blockbuster orphan potential fair value range · blockbuster orphan potential redeye initiates...

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Redeye, Mäster Samuelsgatan 42, 10tr, Box 7141, 103 87 Stockholm. Tel. +46 8-545 013 30, E-post: [email protected]

Initiation of Coverage

Equity Research 25 June 2020

KEY STATS

Ticker VICO

Market First North

Share Price (SEK) 14.8

Market Cap (MSEK) 787

Net Debt 20E (MSEK) -182

Free Float 73 %

Avg. daily volume (‘000) 270

BEAR BASE BULL

15

48

100

KEY FINANCIALS (SEKm)

2018 2019 2020E 2021E 2022E 2023E

Net sales 1 0 0 0 0 0

EBITDA -42 -94 -83 -134 -133 -280

EBIT -42 -94 -83 -134 -133 -280

ANALYSTS

Ludvig Svensson

[email protected]

Anders Hedlund

[email protected]

Blockbuster Orphan Potential

Redeye initiates coverage of Vicore Pharma, a clinical stage biotech name, focusing

primarily on rare fibrotic disorders. An investment in Vicore offers highly attractive

risk/reward at current levels, in our view. Its lead candidate is pursuing three phase II

trials, including an interesting long shot at Covid-19. The compelling case also benefits

from a distinguishing ability to bring drugs to market without partners, a solid cash

position and strong owners.

Several Shots at Goal…

Vicore’s lead candidate, the first-in-class AT2R agonist VP01, will soon be evaluated in

three simultaneous Phase II trials (IPF; SSc-ILD & Covid-19). In addition, its pipeline also

includes the preclinical asset, VP02. VP02 is a reformulation of an immunomodulatory

drug, a drug class already clinically validated with sales of over USD10bn in blood cancer.

… with IPF as Lead

We see particular potential in IPF, where a positive Phase II outcome could double our

assessed fair value. Indeed, if VP01 makes it to market, we forecast it might become a

blockbuster with peak sales above USD1bn. The IPF indication is currently risk-adjusted

at 30%. Further, IPF has commercial attractiveness. It was recently validated by a deal

between Promedior and Roche. Promedior received an upfront cash payment of

USD390m for its phase II IPF asset, plus potential milestone payments of up to USD1bn

Efficacy Inflection

Redeye initiates coverage with a Base Case of SEK 48 per share, which represents

upside potential of +200%. Over the next 24 months investor sentiment towards Vicore

should improve as we approach Phase II – especially as the trials could prove efficacy in

humans for the first time, which would mark a major value inflection point.

Vicore Pharma Sector: Biotech

REDEYE RATING

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FAIR VALUE RANGE

Financials

People

Business

REDEYE Equity Research Vicore Pharma 25 June 2020

2

Investment Case

Well-funded Orphan Play

Vicore Pharma is a clinical stage biopharma with a primary focus on rare fibrotic disorders.

The company’s core strategy of pursuing rare disorders should be attractive to investors as

it has the capacity to go to market on its own, even in multiple regions. Moreover, Vicore is

well funded and has a superior ownership base.

Several Shots at Goal…

Vicore’s lead candidate, the first-in-class AT2R agonist VP01, will soon be evaluated in

three simultaneous Phase II trials; IPF, SSc-ILD, as well as the bonus programme in Covid-

19. In addition, its pipeline also includes VP02. VP02 is a reformulation of an

immunomodulatory drug (IMiD), a drug class already clinically validated with sales of over

USD10bn in blood cancer. VP02 is currently in pre-clinical development, primarily aimed at

treating the severe cough in IPF.

With IPF as Lead…

We attribute most of the company’s value to VP01 in IPF, a rare fibrotic disorder. Even

though there are a couple of approved drugs on the market, there are significant unmet

medical needs to reduce side effects and improve quality of life. The medical need justifies

a blockbuster potential for VP01 in IPF alone.

Our in-depth analysis suggests a probability of 30% to make it to the market. It will be

crucial to present competitive data on efficacy and safety already in the ongoing phase II

study, which we expect to be presented in H1’22. For the phase II study alone, we propose

a probability of success of 50%.

IPF is becoming increasingly attractive from a commercial standpoint. With recent deals in

the field highlighting IPF’s commercial attractiveness, we also see Vicore as a potential

M&A target. In 2019, the US biotech Promedior received an upfront cash payment of

USD390m for its phase II IPF asset PRM-151, plus potential milestone payments of up to

USD1bn.

SOTP Suggests Upside

We initiate coverage of Vicore with a Base case of SEK 48 per share. We value Vicore

using a risk-adjusted sum-of-the-parts (SOTP) analysis. VP01 for IPF alone justifies a

valuation of two times the current market cap (SEK 32 per share).

At current levels, the case’s risk/reward is compelling, in our view. Investor sentiment

should improve as readouts from the Phase II trials approach, with Covid-19 first up in Q4.

dsfdsf REDEYE Equity Research Vicore Pharma 25 June 2020

3

Catalysts

Clinical Trial Readouts

Over the next 24 months Vicore should see study results from as many as five clinical trials.

Four of these are Phase II trials that are potentially transformative for the company since

they offer scope for it to show efficacy in humans for the first time.

The Phase II trial in IPF is the most significant value driver. A positive outcome, making

VP01 into a Phase III-ready asset, would lift our Base Case by another SEK 34.

Bear Points

Vicore faces many of the general risks associated with biotech. These include clinical

development risk, IP/patent risks, need for additional capital, regulatory risks, and sentiment

volatility. Investors should be aware of these when considering the biotech sector.

In the case of Vicore, we want to highlight the following risks:

Development Risk

With no efficacy data in humans yet presented, there is a risk of substantial setbacks. Any

of the ongoing clinical trials could fail to demonstrate meaningful clinical efficacy or

appropriate safety to support further development.

Competitive Market

The IPF market is highly competitive, with many agents in clinical development. Strong

clinical data will be crucial. If VP01 and VP02 fail to show clinical benefits versus

competitors, they will struggle to gain market share.

Corona Delays

With great uncertainty over the coronavirus’s future impact, the clinical timeline could be

delayed. A second wave might affect hospitals’ ability to perform clinical trials.

Vicore Pharma: Expected Data Readouts - Tentative Impact on our Base Case

Event Timing Preliminary positive valuation impact

SSc-ILD, Phase II readout H2 2020 +8 SEK

IPF Cough, Phase I readout H1 2021 +4 SEK

IPF, Phase II readout H1 2022 +34 SEK

IPF Cough, Phase II readout H1 2022 +18 SEK

Sum + 64 SEK

Source: Redeye Research


4

Valuation Summary

To value Vicore, we perform a sum-of-the-parts (SOTP) analysis based on a risk-adjusted

discounted cash flow model. Applying a WACC of 13%, we derive a fair value of SEK 2,405

million, which gives a Base Case of SEK 48 per share.

Performance

Despite the clinical pipeline’s progress in recent years, investors have taken a cautious

stance towards Vicore and the share’s performance has been mediocre. Lately, however,

interest has picked up with the company’s announcement that it intends to evaluate VP01

for the treatment of Covid-19.

In view of Vicore’s strong cash position and several potential value inflection points ahead,

we see good prospects for performance in the coming 12 months. The discount to our Base

Case should narrow as readout from the Phase II trial in Covid-19 patients approaches.

Results are due later this year.

Vicore Pharma: Sum-of-the-parts (SOTP) Valuation


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Vicore Pharma: Share Price Development

Source: Bloomberg, Redeye Research

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2016-11-21 2017-05-21 2017-11-21 2018-05-21 2018-11-21 2019-05-21 2019-11-21 2020-05-21


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Company Overview

Vicore Pharma was founded in 2005, based on research at Uppsala University and the

Sahlgrenska Academy. Vicore was originally funded by venture capital and went public in

2015. It is a rare disease company focusing on rare lung disorders and related indications,

currently pursuing three drug development programmes: VP01, VP02, and VP03.

VP01 aims to develop the substance C21 (compound 21) for the treatment of idiopathic

pulmonary fibrosis (IPF), pulmonary fibrosis in systemic sclerosis (SSc), and COVID-19.

VP02 is based on a new formulation and delivery route of an existing immunomodulatory

compound (IMiD), focusing on treating the severe cough associated with IPF. Vicore is also

preclinically evaluating VP03, a new generation of C21, in several fibrotic diseases.1

Vicore has attained orphan drug designation (ODD) for VP01 in the US and the EU in the

IPF indication. Given that the prevalence of all the diseases Vicore is addressing with its

clinical assets (except COVID-19) is below the threshold of the definition of an orphan

disease, we assume the company will attain ODD for these indications as well.

Through Vicore’s acquisition of INIM Pharma in 2018, HealthCap became a long-term

controlling owner in the company and appointed Carl-Johan Dalsgaard, its Venture Partner,

as the new CEO of Vicore. The acquisition also gave Vicore the VP02 asset, leading to its

goal of becoming a leader in the field of rare lung diseases.

1 Vicore Pharma

Vicore Pharma: Clinical Projects Under DevelopmentProject Indication Research Preclinical Phase I Phase II Phase III NDA Market

Idiopathic pulmonary fibrosis (IPF)

Systemic Sclerosis Associated

Interstitial Lung Disease (SSc-ILD)

Covid-19

VP02 (IMiD)Idiopathic pulmonary fibrosis (IPF)

and IPF cough

VP03 (C21) Fibrosis

Completed development phaseOngoing phase

Source: Vicore Pharma, Redeye Research

VP01 (C21)

Vicore Pharma: Company History

Year Event

Vicore listed on Nasdaq First North

IPF selected as the main indication for VP01

2016 First clinical trial initiated with VP01

2018 Aquisition of INIM Pharma

2019 Phase I dose escalation trial with VP01 conducted

Vicore listed on Nasdaq Stockholm

2020 Phase II trial with VP01 in SSc initiated

CTA for a Phase II trial with VP01 in IPF accepted

Phase II trial with VP01 in Covid19 initiated

Source: Vicore Pharma

2015


6

Financial Situation

For now, Vicore lacks real revenues and expects negative cash flows for several years to

come. This situation prompts some discussion of its financial status and the possible need

for further external funding.

In recent years, Vicore’s cost base has increased considerably, driven by R&D expenses

related to advancements in its clinical portfolio. We assume R&D expenses will continue to

rise as we are likely to see three phase II trials being pursued simultaneously later this year.

In Q1, Vicore had a cash burn rate of SEK ~30 million and ended the quarter with a cash

position of SEK ~238 million when including short-term investments of SEK 77 million. We

estimate this will cover operating expenses until at least mid-2022.

Vicore has a history of attracting institutional investor when raising capital. It has conducted

three directed share issues to institutions and larger private investors. With such track

record, we argue prospective share issues might act as a positive catalyst for the stock

price.

Vicore’s ownership base distinguishes itself from the average Swedish biotech company,

thanks to its very stable and long-term oriented ownership list. This will be of utmost

importance if Vicore decides to take its projects to market on its own, given the extensive

capital needed to pursue pivotal trials and their subsequent commercialisation.

Vicore Pharma: Anticipated events ahead2020 2021 2022

H1 H2 H1 H2 H1 H2

VP01 - IPFFirst-patient-in,

Phase IIPhase II readout

VP01 - SSC Phase II readout

VP01 - Covid19First-patient-in,

Phase IIPhase II readout First-patient-in USA

VP02 - IPF cough Toxological dataPhase I initiated and

readout

First-patient-in,

Phase IIPhase II readout


Vicore Pharma: Financing History

Year Event

2015 IPO of SEK 25.5 million

2017 Directed share issue of SEK 56 million

2018 Rights issue of SEK 82 million

Directed share issue of SEK 160 million

Directed share issue of SEK 125 million


2019

Vicore Pharma: Operating Expenses Vicore Pharma: Cash Position, Including Short-term Investments

Source: Vicore Pharma Source: Vicore Pharma

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The ownership list includes several institutional investors, including HealthCap, a venture

capital fund specialising in the life science sector. As well as providing validation of the

investment case, HealthCap is also known for its long-term commitment, working very

closely with its holding companies to provide expertise and support on an operational level.

Given that we estimate current cash position will be enough to fund operations until at least

mid-2022, we do not see any alarming need for new capital. However, if Vicore advances its

clinical assets into pivotal trials, an extensive amount of capital will be required. We are then

likely to see a share issue which will have a dilutional effect on the company’s shares.

Vicore Pharma: Ownership Structure

Owner Stocks % Capital

HealthCap 13,763,908 27.3%

Göran Wessman 3,826,849 7.6%

Swedbank Robur Fonder 3,301,455 6.6%

Fjärde AP-fonden 3,210,000 6.4%

HBM Partners AG 2,419,438 4.8%

Shaps Capital 2,154,000 4.3%

Unionen 1,663,990 3.3%

Kjell Stenberg 1,531,303 3.0%

Handelsbanken Fonder 1,343,696 2.7%

Pomona-gruppen AB 1,239,440 2.5%



8

Project Overview – VP01 (C21) for Fibrotic Lung Diseases

C21 is a first-in-class, oral, angiotensin II type 2 receptor agonist, and the first drug

candidate to specifically stimulate the AT2 receptor. The AT2 and AT1 receptors are part of

the renin-angiotensin system (RAS).

RAS

The RAS plays a major role in human physiology and is associated with cardiovascular

diseases and regulation of inflammation. It is a clinically validated therapeutic target for

which angiotensin-converting enzyme (ACE) inhibitors and angiotensin II receptor blockers

(ARBs) are commonly used in the treatment of hypertension. However, we recognise that

current therapies mainly focus on targeting the AT1 receptor and that less is known about

the role of the AT2 receptor.

There is growing evidence that the AT2 receptor acts as an endogenous, tissue-protective

system involved in the downregulation of inflammation and the promotion of tissue repair.

There also seems to be consensus in the literature that the AT2 receptor has protective

effects, which is why it is commonly referred to as the “protective RAS”.

The natural ligand of the AT2 receptor, Ang II, binds with equal affinity to both the AT1 and

AT2 receptors, but because of the higher levels of AT1 receptors in the body, Ang II

stimulation usually leads to an AT1 receptor-mediated response in the body. The AT2

receptor possesses functions that counteract the effects of the AT1, and a very selective

AT2 receptor stimulation is required to prompt an AT2 receptor-mediated response in the

body.

Properties of VP01 (C21)

Because of the increased understanding of the AT2 receptor’s role in fibrotic lung diseases,

there has been interest in developing a therapeutic compound for AT2 receptor stimulation.

One scientific challenge has been to develop a compound with a significantly higher affinity

for the AT2 receptor than the AT1 receptor.

C21 (compound 21) was discovered in 2004 and has shown high in-vivo stability, making it

particularly appropriate as a therapeutic agent. In addition, C21 has a 10,000x higher affinity

for the AT2 receptor than the AT1 receptor, which we believe is key for prompting the

required therapeutic response.

The renin-angiotensin system (RAS)



9

In addition to its effect on the AT2 receptor, C21 also has a blocking effect on the

thromboxane receptor (TP). The literature suggests these properties are relevant to the

treatment of fibrotic lung diseases by counteracting fibrosis, inflammation, and vascular

contraction.

Clinical Evidence for VP01 (C21)

C21 has been evaluated in three different phase I studies that showed dosing of 200 mg a

day to be the maximum tolerated dose with a good safety profile. Pharmacodynamic

analysis has also confirmed that C21 has a high affinity for the AT2 receptor and that the

200mg dose results in a sufficient free C21 plasma concentration to activate the AT2

receptor. The 200mg dose will be used in the planned phase II studies in IPF and SSc-ILD.

In this section, we go through the most important clinical data generated.

In September 2019, Vicore completed a 54-subject phase I dose-escalation study with C21.

VP01 (C21) - Mode of Action

Angiotensin II have 2 receptors with opposite actions In disease ANG II binding to AT1R dominates VP01 counteracts the ANG II effects and is anti-fibrotic





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Ongoing/Prospective Clinical Trials with VP01 (C21)

Phase II Trial in IPF

In May 2020, Vicore received approval from the UK regulatory agency to initiate a phase II

trial with VP01 in IPF patients. The trial is a six-month, single-arm, open-label trial including

60 patients with confirmed IPF.

The objective of the trial is to evaluate the safety and efficacy of VP01, with a change in

FVC at week 26 as the primary endpoint (more on this below). Patients can then extend

their treatment periods for up to a total of nine months, allowing for further collection of

efficacy and safety data.

In line with Vicore, we anticipate that patient recruitment to the trial could start during Q3

2020 (depending on the COVID-19 situation). Although many trials are recruiting IPF

patients at present, we believe the trial with VP01 will gain traction as patients in this study

can be sure of receiving the active drug.

While open-label trials are typically not considered the gold standard trial design among

regulators, we recognise that placebo responses in previous trials in IPF have been

consistent, leading to a clear picture of the rate of disease progression in patients not

receiving treatment. Moreover, FVC is an objective measure.

Phase II Trial in SSc-ILD

The phase II trial in SSc was initiated in December 2019 and patient recruitment is currently

paused due to the coronavirus crisis. We believe recruitment could resume in Q3

(depending on the COVID-19 situation); given a similar recruitment pace as before, we

anticipate the trial could be finished before year-end.

This is a mechanistic trial, meaning patients with SSc and Raynaud's phenomenon are

recruited to evaluate whether VP01 can increase blood flow in a cold challenge test. The

rationale is that effects on blood flow can be significant in the lung manifestations in SSc (as

well as in IPF).

Phase II Trial in COVID-19

In April 2020, Vicore received approval from the UK regulatory agency to initiate a phase II

trial with VP01 in COVID-19 patients. ATTRACT is a randomised, double-blind, placebo-

controlled trial aiming to recruit 100 hospitalised COVID-19 patients treated with basic

respiratory care.

The objective of the trial is to evaluate the compound’s efficacy on respiratory failure and

functional outcomes.


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Compelling Preclinical Package

Looking at the preclinical package generated with C21, we argue there is strong scientific

rationale that stimulation of the AT2 receptor acts as tissue-protective and anti-inflammatory

in animal models, leading to a reduction of pulmonary fibrosis.

In preclinical models of pulmonary fibrosis, AT2 receptor stimulation was shown to

significantly attenuate pulmonary fibrosis. Additionally, in models of acute lung injury, mice

lacking the AT2 receptor were associated with a significantly worse survival rate.2

We believe these findings, in combination with the upregulation of AT2 receptors seen in

damaged lung tissue, support the thesis that the AT2 receptor plays a role in the

pathogenesis of fibrotic lung diseases. It remains to see, however, if these data can be

replicated in humans.

In conclusion, stimulation of the AT2 receptor with C21 has shown to:

• Inhibit proinflammatory cytokines

• Increase AT2 receptor levels

• Reduce pulmonary fibrosis

Preclinical Data with VP01 (C21)

In a study by Bruce et al, 2014, rats (n=84) were exposed to monocrotaline (a pyrrolizidine

alkaloid that induces pulmonary hypertension in rats). At 2 weeks, some of the rats received

C21 treatment for another 2 weeks to evaluate the effect on fibrosis.

Results showed that C21 treatment reversed both interstitial and perivascular fibrosis.

Furthermore, lung inflammation and remodelling of the pulmonary arterioles were reduced

with C21 treatment. At 4 weeks, C21-treated rats experienced a 51% reduction in overall

lung fibrosis and a 57% reduction in perivascular fibrosis in the lungs compared with the

monocrotaline (MC)-treated rats killed at the 2-week time point.

In the same study, the C21 compound was shown to selectively target the pulmonary blood

pressure without affecting the systemic blood pressure. We believe this to be an important

property as a drug-induced lowering of the systemic blood pressure can act

counterproductively in pulmonary hypertension.

In another study conducted by Menk et al, 2018, stimulation of the AT2 receptor with C21

was shown to exert anti-inflammatory effects. AT2 receptor stimulation led to significant

inhibition of the expression of proinflammatory cytokines (signalling molecules) in the lungs

on both the transcriptional and translational levels.

2 Imai Y et al, 2005

Effects of C21 on monocrotaline-induced lung diseases in rats (n=84)

Source: Bruce, et al, 2014


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As shown below, direct stimulation of the AT2 receptor with C21 led to a significant

decrease in the expression of TNF-α. We argue that the ability of C21 to inhibit

proinflammatory cytokines is important as TNF-α in particular is known to trigger leukocyte

recruitment and play a key role in directing the mechanisms responsible for inflammation in

the lungs.

The same study looked at the pulmonary AT2 receptor expression after C21 was

administered to the rats. By stimulating the AT2 receptor with C21 with concomitant

pulmonary lavage, the levels of AT2 receptors significantly increased.

A study by Rathinasabapathy et al, 2018 evaluated C21 in a bleomycin mouse model of

lung injury. The bleomycin animal model is a validated preclinical model that mimics key

pathophysiological features of human IPF. C21 was administrated either as prevention

(BCP) or after 3 days (BCT) of the bleomycin instillation.

C21 treatment was associated with attenuated progression of lung fibrosis and pulmonary

hypertension by decreasing the infiltration of macrophages in the lungs, reducing lung

inflammation, and diminishing pulmonary collagen accumulation.

We believe that the even greater effect on fibrosis reduction when C21 was given as

prevention could provide a rationale for C21 to be used early in the progression of

Protein expression of TNF-α and IL-1β in lungs of rats (n=27)

Source: Menk, et al, 2018

mRNA and protein expression of the AT2 receptor in the lung of rats

Source: Menk, et al, 2018

Improvement in Lung Fibrosis and Decrease in Expression of CTGF

Source: Rathinasabapathy, et al, 2018


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pulmonary fibrosis.

In this study, C21 treatment was also shown to significantly reduce the gene expression of

connective tissue growth factor (CTGF), which is involved in several biological processes,

including the progression of tissue fibrosis. CTGF is also the target of Fibrogen’s drug

candidate, pamrevlumab, currently in phase III development in IPF.

Conclusion

We believe the preclinical package supports the role of the AT2 receptor in fibrotic lung

diseases and validates this receptor as a promising therapeutic target for fibrotic lung

diseases. This is also in line with published literature that has found that the AT2 receptor

expression is strongly upregulated in cases of tissue damage.

Looking at preclinical data on competing drugs on the market and in clinical development,

we see that C21 stands out as a promising candidate with its ability to attenuate fibrosis.

We point out, however, that data in rats are not necessarily a proxy for the therapeutic effect

in humans.

Reduction of fiborosis score in rats, change from placebo when given as prevention

Source: Wollin 2014, Heckmann 2016, Rathinasabapathy 2018

-23%

-38%-41%

-65%-70%

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-50%

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-30%

-20%

-10%

0%

Esbriet(pirfenidone) 50mg/kg

Ofev(nintedanib) 60mg/kg

Pamrevluab(anti-ctgf) 30mg/kg

C210.03mg/kg


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Idiopathic Pulmonary Fibrosis (IPF)

Idiopathic pulmonary fibrosis (IPF) is a chronic disease in which scarring of the lung tissue

impairs a patient’s lung function. Patients with IPF have a life expectancy of only 3-5 years

after diagnosis.

It is common that patients with IPF do not experience any symptoms during the early stages

of the disease. Symptoms become more noticeable as the disease progresses, and most

patients develop the symptoms of a cough and shortness of breath between the ages of 50

and 70 years.3 As the disease progresses, it leads to impaired gas exchange and,

ultimately, respiratory failure.

Some patients with IPF experience a progressive decline in lung function over time, but for

others, the clinical course of the disease is highly variable. Some experience acute

exacerbations of IPF, resulting in a sudden progression of the disease with up to 85%

mortality rate during or immediately after an acute exacerbation.4 Acute exacerbations are

the most common cause of death among IPF patients.

IPF is more prevalent in men than in women, and the incidence increases with age.

Possible risk factors for IPF include gastroesophageal reflux disease, occupational and

environmental exposures, smoking, and genetic factors. About 5-20% of IPF cases are

familial, and people with relatives who have IPF have an increased chance of developing it

themselves.5

In 2014, the FDA held a meeting to hear perspectives from people living with IPF to gain

knowledge to consider when advising sponsors on their drug development programmes.

Our impression from the results is that patients suffering from IPF want, in the following

order, to 1) feel well, 2) stop coughing, and 3) live longer.

In our view, there is an evident need for new pharmacological treatments that could not only

halt/reverse disease progression but also improve quality of life through an improved safety

profile and/or by relieving symptoms.

3 Datamonitor 2020 4 Juarez et al 2015 5 Datamonitor 2015

IPF - Disease Characteristics



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Etiology

In pulmonary fibrotic diseases, the progression of the wound-healing response has slipped

out of control. Several imbalances may develop and lead a normal healing response to

become a fibrotic cascade.6

The precise aetiology of the disease is not clear. However, there seems to be a consensus

in the literature that several growth factors, such as tumour growth factor-beta (TGF-b), play

a key role in the pathogenic mechanisms, resulting in the proliferation and differentiation of

fibroblasts in the lungs and the subsequent development of pulmonary fibrosis.7

Prevalence and Patient Segmentation

Although IPF meets the criteria for an orphan disease, it is a prevalent one. There are large

variations in the reported numbers of the prevalence and incidence of IPF though.

The US National Library of Medicine estimates that 100,000 people are affected in the US,

while the European Idiopathic Pulmonary Fibrosis and Related Disorders Federation (EU-

IPFF) estimates that prevalence in Europe could be in a range of 80,000-111,000. We

assume a prevalence of 100,000 for Europe.

The relatively large patient population for being an orphan disease, in combination with the

unmet medical need, has attracted interest from the industry to take part in the development

of drugs addressing IPF.

Although several staging systems have been proposed to help segment patients and predict

prognosis, no official staging system has been established for IPF. Various guidelines,

clinical trials, and reimbursement bodies have segmented patients according to mild,

moderate, and severe disease severities based on lung function measures such as forced

vital capacity (FVC) and the diffusing capacity of the lung for carbon monoxide (DLCO).8

6 Wilson et al, 2009 7 Choe et al, 2009 8 Datamonitor 2020

Pathogenesis in IPF

Source: Hadjicharalambous, et al, 2020


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Diagnosis

The symptoms of IPF are commonly confused with those of other interstitial lung diseases.

A multidisciplinary approach is thus suggested by international guidelines for the diagnosis

of IPF, whereby radiologists, pathologists and pulmonologists work together and make use

of high-resolution computed tomography (HRCT), and in some cases, surgical lung biopsy

and bronchoalveolar lavage (BAL).9

In a survey conducted by Datamonitor in 2014, roughly 50%/30%/15% of

mild/moderate/severe IPF patients remained undiagnosed. We believe the high share of

undiagnosed patients within the mild disease severity group is explained by a difficulty in

recognising the early symptoms of IPF. We argue that the diagnosis rate is likely to increase

among all IPF patients as a consequence of the increasing awareness among physicians

about the disease.

As there are no specific clinical signs of IPF, diagnosis is often established too late. Given

the severity and high mortality of IPF, it is paramount that patients see a specialist physician

as quickly as possible. Consensus in the field seems to be that a decline in predicted FVC

of greater than 10% is a sign of disease progression.

A single-centre prospective study from 2011 enrolled 129 patients with confirmed IPF to

examine the association between delayed access to speciality care and survival, with delay

defined as the time from the onset of symptoms (shortness of breath) to the date of initial

9 Datamonitor 2020

IPF - Diagnostic Algorithm

Source: European Respiratory Review


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evaluation by a specialist. Results showed that a longer delay from the onset of symptoms

until evaluation at a specialist clinic is associated with a higher rate of death from IPF,

independent of disease severity. In our view, these findings highlight the importance of early

intervention with pharmacological treatment to slow down disease progression and increase

survival rates.

IPF survival from the time of evaluation

Source: Lamas DJ, et al, 2011


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The IPF market

The primary driver of growth in the IPF market in recent years has been an increased use of

the high-priced Esbriet and Ofev brands in favour of off-label pharmacological therapies and

non-pharmacological treatments. Prior to the approval of these drugs, cheap corticosteroids

and immunosuppressants were used to treat IPF despite negative recommendations in

evidence-based guidelines for general treatment.

In addition to pharmacological treatments, various non-pharmacological treatments are also

used for IPF patients. The most used non-pharmacological treatments are lung

transplantations, mechanical ventilation, oxygen therapy, and pulmonary rehabilitation. In

general, the treatment approach in IPF is largely dependent on a patient’s symptoms, the

stage of the disease, and a patient’s overall health.

Esbriet (pirfenidone; Roche/Shionogi) and Ofev (nintedanib; Boehringer Ingelheim), two

anti-fibrotic therapies that have proven to be disease-modifying, were the first drugs to

receive FDA approval to treat IPF patients in 2014. Both have a demonstrated ability to slow

the decline in forced vital capacity (FVC) observed in IPF patients by ~50%. This is a widely

established surrogate endpoint for a slowdown in disease progression in IPF patients.

However, both drugs are associated with gastrointestinal side effects that have a

considerable negative impact on patients’ quality of life.

While both treatments carry a high burden of side effects, their market uptake since launch

makes it is evident that many prescribing pulmonologists see a positive risk-benefit profile in

these two drugs despite the adverse events.

We argue that Ofev has a commercial advantage over Esbriet when it comes to dosing

frequency and pill burden. In the US and the EU, the suggested dose of Esbriet is 801mg

Marketed drugs within IPF

Drug Generic name Company Mechanism of action Compound Route of Administration US/EU approval year

Esbriet pirfenidone Roche p38 MAP kinase (MAPK) Small molecule Oral 2014/2011

Ofev nintedanib BoehringerTriple angiokinase

inhibitorSmall molecule Oral 2014/2015

Source: Datamonitor, Redeye Research

Esbriet and Ofev total brand sales, 2014-2019

Source: Bloomberg

*Ofev figures includes sales from both IPF and SSc, with the majority stemming from IPF

0

1000

2000

3000

2014 2015 2016 2017 2018 2019

Esbriet total brand sales Ofev total brand sales Total sales


19

three times a day. The drug comes in 267mg capsules, requiring patients to take nine

capsules a day. By contrast, Ofev is dosed at 150mg twice daily, requiring only two

capsules each day.

Because there is no clear leader in terms of efficacy between the two, we believe the dosing

convenience, in combination with the greater marketing efforts by Boehringer-Ingelheim, is

the reason why Ofev has achieved higher global sales.

Although Esbriet and Ofev have gained vast commercial success, we argue there remain

several unmet medical needs in the IPF treatment paradigm.

1) Increasing quality of life

According to the American Thoracic Society, 60-70% of IPF patients with mild to moderate

symptoms do not receive any pharmacological treatment. This is supported by the US

Pulmonary Fibrosis Foundation’s registry, which has found that 40% of IPF patients in the

US were not prescribed either Esbriet or Ofev. We believe this is mainly a result of the side

effects associated with these drugs.

We argue that drugs under clinical development have good prospects to compete thanks to

a benign safety profile that could help achieve an encouraging market uptake. We believe

the introduction of such drugs would lead to a broader penetration in the untreated patient

population. We are also positive that new drugs could reduce symptoms such as cough and

shortness of breath.

2) Halting/reversing disease progression

Even though Esbriet and Ofev can slow down disease progression, we see a clear need for

new drugs that could halt or even reverse disease progression in IPF patients.

Clinical Endpoints and Pivotal Trials in IPF

Although mortality outcomes are often considered the most clinically significant endpoints in

IPF, they are not appropriate to use as primary endpoint in trials because trials powered to

demonstrate statistically significant improvements in mortality would need to be very large

and time-stretched, given the typical 3-5 years’ survival time from diagnosis among IPF

patients.10

Instead, change in FVC (forced vital capacity) is commonly used as a surrogate primary

endpoint, because large declines in FVC have been shown to correlate with disease

progression and mortality. FVC is the amount of air that can be forcibly exhaled from the

lungs after taking the deepest breath possible. It is typically measured as both a change in

actual FVC (in ml or L) and as a percentage of predicted FVC based on a patient’s

demographics, such as age, sex, race, and height.11

While there is always a caveat in cross-comparing clinical trials, we argue the pivotal trials

with Esbriet and Ofev listed below were more similar than dissimilar design-wise and that

the baseline demographics of patients included in each trial were relatively consistent.

10 King et al, 2014 11 Datamonitor 2015


20

As seen in the table above, Esbriet and Ofev demonstrated similar benefits in terms of

efficacy, with the ability to significantly slow down FVC decline by ~50%. Findings from a

study conducted by College et al, 2011, including a study population of n=1,156 individuals,

suggest that the minimal clinically meaningful difference for percentage-predicted FVC is

between 2% and 6%.12

Esbriet had an advantage in reduction of all-cause mortality, displaying all-cause mortality

of 3.5% (placebo: 6.7%), compared with 5.5% (placebo: 7.8%) for Ofev, when all pivotal

trials were pooled. Ofev, on the other hand, offered the advantage of significantly reducing

confirmed or suspected acute exacerbations.

In terms of tolerability, both Esbriet and Ofev caused side effects. Ofev was associated with

a higher rate of diarrhoea, while Esbriet caused some skin-related side effects that were not

observed with Ofev.

We regard these data as encouraging in terms of disease slowdown, with both drugs

reaching clearly clinically meaningful magnitudes in predicted FVC. However, as mentioned

earlier, we believe there is significant room for improvement in the safety aspect. More than

20% of the patients discontinued treatment with Esbriet/Ofev, which we believe proves the

need for improved therapeutic options for IPF patients.

12 Raghu et al, 2012

Ofev: Common Adverse Events Esbriet: Common Adverse Events

Source: Richeldi et al, 2014 (published in NEJM) Source: Noble et al, 2011 (published in the Lancet)

62%

23%15% 13% 13% 12%

0%

20%

40%

60%

80%

100%

36%32%

19% 18%14% 12% 11%

0%

20%

40%

60%

80%

100%

Comparison of Esbriet's and Ofev's Phase III registrational trials

Key endpoints (individual trials) Ofev Placebo Ofev Placebo Esbriet Placebo Esbriet Placebo Esbriet Placebo

Mean decline in FVC from baseline to week 52 95ml 205ml 95ml 205ml 220ml* 274ml* 181ml* 350ml* 235ml 428ml

Mean decline in predicted FVC from baseline to week 52 2.8% 6.0% 3.1% 6.2% 5.0%* 6.9% 4.4%* 9.2%*

Patients experiencing FVC decline >10% at week 52 29.4% 43.1% 30.4% 36.1% 22.8%** 26.6%** 20.1%** 34.5%** 16.5% 31.8%

Mean decline in 6MWT distance at week 72 45.1m 76.9m 60.4m 76.8m

Patients experiencing decrease of >50m in 6MWT distance at week 52 33.1%** 46.7%** 36.5%** 47.1%** 25.9% 35.7%

SGRQ score from baseline to week 52 4.34 4.39 2.8 5.48

Patients experiencing at least one acute exacerbation 6.1% 5.4% 3.6% 9.6% 1.2% 0.6% 1.1% 1.7%

All-cause mortality at week 52 4.2% 6.4% 6.7% 9.1% 3.5% 5.2% 2.9% 7.5% 4.0% 7.2%

All cause mortality at week 52 (trials pooled) 5.5% 7.8% 3.5% 6.7%


* From baseline to week 52

** At week 72

INPULSIS 1 (n=513) INPULSIS 2 (n=548) CAPACITY 1 (n=344) CAPACITY 2 (n=348) ASCEND (n=555)


21

IPF – Clinical Pipeline

There is quite some competition in the clinical development of drugs aimed to improve the

outcome for IPF patients. In this section, we highlight three pipeline drugs that we regard as

interesting and as potential competitors to VP01. The phase II data presented from these

drugs have all rendered in publications in well-regarded, peer-reviewed journals such as the

Lancet and JAMA Networks, underscoring the major interest in the field.

IPF - Number of Drugs by Phase

Source: Biomedtracker, Redeye Research

28

35

2

Preclinical Clinical Phase Marketed

Pipeline Drugs for IPFDrug Generic name Company Mechanism of action Compound Phase Route of Administration

Pamrevlumab pamrevlumab FibroGenConnective tissue growth

factor (CTGF)Monocloncal antibody III Intravenous

GLPG1690 ziritaxestat Galapagos Autotaxin Small molecule III Oral

PRM-151 Promedior Monocytes Protein II Injection

PBI-4050 fezagepras Liminal BioSciencesGPR40 (FFAR1, free fatty acid

receptor 1), GPR84Small molecule II Oral

GB0139 Galecto Biotech Inhibits the galectin-3 protein Small molecule II Inhalation



22

Recent Deals within the IPF space

PRM-151

One recent deal we find particularly interesting is Roche’s acquisition of Promedior in late

2019, which provided Roche with full rights to Promedior's entire portfolio of molecules for

serious fibrotic diseases, inducing its lead candidate PRM-151 for the treatment of IPF.

Promedior received an upfront cash payment of USD 390 million, plus potential milestone

payments of up to USD 1 billion contingent upon achieving certain predetermined

development, regulatory, and commercial milestones. The deal was executed following

encouraging phase II data with PRM-151 in IPF patients. PRM-151 has received a

breakthrough therapy designation from the FDA in IPF. In addition, PRM-151 has

completed a phase II study in myelofibrosis.

PRM-151 is a recombinant form of human pentraxin-2 protein (rhPTX-2) formulated for

intravenous or local injection. Pentraxin 2 (PTX2) is a highly phylogenetically conserved,

naturally circulating plasma protein and a soluble pattern recognition receptor of the innate

immune system.13

PRM-151 has been evaluated in a placebo-controlled phase II trial to assess the efficacy

and adverse events in patients with IPF. In the trial, a significant treatment effect for PRM-

151 on change in FVC was seen compared with placebo. At week 28, the between-group

difference in least-squares mean change in FVC percentages of predicted value from

baseline in patients treated with PRM-151 (-2.5% from baseline) compared with placebo

(-4.8% from baseline) was 2.3 percentage points. The results were statistically robust.

Roche is currently preparing to initiate a phase III trial with PRM-151 in IPF patients. It is yet

to be disclosed what the trial design will be. We will monitor this closely.

13 Biomedtracker

Deals in IPF and severe cough

Year Target/Licensor Acquiror/Licensee Type of dealDevelopment stage at

transactionTotal deal value (USDm)

2020 Enleofen Boehringer Ingelheim License Preclinical>1,000 per product, subject to

milestones

2019 Promedior Roche Acquisition Phase II 390 + milestones

2019 Galapagos Gilead Sciences License Phase III 5,000 (incl. other therapy areas)

2019 Bridge Biotherapeutics Boehringer Ingelheim License Phase I 1 300

2016 Nitto Denko BMS License Phase Ib Not public

2016 Afferent Pharmaceuticals Merck Acquisition Phase IIb 1 250

2015 Promedior BMS Option Phase II 1 250

2014 InterMune Roche Acquisition Approved 8 300

2014 Galecto Biotech BMS Option Phase I/IIa 444

2012 Stromedix Biogen Acquisition Phase II 563

2011 Amira Pharmaceuticals BMS Acquisition Phase I 475

2011 Arresto BioSciences Gilead Sciences Acquisition Phase I 225 + milestones



23

GLPG1690

Another project of interest is GLPG1690, a small molecule, selective autotaxin inhibitor

currently in phase III development in IPF. In its phase IIa trial, (n=23) patients were

randomised to receive either GLPG1690 or placebo for a treatment period of 12 weeks.

One of the efficacy endpoints in this trial measured the patients’ mean change in FVC in

absolute terms.

Results showed that mean FVC decreased over the 12-week treatment period in the

placebo group but remained similar to or greater than baseline values in the GLPG1690

group. Mean change from baseline in forced vital capacity at week 12 was 25 mL for

GLPG1690 and -70 mL for placebo. 14

While these data may seem impressive, we also recognise that the patient numbers are

small and that the trial was not powered to show a statistically significant difference.

Moreover, the effect difference in FVC between the GLPG1690 and the placebo groups

narrowed after two weeks of follow-up, making us cautious on the long-term effect of this

treatment. We will monitor the continued clinical development of this drug to see how well

the effect persists over a longer timeframe. This will be important, as regulators typically

assign a large weight to the long-term benefits of a drug.

GLPG1690 is currently in phase III development in IPF. The trial was initiated in late 2018,

with results expected by late 2021. We emphasise that GLPG1690 is given as an add-on to

either Esbriet or Ofev in this trial. In our view, this limits the competitive advantage

compared to other drug candidates in the IPF pipeline, which instead aim to go head-to-

head with Esbriet and Ofev and compete for the position as first-line therapy.

14 Maher et al, 2018

PRM-151: Least-squares mean change in FVC percentage of predicted value from baseline to week 28

Source: Raghu, et al, 2018 (published in JAMA)

-2.5

-4.8

-6

-5

-4

-3

-2

-1

0

1

PRM-151 Placebo

Ch

ange

in F

VC

(%

)

All patients

0.1

-1.9

-6

-5

-4

-3

-2

-1

0

1

PRM-151 Placebo

Ch

ange

in F

VC

(%

)

Patients not receiving concurrent pirfenidone or nintedanib

-3.1

-5.7

-7

-6

-5

-4

-3

-2

-1

0

1

PRM-151 Placebo

Ch

ange

in F

VC

(%

)

Patients receiving concurrent pirfenidone or nintedanib

GLPG1690: Mean changes in FVC from baseline

Source: Maher, et al, 2018 (published in the Lancet)

25

-70-80

-60

-40

-20

0

20

40

GLPG1690 Placebo

mL


24

In addition to IPF, GLPG1690 is also being evaluated in a phase II trial for patients with

systemic sclerosis.

Pamrevlumab

Lastly, we want to highlight the phase II trial with pamrevlumab, an anti-connective tissue

growth factor therapy. Connective tissue growth factor plays a central role in the process of

fibrosis, which is why inhibition of this is thought to slow down/halt disease progression in

IPF.

In its phase II trial, 103 patients were randomly assigned to receive pamrevlumab (n=50) or

placebo (n=53). The primary objective was to measure the change from baseline in the

percentage of predicted FVC at week 48.

Results showed that the mean change from baseline to week 48 in the percentage of

predicted FVC was -2.9% in the pamrevlumab group compared with -7.2% in the placebo

group (between-group difference of 4.3 percentage points). Pamrevlumab was well-

tolerated and had a safety profile similar to the placebo-treated group.15

This candidate is currently in phase III development in IPF. The trial was initiated in 2019

and is set to present data in H1 2023, according to clinicaltrials.gov. The phase III trial

includes patients who are not receiving either Esbriet or Ofev, setting pamrevlumab up for

first-line treatment potential given that data are encouraging.

15 Richeldi et al, 2019

Pamrevlumab: Least-square mean change in FVC at week 48, absolute and percentage of predicted FVC

Source: Richeldi, et al, 2019 (published in the Lancet)

-2.9%

-7.2%-8.0%

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

Pamrevlumab Placebo

Ch

ange

in F

VC

(% p

red

icte

d)

Change in mean FVC (predicted %)

-100

-300

-350

-300

-250

-200

-150

-100

-50

0

Pamrevlumab Placebo

mL

Change in mean FVC (absolute)


25

Overview of Clinical Data in IPF

While it is challenging to perform a cross-trial comparison, given the different inclusion

criteria and study design, we believe these data will provide guidance for investors on what

to expect in terms of clinical data for VP01.

Our impression is that a well-tolerated drug with equivalent or better efficacy than Esbriet

and Ofev will have a vast competitive advantage. We are also slightly sceptical about drugs

with an intravenous approach for IPF patients, knowing that the currently available

treatment options and several pipeline drugs are formulated as more convenient oral pills.

We argue that intravenous drugs must display significantly improved safety, efficacy, or

improvement in the patients’ quality of life to achieve a decent market uptake.

We argue that investors should also be observant about the phase III trial designs for these

pipeline candidates. Trial design will determine which label the drug will have and the

setting in which it will be used. To position the drug for first-line treatment, we argue it must

be evaluated as monotherapy and display efficacy on a par with/better than Esbriet and

Ofev, with a more benign safety profile.

Cross-trial comparsion of drugs aimed to treat IPF

Esbriet Ofev PRM-151 GLPG1690 Pamrevlumab

Number of patients 513 348 117 23 103

Treatment period 52 weeks 72 weeks 28 weeks 12 weeks 48 weeks

Safety

Any adverse event % (group recieving drug) 96% 98% 92% 65% 96%

Serious adverse events % (group recieving drug) 31% 33% 8% 6% 24%

Adverse events leading to treatment discontinuation % (group recieving drug)21% 17% 3% 18% 6%

Efficacy

Change in mean FVC from baseline (predicted %) -4.4% -2.8% -2.5% -2.9%

Placebo response (predicted %) -9.2% -6.0% -4.8% -7.2%

Change in mean FVC from baseline (absolute) -181ml -95ml 25ml -100ml

Placebo reponse (absolute) -350ml -205ml -70ml -300ml

Source: NEJM, Lancet, JAMA

Change in mean FVC from baseline (predicted %) Change in mean FVC from baseline (absolute)

Source: NEJM, Lancet, JAMA Source: NEJM, Lancet, JAMA

-4.4%

-2.8%-2.5%

-2.9%

-5.0%

-4.5%

-4.0%

-3.5%

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

Esbriet Ofev PRM-151 Pamrevlumab

Ch

ange

in m

ean

FV

C (%

)

-181

-95

25

-100

-200

-150

-100

-50

0

50

Esbriet Ofev GLPG1690 Pamrevlumab

Ch

ange

in m

ean

FV

C (a

bso

lute

)


26

VP02 for Cough in IPF

VP02 is a novel formulation of an immunomodulatory drug (IMiD), consisting of

pomalidomide, lenalidomide, and thalidomide. Thalidomide was the first generation of IMiDs

and has indicated a therapeutic effect in reducing cough frequency in IPF and increasing

quality of life (more on that below).

In addition to its efficacy in reducing cough, thalidomide has also displayed promising

preclinical data in reducing fibrosis. Consequently, Vicore plans to develop VP02 for both

IPF and IPF cough.

VP02 is formulated for inhalation, which enables local pulmonary delivery of the drug. The

rationale behind developing an inhaled IMiD is to reap the validated efficacy benefits of

thalidomide and also to avoid the systemic side effects often seen with systemic exposure

to IMiDs. We consider this an interesting approach that should reduce the clinical

development risk.

IMiDs are a group of compounds that include thalidomide and analogues of thalidomide, the

most common being lenalidomide and pomalidomide. The therapeutic potential of IMiDs lies

in the multiple mechanisms of action, which have the potential to achieve both anti-

inflammatory and anti-tumour effects. 16

IMiDs have achieved broad commercial success, primarily in multiple myeloma. Revlimid

(lenalidomide) was the third-best selling prescription drug in 2019, with global sales of USD

10.82 billion.

16 Quach et al, 2010

IMiDs global sales

Source: Bloomberg

0

2 000

4 000

6 000

8 000

10 000

12 000

14 000

2011 2012 2013 2014 2015 2016 2017 2018

USD

m

Lenalidomide (Revlimid) Pomalidomide (Pomalyst) Thalidomide (Thalomid)


27

Disease Overview

As mentioned earlier, the most common symptoms of IPF are a cough and shortness of

breath. When a cough is present in IPF, it is severe and difficult to treat. The cough is

mostly non-productive and dry, and the urge to cough cannot be relieved by coughing.

Some studies report that up to 80% of patients with IPF experience chronic cough, which is

defined as a cough lasting for at least 8 weeks. Cough frequency is high in patients with

IPF, with median 24-hour cough counts varying from 226 to 520 depending on the

population studied. This intense cough can cause relationship difficulties, decreased social

interaction, and work-related problems that affect the patient’s mental health.17

17 Manen et al, 2015

Pathophysiology of Cough

Source: European Respiratory Review

Estimated prevalence of IPF cough in US and Europe

Source: Manen et al 2015, NLM, EU-IPFF, Redeye Research

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

200000

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

US Europe


28

Treatment Paradigm in IPF Cough

In clinical practice, cough in IPF remains a major challenge for physicians and patients, as it

is often refractory. Corticosteroids can improve cough symptoms in IPF patients, and low

doses of prednisone are sometimes used to relieve the cough. However, no effect on

quality of life or survival has been shown with corticosteroid treatment, and its poor safety

profile limits its use.

According to our research, there are a handful of established endpoints (both objective and

subjective) in the development of drugs for IPF cough, including:

• Cough Quality of Life Questionnaire (CQLQ)

• St. George Respiratory Questionnaire (SGRQ)

• Visual Analogue Scale (VAS) of cough

• Change in daytime cough frequency

While Esbriet and Ofev are approved for IPF, no drugs are currently approved for the

treatment of IPF cough. A trial of Esbriet in IPF reported a reduction in cough frequency, but

this trial did not include any control group. The only randomised, double-blind, placebo-

controlled trial to date in IPF cough has been with thalidomide.

Thalidomide

Thalidomide was originally used to treat morning sickness, but it was removed from the

market in the early 1960s after it was found to cause serious congenital birth defects. In

recent years, thalidomide has been rediscovered as an effective treatment of certain types

of cancers and skin conditions. The rationale to evaluate thalidomide in IPF cough was its

known effect in decreasing inflammation.

In experimental studies, thalidomide has been shown to have anti-fibrotic effects by

suppressing the expression of tumour necrosis factor (TNF)-α, as well as anti-angiogenic

and immunomodulatory properties including T-cell co-stimulation and activation of NK

cells.18

Thalidomide was evaluated for cough in IPF in a 24-week, double-blind, 2-treatment, 2-

period crossover trial, The primary endpoint in the trial was cough-specific quality of life,

measured by the Cough Quality of Life Questionnaire (CQLQ), a score ranging from 28 to

112 (the lower the value, the higher the quality of life). The trial also looked at the Visual

Analogue Scale (VAS) of cough and the St. George's Respiratory Questionnaire (SGRQ) as

secondary endpoints. Thalidomide was shown to improve cough and quality of life in IPF

patients. CQLQ scores significantly improved with thalidomide, with a mean difference of

-11.4 points compared with placebo at week 24. In addition, thalidomide significantly

improved scores on the VAS of cough with a mean difference versus placebo of -31.2

points.

We consider these data promising, given there is currently no approved treatment for IPF

that has shown any improvement in quality of life.

18 Quach et al, 2010


29

Adverse events in the trial occurred in 74% of the patients receiving thalidomide and 22% of

patients in the group receiving placebo, which we consider quite high in the active treatment

group. However, the most common adverse events in the thalidomide group were mild to

moderate, with patients experiencing constipation, dizziness, and malaise.19

Thalidomide Compared with Other Agents in Preclinical Mice Model

19 Horton et al, 2012

Patients receiving thalidomide in the first period Patients receiving placebo in the first period

Source: Horton, et al, 2012

Reduction of fibrosis score, compared with placebo, when given as treatment

Source: Heckmann 2016, Rathinasabapathy 2018, Choe 2010, Redeye Research

-1%

-10%

-41%-45%

-50%

-60%

-50%

-40%

-30%

-20%

-10%

0%

Esbriet(pirfenidone)

50mg/kg

Ofev(nintedanib)

60mg/kg

Pamrevluab(anti-ctgf)30mg/kg

C210.03mg/kg

Thalidomide4MG/kg


30

PA101

PA101 is a novel formulation of inhaled sodium cromoglicate, delivered via an electronic

nebuliser. Sodium cromoglicate is a clinically validated substance and is traditionally used

for maintenance treatment of allergic asthma and indolent systemic macrocytosis.

Historically, cromoglicate’s activity has been attributable to inhibition of mast cell

degranulation and inhibition of mast cell-mediated immune activation, but the exact mode of

action is unknown.

Previously approved formulations of inhaled sodium cromoglicate are thought to achieve

low lung deposition thanks to: 1) their low concentration; and 2) inefficient delivery devices.

Since the active substance is clinically validated and as we know it has a therapeutic effect

in other diseases affecting the lungs, we believe the rationale of aiming to improve the

delivery route is interesting.

The therapeutic effect of PA101 has been validated in a randomised, double-blind, placebo-

controlled trial investigating the safety and efficacy of PA101 in 24 patients with IPF and 28

patients with chronic idiopathic cough (CIC). The primary endpoint in the trial was the

change in daytime coughs per hour from baseline.

Results showed a statistically significant mean reduction in daytime cough frequency with

PA101 at day 14 of 31% in the IPF group compared with placebo. It was also associated

with an improvement in chest symptoms and psychological domains of ILD-specific quality

of life. Unlike the IPF group, the CIC group showed no treatment benefit.

PA101 displayed a benign safety profile in both study cohorts and most adverse events

were mild in severity. No severe or serious adverse events were reported.20

20 Birring et al, 2017

PA101: Changes in mean objective daytime cough frequency in the IPF cohort

Source: Birring, et al, 2017, Redeye Research

55

3839

51

57

52

30

35

40

45

50

55

60

65

70

Baseline Day 7 Day 14

Co

ugh

s p

er h

ou

r

PA101 Placebo


31

Cross-trial Comparison

Both the trial with thalidomide and the trial with PA101 in IPF cough measured the effect on

cough severity, measured using the VAS of cough. While comparing these trial data could

provide some clues as to the magnitude of efficacy that current treatment options can

achieve, we also recognise that the treatment periods differed significantly between these

trials. Patients in the thalidomide trial were treated for 12 weeks, while patients in the PA101

trial were treated for just 2 weeks.

We argue that additional trials are required to draw any firm conclusions on the efficacy of

these drugs, preferably measured over a longer timeframe and with a larger patient sample.

Change in cough severity, defined as visual analogue scale (VAS) from baseline*

Source: Horton et al 2012, Birring et al 2017, Redeye Research

*Effect of thalidomide measured at week 12, effect of PA101 measured at week 2

-32.6

-10.6

-35

-30

-25

-20

-15

-10

-5

0

Thalidomide PA101

Po

ints


32

VP01 for Systemic Sclerosis (SSc-ILD)

Disease Overview

Systemic Sclerosis (SSc) is a rare systemic multi-organ disease characterised by

autoimmunity, inflammation, and tissue fibrosis. The lungs are frequently involved in SSc

and many patients develop interstitial lung disease (SSc-ILD), characterised by

inflammation and progressive scarring of the lungs that can lead to respiratory failure. It is

estimated that 90% of patients with SSc have some evidence of pulmonary disease, and

this is also the main cause of morbidity and mortality in SSc patients.21

We also recognise that SSc-ILD shares several disease characteristics with IPF that could

indicate that drugs approved in the IPF indication may have an effect on SSc-ILD patients

as well. Consequently, we see a rationale in evaluating IPF drugs in SSc-ILD, a view that is

supported by Ofev having obtained FDA approval for the SSc-ILD indication in 2019.

Prevalence

In a meta-study from 2019, a total of 18 studies were identified that assessed the

prevalence of SSc across Europe and North America. No studies reported prevalence data

specifically for SSc-ILD patients. However, seven studies reported the proportion of SSc

patients who had/were developing ILD. The proportion of SSc patients who also have ILD is

approximately 30% in the US and Europe.

Reported estimates from the studies vary widely and it remains a challenge to estimate the

true prevalence of the disease. Based on the prevalence of SSc in Europe, the prevalence

of SSc-ILD in Europe could be derived at 1.7-4.2 per 100,000 individuals. If we assume a

prevalence of ~3 per 100,000 individuals, this would translate into absolute prevalence of

about 15,000 SSc-ILD patients in EU28, given an EU28 population of 510 million.

As with Europe, no specific prevalence data were identified for SSc-ILD in the US during the

systematic review. However, the prevalence of SSc in the US seems to be higher than in

Europe, and so we could expect the prevalence of SSc-ILD in the US also to be higher. We

assume a prevalence of 7.5 per 100,000 individuals in the US, which translates into

absolute prevalence of roughly 25,000 in the US, given a US population of 330 million.22

In conclusion, we estimate the prevalence of SSc-ILD at 25,000 and 15,000 in the US and

EU28, respectively. We assume the prevalence in these markets will grow by 1% annually.

21 Mirsaeidi et al, 2019 22 Bergamasco et al, 2019

Estimated prevalence of SSc-ILD in US and EU28

Source: Bergamasco et al 2019, Redeye Research

0

10000

20000

30000

40000

50000

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

US EU28


33

Diagnosis and Patient Segmentation

SSc-ILD remains challenging to diagnose at an early stage due to the lack of specific

symptoms. The greatest risk of its development is during the 4-5 years after the initial

diagnosis of the SSc. The diagnosis of SSc-ILD is based on finding ILD through high-

resolution computed tomography (HRCT) in patients with known SSc, accompanied by

pulmonary function tests.

The disease has a variable clinical course. Most patients experience a slow decline in lung

function, but some see a rapid decline after disease onset. A staging system for SSc-ILD

divides patients into extensive disease or limited disease. As seen below, extensive disease

has shown to be a reliable predictor of mortality in SSc-ILD.

Treatment Paradigm in SSc-ILD

Pharmacological treatment in SSc-ILD should be considered when there is clinically

significant disease presentation or evidence of disease progression. Historically, the

treatment for SSc-ILD has focused on immunosuppressive therapies, such as

cyclophosphamide (CYC) and mycophenolate mofetil (MMF) to treat SSc manifestations,

including skin thickening and ILD.

Based on the clinical and mechanistic similarities between SSc-ILD and IPF, the approved

Esbriet and Ofev have been evaluated as potential treatments for SSc-ILD. Although SSc-

ILD and IPF are different diseases, they share the final pathways of pathologic fibrosis,

characterised by fibroblast activation and myofibroblast accumulation.23

To date, Ofev is the only drug approved in the SSc-ILD indication. It was approved on the

basis of a single phase III trial in SSc-ILD patients. SENSCIS was a randomised, placebo-

controlled, double-blind phase III trial including a total of 580 patients to investigate the

efficacy and safety of Ofev 150 mg twice daily in patients with SSc-ILD.

As with IPF, a decline in FVC is associated with a slowdown in disease progression and is

considered the standard efficacy endpoint in SSc-ILD patients. In the trial, Ofev significantly

reduced the rate of decline in FVC compared with placebo measured at week 52. The FVC

decline in the Ofev-treated group was 44% lower than in the placebo group. Consequently,

this magnitude of efficacy is comparable with the mean ~50% FVC decline seen with Ofev

in pivotal trials in IPF.

23 Kuwana et al, 2019

Patient segmentation and prediction of survival in patients with SSc-ILD

Source: Cottin, et al, 2019


34

The safety profile of Ofev in the SENSCIS trial was in line with what has been seen in

previous trials. The most common adverse events in patients receiving Ofev were

gastrointestinal (GI) disorders, including diarrhoea, nausea, and vomiting. Trial

discontinuation or permanent dose reduction were more frequent in the Ofev group than in

the placebo group.

Our view of the current treatment options for SSc-ILD patients is much in line with what we

see in IPF: there is an unmet medical need in reducing treatment-related side effects. Ofev

can slow down disease progression in an encouraging manner but comes with the cost of

patients suffering from (sometimes severe) gastrointestinal disorders – significantly

reducing their quality of life. We believe there remains a need for a drug that could have the

same or better efficacy than Ofev but with a more benign safety profile.

Ofev pivotal trial in SSc-ILD patients: mean change in FVC

Source: Boehringer Ingelheim

-52

-93-100

-90

-80

-70

-60

-50

-40

-30

-20

-10

0

Ofev Placebo

mL


35

VP01 (C21) in Covid-19 – Worth a Shot

Following the pandemic outbreak of COVID-19, in March, Vicore submitted a letter of intent

(LoI) to file a clinical trial application (CTA) to the UK authorities. The CTA was approved a

month later, and the ATTRACT (Angiotensin II Type Two Receptor Agonist COVID-19 Trial)

has subsequently started. It is a phase II trial, with anticipated read-out in H2 2020.

The Rationale

RAS is highly implicated in COVID-19, as we will elaborate further below. The pivotal role of

RAS is partly since the virus utilises the angiotensin-converting enzyme 2 (ACE2) to invade

and infect the human cell. By hijacking ACE2, COVID-19 could trigger an imbalance in RAS

that leads to a pro-inflammatory condition. This could be why some patients with COVID-19

deteriorate rapidly and become critically ill. VP01 (C21) does not impact the pathway of the

virus, but act to stimulating the protective side of RAS, and thus with the hypothesis to

counteract this imbalance.

The primary targeted patients for VP01 (C21) in COVID-19 are those undergoing

hospitalisation but not requiring mechanical ventilation. This is quite a well-defined patient

population, in our view. The goal with VP01 (C21) treatment is to act as an anti-

inflammatory to prevent a deteriorating condition, i.e. to halt disease progression before it

becomes critical.

Disease Overview

Introduction

COVID-19 is the name of the infectious disease caused by a novel coronavirus, SARS-

CoV-2. It was named due to its 80% homology to SARS-Cov, which caused acute

respiratory distress syndrome (ARDS) in 2002-2003. This is the third species-crossed novel

coronavirus; in addition to SARS-Cov and SARS-Cov2, there was an outbreak of a

coronavirus in 2012, named MERS-Cov. Four known seasonal human coronaviruses cause

common cold symptoms, and 75% of children have developed antibodies towards these by

their fourth birthday. The first signs of COVID-19 were discovered in December 2019, when a series of acute

atypical respiratory disease occurred in Wuhan, mainland China. Its outbreak is probably

via zoonotic transmission, but human-to-human transmission subsequently played a

significant role. SARS-Cov2 has reported homology of approximately 90% to two bat

coronaviruses, collected in eastern China (Hirano & Murakami, 2020).

Symptoms

There is high uncertainty surrounding this novel disease, although the medical community is

rapidly learning more about it. We see the evolving information pointing towards COVID-19




36

displaying heterogeneous symptoms related to different systems and organs in the body.

We emphasise, however, that the primary target for SARS-Cov2 is the lungs. Common

symptoms associated with COVID-19 are cough, fever, and respiratory distress.

The vast majority of the infected (approximately 80%) only develops mild common cold

symptoms or is even asymptomatic. However, for the remaining 20%, COVID-19 results in

severe conditions, ranging from respiratory distress and pneumonia to ARDS and multi-

organ failure. As we have learned so far, COVID-19 could result in a fatal outcome.

Mortality is strongly related to epidemiological features, such as age and co-morbidities.

It is estimated that about 14% of COVID-19 patients develop respiratory symptoms that

require supplemental oxygen (Chinese Center for Disease Control and Prevention). It is

essential to bear this figure in mind, as the targeted population for VP01 (C21) is

hospitalised patients not yet requiring mechanical ventilation. Around 5% will require

mechanical ventilation (Chinese Center for Disease Control and Prevention).

Cell Entry and Immunological Response

Coronaviruses are spherical in its shape and consist of four structural proteins: spike (S),

envelope (E), membrane (M), and nucleocapsid (N). In a simple context, coronaviruses use

five mechanisms to invade and infect the host cell:

• The viruses bind to a host receptor (attachment), and

• enter host cells through endocytosis or membrane fusion (penetration).

• Once in the cell, the viral RNA enters the nucleus for replication.

• The viral mRNA, which is the 'recipe' to start the manufacturing of the viruses,

is used to make viral proteins (biosynthesis).

• Lastly, new viral particles are made (maturation) and released.

The (S)-protein, which protrudes from the virus cell surface, facilitates binding to the

functional host receptor. As mentioned earlier, in the case of SARS-Cov2 (COVID-19), the

Classification of COVID-19 patients

Asymptomatic Without any clinical symptoms or signs

Mild Symptoms of acute upper respiratory tract infection (fever, fatigue, myalgia, cough, sore throat, runny nose,

sneezing) or digestive symptoms (nausea, vomiting,

abdominal pain, diarrhoea)

Moderate Pneumonia (frequent fever, cough) with no obvious hypoxemia, chest CT with lesions.

Severe Pneumonia with hypoxemia (SpO2 < 92%)

Critical Acute respiratory distress syndrome (ARDS), may have shock, encephalopathy, myocardial injury, heart failure,

coagulation dysfunction and acute kidney injury.

Source: Yuki et al., 2020, Redeye Research

Structure of SARS-Cov2

Source: Felsenstein et al., 2020


37

virus utilises the ACE2 as a host receptor for cell entry. This has been unequivocally

established. ACE2 is expressed in a variety of cell types residing in many different human

organs, such as the heart, kidney, and endothelial and intestinal tissues. In the case of

COVID-19, the high expression of ACE2 in the lung alveolar epithelial cells is of particular

interest; this is where the gas exchange takes place between the lungs and the blood.

There is also urgent interest in RAS and the severity of COVID-19. ACE2 is a pivotal part of

the protective side of RAS, the pathways that contribute to vasodilatation, anti-proliferation,

anti-inflammation, anti-fibrotic, and anti-oxidative stress. Studies even before the COVID-19

outbreak have shown that ACE2 is downregulated in lung-injury models (Imai et al, 2005).

In severe cases of COVID-19, there seem to be some distinct features related to ACE2 and

virus severity:

• By downregulating ACE2, SARS-Cov2 (COVID-19) creates an imbalance in

the RAS system with rising, circulating levels of Ang II (the bad guy in RAS)

• The entry of SARS-COV2 induces ACE2 internalisation, with consequent

rising levels of Ang II

• Expression of ACE2 in the body varies depending on co-morbidity, obesity,

and age, among others – three of the most prevalent factors for the severity of

COVID-19.

In conclusion, the role of ACE2 in COVID-19 is likely complex. On the one hand, high ACE2

expression in particular parts of the body could lead to a more critical state (more on that in

the Epidemiology section of this report). On the other, ACE2 acts via two pathways in RAS,

both on the protective side. By using ACE2 as a host receptor and downregulating its

function, we see rising levels of 'bad guys' in RAS. This says something about the

complexity of both ACE2 and RAS overall.

It is also highly relevant to understand why some patients seem to deteriorate rapidly after a

few days with the disease. This is due to an immunological response phenomenon, called a

'cytokine storm'. Cytokines are proteins produced by the immune system on request (e.g. in

an infection). A cytokine storm brings an uncontrolled release of pro-inflammatory cytokines

that attack healthy tissue as well. It is a very severe state, which can lead to ARDS, multi-

organ failure, and death.


38

Epidemiology

Current Status

A brief status of the COVID-19 pandemic:

• Approximately 9.1 million reported cases (WHO)

• Approximately 473,000 reported deaths (WHO)

• Origins in China in December 2019, but the majority of reported cases now

comes from the US and Europe

• The pandemic is not under containment and is evolving rapidly

Based on a series of more than 70,000 cases, the Chinese Center for Disease Control and

Prevention (CDC) reports a fatality rate of just above 2% among confirmed cases. For those

who are critically ill, the case fatality rate rises to 49%. The fatality rate also rises with age.

Comparison to SARS-Cov and MERS-Cov

SARS-Cov, MERS-Cov, and SARS-Cov2 are all beta coronaviruses, zoonotic, and with a

natural reservoir in bats. The infection of humans likely occurred through intermediate hosts

in all three cases. As stated above, SARS-Cov2 is 80% identical to SARS-Cov. Moreover,

SARS-Cov2 is 50% identical to MERS-Cov. Notably, SARS-Cov also utilises ACE2 for cell

entry. However, SARS-Cov2 is more pathogenic and has a 10- to 20-fold increased binding

affinity to ACE2.

The 2002 outbreak of SARS-Cov reported 8,096 probable cases and 774 deaths. It was

declared under containment by the end of 2003. The 2012 emergence of MERS-Cov has, to

date, reported 2,494 cases and 866 deaths.

Why COVID-19 has, unlike SARS-Cov and MERS-Cov, become one of the worst

pandemics in modern time remains a mystery. As is evident from the table above, the

human-to-human transmission is unmatched in COVID-19 compared to the previous two

beta coronaviruses. We cannot see any argument that the medical community has handled

this outbreak in a poorer manner. It could, however, be that, based on previous experiences

with beta coronaviruses, the medical community initially underestimated the pace and rapid

transmission of COVID-19, and thus did not take measures early enough.

Comorbidities, Sex, and Age

The severity of the cases is, as we mentioned above, further associated with co-morbidities,

such as hypertension, chronic respiratory disease, cancer, and cardiovascular disease. In

the table below on US hospitalisation statistics, more than half of the hospitalised patients

had hypertension and almost half were obese. Note, however, that underlying medical

conditions are often confounded by factors such as sex, age, and lifestyle factors. To the

best of our knowledge, it has not been established how each underlying condition

contributes to the increase of risk in disease severity.

Betacoronaviruses - StatusCoronavirus Reported Cases Deaths Fatality Rate Status

SARS-Cov 8096 774 10% Contained

MERS-Cov 2494 866 35% Ongoing with few active cases

SARS-Cov2 (Covid-19) 8184867 443872 5%* Ongoing pandemic

* Based on reported cases. Cohort studies point to a fatality rate of 1-2%

Source: WHO, Redeye Research


39

Advancing age is increasingly recognised as one of the strongest predictors of severe

COVID-19. The case/fatality rate is also higher among elderly people. In general, ageing

leads to a gradual decrease in immunological response. Moreover, ACE2 expression in the

lung epithelial cells and the SARS-Cov2 viral load have been implicated as increasing with

age, which could explain why older people are at greater risk of developing severe COVID-

19.

There is also an increased interest in the severity of the disease between the sexes: men

seem more susceptible to COVID-19 than women. ACE2 expression may be a contributing

factor here as well. Other possible explanations to the male predominance are differences

in exposure (different risk patterns), smoking behaviour, and other lifestyle factors.

Market Potential – All Eyes on the COVID-19 Pipeline

A Glimpse on the Pipeline

There are currently no drugs approved for COVID-19. Treatment strategies are directed

towards supportive care in a hospital setting for severe COVID-19, such as oxygen masks

and mechanical ventilators. Measures to mitigate the spread are traditional tactics:

recommendations on sanitary and hygiene practices on an individual level, quarantine,

isolation, social distancing, and community/regional lockdowns.

One thing is certain, though: this pandemic has brought urgent focus on the COVID-19

pipeline across almost the entire drug development sector, whether or not they are directly

involved in it. Still, our impression is that it took a while before the pharmaceutical industry

started to fuel the pipeline with drug candidates. We believe the somewhat slow adoption

was mainly due to two reasons:

• The spread of the disease was extremely rapid

• SARS-Cov and MERS-Cov were not as severe, with deaths numbering in

hundreds for both, and so only modest drug development efforts were taking

place for these two beta coronaviruses. This meant the pharma industry was

effectively starting from scratch with COVID-19.

Covid-19: US Laboratory-Confirmed Hospitalizations - Underlying Medical Condition

Cumulative rates as of May 30, 2020

Source: COVID-NET: COVID-19-Associated Hospitalization Surveillance Network, Centers for Disease Control and Prevention

https://gis.cdc.gov/grasp/COVIDNet/COVID19_3.html

Accessed on 2020-06-12

0 10 20 30 40 50 60 70 80 90 100

Renal disease

Other disease

Obesity

No known condition

Neurologic disease

Metabolic disease

Immune suppression

Hypertension

Gastrointestinal/liver disease

Chronic lung disease

Cardiovascular disease

Autoimmune disease

Asthma

Percentage

Adult Pediatric


40

The speed of this infectious disease’s spread has led to increasing awareness of COVID-

19, and, after what we consider an initial slow adoption, we are now seeing an explosion of

drug candidates with the potential to prevent or change the course of the disease. Currently,

more than 350 products and drug candidates are in the pipeline. More than half of these are

in the preclinical phase.

Vaccines and Antivirals

Vaccines are antivirals are given in the treatment-toolbox to fight infectious diseases.

Among the vaccine candidates – to which drug class VP01 (C21) does not belong – we can

identify a mere dozen in clinical development. These include mRNA-1273 (Moderna Inc.),

which saw dosing in the first human in March, followed by positive interim phase I data on

healthy subjects in May. The interim data showed that the vaccine candidate was generally

safe and well-tolerated, with a dose-dependent increase in immunological response and

levels of antibodies at similar levels to recovered COVID-19 patients.

Another vaccine candidate in the clinic is the Astra Zeneca-backed AZD1222 (University of

Oxford). AstraZeneca is working broadly on a number of collaborations, such as with The

Bill and Melinda Gates Foundation to ensure a broad supply of the vaccine as fast as

possible. A phase I/II trial in healthy subjects to assess safety, immunogenicity, and efficacy

began in April.

The million-dollar question is when a vaccine can come to market. Normally, a vaccine

follows the standard procedures for drug development, which could take up to ten years in

the clinical stage. Due to the uniqueness of the crisis, the industry and authorities are

working tirelessly to speed up this process. Some experts have stated that a vaccine could

come to market as early as this year.

As a drug class, a vaccine is probably an absolute necessity to get the COVID-19 situation

under control. However, vaccines require huge efforts in manufacturing upscaling and

distribution, with doses numbering in the billions. It is certainly a 'he who lives will see' as to

when such vaccines are broadly accessible.

Antivirals are therapies to inhibit further development of an infection in the human body. The

goal of antiviral drugs is to reduce symptoms and allow patients to recover faster from the

infection.

Among these is the drug with the highest potential near-term hope: remdesivir (Gilead

Sciences Inc.), a viral RNA polymerase inhibitor. Remdesivir is an experimental antiviral

that demonstrated efficacy against SARS-Cov and MERS-Cov. It has been evaluated in

Ebola as well. Gilead is currently running three ongoing phase III trials, where interim

results have suggested efficacy. The drug has already been approved in COVID-19 in

Japan. In the US, the FDA has granted remdesivir an Emergency Use Authorization for the

treatment of hospitalised patients with severe COVID-19. In Europe, the EMA has a rolling

review for remdesivir, through which the agency can speed up the assessment of a

promising investigational medicine during a public health emergency. We note, however,

that remdesivir is still an investigational drug in both the US and Europe.

Biologics (Non-RAS)

Biologics, such as monoclonal antibodies, deserve their own section in the COVID-19

pipeline discussion. Overall, biologics represent the largest drug class in the current

pipeline. As it is uncertain when a vaccine can reach the market and since antivirals

typically have a limited therapeutic window, increasing attention is falling on biologics that

can alter the immune system or control the cytokine storm. The hypothesis in COVID-19 is

to prevent the cytokine storm by blocking cytokine pathways with monoclonal antibodies.

Interleukin-6 (IL-6) is thought to play a prominent role here. Actemra/tocilizumab (Roche) is


41

an example of an IL-6 inhibitor that is in late-stage trials. It is being evaluated in two phase

III trials: as monotherapy and in combination with remdesivir.

Among the biologics, we also find cell therapy candidates in late-stage trials. Ryoncil

(Mesoblast Limited) and MultiStem (Athersys) are currently undergoing phase II/III trials to

treat ARDS, i.e. for the most critical COVID-19 patients.

In summary, we believe biologics could serve as an important tool in the fight against

COVID-19 at various disease stages. Again, there is so much uncertainty about how the

treatment landscape could evolve beyond vaccines and antivirals. Biologics could be

considered as both complementary and close peers to Vicore Pharma's approach.

Drug Agents in COVID-19 Targeting RAS

Due to the high implication of the RAS system in COVID-19, the sub-pipeline to which VP01

(C21) belongs is expanding. We see this as a validation of the role of RAS in the disease

and also a strengthening of the rationale behind VP01 (C21).

A common approach for the biologics in this space is to develop and manufacture

recombinant neutralising antibodies, which means that the antibodies inhibit the viruses'

ability to bind to ACE2. Neutralising antibodies are what the vaccines seek to accomplish as

well, but with the human body instead eliciting neutralising antibodies by itself.

We find the biologics approach of developing neutralising antibodies against ACE2 to bea

promising rationale that could become a close peer to the vaccines. Developing neutralising

antibodies (manufactured externally, i.e. outside the human body) could also become

costly, and it raises the additional question as to what the targeted population of COVID-19

patients should be.

Apart from the biologics, we have identified a recombinant human ACE2 in development.

Bear in mind, however, that the role of ACE2 in COVID-19 is still to be fully understood and

may be complex. It is noteworthy that VP01 (C21) does not interfere with ACE2. Vicore

Pharma's hypothesis is to bypass the incapacitated ACE2 to counteract the inflammatory

drive, i.e. the cytokine storm.

We have identified one further small molecule, but one that is on the 'devil’s' side of RAS. It

acts as an AT1R agonist, aiming to competitively counteract the elevated levels of the true

bad guy, Ang II.

The identified RAS candidates are in preclinical development or have just started clinical

trials. In summary, VP01 (C21) in COVID-19 distinguishes itself among the RAS pipeline

candidates by bypassing ACE2 to stimulate the protective side of RAS.

Covid-19: RAS Pipeline

Drug Name Lead Company Name Molecule Target Drug ClassificationRoute of

AdministrationCurrent Phase Redeye Comments

GiaprezaLa Jolla Pharmaceutical

CompanyPeptide Ang II New Molecular Entity (NME) Intravenous (IV) Emergency use

Used for septic chock associated with Covid-

19

APN01 Apeiron Biologics AG Protein Recombinant human ACE2 Biologic Intravenous (IV) Ph II Recombinant human ACE2

VP01 (C21) Vicore Pharma Small Molecule Angiotensin II Receptor Type 2 (AT2) New Molecular Entity (NME) Oral (PO) Ph II

Tekturna Noden Pharma DAC Small Molecule Renin New Molecular Entity (NME) Oral (PO) Ph II (China) Renin inhibitor

JS016 Eli Lilly and Company Monoclonal Antibody ACE2/Spike protein Biologic N/A Ph I A neutralizing antibody

COVID-19 Antibody Program

(VUMC/Twist)Twist Bioscience Corporation Monoclonal Antibody ACE2/Spike protein Biologic Preclinical

Offers tools, diagnostics, and potential

therapeutics for Covid-19

STI-4920 Sorrento Therapeutics, Inc. Monoclonal Antibody ACE2/Spike protein Biologic N/A PreclinicalThree programs in Covid-19. Develops

neutralizing antibodies, among others

Trike Coronavirus Program (GT

Biopharma)GT Biopharma Inc. Recombinant fusion protein ACE2, SARS-CoV-2 Biologic Preclinical

SI-F019 Protein Program Systimmune Inc. Protein ACE2 Biologic Preclinical

SARS-Cov2 program Vir Biotechnology, Inc. siRNA/RNAi/Antibodies ACE2, Immune system, SARS-CoV-2, TMPRSS2 New Molecular Entity (NME) - Preclinical Include siRNA and Antibodies

Coronavirus Antiviral Program

(NanoViricides)NanoViricides, Inc. Small Molecule ACE2, SARS-CoV-2 New Molecular Entity (NME) N/A Preclinical Antiviral program, ACE2 inhibitor

TRV027 Trevena, Inc. Small Molecule Angiotensin II Receptor Type 1 (AT1) New Molecular Entity (NME) Intravenous (IV) Preclinical AT1 receptor selective agonist

Source: Biomedtracker, clinicaltrials.goc, company pages, Redeye Research


42

VP01 (C21) for the Treatment of COVID-19

Clinical Status

ATTRACT is a randomised, double-blind, placebo-controlled phase II trial that will enrol 100

patients to either VP01 (C21) 100 mg twice a day or placebo in a 1:1 manner. The aim of

the study is to investigate the safety and efficacy of VP01 (C21) in hospitalised COVID-19

patients who do not require mechanical ventilation. The primary goal is to investigate

whether VP01 (C21) can prevent disease progression before the patient is in a critical

condition. One of the principal inclusion criteria is that the diagnosis of COVID-19 infection

is confirmed by a so-called polymerase chain reaction (PCR) test <= four days before visit 1

with signs of acute respiratory infection.

The primary endpoint is a change from baseline in C-reactive protein (CRP), which offers an

objective measure in the blood for ongoing infection. CRP has been correlated to acute lung

injury, and could hence serve as a predictor for severe Covid-19. The time point of

evaluation occurs over the trial period.

Secondary endpoints include:

• Change in body temperature

• Change in pro-inflammatory cytokines (such as IL-6, IL-10, and TNF)

• Number of subjects not in need of oxygen supply

• Number of subjects not in need of mechanical invasive or non-invasive

ventilation

• Time to need for mechanical invasive or non-invasive ventilation

• Time on oxygen supply

• Adverse events

We favour the study’s design, as the endpoints are objective measures. We believe the

results will provide a clear 'stop or go' decision for Vicore. The top-line results are expected

in the second half of 2020.

Vicore Pharma: Study Design of Ph 2 study in COVID-19 Patients



43

Given a good outcome in phase II, we believe VP01 (C21) could advance to a global phase

III study. It is speculative to predict study design details for a phase III trial at this point.

However, it is important to stress the urgent medical need in COVID-19; regulators,

governments, and the whole industry are mobilising their entire efforts to get effective

therapies to market as rapidly and as safely possible.

Tentative Estimates

We will await the phase II data in Covid-19 before we feel entitled to include it in our

SOTP. Our backend-modelling suggests, on a conservative LoA of some 10%, that this

project currently holds an NPV of some USD 50 million (some 10 SEK per share). Upon

advancement and possible launch, the upside is vast. It is driven by some key elements,

such as:

• Majority of the NPV attributed to 2021-2022, where:

o Launch already in the next year

o A swift ramp-up in sales, with peak sales in (2022), driven both by

dosing of patients and stockpiling

• An early look on remdesivir argues for around USD 5,000 (in the US) per

treatment course in a hospital setting, this could be seen as a benchmark

for VP01 (C21) in our view

• Assuming a vaccine reaches broadly from 2022-2023, and with

consequently lower hospitalization rates

• It should be emphasized that, in this indication, Vicore Pharma is highly

dependent on collaborations, not least to scale-up manufacturing, access a

broad distribution network, and share risk-burden

VP01 in Covid-19, backend-modelling


0

10

20

30

40

50

60

70

80

90

100

Today Positive Phase II data Positive Phase III data Approval

SEK

per

sh

are


44

VP01 (C21) – Sales Estimates

To value Vicore, we estimate the price and sales potential in each indication. Thereafter, we

estimate the likelihood of it reaching market approval and the associated costs. Due to the

lack of efficacy data in humans, we sometimes rely on historical averages reported by the

scientific literature in our forecasts.

Pricing

Several factors influence what price a new drug can command, the most important, in our

view, being:

• Clinical data presented, both in terms of safety and efficacy

• Socioeconomic benefits from the treatment

• Size of the patient population the drug addresses

• Medical need in the patient population the drug addresses

We assume the average sales price of VP01 will be anchored to the price in IPF, which

constitutes the highest market potential and Vicore’s primary target indication. Factoring in

different aspects, such as orphan drug pricing and comparable drugs approved in IPF, we

arrive at pricing of USD 90,000 and USD 45,000 per patient for VP01 in the US and the EU,

respectively. To keep our estimates conservative, we do not factor in any price increases

over our forecast period.

Orphan Drugs

Drugs for orphan diseases are typically priced significantly higher than other prescription

drugs. The median treatment cost per patient was about USD 110,000 for orphan drugs in

the US in 2018, compared with about USD 17,000 for other drugs.

While the pricing of orphan drugs has seen a decent increase in recent years, we recognise

that the discussion around orphan drug pricing has also intensified. Furthermore, the most

recent data we have found indicate that payer sensitivity to the cost of orphan drugs is

rising. According to Evaluate Pharma, the median price for orphan drugs decreased by

about 5% in 2018.

We find support for continued price pressure in market forecasts for orphan drugs. Evaluate

Pharma estimates that sales of orphan drugs will increase by approximately 12% per year

until 2024. Based on this, it estimates that orphan drugs will constitute about 20% of the

total market for prescription drugs, increasing the costs for healthcare systems significantly.

US revenue per patient vs number of patients treated Median cost per patient for orphan drugs in the US

Source: Evaluate Pharma 2017, Calliditas Therapeutics Source: Evaluate Pharma 2018, Redeye Research

92 94

107116

110

715 17 17 17

0

20

40

60

80

100

120

140

2014 2015 2016 2017 2018

Orphan drugs Non-orphan drugs


45

Peer Drugs

There are currently two drugs approved in the IPF indication: Esbriet and Ofev. Both were

launched in 2014 at list prices of around USD 80,000-100,000 per patient per year.

While Esbriet and Ofev can slow down disease progression by 50%, they offer no

improvement in quality of life and they come with significant side effects. We believe a new

drug that could halt, or even reverse disease progression could command a significant

premium pricing to Esbriet and Ofev.

Conclusion

While we see several factors indicating a potential price for VP01 exceeding USD 100,000

per patient per year, we recognise there is considerable competition within the IPF clinical

pipeline, with several drug candidates potentially reaching the market ahead of VP01. The

increasing competition will likely cause price pressure in the market. After all, what price a

drug can command is likely come down to the clinical data presented.

We assume a pricing of VP01 of USD 90,000 in the US. Compiled data for orphan drug

pricing in European countries is lacking, but it is not uncommon for prescription drugs to be

priced at a discount of 50% compared to the US. We assume a pricing of USD 45,000 in

Europe.


46

IPF Sales Model

Our sales model initially focuses on the US and EU28. These are the largest markets for

pharmaceuticals globally and share similar regulatory framework in the process of bringing

drugs to market. If pursuing a partnering strategy for the European market, we believe a

player with an established sales force would be able to reach out to most of the countries

within Europe.

We assume that 80% of the prevalent IPF population is diagnosed in 2020. While

Datamonitor suggests a lower share, we recognise that these data are from 2014, and we

believe that diagnostic advances in combination with increased physician awareness about

the disease are likely to contribute a higher share of diagnosed patients today.

We forecast that 50%/70%/50% of all mild/moderate/severe disease activity IPF patients

receive pharmacological treatment in 2020. According to the US Pulmonary Fibrosis

Foundation’s registry, only 55-60% of IPF patients were prescribed either Esbriet or Ofev

between 2016 and 2018. Our understanding is that most IPF patients diagnosed actually

start on either Esbriet or Ofev, but that many discontinue treatment owing to the side

effects.

We estimate the treatment rate will increase from 2022. We assume a bolus effect in the

treatment rate starting in 2022, owing to the potential approvals of IPF pipeline candidates

with a more benign safety profile.

VP01 sales estimates in IPF

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039

US model

IPF prevalence 101000 102010 103030 104060 105101 106152 107214 108286 109369 110462 111567 112683 113809 114947 116097 117258 118430 119615 120811 122019

No. diagnosed patients 80% 80800 81608 82424 83248 84081 84922 85771 86629 87495 88370 89253 90146 91047 91958 92878 93806 94744 95692 96649 97615

No. Mild disease patients 29% 23432 23666 23903 24142 24383 24627 24874 25122 25373 25627 25884 26142 26404 26668 26934 27204 27476 27751 28028 28308

No. Mild disease patients recieving treatment 50% 11716 11833 15537 18831 19019 19209 19401 19595 19791 19989 20189 20391 20595 20801 21009 21219 21431 21645 21862 22081

Penetration 0.0% 0.0% 0.0% 0.0% 0.0% 1.2% 4.5% 7.5% 10.5% 13.5% 15.0% 15.0% 7.5% 3.8% 1.9% 0.9% 0.5% 0.2% 0.1% 0.1%

No. Moderate disease patients 43% 34744 35091 35442 35797 36155 36516 36881 37250 37623 37999 38379 38763 39150 39542 39937 40337 40740 41147 41559 41975

No. Moderate disease patients recieving treatment 70% 24321 24564 29772 33076 33407 33741 34078 34419 34763 35111 35462 35817 36175 36537 36902 37271 37644 38020 38400 38784

Penetration 0.0% 0.0% 0.0% 0.0% 0.0% 0.8% 3.0% 5.0% 7.0% 9.0% 10.0% 10.0% 5.0% 2.5% 1.3% 0.6% 0.3% 0.2% 0.1% 0.0%

No. Severe disease patients 28% 22624 22850 23079 23310 23543 23778 24016 24256 24499 24744 24991 25241 25493 25748 26006 26266 26528 26794 27062 27332

No. Severe disease patients recieving treatment 50% 11312 11425 15001 16666 16833 17001 17171 17343 17516 17692 17869 18047 18228 18410 18594 18780 18968 19157 19349 19543

Penetration 0.0% 0.0% 0.0% 0.0% 0.0% 0.8% 3.0% 5.0% 7.0% 9.0% 10.0% 10.0% 5.0% 2.5% 1.3% 0.6% 0.3% 0.2% 0.1% 0.0%

Total number of patients treated for the year 0 0 0 0 0 636 2411 4058 5738 7451 8361 8445 4265 2154 1088 549 277 140 71 36

Compliance rate 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90%

Pricing ($m) 90000 90000 90000 90000 90000 90000 90000 90000 90000 90000 90000 90000 90000 90000 90000 90000 90000 90000 90000 90000

Total revenue, US ($m) 0 0 0 0 0 52 195 329 465 604 677 684 345 174 88 44 22 11 6 3

EU model

IPF prevalence 101000 102010 103030 104060 105101 106152 107214 108286 109369 110462 111567 112683 113809 114947 116097 117258 118430 119615 120811 122019

No. Diagnosed patients 80% 80800 81608 82424 83248 84081 84922 85771 86629 87495 88370 89253 90146 91047 91958 92878 93806 94744 95692 96649 97615

No. Mild disease patients 30% 24240 24482 24727 24974 25224 25476 25731 25989 26248 26511 26776 27044 27314 27587 27863 28142 28423 28708 28995 29285

No. Mild disease patients recieving treatment 50% 12120 12241 16073 19480 19675 19872 20070 20271 20474 20679 20885 21094 21305 21518 21733 21951 22170 22392 22616 22842

Penetration 0.0% 0.0% 0.0% 0.0% 0.0% 0.9% 3.0% 6.8% 9.8% 12.0% 14.3% 15.0% 15.0% 15.0% 15.0% 10.5% 7.4% 5.1% 3.6% 2.5%

No. Moderate disease patients 40% 32320 32643 32970 33299 33632 33969 34308 34651 34998 35348 35701 36058 36419 36783 37151 37523 37898 38277 38659 39046

No. Moderate disease patients recieving treatment 70% 22624 22850 27694 30769 31076 31387 31701 32018 32338 32661 32988 33318 33651 33988 34328 34671 35018 35368 35721 36079

Penetration 0.0% 0.0% 0.0% 0.0% 0.0% 0.6% 2.0% 4.0% 6.0% 7.5% 8.5% 9.5% 10.0% 10.0% 10.0% 7.0% 4.9% 3.4% 2.4% 1.7%

No. Severe disease patients 30% 24240 24482 24727 24974 25224 25476 25731 25989 26248 26511 26776 27044 27314 27587 27863 28142 28423 28708 28995 29285

No. Severe disease patients recieving treatment 50% 12120 12241 16073 17857 18035 18216 18398 18582 18768 18955 19145 19336 19530 19725 19922 20121 20323 20526 20731 20938

Penetration 0.0% 0.0% 0.0% 0.0% 0.0% 0.6% 2.0% 4.0% 6.0% 7.5% 8.5% 9.5% 10.0% 10.0% 10.0% 7.0% 4.9% 3.4% 2.4% 1.7%

Total number of patients treated for the year 0 0 0 0 0 476 1604 3392 5063 6353 7407 8166 8514 8599 8685 6140 4341 3069 2170 1534

Compliance rate 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90%

Pricing ($m) 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000

Total revenue, EU ($m) 0 0 0 0 0 19 65 137 205 257 300 331 345 348 352 249 176 124 88 62

VP01 global revenue ($m) 0 0 0 0 0 71 260 466 670 861 977 1015 690 523 440 293 198 136 94 65



47

We assume a market launch for VP01 in IPF during 2025, with peak sales six years after

launch in the US. This ramp-up curve is in line with the findings of Robey et al, 2017,

investigating the time to reach peak sales for different drugs between 2000 and 2002. We

assume slightly slower market uptake in Europe, owing to a more fragmented market in

terms of pricing and reimbursement policies. We assume sales erosion from 2032, when

the market exclusivity provided by the orphan drug designation expires.

We estimate VP01 will reach peak market penetration of 15%/10%/10% in

mild/moderate/severe disease activity patients in both the US and EU. Vicore sees VP01

being used early in the disease progression and we believe there is a rationale for the drug

to capture a large share of mild severity patients, contingent upon VP01 displaying a benign

safety profile. We also believe competition from other therapies will be greater in the

moderate to severe patients, warranting a lower peak penetration in this group.

Finally, we factor in a high compliance rate of 90%, reflecting the short life expectancy and

the poor outlook for IPF patients not receiving pharmacological treatment.

In total, we estimate peak sales of USD 1,015 million in the US and the EU for VP01 in

IPF.

SSc-ILD Sales Model

Our sales model for VP01 in SSc-ILD follows the same structure as for the IPF indication,

except for the segmenting of patients according to their disease severity.

Key assumptions in our SSc-ILD sales model are:

• 80% of the prevalent patient population is diagnosed

• 60% of diagnosed patients receive pharmacological treatment, with a bolus effect

starting from 2022

• Peak penetration of 15% in the US and the EU

• Compliance rate of 90%

• Pricing of USD 90,000 and USD 45,000 in the US and the EU, respectively

All in all, we estimate peak sales of USD 282 million in the US and the EU for VP01 in SSc-

ILD.

VP01 sales estimates in SSc-ILD2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039

US model

SSc-ILD prevalence 25250 25503 25758 26015 26275 26538 26803 27071 27342 27616 27892 28171 28452 28737 29024 29314 29608 29904 30203 30505


No. recieving treatment 60% 12120 12241 14836 16483 16648 16814 16983 17152 17324 17497 17672 17849 18027 18208 18390 18574 18759 18947 19136 19328

Penetration 0% 0% 0% 0% 0% 1% 5% 8% 11% 14% 15% 15% 8% 4% 2% 1% 0% 0% 0% 0%

Compliance rate 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90%

Pricing VP01 ($) 90000 90000 90000 90000 90000 90000 90000 90000 90000 90000 90000 90000 90000 90000 90000 90000 90000 90000 90000 90000

Revenue, US ($m) 0 0 0 0 0 16 62 104 147 191 215 217 110 55 28 14 7 4 2 1

EU model

IPF prevalence 15150 15302 15455 15609 15765 15923 16082 16243 16405 16569 16735 16902 17071 17242 17415 17589 17765 17942 18122 18303



Penetration 0% 0% 0% 0% 0% 1% 3% 7% 10% 12% 14% 15% 15% 15% 15% 11% 7% 5% 4% 3%

Compliance rate 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90%

Pricing VP01 ($) 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000

Revenue, EU ($m) 0 0 0 0 0 4 12 28 41 51 61 65 66 66 67 47 34 24 17 12




48

VP02 – Sales Estimates

Pricing

Knowing there are no drugs approved for IPF cough, it is challenging to estimate what price

VP02 could command if it reaches this market. We recognise that symptomatic treatments

tend to command lower pricing than disease-modifying agents, all else being equal.

However, this is also dependent on factors such as the severity of symptoms and the

magnitude of slowdown in disease progression achieved by the disease-modifying agent.

In our view, it boils down to the clinical data VP02 achieves. If it is proven to slow disease

progression and also to reduce cough in an encouraging manner, we argue it could be

priced at a significant premium to VP01. If, on the other hand, VP02 is shown only to relieve

cough and fails to show any significant effect on disease progression, we argue it must be

priced lower than VP01.

For now, we take a conservative stance and forecast that VP02 will be a symptomatic

treatment in IPF. We assume a discount of 50% compared to the pricing of VP01,

translating into prices of USD 45,000 and USD 25,000 in the US and the EU, respectively.

In a scenario where VP02 shows encouraging disease-modifying attrubutes, we believe it

could be priced higher than USD 100,000 per year in the US. We will await proof-of-concept

data before we assume such pricing.

IPF Cough Sales Model

Our sales model for VP02 in IPF cough follows the same structure as for the IPF indication,

except for the segmenting of patients according to their disease severity.

Key assumptions in our IPF cough sales model are:

• 80% of the prevalent IPF population is diagnosed

• 80% of IPF patients need treatment for their cough

• 60% of diagnosed patients receive pharmacological treatment

• Peak penetration of 15% in the US and the EU

• Compliance rate of 90%

• Pricing of USD 45,000 and USD 25,000 in the US and the EU, respectively

In total, we estimate peak sales of USD 502 million in the US and the EU for VP02 in IPF

cough.

VP02 sales estimates in IPF cough2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039

US model

IPF cough prevalence 80800 81608 82424 83248 84081 84922 85771 86629 87495 88370 89253 90146 91047 91958 92878 93806 94744 95692 96649 97615



Penetration 0% 0% 0% 0% 0% 1% 5% 8% 11% 14% 15% 15% 8% 4% 2% 1% 0% 0% 0% 0%

Compliance rate 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90%

Pricing VP02 ($) 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000

Revenue, US ($m) 0 0 0 0 0 25 94 158 223 290 325 329 166 84 42 21 11 5 3 1

EU model

IPF cough prevalence 80800 81608 82424 83248 84081 84922 85771 86629 87495 88370 89253 90146 91047 91958 92878 93806 94744 95692 96649 97615



Penetration 0% 0% 0% 0% 0% 1% 3% 6% 9% 11% 13% 14% 15% 15% 15% 11% 7% 5% 4% 3%

Compliance rate 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90%

Pricing VP02 ($) 25000 25000 25000 25000 25000 25000 25000 25000 25000 25000 25000 25000 25000 25000 25000 25000 25000 25000 25000 25000

Revenue, EU ($m) 0 0 0 0 0 10 35 70 106 134 154 173 184 186 188 133 94 66 47 33




49

Probability of Success

Assessing the probability of success for a biotech company is a process riddled with

uncertainty. We have performed a meta-analysis of academic studies assessing the

historical success rates for clinical projects. In our assessment, we look at success rates

within both respiratory diseases and orphan diseases.

We found roughly a 20% chance of reaching the market for a respiratory/orphan asset. For

a phase II asset such as VP01, the probability of reaching the market is ~27%.

VP01

There certainly are factors, such as the experienced medical team backing Vicore and the

vast amount if preclinical data, that could warrant a higher likelihood of success for VP01,

we also recognise that the asset is first in its class, which has yet to display efficacy data in

humans. Consequently, we are cautious about deviating from historical success data in the

field, and we just assume a small premium to historical success numbers.

Bearing these historical figures in mind, we apply the following risk adjustments to our sales

forecasts:

• IPF: 30%

• SSc-ILD: 30%

VP02

For VP02 in IPF cough, we assume a slightly higher likelihood of success versus historical

averages. We rely on the fact that the drug is based on thalidomide, a clinically validated

substance in IPF cough. Although VP02 is still in the preclinical stage, we assign it a decent

15% probability of reaching the market.

Probability of reaching market

Hay et al 2014 Ph I - Ph II Ph II - Ph III Ph III - NDA NDA - Approval LoA

Respiratory 66.7% 27.5% 63.3% 96.0% 11.1%

Orphan 86.8% 70.0% 66.9% 81.0% 32.9%

Thomas et al 2016 Ph I - Ph II Ph II - Ph III Ph III - NDA NDA - Approval LoA

Respiratory 65.3% 29.1% 71.1% 94.6% 12.8%

Orphan 76.0% 50.6% 73.6% 89.2% 25.2%

Average 73.7% 44.3% 68.7% 90.2% 20.5%

Source: Hay et al 2014, Thomas et al 2016, Redeye Research


50

Financials

Vicore has a strong financial position with about SEK 238 million in cash on the balance

sheet. We believe this will be enough to fund operations until at least 2022.

Research and Development Expenses (R&D)

Operating expenses for the coming years will be driven by research and development. We

assume that Vicore will have four ongoing phase II trials later in 2020. We model costs of

roughly SEK 1.0 – 1.5 million per patient recruited as a basis.

We make the following costs assumptions for the anticipated future clinical trials:

These cost assumptions are largely in line with what has been seen historically on a general

level (see below).

If the drugs are ultimately approved, Vicore is likely to pursue additional post-market trials to

strengthen the clinical data package. We have not included any costs related to such trials

in our R&D cost assumptions.

Estimated Costs of Clinical Trials(SEKm) Phase II Phase III Total

IPF -75 -500 -575

SSc-ILD -40 -350 -390

IPF cough -30 -300 -330


Costs of clinical trials

Source: Martin 2017, Nature


51

Selling, General and Administrative Expenses (SG&A)

Pre-Commercial Activities

We assume that Vicore will commercialise assets on its own in the US in all indications

expect for COVID-19. Significant investments are required upfront before the projects are

self-financing with revenues. On a high level, we judge that SEK ~1,500 million is required

to build a fully fledged organisation in the US. In general, upfront investments related to

commericalisation include but are not limited to:

• A medical team to raise patient awareness, education etc.

• A market access team to ensure the product is made available and adequately

priced etc.

• Established patient support programmes

• Manufacturing and supply chain in place

• A direct sales force with sales representatives

Given an anticipated launch of VP01 in 2025, we assume that costs related to SG&A will

start ramping up in 2022, three years before launch.

We Assume a Partnering Strategy for the European Market

The European drug market is fragmented, with the timelines to launch and reimbursement

varying between nations and pricing often much lower than in the larger and more

homogenous US market. All in all, this could create a challenging sales environment, even

for companies targeting orphan diseases. Therefore, we assume that Vicore will look for a

strategic partner offering established sales channels in the European market.

We assume that Vicore will out-license VP01 in Europe following a pivotal phase III trial and

will receive 30% royalties on sales. We leave potential upfront and milestone payments

related to development and commercial progress as an option for upside potential.

Vicore Pharma: Near-term Cost Estimates (non-risk adjusted)

(SEKm) 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E

R&D expenses -27 -67 -65 -100 -185 -410 -410 -210

SG&A expenses -15 -27 -35 -40 -65 -185 -445 -1020

OPEX, total -42 -94 -100 -140 -250 -595 -855 -1230



52

Profitability

Following the initial costs related to R&D and subsequent launch, we assume Vicore will

reach high profitability. Mature commercial-stage biotech/biopharmas with few clinical

projects or marketed products tend to reach an operating margin of up to 50%. We believe

there are three key arguments as to why Vicore could achieve even higher profitability:

• Cost of goods sold (COGS) as a percentage of revenue for companies with small

molecule drugs, such as VP01, show a cost of 10-15%. This is significantly lower

than biologics-derived drugs, which commonly cost ~25-30% of sales to produce.

• Vicore is addressing orphan diseases that are usually treated by specialist

physicians in a limited number of centres. Consequently, we believe Vicore will be

able to achieve good market uptake in the US even with a limited sales force.

• As we have anticipated that Vicore will out-license its assets for the European

market following pivotal trials, the royalties from EU sales would go straight

through the P&L, boosting the bottom line without incurring any costs.

With these factors in mind, we forecast the following cost relations in a mature stage (5

years after launch), translating into an EBIT margin of 65-70%:

• COGS % of sales: 10%

• R&D % of sales: 0%

• SG&A % of sales: 25%

Risk-Adjusted Income Statement

Vicore Pharma: Financial Estimates until 2030 (risk-adjusted)(SEKm) 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E

Sales 1 0 17 0 0 0 0 247 924 1590 2261 2926 3297

Direct sales (US) 0 0 0 0 0 0 0 223 845 1422 2011 2611 2930

Royalty (EU) 0 0 0 0 0 0 0 24 80 168 251 315 367

Other operating income 1 0 17 0 0 0 0 0 0 0 0 0 0

COGS 0 0 0 0 0 0 0 -67 -169 -185 -201 -261 -293

Gross profit 1 0 17 0 0 0 0 180 755 1405 2060 2665 3004

R&D expenses -27 -67 -65 -94 -87 -188 -125 -62 0 0 0 0 0

SG&A expenses -15 -27 -35 -40 -46 -92 -135 -273 -481 -582 -628 -721 -752

OPEX, total -42 -94 -100 -134 -133 -280 -259 -335 -481 -582 -628 -721 -752

EBIT -41 -94 -83 -134 -133 -280 -259 -155 274 823 1432 1944 2252

Net financials 20 1 0 0 0 0 0 0 0 0 0 0 0

Tax 0 0 0 0 0 0 0 0 0 0 -299 -405 -468

Net earnings -22 -93 -83 -134 -133 -280 -259 -155 274 823 1133 1539 1784

Gross margin N/A N/A N/A N/A N/A N/A N/A 73% 82% 88% 91% 91% 91%

EBIT margin N/A N/A N/A N/A N/A N/A N/A -63% 30% 52% 63% 66% 68%



53

Valuation

We perform a sum-of-the-parts (SOTP) valuation based on a discounted cash flow (DCF)

model with risk adjustments. Our model uses a weighted average cost of capital (WACC) of

13%. From this, we derive a fair value of some SEK 2,405 million, which leads to a Base

Case of SEK 48 per share.

WACC Sensitivity

Company valuation is not a science and our model is very sensitive to the discount rate

(WACC). We apply a discount rate of 13% to Vicore based on Redeye Rating. Below we

show the impact of changes in WACC on our fair values

Scenario Analysis

Base case

See our assumptions above.

Bull case

In a Bull case, we assume that VP01 displays positive data in the SSc-ILD and IPF Phase II

trials, which increases the LoA for the assets to 60%. VP02 enters clinic and shows positive

safety data in Phase I.

In a Bull scenario, we derive a fair value of SEK 100 per share.

Bear Case

In a Bear case, we instead assume that VP01 shows disappointing data in the Phase II trial

in SSc-ILD patients. Consequently, we lower the LoA for the assets to 10% each.

In a Bear scenario, we derive a fair value of SEK 15 per share.

Vicore Pharma: Sum-of-the-parts Valuation

Project Indication Stage LaunchPeak sales

($m)LoA

Value, r-adj

(SEKm)

Value, r-adj per

share(SEKm)Included

VP01 IPF Phase II 2025 1 015 30% 1 632 32.4

VP01 SSc-ILD Phase II 2025 258 30% 322 6.4

VP02 IPF cough Preclinical 2025 502 15% 413 8.2

Not includedVP01 Covid-19 Phase II 2021 N/A N/A N/A N/AVP03 Fibrosis Preclinical N/A N/A N/A N/A N/A

Net cash, end Q4 265 5.3Shared costs (228) -4.5Total 2 405 Shares outstanding 50.4Base case 48


Vicore sensitivity anslysis, share price

WACC11% 12% 13% 14% 15%

Base case 59 53 48 44 39



54

Peer Valuation

To further assess Vicore’s value, we analyse the share against other companies in the

same industry. Our selected peer group consists of Scandinavian Phase III orphan

companies who are pursuing pivotal trials on their own.

The average and median market cap of these companies are about SEK 4,000 million.

Although all of the companies drugs candidates are different in terms of market potential

and risk level, we believe our peer comparison gives an idea of what market cap Vicore

could have if it shows encouraging data in Phase II and moves into Phase III development.

Peer Valuation, Scandinavian Orphan Phase III Companies (SEKm)

Company Market cap Net cash* EV

No. of

projects**

No. of

indications

Phase in lead

indication

Hansa Biopharma 5 600 477 5 123 1 4 NDA/Ph3

Calliditas Therapeutics 4 600 1 500 3 100 1 1 Ph3

Orphazyme*** 3 600 1 145 3 428 1 4 NDA

Infant Bacterial Therapeutics 1 200 501 699 1 1 Ph3

Ascelia Pharma 560 169 391 2 2 Ph3

Oncopeptides 8 500 1 918 6 582 1 1 Ph3

Median 4 100 823 3 264

Mean 4 010 952 3 221

Vicore Pharma 800 238 562 1 3/4 Ph2

*End Q1 2020 (end Q4 2019, Orphazyme), adjusted for share issues post Q1

**Clinical stage

***DKK/SEK : 1.39


55

Appendix

Management Team

Vicore Pharma: Management TeamName Position Shares Options Experience

Carl-Johan Dalsgaard CEO

477,981 200,000

Carl-Johan Dalsgaard has been a Venture Partner at HealthCap since 2000, thereby he has served as CEO of

several companies in which HealthCap has invested. Prior to that, he has ten years of experience from senior

positions within the AstraZeneca Group, such as pre-clinical research director, therapeutic area manager of

pain and anesthesia, CEO of Astra Pain Control AB and part of the Group’s research management team.

Hans Jeppsson CFO

5,000 150,000

Hans Jeppsson has previously worked as a pharmaceutical research analyst at Danske Bank and has

experience from the capital market and financing-related questions

Christian Hall IR

0 25,000

Christian Hall is an IR professional with an extensive experience. He has worked as a senior IR professional

since 2012 with a number of companies, including Folksam and Academedia. Before that, Christian worked

with equity research on banks and stock brokers.

Christina Johansson Head of Project

Management

0 87,500

Christina Johansson has been active in the pharmaceutical industry for 26 years, and has during the last 19

years been directly responsible for strategy and development of nearly 50 potential drug substances in a

number of different areas of disease.

Nina Carlén Chief Administrative

Officer

14,000 115,000

Nina has more than 15 years experience of working with Communication and Administration in the medical

industry.

Rohit Batta CMO

0 100,000

Rohit Batta has 18 years of experience as a medical doctor with an extensive background leading medical and

clinical development teams whilst developing drugs for rare diseases. His previous roles include Senior Director

of Cell and Gene Therapy at GlaxoSmithKline leading the clinical development and defining the clinical strategy

for haemoglobinopathy gene therapy medicines. He also led the global medical and late stage clinical

development teams to launch the world’s first gene therapy for patients with a paediatric rare disease.

Johan Raud CSO

238,991 40,000

Johan Raud has more than 20 years of experience from heading research teams and managing drug discovery

projects in both Big Pharma and startups. Johan gained his MD, PhD and Associate Professorship at

Karolinska Institutet and Vanderbilt University.

Mimi Flensburg VP Clinical Development

0 29,100

Mimi Flensburg is an experienced biotech R&D leader with strategic and operational background from

managing clinical operations. She has an extensive track record of building successful clinical development

platforms to lead drug candidates efficiently through clinical phase I, II and III

Johanna Gräns Project Manager

7,004 43,750

Johanna has a Ph.D and expertise in pharmaceutical metabolism. She has extensive experience in preclinical

interpretation and is responsible for drug development projects.

Ola Camber Head of Pharmaceutical

R&D

149,326 0

Ola is PhD and Assoc. Prof. in Pharmaceutics & Biopharmaceutics and expert in drug formulation/delivery. He

has more than 30 years of experience in drug development e.g. Director of Pharmaceutical R&D at Pharmacia,

Astra/AstraZeneca, VP Drug Development and Board member at Biotech Companies and Senior Adviser at

Karolinska Institutet Innovation AB.



56

Board of Directors

Vicore Pharma: Board of DirectorsName Position Shares Share Awards Experience

Michael Wolff Jensen Chairman of the Board 0 350,000 Michael Wolff Jensen (born 1971) has 20 years of experience from strategic leadership from Pharma/Biotech –

as CFO, Chairman of the Board, responsible partner and as Chief Legal Officer. Michael has been responsible

for four IPOs; Genmab, LifeCycle Pharma, Ascendis Pharma and Xspray Pharma.

Heidi Hunter Board member 0 175,000 Heidi Hunter (born 1958) has more than 25 years of experience from leading positions in different roles within

pharmaceutical development and commercialization. She has worked strategically and operationally from

clinical and commercial development to launch execution.

Maarten Kraan Board member 0 125,000 Maarten Kraan has extensive experience in biomedicine and has, among others, held a senior position at

AstraZeneca AB where he was responsible for the research and development of medicines for respiratory,

inflammatory and autoimmune symptoms

Sara Malcus Board member 0 50,000 Sara Malcus has ten years of experience from operational management and board work through her work with

developing early drug projects at GU Ventures, Astra Zeneca AB and in smaller start-up companies.

Peter Ström Board member 84,084 50,000 During 1979-2005, Peter Ström has held senior positions in Kabi Vitrum AB, Kabi Pharmacia AB, Pharmacia &

Upjohn and IMS Health. Peter Ström has since 2003 been a board member of a number of listed companies,

such as Active Biotech AB, Oasmia Pharmaceutical AB and LIDDS AB.

Jacob Gunterberg Board member 0 0 Jacob Gunterberg is a partner at HealthCap since 2007 and has extensive experience in venture capital

investment operations and corporate finance in life science.

Hans Schikan Board member 0 125,0000 Mr. Schikan is former CEO of Prosensa (acquired by BioMarin). His previous assignments include leadership

roles at Genzyme (acquired by Sanofi) and Organon (acquired by Schering Plough).



57

Intellectual Property

Vicore Pharma: Intellectual Property



58

Orphan Drug Development

The development and commercialization of drugs targeting rare diseases (orphan) has gained a lot of traction in

the last decade, with orphan drug sales growing at a CAGR of approximately 9 percent, and by that far outpaced

the sales growth over the non-generic, prescription drug market. According to Evaluate Pharma, this trend is likely

to continue. For the period 2018 – 2024, Evaluate Pharma estimates that orphan drug sales will increase by a

CAGR of 12.3 percent.

Interest in orphan drug development has not always been the case. Up to 1983, mere 38 drugs aimed at rare

diseases were approved (Evaluate Pharma). The reason for the lack of approved drugs was that it didn’t pay off

for the pharma industry to target orphan diseases. To promote drug development in rare diseases, the U.S.

Congress established the Orphan drug act of 1983 where drug development for orphan diseases would be

financially incentivized. The success following the establishment of the act entailed Japan and EU to follow the

same path. Japan adopted a financial incentivized program for orphan diseases in 1993, followed by EU in 2000.

Furthermore, orphan drugs are also subject to market exclusivity in which authorities are not allowed to approve

the same substance for the same orphan indication. In the US, market exclusivity is seven years from approval

whereas it is ten years from for approval for the EU and Japan region.

The three regions (US, EU, and Japan) have established their definition of what is an orphan disease. The

definition is outlined in law as follows:

• Less than 200,000 patients affected by the disease, equal to < 6.37 per 10,000 individuals based on US

population of 314 million (US)

• < 5 per 10,000 individuals, equal to less than 250,000 patients affected by the disease based on an EU

population of 514 million (EU)

• Less than 50,000 patients affected by the disease, equal to < 4 per 10,000 individuals based on Japan

population of 128 million.

Financial incentives, with respect for some differences between the regions, can be utilized during different stages

in research, development and when available on the market.

Worldwide orphan drug sales and share of prescription drug market (2016-2024)

Source: Evaluate Pharma 2020, Redeye Research

Source: Evaluate Pharma 2020, Redeye Research

602 612 639 666 686 726 774 824 888

80 82 81 79 8285

8993

96

98 107 119 128 140156

175195

217

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0

200

400

600

800

1000

1200

1400

2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E

$b

n

Prescription excl. generics & orphan Generics Orphan Orphan drugs as a percentage prescription sales


59

Clinical trials in rare diseases usually do not require the same number of patients. Statistics show that phase III

studies in orphan indications have a patient population that is on average one-third of the population in non-

orphan trials. The phase III trials with smaller patient groups are therefore likely to both go faster and be less

costly. The faster pace is also valid for the regulatory review process before market approval. However, if drugs

target orphan diseases where patient access is limited, the pace of development could be lengthened

dramatically.

Orphan drugs are likely to obtain favorable pricing, with patient population size being inversely correlated to

prices. In 2018, the median annual cost per patient for an orphan drug was approximately USD 110,000 in the

US. In comparison, for a non-orphan drug, the annual cost per patient was USD 16,000 in the US. As patient

populations are relatively small, payors are willing to reimburse the costs, despite reaching significant numbers.

While pricing pressures are arising in the pharmaceutical sector, the trend among orphan indications is likely to

continue given the medical need and since it is often a relatively small portion of the payer’s overall budget

(Evaluate pharma, 2019).

There are an estimated 7,000 known orphan diseases, affecting over 30 million people only in the US. The vast

majority of patients still lack an effective treatment. Drugs for rare diseases are therefore often addressing a high

unmet medical need, contributing to the commercial attractiveness.

2017 US Revenue per Patient vs. Number of Patients Treated

Source: Evaluate Pharma 2018


60

Summary Redeye Rating

The rating consists of three valuation keys, each constituting an overall assessment of several factors that are

rated on a scale of 0 to 1 points. The maximum score for a valuation key is 5 points.

Rating changes in the report

People: 4

Vicore is led by people with extensive experience within drug development and business development. In

addition, we argue Vicore has an unmatched ownership list compared to other Phase II biotechs in Scandinavia.

Business: 3

Vicore's drug candidates are still a few years away from market. If reaching market, we argue the company will

reach high profitability (EBIT margin of 65-70%).

Financials: 1

Vicore is not profitable and many steps remain until recurring revenues can be incurred. We estimate that the

current cash position will fund operations until at least 2022.


61

Please comment on the changes in Rating factor

INCOME STATEMENT 2018 2019 2020E 2021E 2022E Net sales 1 0 0 0 0

Total operating costs -42 -94 -100 -134 -133

EBITDA -42 -94 -83 -134 -133

Depreciation 0 0 0 0 0

Amortization 0 0 0 0 0

Impairment charges 0 0 0 0 0

EBIT -42 -94 -83 -134 -133

Share in profits 0 0 0 0 0

Net financial items 20 1 0 0 0

Exchange rate dif. 0 0 0 0 0

Pre-tax profit -22 -93 -83 -134 -133

Tax 0 0 0 0 0

Net earnings -22 -93 -83 -134 -133

BALANCE SHEET 2018 2019 2020E 2021E 2022E Assets

Current assets

Cash in banks 225 265 182 48 0

Receivables 0 0 0 0 0

Inventories 0 0 0 0 0

Other current assets 2 2 2 2 2

Current assets 227 267 184 50 2

Fixed assets

Tangible assets 0 0 0 0 0

Associated comp. 0 0 0 0 0

Investments 0 0 0 0 0

Goodwill 0 0 0 0 0

Cap. exp. for dev. 0 0 0 0 0

O intangible rights 69 68 68 68 68

O non-current assets 6 6 6 6 6

Total fixed assets 75 75 75 75 75

Deferred tax assets 0 0 0 0 0

Total (assets) 302 341 259 125 77

Liabilities

Current liabilities

Short-term debt 0 0 0 0 0

Accounts payable 0 0 0 0

0

O current liabilities 0 0 0 0 0

Current liabilities 16 20 37 37 122

Long-term debt 0 0 0 0 0

O long-term liabilities 0 0 0 0 0

Convertibles 0 0 0 0 0

Total Liabilities 16 20 37 37 122

Deferred tax liab 0 0 0 0 0

Provisions 0 0 0 0 0

Shareholders' equity 285 322 222 88 -45

Minority interest (BS) 0 0 0 0 0

Minority & equity 285 322 222 88 -45

Total liab & SE 301 342 259 125 77

FREE CASH FLOW 2018 2019 2020E 2021E 2022E Net sales 1 0 0 0 0

Total operating costs -42 -94 -100 -134 -133

Depreciations total 0 0 0 0 0

EBIT -42 -94 -83 -134 -133

Taxes on EBIT 0 0 0 0 0

NOPLAT -42 -94 -83 -134 -133

Depreciation 0 0 0 0 0

Gross cash flow -42 -94 -83 -134 -133

Change in WC 14 3 0 0 0

Gross CAPEX -75 0 0 0 0

Free cash flow -102 -90 -83 -134 -133

CAPITAL STRUCTURE 2018 2019 2020E 2021E 2022E Net debt -225 -265 -182 -48 -85

GROWTH 2018 2019 2020E 2021E 2022E Sales growth 0% -99% 0% 0% 0%

EPS growth (adj) 0% 329% 7% 34% -1%

DATA PER SHARE 2018 2019 2020E 2021E 2022E EPS -0.43 -1.85 -1.98 -2.66 -2.64

EPS adj -0.43 -1.85 -1.98 -2.66 -2.64

Dividend 0.00 0.00 0.00 0.00 0.00

Total shares 50.40 50.40 50.40 50.40 50.40

VALUATION 2018 2019 2020E 2021E 2022E EV -224.7 -264.6 718.9 853.1 986.3

P/E 0.0 0.0 -7.5 -5.6 -5.6

P/E diluted 0.0 0.0 -7.5 -5.6 -5.6

P/Sales 0.0 0.0 186,480.0 186,480.0 186,480.0

EV/Sales -449.4 -66,150.0 179,727.7 213,277.4 246,575.9

EV/EBITDA 5.4 2.8 -7.2 -6.4 -7.4

EV/EBIT 5.4 2.8 -7.2 -6.4 -7.4

P/BV 0.0 0.0 3.4 8.5 -16.5

SHARE INFORMATION Reuters code VICO.ST

List First North

Share price 14.8

Total shares, million 50.4

Market Cap, MSEK 745.9

MANAGEMENT & BOARD CEO Carl-Johan Dalsgaard

CFO Hans Jeppsson

IR

Chairman Leif Darner

FINANCIAL INFORMATION

ANALYSTS Redeye AB

Ludvig Svensson Mäster Samuelsgatan 42, 10tr

[email protected] 111 57 Stockholm

Anders Hedlund

[email protected]

SHARE PERFORMANCE GROWTH/YEAR 18/20E 1 month -3.9 % Net sales -91.1 %

3 month 80.9 % Operating profit adj 55.0 %

12 month -20.2 % EPS, just 114.7 %

Since start of the year 0.7 % Equity -11.7 %

SHAREHOLDER STRUCTURE % CAPITAL VOTES HealthCap 27.3 % 27.3 %

Göran Wessman 7.6 % 7.6 %

Swedbank Robur Fonder 6.6 % 6.6 %

Fjärde AP-fonden 6.4 % 6.4 %

HBM Healthcare Investments AG 6.0 % 6.0 %

JP Morgan Bank Luxembourg S.A. 4.8 % 4.8 %

HBM Partners AG 4.8 % 4.8 %

Shaps Capital 4.3 % 4.3 %

Unionen 3.3 % 3.3 %

Kjell Stenberg 3.0 % 3.0 %


62

Redeye Rating and Background Definitions

Company Quality

Company Quality is based on a set of quality checks across three categories; PEOPLE, BUSINESS, FINANCE.

These are the building blocks that enable a company to deliver sustained operational outperformance and

attractive long-term earnings growth.

Each category is grouped into multiple sub-categories assessed by five checks. These are based on widely

accepted and tested investment criteria and used by demonstrably successful investors and investment firms.

Each sub-category may also include a complementary check that provides additional information to assist with

investment decision-making.

If a check is successful, it is assigned a score of one point; the total successful checks are added to give a score

for each sub-category. The overall score for a category is the average of all sub-category scores, based on a

scale that ranges from 0 to 5 rounded up to the nearest whole number. The overall score for each category is then

used to generate the size of the bar in the Company Quality graphic.

People

At the end of the day, people drive profits. Not numbers. Understanding the motivations of people behind a

business is a significant part of understanding the long-term drive of the company. It all comes down to doing

business with people you trust, or at least avoiding dealing with people of questionable character.

The People rating is based on quantitative scores in seven categories:

• Passion, Execution, Capital Allocation, Communication, Compensation, Ownership, and Board.

Business

If you don’t understand the competitive environment and don’t have a clear sense of how the business will engage

customers, create value and consistently deliver that value at a profit, you won’t succeed as an investor. Knowing

the business model inside out will provide you some level of certainty and reduce the risk when you buy a stock.

The Business rating is based on quantitative scores grouped into five sub-categories:

• Business Scalability, Market Structure, Value Proposition, Economic Moat, and Operational Risks.

Financials

Investing is part art, part science. Financial ratios make up most of the science. Ratios are used to evaluate the

financial soundness of a business. Also, these ratios are key factors that will impact a company’s financial

performance and valuation. However, you only need a few to determine whether a company is financially strong

or weak.

The Financial rating is based on quantitative scores that are grouped into five separate categories:

• Earnings Power, Profit Margin, Growth Rate, Financial Health, and Earnings Quality.


63

Redeye Equity Research team

Management

Björn Fahlén

[email protected]

Håkan Östling

[email protected]

Technology Team

Jonas Amnesten

[email protected]

Henrik Alveskog

[email protected]

Havan Hanna

[email protected]

Erika Madebrink

[email protected]

Fredrik Nilsson

[email protected]

Tomas Otterbeck

[email protected]

Oskar Vilhelmsson

[email protected]

Viktor Westman

[email protected]

Editorial

Mark Siöstedt

[email protected]

Life Science Team

Gergana Almquist

[email protected]

Oscar Bergman

[email protected]

Anders Hedlund

[email protected]

Erik Nordström

[email protected]

Jakob Svensson

[email protected]

Ludvig Svensson

[email protected]

Niklas Elmhammer

[email protected]

Mats Hyttinge

[email protected]


64

Disclaimer Important information Redeye AB ("Redeye" or "the Company") is a specialist financial advisory boutique that focuses on small and mid-cap growth companies in the Nordic region. We focus on the technology and life science sectors. We provide services within Corporate Broking, Corporate Finance, equity research and investor relations. Our strengths are our award-winning research department, experienced advisers, a unique investor network, and the powerful distribution channel redeye.se. Redeye was founded in 1999 and since 2007 has been subject to the supervision of the Swedish Financial Supervisory Authority. Redeye is licensed to; receive and transmit orders in financial instruments, provide investment advice to clients regarding financial instruments, prepare and disseminate financial analyses/recommendations for trading in financial instruments, execute orders in financial instruments on behalf of clients, place financial instruments without position taking, provide corporate advice and services within mergers and acquisition, provide services in conjunction with the provision of guarantees regarding financial instruments and to operate as a Certified Advisory business (ancillary authorization). Limitation of liability This document was prepared for information purposes for general distribution and is not intended to be advisory. The information contained in this analysis is based on sources deemed reliable by Redeye. However, Redeye cannot guarantee the accuracy of the information. The forward-looking information in the analysis is based on subjective assessments about the future, which constitutes a factor of uncertainty. Redeye cannot guarantee that forecasts and forward-looking statements will materialize. Investors shall conduct all investment decisions independently. This analysis is intended to be one of a number of tools that can be used in making an investment decision. All investors are therefore encouraged to supplement this information with additional relevant data and to consult a financial advisor prior to an investment decision. Accordingly, Redeye accepts no liability for any loss or damage resulting from the use of this analysis. Potential conflict of interest Redeye’s research department is regulated by operational and administrative rules established to avoid conflicts of interest and to ensure the objectivity and independence of its analysts. The following applies:

• For companies that are the subject of Redeye’s research analysis, the applicable rules include those established by the Swedish Financial Supervisory Authority pertaining to investment recommendations and the handling of conflicts of interest. Furthermore, Redeye employees are not allowed to trade in financial instruments of the company in question, from the date Redeye publishes its analysis plus one trading day after this date.

• An analyst may not engage in corporate finance transactions without the express approval of management and may not receive any remuneration directly linked to such transactions.

• Redeye may carry out an analysis upon commission or in exchange for payment from the company that is the subject of the analysis, or from an underwriting institution in conjunction with a merger and acquisition (M&A) deal, new share issue or a public listing. Readers of these reports should assume that Redeye may have received or will receive remuneration from the company/companies cited in the report for the performance of financial advisory services. Such remuneration is of a predetermined amount and is not dependent on the content of the analysis.

Redeye’s research coverage Redeye’s research analyses consist of case-based analyses, which imply that the frequency of the analytical reports may vary over time. Unless otherwise expressly stated in the report, the analysis is updated when considered necessary by the research department, for example in the event of significant changes in market conditions or events related to the issuer/the financial instrument. Recommendation structure Redeye does not issue any investment recommendations for fundamental analysis. However, Redeye has developed a proprietary analysis and rating model, Redeye Rating, in which each company is analyzed and evaluated. This analysis aims to provide an independent assessment of the company in question, its opportunities, risks, etc. The purpose is to provide an objective and professional set of data for owners and investors to use in their decision-making. Redeye Rating (2020-06-25)

Duplication and distribution This document may not be duplicated, reproduced or copied for purposes other than personal use. The document may not be distributed to physical or legal entities that are citizens of or domiciled in any country in which such distribution is prohibited according to applicable laws or other regulations. Copyright Redeye AB.

Rating People Business Financials

5p 14 12 4 3p - 4p 109 83 33 0p - 2p 6 34 92 Company N 129 129 129

CONFLICT OF INTERESTS

Ludvig Svensson owns shares in the company: No Anders Hedlund owns shares in the company: No Redeye performs/have performed services for the Company and receives/have

received compensation from the Company in connection with this.

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