The Nuevolution “Easter Egg” is full of Goodies

2019-03-08 07:30

A new partnership deal and/or a milestone payment from Almirall and/or Amgen is likely to have the Nuevolution share price sky-rocket from present levels. The past three months have made, especially short term investors, concerned. Management has previously been able to manage investor expectations well but the deal expected late 2018 neither appeared in December, nor so far during 2019. As a result, concerns over the need for a new issue has pressured the share down from the 16-18 kr range to below 11 kr.

A new issue is not at all likely to appear during the first half of 2019. Firstly, the company has, as we speak, approximately 100-105 msek in cash. Its cost base is to 40-50% flexible - just look at costs in Q4-18 compared to previous quarters. Management has definitely the flexibility to extend the runway well into 2020. Secondly, most likely the major owners are putting pressure on the board & management to deliver a good deal and/or milestones before they are willing to open their wallets. Thirdly, I believe management has expectations of one or several old or new partner payments during the coming months, maybe already before Easter. E.g. a low event activity from the company presently, despite the drastic fall in the share price, and a management desire to soon have a Capital Market’s day are ingredients pointing in this direction.

The status of Nuevolution's pipeline would make many other biotech green of envy, despite the relatively early stage.

-The ROR gamma inhibitor partnered with Almirall in dermatology, e.g. psoriasis, will soon be in Phase 1. The inhibitor class is one of the hotter areas in inflammatory diseases and the Nuevolution/Almirall molecule is considered Best-In-Class. Competitors have either failed as a result of toxicology or are in Phase 1 with considerably higher dosing than what Nuevolution/Almirall need to have after their very thorough preparations and de-risking during in excess of two years.

-The internal ROR gamma inhibitor will likely enter Phase 1 simultaneously with the above but in Ankylosing Spondylitis. Also this molecule has Best-In-Class potential. As a result of the disease selection, this candidate can be developed far internally with licensing after Phase 2 or even be taken to market by the company.

-A partnership regarding the BET-BD1 inhibitor is probably next in line. This inhibitor is First-In-Class in inflammatory diseases (large area) and fibrosis (underserved area). It could also become an essential part in immunotherapy combos in cancer, one of the fastest growing large areas in pharmaceuticals. IND enabling studies can start within weeks and Phase 1 during second half of 2019. If a big pharma wants to acquire a full license we might see a deal of twice the size of the juicy Almirall deal or even bigger.

In summary the above points at Nuevolution having three exceptional (Best-In-Class/First-In-Class) candidates in Phase 1 during second half of 2019.

Apart from these nice facts earlier in the pipeline you find:

-The IL-17A inhibitor which is replacing expensive antibodies with a small molecule in cream or tablet form is also First-In-Class. It has potential to become a mega hit for the company as several players are expressing in interest albeit Phase 1 probably is 12-18 months away.

-The RIP & TYK inhibitors are recent additions to the official pipeline. Also these appear to have created intense market interest at the JP Morgan pharmaceutical conference in January.

-Lastly, but not least, the Amgen partnership seems to fare very well after two opt-ins from Amgen and at least two additional possibilities, probably more, in research phase. It is hard to predict how long time Amgen will wait to use its option to license the opt-ins. Each will render minimum 10 million dollars upfront to Nuevolution plus milestones up to 400 million dollars plus royalties.

To conclude, there are a lot of goodies in the Nuevolution’s “Easter Egg”. As a matter of fact, it would probably be good economy for Amgen, at some stage, sooner or later, to acquire Nuevolution. In the recent opt-ins, Amgen has truly understood what the Nuevolution technology & team is capable of delivering.

Given partnerships and pipeline, Nuevolution has to be considered as a very strong buy at levels below Redeye's base case (28 kr)