Lipigon Q4 2023: Phase II study approved
Research Update
2024-02-23
07:10
Redeye comments on Lipigons fourth quarter report. We discuss Lipigon's phase II study, other projects and the financial situation.
RR
Richard Ramanius
Contents
Investment thesis
Quality Rating
Outlook
Financial results
Valuation
Financials
Rating definitions
The team
Download article
Lipisense
In February, the Swedish Medical Authority approved Lipigon’s phase IIa application. 26 patients (of which 13 in the placebo group) will be recruited in 3-4 centres, the plan being to have the first patient treated in March and the last patient treated by H2 2024. Patients will have more than 5mmol/l of triglycerides (which is almost 500 mg/dL) and 5-10 higher levels of ANGPTL4 than normal. While this is, first and foremost, a safety study in patients (phase I was in healthy volunteers), several efficacy measures will also be investigated, including triglycerides, remnant cholesterol and glucose levels. This is essential to position Lipisense in the cardio-metabolic space, where a drug should show more than just triglyceride lowering to have a good chance of reaching the market. This is a cost-effective trial since Lipisense material from phase I can be used resulting in a cost for the trial similar to the proceeds from the rights issue in 2023 (cSEK23m). Lipigon is also preparing the phase I report which should be available in H1 2024.
Other projects
In February, Combigene terminated its licensing agreement for the lipodystrophy project (P2). We remove it from our valuation, but its value was negligible compared to Lipisense, being in a very early stage, so it does not impact our valuation of the Lipigon share. P3, the LPL project in dyslipidaemia, is continuing with the goal of having a stop/go decision by the summer of 2024. Management thinks this project could be out-licensed at an early stage, even before preclinical development. P4, targeting ANGPTLA4 in lung conditions (ARDS), is also active; Lipigon could find a lead candidate this year. It is discussing a further potential collaboration in the US.
Valuation and financial situation
Lipigon received cSEK13m net from TO2 in December, with a 91% subscription rate, and is thus comparatively well-funded with a cash position of SEK32m. A further milestone payment should be due when Leaderna initiates phase I. Further proceeds should be obtained from TO3 in May-June. We maintain our fully diluted base case of SEK2.5.
Key financials
| SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Revenues | 0.39 | 17.0 | 14.8 | 26.8 | 97.7 |
| Revenue Growth | -87.9% | 4298% | -12.7% | 80.8% | 265% |
| EBITDA | -37.7 | -12.8 | -18.6 | -25.2 | 70.2 |
| EBIT | -37.7 | -12.9 | -18.6 | -25.2 | 70.2 |
| EBIT Margin | -9756% | -75.8% | -125% | -94.2% | 71.8% |
| Net Income | -37.6 | -12.6 | -18.6 | -25.2 | 108.1 |
| EV/Sales | 11.1 | 0.8 | 1.7 | 1.9 | -0.5 |
| EV/EBIT | -0.1 | -1.1 | -1.4 | -2.0 | -0.8 |
Investment thesis
Case
Lipisense targets attractive patient groups relevant to Big Pharma
Evidence
Positive phase I and partnership with Leaderna
Challenge
Weak biotech sentiment and dependence on further financing
Challenge
Efficacy results from phase IIa
Valuation
Fundamentally undervalued
Quality Rating
People: 3
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 upfront.
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 its main candidate in a phase I study and is ready for a phase II study. Lipigon's industry, pharmaceuticals, has high margins and a clear product protection via patents. It is mostly non-cyclical. For research companies like Lipigon the situation is different, though, with risks associated not just with clinical development but also with the (cyclical) stock market, where capital requirements are large and often handled via new issues.
Financials: 0
Lipigon is funded through 2024. A licensing deal after excellent phase II data, demonstrating triglyceride reduction, may be possible and would significantly improve the company's financial situation. Otherwise, the company would need additional funds for the phase IIb trial before a potential exit, which may become available, in part, through the warrants TO3, milestones from Leaderna and the EIC Accelerator programme.
Outlook
The full phase I report has not yet been published but will be available soon. We expect to find out the effect on blood fats. However, since Lipisense should have more effect the higher the triglyceride levels, the effect on healthy volunteers could be minor. However, any evidence of a lowering would be welcome.
Diabetes patients will be recruited to the phase II study to better be able to study the effect on glucose levels. The study is necessarily not powered to show a statistical reduction of triglycerides, unless the reduction is very high. However, one has to consider that levels vary significantly between patients, and that levels can vary by 30% daily in individuals, which makes measurement challenging. The doses given in the phase I study were long-lasting with the best effect seen after 90 days in the MAD cohorts, suggesting the highest MAD dose could be enough to have a good efficacy. The dosing schedule in a phase IIb study would likely be different with several dose levels and less frequent dosing.
There is some development in the dyslipidaemia space with several competing projects in severe hypertriglyceridemia. Olezarsen (Ionis) will likely achieve regulatory approval in the US by the end of this year in familial chylomicronaemia syndrome after a positive phase III readout last year. ARO-APOC3 (Arrowhead) is being tested in a phase III trial in the same indication with an expected first readout in Q2 2024 or shortly thereafter. Both these drugs target Apolipoprotein C-III and will likely expand their indications to severe hypertriglyceridemia (concurrent with a decrease in pricing) – olezarsen is already undergoing a phase III study. Pegozafermin (an FGF21 analogue from 89bio) is also in a phase III trial in SHTG, having shown triglyceride reductions between 36%-63% across all treatment arms in a phase II study. Although this might mean there will be some competition for Lipisense, it could also increase pharma’s interest in this indication, which is underserved by currently available therapies (including statins and fibrates). Lipisense could have an advantage over the competition by having an effect on cardio-metabolic symptoms.
Financial results
Costs were SEK-7.8m in Q4, similar to previous quarters in 2023. The operating cash flow was similar at SEK-7.5m. The cash position as of the last of December was SEK32m which should fund operations in 2024 and the phase II trial which has a readout in early 2025. More funding could be obtained from TO3 and a milestone if Leaderna initiates phase I in China as planned.
Valuation
We make minor changes to our valuation model with a base case of SEK2.5 (SEK2.5). Our bull case is SEK4.6 (with a success rate in phase II of 100%) while our bear case is SEK0 (reflecting an unsuccessful outcome of Lipigon’s current clinical trial).
| Sum-of-the-parts valuation: | ||||||
| Development | Peak sales | Potential | Risk adjusted | |||
| Project | Indication | stage | (USDm) | launch year | LOA | NPV |
| Lipisense | SHTG | Phase II ready | 710 | 2030 | 16% | 439 |
| Overhead organization | -61 | |||||
| Net cash | 32 | |||||
| Total NPV | 410 | |||||
| No. Shares (million) | 126 | |||||
| Per share | 3.2 | |||||
| TO3 | 6.2 | |||||
| Fully diluted per share | 2.5 | |||||
| Source: Redeye Research | ||||||
Financials
| Income statement | |||||
| SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Revenues | 0.39 | 17.0 | 14.8 | 26.8 | 97.7 |
| Cost of Revenue | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Operating Expenses | 38.0 | 29.8 | 33.4 | 52.0 | 27.5 |
| EBITDA | -37.7 | -12.8 | -18.6 | -25.2 | 70.2 |
| Depreciation | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Amortizations | 0.00 | 0.02 | 0.00 | 0.00 | 0.00 |
| EBIT | -37.7 | -12.9 | -18.6 | -25.2 | 70.2 |
| Shares in Associates | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Interest Expenses | -0.02 | 0.00 | 0.00 | 0.00 | -4.0 |
| Net Financial Items | 0.04 | 0.25 | 0.00 | 0.00 | 12.0 |
| EBT | -37.6 | -12.6 | -18.6 | -25.2 | 82.2 |
| Income Tax Expenses | 0.00 | 0.00 | 0.00 | 0.00 | -21.9 |
| Net Income | -37.6 | -12.6 | -18.6 | -25.2 | 108.1 |
| Balance sheet | |||||
| Assets | |||||
| Non-current assets | |||||
| SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Property, Plant and Equipment (Net) | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Goodwill | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Intangible Assets | 0.00 | -0.02 | -0.02 | -0.02 | -0.02 |
| Right-of-Use Assets | -0.02 | -0.02 | -0.02 | -0.02 | -0.02 |
| Other Non-Current Assets | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Total Non-Current Assets | -0.02 | -0.04 | -0.04 | -0.04 | -0.04 |
| Current assets | |||||
| SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Inventories | 0.07 | 0.00 | 1.5 | 2.7 | 9.8 |
| Accounts Receivable | 0.00 | 0.00 | 1.2 | 2.1 | 7.8 |
| Other Current Assets | 1.1 | 1.6 | 1.2 | 2.1 | 7.8 |
| Cash Equivalents | 9.6 | 31.9 | 19.6 | -6.1 | 99.2 |
| Total Current Assets | 10.8 | 33.6 | 23.5 | 0.87 | 124.6 |
| Total Assets | 10.8 | 33.5 | 23.4 | 0.83 | 124.5 |
| Equity and Liabilities | |||||
| Equity | |||||
| SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Non Controlling Interest | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Shareholder's Equity | 3.9 | 28.4 | 9.9 | -15.4 | 92.7 |
| Non-current liabilities | |||||
| SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
| 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 | 0.00 | 0.00 | 8.4 | 8.4 | 8.4 |
| Total Non-Current Liabilities | 0.00 | 0.00 | 8.4 | 8.4 | 8.4 |
| Current liabilities | |||||
| SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Short Term Debt | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Short Term Lease Liabilities | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Accounts Payable | 0.00 | 2.4 | 1.8 | 3.2 | 11.7 |
| Other Current Liabilities | 6.9 | 2.7 | 3.2 | 4.4 | 11.5 |
| Total Current Liabilities | 6.9 | 5.2 | 5.0 | 7.7 | 23.3 |
| Total Liabilities and Equity | 10.8 | 33.6 | 23.3 | 0.71 | 124.4 |
| Cash flow | |||||
| SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Operating Cash Flow | -37.5 | -13.3 | -18.5 | -25.7 | 105.2 |
| Investing Cash Flow | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Financing Cash Flow | 18.6 | 36.7 | 6.2 | 0.00 | 0.00 |
Rating definitions
The team
Disclosures and disclaimers
Contents
Investment thesis
Quality Rating
Outlook
Financial results
Valuation
Financials
Rating definitions
The team
Download article