Zacks Small Cap Research – SVRE: Offers a vision to protect vulnerable road users. Forms new subsidiary to commercialize the technology. – Technologist

By Brian Lantier, CFA

NASDAQ:SVRE

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WHAT’S NEW

➢   SaverOne (NASDAQ:SVRE) published a 27-page PowerPoint pitch deck on its investor website on earlier this week which detailed the opportunity that the company and a consulting firm see in the vulnerable road user safety market. The company offered up some eye-popping predictions around the size of this market and the potential for its VRU solution and while we recognize the need in the market, we would remind investors that the company is targeting delivering an MVP of this solution in 2025 and commercialization in 2028. The company also indicated that it expects that it will require roughly $35 million of outside capital to bring this product to commercialization which it hopes to secure from a strategic partner.

➢   Since our last update, SaverOne announced that it had received a purchase order for a proof-of-concept (POC) for its vulnerable road user solution from its long-term partner Iveco. This solution could be integrated into an existing Advanced Driver Assistance System (ADAS). We are encouraged by Iveco’s continued support of the SaverOne approach to safety and we believe Iveco’s purchase order will speed the development of the company’s MVP expected to be delivered in 2025.

➢   The company also announced in mid-May that it had received a new patent from the European Patent Office that covers its core technology for selectively blocking certain functions of a driver’s cell phone while still allowing other occupants of the vehicle full access to their mobile devices. This was the company’s 11th granted patent and the company has another 12 patents pending as of June 2024.

We think investors should think of the VRU subsidiary as a pre-seed, pre-MVP startup pitch. At this stage, it is an idea that has some validity because the RF-based sensor technology has been proven to work in SaverOne’s core product. If the company can deliver an MVP to partners and potential customers and we can see a working demo in 2025, we think it will be appropriate to assign some value to this operation. Alternatively, if the company can attract an outside investment into the VRU subsidiary, this would provide instant validation of the business and provide a solid foundation to measure the current and future value of this subsidiary.

Given, SaverOne’s current capital structure and cash burn rate, we think financing the rollout of the VRU subsidiary could be the greatest challenge that the company faces when trying to commercialize the VRU solution. The company indicated that it could require up to $35 million to achieve commercialization and generate its first sales of the VRU solution in 2028. This is significantly higher than SaverOne’s current market value and the magnitude of any potential dilution as a result of the financing will have to be evaluated at that time. The company indicated recently that it is approaching potential strategic partners and investors about financing the VRU subsidiary.

Valuation calculations for SaverOne are proving challenging because the company will not report first-half results for nearly another 3 months and attempting to gauge the number of shares/ADSs outstanding in light of the standby equity purchase agreement that the company has in place is likely just an educated guess.

We are currently projecting a range for the ADSs outstanding at 6/30/24 of between 17 million and 18,2 million. We hope to gain some clarity on the company’s financing plans for the balance of 2024 when it reports first-half results. At that point, we will revisit our valuation calculations based on a more accurate ADS count and an updated revenue model. Based on our current projections we are maintaining our valuation target of $1.80/ADS but we recognize that the shares have materially underperformed in the last two months and understand that could be a result of a higher ADS count that exceeds our current projection.

We are increasing our share count prediction for the second half of 2024 and 2025, so while our net loss forecast remains the same the loss per ADS goes down as a result of the higher ADS count forecast.

We would encourage investors to read our full updated report to better understand the opportunity and challenges that lie ahead for SaverOne’s VRU subsidiary.

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