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Scandion Oncology
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== Investment summary == === Company description: Binary inflection point approaches === Founded in 2017 and based in Copenhagen, Denmark, Scandion Oncology is focused on developing novel solutions to address chemotherapy resistance in oncology. Management’s present development programme revolves around one asset, SCO-101, which is in trials investigating its use in the treatment of mCRC (Phase II) and PC (Phase Ib). SCO-101 is a first-in-class chemotherapy add-on that is designed to inhibit two well-documented mechanisms of chemotherapy resistance. Scandion’s hypothesis asserts that if these mechanisms are blocked, a chemotherapeutic response will be restored, and patients will see improved survival. There are currently no drugs targeting chemotherapy resistance on the market. Edison Investment Research's investment thesis rests on crucial proof-of-concept data from part 2 of the CORIST Phase II trial in last-line mCRC, following initial dose finding results from part 1 in 2021. Edison Investment Research expects Scandion demonstrating a clinically meaningful reversal of resistance to FOLFIRI in these patients could result in a material re-rating of the stock. Proof-of-concept data could, in turn, increase confidence in SCO-101’s second indication, PC, for which it is currently in a Phase Ib dose finding trial (PANTAX). Assuming positive results from CORIST part 2, Edison Investment Research believes the company will need to generate randomised data in mCRC in further trials to maximise the value of SCO-101 to potential partners/licensors, targeting the core US and European markets. To fund this, Edison Investment Research expects management would need to raise additional capital and/or pursue non-dilutive smaller, regional licensing deals. In the long term, Edison Investment Research sees the prospects of SCO-101 in other indications and combinations as potentially significant; data from the PANTAX study will be important in corroborating this view. === Valuation: SEK586.5m or SEK18.3 per share === Edison Investment Research values Scandion Oncology at SEK586.5m or SEK18.3 per share. Edison Investment Research's valuation is based on a risk-adjusted net present value calculation for SCO-101 in wild-type RAS, last-line mCRC (SEK8.5 per share) and unresectable metastatic PC (SEK5.8 per share). Additionally, Edison Investment Research includes a cash position of DKK88.0m at end-March 2022. Edison Investment Research uses a discount rate of 12.5% and assume a licensing deal for SCO-101 will be realised in 2024, assuming positive results from the current Phase II trial. === Financials: Funded into Q123, rights issue pending === With a cash burn of DKK17.9m in Q122, a cash position of DKK88.0m and estimated spending in FY22 roughly in line with FY21 (which had a cash burn rate of DKK50.1m), Edison Investment Research estimates a cash runway to Q123. Edison Investment Research anticipates management will raise DKK115m in 2023 to fund randomised trials before a partner is found in 2024 and Edison Investment Research models the financing as illustrative debt. Indeed, as of June 2022, management is undertaking a rights issue which (in the event of full subscription) will provide the company with net proceeds of DKK53m (SEK76.7m: SEK93.7m less SEK17m in transaction costs). Assuming full subscription, management estimates that this cash injection will fund the company into 2024. However, Edison Investment Research notes this may vary according to trial timelines. At the time of writing, the rights issue is approximately 80% guaranteed. Management intends to use the proceeds from this issue to expand the clinical development of SCO-101 into earlier lines of therapy and mutant-RAS patients in mCRC. Edison Investment Research anticipates a global licensing deal for SCO-101 in 2024 after randomised data is collected in further clinical trials during 2022/23. Edison Investment Research anticipates the company will require roughly an additional DKK200m through 2026 to 2027 to be self-sustaining, excluding potential partnerships. Edison Investment Research expects the company to conduct Phase II in 2023 and have assumed management will need to engage global big pharma partners to largely fund the bulk of its Phase III programmes in 2024. === Sensitivities: Pureplay biotech risks === Scandion Oncology is subject to the regular risks associated with drug research and development. As a pureplay biotech, the company will be affected by development delays or failures, regulatory risks, competitor successes, partnering setbacks and financing risks. The largest development sensitivities relate to the company’s sole clinical asset, SCO-101. The most prominent near-term risk would be failure to demonstrate clinical proof-of-concept in the Phase II CORIST trial. Scandion may need to raise capital beyond Edison Investment Research's forecasts. While Edison Investment Research's model accounts for financing(s) as long-term debt, the company may need to issue equity instead, at pricing that may not be favourable for current shareholders and could lead to significant dilution.
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