Neovacs: Ronta Exit Spells Good News

Roche’s decision not to develop rontalizumab, its IFNα monoclonal antibody, any further after completing Phase II trials in systemic lupus erythematosus (SLE) removes a key competitor for Neovacs', (ALNEV) IFNα-Kinoid. Roche achieved clinical proof of concept with its IFNα targeted approach, but the compound did not meet economic criteria and thus is removed from the competitive space. Meanwhile, Neovacs has initiated a Phase IIb trial with its lead product TNFα-Kinoid in rheumatoid arthritis (RA) while it seeks a partner. The ability to partner this drug, which has also been in Phase II for Crohn’s disease, is central to Neovacs’s investment case.

Less competition for IFNα-Kinoid
Roche has disclosed that rontalizumab, its humanised monoclonal antibody (mAb) to interferon-alpha (IFNα), would not be taken into Phase III trials, although it may be out-licensed. This was the first anti-IFNα mAb to reach Phase III, and helped to validate the IFNα targeting approach for lupus, including Neovacs’s IFNα-Kinoid. The removal of rontalizumab from the competitive space may make IFNα-Kinoid a more attractive asset to a potential partner.

Phase IIb trial in rheumatoid arthritis initiated
Neovacs has initiated a Phase IIb study of TNFα-Kinoid in 140 RA patients with inadequate response to methotrexate but who are anti-TNF naïve. This is designed to maintain the programme’s momentum while Neovacs seeks a partner. There are potentially significant commercial advantages to the Kinoid approach in this large, highly competitive therapeutic area, but it may be challenging to secure a partner. There are many novel biologicals in the space and the first anti-TNF biogeneric (infliximab) has just been launched, which may paradoxically help to emphasise the Kinoid’s low cost of goods advantage. Nevertheless, a large pharma licensing deal for TNFα-Kinoid would be a significant event and could prompt a share re-rating.

Financials: Funded to H114
Neovacs had cash of €8.3m at 30 June 2013, which should provide a sufficient runway to complete the Phase IIb RA trial.

Valuation: Risk-adjusted NPV of €101m
We maintain our risk-adjusted NPV of €101m, based on prudent assumptions of its two lead products’ probability of success in each indication, launch date, pricing and market penetration. Neovacs has a current market cap of c €33m and cash of €8.3m, resulting in an EV of €25m.

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