Equity research Nosa Plugs: Directed share issues to deliver Nosa to the clinic

Carlsquare Equity Research views it as promising that the development of Nosa Drug delivery appears to be going strong. With directed share issues that can in total bring in SEK 20 million before costs in the short term, with another SEK 13 million in a year from now, we expect significant news flow in the coming months. However, many questions surrounding NOSA drug delivery still remain, as was discussed during the company presentation at the Carlsquare Nordic Life Science Investor day. The directed share issues cause a slight reduction in our fair value; SEK 1.2 (1.3), but it is worth noting that Nosa drug delivery is still not part of our models, seeing as it is too early yet to credibly price the project. We expect news flow in the coming months to allow for us to incorporate the project, something that should boost our fair value.

Nosa drug delivery levering the existing technology to pursue new indications

Nosa Drug delivery has been in the works as a long-term project for the company for a long time. With the patented technique to release drugs slowly and consistently through the nose and the olfactory nerve, the potential exists in many indications. Many indications face problems that could be addressed with the potential benefits of Nosa drug delivery. For example, many drugs for CNS-based indications face problems penetrating the blood-brain barrier (BBB). Nosa drug delivery, dispersing directly to the olfactory nerve, would theoretically be able to bypass the BBB entirely. Furthermore, the slow and consistent release of a substance would be of interest for many indications such as chronic pain, migraines, Parkinson’s and Alzheimer’s disease. During the autumn months, NOSA conducted production tests regarding this technology and, through the tests, reached the conclusion that an acceleration in the development was a strategic move.

Two directed share issues to propel Nosa drug delivery toward the clinic

Nosa Plugs announced on the evening of December 7 that the company was looking into the possibility of a directed issue of shares. Initially targeting SEK 15 million through an accelerated bookbuild scheme. The morning after, on December 8, it was announced that the board had decided on a directed share issue that will initially yield SEK 18.4 million with a subsequent SEK 13 million in December 2024. The share issue is chiefly made up of warrants, of which there are a total of 11,966,216, each made up of two shares and one warrant of series 2023/2024. The unit price for the warrants is SEK 1.544, corresponding to a price per share of 0.772, or a 15% discount to the closing price on December 7. The series 2023/2024 warrants are issued free of charge, with each entitling the holder to purchase a share at SEK 1.08, a 19% premium to the closing price on December 7, from December 4 to December 18. In total, the first part of directed share issue 1 entails the issue of 23,932,432 shares, corresponding to a dilution of c.a. 11.5%. The second part, the series 2023/2024 warrants, entails a further increase of 11,966,216 shares, a dilutionary effect of 5.4%.

Another directed share issue was also decided, targeting the members of the board that will, at the most, bring in SEK 1.6 million before issuing costs. The share issue constitutes a maximum of 1.765.597 shares at a price of SEK 0.908 per share, meaning no discount regarding the closing price on December 7. Directed share issue 2 would increase the number of shares by 1,765,597.

Both share issues that are pending approval at an extraordinary board meeting on December 27. In total, the share issues entail a dilutionary effect of 12.2%.

New fair value at SEK 1.2 (1.3) while awaiting details regarding the drug delivery project

The news contains many strong signalling factors. The first is that the company could avoid guarantors and the associated costs. Second, according to the press release released by the company, directed share issue 1 attracted new institutional investors, family offices and qualified private investors. Third, directed share issue 2 is to be done without a discount, which highlights the board’s trust in the company and the direction they are headed. Taken together, the share issues mean that there are exciting times ahead, with news considering the development of Nosa drug delivery that is sure to come. As previously mentioned, the project is yet not feasible to include in our models, considering the uncertainties that still persist. Although potential indications were presented at our investor day, we await more concrete details regarding the project before we incorporate it. Furthermore, the warrants series 2023/2024 are only included in our models when they are in the money. Taken together, the directed share issues cause a slight deviation in our fair value at SEK 1.2(1.3) per share. However, we expect to revise this TP in a couple of months, as the details of the project are revealed, allowing the project to be incorporated into our models, which should entail a boost in the estimated fair share value.

Please read our latest research update (November 16).

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