Vicore Pharma Holding AB (VICO-SE): Pipeline on track at FY2018. Moving to IFRS

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Published to the market and investors on 26^th March 2019 @ 7.55am (GMT).

Vicore Pharma Holding AB (VICO-SE): Pipeline on track at FY2018. Moving to IFRS
Recommendation: OUTPERFORM
Target Price: SEK 42.00
Current Price: SEK 16.00 (CoB on 25^th March 2019)

KEY TAKEAWAY

Vicore published FY2018 results that were broadly in line with our forecasts and reflect a c.45% increase in operating expenses as a result of the integration of INIM Pharma (acquired in July 2018). Of note, this is the first set of accounts presented in IFRS (previously K3). The change in accounting standards is a necessary step ahead of the planned up-listing to the Nasdaq Stockholm later this year. The main impact is that R&D costs are no longer capitalised in the balance sheet, but expensed in the P&L in the period in which they are incurred. Restructuring our model has increased our forecasts for operating and net loss in all years, but there is no impact on our revenue and free cash flow forecasts for Vicore's two lead product candidates, VP01 (C21) and VP02. Hence, both our valuation and target price ("TP") remain unchanged at SEK42 per share and we reiterate our OUTPERFORM recommendation.

R&D ramping up as VP01 and VP02 move forward

Vicore reported an operating loss of SEK44.2m in FY2018, c.55% higher than in the prior year, due largely to a c.45% increase in operating expenses associated with a doubling of personnel expenses and a step-up in R&D costs. These reflect both the integration of INIM Pharma and the ongoing Phase I trial for lead asset VP01 in idiopathic pulmonary fibrosis ("IPF"). The net loss was SEK21.7m, benefiting from net financial income related to the I-Tech shares, which were distributed to shareholders prior to the INIM acquisition completing. With VP01 expected to enter a Phase IIa proof-of-concept ("PoC") trial in IPF in Q3/2019E and VP02 a first-in-human trial in IPF cough in early 2020E, we anticipate further increases in operating expenses in the coming years, particularly R&D costs, which we expect will rise to SEK25m in 2019E and SEK35m in 2020E. We estimate that Vicore needs to spend SEK1.05bn - SEK1.25bn (c.EUR100m - EUR120m) in total to bring both assets to market in 2025E (VP02) /2026E (VP01).

Funded to YE2021E, beyond key value inflection points

Following two successful equity raises in Q4/2018 that added SEK242m to Vicore's balance sheet - a rights issue that raised SEK82.4m and a directed share issue that added SEK160m - Vicore is fully funded until YE2021E and as such beyond key inflection points, as the Phase IIa proof-of-concept ("PoC") trial for VP01 in IPF and the Phase I trial for VP02 in IPF cough should have read out by then. Key pipeline milestones anticipated this year include the following: [1] VP01: (a) completion of Phase I with extended dosing, (b) initiation of Phase IIa PoC in Q3/2019E, (3) selection of second indication; [2] VP02: (a) investigation of safety and kinetics, (b) completion of formulation work.

Valuation and SEK42 target price unchanged

Our TP is based on a sum-of-the-parts valuation that includes risk-adjusted net present values ("rNPVs") for VP01 in IPF and VP02 in IPF cough, plus net cash at YE2019E.

Kind regards,

Brigitte de Lima | Analyst

goetzpartners Healthcare Research Team | Research Team

goetzpartners securities Limited

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