with some of the world’s best-selling drugs (e.g. Humira, Stelara and Dupixent), so the sales potential could be substantial, even if Cantargia is focusing on smaller indications initially (systemic sclerosis and heart inflammation) as a faster way to the market.
New base case SEK18
In October, after Q3, Cantargia raised around SEK60m in a directed share issue, which we add to the cash position and increase the number of shares outstanding. We added acute myeloid leukaemia to the pipeline, which is an investigator-sponsored study in the US, i.e. Cantargia does not have to fund it (it will have to supply nadunolimab). We have increased the WACC to 14%, increased the timeline of nadunolimab in pancreatic cancer and reduced the expected upfront payment from out-licensing nadunolimab. This results in a new base case of SEK18 (SEK20).
Key financials
| SEKm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Revenues | 0.00 | 0.00 | 0.00 | 0.00 | 880.6 |
| Revenue Growth | nm. | nm. | nm. | nm. | nm. |
| EBITDA | -370.3 | -381.6 | -295.3 | -192.4 | 592.1 |
| EBIT | -370.3 | -381.6 | -295.3 | -192.4 | 592.1 |
| EBIT Margin | nm. | nm. | nm. | nm. | 67.2% |
| Net Income | -366.5 | -371.8 | -283.2 | -192.4 | 592.1 |
| EV/Revenue | nm. | nm. | nm. | nm. | 0.3 |
| EV/EBIT | -2.6 | -0.2 | -2.2 | -4.4 | 0.4 |
Investment thesis
Case
Two studies, a phase II in breast cancer with nadunolimab and phase I with CAN10 will drive the share short-term
Evidence
Results in phase IIa CANFOUR in pancreatic and lung cancer are superior to historical controls
Challenge
Negative placebo controlled clinical outcomes are a risk
Challenge
Additional cash potentially needed
Valuation
Low valuation despite convincing results
Quality Rating
People: 3
Business: 3
Financials: 0
Events since our last comment
A phase II study in pancreatic cancer is planned for early 2024, but how it is to be funded is remains to be disclosed. A rights issue would not be shareholder friendly in the current macro-environment, but there are many other potential alternatives. If no funding is obtained, Cantargia will not be able to initiate the study. We have not included costs for this trial in our forecast. Cantargia will also present the next steps in its second main indication, lung cancer, next year.
Since our last update, we have commented on some press releases in our research notes:
We commented on the new IL1RAP data from nadunolimab monotherapy patients and from CANFOUR (in combination with chemotherapy). Is important that high IL1RAP levels correlated with KRAS mutations, which are well known to cause pancreatic cancer. This suggests that IL1RAP is involved in disease progression.
We commented on the new results in breast cancer. The ORR of 60% is twice that of what is expected. For this reason there is no need for an interim readout. The whole topline data will be presented late in 2024.
We have also recorded several interviews with CEO Göran Forsberg (in Swedish):
Financial results
Costs increased compared to Q2, at SEK79m, which was mainly related to the start of the phase I study with CAN10. The cash flow was SEK-86m leading to a cash position of SEK200m. In Q4, SEK59m was raised before costs. Our pro-forma cash position is SEK255m. Cantargia has guided for this to last into 2025. This means costs will have to decrease in the next quarters, unless the PANFOUR program starts, but it will need additional funding. Since TRIFOUR is conducted together with the GEICAM patient organisation, costs for this trial are lower than they would have been under a contract research organization. Furthermore, costs related to the old trials are decreasing as only CANFOUR still has patients on treatment, except for some compassionate use cases. This explains why costs will be lower in 2024 compared to 2021-2023.
Valuation
We have added one year to the development timeline of pancreatic cancer (Pancreatic Phase IIb and CAPAFOUR) and lung cancer (CIRIFOUR). We have reduced the peak sales estimate in lung cancer (Lung Phase IIb, previously CIRIFOUR). We now assume no sales in the first line of treatment in NSCLC.
We have decreased the expected upfront payment to USD100m (USD150m), as the negotiating power of smaller biotech companies has decreased in a market where funding is more difficult. In our bull case, the upfront is USD200m (300) while it is USD40m (60) in our bear case.
We have increased the WACC to 14% (13.5%) because of an increase in the risk-free rate. We have also increased the USD/SEK exchange rate to 10.5.
Our pro-forma cash position includes the cash from the share issue. We use the new number of shares (184m) when calculating value per share.
| Cantargia sum-of-the-parts valuation | ||||||||||
| Project | Clinical Trial | Combination | Indication | LOA | Phase | Royalty | Peak sales | Launch | NPV | NPV |
| (USDm) | / share | |||||||||
| CAN04/ | Phase IIb trial | Gemcitabin/nab-paclitaxel | Pancreas | 41% | II | 17.5% | 1600 | 2029 | 14.4 | |
| nadunolimab | CAPAFOUR | FOLFIRINOX | Pancreas | 12% | I | 17.5% | 700 | 2030 | 1.6 | |
| CIRIFOUR | PD-1 inhibitors | NSCLC | 18% | II | 17.5% | 1200 | 2029 | 4.7 | ||
| TRIFOUR | Carboplatin/gemcitabin | TNBC | 16% | I | 17.5% | 500 | 2028 | 2.1 | ||
| CESTAFOUR | Chemotherapy basket | NSCLC, Colon, Biliary | 9% | I | 17.5% | 700 | 2029 | 1.0 | ||
| AML | VEN–AZA | Leukemia (AML) | 7% | I | 17.5% | 700 | 2029 | 1.0 | ||
| 4547 | 25 | |||||||||
| CAN10 | Monotherapy | Systemic sclerosis | 11% | I | 700 | 2030 | 588 | 3.2 | ||
| Overhead (incl. taxes) (SEKm) | -1267 | -6.9 | ||||||||
| EV (SEKm) | 3869 | |||||||||
| Net cash (SEKm) | 255 | 1.4 | ||||||||
| Total value (SEKm) | 4124 | 22 | ||||||||
| Equity issue (SEKm), net | 175 | |||||||||
| Fully diluted (SEK) | 18 | |||||||||
| Source: Redeye Research, SEK/USD=10.5 |
Our bull case is SEK30 while our bear case is SEK8.
Financials
| Income statement | |||||
| SEKm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Revenues | 0.00 | 0.00 | 0.00 | 0.00 | 880.6 |
| Cost of Revenue | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Operating Expenses | 370.3 | 381.6 | 295.3 | 192.4 | 288.5 |
| EBITDA | -370.3 | -381.6 | -295.3 | -192.4 | 592.1 |
| Depreciation | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Amortizations | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| EBIT | -370.3 | -381.6 | -295.3 | -192.4 | 592.1 |
| Shares in Associates | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Interest Expenses | 0.00 | 1.5 | 2.9 | 0.00 | 0.00 |
| Net Financial Items | 3.8 | 9.7 | 12.1 | 0.00 | 0.00 |
| EBT | -366.5 | -371.8 | -283.2 | -192.4 | 592.1 |
| Income Tax Expenses | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Net Income | -366.5 | -371.8 | -283.2 | -192.4 | 592.1 |
| Balance sheet | |||||
| Assets | |||||
| Non-current assets | |||||
| SEKm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Property, Plant and Equipment (Net) | 3.1 | 7.4 | 7.4 | 7.4 | 7.4 |
| Goodwill | 0.00 | 0.00 | -0.04 | 0.04 | 0.04 |
| Intangible Assets | 6.5 | 5.6 | 5.6 | 5.6 | 5.6 |
| Right-of-Use Assets | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Other Non-Current Assets | 0.00 | 0.00 | 33.5 | 0.00 | 0.00 |
| Total Non-Current Assets | 9.6 | 13.0 | 46.4 | 13.0 | 13.0 |
| Current assets | |||||
| SEKm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Inventories | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Accounts Receivable | 4.6 | 2.5 | 0.00 | 0.00 | 70.4 |
| Other Current Assets | 26.7 | 32.7 | 0.00 | 0.00 | 17.6 |
| Cash Equivalents | 559.4 | 426.7 | 198.8 | 231.4 | 858.7 |
| Total Current Assets | 590.7 | 461.8 | 198.8 | 231.4 | 946.7 |
| Total Assets | 600.2 | 474.8 | 245.2 | 244.4 | 959.7 |
| Equity and Liabilities | |||||
| Equity | |||||
| SEKm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Non Controlling Interest | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Shareholder's Equity | 532.7 | 389.7 | 165.5 | 198.2 | 790.2 |
| Non-current liabilities | |||||
| SEKm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Long Term Debt | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Long Term Lease Liabilities | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Other Long Term Liabilities | 0.89 | 0.02 | 0.02 | 1.7 | 1.7 |
| Total Non-Current Liabilities | 0.89 | 0.02 | 0.02 | 1.7 | 1.7 |
| Current liabilities | |||||
| SEKm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Short Term Debt | 0.57 | 0.34 | 0.34 | 0.34 | 0.34 |
| Short Term Lease Liabilities | 0.00 | 0.00 | 0.00 | 0.04 | 0.04 |
| Accounts Payable | 34.5 | 37.9 | 24.1 | 0.00 | 105.7 |
| Other Current Liabilities | 31.5 | 46.8 | 55.1 | 44.1 | 61.7 |
| Total Current Liabilities | 66.6 | 85.1 | 79.6 | 44.5 | 167.8 |
| Total Liabilities and Equity | 600.2 | 474.8 | 245.2 | 244.4 | 959.7 |
| Cash flow | |||||
| SEKm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Operating Cash Flow | -346.4 | -358.9 | -286.9 | -192.4 | 627.3 |
| Investing Cash Flow | -0.31 | -7.1 | 0.00 | 0.00 | 0.00 |
| Financing Cash Flow | 0.00 | 223.9 | 59.0 | 225.0 | 0.00 |
Rating definitions
The team
Disclosures and disclaimers
Contents
Investment thesis
Quality Rating
Events since our last comment
Financial results
Valuation
Financials
Rating definitions
The team
Download article