Income statement

The sales for Q1 came in at SEK1.7m (SEK0.3m), 55% under our sales estimate of SEK3.7m. The quarterly sales came from milestone payments from two projects (top 10 pharma company and Kiox Pharma). The sales came in SEK2.0m lower than our estimate; however, Iconovo’s sales have varied significantly historically, so we do not draw too many conclusions about the sales as they still consist of fairly low numbers, as expected.

Moreover, operating expenses (excluding “work for own use”) amounted to SEK-13.3m (SEK-16.7m) compared to our estimate of SEK-19.6m. The operating expenses mainly consisted of personnel costs (SEK-9.4m), which were a bit higher than our estimate of SEK-8.6m. We learned from the report that the increased personnel costs are related to increased pension costs. Moreover, the main difference between our OPEX estimate and the reported amount is the line item “Raw materials and supplies,” which came in at SEK-0.8m compared to our estimate of SEK-5.7m. The line item varies a lot and correlates to increased project sales. We expect this line item to increase during the upcoming quarters of 2024. Lastly, EBIT came in at SEK-9.6m (SEK-12.9m) compared to our estimate of SEK-14.6m. As mentioned, the main difference between actual EBIT and our estimate is the raw materials and supplies line item.

Cash position

Furthermore, the cash flow from operating activities was SEK-6.6m (SEK-13.1m), and by the end of the quarter, the cash and cash equivalents amounted to SEK39.1m. In February, Iconovo carried out a directed issue of SEK33.3m (before issue-related costs of SEK-3.1m). The discount was 12.1% compared to the share’s closing price the day before the announcement (February 15, 2024). In general, unprofitable companies have had difficulties raising capital during the last year, where high discounts and high dilutions have been the new normal. Therefore, we highlight Iconovo’s ability to raise capital at solid terms and its shareholder list. The directed issue was expected from our point of view and included in our model. However, the discount of 12.1% was better than our anticipated 20%.

Moreover, we argue that Iconovo’s cash position throughout 2024 will be highly dependent on the upcoming ICOpre deal. We estimate that Iconovo will receive SEK40m in an upfront payment. With that amount, we estimate the company will have a sufficient cash position until the end of 2024e. In our model, we anticipate a capital raising of SEK20m at the end of 2024e, followed by a capital raising of SEK30m in 2025e (in total SEK50m). However, note that, with these estimates, Iconovo will have a relatively solid cash position. As the company has a solid shareholder list and track record when it comes to raising capital, we argue there are no reasons to let the cash position come close to zero.

Our overall thought of the report and CEO message

Overall, the report came in better than anticipated because of lower costs than expected. However, except for the raw materials and supplies line item, the results did not include any significant surprises. The CEO message is positive towards the start of 2024, and we learned that the out-licensing process for ICOpre is progressing as planned, and the company is working to reach a favorable agreement with a suitable partner. However, we note that the previously estimated timeline (a deal during the first half of 2024) is not mentioned in the message. As only a couple of months are left of the second quarter, we believe there could be a scenario where Iconovo reaches an agreement a bit later than expected. We highlight that the structure of the deal is more important than if the deal is struck at the end of Q2 or at the beginning of Q3. However, for now, we continue to expect a deal during Q2, where we estimate an upfront payment of SEK40m.

Order from top-ten pharma company

Iconovo announced it has received an order from a pharma company that, revenue-wise, is one of the top ten largest in the world. We learn that the order consists of an evaluation of a multi-dose inhaler from Iconovo in an in-vitro study to assess the suitability of using the inhaler in developing an originator medicine.

In our base case forecast, we anticipate net three CDMO agreements per year, i.e., new agreements minus existing customer attrition (in line with Iconovo’s target of 3-5 new agreements annually until 2027e). Moreover, in our forecast, the average value per agreement is SEK2.5m per year. Therefore, we argue that this order value of SEK220,000 should be considered low; however, we believe the possibility of further collaboration with the customer is something to keep an eye on in the future, as it could lead to much higher order values.

New deal with Kiox Pharma

Moreover, the company made a deal to keep developing formulations with the Danish company Kiox Pharma, which focuses on treating rare lung diseases. This deal builds on the partnership the two parties started last year. With this new agreement, Iconovo is set to earn SEK2.7m in 2024. That is on top of the SEK1.6m it received in 2023.

Directed issue

As mentioned, Iconovo announced a directed issue of SEK33.3m (before issue-related costs) in February. The directed issue involved offering a total of 4,162,500 shares, split into two parts. The first part, called "Tranche 1," included 2,350,000 shares worth SEK18.8m, approved by the Board of Directors based on authorization from the annual general meeting held on October 27, 2023. The second part, "Tranche 2," comprised 1,812,500 shares valued at SEK 14.5 million.

Existing shareholders such as Gerald Engström (via Färna Invest), Fjärde AP-fonden, Andra AP-fonden, Cicero Fonder, Mats Leander, and Jan Karlander participated in the share issue. Additionally, new shareholders like Landia, Bolite, Akonit, Jacob Grapengiesser, and Gerhard Dal joined the company through this initiative.

The subscription price for the share issue was SEK8.0 per share, representing a discount of about 12.1% compared to the closing price of the company's share on Nasdaq First North Growth Market on February 15, 2024. Iconovo received SEK33.3m from the directed issue (before issue-related costs of SEK-3.1m).

Tranche 1 increased Iconovo's outstanding shares by 2,350,000, from 11,755,875 to 14,105,875, and its share capital by SEK235,000, from SEK1,175,587.50 to SEK1,410,587.50, causing a dilution effect of approximately 16.7% based on the total number of shares and votes after Tranche 1. Tranche 2 added another 1,812,500 shares, increasing the outstanding shares to 15,918,375 and the share capital to SEK1,591,837.50, resulting in an additional dilution effect of about 11.4%. Overall, the share issue led to a total dilution effect of roughly 26.1% based on the total number of shares and votes in Iconovo after completion.

The net proceeds from the share issue will be used to:

Support for introducing Iconovo in South Korea

In March, Iconovo secured a SEK680,000 grant from Innowwide. This funding will support a market study aimed at introducing the company's offerings to the South Korean market. The project, scheduled from April to September 2024, is part of Iconovo's Accelerator program. South Korea's rapid growth in biopharmaceutical manufacturing makes it an attractive target for expansion. Through collaboration with local partner E&J Corporation, Iconovo will analyse the market, engage with potential clients and industry leaders, and create a strategic entry plan for South Korea.

The Iconovo share is down c25% during 2024 and c75% during the last 12 months. The stock market climate has been particularly challenging in recent years, with investors exercising caution, especially in high-risk, non-profitable companies. Moreover, we argue that Iconovo has high potential; however, we believe that the market wants to see some proof of sales as many investors are more restrictive in investing only in potential.

Furthermore, we argue that the upcoming ICOpre licensing deal could act as a solid trigger for the share from a short-term perspective. Currently, there is a significant gap of c180% between current share price levels and our base case. We do not believe that a solid outlicensing deal for ICOpre could close the valuation gap. However, a solid deal, together with a better stock market climate and ICOres sales from 2025e, should be positive for the share price development, which could close the valuation gap during the next 18-24 months.

In our view, except for some single line items, the report did not include any major surprises. Our overall thought of the report is positive, as Iconovo is keeping costs at reasonable levels. We have chosen to only make some minor estimate changes to our 2024e estimates. Firstly, we decrease sales during Q2-Q4 by around SEK2.1m and make minor changes to our personnel costs and raw material and supplies estimates. In conclusion, we expect FY 2024e sales of SEK53.3m and an FY EBIT of SEK-21.2m.

We argue that Q2 2024 will be a significantly important quarter for Iconovo. The upcoming outlicensing deal for ICOpre could act as a solid trigger for the share and is essential for our forecasts and investment case.

In our base case, we expect the deal to consist of an upfront payment of SEK40m and estimate total sales of SEK43.1m for the whole quarter. Moreover, we expect OPEX to increase a bit during Q2 (mainly an increase in raw materials and supplies), resulting in an EBIT of SEK24.6m.

The minor estimate changes that we have made do not affect our fair value range, based on our DCF (Discounted cash flow) model between 2024e-2037e, applying a WACC of 15%, a terminal growth rate of 2% and a terminal EBIT margin of 35%. Our fair value range consists of a base case of SEK24, a bull case of SEK43, and a bear case of SEK7. The Iconovo share is currently traded close to our bear case. We argue that an upcoming outlicensing deal for ICOpre is the share's number one short-term trigger, which should decrease the valuation gap to our base case.

Base case: SEK24

In our base case scenario of SEK24, we anticipate a significant boost in sales, reaching SEK53.3m in 2024e due to the licensing fee associated with ICOpre. This growth trajectory continues with the European launch of ICOres (Symbicort) by Amneal in 2025e, followed by Iconovo Pharma’s launch in the Nordic region in 2026e. We project Amneal secures a market share of 20% by 2032e, assuming a royalty rate of 7.5% for Iconovo. Additionally, we estimate a 7% market share for Iconovo Pharma by 2032e, translating into sales of SEK85.5m. Anticipating a licensing agreement for ICOpre in the first half of 2024e, we assume a signing fee of SEK40m. In our base case, ICOpre (Breo/Relvar) debuts in Europe in 2027e upon expiry of the European patent. We project a royalty rate of 7.5%, with the partner potentially attaining a 10% market share by 2032e, resulting in Iconovo royalties of SEK112m. Iconovo Pharma is also expected to handle the Nordic market, capturing a 2.5% market share by 2032e, amounting to sales of SEK58m.

Our projections for ICOcap (Ultibro/Seebri) indicate minor sales starting from 2026e, totalling around SEK2m–9m. Additionally, Iconovo aims to secure 3–5 CDMO agreements annually. In this scenario, we estimate net three agreements per year, with an average value of SEK2.5m. Overall, we anticipate total sales reaching SEK186m by 2027e, reflecting a 126% sales CAGR between 2023 and 2027e. We expect the company to achieve positive EBIT by 2026e, reaching SEK13m, and for profitability to rise by 2027e, with an EBIT margin of 30.8%. Our model incorporates capital raises totalling SEK50m, using a 20% discount to current share price levels. Additionally, we include a terminal growth rate of 2% and a terminal EBIT margin of 35% in our analysis.

Bull case: SEK43

In our more optimistic bull case, valued at SEK43, we project Iconovo’s products capturing a greater market share than in our base case. This heightened market presence is attributed to a higher prioritisation and increased investment commitment from Iconovo’s partners, leading to more rapid sales ramp-up. Note, however, that in this optimistic scenario, we anticipate Iconovo’s costs to be approximately 10–15% higher throughout the forecasting period.

Specifically, we anticipate Amneal securing a market share of 25% for ICOres by 2032e, assuming a royalty rate of 7.5%. This translates into royalties of SEK135.5m by 2032e. We also expect Iconovo Pharma to gain a 10% market share in the Nordic market, contributing to substantial sales estimated at SEK122.2m. Moreover, we project a licensing deal for ICOpre in the first half of 2024e, including a signing fee of SEK50m and annual milestones (SEK15m per year) until the European launch of ICOpre (Breo/Relvar) in 2027e. For the European and Nordic markets, we expect respective market shares of 12% and 5% by 2032e. This corresponds to European sales of SEK134m (assuming a 7.5% royalty rate) and Nordic sales via Iconovo Pharma totalling SEK117m.

In this bullish scenario, we continue to expect minor ICOcap (Ultibro/Seebri) sales throughout the forecasting period, with sales up to SEK10m. Additionally, Iconovo should enter into net four feasibility agreements (CDMO) annually, each valued at an average of SEK2.5m per year. As a result, we anticipate total sales reaching SEK257m by 2027e. Furthermore, we predict the company will achieve profitability in 2026e, with sales totalling SEK148m and EBIT reaching SEK19m. Lastly, our model incorporates a terminal growth rate of 2% and a terminal EBIT margin set at 40%.

Bear case: SEK7

In our more pessimistic bear case scenario valued at SEK7, we expect Iconovo’s products to secure a smaller market share than in our base case. This reduced market presence is due to lower prioritisation and investment commitment from Iconovo’s partners, leading to a slower sales ramp up.

Specifically, we assume Amneal will capture a 15% market share for ICOres by 2032e, assuming a royalty rate of 7.5%. This results in sales of SEK81m by 2032e. We also expect Iconovo Pharma to gain a 4% market share in the Nordic market, contributing to sales estimated at SEK49m. Moreover, we project a licensing deal for ICOpre in 2024e, including a signing fee of SEK30m and annual milestones of SEK10m until the European launch of ICOpre (Breo/Relvar) in 2027e. We anticipate respective 8% and 1.5% market shares by 2032e for the European and Nordic markets. This corresponds to European sales of SEK60m (assuming a 7.5% royalty rate) and Nordic sales via Iconovo Pharma, totalling SEK35m.

In this bearish scenario, we still anticipate minor ICOcap (Ultibro/Seebri) sales at around SEK1m– 6m throughout our forecasting period. Additionally, we project Iconovo to enter into two net feasibility agreements (CDMO) annually, each valued at an average of SEK2.5m. Consequently, we expect total sales to reach SEK126m by 2027e and project the company to become profitable in 2028e, with sales totalling SEK165m and EBIT reaching SEK20m. Moreover, in this scenario, we estimate Iconovo will raise SEK70m (SEK50m in our base case) through rights issues, and we assume a discount of 40% (20% in our base case) to current share price levels. Lastly, our model includes a terminal growth rate of 2% and a terminal EBIT margin set at 30%.