The Q4 2023 report in itself came in without any significant surprises, the total OPEX, which is very highly correlated to the burn rate for the company at this stage, was cSEK-1.3m, against our estimates of cSEK-0.7m. Although this is a large miss in relative terms, most of the difference can be derived from costs associated with “closing the year”. We are choosing to look at OPEX as a proxy for cash burn given that speculating about changes in NWC is highly uncertain and unlikely to add much value. The company remains focused on securing a deal and is likely to maintain exceptionally tight cost control while it waits.

We slightly adjust our estimates for the upcoming year. We put more of the burn rate in Q4 2024e, and reduce the preceding three quarters slightly. The overall burn rate for 2024e remains almost identical. See the chart below for our assumptions of burn rate and cash position for the upcoming four quarters.

Another event worth mentioning is the SEK10m unconditional shareholder contribution between Respiratorius and Valcuria AB. Valcuria is a fully owned subsidiary of Respiratorius and the action is simply carried out to clean up the balance sheet for the parent company. It has no effect on the group level.

Given that Respiratorius is currently looking for a partner to take VAL-001 through a phase III trial and has no ongoing studies, one of the key aspects of the investment case relates to the more general sentiment on the biopharma deal market. If we take a look at the current state of venture totals, we can see that the market is currently at one of the lower points of the past few years. There was a three-quarter uptick up until Q4, but that trend unfortunately reversed again in Q4. By the number of rounds, the trend has been pointing downwards over the three past quarters, although we lack comparable data for the past few years.

If we look at another indicator of investor sentiment, the number and amount raised through IPOs, the bearish attitude is further confirmed. Up until Q4, there was a four-quarter streak of increases in the total value raised through IPOs, but that trend was also reversed in the latest quarter. In Q4 2023, there was just one IPO (Cargo Therapeutics), raising a total of USD300m.

It is worth clarifying that there is no direct causality between these statistics and the likelihood of Respiratorius securing a deal, and the outcome in Respiratorius’ case is likely to be determined to a much higher extent by firm-specific factors. Nevertheless, it is always good to have a feel for general investor sentiment when evaluating these parameters.

We make no major estimate changes following the report but slightly shift our estimates for OPEX to be heavier during Q4 2024e and slightly lower for the rest of the year. It should be noted, however, that if the company strikes a deal during the latter half of 2024e, these OPEX estimates will not apply regardless.

We value Respiratorius through a 2023e-2043e DCF model, with a WACC of 17.0% and a 40% estimated likelihood of a deal coming through. Our Base Case valuation is at SEK0.40 per share. Our Bull Case assumes 100% deal probability while holding all other parameters constant and remains intact at SEK1.0. Our Bear Case assumes no deal and amounts to SEK0.05, valuing the company based on its net cash position and recoverable technology value. See the table below for a summary of key aspects in the valuation: