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2020-08-13

Isofol Medical AB (publ): DNB Markets - Isofol Medical: Enters into licensing deal for Japan

Enters licensing agreement with Solasia Pharma. Under the terms of the agreement, Isofol Medical remains responsible for the clinical development of arfolitixorin, while Solasia will supervise development as well as being responsible for filing and commercialisation in Japan. The company will receive cUSD100m, which includes an upfront payment and unspecified development, regulatory and sales-based milestones. It is also entitled to "solid double-digit" sales-related royalties. The company was reluctant to further specify the structure of the deal, referring to other ongoing discussions. We assume the deal to be back-end loaded, with a low single-digit upfront payment. The news was well received by the market and the stock soared c34% on the announcement.

Executing on strategy despite Covid-19 related difficulties. We find it encouraging that management has delivered on the goal of finding a partner despite the difficulties relating to Covid-19. We also view the deals as a validation of arfolitixorin. From the market's perspective, the lack of information of the structure of the deal might be viewed negatively, however we would point out that it is positive that the company is engaged in other potential partnership discussions.

Unclear deal structure and timing clouds visibility. Our out-licensing scenario now assumes cUSD450m in milestones and sales-related payments for the US, EU5 and Japan, with an average royalty-rate of 20%. We suspect that our royalty estimate is on the low side, and that the royalty rate in Japan is higher. However, given that deals in other markets might be structured differently, and the low visibility in the agreement's terms, we have chosen to adopt a cautious stance for now. The `do-it-alone' scenario still assumes Isofol Medical will launch in the US and EU5 on its own, but now also includes the licencing deal for Japan.
Our new fair value is SEK10-23. In addition to the new market assumptions, we have included the additional shares issued as a part of the over-allotment exercised in relation to the recent rights issue. We have raised our R&D cost assumption as well to reflect the planned increase in sites in Japan, which should support filing.
Click here to view full report (https://www.dnb.no/seg-fundamental/fundamentalweb/GetReports.aspx?file=CMPSP_160848.pdf&Sid=1-7XT0MIJ)
Best regards 
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David Martinsson | Markets | Equity Research | Healthcare
DNB Bank ASA, Filial Sverige
Visiting address: Regeringsgatan 59 | Stockholm | Sweden
Patrik Ling | DNB Markets | Equity Research | Senior Analyst Healthcare
DNB Bank ASA, Filial Sverige
Visiting address: Regeringsgatan 59 | Stockholm | Sweden

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