The Superbiotech

2017-09-14 15:48, Edited at: 2017-09-14 17:41

Few companies can be considered Superbiotechs - I have identified one : NUEVOLUTION

There are three different kinds of Biotech companies, The Wannabe Biotech, the Traditional Biotech and the Superbiotech. Borders are of course hazy but anyhow – it is one sort of classification for understanding risks and rewards when investing in Biotech.

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In my mind, there are three types of Biotech companies:

The Wannabe Biotech is usually in the pre-clinical stage or possibly early clinical testing – they are usually listed on a smaller exchange such as Aktietorget or NGM and sometimes at First North – these companies usually have one focus (sometimes called “one-trick ponies”) – their cash position is limited and many of them fight to have an adequate and steady news flow to keep the stock price reasonable since they need to be “spoon fed” by the stock market. The business is usually limited to one area/disease, i.e. rather narrow, and carries both high financial and operational risks.

The Traditional Biotech has usually a more diversified business model and acts with main products mostly in Phase 1 or Phase 2 and a few related or unrelated in the pre-clinical stage. Valuation can often be calculated with traditional pharma probabilities and the end game is often licensing or being acquired. The financing is often, if possible, larger share issues/licensing deals while operational focus is not narrow, but still rather focused. Depending on case, the risks (both operational and financial) are usually moderate to high.

The Superbiotech on the other hand could be considered to be sort of multiple Wannabe Biotech, with a technology that is geared for having several parallel discovery & development process in the hottest of areas for Big Pharma. The superbiotech can have several shoots at various targets on-going at the same time, often at pharmaceutical targets where ambition is to be “first-in class” with very high value potential, especially if a cheaper and more efficient drug can be developed. The superbiotech has a strong cash position, strong relations to big pharma and strong negotiation power given the strong financial position. Operational risk are clearly high in each individual pre-clinical/Phase 1 setting but with 5-15 projects ongoing all the time the operational portfolio risk is very moderate.

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NUEVOLUTION – THE SUPERBIOTECH

What’s in store for the coming six months for Nuevolution – this period, September 2017 to February 2018 could be superhot for Nuevolution. The reasons for this are:

1.      Almirall – Up listing to main list – Strategic flexibility

• Almirall IND/Phase 1 milestone(s) of about 15-25 M€ (my estimate) are likely within months based on management comments lately
• The company is fully prepared for an up listing to Small Cap on the main list
• Both these above allow for increased strategic flexibility of the pipeline – a luxury to only get onboard deals that are really good, or continue develop in house

2.      The Cytokine X project replacing a very well known monoclonal antibody (likely a blockbuster)

• Secret for competitive reasons, i.e. likely very high value if successful as an oral “first-in class”
• A chemistry challenge, also for the skilled medicinal chemists at Nuevolution, is to find an optimal balance between biostability and activity at target
• Moving forward in lead optimization but management does not disclose any timeline but indicates an update going forward…
• Successful lead optimization/disclosure likely to trigger high expectations

3.       Loads of biology data before end of 2017

• Inverse ROR gamma – In vivo conclusions in November 2017. Positive data open up for several Th17 opportunities like IBD and other autoimmune diseases outside the Almirall license. Hot field with several players, both timewise somewhat before and many after.
• BET inhibitor – back up candidate in place “soon” – superhot area where Nuevolution is almost alone in the autoimmune area with its selective, and so far benign inhibitor (other players are focusing on cancer and cardiovascular) – secure optimal indication (e.g. Lupus/Psoriasis etc) before end of 2017, likely “first-in-class”
• ROR gamma agonist – into red hot immuno oncology – data before year end 2017 – if positive, animal models in 2018
• GRP78- in cooperation with UK Cancer institutions which are to present biology data before year end 2017

4.      Probably largest substance library in the world – 40 trillion compounds and Amgen deal

• “Library is generating better data than was hoped for”
• Amgen cooperation already at around 4-6 different disease targets, first two already moving into animal studies.
• Amgen deal is a black box – possible surprises ahead but not likely in 2017

5.       Long term Blue Sky opportunities

• Partnerships with worldwide very known research groups
• Membrane bound proteins (GCPR etc) are now technically possible to target – large area of interest for pharma together with Nobel laureate Lefkowich in Boston
• Leukemia diseases without medical treatment, first hits obtained, with professor Helin in Denmark

6.      Share price assessment

• Share price hoovering around Redeye bear case
• High potential for revaluation coming six months based on:
  • Almirall milestone(s)
  • Up listing
  • News from biology data re several compounds in the pipeline
  • Pipeline well known with Big Pharma scouts
• Positive developments, especially relating to milestone payments and up listing, likely to trigger increased analyst attention and upward revisions of recommended share price. Downside risk seems small as of today.

Holding on to position and possibly increasing on present low pricing.