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Published to the market and investors on 17^th May 2019 @ 7.02am (BST).

Vicore Pharma Holding AB (VICO-SE): Key activities on track at Q1/2019 update
Recommendation: OUTPERFORM
Target Price: SEK42.00
Current Price: SEK 16.25 (CoB on 16^th May 2019)

KEY TAKEAWAY

At its Q1/2019 update, Vicore confirmed that all pipeline projects are on track. VP01 is expected to enter Phase IIa trials in idiopathic pulmonary fibrosis ("IPF") and diffuse systemic sclerosis ("dSSc") in H2/2019E, while VP02 is undergoing formulation work and should start a first-in-human trial in 2020E. From a financial point of view, Vicore reported an operating loss of SEK16m, more than double the SEK7.2m incurred in the prior year, primarily reflecting the higher cost base of the enlarged organisation following the acquisition of INIM in July 2018, but also a marked uptick in R&D expenses associated with the two lead programmes. The cash balance stood at SEK216m, allowing the company to fund operations into 2021E and as such beyond key data points. We maintain our OUTPERFORM recommendation and SEK42 target price ("TP"), which is based on a sum-of-the-parts ("SoTP") valuation that includes VP01, VP02 and net cash at YE2019E.

VP01 on track to enter two Phase IIa studies in H2/2019E

Vicore's lead drug, an angiotensin II type 2 receptor ("AT2R") agonist, is currently undergoing a dose-scaling Phase I study to identify the highest safe dose to be used in two upcoming Phase IIa studies: (1) a proof-of-concept trial in IPF to assess safety and lung function, and (2) a mechanistic study in dSSc. The next step would be a pivotal Phase IIb / III trial in IPF. We currently forecast launch in 2026E and peak sales of >$1.5bn in the US and Europe, based on VP01's differentiated profile compared to marketed IPF drugs and those in late-stage clinical development, and assume that Vicore markets the drug on its own. Despite their limited efficacy and poor safety profiles, the two marketed IPF drugs, Esbriet (pirfenidone) and Ofev (nintedanib) posted combined sales of c.$2.2bn in 2018, underscoring the high unmet need in this indication. We do not yet include sales in dSSc in our forecasts.

VP02 undergoing formulation work prior to toxicology study, then Phase I in 2020E

VP02 is a reformulated version of an existing immunomodulatory ("IMiD") drug that has shown promising efficacy in IPF cough, the most debilitating symptom associated with IPF. Vicore is currently developing formulations in collaboration with Nanologica for targeted dosing to the lung through inhalation. Once these activities have been completed, the compound will undergo toxicological tests prior to entering a Phase I trial in 2020E. Despite being at an earlier stage than VP01, its shorter development timelines mean that VP02 could reach the market earlier than VP01. We therefore forecast launch in 2025E and peak sales in IPF cough of >$700m. Vicore is also considering developing VP02 for IPF and potentially pulmonary sarcoidosis. We await further clarity prior to adding sales and associated R&D expenses for either indication into our forecasts.

TP of SEK42 per share suggests ample upside

Our SoTP valuation for Vicore of SEK42 per share consists of risk-adjusted net present values ("rNPVs") for VP01 in IPF, which accounts for c.70% of our fair value, and VP02 in IPF cough (c.22%), plus net cash at YE2019E. With the shares trading at SEK16 per share, we see ample room for upside from current levels as VP01 progresses into Phase IIa clinical studies and VP02 enters Phase I. We also expect the pending up-listing to the Nasdaq Stockholm to aid share price appreciation towards fair value due to the increased visibility among the investor community.

Kind regards,

Brigitte de Lima, PhD, CFA | Research Analyst

goetzpartners Healthcare Research Team | Research Team

goetzpartners securities Limited

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