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Initiation of coverage, Biosergen: Make antifungals great again

Equity Research

20 Mar 2023

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Equity research Biosergen

Carlsquare Equity Research initiates coverage of Biosergen and identifies an infectious disease research company with solid prospects. The company is developing an innovative drug against invasive fungal infections with high mortality rates such as Aspergillosis, Candidiasis and Mucormycosis.

The drug candidate BSG005 is designed to be significantly less toxic to humans than other drugs of the same (polyene) class but still maintain or even improve the fungicidal effect. We estimate sales potential on the US, European and India markets to exceed USD 515 million with a possible early launch in 2025 with NPU-sales. We estimate a risk-adjusted share value of 4.3 SEK.

An enticing combination of innovation and positioning

Biosergen is a Nordic company developing a drug candidate for invasive fungal infections such as Candidiasis and Aspergillosis. BSG005 is a modified polyene, part of an established drug class that includes the market leader AmBisome (2022 sales reported by Gilead: USD 497m). Polyenes are effective fungicides, but their use is hampered by toxicity. Preclinical evidence for BSG005 points to treatment and safety benefits over similar drugs. A well-known mechanism of action and potentially lower toxicity should translate into a higher-than-average probability of success and, possibly, in our view shortened clinical development times. The management team is small but has relevant experience from all phases of clinical development, e.g., Forward Pharma which reached a USD 1.25bn license deal with Biogen. The company has a royalty deal strategy with a possible early launch in the lethal mucormycosis indication.

Strategy plays into current macro trends and pathology

The number of immunocompromised persons at high risk for fungal infections is rising globally (some 3 per cent of the population). For these patients, high mortality rates when infected is a severe concern. The need for more potent and safer antifungals is clear but innovation in the field has been slow. However, several promising drug candidates are now in the pipeline, including Biosergen’s BSG005. The plan is to conduct research and to outsource as much as possible in the pursuit of a licensing deal.

Valuation hints at a fruitful opportunity

With the recent rights issue providing over SEK 42 million at a 70 % subscription rate, Biosergen could complete the Phase I trial in healthy volunteers. A positive topline data readout was recently published, with the lead compound BSG005 showing a satisfactory safety profile, no serious adverse events and no impact on kidney and liver parameters. Furthermore, the plasma levels after ascending doses over seven days approached the No Observable Adverse Effect Level (NOAEL) defined in the toxicology studies. The clinical success lays the foundation for continued studies in phase II.

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