Iconovo: Adding another royalty agreement to the family - Danske Bank
Impact on the investment case. We view the Q2 20 results as another confirmatory report. Iconovo delivered net sales of SEK2.4m versus our estimate of SEK1.3m. Reported EBIT came in at SEK -5.8m versus our estimate of SEK -5.5m. Operating costs in the quarter were SEK9.3m versus our estimate of SEK7.4m, driven by higher personnel costs due to intensified product development activities. Iconovo is still in the development phase and revenues to date are characterised by milestone payments, making revenues hard to forecast and lumpy across quarters. We expect more stable and predictable revenues post 2022, since revenues are set to come mainly from royalty revenues from upcoming partner product sales.
ICOcap royalty agreement signed with BNC Korea. In July, Iconovo signed a licence agreement (its fourth royalty agreement since inception) with BNC Korea for its ICOcap device covering two generic formulations within the treatment of COPD. The formulations sold today by Novartis refer to (1) Ultibro Breezhaler (indacaterol, glycopyrronium), and (2) Seebri Breezhaler (glycopyrronium). In 2019, combined net sales of Ultibro + Seebri amounted to c.USD550m, and c.USD82m in BNC's territories.
Estimate changes. We have increased our long-term sales estimates due to the recently signed royalty agreement with BNC Korea. Furthermore, we have increased our opex estimates, including incorporating a higher number of employees.
Valuation. Our updated DCF-derived fair value points to a valuation range of SEK649-847m (previously SEK599-774m), assuming a cost of capital of between 8% and 11% (previously from 9% and 12%), corresponding to a share price of SEK83-109 (previously SEK77-99). We see a lower WACC as warranted following (1) the new royalty agreement, confirming its in-house technology and (2) the CEO transition, with Iconovo now more focused on commercialisation.