Announced a rights issue

About a month ago, Alzecure announced a rights issue of up to SEK53m, plus an over-allotment option of an additional SEK15m, thus with the potential to raise SEK68m in total. The subscription price is SEK1.7 per share, and the issue is covered by subscription commitments (SEK18.8m) and guarantees (SEK14.7m) of 63%. In relation to the rights issue, Alzecure has secured a guarantee without a fee from Jan Lundberg of SEK1m, and he will, in return, be prioritized if the over-allotment option is exercised. Mr. Lundberg has a notable background in major pharmaceutical companies like AstraZeneca and Eli Lilly, where he served as the global head of R&D and was recently proposed as a new board member in Alzecure, which we argue is a solid addition to the board. Yesterday, the rights issue was also approved by an extraordinary board meeting.

Alzecure will use the proceeds to advance its Alzstatin program to candidate selection, take its TrkA-NAM candidate ACD137 through pre-clinical development, and further plan an upcoming phase II study with ACD856. The proceeds will also be used to cover overhead costs and business development-related costs. In the press release and yesterday’s report, Alzecure states that it has several ongoing discussions with potential partners and that a stronger balance sheet will improve its negotiation power. With the current cash position, a fully subscribed issue should last well into 2025, potentially throughout most of the year, but we note that it also depends on the number of activities initiated. We assume that Alzecure's strategy is to out-license one of its candidates, most likely ACD440 in our opinion, before initiating a phase II trial. As Alzecure now has a longer cash runway, we think that the company has more time to find the right partner, also coming from a better bargaining position. We push our estimates for an ACD440 deal into early 2025 (previously 2024), but note that it is challenging to predict the exact timing, and could also happen before or after.

Report in line

Alzecure’s Q1 report aligned well with expectations, with operating expenses amounting to SEK-10m and a cash position at SEK19m. We had already assumed a rights issue of SEK60m at SEK1.65 per share, ie, close to what we assume is the net proceeds of the full rights issue and overallotment option. During the quarter, the company presented new data on ACD856 at AD/PD in Lisbon, discussing its potentially disease-modifying and neuroprotective effects. Specifically, the data showed that the substance has memory-enhancing and growth-stimulating effects. As we have previously written, Alzecure's Trk-PAM target has been validated by Eisai’s investments in its TrkA-PAM drug candidate E2511, which is in clinical development. Compared to E2511, ACD856 also boosts BDNF, a validated mechanism that relates to memory and learning. During the quarter, Alzecure also advanced ACD137 as a drug candidate as part
of its TrkA-NAM platform and moved into preclinical development. While early stage, the
target is well established, including by Japanese company Asahi Kasei, which recently advanced its TrkA-NAM project into phase IIb targeting osteoarthritic pain. It could be an early target for a deal. The company also strengthened its patent portfolio for ACD856 in six countries. Overall, the company is continuing to create awareness around its candidates and will, with the strengthened cash position, continue the development of its several platforms.

Tweak our valuation

We have tweaked our dilution assumptions somewhat following the announcement of the rights issue, and assume that the rights issue is fully subscribed. We will return to this assumption once the outcome is announced. We also make some FX assumptions and somewhat push our deal assumption for ACD440 following the assumed extended cash runway. This leads to a new base case of SEK13 (13.5) per share.