The corporate split is progressing well. The Polish Financial Supervisory Authority has approved the Selvita CRO Prospectus as part of listing on the Warsaw Stock Exchange and the shareholders' meeting approved the split. The current entity will continue as Ryvu Therapeutics, a newly introduced brand, and will fully focus on innovative drug discovery and development. The process should complete in October 2019. We believe both businesses have sufficient momentum to continue as standalone companies. Our updated valuation stands at PLN1.46bn or PLN91.5/sh.
We believe a split into two companies – services (named Selvita) and oncology R&D (named Ryvu Therapeutics) – will be beneficial as it will allow investors to adjust their exposure to specific risk-return investments. As a standalone entity, the fast-growing and profitable Services segment will be able to diversify its capital structure, lower overall costs of capital and complement organic growth with acquisitions. The innovative R&D company will become a classic drug developer, and therefore will have the benefits of a biotech business model: flexible capital allocation to R&D and direct access to capital markets.
Selvita’s most clinically advanced asset SEL24 is out-licensed to Menarini Group (known as MEN1703). Therefore, the new oncology company will focus on the clinical development of the second most-advanced asset SEL120, a first-in-class, selective CDK8 inhibitor, and on advancing the broad discovery and preclinical pipeline. Menarini is progressing with the Phase I/II trial with SEL24, while Selvita’s Phase Ib study with SEL120 has just been initiated (first patient dosed on 6 September). Therefore, data readouts (key catalysts) from both trials should be released over 2020, making the corporate split well timed (Q419).
Other earlier-stage projects include a best-in-class dual A2A/B receptor antagonist, small molecule STING agonist for systemic administration, an HPK1 inhibitor and first-in-class SMARCA2 inhibitor for treating SMARCA4 mutated cancers. Selvita Oncology (Ryvu Therapeutics) also has numerous undisclosed projects at earlier stages and we expect these to ‘feed’ the preclinical and clinical pipeline.
Our valuation of Selvita is higher at PLN1.46bn or PLN91.5/sh, vs PLN1.34bn or PLN83.9/sh previously, which is mainly due to increased probabilities of success for SEL120 and A2A/A2B antagonist projects. The CRO business corresponds to 36% (DCF) of the total valuation, R&D segment 57% (rNPV) and net cash 7%.