Initiation of Coverage, Kancera: Expands the clinical program

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Kancera Initiation of Coverage October 24

Carlsquare Equity Research begins coverage of Kancera. In the event of a positive outcome in the ongoing study in myocardial infarction patients (results are expected in the first half of 2023), we see great potential in the shares. At the same time, it is a challenging indication for clinical development, and we welcome the announced broadening of the clinical program to cancer, which reduces dependence on a single project. To finance the investment, Kancera is raising up to approximately SEK 135 million. We calculate a valuation range of around SEK 2 to 9 per share over a period of around nine months.

Readout from the first myocardial infarction study in H1, 2023

Kancera’s first study in myocardial infarction patients is nearing its final stage and is expected to be fully recruited at the turn of the year. We see the fact that the study largely follows the schedule as a good sign. The study is controlled and, although the sample is limited, the outcome should first evidence regarding effect for important clinical parameters such as infarct size and heart function. There are no approved treatments for this indication, a market that could be worth at least a billion dollars. We assess that external clinical results provide some support for anti-inflammatory treatment in connection with today’s standard treatment (angioplasty/PCI). We predict that topline results in Kancera’s study may be reported towards the end of the first half of next year, and these will have a very large impact on the view of the company’s fractalkine inhibitors.

Share issue for an expanded clinical program

Recently, Kancera has announced that it will begin clinical development with the fractalkine project in cancer next year. The focus is on ovarian cancer and combination with standard treatment to, if possible, overcome resistance to chemotherapy. Preclinical studies show that the company’s candidate inhibits a mechanism for DNA repair, which makes it rational to combine it with chemotherapy to improve the effect. We see good potential in cancer and welcome the broadening of the clinical program. Kancera intends to run the cancer program up to and including a proof-of-concept study (phase IIa) and for that purpose the company is carrying out a rights issue of approximately SEK 90 million at subscription price of two SEK per share. At the same time, warrants are issued that can bring in up to approximately SEK 45 million when they expire in May 2023.

Valuation and news flow should support the share price

We assess that Kancera is valued lower than similar companies. With a relatively conservative assumption about the probability of success in myocardial infarction, in line with the average historical outcome for similar indications, our valuation model gives a risk-adjusted justified value of just over four SEK per share after separation of unit rights and fully diluted.

We believe that the share can multiply if the study in myocardial infarction shows promising results with a positive trend in clinical effect on infarct size and function. In return, we see further fall in the stock if the outcome is disappointing and does not support further development in myocardial infarction. The risk is mitigated to some extent by the fact that the clinical program is expected to be expanded to cancer. The expansion also provides the opportunity for a supportive news flow in the coming months if and when Kancera gets the go-ahead for a cancer study.

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