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Sector Note
Biotechnology
7 January 2016
Analyst
Dr Samir Devani
+44 (0)207 659 1263
The force is strong with biotechnology
The European biotechnology sector has now outperformed the market for four
years in a row, rising 36% in 2015 (vs. 35% in 2014) and for the first time in a
number of years has outperformed the US biotech sector. Fundamentally, 2015
was another strong year: a high number of FDA approvals and a record
number of CHMP positive opinions; numerous big pharma licensing
transactions (with Sanofi notably active) with some mega deals completed,
particularly in the immuno-oncology field; and a good success rate in late-stage
clinical trials. While strong fundamental progress drove sector outperformance
in the first half of the year, accusations of drug price-gouging in September
catalysed a retrenchment, with Turing Pharmaceuticals’ ex-CEO, Martin
Shkreli, playing the role of Darth Vader. The biotech sector has delivered
significant growth and the fundamentals remain positive. We have identified
numerous share-price driving clinical and regulatory events due this year.
However, one has to be cautious considering the length of this bull run. Risks
to sector performance include additional drug pricing rhetoric (likely as it is a
US election year), increasing biosimilar noise, immuno-oncology (a thematic
driver of this bull run) losing favour with investors, and a broader market
reduction in appetite for risk. This sector review and outlook note also includes
company profiles on Actelion, Biotie Therapies, Cynapsus Therapeutics, Faron
Pharmaceuticals, Laboratorios Farmacéuticos Rovi, Newron Pharmaceuticals,
Skyepharma, Summit Therapeutics, Swedish Orphan Biovitrum, Vernalis and
Zealand Pharma.
Galapagos was dealmaker of the year in our view – we were particularly
impressed by Galapagos’ deal with Gilead for filgotinib (a selective JAK1
inhibitor for inflammatory disorders) that was completed within three months
of AbbVie turning down its option on the drug. Gilead paid $725 million
upfront consisting of a license fee of $300 million and a $425 million equity
investment. Galapagos is also eligible for up to $1.35 billion in milestones, plus
tiered royalties starting at 20% and a profit split in co-promotion territories.
We view Genmab / Janssen Biotech’s daratumumab (Darzalex®) as the
most exciting new drug approved in 2015 – daratumumab, already granted
Breakthrough Designation by the FDA, generated positive Phase II data in
double refractory multiple myeloma in February demonstrating an impressive
29.2% overall response rate. The drug was filed with the FDA in July and
approved approximately four months later. Darzalex® is a major new option for
patients and will be one of the key drug launches to follow this year.
Plenty of share-price driving clinical and regulatory news flow identified
for 2016 – we anticipate more late-stage clinical and regulatory events
compared to 2015, for example from: (1) Zealand Pharma (danegaptide Phase
II data, FDA decisions on lixisenatide and LixiLan); (2) GW Pharmaceuticals
(Epidiolex® data in both Dravet and Lennox-Gastaut); (3) Newron (FDA
decision on safinamide); (4) Probiodrug (Phase IIa data from PQ912 in
Alzheimer’s disease); and (5) Hutchison China Meditech (late-stage trial results
from fruquintinib in NSCLC, colorectal and gastric cancer).
This document is a marketing communication and is not independent research prepared in accordance with legal
requirements designed to promote the independence of investment research and is not subject to a prohibition on
dealing ahead of the dissemination of investment research. Please see disclaimer on page 132 for further information.
RX Securities (www.rxsecurities.com) is an Appointed Representative of Whitman Howard
Rx Securities 2
Sector note
7 January 2016
Biotechnology
Contents
Euro biotech strikes back. ....................................................................... 3
Actelion ................................................................................................. 35
Biotie Therapies .................................................................................... 43
Cynapsus Therapeutics ......................................................................... 51
Faron Pharmaceuticals ........................................................................ 59
Laboratorios Farmacéuticos Rovi ........................................................ 67
Newron Pharmaceuticals ...................................................................... 75
Skyepharma ........................................................................................... 83
Summit Therapeutics ............................................................................. 93
Swedish Orphan Biovitrum ................................................................. 101
Vernalis ............................................................................................... 109
Zealand Pharma.................................................................................. 117
Major scientific & medical meetings in 2016 ..................................... 125
Share price performances over 2015 .................................................. 126
Rx Securities 3
Sector note
7 January 2016
Biotechnology
Euro biotech strikes back
The European biotech sector has now outperformed for 4 years in a row
The European biotechnology sector has outperformed the market for four years in a
row having awoken from its lows of November 2011. Following rises of 35%, 40%
and 26% in 2014, 2013 and 2012 respectively, the sector rose 36% in 2015 (on a Euro
basis). Appetite for higher risk assets continued to be good and contributed to sector
performance. Share prices of biotech companies that delivered positive Phase II or
Phase III data, or signed substantial partnership deals typically performed
significantly better than the sector average. Nonetheless, it was a game of two halves
– a substantial rise in the indices during H1 with a decline kicking in from the second
half of July and accelerated by a tweet from Hilary Clinton on the 21 September over
drug pricing. For the first time in a number of years, European biotech stocks
outperformed those in the US with the NASDAQ Biotechnology index rising 11%
(25% on a Euro basis) as we believe US investors recognised the relative attractive
valuation of European biotechs. Figure 1 highlights the outperformance of the
European and US biotechnology sectors versus the broader market index and more
defensive larger pharmaceutical sector.
Figure 1: Biotechnology outperformed both the broader market and pharmaceutical sector
Source: RX Securities
Unlike 2014, bigger was better in 2015
In 2015 larger cap companies in the sector (i.e. >£300 million) generated a median
return of 28%, significantly outperforming the smaller cap companies (i.e. <300
million) where the median return was only 5%. This was in contrast to 2014, where
the smaller cap companies outperformed. Of the larger cap companies, approximately
a quarter generated a negative return in 2015 compared to approximately half from
the smaller cap group. In 2015, eleven companies (vs. seventeen in 2014) delivered
returns in excess of 100%, of which nine came from the smaller cap group. While
stock selection was not as crucial in the larger cap group (as it was in 2014), it
remained critical in the smaller cap group where picking the right stock generated
substantial alpha. Our European biotech index is market capitalisation weighted and
the heavyweights that drove its strong performance in 2015 included: Genmab (up
155%), Galapagos (up 266%), Hutchison China Meditech (up 99%) and Swedish
Orphan Biovitrum (up 70%).
80
90
100
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Jan-15 Apr-15 Jul-15 Oct-15 Jan-16
NASDAQ Biotech Index Euro Biotech Index MSCI World MSCI Euro Pharma
Rx Securities 4
Sector note
7 January 2016
Biotechnology
Top performing European biotech stock in 2015 was Tiziana Life Sciences
While not as dramatic as the 2186% rise by Santhera Pharmaceuticals in 2014,
Tiziana Life Sciences was the best performing stock in our European biotechnology
universe in 2015 rising 322%. Key events reported by the company during the year
included the inlicensing of milciclib (a CDK inhibitor in Phase II for cancer) from
Nerviano Medical Sciences Group in January and a new anti-cancer stem cell
technology from Cardiff University in May.
Of the larger cap group, Galapagos and Genmab were strong performers
Two notable performers from the larger cap group were Galapagos (shares up 266%)
and Genmab (shares up 155%). Both share price increases were fundamentally
driven. In the case of Galapagos, positive Phase IIb data were reported for filgotinib,
the company’s selective JAK1 inhibitor, in both rheumatoid arthritis and Crohn’s
disease. In addition, the company signed a major partnership deal for the drug with
Gilead. For Genmab, positive Phase II data for its anti-CD38 antibody, daratumumab,
in refractory multiple myeloma reported in February led to regulatory filings in July
and a four month turnaround with approval by the FDA in November. Branded
Darzalex®, we expect the drug to become a core part of future multiple myeloma
treatment.
Challenges remain even when a drug reaches the market
Drug development is a long and risky process, but even after navigating all the
hurdles to approval, challenges remain. During 2015, two companies saw significant
declines as a result of challenges faced by their marketed drugs. Orexo saw its share
price fall 54% during the year as its key drug for opioid dependence, Zubsolv®, failed
to meet sales expectations and was removed from CVS Caremark’s formulary.
Medivir’s shares fell 29% during the year as sales of its hepatitis C drug, Olysio®
,
declined significantly in 2015 following competitor Gilead’s launch of Harvoni®.
A strong year for IPOs in the US, but not as strong as 2014
The financing environment continued to be highly favourable, over $5.7 billion was
raised from initial public offerings (IPOs) globally in 2015, down from the $6.7
billion achieved in 2014, but still the second best year since 2000 (see Figure 2). In
the US, 39 drug development companies managed to complete their IPOs (compared
to 61 in 2014, 33 in 2013 and 11 in 2012). The biggest deal, like last year, was in the
immuno-oncology field with $238 million raised by NantKwest in July (lead drug in
Phase I). The median raise was $76.0 million (which compares favourably to the
$66.3 million in 2014, $80.5 million in 2013 and $70.0 million in 2012).
Rx Securities 5
Sector note
7 January 2016
Biotechnology
Figure 2: Global biotechnology IPO fundraising
Source: RX Securities
More IPOs in Europe in 2015, but with a lower median raise
24 European biotechs completed their IPO in 2015 (see Table 1), up on the 19 in 2014
(vs. 5 in 2014 and only 3 in 2012). Total funds raised were approximately $1.2
billion, the same as in 2014. The median raise was $40.0 million in 2015 vs. $48.6
million in 2014. In 2014, a number of companies chose to head straight to NASDAQ
attracted by the larger pools of healthcare capital and this trend continued in 2015.
The biggest offerings completed were for Adaptimmune Therapeutics in May raising
$191.3 million (ended the year down 29%) and Cassiopea SpA in July raising CHF
176.6 million (ended the year down 4%). The notable early winners from the 2015
IPO class came from France: (1) Advanced Accelerator Applications SA (shares up
95% from IPO price), a radiopharmaceutical company that develops, produces and
commercialises nuclear medicine products; (2) Sensorion SA (shares up 92% from
IPO price) specialises in the treatment of inner ear diseases (lead product for vertigo
is in Phase I); (3) Biophytis SA (shares up 91% from IPO price) develops drugs for
age-related degenerations (lead product is in Phase II); and (4) Poxel SA (shares up
88% from IPO price) develops drugs for metabolic diseases, currently focussed on
Type II diabetes (lead product being prepared for Phase III). 2015 did see IPOs from
the Asia-Pacific region exceed the raises from Europe for the first time, partly due to
the $569 million raised by 3SBio in its IPO in June.
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Rx Securities 6
Sector note
7 January 2016
Biotechnology
Table 1: European biotechnology IPOs in 2015
Company Date Details
Ascendis Pharma A/S January Raised $124.2 million at $18/share on NASDAQ
Bone Therapeutics February Raised €37.0 million at €16/share on Euronext
Brussels and Paris
Cantargia February Raised SEK 44.1 million at SEK 7.6/share on
Nasdaq First North Stockholm
Poxel February Raised €25 million at €6.66/share on Euronext Paris
Quantum Genomics February Raised €33.2 million at €6.30/share on Alternext of
Euronext Paris
RedX Pharma March Raised £15 million at 85p/share on London’s AIM
market
Nordic Nanovector ASA March Raised NOK 575 million at NOK 32/share on the
Oslo Stock Exchange
Cerenis Therapeutics March Raised €53.4 million at €12.70/share on Euronext
Paris
Orphan Synergy Europe
Pharma
March Raised €21.1 million at €10.80/share on Euronext
Paris
Motif Bio March Raised £2.8 million at 20p/share on London’s AIM
market
Sensorion April Raised €8.2 million at €4.54/share on Euronext Paris
Adaptimmune Therapeutics May Raised $191.3 million at $17/ADS on NASDAQ
Affimed May Raised $41.1 million at $7.15/share on NASDAQ
ABIVAX June Raised €57.7 million at €21.30/share on Euronext
Paris
FIT Biotech Oy June Raised €17.3 million at €1.56/share on the Helsinki
Stock Exchange (€3.5 million new cash, rest used to
pay debt holders)
Kiadis Pharma NV July Raised €32.7 million at €12.50/share on Euronext
Amsterdam and Brussels
Cassiopea SpA July Raised CHF 176.6 million at CHF 34/share on the
Swiss Stock exchange
Biophytis August Raised €10.0 million at €6/share on Euronext Paris
Nabriva Therapeutics AG September Raised $92.3 million (at $10.50/share) on NASDAQ
Advanced Accelerator
Applications
November Raised $75 million at $16/ADS on NASDAQ
Faron Pharmaceuticals November Raised £10 million at 260p/share on London’s AIM
market
Oryzon Genomics December Listing on the Madrid exchange followed an October
private placement where €16.5 million was raised at
€3.39/share
Nuevolution AB December Raised SEK 250 million at SEK 17.5/share on
Nasdaq First North Premier
Diurnal Group December Raised £25.3 million at 144p/share on London’s
AIM market
Source: RX Securities
Rx Securities 7
Sector note
7 January 2016
Biotechnology
A record year for secondary follow-on fundraisings in the US…
Listed biotechnology companies in the US managed to raise $19.4 billion in follow-
on fundraisings in 2015, an increase of over 70% on the $11.2 billion raised in 2014
(itself a near 40% increase on the $8.2 billion raised in 2013). There was also a strong
increase in Europe, with approximately $2.3 billion raised (see Table 2), up 35% on
that achieved in 2014 ($1.7 billion). Circassia was the biggest raiser in terms of
secondary offerings in Europe, tapping the market for £275 million (at 288p/share) in
June to fund its acquisitions of Prosonix and Aerocrine. Just as with IPOs, a number
of European biotechs chose to tap the US market with some large offerings completed
including those by Cellectis (raised $228 million in March), Galapagos (raised $317
million in May) and DBV Technologies (raised $282 million in July). Both Basilea
and Ablynx raised significant capital using convertible bonds. In May, Ablynx raised
€100 million through convertible bonds paying a 3.25% coupon and converting at a
26.5% premium to the share price at the time and in December, Basilea raised CHF
200 million through convertible bonds paying a 2.7% coupon and converting at a
30% premium to the share price at the time.
…and another good year for venture financings
Venture financing in both the US and Europe had another strong year. In Europe,
approximately $2.1 billion was raised, slightly down on the $2.2 billion raised in
2014 and in the US approximately $6.8 billion was raised, a modest increase on the
$6.4 billion raised in 2014. Overall, it was a record year for venture financings in
2015 (see Figure 3).
Figure 3: Another record year for venture financings
Source: RX Securities
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Total US Europe Asia-Pacific
Rx Securities 8
Sector note
7 January 2016
Biotechnology
Table 2: Secondary equity and convertible fundraisings by European biotechs in 2015
Company Date Details
4D Pharma February Raised £34.75 million (at 410p/share)
Valneva February Raised €45 million in a rights offering at €2.47/share
Celyad February Raised €31.7 million at €44.5/share
Quantum Genomics February Raised €11.2 million at €6.30/share
NeuroVive Pharmaceutical February Raised SEK 65 million a SEK 50/share
Addex Therapeutics March Raised CHF 2.8 million (at CHF 3/share)
Nicox March Raised €27 million a €1.8/share
Summit Therapeutics March Raised $39.2 million at $9.90/ADS (effectively
130p/share)
Allergy Therapeutics March Raised £20.8 million at 22.1p/share
ValiRx March Raised £0.8 million at 0.2p/share
Galapagos March Raised €5.8 million through warrant exercises
(average exercise price €10.18/share)
Adocia March Raised €32.0 million in a private placement at
€51.4/share
Cellectis SA March Raised $228.3 million in a US IPO, selling 5.5
million ADSs at $41.50/ADS
Tiziana Life Sciences March Raised £2.55 million at 75p/share
Diamyd Medical March Raised SEK 15 million at SEK 7.5/share
MolMed SpA March Raised €49.4 million in a rights issue at €0.266/share
based on 4 new shares for every 5 held
Tiziana Life Sciences April Raised £6.14 million through the issue of
convertible notes (convert at 70p/share, 4% coupon,
redeemable at any time after 25 June 2016) and
warrants (exercise price of 105p/share over the
period of 26 June 2016 to 31 December 2017)
Silence Therapeutics April Raised £40 million at 240p/share
Wilex AG April Raised €4.2 million in a rights offering at €2.8/share
GW Pharmaceuticals April Raised $179.2 million at $112/ADS
Newron Pharma April Raised CHF 24.3 million at CHF 28.8/share
Hybrigenics April Raised €9.0 million at €1.41/share
Biofrontera AG April Raised €5.0 million at €2.3/share
Mologen AG April Raised €28.3 million at €5/share
Galapagos NV May Raised $317 million at $42.05/ADS (€37/share) in a
public offering in the US and private placement in
Europe
BioInvent May Raised SEK 77.7 million through a rights issue at
SEK 1.55/share
Ablynx May Raised €100 million in convertible bonds maturing
in May 2020 and paying a 3.25% coupon and
converting at a 26.5% premium to the current price
Biotie Therapies May Raised €33.06 million through the issue of
convertible notes (at €0.15/share and convertible on
US IPO) and warrants (for subscription at
€0.17/share for 5 years and five months)
Sareum May Raised £1.4 million at 0.25p/share
NeuroVive Pharmaceutical May Raised SEK 70 million at SEK 42.5/share
Source: RX Securities
Rx Securities 9
Sector note
7 January 2016
Biotechnology
Table 2 (cont.): Secondary equity and convertible fundraisings by European biotechs in 2015
Company Date Details
Motif Bio June Raised £22.0 million at 50p/share
Oxford Pharmasciences June Raised £20 million at 10p/share
Circassia June Raised £275 million at £2.8805/share
Biotie Therapies June Raised $56.0 million in a US IPO at $14.88/ADS
(80:1, effective price €0.165/share)
Celyad June Raised $101.1 million in a US IPO at $68.56/ADS
(effective price €60.25/share)
Neovacs June Raised €7.5 million from three US institutions with
one share at €1 and one warrant exercisable at €1.25
MediGene June Raised €46.4 million at €8.3/share
ReNeuron July Raised £68.4 million at 5p/share
4SC AG July Raised €29.0 million at €4/share
Sensorion SA July Raised €8 million at €10/share
Avacta Group July Raised £22.0 million at 1.25p/share
DBV Technologies July Raised $281.5 million in ADS offering at $34/ADS
(each ADS equals 0.5 of an ordinary share)
TxCell SA July Raised €7.6 million at €6.8/share
Santhera August Raised CHF 27.7 million at CHF 92.38/share
Poxel August Raised €20 million at €11.35/share
Oasmia Pharmaceutical October Raised $9.5 million at $4.06/share on NASDAQ
Probiodrug AG November Raised €13.5 million at €20/share
Newron Pharmaceuticals November Raised CHF 5.4 million at CHF 25.6/share
TiGenix NV November Raised €8.7 million at €0.95/share
Allergy Therapeutics November Raised £11.5 million at 28p/share
Santhera Pharmaceuticals December Raised CHF 54.8 million at CHF 93.0/share
Biofrontera AG December Raised €3.6 million at €1.9/share
Erytech Pharma December Raised €25.4 million at €27.02/share
Hansa Medical December Raised SEK 52.5 million at SEK 26.25/share
OptiBiotix Health December Raised £1.5 million at 77p/share
Tiziana Life Sciences December Raised £3.8 million through the issue of 2.6 million
unsecured convertible loan notes
Basilea December Raised CHF 200 million through unsecured
convertible bonds (2.7% coupon, 30% premium
conversion price, due 2022)
4D Pharma December Raised £30 million at 790p/share
Source: RX Securities
Rx Securities 10
Sector note
7 January 2016
Biotechnology
Pfizer / Allergan re-ignites tax inversion row
In 2014, a frenzy of M&A activity was sparked as US companies attempted to lower
their effective tax rates though acquisition and redomiciling, the so called “tax
inversion”. Pfizer pursued AstraZeneca, AbbVie pursued Shire Pharmaceuticals and
Salix Pharmaceuticals courted its partner Cosmo Pharmaceuticals’ US division.
Politicians in the US expressed dismay at the strategy with Obama describing such
transactions as “unpatriotic” and Hilary Clinton stating she was “committed to
cracking down” on inversions. As the Obama administration introduced rules to
clamp down on overseas acquisitions driven by tax avoidance, both AbbVie and Salix
Pharmaceuticals dropped their respective deals. It appeared as if the tax inversion
frenzy had fizzled out. However, in November 2015 the announcement of the $160
billion merger of Pfizer and Allergan to form the world’s biggest drug company by
sales re-ignited the row as the deal was structured to reduce Pfizer’s tax bill (from
25% to 17-18%) by moving its domicile out of the US to Ireland.
M&A activity from generic companies continued apace
The significant big pharma asset swapping seen in 2014 (GlaxoSmithKline swapped
its oncology business with Novartis in return for its vaccines business, Novartis sold
its animal health business to Eli Lilly, and Merck & Co. disposed of its consumer
health division to Bayer) did not continue in 2015. However, the notable M&A
activity from generic companies in 2014 did continue in 2015. Teva was particularly
active – in March 2015 it announced the acquisition of CNS specialist Auspex for
$3.2 billion and then in May the company made a $40.1 billion bid for Mylan, who
itself was in the midst of attempting to buy Perrigo for $28.9 billion. However, Teva
abandoned its pursuit of Mylan and instead announced in August that it was acquiring
the generics business of Allergan for $33.8 billion in cash and $6.8 billion in Teva
shares. Mylan’s hostile takeover attempt of Perrigo ultimately failed when Perrigo’s
shareholders rejected the offer in November.
Mid-cap biotech continued to be a feeding ground for big pharma…
Just as in prior years there were some major mid-cap biotechs acquired in 2015. Shire
Pharmaceuticals was particularly active with its $5.2 billion acquisition of NPS
Pharmaceuticals announced in January, its $6.5 billion acquisition of Dyax
announced in November as well a couple of smaller deals ($70 million upfront fee for
the acquisition of Meritage Pharma announced in February as well as its $300 million
acquisition of Foresight Biotherapeutics announced in August) and as we go to press
is widely reported to be pursuing Baxalta.
…with AbbVie’s acquisition of Pharmacyclics for $21 billion topping the table
Other notable mid-cap biotech acquisitions during 2015 included Alexion’s purchase
of Synageva for $8.4 billion (cash and shares deal at a 135% premium to prior day’s
close) announced in May. The acquisition brought Kanuma®
, an enzyme replacement
therapy for Lysosomal Acid Lipase deficiency that was approved by the FDA in
December. In July, Celgene announced its acquisition of Receptos for $7.2 billion in
cash (a 12% premium to the prior day’s close and a 45% premium to the price before
acquisition rumours surfaced) bringing the Phase III S1P1 inhibitor, ozanimod, for
multiple sclerosis and ulcerative colitis. However, in our view the most notable deal
during the year was AbbVie’s acquisition of Pharmacyclics announced in March for
$21 billion. AbbVie had failed in its pursuit of Shire Pharmaceuticals the year before
and the Pharmacyclics deal brought the blockbuster Imbruvica® for chronic
lymphocytic leukaemia, complementary to AbbVie’s oncology pipeline and would
reduce its dependency on Humira®, especially as the latter is likely to come under
biosimilar threat in the near-term. The deal to acquire Pharmacyclics was hotly
contested with AbbVie believed to have outbid Pharmacyclic’s commercial partner
Rx Securities 11
Sector note
7 January 2016
Biotechnology
for Imbruvica
®, Johnson & Johnson. AbbVie and Johnson & Johnson will now share
income from the drug.
Other acquisition battles during 2015 included those for Salix and ZS Pharma
Pharmacyclics was not the only hotly contested prize in the biotech sector during
2015. In February, Valeant made a cash offer of $158/share for Salix Pharmaceuticals
that was countered in March by Endo International who offered $175/share in cash
and shares. Valeant ultimately trumped Endo’s offer by countering with a $173/share
all cash bid (valuing Salix at $10.96 billion). There was also a battle for ZS Pharma
who had a late-stage drug (ZS-9) in development for hyperkalaemia. In September,
Actelion announced that it was in discussions with ZS Pharma, although no pricing
was disclosed at the time. Actelion was ultimately outbid by AstraZeneca who snared
the company for $2.7 billion.
European biotechs continued to build critical mass by bolt on acquisitions
Actelion’s failure to land ZS Pharma is perhaps symptomatic of the European biotech
universe. As the European bellweather, Actelion’s attempts to build critical mass are
commendable, but it is now playing in an arena with companies of much stronger
financial power. Actelion itself has been the subject of bid speculation rather than
being the acquiror. In our view, undertaking a multi-billion acquisition is going to be
challenging for Actelion while mid-cap biotech remains a strong feeding ground for
big pharma. In Europe there were a number of significant private companies acquired
during the year, notably Convergence, Trophos, Heptares, SuppreMol and
GlycoVaxyn. In the public arena in Europe, companies attempted to build critical
mass through bolt-on acquisitions. Circassia’s acquisitions of Aerocrine and Prosonix,
announced in May, provided critical mass and commercial infrastructure for the
company’s allergy pipeline products. Similarly, Midatech’s acquisition of DARA
BioSciences provided the company with US marketing infrastructure. Having put
itself up for sale at the end of 2014, Sinclair Pharma managed to dispose of its non-
aesthetics business to Alliance Pharma for a commendable £132 million, leaving
Sinclair with a robust balance sheet to build its higher growth, higher margin
aesthetics business. However, the company is still in a takeover offer period as talks
with potential acquirors for the aesthetic business remain ongoing. Table 3 outlines
some of the key M&A deals that occurred in 2015.
Rx Securities 12
Sector note
7 January 2016
Biotechnology
Table 3: European and key US M&A deals in 2015
Company Date Details
Biogen January Acquires Convergence Pharmaceuticals for $200 million
upfront and up to $475 million in milestone payments.
CNV1014802 had completed Phase IIa for trigeminal
neuralgia
Shire Pharmaceuticals January Announces acquisition of NPS Pharmaceuticals in a deal
worth $5.2 billion. At the time, NPS reported $67.9 million
in sales for 9M 2014 of its GLP-2 agonist teduglutide
(Gattex®) for short bowel syndrome
Roche January Acquires Trophos for €120 million upfront and up to €350
million in milestones. Trophos has olesoxime in Phase
II/III to treat spinal muscular atrophy and Phase II for
multiple sclerosis. Roche also gained TRO40303, a
peripheral benzodiazepine receptor ligand, which is in
Phase II for cardiac ischaemia/reperfusion injury
GlaxoSmithKline February Acquired GlycoVaxyn for $190 million for its innovative
biological conjugation technology platform for vaccines
Valneva February Acquired Crucell Sweden AB from J&J’s Crucell Holland
BV for €45 million (1.2x sales). The deal brought the
vaccine Dukoral®, which prevents cholera and traveller’s
diarrhoea. The deal included a manufacturing site in Solna,
Sweden, and about 115 employees. Deal terms were
amended in December following negative label changes to
Dukoral® in Canada
Sosei February Acquires Heptares Therapeutics for $180 million in cash
and up to $220 million in a CVR
Bristol-Myers Squibb February Announced acquisition of Flexus Bioscience for $800
million upfront plus up to another $450 million in
development milestones for F001287, a preclinical small
molecule inhibitor of indoleamine 2,3-dioxygenase I
Valeant Pharmaceuticals March Announced its cash acquisition of Salix Pharmaceuticals
for a total enterprise value of $15.8 billion trumping Endo
International’s offer
Teva Pharmaceutical March Announced acquisition of Auspex Pharmaceuticals for an
enterprise value of $3.2 billion (lead drug SD-809 had
completed Phase III in Huntington’s disease)
AbbVie March Announced acquisition of Pharmacyclics for approximately
$21 billion in a cash and stock deal (approximately 58%
cash and 42% stock)
Baxter March Announced acquisition of SuppreMol GmbH for €200
million (lead drug in Phase IIa for ITP)
Clinigen Group April Announced acquisition of Idis Group for £225 million, a
provider of unlicensed medicines to over 100 countries for
approximately 1.14x revenues and 14.4x EBITDA
Pfizer May Pfizer paid AM-Pharma BV $87.5 million for 17.5% equity
interest with an option to acquire the rest of the company
for up to $512.5 million post Phase II data of recAP® in
acute kidney injury
MorphoSys May Announces acquisition of the 80.02% of Lanthio Pharma
BV that it did not already own for €20 million
Source: RX Securities
Rx Securities 13
Sector note
7 January 2016
Biotechnology
Table 3 (cont.): European and key US M&A deals in 2015
Company Date Details
Alexion Pharmaceuticals May Announced acquisition of Synageva BioPharma for
$8.8 billion
Endo International May Acquired Par Pharmaceutical Holdings from private
investment firm TPG for $8.05 billion
Pfizer May Acquired minority interest in AM-Pharma BV for
$87.5 million and an exclusive option to acquire the
company for a further $512.5 million
Circassia May Acquired Aerocrine for SEK 1.78 billion (approx.
£139 million) and Prosonix for £70 million upfront
plus a CVR consideration of up to £30 million
Midatech Pharma June Announced acquisition of DARA BioSciences for
5.4 million Midatech shares valued at £15.7 million.
DARA shareholders will also receive 1 CVR for
each share held, worth up to $5.7 million and tied to
sales milestones for Gelclair®
Celgene July Acquired Receptos for $7.2 billion in cash bringing
the Phase III S1P1 inhibitor, ozanimod, for multiple
sclerosis and ulcerative colitis. Price was a 12%
premium to prior day’s close and 45% premium to
the 9 June price before acquisition rumours
Shire Pharmaceuticals August Acquires Foresight Biotherapeutics for $300 million
in cash. Lead drug, FST-100, for infectious
conjunctivitis, had completed Phase II development
Actelion September Announces in discussions with ZS Pharma
Regent Pacific November Makes share offer of 15.7076 Regent Pacific shares
for every Plethora share (effectively 12.5p/share or
approximately £103 million) for remaining 70.12%
it does not already own
AstraZeneca November Announces acquisition of ZS Pharma for $2.7 billion
Shire Pharmaceuticals November Announces acquisition of Dyax Corp. for up to $6.5
billion
Cytos Biotechnology December Announces reverse-merger with Kuros Biosurgery
(Cytos shareholders to own approximately 20% of
the combined company)
AstraZeneca December Acquired a 55% equity stake in Acerta Pharma for
an upfront payment of $2.5 billion. A further
unconditional payment of $1.5 billion will be paid
either on first regulatory approval for acalbrutinib,
or the end of 2018, whichever is first
Alliance Pharma December Acquired non-aesthetic business of Sinclair Pharma
for £132 million
Source: RX Securities
Rx Securities 14
Sector note
7 January 2016
Biotechnology
2015 saw the first biosimilar approved in the US…
In March 2015 the FDA approved its first biosimilar, Zarxio® (filgrastim-sndz) from
Sandoz. While not initially deemed interchangeable with Amgen’s Neupogen®, the
FDA signalled it is operating a two-step approach with the granting of biosimilar
status followed by the potential granting of interchangeability in the future. Amgen
managed to tie up Sandoz in court and delay the launch of Zarxio® until September.
FDA proposed a biosimilar naming process that involved each biological product
having a non-proprietary "core name" plus a unique four-letter suffix. However, the
process raised concerns with the Federal Trade Commission who challenged the
FDA’s naming process stating that it would lead to reduced price competition. In
October, Pfizer disclosed that it had received a Complete Response letter from the
FDA for Retacrit® (epoetin zeta), a biosimilar to anaemia drugs Epogen
® (epoetin
alfa) from Amgen and Procrit® (epoetin alfa) from Janssen Biotech. Pfizer plans to
submit a response to the FDA in H1 2016.
…and in Europe, Remicade®’s price came under pressure from biosimilars
The European biosimilar market is ahead of the US market, with a number of
biosimilars already launched. While there was some surprise at the modest 15%
discount to Amgen’s Neupogen® that Zarxio
® launched at, an example now exists in
Europe as to the potential commercial impact of biosimilars on originator market
share. In February 2015, biosimilars to Remicade® were launched in Europe by
Hospira (Inflectra®) and Orion (Remsima
®) and it did not take long for a price war to
develop. Orion priced its biosimilar at a 69% discount to Remicade® allowing it to
rapidly take half the market. By the end of the year, Merck & Co. started cutting the
price of Remicade® (25% in the UK) in an effort to defend its market position. In
November 2015 the CHMP issued a positive opinion on a biosimilar to Amgen’s
Enbrel® from Samsung Bioepis called Benepali
®. With a number of biosimilar
applications undergoing review in both the US and Europe, including a biosimilar
from Amgen to AbbVie’s Humira®, this year promises plenty of biosimilar news
flow, although we expect originator companies to come out fighting and use the
courts to delay for as long as possible biosimilar launches.
Gilead strengthened its grip on the hepatitis C market
Gilead has already demonstrated that its $11 billion acquisition of Pharmasset in 2011
was a shrewd investment. Solvadi® (sofosbuvir) achieved sales ahead of expectations
in 2014 and the company’s launch of Harvoni® (combination of sofosbuvir with
ledipasvir) has strengthened its grip as the global leader in the market. Harvoni® and
Solvadi® combined appear to be closing in on $20 billion of sales in 2015. Harvoni
®’s
launch has clearly negatively impacted Medivir’s protease inhibitor for hepatitis C,
simeprevir (Olysio®, partnered with Johnson & Johnson). Olysio
® achieved sales of
$2.3 billion 2014, but following Harvoni®’s broad adoption in the market, we
estimate sales of approximately $0.7 billion in 2015 and a further decline likely this
year.
Rx Securities 15
Sector note
7 January 2016
Biotechnology
Drug pricing concerns in September triggered a sector retrenchment
The debate about drug pricing is not new, indeed it has been ongoing for over a
century. While in recent years the pricing of Orphan drugs has received significant
mainstream press debate, with some drugs priced as high as $500,000 per annum,
2015 saw a particular focus on price increases to mature drugs. In particular,
companies that had been acquiring old drugs and then substantially raising their price
came under scrutiny. Two companies in particular received significant attention –
Turing Pharmaceuticals and Valeant Pharmaceuticals International. Turing acquired
the anti-parasitic compound, daraprim pyrimethamine from Impax Laboratories in
August and then in September raised the price from $13.50/tablet to $750/tablet. It
prompted Hillary Clinton to indicate she would release a plan to deal with “price
gouging” and US politicians sent a letter to Turing’s CEO Martin Shkreli saying they
would investigate daraprim pricing. Despite trade bodies such as BIO and PhRMA
criticising Turing, it did not stop the negative press and catalysed a significant fall in
biotech indices and increased scrutiny on pharmaceutical pricing. It did not ultimately
end well for Martin Shkreli as he was arrested in December and charged with
securities fraud. Another casualty of the scrutiny was Valeant Pharmaceuticals who
had raised the price of two cardiovascular drugs, Nitropress® and Isuprel
®, 212% and
525% respectively. There were a number of additional issues around Valeant that
ultimately led to the company’s shares declining 58% from September to the end of
the year.
Immuno-oncology remained hot in 2015…
2014 had seen immuno-oncology take off with significant excitement around the
target PD-1 (Novartis’ acquisition of CoStim Pharmaceuticals, accelerated approvals
for Keytruda® and Opdivo
®, Pfizer’s deal with Merck KGaA for MSB0010718C etc.)
as well as CAR T companies (Juno Therapeutics completed the largest IPO on a US
exchange since 1994 and Kite Pharma completed its IPO – both early-stage
businesses with multi-billion valuations). Despite at least 10 companies developing
drugs to PD-1, in 2015 activity around this target remained high with AstraZeneca
partnering with Celgene in April for its preclinical anti-PD-L1 in a deal that involved
a $450 million upfront payment. In July, Sanofi partnered with Regeneron for its
Phase I PD-1 inhibitor in a deal that involved an upfront payment of $640 million and
in October, Eli Lilly expanded its collaboration with China’s Innovent Biologics for
the development of three bispecific antibodies targeting PD-1 that could generate
more than $1 billion in milestones for Innovent. Outside of the PD-1 space, but still in
the immuno-oncology field, there were major deals signed by Five Prime
Therapeutics with Bristol-Myers Squibb for its Colony Stimulating Factor 1 Receptor
antibody, Aduro Biotech with Novartis for its proprietary STING-targeted CDN
platform technology and Innate Pharma with AstraZeneca for its anti-NKG2A
antibody. In addition, the largest IPO in the US in 2015 was by NantKwest (raised
$238.3 million, rose 45% on debut and valued currently at $1.3 billion), an immuno-
oncology company using natural killer cells to treat cancer (lead product in Phase I).
…although Juno Therapeutics and Kite Pharma underperformed
While Juno Therapeutics and Kite Pharma’s shares underperformed in 2015, activity
in the CAR T space was not dampened. In January, Celyad purchased Celdara’s
oncology division, OnCyte and its portfolio of CAR T cell therapies. In April, Juno
settled its patent infringement claim against Novartis resulting in it granting a non-
exclusive sublicense to CAR T cell therapies targeting CD19 in relation to US patent
8,399,645. Under the settlement, Novartis and its partner, the University of
Pennsylvania, paid $12.25 million to Juno and St. Jude Children's Research Hospital,
and will pay milestone payments and a mid-single digit royalty in the future. In May,
Juno partnered with Editas to develop CAR T and T cell receptor therapies for cancer
Rx Securities 16
Sector note
7 January 2016
Biotechnology
that involved an upfront payment of $25 million with a deal value of $737 million.
This was followed in June by a major deal with Celgene to develop and
commercialise its cancer and cell therapy autoimmune candidates outside the US,
including its CAR T programmes against CD19 and CD22. Juno received $150.2
million in upfront cash plus $849.8 million through the sale to Celgene of 9.1 million
new shares at $93/share (a 100% premium to Juno’s share price at the time).
Meanwhile, competitor Kite Pharma signed a deal with Amgen in January to develop
CAR T cell therapies against Amgen’s cancer targets in return for $60 million upfront
with potential future milestones of $525 million. In March, Merck KGaA signed a
deal with Intrexon to develop CAR T cell therapies against two undisclosed cancer
targets that involved an upfront payment of $115 million and in September, Cellectis
partnered with MD Anderson to co-develop four allogeneic CAR T cell therapies to
treat non-solid tumours.
BioNTech did multiple deals around its platform…
Also in the immuno-oncology field, BioNTech did a major deal with Sanofi in
November for the development of up to five mRNA-based cancer immunotherapies
that involved an upfront payment of $60 million with the total deal valued at $1.6
billion. Earlier in the year, BioNTech had completed deals with Eli Lilly to validate
tumour targets and their corresponding T cell receptors that involved an upfront
payment of $30 million and potential milestones of $309 million and with Genmab to
develop and commercialise bispecific antibodies to treat cancer using Genmab’s
DuoBodyTM
platform.
…and there were also a number of immuno-oncology deals in Europe
In August, MorphoSys partnered with immatics biotechnologies Gmbh to develop
antibodies against undisclosed cancer targets recognised by T cells. MorphoSys will
gain access to an undisclosed number of immatics’ tumour-associated peptides, which
MorphoSys will use to develop antibodies to treat solid and haematological cancers.
In July, Ablynx expanded its 2014 collaboration with Merck & Co. from 5 to 12
NanobodyTM
programmes and to include new targets and target combinations directed
against immune checkpoint modulators.
Immuno-oncology featured strongly in the biggest partnering deals of the year
Biotech companies have always been an important source for pipeline drugs for big
pharma. The number of big pharma/biotech licensing deals and their values have
increased over the years. This trend continued in 2015 with some mega licensing
deals completed, notably in the immuno-oncology and diabetes fields. Sanofi was
particularly active, involved in three of our top five deals completed during the year:
In April, AstraZeneca partnered with Celgene to develop and commercialise a
preclinical anti-PD-L1 inhibitor, MEDI4736, for haematologic malignancies and
made an upfront payment of $450 million. Celgene will lead clinical
development and be responsible for all costs until 31 December 2016, after
which it is responsible for 75% of development costs. Celgene will also be
responsible for the global commercialisation of MEDI4736 in haematology, and
will receive royalty rates starting at 70% of worldwide sales from all uses in
haematology. Royalty rates will decrease gradually to 50% over a period of four
years after first commercial sales;
In July, Sanofi partnered with Regeneron to discover, develop and commercialise
new antibody cancer treatments in the immuno-oncology field. The two
companies will jointly develop a PD-1 inhibitor currently in Phase I and plan to
initiate clinical trials in 2016 with new therapeutic candidates based on ongoing,
Rx Securities 17
Sector note
7 January 2016
Biotechnology
innovative preclinical programmes. The deal involved a $640 million upfront
payment to Regeneron, with the total deal valued at $2.7 billion;
In October, Five Prime Therapeutics partnered with Bristol-Myers Squibb for the
development and commercialisation of its colony stimulating factor 1 receptor
(CSF1R) antibody programme, including FPA008 which is in Phase I
development for immunology and oncology indications. Bristol-Myers Squibb
made an upfront payment of $350 million and will be responsible for
development and manufacturing of FPA008 for all indications. Five Prime
retains a US co-promotion option. In addition to the upfront payment, Five Prime
will be eligible to receive up to $1.05 billion in development and regulatory
milestone payments per anti-CSF1R product for oncology indications and up to
$340 million in development and regulatory milestone payments per anti-CSF1R
product for non-oncology indications, as well as double digit royalties (which are
enhanced if Five Prime exercises its co-promotion option);
In November, Sanofi partnered with Hanmi Pharmaceutical to develop a
portfolio of long-acting antidiabetic products. Under the terms of the agreement,
Hanmi received an upfront payment of €400 million and is eligible for up to €3.5
billion in development, registration and sales milestones, as well as double digit
royalties on net sales. In return, Sanofi obtained an exclusive worldwide license
to develop and commercialise efpeglenatide (a late-stage long-acting GLP-1
receptor agonist), a weekly insulin and a fixed-dose weekly GLP-1 receptor
agonist/insulin drug combination; and
In November, Sanofi partnered with Lexicon Pharmaceuticals for the
development and commercialisation of sotagliflozin, an oral dual inhibitor of
sodium-glucose cotransporters 1 and 2 (SGLT-1 and SGLT-2) in Phase III for the
treatment of diabetes. Under the terms of the agreement, Lexicon received an
upfront payment of $300 million and is eligible to receive development,
regulatory and sales milestone payments of up to $1.4 billion. Lexicon is also
entitled to tiered, escalating double digit percentage royalties.
In Europe, some of the licensing deals we were hoping for did not materialise…
In our 2014 sector review, we highlighted a few deals that we thought could get
completed during 2015. These included a US licensing deal for Newron’s safinamide,
which to date has not been completed, although we remain confident a deal will be
done (FDA decision on safinamide is due 29 March 2016). Other deals that we
expected during 2015 included: (1) Paion repartnering remimazolam in Japan – a deal
has yet to be completed, although the product’s development in Japan has continued
to progress and we believe a deal is likely in 2016; (2) Photocure partnering its PDT
treatment Visonac® for moderate-to-severe acne – a deal has yet to be completed with
the company remaining in partnership discussions; and (3) Transgene partnering
TG4010 (following Novartis not taking its option on the product) – a deal was not
completed in 2015 for this Phase III-ready asset, but the company remains in
partnership discussions.
…however, there were a number of deals that did…
Despite disappointing deal progress from some companies, the European sector
continued to deliver deals in 2015 (see Table 4). We have already highlighted
Sanofi’s involvement in some of the biggest global biotech/big pharma partnership
deals and its participation with some of the European biotechs was also evident, in
particular a significant deal with Evotec, as well as deals with Ablyx and Innate
Pharma.
Rx Securities 18
Sector note
7 January 2016
Biotechnology
…of particular note were Galapagos’ deal with Gilead…
In our view, the deal of the year from the European biotech sector was completed by
Galapagos. Despite positive Phase IIb data in rheumatoid arthritis for its selective
JAK1 inhibitor, filgotinib, announced in July, AbbVie decided not to exercise its
option on the drug (instead focussing on its internally developed JAK1 inhibitor,
ABT-494). AbbVie’s decision resulted in a decline in Galapagos’ shares of
approximately 40% as the market took fright to the prospects for filgotinib. However,
Galapagos quickly turned it around and in December completed a new global
partnership deal with Gilead on improved terms. Galapagos received an upfront
payment of $725 million consisting of a license fee of $300 million and a $425
million equity investment (at a 20% premium to its share price at the time). In
addition, Galapagos is eligible for up to $1.35 billion in milestones, plus tiered
royalties starting at 20% and a profit split in co-promotion territories. Galapagos will
co-fund 20% of global development activities and Gilead will be responsible for
manufacturing and worldwide marketing. Galapagos has the option to co-promote
filgotinib in the UK, Germany, France, Italy, Spain, Belgium, the Netherlands and
Luxembourg, in which case the companies will share profits equally. These positive
developments resulted in Galapagos’ shares rising 266% during the year.
…Innate Pharma’s deal with AstraZeneca…
In April, Innate Pharma signed a deal with AstraZeneca for its proprietary, first-in-
class, anti-NKG2A antibody, IPH2201 in Phase II development. As we have
highlighted a number of the biggest global deals completed in 2015 have been in the
immuno-oncology field. NKG2A is a checkpoint receptor that inhibits the anti-cancer
functions of natural killer and cytotoxic T-cells. Innate Pharma received an upfront
payment of $250 million for exclusive global rights to IPH2001, and will receive a
further $100 million prior to initiation of Phase III development, as well as additional
regulatory and sales-related milestones of up to $925 million plus double digit
royalties on sales. The terms of the deal included a co-promotion option for Innate
Pharma in Europe for a 50% profit share in this territory.
…and Bavarian Nordic’s deal with Bristol-Myers Squibb
In a positive surprise, Bavarian Nordic signed a significant option agreement with
Bristol-Myers Squibb to license and commercialise its prostate cancer vaccine,
Prostvac®, currently in Phase III development. Bavarian Nordic received $60 million
upfront, $80 million upon exercise of the option plus incremental payments starting at
$50 million, but with the potential to exceed $230 million should the median overall
survival benefit exceed the efficacy seen in Phase II. Furthermore, Bavarian Nordic
could receive regulatory payments of $110 million, up to $495 million in sales
milestones as well as tiered double-digit royalties on future sales of Prostvac® as well
as manufacture the product.
Rx Securities 19
Sector note
7 January 2016
Biotechnology
Table 4: Key licensing events from European biotech companies in 2015
Date Deal Details
January Vectura / Janssen
Biotech
Global development and exclusive licence agreement for the development
of novel anti-inflammatory therapies for the treatment of asthma/COPD.
Deal terms were undisclosed
March Bavarian Nordic /
Bristol-Myers
Squibb
Bristol-Myers Squibb acquired an exclusive option (post Phase III data) to
license and commercialise Prostvac®, currently in Phase III for mCRPC.
Bavarian Nordic received $60 million upfront, $80 million upon exercise
of the option plus incremental payments starting at $50 million, but with
the potential to exceed $230 million should the median overall survival
benefit exceed the efficacy seen in Phase II. Furthermore, Bavarian Nordic
could receive regulatory payments of $110 million, up to $495 million in
sales milestones as well as tiered double-digit royalties
March Galapagos /
Janssen
Pharmaceutica
Terminate a 2007 deal to develop small molecules for inflammation.
Galapagos regained all rights to GLPG1690, a selective autotaxin inhibitor
that had completed Phase I, and plans to commence a Phase II trial in
idiopathic pulmonary fibrosis in early 2016
March Evotec / Sanofi Companies signs major collaboration in which they will develop
preclinical cancer candidates together and combine their small molecule
libraries, which will be available for screening by Evotec’s partners.
Evotec will acquire Sanofi’s operations and employees from its site in
Toulouse. Sanofi will pay Evotec at least €250 million over the deal’s
lifespan, including at least €40 million upfront
March MorphoSys /
Celgene
Terminate their 2013 collaboration on MOR202 (anti-CD38 mAb).
Compensation payment from Celgene paid to cover previously agreed
development costs for the drug during 2015. Will be presenting Phase I/II
monotherapy data at ASCO. Celgene retains its approximate 3% stake
March Intrexon / Merck
Serono
Merck Serono licensed Intrexon’s CAR T therapies against two
undisclosed cancer targets in return for a $115 million upfront payment
and research funding. In addition, Intrexon is eligible for $826 million in
milestones, plus tiered royalties. Intrexon will share the deal’s proceeds
equally with existing CAR T partner Ziopharm Oncology
April Innate Pharma /
AstraZeneca
Announced a co-development and commercialisation agreement for anti-
NKG2A antibody, IPH2201 in solid cancers as monotherapy as well as in
combination with MEDI4736. Under the terms of the agreement, Innate
Pharma received an upfront payment of $250 million, will receive a
further $100 million prior to initiation of Phase III, regulatory and sales-
related milestones of up to $925 million as well as double digit royalties.
Innate Pharma retains a co-promotion option in Europe for a 50% profit
share in this territory
April uniQure / Bristol-
Myers Squibb
Broad deal utilising uniQure’s gene therapy platform and including
preclinical product AAV-S100A1. uniQure received $50 million upfront
and $15 million within 3 months. Bristol-Myers Squibb took a 4.9% equity
stake for $32 million and committed to take an additional 5% stake by the
end of the year at a 10% premium and will receive two warrants to
increase its total stake to up to 19.9%. uniQure is eligible for milestones of
up to $254 million for the lead product and up to $217 million for each
other product, plus sales milestones and tiered single to double-digit
royalties
Source: RX Securities
Rx Securities 20
Sector note
7 January 2016
Biotechnology
Table 4 (cont.): Key licensing events from European biotech companies in 2015
Date Deal Details
April 4SC / Menarini 4SC granted rights to resminostat in the Asia-Pacific region excluding
Japan. 4SC received an undisclosed upfront payment, milestones
totalling up to €95 million as well as double digit royalties
June Valneva /
GlaxoSmithKline
Valneva re-acquired rights to IXIARO® from GlaxoSmithKline
following the latter’s acquisition of Novartis’ vaccine business
July Molecular Partners /
Allergan
Expands broad DARPin alliance in ophthalmology making an
accelerated milestone payment of $35 million and Molecular Partners
is entitled to additional and certain success-based milestone payments
from Allergan in connection with abicipar
July Ablynx /
Merck & Co.
Significant expansion of ongoing immuno-oncology from 5 to 12
NanobodyTM programmes. Ablynx received a €13 million upfront
payment, further research funding and is eligible for option and
milestone payments of up to €340 million/programme
August Evotec / Sanofi Discovery deal in diabetes utilising both companies beta cell and stem
cell expertise. Upfront payment to Evotec of €3 million, development,
regulatory and commercial milestones could total over €300 million as
well as significant royalties and research payments
August Evotec / Sanofi /
Apeiron Biologics
Joint development deal for small molecule-based cancer
immunotherapies. The agreement involves significant research
payments for Evotec and Apeiron Biologics as well as preclinical,
clinical, regulatory and commercial milestones that could total over
€200 million plus royalties
November BioNTech Ag /
Sanofi
Partnered to discover and develop up to five mRNA-based cancer
immunotherapies. BioNTech will receive $60 million in an upfront
payment and near-term milestones and is eligible for more than $300
million in milestones for each candidate, plus tiered royalties
November Cellectis SA /
Servier / Pfizer
Servier exercised its option on UCART19 (expected to enter Phase I
in 2016) and then granted Pfizer US rights to the drug. Cellectis
received $38.2 million upfront and is eligible for over $300 million in
milestones plus royalties
November Ablynx /
Novo Nordisk
Deal to discover and develop multi-specific Nanobodies in an
undisclosed therapeutic area. Ablynx received €5 million upfront and
€4 million in research funding over three years. Novo can exercise its
option on a second programme for a further payment of €4 million.
Ablynx is eligible to receive potential development, regulatory and
commercial milestone payments of up to €182 million per programme
plus tiered royalties
December Galapagos / Gilead Global partnership deal for filgotinib for inflammatory indications.
Galapagos received an upfront payment of $300 million, a $425
million equity investment (at a 20% premium to share price). In
addition, Galapagos is eligible for up to $1.35 billion in milestones
and tiered royalties starting at 20% and a profit split in co-promotion
territories
December Bavarian Nordic /
Janssen Biotech
Janssen Biotech acquires rights to MVA-BN® for an upfront payment
of $9 million as well as potential future milestones totalling $171
million plus single digit tiered royalties
Source: RX Securities
Rx Securities 21
Sector note
7 January 2016
Biotechnology
Plenty of positive clinical data, but perhaps less positive surprises than in 2014
As well as licensing transactions, share prices of biotechnology companies are driven
by clinical and regulatory events. Most drugs that enter clinical trials ultimately fail to
reach the market and as a result clinical announcements are frequently negative in
their nature. However, the likelihood of success increases the later the stage of
clinical development. While 2014 had seen a number of positive surprises in terms of
late-stage clinical data, we felt there were less positive surprises in 2015. The year
saw plenty of positive clinical results, however, they were mostly from drugs where
confidence was already relatively high. Particularly noteworthy results delivered
during the year came from:
Genmab / Janssen Biotech – in February the companies announced positive
Phase II results from the Sirius MMY2002 trial of daratumumab in double
refractory multiple myeloma demonstrating a 29.2% overall response rate. The
data were strong enough for the FDA to expedite approval of the drug;
Galapagos – reported positive Phase IIb data from its JAK1 inhibitor, filgotinib,
in both rheumatoid arthritis and Crohn’s disease – despite AbbVie not taking its
option on the drug, the data were sufficiently compelling to rapidly sign a new
major deal with Gilead;
Zealand Pharma / Sanofi – reported positive Phase III results from two trials of
LixiLan (LixiLan-O and LixiLan-L), a combination of lixisenatide and Lantus®
with Sanofi submitting the drug for approval in the US triggering a $20 million
milestone payment to Zealand Pharma;
TiGenix – Cx601 achieved its primary endpoint in the Phase III ADMIRE-CD
trial for the treatment of perianal fistulas in Crohn’s disease. A single injection of
Cx601 (allogeneic stem cells) was statistically superior (p<0.025) to placebo
(49.5% vs 34.3%) in achieving combined remission at week 24; and
Summit Therapeutics – ridinilazole not only demonstrated non-inferiority, but
also superiority to vancomycin in a Phase II trial in treating C. difficile infection.
In the study ridinilazole achieved a sustained clinical response of 66.7% vs.
42.4% for vancomycin (p=0.0004).
While there was an array of positive clinical results from European biotechs in 2015
(see Table 5), failures are inevitable in the high risk drug development business. Key
disappointments during the year included: (1) Active Biotech’s tasquinimod failed in
a Phase III trial in mCRPC resulting in a 60% fall in the company’s shares; (2)
NeuroVive’s CicloMulsion® failed in a Phase III trial in acute myocardial infarction
patients undergoing PCI; (3) Evotec / Roche’s sembragiline failed in a Phase IIb trial
in Alzheimer’s disease; (4) GW Pharmaceuticals’ Sativex® failed in Phase III trials in
refractory cancer pain; and (5) Herantis Pharma’s cis-UCA failed in a Phase II trial
for dry eye disease.
Rx Securities 22
Sector note
7 January 2016
Biotechnology
Table 5: Major clinical events announced by European biotechnology companies in 2015 Timing Company Product Event
January GW Pharmaceuticals
/ Otsuka
Sativex® Fails to meet primary endpoint in Phase III trial in
treating cancer pain
February Biotie Therapies Nepicastat Fails in a Phase II trial to demonstrate an increased
abstinence rate in cocaine-dependent patients
February Genmab /
Janssen Biotech
Daratumumab Preliminary Phase II data from 125 multiple myeloma
patients showed that at 16mg/kg daratumumab led to an
overall response rate of 29.2% and a median duration of
response of 7.4 months
March Swedish Orphan
Biovitrum / Biogen
Alprolix® Reported positive results from the Phase III KIDS B-
LONG trial in haemophilia A patients
March Genfit GFT505 Failed to achieve primary endpoint in Phase IIb trial in
NASH. However, did achieve endpoint when adjusting
for baseline severity. Company indicated it would
progress to Phase III, however shares fell over 40% on
the day
March Hutchison China
Meditech / Eli Lilly
Fruquintinib Meets PFS primary endpoint in Chinese 71 patient Phase
II trial in mCRC triggering an $18 million milestone
payment from partner Eli Lilly
March Zealand Pharma /
Sanofi
Lixisenatide Top-line data from ELIXA cardiovascular study
demonstrates non-inferiority to placebo on the composite
endpoint of time to first occurrence of CV death, non-
fatal MI, non-fatal stroke or hospitalisation for unstable
angina. Lixisenatide was not superior to placebo
April Galapagos Filgotinib Selective JAK1 inhibitor meets 12-week primary
endpoint (improvement in ACR20) in Phase IIb
DARWIN 2 trial (monotherapy) and DARWIN 1 trial (as
add-on to methotrexate) in rheumatoid arthritis
April Active Biotech /
Ipsen
Tasquinimod Discontinued development of tasquinimod following
failure to meet overall survival endpoint in Phase III trial
in mCRPC. Active Biotech’s shares fell approximately
60%
April Genmab / Novartis Arzerra® Meets primary endpoint in Phase III COMPLEMENT 2
trial in relapsed CLL
June NeuroVive CicloMulsion® Phase III CIRCUS study in patients undergoing PCI
following STEMI failed to meet its primary endpoint
(mortality, hospitalisation for heart failure, LV
remodelling)
June Herantis Pharma cis-UCA Fails in 161 patient, Phase II study in dry eye disease
June ALK-Abelló /
Merck & Co.
HDM-SLIT Announces positive Phase III data for the treatment of
house dust mite allergic rhinitis. The study achieved its
primary endpoint of an improvement in “Total Combined
Rhinitis Score”
June Zealand Pharma ZP4207 Positive Phase I results demonstrating blood glucose
increases in healthy volunteers and Type 1 diabetics
June Evotec / Roche Sembragiline Fails to meet primary endpoint in Phase IIb trial in
Alzheimer’s disease
June Bone Therapeutics PREOB® Preliminary data from seven patients shows that
intravenously injected cells migrate to bones
July Basilea / Astellas Isavuconazole Fails in Phase III study to demonstrate non-inferiority to
caspofungin for adults with candidemia and other
invasive Candida infections
Source: RX Securities
Rx Securities 23
Sector note
7 January 2016
Biotechnology
Table 5 (cont.): Major clinical events announced by European biotechnology companies in 2015 Timing Company Product Event
July Galapagos Filgotinib Meets key efficacy endpoints in Phase IIb DARWIN 1
study (methotrexate add-on), showing further
improvement at week 24 compared to week 12
July Adocia / Eli Lilly BioChaperone®
Lispro
Phase Ib data demonstrates a 61% reduction in post-
prandial glucose over the first 2hrs vs. Humalog®
July Oxford
Pharmasciences
OXP005 Fails to meet primary endpoint in Phase II study –
OXP005 and Narposyn® exhibit similar Lanza scores –
OXP005 demonstrated a moderate reduction in total
erosions (not statistically significant)
July Zealand Pharma /
Sanofi
LixiLan Reports positive results from Phase III LixiLan-O trial –
study met primary endpoint of reducing HbA1c from
baseline to week 30 vs. each of its components
August Galapagos Filgotinib Meets key efficacy endpoints in Phase IIb DARWIN 2
study (monotherapy), showing further improvement at
week 24 compared to week 12
August Summit
Therapeutics
SMT C1100 Reported positive results from a Phase Ib trial in 12
ambulatory DMD patients, with 50% of patients
achieving desired plasma levels of the drug following
diet modification
August Vernalis V158866 Fails to achieve primary endpoint in Phase II trial in 36
patients with neuropathic pain
August TiGenix Cx601 Meets primary endpoint in Phase III ADMIRE-CD trial
for the treatment of perianal fistulas in Crohn’s disease.
A single injection of Cx601 (allogeneic stem cells) was
statistically superior (p<0.025) to placebo (49.5% vs.
34.3%) in achieving combined remission at week 24
September Hutchison China
Meditech
Fruquintinib Meets primary endpoint of improving PFS vs. placebo
plus BSC in a Chinese Phase II trial in 91 NSCLC
patients who had failed second-line chemotherapy
September GW
Pharmaceuticals
Cannabidiol Generates proof-of-concept data on a variety of
endpoints in a Phase IIa trial in 88 patients with
schizophrenia
September Zealand Pharma /
Sanofi
LixiLan Reports positive results from Phase III LixiLan-L trial –
study met primary endpoint of reducing HbA1c over
three months compared to insulin glargine 100 units/ml
October GW
Pharmaceuticals /
Otsuka
Sativex® Remaining two Phase III trials for the treatment of
cancer pain fail to reach primary endpoint
November Vectura / Novartis Ultibro®
Breezhaler®
Reports positive results from Phase III FLAME head-to-
head study against Seretide® demonstrating superiority in
reducing exacerbation rate in COPD patients
November Genmab / Novartis Arzerra® Fails to show superiority to rituximab in Phase III trial in
patients with follicular NHL
November Summit
Therapeutics
Ridinilazole Demonstrates superiority to vancomycin in Phase II trial
in treating C. difficile infection
November Valneva / Novartis C.difficile
vaccine
Reports positive Phase II results with optimal dose and
formulation identified
November AB Sciences Masitinib Meets primary endpoint in Phase III trial in treating
adults with severe systemic mastocytosis
December Galapagos Filgotinib Meets primary endpoint in Phase II clinical trial in
Crohn’s disease
December Bionor Pharma Vacc-4x REDUC trial demonstrates reduction in latent HIV
reservoir with combination of Vacc-4x and romidepsin
Source: RX Securities
Rx Securities 24
Sector note
7 January 2016
Biotechnology
Another strong year for new drug approvals by the FDA…
The FDA approved 46 innovative new drugs (defined as NMEs, excludes new dosage
forms or combinations or new indications and certain BLAs/recombinant
products/immunotherapies) in 2015, just short of the record 48 approved last year and
still substantially higher than 2013 (27 approvals) and 2012 (33 approvals). While
there were a number of notable approvals, we would particularly highlight that of
Novartis’ secukinumab (Cosentyx®), an IL-17 inhibitor for psoriasis. Approved in
January the drug is off to a strong start and we estimate achieved approximately $250
million in sales in 2015. In addition, 2015 saw US approval of the first biosimilar,
Zarxio®
(filgrastim-sndz), a biosimilar to Amgen’s Neupogen®. Over half (26) of the
FDA approvals were under Priority review, including the use of a voucher by Sanofi
for alirocumab (Praluent®) for lowering cholesterol, allowing the company to jump
rival PCSK9 inhibitor evolocumab (Repatha®) from Amgen and get to market a
month ahead. From European biotechnology companies, in 2015 the FDA approved
Basilea/Astellas’ isavuconazole (Cresemba®) in March (under Priority review),
PharmaMar’s trabectedin (Yondelis®) for soft tissue sarcomas (under Priority
review), Veloxis Pharmaceuticals’ Envarsus® XR for prophylaxis of rejection in
kidney transplant patients, Genmab/Janssen Biotech’s daratumumab (Darzalex®) for
refractory/relapsed multiple myeloma (under Priority review), Vectura/Novartis’
glycopyrrolate (SeebriTM
Neohaler®) and its combination with indacaterol (Ultibron
TM
Neohaler®), BTG/Wellstat’s uridine triacetate (Vistoguard
®) for treating 5-FU
toxicity and Actelion’s selexipag (Uptravi®) for pulmonary arterial hypertension.
…and a record number of CHMP positive opinions
The European Medicines Agency’s CHMP issued positive opinions on 93 new drugs
in 2015 (includes new dosage forms and combinations), up from 82 in 2014 (which
itself was a significant improvement on the 54 in 2013, 38 in 2012, 43 in 2011, and
24 in 2010). September was particularly productive, with the CHMP issuing 19
positive opinions in that month alone. Of note from European biotechnology
companies there were positive opinions for Basilea’s antifungal Cresemba®
(isavuconazole), Swedish Orphan Biovitrum’s Elocta® (long-acting Factor VIII),
Santhera’s Raxone® (idebenone) for Leber’s hereditary optic neuropathy and Shield
Therapeutics’ oral iron replacement Feraccru® (ferric maltol).
Ultrafast approval for Genmab / Janssen Biotech’s daratumumab (Darzalex®)
In May 2013 Genmab / Janssen Biotech’s daratumumab was one of the first drugs to
be granted Breakthrough Designation by the FDA for the treatment of multiple
myeloma. This designation was intended to expedite the development and review
time for potential new treatments for serious or life-threatening diseases. The drug
lived up to the designation, with the FDA approving it in November 2015,
approximately four months after it was accepted for filing. We are highly enthusiastic
about daratumumab and believe it will be one of the big new launches to watch this
year.
Rx Securities 25
Sector note
7 January 2016
Biotechnology
It was a long journey, but Yondelis
® was finally approved in the US in 2015
It was in April 2011 that PharmaMar’s partner, Johnson & Johnson withdrew its
NDA seeking approval for Yondelis® for the treatment of ovarian cancer. While the
drug has since been approved and launched in Europe for the treatment of soft tissue
sarcoma and platinum-resistant ovarian cancer, the progress in the US has been slow.
However, in November 2015 the FDA finally approved the drug to treat unresectable
or metastatic liposarcoma or leiomyosarcoma in patients who received a prior
anthracycline-containing regimen. The companies also saw the drug approved for the
treatment of soft tissue sarcomas in Japan in October 2015.
There were a number of regulatory approvals for Swedish Orphan Biovitrum
Swedish Orphan Biovitrum had more than its fair share of positive regulatory news in
2015. As well as European approval for a suspension formulation of Orfadin®, an
Orphan drug for the treatment of hereditary tyrosinaemia Type 1, the company also
received European approval for Xiapex® (collagenase clostridium histolyticum) for
the treatment of two Dupuytren's contracture cords concurrently, extending its
licensed indications. However, the major approval came in November, with European
approval of its long-acting Factor VIII, Elocta®, a major value driver for the company
whose launch will be closely followed in 2016.
Actelion cemented its global leadership position in PAH with Uptravi® approval
It was June 2014 when Actelion reported the highly positive Phase III results of
selexipag (Uptravi®) in pulmonary arterial hypertension (PAH). It was no surprise the
drug sailed through a first-pass approval by the FDA and we expect a strong uptake in
2016. The FDA approved Uptravi® for the treatment of PAH to delay disease
progression and reduce the risk of hospitalisation for PAH. We expect the drug to
similarly sail through the ongoing MAA process and gain approval in the coming
months in Europe. Uptravi® and Opsumit
® should cement the longevity of Actelion’s
PAH franchise despite its lead drug, Tracleer®, now facing generic competition.
SeebriTM
Neohaler® and Ultibron
TM Neohaler
® approvals positive for Vectura
It is usually the case that most drugs reach the US market ahead of Europe, however,
the FDA has been more cautious than the CHMP with regards to new respiratory
drugs for asthma and COPD and as a result development in this field is currently
taking longer in the US than Europe. Novartis/Vectura’s LAMA (glycopyronnium)
and LABA/LAMA combination (indacaterol/glycopyronnium) are already selling in
Europe, but 2015 saw FDA approval for both SeebriTM
Neohaler® (glycopyronnium)
and UltibronTM
Neohaler® (indacaterol/glycopyronnium combination) with uptake in
2016 a key focus for Vectura investors. Table 6 details the main regulatory events
announced by European biotechnology companies in 2015.
Rx Securities 26
Sector note
7 January 2016
Biotechnology
Table 6: Major regulatory events announced in 2015 Timing Company Product Event
January Vectura / Novartis NVA237 NDA filed for the long-term maintenance treatment of
COPD
January Vectura / Novartis QVA149 NDA filed for the long-term maintenance treatment of
COPD
February PharmaMar /
Janssen Biotech
Yondelis® FDA grants Priority review to treat soft tissue
sarcomas
February Newron
Pharmaceuticals
Safinamide European Commission grants marketing approval for
the treatment of Parkinson’s disease
March Basilea / Astellas Isavuconazole FDA approves for patients 18 years of age and older
for the treatment of invasive aspergillosis and invasive
mucormycosis (also known as zygomycosis)
April DBV Technologies Viaskin® Peanut FDA grants Breakthrough Designation
June Santhera
Pharmaceuticals
Raxone®
(idebenone)
CHMP issues positive opinion for the treatment of
visual impairment in adolescent and adult patients with
Leber’s hereditary optic neuropathy
June Swedish Orphan
Biovitrum / Biogen
Alprolix® Biogen submits MAA to EMA
July Swedish Orphan
Biovitrum
Orfadin® European Commission approves oral suspension
formulation
July Genmab / Novartis Arzerra® Novartis submits application to EMA for maintenance
treatment of relapsed CLL
July Veloxis
Pharmaceuticals
Envarsus® XR FDA approves for the prophylaxis of rejection in
kidney transplant patients who require or desire
conversion from twice-daily tacrolimus products
July Biofrontera AG Ameluz® Submits NDA to FDA
August Photocure Cevira® Gains SPA from FDA for Phase III clinical registration
programme for the treatment of high grade pre-
cancerous lesions of the cervix
August Basilea / Astellas Isavuconazole CHMP issues positive opinion for the treatment of
invasive aspergillosis and invasive mucormycosis
August Genmab / Novartis Arzerra® Novartis submits sBLA for maintenance treatment of
relapsed CLL
August Nicox / Valeant Vesneo® NDA submitted to treat open-angle glaucoma or ocular
hypertension
August Orexo Zubsolv® FDA expands usage to include induction of
buprenorphine maintenance therapy in patients with
opioid dependence
August ALK-Abelló HDM-SLIT Receives European Commission approval for severe
allergic rhinitis
September Santhera Idebenone FDA grants rare paediatric disease designation to treat
DMD
September Genmab /
Janssen Biotech
Daratumumab Janssen Biotech submitted MAA and FDA accepted
and granted Priority review to a BLA to treat multiple
myeloma
September Santhera Idebenone European Commission approves MAA for use to treat
Leber’s hereditary optic neuropathy
September Erytech Pharma GRASPA® Submits MAA to EMA for the treatment of patients
with acute lymphoblastic leukaemia
Source: RX Securities
Rx Securities 27
Sector note
7 January 2016
Biotechnology
Table 6 (cont.): Major regulatory events announced in 2015 Timing Company Product Event
September Swedish Orphan
Biovitrum
Orfadin® FDA accepts for review an NDA for an oral
suspension formulation to treat hereditary
tyrosinaemia type 1
September Genmab /
Janssen Biotech
Daratumumab CHMP grants accelerated assessment (review
time reduced by 60 days) for the treatment of
double refractory multiple myeloma
September Genmab / Novartis Arzerra® FDA accepts and grants Priority review to
sBLA for maintenance treatment of relapsed
CLL
September PharmaMar /
Janssen Biotech
Yondelis® Receives marketing approval in Japan for
treatment of soft tissue sarcomas
September Newron
Pharmaceuticals
Safinamide FDA extends by three months PDUFA date to
29 March 2016
October PharmaMar /
Janssen Biotech
Yondelis® FDA approves for the treatment of patients with
unresectable or metastatic liposarcoma or
leiomyosarcoma who have received a prior
anthracycline-containing regimen
October Basilea Isavuconazole European Commission approves for the
treatment of invasive aspergillosis and
mucormycosis
October Vectura / Novartis UltibronTM Neohaler®
(NVA237)
FDA approves for patients with chronic
obstructive pulmonary disease
October Vectura / Novartis SeebriTM Neohaler®
(QVA149)
FDA approves for patients with chronic
obstructive pulmonary disease
November Genmab /
Janssen Biotech
Darzalex®
(daratumumab)
FDA approves for the treatment of multiple
myeloma patients who have received at least
three prior lines of therapy
November Swedish Orphan
Biovitrum
Xiapex® EMA expands labelled indication to include the
treatment of two Dupuytren’s contracture cords
concurrently
November Swedish Orphan
Biovitrum / Biogen
Elocta® European Commission approves for the
treatment of haemophilia A
December BTG / Wellstat Vistoguard® FDA approves as an antidote to 5-FU or
capecitabine toxicity
December Actelion / Nippon
Shinyaku
Uptravi® FDA approves for the treatment of PAH to
delay disease progression and reduce the risk of
hospitalisation
Source: RX Securities
Rx Securities 28
Sector note
7 January 2016
Biotechnology
Double digit earnings growth maintains sector rating
The performance of the European and US biotech sectors are highly correlated and as
a result the US sector can be a guide to future European sector performance. In
particular, there is a core group of profitable US biotechs whose median PE and
EV/EBITDA multiples can be historically tracked and analysed as a guide to sector
valuation. Over the 2011-14 period, the US biotech sector re-rated. Median PE
multiples rose from low double-digits to mid-30s (see Figure 4) as earnings growth
for the sector significantly accelerated. During 2014, substantial growth in earnings
was delivered and despite the sector rising 36% during the year, multiples contracted
as earnings growth started to decelerate (median 19% at the start of 2014 and 15% at
the start of 2015 respectively). 2015 saw a stagnation in the sector multiple as
earnings growth essentially matched the rise in share prices. As we start 2016, the two
year earnings CAGR for the US sector is approximately 13%, a modest deceleration
over the prior year. While this may result in a modest contraction in sector multiple,
we do not believe we will see the substantial contraction observed over the 2007-10
period when sector earnings growth declined to a single digit percentage, especially
considering the current environment where they are so few sectors that are offering
double digit earnings growth.
Figure 4: Median PE of US biotechnology companies
Source: RX Securities
Only two companies in Europe trading below net cash
In Europe, at its lowest point, a third of all the companies in the sector were trading
below net cash in their balance sheet – while at the end of 2014, there were no
companies trading below net cash, at the end of 2015, there were two: Nordic
Nanovector and Herantis Pharma. Nordic Nanovector’s shares declined 50% during
2015 driven primarily by a change to its development programme for its lead product,
Betalutin®, resulting in a two year delay to potential filing for approval. Herantis
Pharma saw its shares decline 87% during the year as its lead drug cis-UCA failed in
a Phase II study for dry eye syndrome. The median net cash/market capitalisation of
the sector continues to be near all-time lows – an indicator that the sector is relatively
expensive based on historical trading (see Figure 5).
5
10
15
20
25
30
35
40
45
Jan
-04
Jan
-05
Jan
-06
Jan
-07
Jan
-08
Jan
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Jan
-10
Jan
-11
Jan
-12
Jan
-13
Jan
-14
Jan
-15
Jan
-16
Median PE
Rx Securities 29
Sector note
7 January 2016
Biotechnology
Figure 5: Median cash/market cap for European biotech companies
Source: RX Securities
Sector performance remains driven by broader macroeconomic performance
While there continue to be warning signs of an overheated sector (mammoth 70%
increase in secondary fundraises in the US as an example), it may remain this way in
2016 should the broader macroeconomic environment remain stable/improve.
Appetite for risk continues to be relatively high as measured by the VIX index (see
Figure 6 - high volatility generally translates to low appetite for risk).
Figure 6: VIX index (over 3 years) – appetite for risk remains high
Source: RX Securities
0%
10%
20%
30%
40%
50%
60%
70%
80%
Jan-2
002
Jan-2
003
Jan-2
004
Jan-2
005
Jan-2
006
Jan-2
007
Jan
-20
08
Jan-2
009
Jan-2
010
Jan-2
011
Jan-2
012
Jan-2
013
Jan-2
014
Jan
-20
15
Jan-2
016
0
5
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25
30
35
40
45
Jan
-13
Jul-
13
Jan
-14
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Jan
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Jul-
15
Jan
-16
VIX Index
Rx Securities 30
Sector note
7 January 2016
Biotechnology
For the European biotechnology sector, H1 2016 is packed with clinical events…
The first half of 2016 is packed with both important late-stage clinical data and
regulatory events. In terms of clinical data, during the first half we anticipate: (1)
results from a large Phase II trial of Zealand Pharma’s danegaptide for ischaemic
reperfusion injuries (our expectations are low as this is a tough indication, but
positive results could provide major upside); (2) Phase III results from GW
Pharmaceuticals’ Epidiolex® in both Dravet syndrome and Lennox-Gastaut (GW’s
shares have performed strongly over the last few years driven by investor excitement
around Epidiolex® – we think the high expectations are likely to be delivered); (3)
Phase III results from PharmaMar’s Aplidin® in multiple myeloma; (4) Phase II/III
results from Valneva’s VLA43, its P.aeruginosa vaccine; (5) Phase III results from
Circassia’s cat allergy vaccine; and (6) while not strictly within the European
universe, Cynapsus Therapeutics will announce results from Phase III trials of APL-
130277 in Parkinson’s disease – we are highly optimistic of positive results and
believe they will trigger a re-rating of the company’s valuation.
…and some important regulatory milestones too
Key regulatory events anticipated in H1 2016 include: (1) an FDA decision on
Newron’s safinamide for Parkinson’s disease, due 29 March. The drug is already
approved and launched in Europe, but the regulatory path has been longer in the US –
we remain confident safinamide will gain approval and that this will catalyse a US
licensing deal for the drug; (2) Santhera Pharmaceuticals has indicated that it plans to
file idebenone in both the US and Europe for the treatment of Duchenne muscular
dystrophy (DMD). DMD is an area of high investor interest, with FDA decisions due
on two exon-skipping drugs in Q1; and (3) an FDA decision on Biofrontera’s
Ameluz® for the treatment of actinic keratosis is anticipated 10 May.
H2 2016 is quieter and likely to be impacted by US election sentiment
We think the second half of 2016 is likely to be quieter, we see less events (both
clinical and regulatory) compared to the first half. While we still expect significant
share price volatility around key clinical and regulatory events, we believe the sector
may tread water as we navigate through US elections in November. Key clinical
events anticipated in H2 include: (1) Phase III results from Celyad’s C-Cure® for
cardiac repair; (2) Phase IIa results from Probiodrug’s PQ912 in Alzheimer’s disease;
(3) late-stage trial results from Hutchison China Meditech’s fruquintinib in NSCLC,
colorectal and gastric cancer; and (4) Phase III results from Skyepharma’s flutiform®
in COPD. From a regulatory perspective, we would particularly highlight: (1) an FDA
decision on Nicox / Valeant’s Vesneo® due 21 July; (2) FDA decisions on Zealand /
Sanofi’s lixisenatide and LixiLan; and (3) potential biosimilar enoxaparin approval
for Laboratorios Farmacéuticos Rovi. See Table 7 for a summary of the key clinical
and regulatory events anticipated from European biotechnology companies during
2016.
Rx Securities 31
Sector note
7 January 2016
Biotechnology
Table 7: Major clinical and regulatory events anticipated in 2016 Timing Company Product Event
January 2016 E-Therapeutics ETS6103 Phase IIb results in major depressive disorders
January 2016 ABIVAX ABX464 Phase IIa results in HIV
21 January 2016 Genmab / Novartis Arzerra® FDA decision on use in maintenance CLL
Q1 2016 Verona Pharma RPL554 Phase IIa data from study in asthma
Q1 2016 Zealand Pharma Danegaptide Phase II results for ischaemic reperfusion
injuries
Q1 2016 AB Science Masitinib Interim review of Phase III trial in ALS
Q1 2016 Santhera
Pharmaceuticals
Idebenone NDA and MAA submissions for DMD
Q1 2016 GW Pharmaceuticals Epidiolex® Phase III data from first study in Dravet
syndrome
Q1 2016 PharmaMar Aplidin® Phase III results in multiple myeloma
Q1 2016 TiGenix Cx601 File MAA for use in complex perianal fistulas
in Crohn’s disease
29 March 2016 Newron
Pharmaceuticals
Safinamide FDA decision
H1 2016 ReNeuron CTX stem cell
therapy
Results from Phase II trial in stroke
H1 2016 Ablynx ALX-0171 Results from Phase I/IIa trial in infants for
treatment of RSV infection
H1 2016 ReNeuron CTX cell therapy Phase II results from cohort 1 of PISCES II trial
H1 2016 Valneva /
GlaxoSmithKline
VLA43 Phase II/III results in P.aeruginosa
H1 2016 Cassiopea Breezula Results from Phase II study in alopecia
H1 2016 Galapagos GLPG1205 Results from Phase IIa study in ulcerative colitis
H1 2016 Genticel GTL001 Results from Phase II study assessing viral
clearance from patients infected with HPV16
H1 2016 Nicox AC-170 Submit an NDA for this novel cetirizine eye
drop formulation
H1 2016 GW Pharmaceuticals CBDV Phase II data in epilepsy
H1 2016 Futura Medical MEDI2002 Results from pivotal clinical study for erectile
dysfunction
H1 2016 Bavarian Nordic PROSTVAC Interim reviews of Phase III trial (final data due
2017)
H1 2016 Summit Therapeutics Ridinilazole Results from Phase II trial with fidaxomicin as
active control
H1 2016 Oxford Biomedica OXB-201 Results from Phase II mesothelioma
H1 2016 Molecular Partners Abicipar Phase II results in diabetic macular oedema
H1 2016 Pharming Group Ruconest® Results from two Phase II trials in prophylaxis
of HAE and in paediatric patients
Q2 2016 GW Pharmaceuticals Epidiolex® Data from two Phase III trials in Lennox-
Gastaut syndrome
Q2 2016 Verona Pharma RPL554 Phase IIa data from study in COPD
Q2 2016 Allergy Therapeutics PQBirch204 Phase II results from birch pollen allergy trial
Q2 2016 Circassia Cat allergy Phase III CATALYST study to report data
Q2 2016 Innate Pharma Lirilumab Phase II results from EffiKIR trial in AML
Q2 2016 Cynapsus
Therapeutics
APL-130277 Data from CTH-300 Phase III efficacy study
Q2 2016 Swedish Orphan
Biovitrum
Orfadin® FDA decision on suspension formulation
Q2 2016 Mologen Ag MGN1703 Phase II results in HIV
10 May 2016 Biofrontera AG Ameluz® FDA decision
Source: RX Securities
Rx Securities 32
Sector note
7 January 2016
Biotechnology
Table 7 (cont.): Major clinical and regulatory events anticipated in 2016 Timing Company Product Event
Mid 2016 Celyad C-Cure® European Phase III results from CHART-1
(cardiac repair)
Mid 2016 Genmab Daratumumab CHMP decision
Mid 2016 GW Pharmaceuticals Epidiolex® Phase III data from second study in Dravet
syndrome
Mid 2016 Hutchison China
Meditech
Savolitinib Papillary renal cell carcinoma Phase II data
Mid 2016 Quantum Genomics QGC001 Phase IIa results in treating high blood pressure
Mid 2016 Hutchison China
Meditech
Fruquintinib Phase II data from Chinese study in NSCLC
Mid 2016 Probiodrug AG PQ912 First data from Phase IIa SAPHIR study in
Alzheimer’s disease
21 July 2016 Nicox / Valeant Vesneo® FDA decision
2016 4SC Resminostat Results from Phase II trials by partner Yakhult
Honsha in NSCLC and liver cancer
2016 Laboratorios
Farmacéuticos Rovi
Biosimilar
enoxaparin
Potential marketing authorisation
2016 Hutchison China
Meditech
Fruquintinib Phase III data from Chinese study in colorectal
cancer
2016 Hutchison China
Meditech
Fruquintinib Phase II data from Chinese study in gastric
cancer
2016 MorphoSys Guselkumab Phase III results in psoriasis
2016 MorphoSys Bimagrumab Phase III results in sporadic inclusion body
myositis – drug has FDA Breakthrough
designation
2016 Paion AG Remimazolam Results from European Phase III trial
Q3 2016 Skyepharma flutiform® Results from Phase III trial in COPD
H2 2016 Plethora Solutions PSD502 Partner, Recordati, to launch in EU
H2 2016 Genmab /
Janssen Biotech
Daratumumab EMA decision on use in multiple myeloma
H2 2016 TiGenix AlloCSC-01 Interim results from Phase II trial in acute
myocardial infarction
H2 2016 Summit Therapeutics SMT C1100 First data from open label Phase II trial
H2 2016 Zealand Pharma Elsiglutide Results from Phase IIb trial for the prevention
of chemotherapy-induced diarrhoea
H2 2016 Zealand Pharma Lixisenatide FDA decision
H2 2016 Biotie Therapies SYN120 Results from Phase IIa trial in Parkinson’s
disease dementia
H2 2016 Zealand Pharma LixiLan FDA decision
H2 2016 Zealand Pharma ZP4207 Phase II rescue pen study results
Q4 2016 Cynapsus
Therapeutics
APL-130277 Data from CTH-301 Phase III safety study
Q4 2016 Newron
Pharmaceuticals
NW-3509 Phase II results from study in schizophrenia
Q4 2016 Nicox AzaSite® File MAA
Q4 2016 Nicox BromSiteTM File MAA
Late 2016 Biotie Therapies BTT-1023 Futility analysis in Phase II trial in PSC
Late 2016 Mologen Ag MGN1703 Phase II results in small cell lung cancer
Source: RX Securities
Rx Securities 33
Sector note
7 January 2016
Biotechnology
Notes
Rx Securities 34
Sector note
7 January 2016
Biotechnology
Rx Securities 35
Company Update
7 January 2016
Actelion - HOLD
Up to the summit
FDA approval of Uptravi® (selexipag) for pulmonary arterial hypertension
(PAH) provided an early Christmas present for Actelion and combined with
the strong financial performance, the Company’s shares rose 22% during
2015. The approval of Uptravi®, combined with the strong launch of Opsumit
®,
cement Actelion’s global leadership position in PAH. While the Company’s
blockbuster, Tracleer®, is facing increasing generic competition, the Risk
Evaluation and Mitigation Strategy (REMS) programme for the drug has
provided an effective additional barrier and may continue to provide further
upside this year. Actelion’s PAH franchise provided strong top-line momentum
in 2015, but pipeline developments were less exciting in our view. It is difficult
to get inspired by the return of ponesimod for multiple sclerosis and graft
versus host disease (even after Celgene’s $7.2 billion acquisition of Receptos)
and clazosentan (for subarachnoid haemorrhage). A failed attempt to acquire
ZS Pharma in 2015 has left the Company still heavily dependent on its PAH
franchise. We believe M&A will continue to be high on the agenda in 2016. We
expect investor focus this year to be on the launch of Uptravi® (selexipag) and
from the pipeline, Phase III data from cadazolid for the treatment of C.difficile
infections are anticipated in H2 2016. Phase II data were encouraging with
regards to efficacy, although we are surprised a lower dose is not being tested
in Phase III considering the lack of a dose-response in the Phase II. Actelion
trades on a 2016 PE that is at a modest premium to the median of the global
peer group. However, we believe are forecasts are likely to rise during the year
and as such the premium is warranted. We maintain our HOLD rating, but
increase our fair value from CHF 130/share to CHF 145/share.
Uptravi® launch to be a key focus in 2016 – Actelion has launched Uptravi
®
at a price of $160-170,000/year. We are currently forecasting sales of CHF 155
million for 2016, which is ahead of current consensus of CHF 114 million.
Uptravi® and Opsumit
® will ensure longevity of Actelion’s PAH franchise as
Tracleer® faces increasing generic competition.
Valuation – Actelion trades on a PE of 23.0 and EV/EBITDA of 16.8 for 2016,
which compares to medians of 20.8 and 16.4 respectively for the global biotech
peer group. Our fair value of CHF 145/share is based on Actelion trading at a
modest premium on PE and EV/EBITDA multiples to the peer group.
Actelion
Price CHF 136.7
Fair value range CHF 145
Market capitalisation CHF 15.6 billion
Enterprise value CHF 15.1 billion
12m high/low CHF 147.0 / CHF 90.4
Avg. daily volume 0.5m
Bloomberg / Reuters ATLN VX / S:ATLN
Listing SIX Swiss
Next results (Q4) 9 February 2016
Top 5 Shareholders
Blackrock 5.4%
Jean-Paul Clozel 4.6%
Trident Merger 3.6%
Lazard 3.6%
Vanguard 3.4%
Analyst
Dr Samir Devani
+44 (0)207 659 1263
60
80
100
120
140
160
180
Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16
Actelion Euro Biotech Index
Share price performance (1 year)
Source: Rx Securities
Pri
ce (
CH
F)
Key financial data (CHF’m)
Y/E 31 December 2014A 2015E 2016E 2017E 2018E
Revenue 1,958 2,044 2,164 2,287 2,438
Core Earnings 744 806 900 983 1,167
Profit before Tax 537 630 747 845 1,035
Net Income 594 555 657 735 900
EPS (CHF) 5.3 5.0 5.9 6.6 8.1
PE 25.6 27.3 23.0 20.6 16.8
EV/EBITDA 20.8 18.9 16.8 15.4 12.9
Source: RX Securities estimates
Consensus 2015E 2016E 2017E 2018E
Revenue 2,038 2,070 2,281 2,467
Net Income 541 531 639 760
Source: Bloomberg
Rx Securities 36
Company Update
7 January 2016
Actelion - HOLD
Company Description
Actelion was founded in Basel, Switzerland, in December 1997 with the aim of
developing and marketing pharmaceuticals related to the endothelium. Today, the
Company is a fully integrated commercial business employing 2,495 people. In
addition to a number of marketed products, Actelion has eight NCEs in Phase I-III
development as well as a number of programmes in preclinical development. The
Company’s lead product, bosentan (Tracleer®) was licenced from Hoffmann-La
Roche, where members of Actelion’s current management team discovered it.
Actelion completed its IPO in April 2000 raising CHF 260 million (at CHF 15 per
share). Tracleer® was launched for the treatment of pulmonary arterial hypertension
(PAH) in December 2001 including being directly marketed in Japan and achieved
blockbuster status in 2009. However, the drug is now beginning to face generic
competition. Opsumit® (macitentan), the successor to bosentan, has recently been
launched in the US and Europe. Furthermore, the Company has also recently received
FDA approval and launched a third oral product for PAH, selexipag (Uptravi®), a
PGI2 receptor agonist (licensed from Nippon Shinyaku in April 2008). Actelion has a
track record of discovering first-in-class NMEs and its R&D capabilities have been
validated by deals with Roche, Merck & Co. and GlaxoSmithKline. In addition, the
Company has successfully, through acquisition and inlicensing, grown its pipeline
and cemented its position in PAH. Late 2002, Actelion acquired the Gaucher disease
treatment, Zavesca®, from Oxford Glycosciences. In January 2007, Actelion acquired
CoTherix for $420 million bringing Ventavis®, a marketed inhaled therapy for PAH.
In 2013, Actelion acquired Ceptaris that brought Valchlor® for the treatment of
mycosis fungoides. In its late-stage pipeline, Actelion also has ponesimod, an S1P1
inhibitor for multiple sclerosis and graft versus host disease, clazosentan for the
treatment of subarachnoid haemorrhage and cadazolid, a treatment for C.difficile
infections that is slated to report Phase III results in H2 2016. The Company’s stated
strategy is to sustain and grow its PAH franchise at the same time as looking to build
an additional specialty franchise while optimising profitability of the overall business.
Investment Positives
World-leading franchise in pulmonary arterial hypertension
Actelion can be credited for developing the global PAH market. While competitors
have arrived, the Company retains its leadership position and now has an unparalleled
offering in the area. Along with its blockbuster Tracleer® and its successor Opsumit
®,
the Company has recently started marketing Uptravi® (selexipag), a PGI2 receptor
agonist (licensed from Nippon Shinyaku). In addition, Actelion is selling an inhaled
prostacyclin, Ventavis®, as well as the thermally stable epoprostenol, Veletri
®.
Opsumit® generated sales of CHF 180 million in 2014 and we are forecasting this to
have grown to CHF 406 million in 2015. Uptravi® works through a different
mechanism in the disease and will be complementary to the Company’s endothelin
receptor antagonists, Opsumit® and Tracleer
®. We are currently forecasting sales of
CHF 155 million for 2016, which is ahead of current consensus of CHF 114 million.
Rx Securities 37
Company Update
7 January 2016
Actelion - HOLD
Highly cash generative, share buy-back authorised
On 5 December 2013, Actelion announced a share buy-back programme of up to 10
million shares to be carried out over three years. To date, the Company has acquired
8.8 million shares under this programme. On 9 April 2015, Actelion announced a
new, three year, share repurchase programme of up to 10 million shares, subject to
market conditions and strategic opportunities. As at 30 September 2015, Actelion had
a net cash position of CHF 463 million and we forecast annual cash generation of in
excess of CHF 700 million. Beyond the share buy-back and dividend, the Company’s
cash generation provides significant strategic flexibility. During 2015, the Company
engaged in acquisition discussions with ZS Pharma, although ultimately the later was
acquired by AstraZeneca for $2.7 billion. However, this deal highlights the type of
transaction Actelion is seeking.
Earnings can be managed, 2015 guidance to be easily met
Historically, Actelion has a strong track record of meeting or beating its guidance.
The Company’s guidance for 2015 is for core earnings growth crossing the 20% mark
at constant exchange rates and excluding 2014 US rebate reversals. In our view,
Actelion is well positioned to easily meet this guidance.
Attractive acquisition target
Actelion has a world-leading PAH franchise, a proven R&D track record and an
organically grown commercial operation in Japan that we believe make the business a
highly attractive acquisition target. The approval of Opsumit® removed significant
uncertainty regarding the longevity of the PAH franchise. Furthermore, the recent
approval of Uptravi® cements Actelion’s status as the global leader in PAH. Mid-cap
healthcare has been a prime feeding ground for big pharmaceutical companies. With
such a valuable (and highly profitable) PAH franchise, we expect Actelion to be on
the radar of any major pharmaceutical/biotech company looking for acquisition
targets.
Strong management team and Board of Directors
Actelion’s CEO, Jean-Paul Clozel is a founder of the Company and has held the
position since the Company went public in April 2000. He is a cardiologist by
training and spent 12 years at F. Hoffmann-La Roche Ltd where he participated in the
characterisation of renin inhibitors as well as several endothelin antagonists including
bosentan. He has successfully steered the Company from start-up to a multi-billion
market capitalisation company. Actelion has a strong Board, chaired by Jean–Pierre
Garnier since September 2011. From 2001 to 2008, Jean-Pierre Garnier was the first
CEO of GlaxoSmithKline, assuming this role with the merger of SmithKline
Beecham and Glaxo Wellcome.
Our estimate for sales of Uptravi® is above consensus
Actelion has launched Uptravi® at an average price per patient per year of $160-
170,000. We believe the drug’s prescribing label is strong and combined with the
proven marketing capabilities of the Company, we believe will launch strongly this
year. Our forecast of sales for Uptravi® of CHF 155 million is ahead of current
consensus of CHF 114 million.
Rx Securities 38
Company Update
7 January 2016
Actelion - HOLD
Investment Risks
Tracleer® is slated to lose patent protection in the US in May 2016
Tracleer® is already facing generic competition in a number of countries, and is slated
to lose patent protection in the US from May 2016. We forecast Tracleer® to account
for approximately 60% of our estimated revenues for 2015 and an estimated 46% of
2016 revenues. We believe Actelion will be able to partly offset generic erosion by
focussing its promotion on Opsumit®, but the ramp in sales of this product may not be
sufficient to fully counter the loss of Tracleer® revenue to generics. While combined
only representing approximately 10% of revenue, Zavesca® and Ventavis are likely to
face increasing generic competition this year.
Gilead’s Letairis® remains a competitive threat to Actelion’s ERA franchise
On 4 March 2011, Gilead announced that the FDA had removed the potential liver
injury warning from the Letairis® prescribing label. This combined with positive data
from the AMBITION study (first line treatment of PAH with ambrisentan and
tadalafil) has provided a significant marketing advantage for Gilead and ultimately
resulted in Tracleer® losing market share (we anticipate Letairis
® achieving sales of
approximately $700 million for 2015, growing at approximately 17%). We believe
Opsumit® has a more competitive profile and should ensure Actelion is positioned to
more effectively compete against Gilead and prevent further market share losses.
Opsumit® sales may not ramp fast enough to counter the decline in Tracleer
®
Opsumit®
’s prescribing label still requires liver testing prior to initiation of treatment,
which while we do not believe is logistically an additional burden to patients (as most
patients would be tested irrespective of the endothelin receptor antagonist they are
prescribed), we believe is competitively weaker than the Letairis® label which does
not mandate such testing. Furthermore, Opsumit®
has not shown the same efficacy as
Tracleer® for digital ulceration. Opsumit
® does have a stronger label claim (disease
modifying rather than symptomatic for all other endothelin receptor antagonists) and
a lower oedema rate than Letairis®, which we believe will result in the product
gaining a significant portion of newly diagnosed patients.
Opsumit® may face pricing pressure in Europe when Tracleer
® goes generic
Pharmaceutical companies are facing significant payor pricing pressures. In
particular, European nations have increased their scrutiny on the pricing of
pharmaceuticals with agencies such as the UK’s NICE and Germany’s IQWiG
assessing the “value add” of novel pharmaceuticals. PAH treatment is expensive and
when Tracleer® goes generic, despite the benefits of Opsumit
®, we believe its price
will face pressures as European payors may demote its use to generic bosentan
intolerant patients if the price differential remains high (as it would do should
Opsumit®
’s price be maintained).
Ventavis® is under increasing competitive pressure
United Therapeutics launched an oral prostacyclin analogue in the US in Q2 2014,
Orenitram® (treprostinil extended-release tablets) that we estimate achieved sales of
$120 million in 2015). Orenitram® represents a competitive threat to Actelion’s
Ventavis®
as well as competing with Uptravi®. Furthermore, generics to Ventavis
®
could arrive this year.
Rx Securities 39
Company Update
7 January 2016
Actelion - HOLD
Financials (yearly)
Table 8: Earnings Outlook – Annual Forecast Profit and Loss Statement (CHF’m)
Y/E 31 December 2013A 2014A 2015E 2016E 2017E 2018E 2019E 2020E
Revenue 1,786 1,958 2,044 2,164 2,287 2,438 2,499 2,611
Tracleer® 1,532 1,480 1,214 1,000 750 525 368 257
Opsumit® 5 180 515 715 896 1,008 1,064 1,120
Uptravi® - - - 155 350 600 750 900
Ventavis® 110 112 106 85 68 61 55 49
Zavesca® 96 103 89 62 43 30 21 15
Veletri® 37 65 82 88 93 98 102 108
Valchlor® - 11 27 41 69 96 117 138
Other Products 4 5 9 17 18 20 22 24
Contract 2 2 4 1 - - - -
Cost of Goods (209) (215) (177) (173) (183) (195) (200) (209)
Gross Profit 1,576 1,742 1,866 1,991 2,104 2,243 2,299 2,402
Gross Profit Margin 88% 89% 91% 92% 92% 92% 92% 92%
Operating Expenses (1,094) (1,172) (1,217) (1,234) (1,267) (1,224) (1,248) (1,332)
R&D (405) (437) (466) (476) (503) (450) (460) (522)
R&D/Revenues 23% 22% 23% 22% 22% 18% 18% 20%
SG&A (631) (672) (695) (695) (700) (710) (724) (746)
SG&A/Revenues 35% 34% 34% 32% 31% 29% 29% 29%
Amortisation (45) (63) (56) (64) (64) (64) (64) (64)
Core Earnings 619 744 806 900 983 1,167 1,201 1,222
Operating Income 692 570 650 757 837 1,019 1,051 1,070
Operating Margin 39% 29% 32% 35% 37% 42% 42% 41%
Net Interest (53) (33) (20) (10) 8 16 24 33
Profit Before Tax 639 537 630 747 845 1,035 1,075 1,103
Taxation 23 57 (78) (90) (110) (135) (140) (143)
Tax Rate -4% -11% 12% 12% 13% 13% 13% 13%
Net Income 662 594 555 657 735 900 935 960
EPS (CHF) 5.9 5.3 5.0 5.9 6.6 8.1 8.5 8.7
Weight. Av. No. of Shares (m) 111.5 111.2 110.7 110.7 110.7 110.7 110.7 110.7
Net Cash 643 970 595 1,228 1,927 2,785 3,671 4,574
Source: Company data, RX Securities estimates
Rx Securities 40
Company Update
7 January 2016
Actelion - HOLD
Financials (quarterly)
Table 9: Earnings Outlook – Interim Forecast Profit and Loss Statement (CHF’m)
Y/E 31 December Q1 15A Q2 15A Q3 15A Q4 15E 2015E Q1 16E Q2 16E Q3 16E Q4 16E 2016E
Revenue 515 495 515 518 2,044 522 543 545 554 2,164
Tracleer® 344 301 289 280 1,214 270 260 245 225 1,000
Opsumit® 95 113 147 160 515 165 175 180 195 715
Uptravi® - - - - - 15 35 45 60 155
Ventavis® 31 26 24 25 106 25 21 19 20 85
Zavesca® 20 25 24 20 89 14 18 17 14 62
Veletri® 19 19 22 22 82 20 21 24 24 88
Valchlor® 5 7 7 8 27 9 10 11 11 41
Other Products 2 2 2 3 9 4 4 4 5 17
Contract 1 2 0 0 4 0 0 0 - 1
Cost of Goods (43) (45) (43) (47) (177) (42) (43) (44) (44) (173)
Gross Profit 472 451 472 472 1,866 480 500 502 509 1,991
Gross Profit Margin 92% 91% 92% 91% 91% 92% 92% 92% 92% 92%
Expenses (282) (297) (282) (355) (1,217) (286) (303) (287) (358) (1,234)
R&D (109) (117) (105) (135) (466) (111) (120) (107) (138) (476)
SG&A (185) (170) (170) (205) (730) (187) (179) (170) (205) (801)
Amortisation (15) (12) (13) (16) (56) (16) (16) (16) (16) (64)
Core Earnings 218 206 227 155 806 231 230 248 191 900
Operating Profit 190 154 189 116 650 194 197 214 151 757
Net interest (7) (10) (2) (1) (20) (1) (1) (1) (1) (10)
Profit Before Tax 183 144 188 115 630 193 196 213 150 747
Taxation (24) (18) (23) (13) (78) (23) (24) (26) (18) (90)
Net Income 159 128 165 103 555 170 172 188 132 657
EPS (CHF) 1.4 1.1 1.5 0.9 5.0 1.5 1.6 1.7 1.2 5.9
Weight. Av. No. of Shares (m) 110.9 114.7 110.7 110.7 110.7 110.7 110.7 110.7 110.7 110.7
Net Cash 913 430 463 595 595 797 848 1,066 1,228 1,228
Source: Company data, RX Securities estimates
Rx Securities 41
Company Update
7 January 2016
Actelion - HOLD
Forecast News Flow
Table 10: Actelion’s forecast news flow
Timing Expected News Programme
Q1 2016 CHMP decision Uptravi®
9 February 2016 Full year 2015 results
21 April 2016 Q1 results
4 May 2016 AGM
21 July 2016 Q2 results
October 2016 Q3 results
H2 2016 Results from Phase III study Cadazolid
Source: Company data, RX Securities estimates
Rx Securities 42
Company Update
7 January 2016
Actelion - HOLD
Rx Securities 43
Company Update
7 January 2016
Biotie Therapies - BUY
0
0.1
0.2
0.3
Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16
Biotie Euro Biotech Index
Share price performance (1 year)
Source: Rx Securities
Pri
ce (
€)
Biotie Therapies
Patience to pay off
Biotie Therapies’ successful raise of over €83 million was a major achievement
for the Company in 2015. The funds raised have facilitated the commencement
of a Phase III trial (TOZ-PD) of the Company’s key value driver tozadenant,
an A2A inhibitor for Parkinson’s disease. We believe the prospects for
tozadenant are good, especially considering the similarity of the Phase III trial
to the already reported positive Phase IIb study. We estimate tozadenant could
reach the market in 2020 and forecast annual peak sales of $700 million. While
tozadenant is Biotie’s key value driver, the Company also receives royalties on
Lundbeck’s sales of Selincro® for alcohol dependence. We estimate Selincro
®
achieved 2015 sales of approximately DKK 190 million (approximately €25
million), representing good growth on the DKK 58 million achieved in 2014.
Beyond these key assets, Biotie has a number of pipeline drugs that are, to a
large extent, being progressed through non-dilutive grant income including
SYN120 for Parkinson’s disease dementia (a dual antagonist of the 5-HT6 and
5-HT2A receptors with additional potential in Alzheimer’s) and BTT-1023 for
primary sclerosing cholangitis (a rare disorder of the liver). We accept that the
timeline to tozadenant Phase III data is quite long (late 2017/early 2018) and
this, combined with the substantial fundraise in 2015, we believe account for
the underperformance in Biotie’s shares last year (down 17%). However, the
Company is now in a much stronger financial position, with a proprietary asset
funded through the key inflection point of Phase III data. We believe Biotie is
significantly undervalued and patient investors will be rewarded. We maintain
our BUY rating and fair value of €0.30/share.
TOZ-PD study to report results late 2017/early 2018 – Biotie has an agreed
Special Protocol Assessment for TOZ-PD with the FDA. The 450-patient,
double blind, placebo-controlled study is now enrolling PD patients from
centres in the US, Canada and Europe experiencing levodopa related end-of-
dose wearing off, who will be randomised to receive twice daily doses of 60mg
or 120mg of tozadenant or placebo for 24 weeks. The primary endpoint will be
the reduction in the number of hours spent in the OFF state compared to
placebo between baseline and week 24. The double-blind, placebo controlled
period will be followed by a 52 week open label treatment period to collect
additional safety data.
Key financial data (€’000) - IFRS
Y/E 31 December 2014A 2015E 2016E 2017E 2018E
Revenue 14,901 3,787 5,279 9,034 12,237
Profit before Tax (35,165) (31,619) (37,985) (30,764) (28,607)
Net Income (35,165) (31,619) (37,985) (30,764) (28,607)
EPS (c) (7.7) (4.3) (3.9) (3.1) (2.9)
Cash 32,392 72,908 35,681 5,674 (22,175)
Source: RX Securities estimates
Consensus 2015E 2016E 2017E 2018E
Revenue 3,960 8,205 11,073 58,233
Net Income (32,300) (31,800) (28,300) (22,100)
Source: Bloomberg
Price €0.16
Fair value €0.30
Market capitalisation €178.3m
Enterprise value €105.4m
12m high/low €0.26 / €0.14
Avg. daily volume 800k
Bloomberg / Reuters BTH1V FH/BTH1V.HE
Exchange Helsinki
Adviser Yes
Next results (Q4) 18 March 2016
Top 5 Shareholders
Baupost 15.9%
Versant 11.0%
Vivo Capital VIII 9.0%
Fidelity 6.8%
Invesco 6.8%
Analyst
Dr Samir Devani
+44 (0)207 659 1263
Rx Securities 44
Company Update
7 January 2016
Biotie Therapies - BUY
Company Description
Biotie is a Finnish biotechnology company involved in the development of drugs for
neuro-degenerative disorders, addiction and Orphan fibrotic disorders. Headquartered
in Finland, the Company also has operations in the US (San Francisco) employing 38
people in total. Biotie’s most advanced product is nalmefene (Selincro®), an oral
opioid antagonist for the treatment of alcohol dependence that was launched in
Europe by partner Lundbeck in April 2013. The drug has been shown to reduce the
number of heavy drinking days and represents a novel approach to combating the
addiction. Biotie has historically built its drug portfolio through acquisition. It
acquired elbion GmbH in 2008 (for €21.1 million) and Synosia in 2011 (for an
enterprise value of €67.8 million). The Synosia acquisition brought the key clinical
assets, tozadenant for Parkinson’s disease (originally licensed from Roche and
subsequently partnered with UCB) and SYN120 (licensed from Roche) that is
currently in a Phase IIa trial to treat dementia in Parkinson’s disease (PD). We
consider tozadenant to be Biotie’s most valuable asset. Following the generation of
positive Phase IIb data in December 2012, UCB paid Biotie $20 million to exercise
its option on the product and then invested approximately a further $20 million on
development, but following a strategic portfolio review handed back the drug in
March 2014. Biotie has now commenced a Phase III trial in late-stage PD patients
with a view to retaining full rights and completing development of the product. Biotie
also has a first-in-class VAP-1 fully human antibody (BTT-1023) that is currently in
an investigator-sponsored Phase IIa trial for inflammatory/fibrotic disorders that
Roche paid €5 million for an option to license (but ultimately did not exercise). Biotie
completed its IPO on the NASDAQ Helsinki exchange in June 2000 and recent
fundraisings include €27 million in March 2011 (at €0.54/share) and €20 million in
September 2012 (at €0.43/share). To fund the Phase III trial of tozadenant, Biotie
raised €83 million in Q2 2015 through the issue of convertible notes (€33 million at
€0.15/share) and warrants (at €0.17/share) and a US NASDAQ initial public offering
(one ADS equivalent to 80 shares, raising approximately €50 million at an effective
price of €0.165/share).
Investment Positives
Selincro® (nalmefene) is generating royalties for Biotie
Selincro® has been approved in Europe for the treatment of alcohol addiction in
combination with psychosocial support. It has been shown to reduce the number of
days of heavy drinking in Phase III trials. Biotie partnered Selincro® with Lundbeck
in a deal where it received a €12 million upfront payment, has subsequently booked a
further €10 million in milestones (for launch of the drug in the top five European
countries) and receives tiered double-digit royalties on net sales. Lundbeck launched
Selincro® in April 2013 and the drug is now available across Europe. Favourable
reimbursement decisions have already been achieved in France (a key territory for the
drug), Spain and the UK and we believe this provides a good indication that broad
European reimbursement will be achieved. Lundbeck is guiding to peak sales of
€260-335 million, although we have taken a more conservative view and estimate
peak sales in Europe of €170 million. Even under this conservative forecast, we
estimate the royalty stream alone to be worth €0.05/share.
Rx Securities 45
Company Update
7 January 2016
Biotie Therapies - BUY
Experienced management team and Board
Biotie has an experienced management team and Board. The CEO, Dr Timo
Veromaa, has been employed at the Company since 1998 (originally VP, R&D and
appointed CEO in May 2005). Previously he was Medical Director of Schering Oy
(1996-1998) and Research and Program Manager of Collagen Corporation (1994-
1996). David Cook joined as CFO in February 2013 having previously been CFO,
International, of Jazz Pharmaceuticals, Inc., a NASDAQ listed company and before
this CFO of EUSA Pharma Inc., which was acquired by Jazz Pharmaceuticals in mid-
2012. Biotie is Chaired by William Burns who was CEO of the pharmaceutical
division of Roche from 2005-2009, and a non-Executive member of the Roche Board
from 2010-2014.
Tozadenant has generated positive Phase IIb data in Parkinson’s disease
Tozadenant is an A2A inhibitor in development for the treatment of PD. In December
2012 the drug generated positive Phase IIb results in a large study where the primary
endpoint was met with statistical significance (full data published in Lancet
Neurology in July 2014). Following these data, UCB paid $20 million and exercised
its option on the drug, however following a strategic portfolio review handed its
rights back in March 2014. Biotie has negotiated a SPA with the FDA whereby only
one further efficacy study would be required for registration (in addition a further
safety study will also be needed to meet regulatory drug exposure requirements). The
only A2A inhibitor ahead of tozadenant in development is istradefylline from Kyowa
Hakko Kirin. This drug has already been launched in Japan (branded as Nouriast® and
has had an encouraging launch) and is currently in a Phase III study in the US under a
Special Protocol Assessment slated to complete in April 2016.
A well balanced development pipeline including royalty income
Biotie’s pipeline is generally well balanced - Selincro® is being marketed for the
treatment of alcohol dependency and generating royalties, tozadenant is in a Phase III
trial in Parkinson’s disease, SYN120 is in a Phase IIa trial in Parkinson’s disease
dementia and BTT-1023 is in an investigator-sponsored Phase II trial in primary
sclerosing cholangitis. While the pipeline is diversified and balanced across the
development stages, there nonetheless remains significant dependency on tozadenant
due to its commercial potential and late-stage of development.
Biotie trades significantly below our fair value of €0.30/share
Our fair value for Biotie is €0.30/share, which we view as conservative as it ascribes
no value to SYN120 or BTT-1023. For example, we note the current market
capitalisation of Axovant is $1.6 billion, whose primary asset is in a similar class as
SYN120 and being developed for Alzheimer’s disease. While there is significant
dependency on tozadenant, we are confident in a positive outcome as the structure of
the Phase III trial is very similar to that of the positive Phase IIb trial completed.
Biotie is now financed through the Phase III data for tozadenant
The ongoing Phase III trial of tozadenant is fully funded. Furthermore, Biotie could
receive a further €37.5 million through the exercise of outstanding warrants. In our
view, the recent successful financing has significantly de-risked Biotie’s investment
case. From an NPV perspective, this asset would be worth substantially more (over
400%) should the Phase III data be positive compared to its valuation after Phase II.
Rx Securities 46
Company Update
7 January 2016
Biotie Therapies - BUY
Investment Risks
The alcohol addiction market is challenging and needs to be developed The WHO estimates that 58 million Europeans consume alcohol at levels considered
harmful or hazardous. Despite this large potential market, uptake of the first opioid
therapy, Vivitrol® from Alkermes (labelled for the treatment of alcohol dependence in
patients who are able to abstain from alcohol) has been slower than originally
anticipated following its approval in 2006. However, the drug achieved sales of $94.2
million in 2014 and Alkermes is guiding to sales of $125-135 million for 2015. The
requirement for abstinence prior to commencing therapy and monthly injections
thereafter are significant barriers to treatment, in our opinion. Furthermore, 75% of
patients relapse during the first year of treatment. Biotie’s Selincro® is differentiated
from existing products as it is not aimed at inducing or maintaining abstinence, but
rather in reducing alcohol intake. While we continue to believe the alcohol
dependence market is undeveloped as a result of inadequate therapies, we believe
there will be a requirement to change the perception of the indication from that
requiring just psychosocial treatment to that of being drug treatable. Such a change in
perception requires a substantial marketing effort by Lundbeck and is likely to take
time. As a result, we anticipate a modest ramp in Selincro® sales and have also
adopted a more conservative view on our peak sales forecast (€170 million vs.
Lundbeck’s public guidance of €260-335 million).
Biotie still requires additional capital to complete tozadenant development While the Phase III trial for tozadenant is fully funded, in order to meet the required
number of drug exposures, a further safety trial will be required. We estimate this
study will cost €25 million and that Biotie, on our current forecasts, would require a
further €10 million to finance it. Biotie’s current strategy is to start this additional
study following successful completion of the Phase III trial. However, should
additional capital come into the Company (i.e. from the exercise of warrants, new
licensing deals etc.), we believe management will commence this study earlier in
order to expedite tozadenant’s development.
Development of A2A inhibitors has been challenging in Parkinson’s disease We are optimistic about the outlook for tozadenant following our review of the Phase
IIb data, a view which we believe is validated by UCB’s original exercise of its
option on the drug following its own review of the data. However, we note that Merck
& Co.’s preladenant, also an A2A inhibitor, generated positive Phase II results which
did not translate in subsequent large, multi-centre, Phase III studies. In addition,
Kyowa Hakko Kirin has had multiple challenges developing istradefylline, approved
in Japan, but currently in a new Phase III study in the US having initially been refused
approval by the FDA.
Tozadenant major inflection point not before late 2017/early 2018 Tozadenant is the key value driver for Biotie. The next major inflection point for this
drug, in our view, will be results from the Phase III trial. The Phase III trial is being
performed under an agreed Special Protocol Assessment with the FDA and we
anticipate results in late 2017/early 2018. Until this point in time, value-driving news
flow on tozadenant is likely to be limited.
Rx Securities 47
Company Update
7 January 2016
Biotie Therapies - BUY
Financials (yearly)
Table 11: Earnings Outlook – Annual Forecast Profit and Loss Statement (€’000)
Y/E 31 December 2014A 2015E 2016E 2017E 2018E 2019E 2020E 2021E
Revenue 14,901 3,787 5,279 9,034 12,237 15,893 34,870 63,060
Selincro® royalties 900 3,074 5,279 9,034 12,237 15,893 20,185 23,702
Selincro® milestones 6,000 500 - - - - - -
Tozadenant 8,001 213 - - - - 14,685 39,358
Cost of Goods - - - - - - - -
Gross Profit 14,901 3,787 5,279 9,034 12,237 15,893 34,870 63,060
Expenses (23,386) (34,670) (43,000) (39,450) (39,923) (41,319) (42,767) (44,268)
R&D (17,192) (27,211) (34,000) (30,000) (30,000) (30,900) (31,827) (32,782)
G&A (7,326) (7,694) (9,000) (9,450) (9,923) (10,419) (10,940) (11,487)
Other Operating Inc. 1,132 235 - - - - - -
Operating Profit (36,090) (30,883) (37,721) (30,416) (27,686) (25,425) (7,897) 18,791
Net Interest 925 (736) (265) (349) (921) (1,456) (1,803) (1,715)
Profit Before Tax (35,165) (31,619) (37,985) (30,764) (28,607) (26,881) (9,700) 17,076
Taxation - - - - - - - -
Net Income (35,165) (31,619) (37,985) (30,764) (28,607) (26,881) (9,700) 17,076
EPS (c) (7.7) (4.3) (3.9) (3.1) (2.9) (2.7) (1.0) 1.7
Ave no. of shares (m) 456.0 739.7 978.2 978.2 978.2 978.2 978.2 978.2
Cash 32,392 72,908 35,681 5,674 (22,175) (48,298) (57,239) (39,405)
Source: Company data, RX Securities estimates
Key Model Assumptions
Biotie books royalties on sales of Selincro® made in the quarter. Our model assumes royalties (double-digit, tiered
with an average of 15%) on sales of Selincro® in Europe only – Lundbeck has partnered with Otsuka in Japan (a
660-patient Phase III study in Japan commenced in Q1 2015) and should approval be achieved this would be upside
to our model;
There are 220.4 million warrants outstanding convertible at €0.17/share and exercisable any time between October
2015 and October 2020. As it is not possible to predict the future timing and likelihood of exercise, we have not
factored any warrant exercises into our financial forecasts, but have incorporated the future dilution into our
valuation analysis;
Funding from the Michael J Fox Foundation for SYN120 is effectively netted from R&D; and
We assume tozadenant is launched in 2020. While it is possible that Biotie markets tozadenant directly, for
modelling simplicity we have assumed a licensing transaction following the Phase III results and assumed a 35%
royalty.
Rx Securities 48
Company Update
7 January 2016
Biotie Therapies - BUY
Financials (quarterly)
Table 12: Earnings Outlook – Interim Forecast Profit and Loss Statement (€’000)
Y/E 31 December Q1 15A Q2 15A Q3 15A Q4 15E 2015E Q1 16E Q2 16E Q3 16E Q4 16E 2016E
Revenue 871 1,330 786 800 3,787 1,056 1,320 1,320 1,584 5,279
Cost of Goods - - - - - - - - - -
Gross Profit 871 1,330 786 800 3,787 1,056 1,320 1,320 1,584 5,279
Expenses (6,496) (9,302) (9,272) (9,600) (34,670) (10,750) (10,750) (10,750) (10,750) (43,000)
R&D (4,766) (7,593) (7,252) (7,600) (27,211) (8,500) (8,500) (8,500) (8,500) (34,000)
G&A (1,730) (1,775) (2,189) (2,000) (7,694) (2,250) (2,250) (2,250) (2,250) (9,000)
Other operating inc. - 66 169 - 235 - - - - -
Operating Profit (5,625) (7,972) (8,486) (8,800) (30,883) (9,694) (9,430) (9,430) (9,166) (37,721)
Net interest (269) (1,032) 566 (1) (736) (31) (55) (78) (101) (265)
Profit Before Tax (5,894) (9,004) (7,920) (8,801) (31,619) (9,726) (9,485) (9,508) (9,267) (37,985)
Taxation - - - - - - - - - -
Net Income (5,894) (9,004) (7,920) (8,801) (31,619) (9,726) (9,485) (9,508) (9,267) (37,985)
EPS (c) (1.3) (1.6) (0.8) (0.9) (4.3) (1.0) (1.0) (1.0) (0.9) (3.9)
Ave no. of shares (m) 452.3 550.0 978.2 978.2 739.7 978.2 978.2 978.2 978.2 978.2
Cash 27,828 94,155 84,020 72,908 72,908 63,372 54,077 44,758 35,681 35,681
Source: Company data, RX Securities estimates
Rx Securities 49
Company Update
7 January 2016
Biotie Therapies - BUY
Forecast News Flow
Table 13: Biotie’s forecast news flow
Timing Expected News Programme
10 February 2016 Lundbeck’s full year 2015 results
18 March 2016 Full year 2015 results
11 May 2016 Lundbeck Q1 results
12 May 2016 Q1 results
Mid 2016 Results from Phase III trial of competing A2A antagonist Istradefylline
11 August 2016 Q2 results
24 August 2016 Lundbeck Q2 results
H2 2016 Results from the Phase II trial in Parkinson’s disease dementia SYN120
2 November 2016 Lundbeck Q3 results
10 November 2016 Q3 results
Late 2016 Futility analysis from the Phase II trial in PSC BTT-1023
Source: Company data, RX Securities estimates
Rx Securities 50
Company Update
7 January 2016
Biotie Therapies - BUY
Rx Securities 51
Company Update
7 January 2016
Cynapsus Therapeutics Inc. - BUY
Cynapsus Therapeutics Inc.
OFF to the races
We believe 2016 will be an inflection year for Cynapsus Therapeutics. The
successful raise of over $70 million in 2015 has sufficiently financed the
Company though key Phase III data on APL-130277, its patented, sublingual
filmstrip formulation of apomorphine. Phase III trials are ongoing with results
due this year that we believe will be positive and lead to a re-rating of
Cynapsus’ shares. Apomorphine has been used for many years as a rescue
treatment in patients with Parkinson’s disease (PD) suffering OFF episodes
(periods of freezing, rigidity and loss of mobility) that can occur multiple times
per day. However, the current formulation of apomorphine has a number of
drawbacks including: (1) the need to inject the drug; (2) the requirement for a
monitored titration process in a doctor’s office at the start of therapy; and (3)
side effects such as nausea and vomiting (albeit in the majority of cases these
reside after the first six weeks). We believe APL-130277 has the potential to
overcome many of these barriers and significantly expand use of the drug and
we estimate global sales of over $600 million in 2026. While the Company is
heavily dependent on APL-130277 (its only asset), we believe development risks
are low. We maintain our BUY rating and fair value of $24/share.
Expedited development, two Phase III trials ongoing – CTH-300 is a
double-blind, randomised, placebo-controlled study in 126 PD patients. The
primary endpoint (mean change in MDS-UPDRS Part III score at 30 minutes
after dosing) will be measured at 12 weeks in the clinic and results are
anticipated in Q2 2016. CTH-301 is a 6 month, open-label, single arm safety
study of APL-130277 anticipated to enrol up to 226 patients (of which 126 may
roll over from CTH-300) with the primary endpoint of safety and tolerability.
Results from CTH-301 are anticipated in Q4 2016. Cynapsus plans to file APL-
130277 for approval in the US using the 505(b)(2) regulatory pathway.
We forecast over $600 million in sales of APL-130277 in 2026 – our
investment thesis is based on expanded use as a result of an easier-to-use, better
tolerated and less burdensome product. Our forecast is based on launch in the
US in 2018, Europe in 2019 and Japan in 2023. We expect a steady ramp in
sales as, in our view, Cynapsus will need to engage in a significant re-education
exercise in the use of apomorphine.
Price $14.93
Fair value $24
Market capitalisation $181.6m
Enterprise value $112.0m
12m high/low $19.52 / $13.18
Avg. daily volume 34k
Bloomberg / Reuters CVNA US / CYNA.O
Exchange NASDAQ
Adviser Yes
Next results (Q4) 9 March 2016
Top 5 Shareholders
Dexxon Holdings 12.2%
Franklin Resources 11.6%
Orbimed Advisors 9.5%
Aisling Capital 7.6%
Broadfin Capital 7.3%
Analyst
Dr Samir Devani
+44 (0)207 659 1263
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Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16
Cynapsus Therapeutics NASDAQ Biotech Index
Share price performance (1 year)
Source: Rx Securities
Pri
ce (
$)
Key financial data (CDN$’m)
Y/E 31 December 2014A 2015E 2016E 2017E 2018E
Revenue - - - - 31.3
Profit before Tax (10.8) (30.9) (57.9) (58.9) (46.0)
Net Income (10.8) (30.9) (57.9) (58.9) (46.0)
EPS (c) (2.6) (3.4) (4.7) (4.8) (3.8)
Cash 17.4 98.0 40.0 (18.9) (63.2)
Source: RX Securities estimates
Consensus 2015E 2016E 2017E 2018E
Revenue NA NA NA NA
Net Income NA NA NA NA
Source: Bloomberg
Rx Securities 52
Company Update
7 January 2016
Cynapsus Therapeutics Inc. - BUY
Company Description
Cynapsus Therapeutics (Cynapsus) is a Canadian drug development company
headquartered in Toronto focussed on bringing to market a novel formulation of
apomorphine (APL-130277) as a fast-acting, easy-to-use, rescue treatment for
managing OFF episodes associated with Parkinson’s disease (PD). Apomorphine is
currently the only approved drug (in the US, Europe, Japan and other countries) for
the on-demand turning ON of OFF episodes in PD. Founded in 2004, Cynapsus was
originally a developer of cannabinoid-based drugs. However, in November 2009, with
the hiring of Anthony Giovinazzo as President and Chief Executive Officer, the
Company changed its strategy to solely focus on APL-130277 and today has 20
employees. APL-130277 is a patented sublingual thin filmstrip formulation of
apomorphine that we believe has the potential to significantly expand the use of
apomorphine as a rescue treatment in PD patients suffering an OFF episode.
Cynapsus has successfully completed a Phase II clinical trial of APL-130277 and
following an End-of-Phase II meeting with the FDA, in 2015 initiated its Phase III
clinical programme. In order to expedite development, the Company is following the
abbreviated Section 505(b)(2) regulatory pathway in the US and intends to submit a
New Drug Application (NDA) in 2016. Cynapsus has received two funding awards
from the Michael J Fox Foundation to support the development of APL-130277. The
Company’s strategy is to directly commercialise APL-130277 in the US through a
focussed specialty sales team. In June 2015, Cynapsus raised $72.5 million at
$14/share as part of a US re-IPO and listing on NASDAQ (ticker: CYNA) and based
on our forecasts is funded into 2017. Cynapsus’ shares are also listed on the Toronto
Stock Exchange (TSX: CTH).
Investment Positives
APL-130277 is based on an already approved active pharmaceutical ingredient…
APL-130277 is based on the active pharmaceutical ingredient (API) apomorphine.
This API has already been approved for use in PD (and indeed has historically been
approved for use in additional indications such as erectile dysfunction). As a result,
there are substantial data on the safety and tolerability profile from a regulatory
perspective, which we believe significantly reduces the development risk for APL-
130277.
…and is being developed through an expedited regulatory path in the US
Cynapsus has held an End-of-Phase II meeting with the FDA to determine the
pathway to regulatory approval for APL-130277 in the US. The FDA confirmed that
Cynapsus could use the Section 505(b)(2) regulatory pathway that permits the
Company to reference prior data on apomorphine and reduce the clinical data
required for approval. As a result, Cynapsus currently only requires additional data
from approximately 226 PD patients from ongoing Phase III studies to form the
majority of its clinical package in its regulatory filing with the FDA.
Acorda acquired Civitas for a Phase III asset to treat OFF episodes of PD
In September 2014, Acorda Therapeutics announced its acquisition of Civitas
Therapeutics for $525 million in cash. The primary driver for this acquisition was
CVT-301, a Phase III rescue treatment for OFF episodes of PD and potential
competitor to APL-130277. CVT-301 is a dry powder formulation of levodopa
delivered via self-inhalation. Acorda has stated that it estimates US sales of CVT-301
to exceed $500 million. We believe this acquisition validates the commercial
opportunity for Cynapsus’ APL-130277, a drug that we believe addresses a greater
Rx Securities 53
Company Update
7 January 2016
Cynapsus Therapeutics Inc. - BUY
range of OFF episodes, may have a larger effect on UPDRS Part III and potentially
could act faster than CVT-301. We believe with positive Phase III data, Cynapsus
will be considered a strong acquisition candidate. We also believe the Acorda/Civitas
deal validates our view that Cynapsus is undervalued based on our rNPV analysis that
suggests a fair value of $24/share.
Cynapsus is financed through key Phase III data inflection points
Cynapsus had a net cash position of CDN$109.5 million as at 30 September 2015,
which based on our forecasts is sufficient to fund the company into 2017, critically
through the key inflection points of Phase III data on APL-130277. We would
anticipate a significant increase in Cynapsus’ shares following positive Phase III data.
Subsequent to this data the Company would be well placed, in our view, to trigger the
forced exercise of up to approximately CDN$38 million of warrant proceeds, as well
as to raise additional capital to finance the building of marketing infrastructure.
We believe APL-130277 could have a strong product profile
In our opinion, the current use of apomorphine has been significantly restricted as a
result of the requirement to inject the drug. We believe APL-130277, as an easy-to-
use, fast acting, thin filmstrip has obvious advantages to the existing marketed
injectable product. Furthermore, should APL-130277’s final product label permit
titration from home (being explored in the ongoing Phase III trial), we believe this
would significantly reduce the prescribing burden and address a second barrier to
uptake. Due to the pharmacokinetic (PK) profile of the sublingual filmstrip, it is also
possible that the rate of nausea and vomiting (transient side effects associated with
using apomorphine) ultimately ends up being lower than observed with the injectable
product. However, we still anticipate the requirement for concomitant anti-emetic
therapy at the initiation of treatment.
We forecast over $600 million in sales of APL-130277 in 2026
Currently, global sales of apomorphine injection as a rescue therapy in PD are
annualising at approximately $65 million. Our investment thesis is based on expanded
use as a result of an easier-to-use, better tolerated and less burdensome product. We
forecast global sales of APL-130277 of over $600 million in 2026 based on launch in
the US in 2018, Europe in 2019 and Japan in 2023. Our forecasts assume that dose
titration is still required to take place in the physician’s office (as is currently required
with injectable apomorphine). However, we do assume a significant marketing effort
will be required to overcome some current misconceptions on the use of apomorphine
(that may limit the initial sales ramp of APL-130277).
Experienced management team
Cynapsus’ CEO, Anthony Giovinazzo, has spent over 20 years in the CNS space with
experience in clinical development, regulatory affairs, IP and business development.
He is also one of the original inventors of APL-130277. Andrew Williams, a co-
founder of the Company and currently COO/CFO, has over 10 years of experience in
CNS and over 17 years in finance and operations. In addition, Dr Agro, Cynapsus’
CMO, has over 18 years of experience in PD clinical development and Dr Bilbault
has experience launching more than 50 products including over 10 in the US as well
as more than 10 years of filmstrip expertise.
Rx Securities 54
Company Update
7 January 2016
Cynapsus Therapeutics Inc. - BUY
Investment Risks
APL-130277 is Cynapsus’ only clinical asset APL-130277 is Cynapsus’ only clinical drug candidate. Any adverse developments in
relation to this product or its commercial outlook are likely to significantly impact
Cynapsus’ share price. Our valuation is based on a significant expansion of
apomorphine’s use – failure of APL-130277 to achieve sufficient market acceptance
is likely to be received negatively and potentially delay the time to profitability.
An optimum prescribing label may not be achieved A new drug’s prescribing label is critical in determining its competitive position in
the market. In particular, a competitive rate of onset of action, application for all types
of OFF episodes, safety and tolerability, and the guidance on the initial titration phase
are likely to be critical for competitive promotion of the product. If APL-130277 does
not achieve a competitive product label, its commercial opportunity may be
significantly lower than we are currently forecasting.
Companies have tried and failed to develop alternative forms of apomorphine In our view, apomorphine represents an ideal API for drug reformulation – injectable
delivery has obvious limitations for PD patients. However, attempts by other
companies to develop non-injectable alternatives have failed. A key challenge has
been achieving a rapid onset of action, critical for a rescue therapy. Oral
administration and transdermal delivery are not feasible as they are too slow. Vectura
discontinued an inhaled apomorphine following a Phase II study. Intranasal
formulations have been found to cause irritation of the nasal mucosa. While we are
highly encouraged by the data generated from APL-130277 (particularly the speed of
onset and tolerability), it is from a relatively limited data set. Phase III data are
required to confirm the encouraging profile observed to date.
There is limited long-term data on using APL-130277 There is limited data on chronic use of APL-130277. Completed studies involved
dosing over three days, although there are now several patients from ongoing Phase
III trials who have 2-3 months exposure. While there have been no cases of irritation
with use of APL-130277, we note that chronic use with other sublingual formulations
has resulted in the development of stomatitis (inflammation of the mouth and lips).
We believe Cynapsus has engineered its strip with a neutralising buffer to reduce the
inherent irritation that can be caused by apomorphine.
Financed through key inflection points, but further funding will be required Cynapsus is funded through the critical inflection point of Phase III data for APL-
130277. However, additional capital would be required to build sales and marketing
infrastructure in the US. We believe such a capital raise would either occur (a) ahead
of the Phase III data (but we would assume only on the back of strong investor
demand in this case); or (b) post-Phase III data, potentially forcing the exercise of
approximately CDN$38 million in warrants, and making the equity case compelling.
A re-education on using apomorphine will be required to increase its use Our discussions with doctors suggest that most patients suffering an OFF episode
typically attempt to take more levodopa when they start experiencing signals of an
impending OFF and that the use of apomorphine has generally been restricted to
treating very prolonged OFF periods. Cynapsus will need to re-educate the market on
the benefits of apomorphine to encourage more frequent use.
Rx Securities 55
Company Update
7 January 2016
Cynapsus Therapeutics Inc. - BUY
Financials (yearly)
Table 14: Earnings Outlook – Annual Forecast Profit and Loss Statement (CDN$’m)
Y/E 31 December 2014A 2015E 2016E 2017E 2018E 2019E 2020E 2021E
Revenue - - - - 31.3 76.3 132.8 197.9
APL-130277 - - - - 31.3 76.3 132.8 197.9
Cost of Goods - - - - (6.3) (11.5) (13.3) (19.8)
Gross Profit - - - - 25.1 64.9 119.5 178.1
Expenses (12.2) (40.2) (58.0) (58.9) (69.4) (81.8) (91.9) (103.5)
R&D (6.2) (25.6) (40.0) (25.0) (10.0) (11.0) (15.0) (20.0)
G&A (5.0) (7.6) (10.0) (10.5) (11.0) (11.6) (12.2) (12.8)
Other (1.1) (7.0) (8.0) (8.4) (8.8) (9.3) (9.7) (10.2)
S&M - - - (15.0) (39.6) (50.0) (55.0) (60.5)
Other operating inc. 0.8 0.2 - - - - - -
Operating Profit (11.5) (40.0) (58.0) (58.9) (44.4) (16.9) 27.6 74.6
Net Interest (0.0) 9.1 0.1 0.0 (1.6) (2.9) (2.7) (0.6)
Profit Before Tax (10.8) (30.9) (57.9) (58.9) (46.0) (19.8) 24.9 74.0
Taxation - - - - - - - -
Net Income (10.8) (30.9) (57.9) (58.9) (46.0) (19.8) 24.9 74.0
EPS (c) (2.6) (3.4) (4.7) (4.8) (3.8) (1.6) 2.0 6.1
Ave No. of Shares (m) 4.2 9.2 12.2 12.2 12.2 12.2 12.2 12.2
Cash 17.4 98.0 40.0 (18.9) (63.2) (80.2) (52.6) 22.0
Source: Company data, RX Securities estimates
Key Model Assumptions
As at 30 September 2015 there were 3.3 million warrants outstanding with a weighted average exercise price of
CDN$11.94/share (approximately $8.94/share). In addition, there are 1.0 million options outstanding with a
weighted average exercise price of CDN$18.41/share (approximately $13.78);
Our financial forecasts are conservatively only based on potential US sales of APL-130277. Recently, the
Company has gained clarity on regulatory requirements for European approval and we anticipate Cynapsus signing
a licensing/distribution deal for this territory. There are potential revenues from Japan, but these would fall outside
our forecast period due to Apokyn®
’s Orphan drug status in Japan effective until 2022;
We assume a decay in R&D spend following completion of ongoing clinical trials of APL-130277, but assume that
following launch of the drug, Cynapsus invests in future products for longer-term growth; and
Cynapsus holds essentially all of its cash in US$ (as most of its costs are in US$) and therefore reports significant
foreign exchange variations on a quarter-to-quarter basis.
Rx Securities 56
Company Update
7 January 2016
Cynapsus Therapeutics Inc. - BUY
Financials (quarterly)
Table 15: Earnings Outlook – Interim Forecast Profit and Loss Statement (CDN$’m)
Y/E 31 December Q1 15A Q2 15A Q3 15A Q4 15E 2015E Q1 16E Q2 16E Q3 16E Q4 16E 2016E
Revenue - - - - - - - - - -
Cost of Goods - - - - - - - - - -
Gross Profit - - - - - - - - - -
Expenses (6.4) (11.6) (10.2) (12.0) (40.2) (14.5) (14.5) (14.5) (14.5) (58.0)
R&D (2.9) (7.9) (6.8) (8.0) (25.6) (10.0) (10.0) (10.0) (10.0) (40.0)
G&A (1.8) (2.0) (1.8) (2.0) (7.6) (2.5) (2.5) (2.5) (2.5) (10.0)
Other (1.8) (1.6) (1.5) (2.0) (7.0) (2.0) (2.0) (2.0) (2.0) (8.0)
Other operating inc. 0.2 0.0 0.0 - 0.2 - - - - -
Operating Profit (6.3) (11.5) (10.2) (12.0) (40.0) (14.5) (14.5) (14.5) (14.5) (58.0)
Net interest 1.2 0.6 7.3 0.0 9.1 0.0 0.0 0.0 0.0 0.1
Profit Before Tax (5.1) (11.0) (2.9) (12.0) (30.9) (14.5) (14.5) (14.5) (14.5) (57.9)
Taxation - - - - - - - - - -
Net Income (5.1) (11.0) (2.9) (12.0) (30.9) (14.5) (14.5) (14.5) (14.5) (57.9)
EPS (c) (1.0) (1.5) (0.2) (1.0) (3.4) (1.2) (1.2) (1.2) (1.2) (4.7)
No. of Shares (m) 5.2 7.3 12.1 12.2 9.2 12.2 12.2 12.2 12.2 12.2
Cash 36.7 111.5 109.5 98.0 98.0 83.5 69.0 54.5 40.0 40.0
Source: Company data, RX Securities estimates; net interest includes impact from foreign currency translations and is likely to be highly variable quarter-to-quarter
Rx Securities 57
Company Update
7 January 2016
Cynapsus Therapeutics Inc. - BUY
Forecast News Flow
Table 16: Cynapsus Therapeutics’ forecast news flow
Timing Expected News Programme
9 March 2016 Full year 2015 results
Q2 2016 Top-line data from Phase III efficacy study (CTH-300) APL-130277
11 May 2016 Q1 2016 results
H2 2016 Commence 150 patient European study APL-130277
10 August 2016 Q2 2016 results
Q4 2016 Top-line data from Phase III safety study (CTH-301) APL-130277
Q4 2016 File NDA with FDA APL-130277
9 November 2016 Q3 results
H1 2017 Results from 150 patient European study APL-130277
H2 2017 File MAA APL-130277
Q4 2017 FDA decision APL-130277
Q1 2018 US market launch APL-130277
Source: Company data, RX Securities estimates
Rx Securities 58
Company Update
7 January 2016
Cynapsus Therapeutics Inc. - BUY
Rx Securities 59
Company Update
7 January 2016
Faron Pharmaceuticals - BUY
Faron Pharmaceuticals
Positive progress in Japan
Today’s positive results from a Japanese Phase II trial of Traumakine® in
acute respiratory distress syndrome (ARDS) and confirmation that partner
Maruishi is continuing development add weight to our confidence in the
outlook for Faron’s key value driver. While this was a small dose ranging
study, we are encouraged by the 28 day mortality rate reported (22.2% across
the trial and 16.6% in the dose groups considered therapeutically relevant).
There is no approved drug treatment for ARDS and Traumakine® could be the
first to reach the market. Faron has recently commenced enrolment into the
pan-European Phase III INTEREST trial and we anticipate results in 2017. A
€6 million European Commission grant towards Phase III development and
partnering deals with Maruishi and CMS provide additional validation.
Critically, Faron retains rights for the US and Europe and we forecast
Traumakine® to achieve sales of €720 million in 2024. While Traumakine
® is
the Company’s key value driver, we are also enthusiastic about Clevegen, a
novel antibody to the drug target Clever-1 (overexpressed on tumour
associated macrophages) in preclinical development as a potential novel
immuno-oncology agent. There has been some exceptional, high value,
partnering deals for early-stage drugs in this field. Following its recent IPO,
Faron is financed through the ongoing Phase III trial of Traumakine®. Our
valuation is conservatively based on an NPV analysis of Traumakine® alone,
with Clevegen treated as a free option. We maintain our BUY rating and fair
value of 375p/share.
Partner Maruishi reports positive Japanese Phase II results from
Traumakine® – this was an 18 patient, open-label study that tested three doses
(2.5µg, 5.0µg and 10µg) for six days. Traumakine® was found to be safe and
well tolerated. The 28 day all-cause mortality was 22.2% across all patients and
16.6% in the two highest dosing cohorts. While this study was small, we
believe this mortality rate, based on the average APACHE II score (31.6),
compares very favourably to historical controls.
Traumakine® Phase III INTEREST trial slated to report results in 2017 –
Faron has already enrolled the first patient into the study, which is a
randomised, double-blind, placebo-controlled trial involving 300 moderate-to-
severe ARDS patients recruited from 55 centres in Europe. The primary
endpoint will be a composite of mortality and ventilator-free days.
Price 245p
Fair value 375p
Market capitalisation £56.6m
Enterprise value £48.2m
12m high/low 285.0p / 245.0p
Avg. daily volume 2,461
Bloomberg / Reuters FARN LN / FARN.L
Listing London (AIM)
Adviser Yes
Broker Whitman Howard
Next results (FY) March 2016
Top 5 Shareholders
A&B Ltd 14.8%
Mark Salmi 14.7%
Tom Erik Lind 11.0%
Aviva 10.0%
Markku Jalkanen 7.8%
Analyst
Dr Samir Devani
+44 (0)207 659 1263
220
230
240
250
260
270
280
290
Nov-15 Nov-15 Nov-15 Dec-15 Dec-15 Dec-15 Dec-15 Jan-16
Faron Pharmaceuticals Euro Biotech Index
Share price performance
Source: Rx Securities
Pri
ce (
p)
Key financial data (€’m) - IFRS
YE 31 December 2014A 2015E 2016E 2017E 2018E
Revenue 0.9 0.5 0.7 - 5.5
Profit before Tax (1.4) (7.3) (9.4) (7.7) (6.5)
Net Income (1.4) (7.3) (9.4) (7.7) (6.5)
EPS (c) (9.4) (41.6) (40.7) (33.2) (28.3)
Cash 0.2 11.4 3.0 (4.5) (10.8) Source: RX Securities estimates
Consensus 2015E 2016E 2017E 2018E
Revenue NA NA NA NA
Net Income NA NA NA NA
Source: Bloomberg
Rx Securities 60
Company Update
7 January 2016
Faron Pharmaceuticals - BUY
Company Description
Faron Pharmaceuticals (Faron) is a Finnish drug discovery and development company
based in Turku focussing on acute organ traumas, cancer immunotherapy and
metabolic syndrome vasculopathies. The Company was founded in 2007 and operates
an effective lean drug development model employing eight people, sourcing its
innovations from academia with much of the work up to the proof-of-concept stage
outsourced to the innovator’s labs. The Company’s most advanced drug in
development is Traumakine® for acute respiratory distress syndrome (ARDS),
currently enrolling patients into the pan-European Phase III INTEREST trial. ARDS
is a severe form of acute lung injury that leads to low oxygen levels in the blood. It is
a life threatening condition with a mortality rate of 30-40%. People who develop
ARDS often are very ill with another disease or have major injuries. Traumakine®
already has Orphan Drug Designation (ODD) in Europe and an application has been
filed in the US and in due course will be filed in Japan. The Company’s development
of Traumakine®
is supported by a €6 million grant from the European Commission.
In 2011, Faron partnered Japanese rights to Traumakine® with Maruishi who is
responsible for completing development and marketing of the drug. Maruishi has
recently reported positive Phase II results from a study completed in Japan. Faron is
entitled to milestones and royalties on sales. In May 2015, Faron entered into a
license and asset transfer agreement with A&B (HK) for development and
commercialisation of Traumakine® in the greater China area (with the intention that
commercialisation of Traumakine® will be conducted by CMS) that involved a €5
million equity investment in Faron by A&B (HK). Critically, Faron retains all ex-
Japanese/greater China rights. Should the ongoing Phase III INTEREST trial
demonstrate a mortality benefit, we anticipate a European launch in 2018.
Strategically, the Company could establish its own sales and marketing infrastructure,
although our working assumption is a licensing deal is completed following positive
Phase III data. While Traumakine® is the key value driver, Faron is developing two
other drugs: Clevegen (a human antibody against Clever-1) to regulate tumour
immunity (in preclinical development) that has received €1.5 million funding support
from Tekes and Farbetic, an AOC3 inhibitor to prevent vasculopathies in metabolic
syndrome patients (in lead optimisation). Faron completed its IPO on London’s AIM
market in November 2015 raising £10 million (at 260p/share).
Investment Positives
Traumakine® has generated highly encouraging Phase I/II clinical results
Faron has conducted a Phase I/II trial of Traumakine®. The study recruited patients
with ARDS from eight ICUs in the UK. The trial enrolled 37 patients and there was a
control group that consisted of 59 patients who were recruited, but did not take part
(i.e. did not receive treatment) in the study. At day 28, 8% of the 37 patients in the
treatment cohort and 32% of the 59 patients in the control cohort had died – thus,
treatment with Traumakine® was associated with an 81% reduction in odds of 28-day
mortality. These results have been peer-reviewed and published in The Lancet
Respiratory Medicine (Bellingan et al., 2014, 2:98-107).
Rx Securities 61
Company Update
7 January 2016
Faron Pharmaceuticals - BUY
We believe Traumakine
® has significant commercial potential
We have modelled potential revenues from Traumakine® and estimate sales to be
€720 million in 2024 in ARDS alone based on an estimated launch in Europe in 2018
and in the US and Japan in 2019. We have modelled a wholesale price of €4,500 per
treatment course, a conservative assumption we believe in light of current pricing of
commercialised interferon beta products and considering the potential healthcare
benefits provided by the drug in this indication. The drug also has potential in other
indications including rupture of abdominal aortic aneurysm and organ injury (single
and multiple organ failures), although we conservatively exclude these from our sales
and valuation analysis.
Traumakine® has Orphan Drug designation in Europe
In December 2007, the European Commission granted ODD for Traumakine®
’s use
as a treatment for acute lung injury. Faron has also filed for a similar designation in
the US and its partner, Maruishi, is responsible for applying for the designation in
Japan. ODD in Europe provides Faron with 10 years of marketing exclusivity for the
use of interferon beta for the approved indication. ODD in conjunction with use
patents and data exclusivity provides the main barriers to entry against competitors.
Faron has additional assets beyond Traumakine®
While Traumakine® is Faron’s lead drug and key value driver, the Company utilises
its broad academic network in Finland to source additional pipeline assets. In
particular, we would highlight Clevegen, an antibody against Clever-1-positive
tumour associated macrophages that is in preclinical development. Faron has recently
been awarded €1.5 million non-dilutive funding from Tekes to support preclinical
development of Clevegen. In lead optimisation, the Company also has an AOC3
inhibitor, Farbetic, to prevent vasculopathies in metabolic syndrome patients.
Deals with Maruishi and A&B (HK) validate the Traumakine® opportunity
Faron partnered Traumakine® with Maruishi in Japan in 2011. Under the terms of this
deal, Maruishi covers all the costs necessary for clinical development and filing in
Japan as well as applying for ODD. Maruishi has recently reported positive Phase II
results from a study completed in Japan. Faron is entitled to milestone payments
totalling €5.0 million (of which approximately €2.3 million has been received to date)
as well as high double digit royalties on Maruishi’s net sales of Traumakine®. In May
2015, Faron entered into a license and asset transfer agreement with A&B (HK) for
development and commercialisation of Traumakine® in the greater China area (with
the intention that commercialisation of Traumakine® will be conducted by CMS) that
involved a €5 million equity investment in Faron by A&B (HK).
Significant grant already in place to part fund Phase III development
Faron, as part of a consortium, has been awarded a €6 million European Commission
grant to support the Phase III clinical development of Traumakine®. We believe this
provides a significant additional endorsement of the drug as only approximately 10%
of grant applications to the European Commission are approved. The grant has
formerly been awarded to a consortium that consists of Faron as a coordinator and
three other participating partners: University College London Hospital, University of
Rome and University of Turku.
Rx Securities 62
Company Update
7 January 2016
Faron Pharmaceuticals - BUY
Investment Risks
Traumakine® still needs to complete Phase III development
We have reviewed the clinical data from the Phase I/II trial of Traumakine® for the
treatment of ARDS and The Lancet Respiratory Medicine paper. We believe the data
are highly encouraging – indeed we have not seen any competing data with as
substantial a clinical benefit as generated by Traumakine® in this indication.
However, the Phase I/II trial was small, open label and not placebo-controlled (there
was a quasi-control arm, but the study was not formally placebo-controlled). For
approval, positive results from a larger, placebo-controlled, Phase III study will be
required and as such both clinical and regulatory risks remain.
Traumakine® has yet to achieve Orphan Drug designation in the US
Traumakine® is based on interferon beta, which has been used for many years for the
treatment of multiple sclerosis. While this provides comfort from a safety perspective,
it is likely that generic interferon beta will reach the market at some point in the
future. ODD provides Faron with market exclusivity for the use of interferon beta for
acute lung injury in Europe and provides an additional barrier to entry combined with
data exclusivity against competition. However, ODD has yet to be achieved in the US
and while the Company would have data exclusivity, the combination with ODD
would provide stronger protection in our view.
Further capital may be required to complete Phase III development Clinical trials represent the biggest expense in terms of drug development, of which
Phase III trials represent the largest cost as they are the biggest studies. Following its
recent IPO, Faron is funded to complete the ongoing European Phase III trial for
registration of Traumakine®
in Europe. While the Company has received EMA
guidance for potential filing for conditional approval on a single Phase III trial, in our
view a further trial is likely and in this scenario additional funding would be required.
Premium pricing for Traumakine® may be challenging
At some time point in the future, it is likely in our view that a generic interferon beta
will become commercially available and current pricing of branded products (such as
Rebif®
and Avonex®) is likely to reduce. While we believe Traumakine
®, as a
potentially life-saving product, warrants a significant premium price, our model is
relatively conservative as it assumes pricing of only €4,500 per patient to reflect the
challenge of premium pricing to a potentially generic version of the API. We also
note that Traumakine® is delivered intravenously, not subcutaneously as for the
currently marketed products, so direct substitution would not be possible.
Biogen has intellectual property that Faron may be infringing Biogen has a patent granted in the US (US7588755) covering the use of interferon
beta for immunomodulation or treating viral conditions, a viral disease, cancers or
tumours. Issued in September 2009 (and is unusual in that it was filed in May 1995),
it will not expire until September 2026. Biogen is taking legal action against a number
of companies marketing multiple sclerosis drugs in the US, although a trial date has
yet to be set. We note that the corresponding European patent has been revoked in
Appeal of an Opposition at the EPO. We believe this patent, if found to be
enforceable and cover ARDS, could impact US sales of Traumakine®, although we
believe the most likely outcome would be Faron taking a license to the patent in
return for a royalty payment.
Rx Securities 63
Company Update
7 January 2016
Faron Pharmaceuticals - BUY
Financials (yearly)
Table 17: Earnings Outlook – Annual Forecast Profit and Loss Statement (€’m)
Y/E 31 December 2014A 2015E 2016E 2017E 2018E 2019E 2020E 2021E
Revenue 0.9 0.5 0.7 - 5.5 23.0 49.0 80.0
Traumakine® Royalty - - - - 4.5 22.0 49.0 80.0
Milestones - - 0.7 - 1.0 1.0 - -
Other 0.9 0.5 - - - - - -
Cost of Goods (0.4) (0.1) - - - - - -
Gross Profit 0.5 0.5 0.7 - 5.5 23.0 49.0 80.0
Expenses (1.9) (7.9) (11.0) (8.2) (11.5) (15.0) (18.0) (24.0)
R&D (1.5) (4.7) (9.8) (7.0) (10.0) (13.0) (15.0) (20.0)
G&A (0.4) (3.2) (1.2) (1.2) (1.5) (2.0) (3.0) (4.0)
Other operating inc. 0.1 0.3 1.1 0.6 - - - -
Operating Profit (1.3) (7.2) (9.2) (7.6) (6.0) 8.0 31.0 56.0
Net Interest (0.1) (0.1) (0.2) (0.1) (0.5) (0.1) 0.3 0.8
Profit Before Tax (1.4) (7.3) (9.4) (7.7) (6.5) 8.0 31.3 56.8
Taxation - (0.0) - - - - - -
Net Income (1.4) (7.3) (9.4) (7.7) (6.5) 8.0 31.3 56.8
EPS c (9.4) (41.6) (40.7) (33.2) (28.3) 34.6 135.3 246.0
Gross Cash 0.2 11.4 3.0 (4.5) (10.8) (3.1) 27.6 83.5
Loans 1.7 1.7 2.5 2.7 2.3 2.0 1.6 1.5
Source: Company data, RX Securities estimates
Key Model Assumptions
Revenue in the 2014-2017 pre-launch period reflects receipts from partner Maruishi and sales of interferon beta
API;
We assume launch of Traumakine® in Europe in 2018 and in the US and Japan in 2019. Our working assumption is
that Traumakine® is partnered subsequent to positive Phase III results, although believe the Company could
potentially directly commercialise as it is a hospital-based product. As we have no visibility on any potential deal
terms, for simplicity and to be conservative, we assume a 17% net royalty on Traumakine® sales. We do not
assume any other revenue stream beyond Traumakine®;
The Company has accumulated tax losses of €7.8 million as at 31 December 2014 – we do not anticipate any tax
payable over the forecast period; and
Based on our forecasts, we believe the Company is financed to completion of the ongoing Phase III trial of
Traumakine® in 2017, but additional capital will be required to fund any additional studies required and regulatory
filings.
Rx Securities 64
Company Update
7 January 2016
Faron Pharmaceuticals - BUY
Financials (interims)
Table 18: Earnings Outlook – Annual Forecast Profit and Loss Statement (€’m)
Y/E 31 December 2014A H1 15A H2 15E 2015E H1 16E H2 16E 2016E
Revenue 0.9 0.5 - 0.5 - 0.7 0.7
Traumakine® Royalty - - - - - - -
Milestones - - - - - 0.7 0.7
Other 0.9 0.5 - 0.5 - - -
Cost of Goods (0.4) (0.1) - (0.1) - - -
Gross Profit 0.5 0.5 - 0.5 - 0.7 0.7
Expenses (1.9) (2.8) (5.1) (7.9) (5.4) (5.6) (11.0)
R&D (1.5) (1.7) (3.0) (4.7) (4.8) (5.0) (9.8)
G&A (0.4) (1.1) (2.1) (3.2) (0.6) (0.6) (1.2)
Other operating inc. 0.1 - 0.3 0.3 0.5 0.6 1.1
Operating Profit (1.3) (2.4) (4.8) (7.2) (4.9) (4.3) (9.2)
Net Interest (0.1) (0.0) (0.1) (0.1) (0.1) (0.1) (0.2)
Profit Before Tax (1.4) (2.4) (4.9) (7.3) (5.0) (4.4) (9.4)
Taxation - (0.0) - (0.0) - - -
Net Income (1.4) (2.4) (4.9) (7.3) (5.0) (4.4) (9.4)
EPS (c) (9.4) (14.4) (26.7) (41.6) (21.6) (19.1) (40.7)
Gross Cash 0.2 2.3 11.4 11.4 7.0 3.0 3.0
Loans 1.7 1.7 1.7 1.7 2.2 2.5 2.5
Source: Company data, RX Securities estimates
Rx Securities 65
Company Update
7 January 2016
Faron Pharmaceuticals - BUY
Forecast News Flow
Table 19: Faron Pharmaceuticals’ forecast news flow
Timing Expected News Programme
March 2016 Full year 2015 results
H1 2016 Decision on Japanese Orphan Drug designation triggers €700k
milestone
Traumakine®
September 2016 H1 results
H2 2016 File IND Traumakine®
H2 2016 Complete recruitment into Phase III INTEREST trial Traumakine®
H1 2017 Commence Phase I/II trial Clevegen
Mid 2017 Phase III INTEREST trial results Traumakine®
H2 2017 File for European conditional MAA if mortality benefit
demonstrated
Traumakine®
H2 2017 Commence second Phase III trial Traumakine®
Source: Company data, RX Securities estimates
Rx Securities 66
Company Update
7 January 2016
Faron Pharmaceuticals - BUY
Rx Securities 67
Company Update
7 January 2016
Laboratorios Farmacéuticos Rovi - BUY
Laboratorios Farmacéuticos Rovi
Biosimilar enoxaparin a focus for 2016
Laboratorios Farmacéuticos Rovi (ROVI)’s flagship proprietary product is
bemiparin, a second-generation low molecular weight heparin, a class of
anticoagulant medication. We estimate domestic growth of bemiparin of 3%
for 2015, a commendable performance against a backdrop of pharmaceutical
market contraction in Spain. Furthermore, for the whole business ROVI is
guiding to operating revenue growth of high single-digit to low double-digit
percentage in 2016. Beyond bemiparin ROVI has a number of growth drivers
including a deal with Merck & Co. that could provide up to four product
launches over the next four years as well as a potential first-mover advantage
for a biosimilar enoxaparin in Europe (Sanofi’s Clexane®, which we estimate
achieved sales of €900 million in 2015). Globally, we anticipate significant
biosimilar noise this year, following the first FDA biosimilar approval in 2015
(Zarxio®, filgrastim-sndz) and noting that numerous biosimilars could gain
approval in 2016. We believe interest in biosimilar enoxaparin is one of the key
reasons ROVI’s shares have outperformed in 2015 (up 40%). While the last
few years have seen a significant investment in building its sales and marketing
capability, R&D spend will be a key focus for the next few years as the
Company commences Phase III development of ISM-Risperidone® (a
sustained-release injectable formulation of risperidone). We maintain our BUY
rating and fair value of €20/share.
Merck & Co. deal provides a ready-made pipeline of future drug launches
– in July 2009, ROVI signed a deal with Merck & Co. that granted it rights to
co-market in Spain five products (non-hospital) over the 2009-2019 period. In
January 2011, under this agreement ROVI launched Absorcol® (ezetimibe) and
Vytorin® (ezetimibe and simvastatin) considered as one option exercise. We
estimate these products contributed €24 million in revenues in 2015.
Generic/biosimilar enoxaparin opportunity – the Company’s expertise
gained from developing and commercialising bemiparin positions it well to
potentially capture a significant share of the biosimilar/generic enoxaparin
market. ROVI has already made regulatory applications in both the US and
Europe, although we are most enthusiastic about the opportunity in Europe
where currently no biosimilars have been approved.
Price €14.31
Fair value €20
Market capitalisation €715.5m
Enterprise value €738.6m
12m high/low €16.8 / €9.8
Avg. daily volume 31,161
Bloomberg / Reuters ROVI SM/E:ROVI
Exchange Madrid
Adviser Yes
Next results (FY) February 2016
Top 5 Shareholders
Inversiones Clidia 69.6%
Nmas1 Asset Management 5.0%
Indumenta Pueri 5.0%
T.Rowe Price 3.0%
Fidelity International Limited 1.4%
Analyst
Dr Samir Devani
+44 (0)207 659 1263
6
8
10
12
14
16
18
Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16
ROVI Pharma Euro Biotech Index
Share price performance (1 year)
Source: Rx Securities
Pri
ce (
€)
Key financial data (€’m) - IFRS
Y/E 31 December 2014A 2015E 2016E 2017E 2018E
Revenue 240.9 246.0 268.3 303.1 315.3
Profit before Tax 25.6 18.7 18.5 25.9 29.2
Net Income 24.1 17.7 16.8 23.3 26.0
EPS (€) 0.48 0.35 0.34 0.47 0.52
DPS (€) 0.16 0.17 0.18 0.19 0.20
Net Cash (9.4) (23.1) (29.6) (31.0) (30.5)
Source: RX Securities estimates
Consensus 2015E 2016E 2017E 2018E
Revenue 250.6 275.0 297.2 313.2
Net Income 20.2 26.4 34.5 39.6
Source: Bloomberg
Rx Securities 68
Company Update
7 January 2016
Laboratorios Farmacéuticos Rovi - BUY
Company Description
Founded in 1946, Laboratorios Farmacéuticos Rovi (ROVI) is a Spanish
pharmaceutical company engaged in the research, development, in-licensing,
manufacturing and marketing of drugs. While the Company’s operations are
principally based in Spain, ROVI also has a small marketing operation in Portugal.
Through approximately 270 sales representatives, the Company markets 30 products
across seven franchises: cardiovascular, osteoarticular, respiratory, contrast imaging,
anaesthesia/pain relief, CNS, and primary care. Over the last fifteen years, the
Company has exhibited rapid growth with revenues climbing from €20 million in
2000 to €246 million that we forecast was achieved in 2015. ROVI’s flagship
proprietary product is a second-generation, low molecular weight heparin (LMWH),
bemiparin (trade name in Spain, Hibor®). The Company’s expertise in the field of
glycomics also positions it well to enter the generic/biosimilar enoxaparin market,
with regulatory filings already made in the US and Europe. ROVI has also driven its
pharmaceutical sales growth through a number of inlicensing deals, such as that
completed in 2013 with Novartis for the marketing of the respiratory products
Hirobriz® Breezhaler
® and Ulunar
® Breezhaler
®. As well as the marketing of
pharmaceuticals, ROVI provides pre-filled syringe and oral drug manufacturing
services to the pharmaceutical industry. To complement its syringe/vial
manufacturing skills, in 2007 ROVI acquired Bertex Pharma, a German firm
specialising in slow-release injectable microparticle drug delivery technology (ISM®
)
and is currently working on a proprietary, long-acting (monthly), risperidone
formulation (slated to commence Phase III in H1 2016). In 2009, ROVI signed a
strategic manufacturing and marketing agreement with Merck Sharp & Dohme (a
fully owned subsidiary of Merck & Co.). Under the agreement, ROVI acquired the
manufacturing and packaging operations of a Merck & Co. facility in Alcala de
Henares, Frosst Ibérica. As part of its agreement to acquire this facility, ROVI
received an option for distribution rights in Spain to five Merck & Co. products (non-
hospital) through a co-marketing agreement. The Company to date has exercised only
one option under this agreement with four options remaining and we believe these
will ensure near-term launch opportunities for the Company. ROVI completed its IPO
in December 2007 raising €167 million at €9.6/share.
Investment Positives
Merck & Co. deal provides a ready-made pipeline of future drug launches
In July 2009, ROVI signed a strategic agreement with Merck & Co. that granted
ROVI the right to co-market five Merck & Co. products (non-hospital) in Spain over
the 2009-2019 period. In January 2011, ROVI launched Absorcol® (ezetimibe) and
Vytorin®
(ezetimibe and simvastatin) in Spain in a co-marketing regime with Ezetrol®
and Inegy®, respectively. Although these are two different products, Merck & Co.
agreed to consider them as one product in terms of the marketing agreement. We are
forecasting 2015 sales of Absorcol® and Vytorin
® of €23.6 million. In our opinion,
this major agreement should contribute substantially to growth of the Company in the
near- to medium-term, with each new launch representing incremental upside to our
current forecasts.
Rx Securities 69
Company Update
7 January 2016
Laboratorios Farmacéuticos Rovi - BUY
Substantial marketing infrastructure in Spain – now a partner of choice
With over 60 years of experience in the Spanish pharmaceutical industry, ROVI has
developed extensive sales and marketing infrastructure in Spain, which is currently
composed of approximately 270 sales personnel. The quality of this infrastructure is
evidenced by ROVI’s ability to capture 27% of the Spanish LMWH market with its
flagship product, bemiparin (branded Hibor® in Spain). ROVI has a diverse portfolio
of proprietary and in-licensed products (20 in-licensed, most of which are marketed
pursuant to co-marketing agreements). The Company markets 30 products across
seven franchises: cardiovascular, osteoarticular, contrast imaging, respiratory,
anaesthesia/pain relief, CNS, and primary care. The Company’s lead proprietary drug,
bemiparin is patent protected until 2019. The first significant loss of exclusivity from
its currently marketed drugs will be Thymanax® (2016) followed by Corlentor
® and
Exxiv® (2017).
Strong financial position, scope for acquisitions and leverage
ROVI ended Q3 2015 with a net debt position of €18.5 million (debt of €44.1 million
of which 33% is zero percent interest and cash of €25.6 million). This robust balance
sheet provides the Company with a low cost of capital and significant strategic
flexibility. We believe the Company is well positioned to leverage its sales and
marketing infrastructure and acquire additional products – such in-licensing is likely
to be immediately earnings enhancing. Furthermore, the Company could also choose
to build infrastructure outside of Spain and geographically diversify, a move we
believe would be welcomed by the market.
ISM® technology platform to produce longer-acting biomolecules
In 2007 ROVI acquired a proprietary sustained-release injection technology called “in
situ microparticles” or ISM®. The technology provides prolonged release of bioactive
macromolecules. The Company has invested significantly over the last few years in
establishing a commercial manufacturing capability for this technology platform.
ROVI is developing a once-monthly ISM®
formulation of risperidone (ISM-
Risperidone®) that is slated to commence a Phase III trial in H1 2016. ROVI is also
developing a quarterly injectable formulation of letrozole. To be conservative, we
have not attributed any revenue from pipeline products such as ISM-Risperidone® in
our forecasts.
Generic/biosimilar enoxaparin provides ROVI with a significant opportunity
ROVI’s development and marketing of its LMWH, bemiparin, has uniquely
positioned the Company with the expertise to potentially develop and launch a
generic/biosimilar Lovenox®
/Clexane® (enoxaparin, Sanofi). While generics to
Lovenox®
have already arrived in the US, none have so far launched in Europe where
we estimate Clexane® generated sales of €900 million in 2015. ROVI has made
regulatory applications in both the US and Europe to launch a generic/biosimilar
enoxaparin and we anticipate news on this opportunity during the year. In our
opinion, ROVI is well positioned to capture the full value of this opportunity as it has
in-house expertise and experience in the development, manufacture and
commercialisation of a LMWH.
Rx Securities 70
Company Update
7 January 2016
Laboratorios Farmacéuticos Rovi - BUY
Investment Risks
The raw material price of bemiparin has been historically volatile Bemiparin represents approximately 30% of forecast revenues. Historically, ROVI
has been significantly impacted by increases in heparin raw material costs. While the
raw material price of bemiparin has now significantly decreased (approximately 50%
since 2010), due to operational leverage, small changes in bemiparin’s gross margin
result in disproportionately large changes in net income. We believe any future raw
material price volatility is likely to significantly impact ROVI’s net income.
ROVI is dependent on a Spanish pharmaceutical market that is contracting We believe ROVI has a strong and strategic position in the Spanish pharmaceutical
market. However, activities outside Spain are limited and despite its long history
ROVI has not geographically expanded. With an estimated 65% of its 2015 operating
revenues generated in Spain, the Company lacks geographic diversification and as
such is geared to developments, both positive and negative, in the Spanish
pharmaceutical market. The Spanish pharmaceutical market has been subject to
numerous rounds of pricing cuts and may be subject to further rounds in the future.
Strategically, we believe the Company has the financial strength to geographically
expand into other territories and we believe this would be welcomed by the market.
ROVI remains a family-controlled business Juan López-Belmonte López, the Chairman of the Board of Directors and his sons,
Juan López-Belmonte Encina, Co-Chief Executive Officer, Iván López-Belmonte
Encina, Deputy Chief Executive Officer and Head of Corporate Development, and
Javier López-Belmonte Encina, the Chief Financial Officer, together control 70% of
the shares and voting rights. The interests of the López-Belmonte family may differ
from the interests of other shareholders. In addition, the leases to the headquarters
building and manufacturing and other facilities in Madrid are from companies
controlled by Juan López-Belmonte López and his sons, among other shareholders,
and the sales office in Portugal is leased from Ivan López-Belmonte Encina, the
Deputy CEO and Head of Corporate Development. We understand these
arrangements have been negotiated on an arm’s-length basis and on market terms.
There will be significant competition for ISM-Risperidone®
Should ISM-Risperidone® make it to market, it would compete with a number of
other long-acting anti-psychotics. Risperdal Consta®
developed by Alkermes (using
its MediSorbTM
drug delivery technology) is a bi-weekly injection. The product is
marketed by Johnson & Johnson (for schizophrenia and bipolar disorder) and
achieved sales of $1.2 billion in 2014. Johnson & Johnson also markets a long-acting
formulation of paliperidone (INVEGA®). Competitors in development include
Relday®, a once monthly subcutaneous injection of risperidone, from Zogenix
(currently seeking a partner to complete Phase III development), Indivior with a
monthly Atrigel® formulation of risperidone in Phase III and Luye Pharma with an
intramuscular long-acting (once every two weeks) risperidone (company now
preparing a 505(b)(2) application).
Rx Securities 71
Company Update
7 January 2016
Laboratorios Farmacéuticos Rovi - BUY
Financials (yearly)
Table 20: Earnings Outlook – Annual Forecast Profit and Loss Statement (€’m)
Y/E 31 December 2014A 2015E 2016E 2017E 2018E 2019E 2020E
Revenue 240.9 246.0 268.3 303.1 315.3 331.1 321.5
Operating revenue 238.0 244.8 267.1 301.9 314.1 329.9 320.3
Prescription Sales 140.5 148.8 172.7 202.8 212.8 226.4 214.6
Bemiparin SPAIN 48.0 49.5 51.5 53.0 54.6 56.3 39.4
Bemiparin ROW 24.7 24.2 25.9 27.7 29.6 31.7 33.9
Exxiv® 6.9 6.1 6.1 6.1 6.1 6.1 6.1
Corlentor® 13.8 13.7 14.1 14.6 13.8 13.2 12.5
Thymanax® 10.2 7.6 6.8 6.2 5.5 5.0 4.5
Absorcol® & Vytorin® 21.2 23.6 25.9 27.5 16.5 9.9 5.9
Hirobriz/Ulunar® Breezhaler® 2.1 8.0 17.0 25.0 30.0 31.5 33.1
Volutsa® - 3.1 5.2 7.0 10.0 10.3 10.6
Medicebran® & Medikinet® 7.5 7.4 7.8 8.5 9.4 10.3 11.4
Generic/biosimilar enoxaparin - - 5.0 20.0 30.0 45.0 50.0
Other 6.1 5.6 12.3 27.2 37.2 52.2 57.2
Contrast + other hospital 24.6 26.7 27.0 27.2 27.5 27.8 28.1
OTC Products 7.1 7.0 7.1 7.2 7.3 7.3 7.4
Aesthetic medicines 0.2 0.2 0.2 0.2 0.2 0.2 0.2
Toll Manufacturing 65.6 62.0 60.1 64.5 66.3 68.1 70.1
Other Income 2.9 1.2 1.2 1.2 1.2 1.2 1.2
Cost of Goods (94.6) (95.8) (107.3) (121.2) (123.0) (129.1) (125.4)
Gross Profit 146.3 150.2 161.0 181.9 192.3 202.0 196.1
Margin 60.7% 61.1% 60.0% 60.0% 61.0% 61.0% 61.0%
Expenses (109.7) (120.8) (131.0) (142.4) (148.6) (154.8) (147.5)
R&D (11.9) (16.3) (20.0) (22.7) (23.6) (24.8) (22.5)
SG&A (97.8) (104.5) (111.0) (119.7) (125.0) (130.0) (125.0)
EBITDA 36.6 29.4 30.0 39.4 43.7 47.1 48.6
EBITDA/Operating revenue 15.4% 12.0% 11.2% 13.1% 13.9% 14.3% 15.2%
Depreciation & Amortisation (8.9) (10.0) (11.0) (12.1) (13.3) (14.6) (16.1)
EBIT 27.7 19.4 19.0 27.3 30.4 32.5 32.5
Net financial income (2.1) (0.7) (0.5) (1.4) (1.1) (0.9) (0.7)
Profit Before Tax 25.6 18.7 18.5 25.9 29.2 31.6 31.8
Tax (1.5) (1.0) (1.7) (2.6) (3.2) (3.5) (3.5)
Net Income 24.1 17.7 16.8 23.3 26.0 28.1 28.3
EPS (€) 0.48 0.35 0.34 0.47 0.52 0.56 0.57
DPS (€) 0.16 0.17 0.18 0.19 0.20 0.21 0.22
Ave. No. of Shares (m) 50.0 50.0 50.0 50.0 50.0 50.0 50.0
Net cash (9.4) (23.1) (29.6) (31.0) (30.5) (28.7) (26.4)
Source: Company data, RX Securities estimates
Rx Securities 72
Company Update
7 January 2016
Laboratorios Farmacéuticos Rovi - BUY
Financials (quarterly)
Table 21: Earnings Outlook – Interim Forecast Profit and Loss Statement (€’m)
Y/E 31 December Q1 15A Q2 15A Q3 15A Q4 15E 2015E Q1 16E Q2 16E Q3 16E Q4 16E 2016E
Revenue 61.1 60.8 56.7 67.4 246.0 63.4 63.7 65.9 75.2 268.3
Operating revenue 60.8 60.5 56.4 67.1 244.8 63.1 63.4 65.6 74.9 267.1
Prescription Sales 35.6 36.2 34.2 42.7 148.8 40.9 40.8 42.0 49.0 172.7
Bemiparin Spain 12.5 12.4 11.6 13.0 49.5 13.0 12.9 12.1 13.5 51.5
Bemiparin ROW 6.3 5.6 5.8 6.5 24.2 6.7 6.0 6.2 7.0 25.9
Exxiv® 1.5 1.6 1.4 1.6 6.1 1.5 1.6 1.4 1.6 6.1
Corlentor® 3.4 3.2 3.3 3.8 13.7 3.5 3.3 3.4 3.9 14.1
Thymanax® 2.0 1.9 1.7 2.0 7.6 1.8 1.7 1.5 1.8 6.8
Absorcol® & Vytorin® 5.4 5.7 5.7 6.8 23.6 5.9 6.3 6.3 7.5 25.9
Hirobriz/Ulunar® Breezhaler® 1.0 1.6 2.1 3.3 8.0 3.5 4.0 4.5 5.0 17.0
Volutsa® 0.4 0.7 0.8 1.2 3.1 1.0 1.2 1.4 1.6 5.2
Medicebran® & Medikinet® 2.0 1.9 1.3 2.2 7.4 2.1 2.0 1.4 2.3 7.8
Generic/biosimilar enoxaparin - - - - - - - 2.0 3.0 5.0
Other 1.1 1.6 0.5 2.4 5.6 1.8 1.8 3.8 4.8 12.3
Contrast + hospital 6.4 5.8 7.5 7.0 26.7 6.5 5.9 7.6 7.1 27.0
OTC products 1.6 2.2 1.3 1.9 7.0 1.7 2.2 1.3 1.9 7.1
Aesthetic medicines 0.1 0.1 0.1 0.1 0.2 0.1 0.1 0.1 0.1 0.2
Toll manufacturing 17.1 16.2 13.3 15.4 62.0 14.0 14.5 14.7 16.9 60.1
Other income 0.3 0.3 0.3 0.3 1.2 0.3 0.3 0.3 0.3 1.2
Cost of Goods (25.4) (22.4) (21.0) (27.0) (95.8) (25.4) (25.5) (26.4) (30.1) (107.3)
Gross Profit 35.7 38.4 35.7 40.5 150.2 38.0 38.2 39.5 45.1 161.0
Margin 58.7% 63.4% 60.0% 60.0% 61.1% 60.0% 60.0% 60.0% 60.0% 60.0%
Expenses (26.1) (28.5) (29.7) (36.5) (120.8) (32.0) (30.0) (32.0) (37.0) (131.0)
R&D (3.2) (4.7) (4.9) (3.5) (16.3) (5.0) (5.0) (5.0) (5.0) (20.0)
R&D/revenue 5.2% 7.7% 8.6% 5.2% 6.6% 7.9% 7.8% 7.6% 6.6% 7.3%
SG&A (22.9) (23.8) (24.8) (33.0) (104.5) (27.0) (25.0) (27.0) (32.0) (111.0)
SG&A/prescription sales 52.4% 53.8% 57.7% 63.9% 57.3% 55.0% 51.2% 53.1% 55.2% 56.0%
EBITDA 9.6 9.9 5.9 4.0 29.4 6.0 8.2 7.5 8.1 30.0
EBITDA/operating revs 15.8% 16.3% 10.6% 5.9% 12.0% 9.6% 13.0% 11.5% 10.9% 11.2%
Depreciation & Amortisation (2.5) (2.4) (2.5) (2.6) (10.0) (2.8) (2.6) (2.8) (2.9) (11.0)
EBIT 7.1 7.5 3.4 1.4 19.4 3.3 5.6 4.8 5.3 19.0
Net interest (0.3) (0.1) (0.2) (0.1) (0.7) (0.1) (0.1) (0.1) (0.1) (0.5)
Profit Before Tax 6.9 7.4 3.2 1.3 18.7 3.2 5.5 4.7 5.1 18.5
Tax (0.4) (0.3) (0.2) (0.1) (1.0) (0.3) (0.5) (0.4) (0.5) (1.7)
Net Income 6.5 7.1 3.0 1.2 17.7 2.9 5.0 4.2 4.7 16.8
EPS (€) 0.13 0.14 0.08 0.02 0.35 0.06 0.10 0.08 0.09 0.34
Ave. No. of Shares (m) 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0
Net cash (7.8) (9.3) (18.5) (23.1) (23.1) (20.7) (22.3) (28.8) (29.6) (29.6)
Source: Company data, RX Securities estimates
Rx Securities 73
Company Update
7 January 2016
Laboratorios Farmacéuticos Rovi - BUY
Forecast News Flow
Table 22: ROVI’s forecast news flow
Timing Expected News Programme
February 2016 Full year 2015 results
2016 Potential marketing authorisation Biosimilar enoxaparin
April 2016 Q1 results
H1 2016 Start of Phase III trial ISM-Risperidone®
July 2016 Q2 results
2016 New toll manufacturing contracts
October 2016 Q3 results
2016 New products in-licensed
Source: Company data, RX Securities estimates
Rx Securities 74
Company Update
7 January 2016
Laboratorios Farmacéuticos Rovi - BUY
Rx Securities 75
Company Update
7 January 2016
Newron Pharmaceuticals - BUY
Newron Pharmaceuticals
Near term catalysts
Newron Pharmaceuticals’ shares were treading water during 2015, down 2%
for the year. We believe this relatively weak performance was due to concerns
over a US licensing deal for safinamide and the FDA extending the PDUFA
date on the drug. While a US licensing deal has taken longer than anticipated,
we remain confident a deal will be done. In Europe, safinamide (Xadago®) has
been launched in Germany and is being progressively rolled out. Newron’s
strategy is to utilise its drug development expertise and CNS focus with a view
to developing drugs for Orphan CNS indications that the Company could
directly market. The development of sarizotan for Rett syndrome provides a
good example of this strategy. Rett syndrome is a rare neurodevelopmental
disorder that is almost exclusively seen in females (affected males die very
early). Many girls live into adulthood, requiring 24-hour-a-day care. Sarizotan
has demonstrated that it can prevent the potentially lethal, breath holding
(apnoea) episodes associated with Rett syndrome. Newron is planning to
commence a potentially pivotal Phase II/III trial in Q1 2016. While we believe
Orphan indications are a strategic focus for the Company, NW-3509, a first-in-
class drug for schizophrenia, continues to progress with Phase II data
anticipated in Q4 2016. Positive results could lead to a significant licensing
deal. We maintain our BUY rating and fair value of CHF 40/share.
A Phase II/III trial of sarizotan to commence in Q1 2016 – this will be a
randomised, placebo-controlled study in 90 patients with Rett syndrome with
the primary endpoint being the reduction in apnoea episodes compared to
placebo. We anticipate results from this study in 2017. As an Orphan indication
sarizotan development could be expedited and we estimate the drug could reach
the market in 2018.
US licensing deal and FDA decision are the key near-term catalysts –
safinamide is being reviewed by the FDA with a PDUFA date of 29 March
2016. While Zambon has infrastructure in Europe, a partner will be required to
market safinamide in the US. We estimate that Newron is entitled to
approximately one third of any milestone income that Zambon receives from
sublicensing safinamide as well as a 50% share of royalties. We estimate year 6
sales post launch of safinamide exceeding $450 million.
Price CHF 24.1
Fair value CHF 40
Market capitalisation CHF 342.5m
Enterprise value CHF 300.8m
12m high/low CHF 35.9 / CHF 21.5
Avg. daily volume 40,867
Bloomberg / Reuters NWRN SW / S:NWRN
Exchange SIX Swiss
Adviser Yes
Next results (FY) 1 March 2016
Top 5 Shareholders
Investor AB 12.5%
Aviva 9.9%
Zambon Group 9.2%
JP Morgan Asset Management 3.0%
Omega 2.3%
Analyst
Dr Samir Devani
+44 (0)207 659 1263
10
15
20
25
30
35
40
Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16
Newron Euro Biotech Index
Share price performance (1 year)
Source: Rx Securities
Pri
ce (
CH
F)
Key financial data (€’000) - IFRS
Y/E 31 December 2014A 2015E 2016E 2017E 2018E
Revenue 1,557 2,237 43,508 10,886 24,381
Profit before Tax (10,723) (16,956) 16,571 (17,943) (5,904)
Net Income (10,095) (16,968) 16,571 (17,943) (5,904)
EPS (c) (79.4) (123.4) 117.5 (127.3) (41.9)
Net Cash 24,615 38,435 55,010 37,070 31,170
Source: RX Securities estimates
Consensus 2015E 2016E 2017E 2018E
Revenue 3,020 4,130 NA NA
Net Income (15,100) (15,00) NA NA
Source: Bloomberg
Rx Securities 76
Company Update
7 January 2016
Newron Pharmaceuticals - BUY
Company Description
Newron Pharmaceuticals S.p.A (Newron) is focussed on the development of novel
therapies for diseases of the central nervous system (CNS) and treating pain. The
Company is headquartered in Bresso, near Milan, and has operations in Basel and
New Jersey employing 25 people. Safinamide is Newron’s lead drug for Parkinson’s
disease (PD), approved in Europe (branded Xadago®) and in registration in the US
with a PDUFA date of 29 March 2016. Safinamide was originally partnered with
Merck Serono (a division of Merck KGaA) in 2006, but rights were returned in 2011
and subsequently Newron re-partnered the drug with the Italian pharmaceutical
company Zambon (for global ex-Japan and Asia marketing rights) and Meiji Seika
Pharma (for Japan and other key Asian markets where the drug is currently in a Phase
II/III trial). Newron completed its IPO on the SIX Swiss Exchange in December 2006
(raising CHF 118.1 million at CHF 55/share). However, in January 2010, the
Company reported negative data from a Phase III trial of ralfinamide for neuropathic
lower back pain. Ralfinamide is a proprietary late-stage asset and its failure in this
indication resulted in a significant depreciation in the value of the Company. Newron
has utilised an acquisitive/inlicensing strategy to build its CNS pipeline. It acquired
Hunter-Fleming Ltd in 2008 and NeuroNova AB in 2012. In March 2011, Newron
inlicenced from Merck KGaA two clinical-stage compounds, pruvaserin and sarizotan
and has received Orphan drug designation for the later in Rett’s syndrome (a Phase
II/III trial in this indication is slated to commence in Q1 2016). Newron has an in-
house ion channel programme that has yielded NW-3509, currently in a Phase II trial
in refractory schizophrenia. Newron reported a net cash position of CHF 44.6 million
as at 30 June 2015 and in November 2015 raised CHF 5.4 million (at CHF
25.60/share) in a directed placement to a specialist US healthcare investor, who
received an option to subscribe to the same number of shares during the first six
months of 2016. The Company’s strategy now resides around managing the ongoing
FDA review process for safinamide and progressing its drug pipeline.
Investment Positives
Safinamide (Xadago®) has been approved and launched in Europe
Safinamide is a once a day, oral, adjunctive therapy for the treatment of PD. The drug
has demonstrated benefit as an add-on treatment to dopamine agonists used in early
PD and also when used in combination with levodopa (without increasing
dyskinesias) in late-stage PD. On 26 February 2015, safinamide (branded Xadago®)
gained marketing approval in Europe as an add-on to L-dopa alone or in combination
with dopamine agonists, entacapone, amantadine, and/or anticholinergics, for the
treatment of mid-late stage PD patients experiencing motor fluctuations despite being
stabilised on standard of care. In May 2015, Newron’s partner Zambon launched
Xadago® in Germany and this was followed in November by approval of the drug in
Switzerland. In the US, the FDA is currently reviewing the NDA for safinamide and
has set a PDUFA date of 29 March 2016. Partner, Meiji Seika pharma commenced a
Phase II/III trial of safinamide in Japan in October 2015.
Rx Securities 77
Company Update
7 January 2016
Newron Pharmaceuticals - BUY
Newron is entitled to a significant share of Zambon sublicensing income
Safinamide is partnered with Zambon, an Italian chemical and pharmaceutical
company that has global (ex-Japan and Asia) rights to the product and with Meiji
Seika Pharma (Japan and other key Asian markets). While Zambon has marketing
infrastructure in Europe, the company will need to find a partner to market safinamide
in the US. Our forecasts assume an estimated $150 million in upfront and launch
milestones paid to Zambon on US sublicensing – we have not assumed any additional
sales milestones in Europe or the US, or any milestone income for Japan – a
conservative approach in our view. We estimate that Newron is entitled to
approximately one third of any milestone income that Zambon receives from
sublicensing safinamide as well as a 50% share of royalties. We note that Zambon is a
significant shareholder of Newron (owning 9.2%).
We estimate year 6 sales post launch of safinamide exceeding $450 million
We estimate there are approximately 800,000 Parkinson’s patients on dopamine
agonists in the US and approximately 400,000 taking some form of levodopa. Our
forecasts assume only late-stage use in Europe, but both early- and late-stage use in
the US and Japan. We believe our assumptions are conservative as they assume a
modest penetration of the market and conservative pricing assumptions. We believe
our sales estimates could be significantly enhanced should a successful Phase III trial
of safinamide be completed demonstrating a reduction in dyskinesias and adding
weight to the differentiated dual mechanism of action of the drug.
Experienced management team
Newron has an experienced management team and Board. Stefan Weber was
appointed Chief Executive Officer in May 2012 having been the Company’s Chief
Financial Officer since April 2005. From 2001 to 2005, he was Chief Financial
Officer of Biofrontera, another drug discovery and development company. Dr Ravi
Anand has been Newron’s Chief Medical Officer since May 2005. For over 25 years,
he has worked in international drug development and registration departments of
major pharmaceutical companies, including F. Hoffmann-La Roche (Switzerland),
Sandoz/Novartis (United States) and Organon (Netherlands). From 1997 to 2001, he
served as the international Head of CNS Medical Affairs at Novartis. From 2001 to
2003, he served as the global Head of CNS Clinical Research at Organon. The Board
is chaired by Ulrich Köstlin who was previously a member of the Board of
Management of Bayer Schering Pharma AG.
Sarizotan and NW-3509 could generate significant value
Beyond safinamide Newron has a number of drugs in its pipeline that we consider
have significant potential, however have generated limited data to date. Sarizotan was
inlicensed from Merck KGaA and came with a substantial clinical data package.
Targeting the Orphan indication of Rett syndrome, sarizotan could reach the market
relatively quickly (potentially 2018) and could be the first product Newron directly
markets. NW-3509 is targeting the blockbuster indication of schizophrenia and we
believe Newron could execute a significant licensing deal for the drug on positive
Phase II results. As these additional pipeline programmes progress they have the
potential to generate significant value for the Company.
Rx Securities 78
Company Update
7 January 2016
Newron Pharmaceuticals - BUY
Investment Risks
US regulatory and label risks still remain for safinamide Safinamide is approved in Europe, but regulatory risk remains in the important US
market. On 30 July 2014, Newron announced that the FDA had issued a refusal-to-
file letter due to technical issues with the filing. The re-filling in December 2014 was
accepted by the FDA in March 2015, although the PDUFA date was extended by
three months to 29 March 2016. Despite this regulatory glitch, approval in Europe
provides strong confidence that the drug will ultimately be approved in the US.
Newron and Zambon are seeking approval for safinamide both in early- and late-stage
PD patients – positive results have been achieved in both settings. However, the
European label achieved is only for use in late-stage PD, although we remain
optimistic and our forecasts assume that a broader label is achieved in the US. It is
possible a more restricted label could be granted.
A US sublicensing deal for safinamide has yet to be signed
Safinamide represents the first NCE to be commercialised for PD in the last decade.
As such we anticipate a significant US licensing deal to be completed by partner
Zambon. We have taken a conservative approach to valuing safinamide and have
assumed only upfront and launch milestones in our valuation model. However, we
note the deal has taken longer than we originally anticipated and it is possible that the
ultimate deal signed fails to meet current market expectations.
Beyond safinamide, pipeline is early stage, no near-term inflection points Beyond safinamide, Newron’s pipeline is at an early stage. No other product has
generated proof-of-concept Phase II data in its targeted indication. We believe the
most important pipeline assets beyond safinamide are sarizotan (to commence a
potentially pivotal Phase II/III trial in Rett syndrome in Q1 2016) and NW-3509
(currently in a Phase II trial in schizophrenia and slated to report results in Q4 2016).
Safinamide may not achieve our projected sales forecast We believe our sales forecast for safinamide is based on conservative assumptions.
Indeed, we believe the opportunity for the drug could be significantly increased if
additional data could be generated demonstrating a reduction in dyskinesias.
However, there is increasing pushback from payors regarding new drug pricing and
an increasing trend of competitive tendering for formulary position with pharmacy
benefit managers. The nearest comparative drug to safinamide is rasagiline (Azilect®,
Teva Pharmaceuticals) - when this drug goes generic (key patent expires February
2017) it may be challenging to command a significant market share with a premium
priced product. Our forecasts also assume use of safinamide in both early- and late-
stage PD patients in the US – a prescribing label which has yet to be confirmed.
Well-funded currently, but we anticipate further capital raises in the future Newron’s reported net cash position as at 30 June 2015 was CHF 44.6 million. This
has been supplemented by a further CHF 5.4 million in November 2015 following a
private placement. Our forecasts assume this cash position will be significantly
supplemented following a US licensing deal for safinamide. However, with multiple
opportunities in its pipeline, we believe R&D spend is likely to significantly rise in
the near-term. In order to take its pipeline assets such as sarizotan to market, we
believe the Company is likely to require additional capital in the future.
Rx Securities 79
Company Update
7 January 2016
Newron Pharmaceuticals - BUY
Financials (yearly)
Table 23: Earnings Outlook – Annual Forecast Profit and Loss Statement (€’000)
Y/E 31 December 2014A 2015E 2016E 2017E 2018E 2019E 2020E 2021E
Revenue 1,557 2,237 43,508 10,886 24,381 32,774 40,944 45,276
Safinamide Royalty - 351 4,133 10,886 24,381 32,774 40,944 45,276
Safinamide Milestones 1,300 1,800 39,375 - - - - -
Other 257 86 - - - - - -
Cost of Goods - - - - - - - -
Gross Profit 1,557 2,237 43,508 10,886 24,381 32,774 40,944 45,276
Expenses (12,772) (19,322) (27,500) (28,875) (30,319) (31,835) (33,426) (35,098)
R&D (6,017) (10,723) (18,000) (18,900) (19,845) (20,837) (21,879) (22,973)
G&A (6,702) (8,558) (9,500) (9,975) (10,474) (10,997) (11,547) (12,125)
S&M (53) (41) - - - - - -
Operating Income (11,215) (17,085) 16,008 (17,989) (5,938) 939 7,518 10,178
Finance Income 107 248 563 46 34 32 36 45
Finance Expense - (35) - - - - - -
Fx & Others 385 (84) - - - - - -
Profit Before Tax (10,723) (16,956) 16,571 (17,943) (5,904) 971 7,554 10,223
Taxation 628 (12) - - - - - -
Net Income (10,095) (16,968) 16,571 (17,943) (5,904) 971 7,554 10,223
EPS (c) (79.4) (123.4) 117.5 (127.3) (41.9) 6.9 53.6 72.5
Ave No. of Shares (m) 12.7 13.7 14.1 14.1 14.1 14.1 14.1 14.1
Net Cash 24,615 38,435 55,010 37,070 31,170 32,143 39,698 49,882
Source: Company data, RX Securities estimates
Key Model Assumptions
We assume Zambon completes a US sublicensing deal for safinamide in H1 2016 that generates a net $50 million
in milestone income in 2016;
Our forecasts assume no tax is payable during the forecast period due to accumulated tax losses.
Rx Securities 80
Company Update
7 January 2016
Newron Pharmaceuticals - BUY
Financials (interims)
Table 24: Earnings Outlook – Interim Forecast Profit and Loss Statement (€’000)
Y/E 31 December 2014A H1 2015A H2 2015E 2015E H1 2016E H1 2016E 2016E
Revenue 1,557 1,979 258 2,237 40,615 2,893 43,508
Safinamide Royalty - 93 258 351 1,240 2,893 4,133
Safinamide Milestones 1,300 1,800 - 1,800 39,375 - 39,375
Other 257 86 - 86 - - -
Cost of Goods - - - - - - -
Gross Profit 1,557 1,979 258 2,237 40,615 2,893 43,508
Expenses (12,772) (8,822) (10,500) (19,322) (14,500) (13,000) (27,500)
R&D (6,017) (4,723) (6,000) (10,723) (10,000) (8,000) (18,000)
G&A (6,702) (4,058) (4,500) (8,558) (4,500) (5,000) (9,500)
S&M (53) (41) - (41) - - -
Operating Income (11,215) (6,843) (10,242) (17,085) 26,115 (10,107) 16,008
Finance Income 107 51 197 248 261 302 563
Finance Expense - (35) - (35) - - -
Fx & Others 385 (84) - (84) - - -
Profit Before Tax (10,723) (6,911) (10,045) (16,956) 26,376 (9,805) 16,571
Taxation 628 (12) - (12) - - -
Net Income (10,095) (6,923) (10,045) (16,968) 26,376 (9,805) 16,571
EPS (c) (79.4) (51.7) (71.2) (123.4) 187.1 (69.5) 117.5
Average No. of Shares (m) 12.7 13.4 14.1 13.7 14.1 14.1 14.1
Net Cash 24,615 43,677 38,435 38,435 64,812 55,010 55,010
Source: Company data, RX Securities estimates
Rx Securities 81
Company Update
7 January 2016
Newron Pharmaceuticals - BUY
Forecast News Flow
Table 25: Newron’s forecast news flow
Timing Expected News Programme
Q1 2016 Commence a potentially pivotal Phase II/III trial in Rett
syndrome
Sarizotan
1 March 2016 Full year 2015 results
29 March 2016 FDA decision Safinamide
2016 US licensing deal Safinamide
Q2 2016 Launch in the US Safinamide
15 September 2016 H1 results
Q4 2016 Phase II results NW-3509
2017 Results from Phase II/III trial in Rett syndrome Sarizotan
Source: Company data, RX Securities estimates
Rx Securities 82
Company Update
7 January 2016
Newron Pharmaceuticals - BUY
Rx Securities 83
Company Update
7 January 2016
Skyepharma - BUY
Skyepharma
Breathing easier
Skyepharma’s shares rose 18% in 2015 and had a particularly strong
December (up 22%) driven by Mundipharma signing an option agreement for
SKP-2076, a triple ICS/LABA/LAMA combination product under
development for asthma in a pressurised metered dose inhaler. In addition,
December saw partner Pacira Pharmaceuticals amicably resolve a dispute with
the FDA regarding EXPAREL® providing some confidence that Skyepharma
should receive an $8.0 million milestone this year. Skyepharma has a long
history in oral delivery (and has now developed a proprietary gastro-retention
platform, SoctecTM
), but its respiratory technologies and skills are what excite
us at this stage and have generated its value-driving drug, flutiform®. The
Company has built a team with both pressurised metered dose and dry power
inhaler capabilities. Respiratory drug development requires complex process
engineering and there are very few specialist groups of the quality of
Skyepharma’s globally in our view. From its pipeline, Skyepharma is
developing SKP-2075, a combination of theophylline and fluticasone for
COPD/smoking asthma with results from a large Phase II study anticipated in
2017. Strategically, Skyepharma is reviewing M&A options to accelerate
growth of the business (we believe it more likely that growth will come from
smaller bolt-on deals and inlicensing). We maintain our BUY rating and fair
value range of 475-500p/share.
Mundipharma is a good partner for SKP-2076 and has made strong
progress with flutiform® – we were encouraged by the recent positive
commentary from Anthony Mattessich, Managing Director at Mundipharma
regarding current sales momentum with flutiform®. Skyepharma is eligible for
a €10 million milestone on annual sales reaching €100 million. We believe
Mundipharma represents a good potential partner for SKP-2076, particularly as
most of the major respiratory players (GlaxoSmithKline, AstraZeneca and
Novartis) already have triple combination products in their pipelines.
We forecast sales of EXPAREL® of $296 million in 2016 – EXPAREL
® is a
novel liposomal injectable formulation of bupivacaine for post-surgical
analgesia marketed by Pacira Pharmaceuticals. Skyepharma is eligible for an
$8 million milestone when annual net sales (on a cash received basis) reach
$250 million and a $32 million milestone when sales reach $500 million.
Price 408.5p
Fair value range 475-500p
Market capitalisation £428.2 million
Enterprise value £400.0 million
12m high/low 408.5p / 245.8p
Avg. daily volume 249,210
Bloomberg / Reuters SKP LN / SKP.L
Listing London
Adviser Yes
Broker No
Next results (FY) March 2016
Top 5 Shareholders
HBM Partners 28.3%
Blackrock 6.9%
Aviva 5.7%
Standard Life 5.2%
Legal & General 4.1%
Analyst
Dr Samir Devani
+44 (0)207 659 1263
0
50
100
150
200
250
300
350
400
450
500
Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16
Skyepharma Euro Biotech Index
Share price performance (1 year)
Source: Rx Securities
Pri
ce (
p)
Key financial data (£’m) - IFRS
Y/E 31 December 2014A 2015E 2016E 2017E 2018E
Revenue 73.8 87.7 116.9 127.4 169.4
Profit before Tax (9.9) 18.3 31.2 28.1 66.1
Net Income (10.5) 15.7 26.2 23.1 53.0
EPS (p) (12.3) 15.0 25.0 22.0 50.6
Net Cash 15.0 28.2 35.7 64.7 122.7
PE NM 27.3 16.4 18.6 8.1
EV/EBITDA 16.0 17.3 10.9 11.9 5.6
Source: RX Securities estimates
Consensus 2015E 2016E 2017E 2018E
Revenue 89.0 108.0 127.8 139.3
Net Income 15.4 23.4 33.5 48.6
Source: Bloomberg
Rx Securities 84
Company Update
7 January 2016
Skyepharma - BUY
Company Description
Skyepharma is a world-leading inhalation and oral drug development company,
headquartered in the UK, with its major research and development operations in
Switzerland (Muttenz) and employing approximately 100 staff. The Company also
has an FDA-approved manufacturing facility in France (Lyon). Established in 1996
through the acquisition of drug delivery specialist Jago Pharma AG, today
Skyepharma receives revenues from 16 products marketed in over 80 countries.
Skyepharma has a range of drug delivery technologies, although its core
competencies are in the areas of inhalation and oral drug delivery. Its injectable
business was sold in 2007 to a venture capital syndicate (and later became Pacira
Pharmaceuticals). Skyepharma’s key value-driving asset is flutiform®, a novel inhaled
corticosteroid (ICS)/long acting β2-agonist (LABA) combination currently approved
for the treatment of asthma in 38 countries including in Europe and Japan. The drug is
partnered with Mundipharma in Europe (where first launches occurred in 2012) and
the rest of the world excluding Japan and the Americas, with Kyorin Pharmaceuticals
in Japan (where it was launched in 2013), and with Sanofi in Mexico, Central and
South America. While flutiform® is the key value driver, Skyepharma continues to
receive recurring income from a range of marketed pharmaceuticals, the most
significant being EXPAREL® (a novel liposomal injectable formulation of
bupivacaine for post-surgical analgesia marketed by Pacira Pharmaceuticals),
Relvar®/Breo
® Anoro
® and Incruse
® Ellipta
® (a range of new respiratory products for
asthma and COPD recently launched by GlaxoSmithKline) and Solaraze® (a topical
gel formulation of diclofenac for actinic keratosis marketed by Sandoz and Almirall).
In August 2014, the Company acquired a novel inhalation platform from Pulmagen
Therapeutics that utilises ultra-low dose theophylline to increase sensitivity to inhaled
corticosteroid treatment. Development of the lead product from this platform, SKP-
2075 for COPD/smoking asthma, has commenced with key Phase II data anticipated
in 2017. In December 2015, Skyepharma signed a feasibility and option agreement
with Mundipharma for the global development and commercialisation of SKP-2076,
its triple ICS/LABA/LAMA fixed dose combination product in a pressurised metered
dose inhaler. We are confident that following successful completion of feasibility
studies that Mundipharma will exercise its option on the product this year.
Investment Positives
flutiform® has a competitive profile to market leader Seretide
®
flutiform® is a novel combination of the most commonly prescribed ICS, fluticasone
propionate, with the LABA, formoterol fumarate, delivered via a pressurised metered
dose inhaler (MDI). In clinical trials, flutiform® demonstrated non-inferiority to the
market leading product from GlaxoSmithKline, Seretide®. While Seretide
®’s label is
currently broader than flutiform®’s (e.g. approved for COPD, licensed for paediatrics,
available in both MDI and DPI formats), the LABA in flutiform® (formoterol) has a
faster onset of bronchodilatation than the LABA in Seretide® (salmeterol) – patients
feel an effect faster. Importantly, flutiform® is priced competitively to other
ICS/LABA products on the market facilitating its adoption by cost-conscious payors
in Europe (for example, our research in the UK suggests many PCTs are encouraging
the use of flutiform® partly based on cost).
Rx Securities 85
Company Update
7 January 2016
Skyepharma - BUY
World-leading validated drug delivery technologies
Skyepharma has a number of proprietary drug delivery technology platforms,
although now specialises in the areas of oral and inhalation drug delivery. The
Company has demonstrated through its partnerships with major pharmaceutical
companies (such as GlaxoSmithKline, Sanofi etc.) its ability to solve complex
formulation issues, improve the performance of drugs and assist product life-cycle
management. Today, there are 15 approved products utilising the Company’s
proprietary technologies as well as EXPAREL® using technologies sold with the
injectable business in 2007. Skyepharma is one of only a few remaining publicly
listed independent drug delivery companies. For example, in June 2013, AstraZeneca
acquired the respiratory company, Pearl Therapeutics Inc., for $560 million upfront
and up to $590 million in milestones.
Strong management team that has taken the Company to profitability
Skyepharma has a strong management team and Board. Peter Grant was appointed
CEO in 2012 having previously been with the Company since 2006 as CFO. He has
positioned the business to now be sustainably profitable. The Company’s CFO,
Andrew Derodra, successfully reduced the debt burden of the Company. Mr Derodra
joined in November 2013 having spent 26 years working in senior finance and
strategic roles with five FTSE 100 companies. The Board has been chaired by Frank
Condella since 2010 having previously been Skyepharma’s CEO.
We forecast sustainable profitability going forwards
Skyepharma has historically been a loss-making business as its positive EBITDA has
been largely offset by financing costs. However, the successful launch of nine new
products since March 2012, including flutiform®, combined with the pay down of
debt should result in Skyepharma being sustainably profitable from 2015 onwards -
we forecast pre-tax profits of £18.3 million in 2015 and £31.2 million in 2016.
Repayment of debt now provides the opportunity to lever R&D technologies
For a number of years Skyepharma had been constrained by significant debt.
However, following a successful fundraise of £112 million in April 2014 and the
majority of its debt being paid down, Skyepharma is well placed to invest in building
its pipeline. In this regard, the Company has already taken its first step when it
acquired a novel inhalation platform from Pulmagen Therapeutics in August 2014.
We forecast Skyepharma to receive $40m in sales milestones for EXPAREL®
Skyepharma is entitled to milestones and a 3% share of sales of EXPAREL®, an
injectable post-surgical analgesic sold by Pacira Pharmaceuticals that we forecast
achieved sales of approximately $237 million in 2015 (growing at 26%). Despite the
product losing marketing exclusivity shortly, we believe the formulation is highly
complex to reproduce and manufacture utilising patent-protected processes. We are
not aware of any generic filers to date and believe sales could exceed $250 million in
2016 and $500 million in 2018 (assuming no generic entrant) triggering two further
milestone payments to Skyepharma of $8 million and $32 million respectively.
Skyepharma’s shares trade below our fair value range of 475-500p/share
Our fair value range for Skyepharma is 475-500p/share, which we believe is
conservative as critically we do not assume successful US development for
flutiform®. We believe the gap to our fair value will close as the market gains greater
confidence in the sales outlook for flutiform® and as the Company demonstrates
continued leverage of its drug delivery technologies (i.e. potentially signing new deals
etc.). Furthermore, a US deal for flutiform® would be a significant share price driver
in our view, although our expectations are low in this regard.
Rx Securities 86
Company Update
7 January 2016
Skyepharma - BUY
Investment Risks
Cheaper versions of Seretide® may be bad news for flutiform
®
flutiform® is Skyepharma’s key value driver and while the product has launched well
to date, there can be no assurance of long-term commercial success. ‘Generic’
Seretide® has reached a number of European markets. While these ‘generic’ versions
are not substitutable they represent value brands and may put significant pricing
pressure on other ICS/LABA products. GlaxoSmithKline’s next generation
ICS/LABA drug (Relvar®
Ellipta®) has recently been launched and despite its profile
having once daily dosing compared to Seretide®, it has been priced competitively to
encourage adoption. To remain competitive, the pricing of flutiform® may need to
reduce in our view, though flutiform® also has strong product attributes as a “best of
both” ICS/LABA combination. In our view, the UK market is the most important
commercial market in Europe for flutiform® and we would expect payors in this
territory to be price focussed. While we expect continued volume growth for
flutiform®, it is already sold at a 15% discount to Seretide®
MDI in this market and
we anticipate further pricing adjustment as ‘generic’ entrants arrive.
Lyon manufacturing facility to revert to Skyepharma in June 2016 Skyepharma has a facility in Lyon which manufactures oral products that incorporate
its delivery technologies: Diclofenac-ratiopharm®
-uno, Coruno®, ZYFLO CR
®,
Madopar DR®, lower-dose formulations of Sular
®, Lodotra
®/RAYOS
®, and Triglide
®.
The facility has cGMP status, with approvals, amongst others, from the EMA, FDA
(inspected in 2015 with no concerns raised) and Anvisa (Brazil). Currently,
Skyepharma leases this facility to Aenova at a rental of €2.0 million per annum,
although the deal with Aenova is due to expire on 30 June 2016, when we expect that
the facility will revert to Skyepharma. Our analysis indicates the facility is currently
modestly loss making, however this depends on maintaining sales and production of
the existing oral products. Skyepharma is working on a number of opportunities that
may generate additional revenue from the facility.
There are manufacturing-related risks associated with flutiform®
The success of flutiform® is also dependent on the ability to produce sufficient
product to meet market requirements at an economic cost. This includes maintaining
continuity of raw material supply and avoiding interruption to manufacturing, which
is undertaken by Sanofi at its factory in Cheshire (UK). This is the only site where the
product is manufactured.
Rx Securities 87
Company Update
7 January 2016
Skyepharma - BUY
Pipeline is early-stage and in our view needs further bolstering
Skyepharma’s historic indebtedness has constrained management’s ability to invest in
its pipeline. While the situation has now changed following the repayment of the
majority of its debt, the significant number of recent approvals has left a more
focussed pipeline with line extensions and further roll outs of existing products and
three novel product candidates: (1) SKP-1052, a treatment for severe nocturnal
hypoglycaemia that has successfully completed a proof-of-concept study.
Skyepharma has yet to find a partner to progress the development; (2) SKP-2075 – a
fixed combination of ultra-low dose theophylline with fluticasone in a DPI – using a
technology platform recently acquired from Pulmagen Therapeutics - Phase II data
are anticipated in 2017; and (3) SKP-2076 – a triple ICS/LABA/LAMA combination
for asthma, for which Mundipharma has a signed a feasibility and option agreement
(feasibility work to be completed in Q2 2016). Skyepharma is also developing three
novel oral drug delivery platform technologies, the first of which, SoctecTM
, is a novel
gastric-retention drug delivery platform. We expect these platforms to generate a
number of outlicensing deals in the future. In our opinion, and in line with
Skyepharma’s stated strategy, the pipeline needs further bolstering to ensure longer-
term growth. In addition to the Company’s own R&D, its partner, Mundipharma, is
investing substantial amounts in extending the flutiform® franchise by developing a
breath-actuated version of the product, extending the drug’s use to paediatrics,
carrying out trials for COPD in Europe and the Asia Pacific, and preparing trials for
asthma in China.
Rx Securities 88
Company Update
7 January 2016
Skyepharma - BUY
Financials (yearly)
Table 26: Earnings Outlook – Annual Forecast Profit and Loss Statement (£’m)
Y/E 31 December 2013A 2014A 2015E 2016E 2017E 2018E 2019E 2020E
Revenue 62.6 73.8 87.7 116.9 127.4 169.4 147.3 141.1
Signing & Milestones 5.7 9.1 - 9.6 - 28.7 7.4 -
Contract R&D 10.3 8.3 5.8 5.0 5.0 5.0 5.0 5.0
Royalties 16.8 17.2 21.2 22.2 27.6 34.4 39.4 32.4
flutiform® - 3.9 5.7 8.7 11.3 18.2 23.3 25.4
GSK Respiratory - 0.8 2.9 6.0 9.0 9.0 9.0 -
Solaraze® 6.5 5.9 6.0 1.0 0.8 0.6 0.5 0.4
Others 10.3 6.8 6.6 6.5 6.5 6.5 6.6 6.6
Product Supply 28.1 34.2 54.2 73.4 87.0 91.0 95.6 103.7
flutiform® 20.6 29.0 48.0 67.3 80.5 84.5 89.1 97.2
Other 7.5 5.2 6.2 6.1 6.5 6.5 6.5 6.5
Other 1.7 5.0 6.5 6.7 7.8 10.4 - -
Cost of Sales (33.2) (32.9) (45.4) (59.4) (73.2) (76.4) (80.1) (86.5)
Gross Profit 29.4 40.9 42.3 57.5 54.2 93.0 67.2 54.6
Expenses (16.2) (19.5) (23.2) (26.4) (26.6) (27.5) (28.4) (29.4)
SMD (1.5) (1.5) (1.6) (1.6) (1.6) (1.6) (1.6) (1.6)
R&D (10.8) (12.1) (15.8) (19.0) (19.0) (19.7) (20.4) (21.2)
Contract (10.3) (8.3) (5.8) (5.0) (5.0) (5.0) (5.0) (5.0)
Proprietary (0.5) (3.8) (10.0) (14.0) (14.0) (14.7) (15.4) (16.2)
Corporate (2.7) (3.5) (4.0) (3.9) (4.1) (4.3) (4.5) (4.7)
Amortisation (0.9) (0.8) (0.9) (0.9) (0.9) (0.9) (0.9) (0.9)
Share-based charges (0.3) (0.5) (0.9) (1.0) (1.0) (1.0) (1.0) (1.0)
Other Income 0.4 0.2 0.4 0.4 0.4 0.4 0.4 0.4
Operating Profit 13.6 21.6 19.5 31.5 28.0 65.9 39.2 25.5
EBITDA 17.9 25.0 23.1 36.6 33.7 72.0 45.8 32.7
Finance Costs (14.6) (31.5) (1.4) (0.3) 0.0 0.2 0.3 0.3
Profit Before Tax (1.0) (9.9) 18.3 31.2 28.1 66.1 39.5 25.8
Taxation 1.8 (0.6) (2.6) (5.0) (5.0) (13.1) (4.7) (3.1)
Net Income 0.8 (10.5) 15.7 26.2 23.1 53.0 34.7 22.7
EPS (p) 1.7 (12.3) 15.0 25.0 22.0 50.6 33.1 21.7
No. of Shares (m) 47.7 85.2 104.8 104.8 104.8 104.8 104.8 104.8
Net Cash (84.2) 15.0 28.2 35.7 64.7 122.7 146.0 163.8
Source: Company data, RX Securities estimates
Rx Securities 89
Company Update
7 January 2016
Skyepharma - BUY
Financials (interims)
Table 27: Earnings Outlook – Interim Forecast Profit and Loss Statement (£’m)
Y/E 31 December 2014A H1 2015A H2 2015E 2015E H1 2016E H1 2016E 2016E
Revenue 73.8 40.8 47.0 87.7 53.5 63.4 116.9
Signing & Milestones 9.1 0.1 - - 4.3 5.3 9.6
Contract R&D 8.3 4.3 1.5 5.8 2.5 2.5 5.0
Royalties 17.2 10.8 10.4 21.2 10.0 12.2 22.2
flutiform® 3.9 2.1 3.6 5.7 3.9 4.8 8.7
GSK Respiratory 0.8 1.2 1.7 2.9 2.7 3.3 6.0
Solaraze® 5.9 4.2 1.8 6.0 0.7 0.3 1.0
Others 6.8 3.3 3.3 6.6 2.7 3.8 6.5
Product Supply 34.2 22.7 31.5 54.2 33.3 40.1 73.4
flutiform® 29.0 19.0 29.0 48.0 30.3 37.0 67.3
Other 5.2 3.7 2.5 6.2 3.0 3.1 6.1
Other 5.0 2.9 3.6 6.5 3.5 3.3 6.7
Cost of Goods (32.9) (18.9) (26.5) (45.4) (27.0) (32.4) (59.4)
Gross Profit 40.9 21.9 20.5 42.3 26.5 31.0 57.5
Expenses (19.5) (9.6) (13.6) (23.2) (13.1) (13.3) (26.4)
SMD (1.5) (0.7) (0.9) (1.6) (0.8) (0.8) (1.6)
R&D (12.1) (6.3) (9.5) (15.8) (9.5) (9.5) (19.0)
Contract (8.3) (4.3) (1.5) (5.8) (2.5) (2.5) (5.0)
Proprietary (3.8) (2.0) (8.0) (10.0) (7.0) (7.0) (14.0)
Corporate (3.5) (1.8) (2.2) (4.0) (1.9) (2.0) (3.9)
Amortisation (0.8) (0.4) (0.5) (0.9) (0.4) (0.5) (0.9)
Share-based charges (0.5) (0.4) (0.5) (0.9) (0.5) (0.5) (1.0)
Other Income 0.2 0.2 0.2 0.4 0.2 0.2 0.4
Operating Profit 21.6 12.5 7.1 19.5 13.6 17.9 31.5
EBITDA 25.0 14.2 9.0 23.1 16.0 20.6 36.6
Finance Costs (31.5) (2.0) 0.7 (1.4) (0.2) (0.2) (0.3)
Profit Before Tax (9.9) 10.5 7.8 18.3 13.4 17.7 31.2
Taxation (0.6) (1.4) (1.2) (2.6) (2.5) (2.5) (5.0)
Net Income (10.5) 9.1 6.6 15.7 10.9 15.2 26.2
EPS (p) (12.3) 8.7 6.3 15.0 10.4 14.5 25.0
Average No. of Shares (m) 85.2 104.8 104.8 104.8 104.8 104.8 104.8
Net Cash 15.0 20.9 28.2 28.2 35.7 35.7 35.7
Source: Company data, RX Securities estimates
Rx Securities 90
Company Update
7 January 2016
Skyepharma - BUY
Forecast News Flow
Table 28: Skyepharma’s forecast news flow
Timing Expected News Programme
January 2016 Pre-close trading update
March 2016 Full year results
H1 2016 Commence Phase I study SKP-2075
Q2 2016 Complete feasibility work and Mundipharma to decide on its
global development and commercialisation option SKP-2076
June 2016 Pre-close interim results trading update
H2 2016 Commence Phase II study SKP-2075
August 2016 Interim results
2016 Approval of breath-actuated device flutiform®
Q3 2016 Results from Phase III trial in COPD flutiform®
H2 2017 Results from Phase II trial SKP-2075
Source: Company data, RX Securities estimates
Rx Securities 91
Company Update
7 January 2016
Skyepharma - BUY
Notes
Rx Securities 92
Company Update
7 January 2016
Skyepharma - BUY
Rx Securities 93
Company Update
7 January 2016
Summit Therapeutics - BUY
Summit Therapeutics
Easy, not difficile
While investor focus remains on Summit’s Duchenne muscular dystrophy
(DMD) drug, SMT C1100, a major achievement in 2016 was the positive
results from the Phase II (CoDIFy) trial of the Company’s C. difficile
treatment, ridinilazole (SMT19969). Ridinilazole not only met its primary
endpoint (sustained clinical response, SCR) of non-inferiority to vancomycin, a
positive surprise of statistical superiority to vancomycin was also
demonstrated. In the study ridinilazole achieved a SCR of 66.7% vs. 42.4% for
vancomycin (p=0.0004). Summit has indicated that ridinilazole was generally
well tolerated with its overall adverse event profile comparable to vancomycin.
We anticipate detailed results from CoDIFy to be presented in H1 2016 along
with data from a head-to-head trial with fidaxomicin. We remain enthusiastic
about the outlook for ridinilazole, with the potential prospect of a licensing
deal this year and progression into Phase III development. Duchenne muscular
dystrophy (DMD) remains a therapeutic area of high investor interest. Summit
will shortly commence enrolment into an open-label Phase II trial with SMT
C1100 with interim data possible in H2 2016. We maintain our BUY rating and
fair value of 220p/share.
SMT C1100 to commence enrolment of patients into an open-label Phase
II trial early this year – following positive results from the modified diet
Phase Ib trial, Summit will enrol up to 40 boys with DMD between the ages of
five and ten years at sites in Europe and the US. Endpoints to be explored
include changes in fat content of muscles and in muscle inflammation as
measured by MRI of leg muscles, and measurements of utrophin protein and
muscle fibre regeneration from muscle biopsies (baseline and week 24 or 48).
North Star ambulatory assessments and 6MWD will also be assessed in the
trial. Summit will report results from the study periodically from H2 2016
onwards, with the first biopsy data expected before the end of 2016.
Ridinilazole is an oral small molecule antibiotic – it has received Qualified
Infectious Disease Product designation and has been granted Fast Track status
by the FDA. C. difficile infection is among the most common causes of
healthcare-associated infection in community hospitals. The development of
ridinilazole has been supported by Seeding Drug Discovery and Translational
Awards from the Wellcome Trust.
Price (AIM, NASDAQ) 148p / $11.10
Fair value 220p
Market capitalisation £90.7m
Enterprise value £74.1m
12m high/low 185.0p / 112.5p
Avg. daily volume 68k
Bloomberg / Reuters SUMM LN / SUMM.L
Listing London (AIM), NASDAQ
Adviser Yes
Broker No
Next results (Q4) March 2016
Top Shareholders
Lansdowne Partners 25.7%
Robert Keith 8.8%
Point72 AM 8.2%
Richard Griffiths 5.2%
Analyst
Dr Samir Devani
+44 (0)207 659 1263
20
40
60
80
100
120
140
160
180
200
Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16
Summit Euro Biotech Index
Share price performance (1 year)
Source: Rx Securities
Pri
ce (
p)
Key financial data (£’000) - IFRS
YE 31 January 2015A 2016E 2017E 2018E 2019E
Revenue 2,148 1,208 - - -
Profit before Tax (12,660) (19,639) (22,775) (24,411) (36,295)
Net Income (11,363) (17,544) (22,175) (23,331) (35,161)
EPS (p) (29.8) (29.7) (36.2) (38.1) (57.4)
Net Cash 11,265 16,559 (4,110) (27,910) (63,113)
Source: RX Securities estimates
Consensus 2016E 2017E 2018E 2019E
Revenue 167 7,333 84,300 NA
Net Income (17,000) (22,100) (102,000) NA
Source: Bloomberg
Rx Securities 94
Company Update
7 January 2016
Summit Therapeutics - BUY
Company Description
Summit Therapeutics (Summit) is a drug discovery and development company spun
out from the University of Oxford, headquartered in the UK, but with operations also
in the US. Summit completed its IPO (originally called VASTox plc) on the London
AIM market in October 2004 raising £15 million. At the time of its IPO the
Company’s primary focus was a chemical genomics platform, however, this has now
been divested. Glyn Edwards was appointed Chief Executive Officer in April 2012
and led a strategic review that determined the Company’s primary focus should be the
development of drugs for treating Duchenne muscular dystrophy (DMD) and C.
difficile infection (CDI). DMD is an Orphan indication (affecting approximately 15-
20,000 boys in the US) caused by mutations in the gene encoding dystrophin, a
protein necessary for muscle strength and function. With no cure, the disease is
devastating with an average life expectancy to only around the late-twenties. Summit
has a programme for the development of utrophin modulators, the lead of which,
SMT C1100, has been granted Orphan drug status in Europe and the US. The
Company has successfully completed a modified diet Phase Ib trial of SMT C1100
and is currently enrolling into a 40 patient, open-label Phase II trial. Summit is also
developing ridinilazole (SMT19969), a novel selective antibiotic for the treatment of
CDI supported by a £4.0 million Translation Award from the Wellcome Trust. C.
difficile is a leading cause of hospital-acquired infections that have risen substantially
over the last decade (and is also increasing in the community), in part at least, due to
the increased use of antibiotics. A Phase II trial recently reported highly encouraging
data with ridinilazole demonstrating non-inferiority (on the basis of sustained clinical
response) to vancomycin and indeed was found to be statistically superior. In March
2014, Summit raised £22.0 million (at 130p/share) and in March 2015 listed its shares
on NASDAQ raising $39.2 million (at $9.90/ADS with one ADS equivalent to five
ordinary shares, effective price 130p/share). Based on existing cash, we estimate
Summit is financed to mid-2016.
Investment Positives
Regulatory incentives for antibiotic development to resistant bacteria in the US
Thirty new antibiotics were approved in the US from 1983-1992, eighteen were
approved from 1993-2002, and seven were approved from 2003-2012. During 2006-
2008 the FDA ratcheted up standards for anti-infective development and requested
large non-inferiority clinical studies. Such clinical trial designs were not practically
feasible and effectively choked pharmaceutical investment in the field. However, in
June 2012, the US Congress passed the Generating Antibiotic Incentives Now
(GAIN) Act. This law created new economic incentives for developers of antibiotics
for resistant bacteria (C. difficile is listed as an unmet need in GAIN) including 5
extra years of market exclusivity, Fast Track and Priority review. In addition, the
FDA is working with industry to assist the development of more practically feasible
clinical studies. The improved regulatory environment has clearly bolstered
investment in the field as since 2013 eight new anti-infective drugs have been
approved by the FDA. Summit’s ridinilazole has both Fast Track and Qualified
Infectious Disease Product status in the US.
Rx Securities 95
Company Update
7 January 2016
Summit Therapeutics - BUY
Potential for a significant licensing deal on ridinilazole
Summit has reported highly encouraging Phase II results for ridinilazole and we
believe is well positioned to progress to Phase III this year. We believe the positive
Phase II results should position Summit well to complete a licensing deal for the drug.
There has been significant deal activity in the anti-infectives space. For example,
AstraZeneca acquired Novexel in January 2010 for $350 million in cash plus up to
$75 million in milestones for effectively two antibiotics in Phase II testing. In June
2008, Novartis acquired Protez for $100 million cash and up to a further $300 million
in milestone payments effectively for an antibiotic in Phase II testing. Deals for later-
stage anti-infective assets include Cubist’s acquisition of Optimer for up to $801
million announced in July 2013 and on the same day, Cubist also announced the
acquisition of Trius (tedizolid had completed two Phase III trials for bacterial skin
and skin structure infections) for up to $818 million. Cubist itself was acquired by
Merck & Co. for $9.5 billion in January 2015.
The DMD space is hot as evident by deals done and valuation of competitors
Listed DMD specialists include Sarepta Therapeutics and PTC Therapeutics. PTC
Therapeutics (enterprise value of approximately $750 million) gained conditional
European approval in August 2014 for Translarna®
(its main value driver) for
nonsense mutation DMD (addresses approximately 13% of patients). Sarepta
Therapeutics is developing an exon-skipping drug, eteplirsen, for DMD (also
addresses approximately 13% of patients). This is the company’s lead drug and has
only completed a 12 patient study (albeit with 168 weeks of data). Eteplirsen
represents a substantial element of Sarepta’s current enterprise value of
approximately $1.5 billion. In October 2009, another exon-skipping company,
Prosensa, partnered its DMD programme with GlaxoSmithKline for up to £428
million in upfront and milestone payments plus double digit royalties. While this
collaboration ultimately ended following Phase III data from the lead drug,
drisapersen, failing to meet its primary endpoint, it nonetheless highlights big pharma
interest and the potential value of new DMD therapeutics. Prosensa was subsequently
acquired by BioMarin in November 2014 for $680 million upfront plus up to a further
$160 million. Despite the Phase III miss for drisapersen, BioMarin filed an NDA for
the drug in April 2015 and an MAA in June. BioMarin is awaiting an FDA decision
on drisapersen, although we are not optimistic of a first-pass approval following a
disappointing outcome from an FDA AdCom meeting in November 2015. Summit’s
SMT C1100 is the only utrophin modulator in clinical trials and has the potential to
treat all DMD patients.
Summit has a CEO with a proven deal-making track record
We anticipate Summit partnering ridinilazole in order to rapidly progress the drug
into Phase III development. In addition, to gain critical mass we believe the Company
has to build its pipeline through M&A. To achieve these goals the appointment of
Glyn Edwards as CEO in April 2012 was a critical development as he came with a
strong deal-making track record. During his time at Antisoma he was involved in
deals with Roche, Novartis, Abbott and Sanofi. He has also demonstrated that he can
deliver value-enhancing M&A.
Rx Securities 96
Company Update
7 January 2016
Summit Therapeutics - BUY
Investment Risks
CDI is currently treated by generic drugs – premium pricing may be challenging The launch of Dificid
® (fidaxomicin) in 2008 provides some insights regarding the
potential market opportunity and challenges faced by new antibiotics. While
fidaxomicin has a first-line setting label claim and superior recurrence rate data,
currently vancomycin remains the preferred first-line treatment (metronidazole is also
significantly used off-label as a treatment), we believe primarily as a result of its
cheaper pricing. Newer antibiotics are frequently reserved for severe cases which can
result in modest sales in the early years of launch. We estimate Dificid® is currently
generating sales of only approximately $70 million per annum in the US.
Summit has a small, early-stage pipeline with a high dependency on two assets
Summit has only two clinical assets in its pipeline. SMT C1100 has clinical exposure
over a limited duration (14 days of treatment). Based on pharmaceutical industry
average success rates, this drug, at its current stage of development, is more likely to
fail than succeed. Ridinilazole has completed a Phase II trial with positive results and
from a development perspective is well positioned to advance to Phase III. While we
endorse the Company’s strategy to continue development of SMT C1100, we believe
Summit should partner ridinilazole and use any value crystallised to
supplement/accelerate its pipeline build.
In our view, Summit is likely to raise further capital in the near future Summit has approximately £22 million of cash, sufficient to finance the Company to
mid-2016. However, further capital will be required to complete the ongoing Phase II,
open-label trial of SMT C1100 and it is likely, in our view, that the Company will
seek additional capital shortly. Summit will also require additional funds to
potentially progress its next-generation utrophin modulators that are being developed
under an alliance with Oxford University.
Proving clinical benefit in DMD trials is relatively challenging
Prosensa’s drisapersen missed its primary endpoint in Phase III and highlights the
challenges facing clinical development of drugs for DMD. For Sarepta’s eteplirsen,
the FDA originally expressed concerns over the use of biomarkers as well as
suggesting the consideration of endpoints in addition to that of the 6-minute walk test
and tighter clinical trial entry criteria (e.g. ambulatory / non-ambulatory, baseline 6-
minute walk distance, age). While regulators are clearly trying to assist developers,
regulatory requirements are evolving and forecasting the development path to
approval remains challenging.
Modulating utrophin may not lead to clinical benefit in DMD patients
SMT C1100 is globally the most advanced utrophin modulator in clinical
development. Utrophin modulation is a treatment approach that is independent of the
underlying mutations in the dystrophin gene that cause DMD. While plenty of
encouraging in vitro and preclinical data have been generated suggesting benefit from
the mechanism, utrophin modulation as a treatment strategy for DMD has yet to
achieve proof-of-concept clinically. For example, it is possible that increasing
utrophin does not lead to clinical benefit for DMD patients. Prior encouraging data on
the impact of SMT C1100 on enzyme markers of muscle damage have not been
replicated in the recent placebo-controlled, modified diet Phase Ib study.
Rx Securities 97
Company Update
7 January 2016
Summit Therapeutics - BUY
Financials (yearly)
Table 29: Earnings Outlook – Annual Forecast Profit and Loss Statement (£’000)
Y/E 31 January 2014A 2015A 2016E 2017E 2018E 2019E 2020E 2021E
Revenue 1,375 2,148 1,208 - - - 31,250 78,125
SMT C1100 - - - - - - 31,250 78,125
SMT19969 - - - - - - - -
Other 1,375 2,148 1,208 - - - - -
Cost of Goods - - - - - - (1,563) (3,906)
Gross Profit 1,375 2,148 1,208 - - - 29,688 74,219
Expenses (8,553) (14,859) (20,937) (22,912) (24,008) (35,158) (46,362) (62,625)
R&D (6,564) (10,417) (16,259) (18,000) (18,900) (19,845) (20,837) (21,879)
G&A (1,989) (4,442) (4,678) (4,912) (5,108) (5,313) (5,525) (5,746)
S&M - - - - - (10,000) (20,000) (35,000)
Operating Income (6,709) (12,711) (19,729) (22,912) (24,008) (35,158) (16,675) 11,593
Finance Income 9 57 90 137 (403) (1,137) (1,786) (1,866)
Finance Expense - (6) - - - - - -
Profit Before Tax (6,700) (12,660) (19,639) (22,775) (24,411) (36,295) (18,461) 9,728
Taxation 607 1,297 2,095 600 1,080 1,134 1,191 1,250
Net Income (6,093) (11,363) (17,544) (22,175) (23,331) (35,161) (17,271) 10,978
EPS (p) (30.3) (29.8) (29.7) (36.2) (38.1) (57.4) (28.2) 17.9
Av. No. of Shares (m) 20.1 38.1 59.0 61.3 61.3 61.3 61.3 61.3
Net Cash 2,029 11,265 16,559 (4,110) (27,910) (63,113) (80,429) (69,497)
Source: Company data, RX Securities estimates
Key Model Assumptions
Our forecasts are conservative as they assume continued R&D spend without reflecting any likely deal or new non-
dilutive fundraise;
The Company’s accumulated tax loss to 31 October 2015 is £42.2 million.
Rx Securities 98
Company Update
7 January 2016
Summit Therapeutics - BUY
Financials (quarterly)
Table 30: Earnings Outlook – Quarterly Forecast Profit and Loss Statement (£’000)
Y/E 31 January Q1 16A Q2 16A Q3 16A Q4 16E 2016E Q1 17E Q2 17E Q3 17E Q4 17E 2017E
Revenue 408 427 373 - 1,208 - - - - -
SMT C1100 - - - - - - - - - -
SMT19969 - - - - - - - - - -
Other 408 427 373 - 1,208 - - - - -
Cost of Goods - - - - - - - - - -
Gross Profit 408 427 373 - 1,208 - - - - -
Expenses (4,208) (5,226) (5,803) (5,700) (20,937) (5,629) (5,552) (5,866) (5,865) (22,912)
R&D (3,133) (4,224) (4,502) (4,400) (16,259) (4,500) (4,500) (4,500) (4,500) (18,000)
G&A (1,075) (1,002) (1,301) (1,300) (4,678) (1,129) (1,052) (1,366) (1,365) (4,912)
Operating Profit (3,800) (4,799) (5,430) (5,700) (19,729) (5,629) (5,552) (5,866) (5,865) (22,912)
Finance Income 7 9 8 66 90 48 34 34 20 137
Profit Before Tax (3,793) (4,790) (5,422) (5,634) (19,639) (5,580) (5,518) (5,832) (5,845) (22,775)
Taxation 427 757 761 150 2,095 150 150 150 150 600
Net Income (3,366) (4,033) (4,661) (5,484) (17,544) (5,430) (5,368) (5,682) (5,695) (22,175)
EPS (p) (6.4) (6.6) (7.6) (8.9) (29.7) (8.9) (8.8) (9.3) (9.3) (36.2)
No. of Shares (m) 52.4 61.1 61.3 61.3 59.0 61.3 61.3 61.3 61.3 61.3
Net Cash 29,414 26,435 22,190 16,559 16,559 10,981 5,467 1,732 (4,110) (4,110)
Source: Company data, RX Securities estimates
Rx Securities 99
Company Update
7 January 2016
Summit Therapeutics - BUY
Forecast News Flow
Table 31: Summit Therapeutic's forecast news flow
Timing Expected News Programme
Early January FDA decision on Biomarin’s drisapersen
22 January 2016 FDA AdCom meeting for Sarepta’s eteplirsen
26 February 2016 PDUFA date for Sarepta’s eteplirsen
Q1 2016 Commence enrolment into an open-label Phase II trial SMT C1100
March 2016 Full year results
9-12 April 2016 European Congress of Clinical Microbiology and
Infectious diseases
H1 2016 Results from Phase II trial with fidaxomicin as active
control
Ridinilazole
June 2016 Q1 results
H2 2016 Interim results from open-label Phase II trial SMT C1100
August 2016 Q2 results
Q4 2016 First biopsy data from open-label Phase II trial SMT C1100
December 2016 Q3 results
Source: Company data, RX Securities estimates
Rx Securities 100
Company Update
7 January 2016
Summit Therapeutics - BUY
Rx Securities 101
Company Update
7 January 2016
Swedish Orphan Biovitrum - HOLD
Swedish Orphan Biovitrum
Eyes on Elocta® launch
2015 was a strong year for Swedish Orphan Biovitrum (SOBI) with positive
momentum in the base business and, critically, good achievements in the long-
acting haemophilia franchise, driving SOBI’s shares up 70% during the year.
In their first full year on the market, Biogen is on track to record combined
sales of Eloctate® and Alprolix
® of over $550 million. While competition is
coming, we estimate both products combined can achieve over $3 billion in
2020. For SOBI, the focus in 2016 will be the launch and roll-out of Elocta® in
Europe as well as the potential European approval of Alprolix® in H2 2016.
Financially, SOBI is in its strongest position since 2010, currently cash
generating with a net cash position on its balance sheet. We expect the
Company to use this strength to re-build its pipeline which is empty of clinical
assets currently and potentially acquire additional revenue-generating
products to accelerate earnings growth. We note today’s positive news that the
Company has expanded its partnership with PharmaSwiss and acquired
commercial rights to Relistor®, Deflux
® and Solesta
®. We expect additional
similar deals during the year. We have made some significant upgrades to our
forecasts to reflect the strong launches of Eloctate® and Alprolix
® by Biogen.
We continue to believe SOBI is premium rated and await a more attractive
buying entry point. For now, we maintain our HOLD rating, but raise our fair
value from SEK 115/share to SEK 140/share.
Operationally, the long-acting haemophilia products remain the key focus
- Biogen launched long-acting Factor VIII (Eloctate®) and long-acting Factor
IX (Alprolix®) on to the US market in Q2 2014 and has delivered a strong
launch for both. For the 9M 2015 period, Biogen reported sales of Eloctate® of
$219 million and $163 million for Alprolix®.
Management has managed expectations well, but financials have benefited
from the strong dollar – SOBI’s revenue guidance for 2015 is SEK 3.0-3.2
billion (our forecast is modestly above the top end of the range) and its EBITA
guidance is SEK 350-400 million (we are significantly ahead, forecasting SEK
423 million). SOBI has significantly benefited from a strengthening dollar as
evidenced by the US$/SEK rate going from an average 6.9 in 2014 to its
current rate of 8.6.
Price SEK 130
Fair value SEK 140
Market capitalisation SEK 35.3 billion
Enterprise value SEK 35.2 billion
12m high/low SEK 145.9 / SEK 76.3
Avg. daily volume 0.86m
Bloomberg / Reuters SOBI SS / W:SOBI
Listing Stockholm
Next results (Q4) 26 February 2016
Top 5 Shareholders
Investor AB 39.8%
State Street 6.9%
Golman Sachs Group 3.9%
CREF 3.5%
SEB 3.4%
Analyst
Dr Samir Devani
+44 (0)207 659 1263
60
70
80
90
100
110
120
130
140
150
Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16
Swedish Orphan Biovitrum Euro Biotech Index
Share price performance (1 year)
Source: Rx Securities
Pri
ce (
SE
K)
Key financial data (SEK’m)
Y/E 31 December 2014A 2015E 2016E 2017E 2018E
Revenue 2,607 3,253 4,714 6,647 9,439
EBITA 339 423 1,161 2,354 3,826
Profit before Tax (319) 59 786 1,993 3,528
Net Income (268) 89 648 1,495 2,646
EPS (SEK) (0.99) 0.33 2.40 5.53 9.79
PE NM 398.2 54.2 23.5 13.3
EV/EBITDA 104.0 83.2 30.3 15.0 9.2
Source: RX Securities estimates
Consensus 2015E 2016E 2017E 2018E
Revenue 3,287 4,833 6,696 7,688
Net Income 257 1,124 1,937 3,448
Source: Bloomberg
Rx Securities 102
Company Update
7 January 2016
Swedish Orphan Biovitrum - HOLD
Company Description
Swedish Orphan Biovitrum (SOBI) is a Swedish biotechnology company spun out of
Pharmacia in August 2001 and currently has approximately 650 employees. The
Company is focused on the development and manufacture of biological drugs in the
areas of haemophilia and inflammation/autoimmune diseases, as well as marketing a
range of specialist pharmaceuticals internationally. The foundation of the Company is
built around manufacturing a Factor VIII replacement called ReFacto AF® for the
treatment of haemophilia A for its partner Pfizer (SOBI is the sole global
manufacturer), which while currently annualising at over $500 million, is now in
decline. In September 2008, the Company announced a transformative deal with
Amgen for the acquisition of global rights to three products, Kineret®, Kepivance
®
and Stemgen®. This was the Company’s first expansion of its sales and marketing
presence outside the Nordic countries and critically its first entry into the US market.
In November 2009, the Company announced the acquisition of Swedish Orphan
International for SEK 3.925 billion (brought revenues of approximately SEK 800
million/annum from approximately 50 different products). The acquisition brought
Orfadin®, a life-saving, life-long treatment for hereditary Tyrosinemia Type 1 (a rare
metabolic disorder that affects 1/100,000 births with a 90% mortality risk) and
currently represents approximately 22% of revenue. SOBI is collaborating with
Biogen for the development of long-acting Factor VIII (Elocta®/Eloctate
®) and IX
(Alprolix®). Alprolix
® was approved by the FDA in March 2014 and Eloctate
® was
approved by the FDA in June 2014 for the control and prevention of bleeding
episodes, perioperative (surgical) management and routine prophylaxis in adults and
children with haemophilia B and A respectively. SOBI has European
commercialisation rights to these long-acting haemophilia products. Elocta® was
approved for marketing in Europe in November 2015 and we anticipate European
approval of Alprolix® in H2 2016. The Company completed its IPO in September
2006 on the OMX Nordic Exchange in Stockholm placing 6.7 million existing shares
(priced at SEK 100/share) and raised SEK 1.5 billion in a rights issue at SEK 15/share
in March 2011. In June 2012, SOBI issued a 5-year SEK 600 million senior
unsecured bond (paying floating interest of 3 months Stibor + 500bps maturing in
2017). This was followed in February 2013 by the issuance of an additional SEK 200
million under the unsecured bond.
Investment Positives
Revenue generation funds a greater than $60 million annual R&D investment
We estimate that SOBI generated revenues of approximately SEK 3.5 billion in 2015
(approximately $410 million). The profits generated on this revenue stream fund an
approximate $60 million research and development investment. Clearly biotech
businesses that fund R&D from internally generated cash flow are lower risk than
those that require additional equity capital to fund R&D.
Building global sales and marketing infrastructure, potential for leverage
SOBI signed a deal with Amgen in September 2008 that was transformative for the
Company’s sales and marketing business. Prior to this deal the Company had its own
commercial infrastructure in the Nordic region, but with the acquisition of global
rights, in particular for Kineret® and Kepivance
®, the Company was able to build its
own infrastructure in the US. In 2014, SOBI opened its North American headquarters
in Waltham, Massachusetts and in Q2 2014 took over direct US selling of Orfadin®.
Rx Securities 103
Company Update
7 January 2016
Swedish Orphan Biovitrum - HOLD
Alprolix
® and
Eloctate
® have been approved and launched in the US
Alprolix® and Eloctate
® were found in Phase III trials (B-LONG and A-LONG,
respectively) to be effective in the control and prevention of bleeding, routine
prophylaxis, and perioperative management. In B-LONG, the overall median
annualised bleeding rates (including spontaneous and traumatic bleeds) were 2.95 in
the weekly prophylaxis arm, 1.38 in the individualised interval prophylaxis arm, and
17.69 in the episodic treatment arm. In the individualised interval prophylaxis arm,
the median dosing interval during the last 6 months on study was 14 days. In A-
LONG, the overall annualised bleeding rates were 3.6 in the weekly prophylaxis arm,
1.6 in the individualised prophylaxis arm and 33.6 in the episodic treatment arm. In
the individualised prophylaxis arm, the median dosing interval was 3.5 days. In the
US it is estimated that approximately 35% of patients are on a prophylaxis regimen
vs. 50% in Europe. There remains a significant commercial opportunity in building
the prophylaxis market with long-acting products. Partner Biogen launched long-
acting Factor VIII (Eloctate®
) and long-acting Factor IX (Alprolix®) on to the US
market in Q2 2014 and we anticipate launch of the products by SOBI in Europe this
year. We estimate global 2020 sales of Alprolix® of $1.4 billion and $1.9 billion for
Eloctate®/Elocta
®.
Management team has executed well and managed expectations
Since joining SOBI as its CEO in 2011, we believe Geoffrey McDonough has
focussed SOBI’s business, improved financial guidance and reporting and he and his
management team have done an excellent job in growing the partnered products side
of the business. We have been impressed by the additional transparency he has
provided and the goals that have been set and achieved. Furthermore, the Company
has managed financial expectations well. The Company now has a track record of
beating its guidance and indeed our current forecasts for 2015 are ahead of
management guidance.
SOBI is a clear acquisition candidate for Biogen
While we forecast very limited payments in the early years of Eloctate® and
Alprolix®’s launch to SOBI, the strong US launch of the drugs highlights their value
and in particular the potential in the currently larger European market. We believe
Biogen would likely be interested in capturing the full economics of the product
should this be the case making SOBI a prime acquisition candidate.
Strong financial position, scope for strategic acquisitions
SOBI ended Q3 2015 with a net cash position of SEK 92 million. This was the first
quarter since Q1 2010 that the Company has ended in a positive cash position and
reflects the restructuring success that the CEO has implemented since joining SOBI.
The Company is now generating significant cash and we believe is in the position
financially to undertake significant M&A, either to enhance its clinical pipeline or
bring in additional revenue-generating products and accelerate earnings growth.
Rx Securities 104
Company Update
7 January 2016
Swedish Orphan Biovitrum - HOLD
Investment Risks
Orfadin® is not protected from generics in the US, although none have arrived
Orfadin® lost its principal barrier to generic entry in the US in May 2013 when its
Orphan Drug designation expired. As such, the product could be subject to generic
competition at any point in the US. Revenue from Orfadin® currently accounts for
approximately 22% of SOBI’s total revenues (although we understand that US sales
are a minority of the total sales). However, no generics have appeared to date in the
US and the Company has a suspension formulation currently under FDA review to
improve the ease and accuracy of dosing for paediatric patients. In Europe, Orfadin®
has patent protection through 2017.
Competition, albeit behind, is visible for long-acting haemophilia products
Long-acting recombinant haemophilia products represent a significant advance for
patients currently undertaking prophylaxis and injecting two to three times a week.
However, we believe SOBI/Biogen face significant competition from Baxalta (BAX
855, Adynovate®, approved by the FDA in November 2015), Bayer (BAY94-9027, in
Phase III) and Novo Nordisk (NN 7088, in Phase III), who are all developing
pegylated long-acting forms of Factor VIII. Novo Nordisk (NN 7999, pegylated,
Phase III) and CSL Behring (CSL 654, albumin fusion protein, in registration) are
developing formulations of long-acting recombinant Factor IX that would compete
with Alprolix®. We believe pegylation technology will produce longer-acting
products which ultimately may result in a lower frequency of injection for patients
and in that case for the Fc fusion products to compete they will need to show a
superior safety profile. Should they not do so, our peak sales forecasts are likely to be
too high. In addition, in the longer-term a number of companies are working on gene
therapies for both haemophilia A (Biomarin has BMN 270 in Phase II) and
haemophilia B (Baxalta has BAX355 in Phase I/II, Spark and Pfizer have SPK-FIX in
Phase I/II, Sangamo Biosciences has SB-FIX in Phase I/II and uniQure has AMT-060
in Phase I/II) which could obviate the need for the longer-acting products.
ReFacto AF®/Xyntha
® could be subject to biosimilar competition
While the approval of long-acting haemophilia products is good for patients, it is
likely to result in sales of ReFacto AF®
/Xyntha® decaying in the medium term. In
addition, the patent on the active material expired in 2010. Momentum behind the
introduction of biosimilars is clearly increasing and we believe it is reasonable to
assume that biosimilars will be on the market in the next few years. SOBI’s current
manufacturing agreement with Pfizer is due to expire in 2020.
Development pipeline looks bare following 2014 failures
The failure of a Phase III trial of KiobrinaTM
for the treatment of malabsorption in
premature infants combined with the hold put on SOBI002 (a biologic inhibitor of
C5) has left SOBI’s clinical development pipeline relatively bare. While
understandably the Company’s focus will be on launching its new long-acting
haemophilia products in Europe, we believe the Company needs to inlicense/acquire
assets to ensure a steady stream of new product launches for the future.
Significant foreign exchange rate fluctuations
SOBI’s financial guidance is based on revenue and EBITA expectations as reported
in SEK as opposed to guidance based on constant currency. During 2015, the
Company has significantly benefited from a strengthening dollar as evidenced by the
US$/SEK rate going from an average of 6.9 in 2014 to its current rate of 8.6.
Rx Securities 105
Company Update
7 January 2016
Swedish Orphan Biovitrum - HOLD
Financials (yearly)
Table 32: Earnings Outlook – Annual Forecast Profit and Loss Statement (SEK’m)
Y/E 31 December 2014A 2015E 2016E 2017E 2018E 2019E 2020E 2021E
Revenue 2,607 3,253 4,714 6,647 9,439 12,205 15,952 19,339
ReFacto® 618 697 734 497 448 403 363 326
Manufacturing 466 532 561 497 448 403 363 326
Royalty 152 165 173 - - - - -
Key Therapeutic Areas 1,302 1,800 2,982 5,336 8,129 10,886 14,614 17,975
Kineret® 609 747 788 828 869 912 958 1,006
Orfadin® 548 764 780 803 763 534 374 262
Other products 114 189 722 2,294 4,732 7,423 11,206 14,569
Alprolix® (US) 22 41 168 655 806 907 934 962
Alprolix® (EU) - - 126 588 1,512 2,520 4,200 5,880
Eloctate® (US) 9 58 524 756 958 1,109 1,142 1,176
Elocta® (EU) - - 336 1,428 2,940 4,620 6,720 8,400
Partner Products 682 738 767 813 863 917 975 1,038
Other 4 - 230 - - - - -
Cost of Goods (1,059) (1,264) (1,650) (1,875) (2,486) (3,094) (4,006) (4,837)
Gross Profit 1,548 1,990 3,064 4,772 6,953 9,111 11,945 14,502
Gross Profit Margin 59% 61% 65% 72% 74% 75% 75% 75%
Operating Expenses (1,873) (1,888) (2,240) (2,772) (3,499) (3,976) (4,555) (5,104)
SG&A (1,032) (1,369) (1,660) (1,908) (2,083) (2,146) (2,162) (2,203)
SG&A/Revenues 42% 42% 50% 40% 40% 40% 40% 40%
R&D (501) (519) (580) (864) (1,416) (1,831) (2,393) (2,901)
R&D/Revenues 19% 16% 12% 13% 15% 15% 15% 15%
Other oper. revenues 9 7 - - - - - -
Other oper. expenses (350) (7) - - - - - -
Operating Profit (325) 102 824 2,000 3,454 5,135 7,390 9,399
EBITA 339 423 1,161 2,354 3,826 5,525 7,800 9,829
Financial Income 20 (15) 18 50 76 131 212 312
Financial Expenses (14) (28) (57) (57) (2) (2) (2) (2)
Profit Before Tax (319) 59 786 1,993 3,528 5,264 7,601 9,710
Taxation 51 31 (137) (498) (882) (1,316) (1,900) (2,427)
Net Income (268) 89 648 1,495 2,646 3,948 5,700 7,282
EPS (SEK) (0.99) 0.33 2.40 5.53 9.79 14.60 21.08 26.93
Weight. Av. No. of Shares (m) 270.4 270.4 270.4 270.4 270.4 270.4 270.4 270.4
Gross Cash 519 928 1,311 1,599 3,606 6,724 11,429 18,744
Net Cash (298) 106 489 1,577 3,584 6,702 11,407 18,722
Source: Company data, RX Securities estimates
Rx Securities 106
Company Update
7 January 2016
Swedish Orphan Biovitrum - HOLD
Financials (quarterly)
Table 33: Earnings Outlook – Interim Forecast Profit and Loss Statement (SEK’m)
Y/E 31 December Q1 15A Q2 15A Q3 15A Q4 15E 2015E Q1 16E Q2 16E Q3 16E Q4 16E 2016E
Revenue 865 764 786 839 3,253 1,328 1,017 1,045 1,324 4,714
ReFacto® 232 172 140 153 697 248 180 147 160 734
Manufacturing 208 99 109 117 532 222 103 114 121 561
Royalty 25 73 31 37 165 26 76 33 38 173
Key Therapeutic Areas 431 417 473 479 1,800 658 655 719 950 2,982
Kineret® 198 171 198 181 747 210 180 208 190 788
Orfadin® 180 189 200 195 764 195 195 195 195 780
Other products 36 39 46 68 189 132 142 156 292 722
Alprolix® (US) 7 7 12 15 41 16 18 18 116 168
Alprolix® (EU) - - - - - - - - 126 126
Eloctate® (US) 10 11 17 20 58 105 121 142 157 524
Elocta® (EU) - - - - - 67 77 91 101 336
Partner Products 184 175 173 206 738 191 182 179 215 767
Other - - - - - 230 - - - 230
Cost of Goods (346) (282) (300) (336) (1,264) (465) (356) (366) (463) (1,650)
Gross Profit 519 482 486 503 1,990 863 661 679 861 3,064
Gross Profit Margin 60% 63% 62% 60% 61% 65% 65% 65% 65% 65%
Expenses (417) (480) (461) (530) (1,888) (550) (555) (560) (575) (2,240)
SG&A (289) (346) (344) (390) (1,369) (405) (410) (415) (430) (1,660)
SG&A/Revenues 33% 45% 44% 46% 42% 30% 40% 40% 32% 35%
R&D (132) (127) (120) (140) (519) (145) (145) (145) (145) (580)
R&D/Revenues 15% 17% 15% 17% 16% 11% 14% 14% 11% 12%
Other oper. revenues 4 - 3 - 7 - - - - -
Other oper. expenses - (7) - - (7) - - - - -
Operating Profit 102 2 25 (27) 102 313 106 119 286 824
EBITA 180 82 105 56 423 395 190 204 373 1,161
Financial Income (1) (17) - 3 (15) 5 4 4 5 18
Financial Expenses - - (14) (14) (28) (14) (14) (14) (14) (57)
Profit Before Tax 101 (15) 10 (38) 59 304 96 110 277 786
Taxation 5.0 24.0 (5.0) 6.6 30.6 (53.1) (16.7) (19.2) (48.4) (137.5)
Net Income 106 9 5 (31) 89 250 79 90 228 648
EPS (SEK) 0.39 0.03 0.02 (0.11) 0.33 0.93 0.29 0.33 0.84 2.40
Weight. Av. No. of Shares (m) 270.4 270.4 270.4 270.4 270.4 270.4 270.4 270.4 270.4 270.4
Gross Cash 682 763 914 928 928 957 1047 1139 1311 1311
Net Cash (136) (56) 92 106 106 135 225 317 489 489
Source: Company data, RX Securities estimates
Rx Securities 107
Company Update
7 January 2016
Swedish Orphan Biovitrum - HOLD
Forecast News Flow
Table 34: Swedish Orphan Biovitrum’s forecast news flow
Timing Expected News Programme
Q1 2016 Launch in Europe Elocta®
27 January 2016 Biogen Q4 results
26 February 2016 Q4 results
Q2 2016 FDA decision on suspension formulation Orfadin®
27 April 2016 Q1 results
15 July 2016 Q2 results
27 October 2016 Q3 results
H2 2016 Approval in Europe Alprolix®
Source: Company data, RX Securities estimates
Rx Securities 108
Company Update
7 January 2016
Swedish Orphan Biovitrum - HOLD
Rx Securities 109
Company Update
7 January 2016
Vernalis - BUY
Vernalis
Transformation complete
2015 saw the transformation of Vernalis’ to a vertically integrated
pharmaceutical business as the Company commenced direct sales in the US of
its lead cough cold product, Tuzistra® XR. The Company also made strong
pipeline progress with its other cough cold products and acquired Moxatag®
(the only once-a-day formulation of amoxicillin) representing its first leverage
of its marketing infrastructure. We are optimistic about the outlook for
Vernalis’ commercial business, but recognise there are near-term challenges –
(1) demand for the Company’s cough cold products will be partly dependent
on the severity of the cough cold season and we believe the current season is
relatively mild; and (2) gaining formulary coverage is critical and as of
September the Company had achieved approximately 50%. We are currently
forecasting Tuzistra® XR revenues of £7.0 million for the year to 30 June 2016,
however, our analysis of prescription data would suggest this is now an
ambitious estimate. While we are still at an early stage of the cough cold
season, there would need to be a substantial ramp in prescriptions for our
forecast to be achieved. We always viewed the first season as establishing a
foundation for the commercial franchise and we remain confident in Tuzistra®
XR’s profile. We believe the 2016/17 season will provide a better reflection of
Tuzistra® XR’s potential - we maintain our BUY rating and fair value of
100p/share.
Cough cold pipeline continues to progress – Beyond Tuzistra® XR, Vernalis
is progressing four additional cough cold products with its partner Tris Pharma:
(1) an NDA for CCP-07 is on track for 2016 and should reach the market ahead
of the 2017/18 season; (2) CCP-08 is now on 12 month stability testing and we
estimate an NDA filing is possible late 2016/early 2017; and (3) CCP-05 and
CCP-06 remain on track to achieve proof-of-concept by the end of this year.
Moxatag® is an antibacterial from the penicillin-class – approved by the
FDA in 2008, it is indicated for the treatment of tonsillitis and/or pharyngitis
secondary to streptococcus pyogenes in adults and paediatric patients 12 years
of age or older. The drug is protected by patents, the last of which expires in
2027. Vernalis estimates there are approximately 2.1 million patients in the US
treated per annum with amoxicillin by primary care physicians and its strategy
will be to convert as many of these as possible to once-daily Moxatag®.
Price 69p
Fair value 100p
Market capitalisation £307.1m
Enterprise value £256.4m
12m high/low 87.3p / 44.5p
Avg. daily volume 0.8m
Bloomberg / Reuters VER LN / VER.L
Listing London (AIM)
Adviser Yes
Broker No
Next results (H1) February 2016
Top 5 Shareholders
Invesco 36.0%
Woodford Investment Mgmt 23.0%
Legal & General 9.9%
GAM 9.8%
Aviva 6.1%
Analyst
Dr Samir Devani
+44 (0)207 659 1263
Key financial data (£’000) - IFRS
Y/E 30 June 2015A 2016E 2017E 2018E 2019E
Revenue 13,712 16,797 37,322 85,386 147,410
Profit before Tax (3,729) (29,734) (17,329) (3,684) 18,443
Net Income (1,783) (27,834) (15,979) (5,174) 14,625
EPS (p) (0.4) (6.3) (3.6) (1.2) 3.3
Net Cash 61,258 33,110 15,148 5,046 10,457 Source: Company data, RX Securities estimates
Consensus 2016E 2017E 2018E 2019E
Revenue 16,350 35,533 83,100 126,233
Net Income (23,633) (9,887) 19,575 40,333
Source: Bloomberg
20
30
40
50
60
70
80
90
Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16
Vernalis Euro Biotech Index
Share price performance (1 year)
Source: Rx Securities
Pri
ce (
p)
Rx Securities 110
Company Update
7 January 2016
Vernalis - BUY
Company Description
Vernalis is an emerging speciality pharmaceutical company with a strategic focus on
the US prescription cough cold market. The Company also has partnered drug
development activities in the therapeutic areas of oncology, pain and CNS. Vernalis,
as it is today, arose from the mergers of British Biotech, RiboTargets and Vernalis
Group Limited in 2003 and is located in the UK (sites in Winnersh and Cambridge)
and in the US (Pennsylvania) employing 96 people. The arrival of a new management
team at the end of 2008 led to a reprioritisation of the Company’s pipeline and review
of its strategy. Today, in order to create value for shareholders, the Company is
operating a three-tiered strategy: (1) develop and commercialise low-risk late stage
products; (2) realise value from the pipeline; and (3) maintain a balanced investment
in research. The Company has partnered drug development programmes in the fields
of oncology, CNS and respiratory. In addition, it has ongoing revenue-generating
structure-based drug discovery collaborations with Servier (three different
collaborations signed in 2007, 2009 and 2011 respectively), Lundbeck (2010), Asahi
Kasei Pharma (2013, undisclosed target for rheumatoid arthritis and other
autoimmune diseases), and Taisho Pharmaceuticals (2015, undisclosed target in the
field of antibiotics). In February 2012, the Company commenced its transformation
into a specialty pharmaceutical business by concluding a development deal with Tris
Pharma for novel, extended-release, liquid cough cold products for the US
prescription market. One product, Tuzistra® XR, was approved by the FDA and
launched on the market in September 2015. Four other products are in active
development, two of which have already achieved proof-of-concept. In order to fund
this transformation, Vernalis raised £65.9 million (net of expenses) at 20p/share in
February 2012.
Investment Positives
Transformational deal with Tris Pharma accelerates the path to self-sustainability
In February 2012, Vernalis signed a deal with Tris Pharma for the development and
marketing of novel extended-release cough cold products for the US prescription
market. The Company has selected five products to develop, the lead product,
Tuzistra® XR, has recently been launched in the US. CCP-07 and CCP-08 have both
successfully completed proof-of-concept (POC) with NDAs anticipated in 2016 and
CCP-05 and CCP-06 are expected to achieve POC before the end of 2016. As the
505(b)(2) regulatory pathway is being utilised for drug approval, the potential time to
market is relatively short and we anticipate multiple launches over the next 24
months. We believe Vernalis is well on the path to achieving its transformation to a
self-sustaining specialty pharmaceutical business.
US prescription cough cold market is an attractive, untapped opportunity
Approximately 30-35 million prescriptions are written in the US each year for cough
cold products. While the cough cold market is highly fragmented and dominated by
generics, we believe a significant opportunity remains to capture market share with
innovative, more patient friendly, extended-release formulations. Prior to going
generic in 2010, Tussionex® (liquid formulation dosed every 12 hours) achieved peak
sales in excess of $200 million per annum. We estimate that Vernalis’ five products in
total could achieve annual sales of approximately $500 million/annum.
Rx Securities 111
Company Update
7 January 2016
Vernalis - BUY
Vernalis has a strong balance sheet…
Vernalis reported a net cash position of £61.3 million at 30 June 2015. The Company
is sufficiently financed to fulfil its obligations under its deal with Tris Pharma.
Furthermore, Vernalis’ financial position could be strengthened further should
additional collaborative deals be signed or if milestones are achieved from any of the
ongoing collaborations.
…and in our view is significantly undervalued
Our fair value of 100p/share is conservative as it ascribes no value to the remaining
frovatriptan income, discovery platform, or indeed any of the partnered products
(tosedostat, the A2A receptor inhibitor programme and RPL554). There has been
significant M&A activity in the specialty pharma space and now with a proprietary
medicine for the US market, we believe there will be increased interest in Vernalis.
As the Company builds marketing infrastructure, there will be scope for inlicensing,
leverage of the sales and marketing platform and the potential for accelerating
earnings growth.
Frovatriptan royalty continues to provide cash
Frovatriptan, a selective 5-HT1B/1D receptor agonist, is approved as an acute oral
treatment for migraine headache and its associated symptoms. The main composition
of matter patent for frovatriptan expired in December 2015 in key markets. The drug
is licensed to Menarini for Europe, Central America and Brazil, and Vernalis earns
net royalties on sales in these territories that is approximately 22.5%. Menarini
reported net sales of frovatriptan for the year to 30 June 2015 of €25.2 million (down
11% on the prior year). Our valuation for Vernalis conservatively excludes any
further income from frovatriptan.
Fragment-based drug discovery platform validated by big pharma deals
Fragment-based drug discovery identifies low molecular weight molecules that make
key interactions with their target binding site. Vernalis has developed a proprietary
library of fragments that have been successfully applied to more than 20 targets. The
Company has ongoing revenue-generating structure-based drug discovery
collaborations with Servier (three different collaborations signed in 2007, 2009 and
2011 respectively), Lundbeck (2010), Asahi Kasei Pharma (2013, undisclosed target
for rheumatoid arthritis and other autoimmune diseases), and Taisho Pharmaceuticals
(2015, undisclosed target in the field of antibiotics).
Management has a strong track record of delivering returns for shareholders
CEO Ian Garland has a strong track record of delivering shareholder value having led
the sales of Acambis to Sanofi for £280 million and Arrow Pharmaceuticals, a
privately-held biotech company, to AstraZeneca for $150 million. Ian previously was
Chief Operating Officer of Celltech Pharmaceuticals Inc., with a turnover of around
$300 million which encompassed the US operations of Celltech Group plc and
included the marketing of the cough cold product Tussionex®. CFO David Mackney
was previously interim CFO at Acambis, where he was involved in the important win
of the US biodefence contract, as well as being involved in the company’s ultimate
acquisition by Sanofi in September 2008. Prior to this role, he was Group Financial
Controller of Shire Pharmaceuticals, a major specialty pharmaceutical company.
Rx Securities 112
Company Update
7 January 2016
Vernalis - BUY
Investment Risks
We believe Vernalis faces greater marketing risks than development risks Tuzistra
® XR is the first product Vernalis directly markets in the US. While Ian
Garland, Vernalis’ CEO, has extensive commercial experience marketing US cough
cold products and is well placed to build this infrastructure, marketing risks remain.
Sales of extended-release products may not ramp as fast as we forecast. Cough cold
products are not chronic medicines and each year sales need to be re-captured from a
zero base. Furthermore, Vernalis may struggle to gain market share with premium
pricing. Our analysis of prescription data would suggest that sales in the current
season are limited and that a substantial ramp would be required in the coming
months for our sales estimate for Tuzistra® to be achieved.
A number of Vernalis/Tris products are likely to be scheduled in the US
A number of the products being developed by Vernalis/Tris contain controlled
substances subject to a high degree of regulation. The US DEA classifies controlled
substances into five schedules. As Schedule I products do not have an accepted
medical use, pharmaceutical products are generally listed as Schedule II, III, IV or V,
with Schedule II substances considered to present the highest potential for abuse or
dependence and Schedule V substances the lowest. Schedule I and II drugs are
subject to the strictest controls, including manufacturing and procurement quotas,
security requirements and criteria for importation. In addition, dispensing of Schedule
II drugs is further restricted (e.g. they may not be refilled without a new prescription).
While Tuzistra® XR is a Schedule III product, we anticipate Vernalis developing
products containing hydrocodone, which has recently come under increased
prescribing restrictions (reclassified to Schedule II from Schedule III).
We believe Vernalis will need to acquire additional non-seasonal products
The cough cold season is essentially from October to February and while we would
expect any sales team to continually market cough cold products throughout the year,
we believe it strategically beneficial that the Company acquires additional non-
seasonal products that its sales team could focus on outside the cough cold season.
Vernalis’ inlicensing of Moxatag® (the only once-a-day formulation of amoxicillin) is
a good first step in acquiring a non-seasonal product. Additional products, such as
Moxotag®, will be required to optimise the Company’s sales and marketing
infrastructure.
Vernalis’ success may attract competition
There are currently no significant competitors that we are aware of developing long-
acting cough cold syrup formulations for the US prescription market. However, if
Vernalis is as successful as we are forecasting, it is likely competitors will be
attracted to the market opportunity. While the APIs are generic, we believe there are
significant formulation technology barriers that will have to be overcome and that
Vernalis has a significant first-mover advantage.
Significant US$ holding – cash position likely to fluctuate based on £/$ Fx rate
Vernalis holds over 70% of its cash in US dollars to ensure that it can meet its
liabilities to Tris Pharma under its February 2012 licensing deal. However, as a result
the Company is likely to report varying net incomes and cash positions based on the
translation rates at balance sheet dates. For example, based on closing exchange rates,
Vernalis booked a non-cash currency gain of £4.1 million for the 12 month period to
30 June 2015. With the £/$ rate currently at 1.47, we expect Vernalis to book further
gains in its interim results due in February.
Rx Securities 113
Company Update
7 January 2016
Vernalis - BUY
Financials (yearly)
Table 35: Earnings Outlook – Annual Forecast Profit and Loss Statement (£’000)
Y/E 30 June 2013A* 2015A** 2016E 2017E 2018E 2019E 2020E 2021E
Revenue 14,264 19,882 16,797 37,322 85,386 147,410 220,035 281,393
Cough cold - - 7,097 29,032 77,419 138,710 209,677 267,742
Royalties 6,917 6,860 2,700 1,080 540 270 135 68
Collaborative Income 7,150 13,022 7,000 7,210 7,426 7,649 7,879 8,115
Deferred Income 197 - - - - - - -
Tosedostat - - - - - 781 2,344 5,469
Cost of Goods (2,244) (1,373) (4,071) (10,785) (28,248) (47,983) (70,427) (88,267)
Gross Profit 12,020 18,509 12,726 26,537 57,138 99,427 149,608 193,126
Gross Profit Margin 84% 93% 76% 71% 67% 67% 68% 69%
Expenses (17,715) (31,198) (42,621) (43,953) (60,862) (81,027) (93,418) (102,099)
R&D (14,416) (22,563) (14,000) (14,420) (14,853) (15,298) (15,757) (16,230)
G&A (3,299) (8,635) (6,621) (6,952) (7,300) (7,665) (8,048) (8,450)
S&M - - (22,000) (22,581) (38,710) (58,065) (69,613) (77,419)
Exceptional Items - 243 - - - - - -
Other Income - 611 - - - - - -
Operating Income (5,695) (11,835) (29,895) (17,416) (3,724) 18,400 56,190 91,026
Finance Income 420 2,733 161 86 40 43 116 297
Finance Expense (999) (157) - - - - - -
Profit Before Tax (6,274) (9,259) (29,734) (17,329) (3,684) 18,443 56,306 91,323
Taxation 2,273 2,858 1,900 1,350 (1,490) (3,818) (6,713) (8,923)
Net Income (4,001) (6,401) (27,834) (15,979) (5,174) 14,625 49,594 82,400
No. of Shares (m) 442.1 442.3 445.2 445.2 445.2 445.2 445.2 445.2
EPS (p) (0.9) (1.4) (6.3) (3.6) (1.2) 3.3 11.1 18.5
Net Cash 76,918 61,258 33,110 15,148 5,046 10,457 53,344 123,922
Source: Company data, RX Securities estimates; * Year End 31 December; ** 18 month period ending 30 June
Rx Securities 114
Company Update
7 January 2016
Vernalis - BUY
Financials (interims)
Table 36: Earnings Outlook – Interim Forecast Profit and Loss Statement (£’000)
Y/E 30 June 2015A H1 2016E H2 2016E 2016E H1 2017E H1 2017E 2017E
Revenue 13,712 6,484 10,313 16,797 20,173 17,150 37,322
Cough cold - 1,484 5,613 7,097 15,968 13,065 29,032
Royalties 5,060 1,500 1,200 2,700 600 480 1,080
Collaborative Income 8,652 3,500 3,500 7,000 3,605 3,605 7,210
Deferred Income - - - - - - -
Cost of Goods (651) (1,792) (2,279) (4,071) (5,849) (4,937) (10,785)
Gross Profit 13,061 4,692 8,034 12,726 14,324 12,213 26,537
Expenses (21,706) (18,880) (23,741) (42,621) (21,528) (22,424) (43,953)
R&D (15,687) (6,800) (7,200) (14,000) (7,004) (7,416) (14,420)
G&A (6,019) (3,080) (3,541) (6,621) (3,234) (3,718) (6,952)
S&M - (9,000) (13,000) (22,000) (11,290) (11,290) (22,581)
Exceptional Items 243 - - - - - -
Other Income 421 - - - - - -
Operating Income (7,981) (14,188) (15,707) (29,895) (7,204) (10,211) (17,416)
Finance Income 2,616 81 80 161 44 42 86
Finance Expense 1,636 - - - - - -
Profit Before Tax (3,729) (14,106) (15,627) (29,734) (7,160) (10,169) (17,329)
Taxation 1,946 1,250 650 1,900 945 405 1,350
Net Income (1,783) (12,856) (14,977) (27,834) (6,215) (9,764) (15,979)
Average No. of Shares (m) 442.3 445.2 445.2 445.2 445.2 445.2 445.2
EPS (p) (0.4) (2.9) (3.4) (6.3) (1.4) (2.2) (3.6)
Net Cash 61,258 50,718 33,110 33,110 28,381 15,148 15,148
Source: Company data, RX Securities estimates; * Rebased to 30 June Year End
Rx Securities 115
Company Update
7 January 2016
Vernalis - BUY
Forecast News Flow
Table 37: Vernalis’ forecast news flow
Timing Expected News Programme
February 2016 H1 results
2016 Achieve POC CCP-05 and CCP-06
2016 Multi-dose PK study results CCP-07
Mid 2016 NDA submission CCP-07
2016 Potential milestones from ongoing deals as
well as potentially sign new collaborations
September 2016 Full year results
2016 Single and multi-dose PK study results CCP-08
Late 2016 / early 2017 NDA submission CCP-08
Source: Company data, RX Securities estimates
Rx Securities 116
Company Update
7 January 2016
Vernalis - BUY
Rx Securities 117
Company Update
7 January 2016
Zealand Pharma A/S - BUY
Zealand Pharma A/S
Peptide passion
2015 brought multiple inflection events for Zealand including positive Phase
III results for LixiLan as well as regulatory filings for both lixisenatide and
LixiLan in the US. In addition, the year saw positive progression of a number
of earlier stage pipeline assets that contributed to driving Zealand’s shares up
83% during the year. 2016 promises to be another eventful year, with
danegaptide Phase II results around the corner (a high risk study in our view -
our forecasts and valuation exclude danegaptide). With US launch of both
lixisenatide and LixiLan due H2 2016, there is now near-term visibility of a
major incoming royalty stream to Zealand. In H2 2016, results from a large
Phase IIb trial of elsiglutide, a GLP-2 analogue, in treating chemotherapy-
induced diarrhoea will be announced by partner Helsinn Healthcare (Zealand
is eligible for high single digit royalties). We anticipate positive progress in
2016 from Zealand’s proprietary pipeline assets. In particular, we expect
ZP4207 (a stable glucagon analogue) to commence Phase II and report data
from the single use, rescue pen formulation. In addition, ZP1848 (GLP-2
analogue for short bowel syndrome) should commence a Phase II trial in Q1
2016. We maintain our BUY rating and fair value of DKK 180/share.
Danegaptide Phase II results due in the coming weeks – danegaptide is a
first-in-class, novel dipeptide that is a potent and selective gap junction
modifier. The drug is in a 600 patient, randomised, double-blind, placebo-
controlled Phase II study to assess its effects in reducing tissue damage from
ischaemic reperfusion injuries in patients with an acute myocardial infarction.
The primary endpoint is the reduction of tissue damage, measured by the
myocardial salvage index (MSI) at three months. The study is powered to
demonstrate a 20% improvement in MSI.
Elsiglutide Phase II results due in H2 2016 – partner Helsinn Healthcare is
running a dose-ranging (10-40mg given once daily for four days as a
subcutaneous injection), 600 patient, multicentre, multinational, placebo-
controlled study exploring elsiglutide’s potential to reduce severe diarrhoea
during the first cycle of chemotherapy in colorectal cancer patients receiving 5-
FU-based chemotherapy.
Price DKK 153.5
Fair value range DKK 180
Market capitalisation DKK 3.74bn
Enterprise value DKK 3.19bn
12m high/low DKK 170.0 / DKK 78.5
Avg. daily volume 143,000
Bloomberg / Reuters ZEAL DC / ZEAL.CO
Listing Copenhagen
Adviser Yes
Next results (Q4) 16 March 2016
Disclosed Shareholders
Sunstone Life Sciences 24.1%
LD Pension 9.7%
Legg Mason 4.9%
Bpi Groupe 4.9%
Analyst
Dr Samir Devani
+44 (0)207 659 1263
20
40
60
80
100
120
140
160
180
Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16
Zealand Euro Biotech Index
Share price performance (1 year)
Source: Rx Securities
Pri
ce (
DK
K)
Key financial data (DKK’m) - IFRS
Y/E 31 December 2014A 2015E 2016E 2017E 2018E
Revenue 154 188 396 231 440
Profit before Tax (73) (106) 125 (79) 116
Net Income (65) (103) 125 (79) 116
EPS (DKK) (2.9) (4.4) 5.1 (3.2) 4.8
Cash 538 555 658 503 481
Source: RX Securities estimates
Consensus 2015E 2016E 2017E 2018E
Revenue 188 314 337 612
Net Income (72) 10 (1) 191
Source: Bloomberg
Rx Securities 118
Company Update
7 January 2016
Zealand Pharma A/S - BUY
Company Description
Zealand Pharma A/S (Zealand) is a Danish biotechnology company based in
Copenhagen employing approximately 110 people (80% in R&D) with world-leading
expertise in the discovery, design and development of peptide therapeutics. Zealand
has synthesised more than 6,800 peptides and filed approximately 1,250 patents (of
which approximately 311 have been granted). The Company’s therapeutic focus lies
in the field of cardio-metabolic diseases, diabetes and obesity. Founded in 1998,
Zealand’s first years of operation were focussed around the development of
lixisenatide, a once-daily GLP-1 receptor agonist for the treatment of Type 2 diabetes.
In 2003, Zealand partnered lixisenatide with Sanofi and the drug has since been
approved in 2013 in Europe and Japan, and is now available in several other countries
worldwide. In the US, the FDA accepted an NDA filing for lixisenatide in September
2015. Sanofi is also progressing LixiLan, a once-daily single injection combination of
lixisenatide and its blockbuster basal insulin Lantus®. LixiLan has generated positive
Phase III results and was filed for approval in the US in December 2015 (with partner
Sanofi utilising a Priority review voucher that it purchased from Retrophin for $245
million). Beyond lixisenatide, Zealand has three additional peptide drugs that are
being advanced by the company itself (danegaptide in a large Phase II trial for the
prevention of myocardial reperfusion injury, ZP4207 for the treatment of severe
hypoglycaemia shortly to commence Phase II and ZP2929 for the treatment of Type 2
diabetes/obesity) or by partners (elsiglutide in Phase IIb for the prevention of
chemotherapy-induced diarrhoea partnered with Helsinn Healthcare) and a portfolio
of preclinical projects. The Company’s world-leading expertise in peptide medicines
is further highlighted by two research and development collaborations with
Boehringer Ingelheim and a deal with Eli Lilly. Of these collaborations, we would
particularly highlight the second deal with Boehringer Ingelheim signed in July 2014
for the development of peptide therapeutics to an undisclosed cardio-metabolic target.
Under the terms of this collaboration, Zealand is eligible for up to €295 million in
potential milestone payments plus research funding and royalties. In December 2014,
Zealand raised DKK 299 million in a non-dilutive royalty bond financing (9.375%
interest, cost of capital 10.4%) based on 86.5% of Lyxumia® revenues alone (all
royalties on LixiLan are fully retained by Zealand) until the bond is repaid. Zealand
completed its IPO on the NASDAQ OMX Copenhagen Stock Exchange in November
2010 raising DKK 373 million at DKK 86/share.
Investment Positives
Lixisenatide has already been approved and LixiLan is now under FDA review
Zealand’s lead drug, lixisenatide (Lyxumia®), has already been approved in over 50
countries worldwide and launched in more than 40 (and is currently under FDA
review). The Company’s partner, Sanofi, reported 2014 sales of €27 million and we
are forecasting sales of €37 million for 2015. In December 2015, Sanofi filed LixiLan
for approval in the US, triggering a $20 million milestone payment to Zealand and
utilised a Priority review voucher – a further validation in our view of the commercial
importance of LixiLan to Sanofi. Under the agreement with Sanofi, Zealand remains
eligible for up to $140 million in milestones (we understand the majority are sales-
related).
Rx Securities 119
Company Update
7 January 2016
Zealand Pharma A/S - BUY
Sanofi is a major player in diabetes and an ideal partner for lixisenatide
Lixisenatide is partnered with Sanofi, globally the second largest pharmaceutical
company in the diabetes market. Our research suggests there to be significant brand
loyalty in this therapeutic area making Sanofi, with its major brand Lantus® (we
estimate sold €6.3 billion in 2015), a particularly attractive partner. Furthermore, the
importance of combination therapy and particularly the combination of lixisenatide
with Lantus® (LixiLan) should ensure that Sanofi captures the maximum possible
value from lixisenatide.
Increasing visibility on a significant incoming royalty stream
We forecast peak sales of lixisenatide of $200 million and of LixiLan of $1.2 billion.
We are more enthusiastic about the outlook for LixiLan as the monotherapy segment
of the market is crowded and competitive. Commercially, the outlook for LixiLan is
more promising in our view as there are significantly fewer potential competitors. We
expect both lixisenatide and LixiLan to be launched in the US in H2 2016. Zealand is
eligible for tiered royalties on lixisenatide that start at 10% and also on any
combination product sold that includes lixisenatide (e.g. LixiLan) that we estimate at
a fixed 10%. At peak, we believe Zealand could potentially be receiving $150 million
in royalties.
Peptide drugs are an important and growing class of medicines
Peptide-based medicines are an important and growing class of pharmaceuticals.
Blockbuster peptide therapeutics include Copaxone®, Victoza
®, Sandostatin
®, Forteo
®
and Zoladex®. Peptides have high biologic specificity and selectivity and play
important roles in regulating human physiological functions. They are smaller than
other protein pharmaceuticals, which can offer advantages in terms of administration
routes and cost of manufacturing.
Peptide expertise validated by multiple large pharmaceutical collaborations
In our opinion, Zealand has world-leading peptide discovery expertise and
technologies. Zealand’s position is validated by two R&D collaborations with
Boehringer Ingelheim and a deal with Eli Lilly. The first collaboration with
Boehringer Ingelheim was signed in June 2011 and was for the development and
commercialisation of novel glucagon/GLP-1 dual-acting peptide therapeutics for the
treatment of Type 2 diabetes and/or obesity. In July 2014, Zealand signed a second,
four and half year, collaboration with Boehringer Ingelheim covering a novel
therapeutic peptide from its portfolio of preclinical programmes. Under the terms of
the second collaboration, Zealand is eligible to receive potential milestone payments
of up to a total of €295 million for the first compound. In August 2013, Zealand
signed a collaboration with Eli Lilly to develop therapeutic peptides for Type 2
diabetes and obesity based on a novel peptide-hormone approach discovered by Eli
Lilly.
Zealand’s financial position is robust
As at 30 September 2015, Zealand had a net cash position of DKK 454 million,
sufficient to finance the Company’s existing development plan and critically cover
the Company until royalty income arises from sales of LixiLan. In addition, in
December 2015 the Company received a $20 million (approximately DKK 135
million) milestone payment from Sanofi for the US filing of LixiLan. We believe
Zealand may look to raise further capital should additional development opportunities
arise.
Rx Securities 120
Company Update
7 January 2016
Zealand Pharma A/S - BUY
Investment Risks
Danegaptide could be a game changer, but is high risk in our view
Danegaptide is a proprietary, first-in-class, novel dipeptide that is a potent and
selective gap junction modifier with both anti-arrhythmic and cytoprotective
properties. The drug is in a large Phase II trial for the protection against cardiac tissue
damage from ischaemic reperfusion injuries (IRI) in acute myocardial infarction
patients, who are undergoing percutaneous coronary intervention. The study is fully
recruited and on track to report results in Q1 2016. While we view this trial as high
risk (the indication has been a graveyard for pharmaceutical developers), the drug has
the potential to be the first pharmaceutical treatment for IRI. Should positive results
be demonstrated, we forecast danegaptide to be a potential blockbuster and would
anticipate a major licensing deal in 2016.
The GLP-1 receptor agonist class is becoming increasingly crowded There are currently six GLP-1 receptor agonists that are on the market with the
current class leading agent being the once-daily product Victoza® (Novo Nordisk).
The first marketed product (Byetta®, AstraZeneca) was a twice daily injection, but
now there are a number of weekly injectable products on the market (Trulicity®, Eli
Lilly and Tanzeum®, GlaxoSmithKline). Indeed, a yearly GLP-1 implant is also in
Phase III development. While duration of action is not the only consideration
(HbA1C improvement, weight loss, use with basal insulin etc.), the class is
competitive and becoming increasingly crowded. As a result, we are more optimistic
about the combination product, LixiLan, where we believe competition will be lower
compared to the monotherapy GLP-1 receptor agonist market.
Lyxumia® has faced significant reimbursement challenges
Lyxumia® was launched by Sanofi in Germany in February 2013 and managed to take
a 10% market share in 18 weeks. However, following discussions with Germany’s
pricing agency, AMNOG, the product was withdrawn from the market. We
understand this was due to AMNOG’s requirement for head-to-head studies against
first-line oral diabetes drugs, metformin and sulphonylurea (an unreasonable request
in our view as Lyxumia®
’s approved label is for use as add-on therapy to orals and
basal insulin in patients who are not adequately controlled). While launches in the UK
and Spain have gone well, launch has yet to occur in France due to similar
reimbursement challenges to Germany.
Limited clinical data on elsiglutide, challenging to assess commercial potential
Elsiglutide is a Zealand invented GLP-2 receptor agonist that is in development for
the prevention of chemotherapy-induced diarrhoea. The drug is partnered with
Helsinn Healthcare and while we are encouraged by the recent commencement of a
Phase IIb trial, we note that results from a Phase IIa trial have not been disclosed.
Furthermore, there has been a significant delay since completion of Phase IIa to
commencement of Phase IIb, we speculate due to additional formulation/regulatory
dialogue. Without clinical data, assessing the commercial potential of elsiglutide is
challenging.
Zealand would benefit from peptide extension/formulation technologies
Zealand has a strong global position in peptide discovery and development. However,
we believe the Company would benefit from acquiring/strategically partnering with
complementary technologies that could extend the duration of action of peptides it
discovers or improve delivery to enhance patient convenience and potentially extend
the commercial longevity of its drugs.
Rx Securities 121
Company Update
7 January 2016
Zealand Pharma A/S - BUY
Financials (yearly)
Table 38: Earnings Outlook – Annual Forecast Profit and Loss Statement (DKK’m)
Y/E 31 December 2014A 2015E 2016E 2017E 2018E 2019E 2020E 2021E
Revenue 154 188 396 231 440 711 1,057 1,334
Lyxumia® royalty EU 20 33 46 66 76 83 85 88
Lyxumia® royalty US - - 10 50 99 132 159 165
LixiLan royalty EU - - - 17 33 66 116 145
LixiLan royalty US - - - 99 231 397 463 496
ZP4207 - - - - - 20 198 364
Elsiglutide - - - - - 13 37 77
Milestones 133 155 340 - - - - -
Cost of Goods (13.8) (26.3) (7.9) (32.4) (61.5) (99.8) (164.7) (216.1)
Gross Profit 140 162 388 199 378 611 893 1,118
Expenses (214) (234) (242) (255) (268) (348) (462) (509)
R&D (180) (211) (218) (229) (240) (252) (265) (278)
G&A (40) (37) (36) (38) (40) (42) (44) (46)
S&M - - - - - (66) (165) (198)
Other Operating Inc. 6 14 12 12 12 12 12 12
Operating Profit (74) (72) 146 (56) 110 263 431 609
Net Interest 1 (35) (22) (23) 6 17 9 15
Profit Before Tax (73) (106) 125 (79) 116 280 440 623
Taxation 8 4 - - - - - -
Net Income (65) (103) 125 (79) 116 280 440 623
EPS (DKK) (2.9) (4.4) 5.1 (3.2) 4.8 11.5 18.0 25.5
Ave No. of Shares (m) 22.6 23.2 24.4 24.4 24.4 24.4 24.4 24.4
Cash 538 555 658 503 481 708 1,148 1,771
Source: Company data, RX Securities estimates
Key Model Assumptions
For 2016 onwards, our forecasts assume an estimated $50 million in milestones from Sanofi for regulatory approvals of
lixisenatide and LixiLan in the US. There are potentially $140 million in milestones remaining under the agreement,
and we estimate that $90 million are sales-related;
In December 2014, Zealand raised DKK 299 million in a non-dilutive royalty bond financing (9.375% interest, cost of
capital 10.4%) based on 86.5% of Lyxumia® revenues until the bond is repaid;
Company 2015 guidance is for revenues (excluding Lyxumia® royalties) of up to DKK 140 million and net operating
expenses in the range of DKK 225-235 million; and
We estimate Zealand has available tax losses of approximately DKK 700 million – our forecasts assume zero tax
liability in the forecast period.
Rx Securities 122
Company Update
7 January 2016
Zealand Pharma A/S - BUY
Financials (quarterly)
Table 39: Earnings Outlook – Quarterly Forecast Profit and Loss Statement (DKK’m)
Y/E 31 December Q1 15A Q2 15A Q3 15A Q4 15E 2015E Q1 16E Q2 16E Q3 16E Q4 16E 2016E
Revenue 6 7 7 168 188 11 11 352 22 396
Cost of Goods (1) (1) (1) (23) (26) (2) (2) (2) (3) (8)
Gross Profit 5 6 6 144 162 10 10 350 19 388
Expenses (55) (71) (51) (58) (234) (61) (63) (54) (64) (242)
R&D (52) (63) (45) (52) (211) (55) (57) (48) (58) (218)
G&A (8) (12) (9) (9) (37) (9) (9) (9) (9) (36)
Other operating inc. 4 3 3 3 14 3 3 3 3 12
Operating Profit (50) (65) (44) 87 (72) (51) (53) 296 (45) 146
Net interest (6) (15) (8) (6) (35) (6) (6) (5) (5) (22)
Profit Before Tax (56) (79) (53) 81 (106) (57) (59) 291 (50) 125
Taxation - 2 1 - 4 - - - - -
Net Income (56) (77) (51) 81 (103) (57) (59) 291 (50) 125
EPS (DKK) (2.5) (3.4) (2.2) 3.3 (4.4) (2.3) (2.4) 11.9 (2.1) 5.1
No. of Shares (m) 22.6 22.8 23.0 24.4 23.2 24.4 24.4 24.4 24.4 24.4
Cash 524 469 454 555 555 493 429 714 658 658
Source: Company data, RX Securities estimates
Rx Securities 123
Company Update
7 January 2016
Zealand Pharma A/S - BUY
Forecast News Flow
Table 40: Zealand’s forecast news flow
Timing Expected News Programme
Q1 2016 Submit MAA LixiLan
9 February Sanofi full year 2015 results
Q1 2016 Phase II results in up to 600 STEMI patients Danegaptide
16 March 2016 Full year 2015 results
H1 2016 Commence Phase II ZP4207 (rescue pen)
H1 2016 Commence Phase II ZP1848
29 April 2016 Sanofi Q1 results
18 May 2016 Q1 results
10-14 June 2016 76th American Diabetes Association Annual Meeting
in New Orleans (possible presentation of the LixiLan
Phase III results)
29 July 2016 Sanofi Q2 results
H2 2016 Results from Phase IIb trial for the prevention of
chemotherapy-induced diarrhoea
Elsiglutide
25 August 2016 Q2 results
H2 2016 Commence Phase II ZP4207 (multi-use)
12-16 September
2016
52nd European Association for the Study of Diabetes
Annual Meeting in Munich
H2 2016 Results from Phase II ZP4207 (rescue pen)
H2 2016 FDA decision Lixisenatide
H2 2016 FDA decision LixiLan
25 October 2016 Sanofi Q3 results
9 November 2016 Q3 results
Source: Company data, RX Securities estimates
Rx Securities 124
Company Update
7 January 2016
Zealand Pharma A/S - BUY
Notes
Rx Securities 125
Sector note Company Update
7 January 2016 12 January 2015
Biotechnology
Key scientific & medical meetings in 2016
Table 41: Major scientific and medical meetings in 2016
23-27 January Society of Thoracic Surgeons
17-21 February American Academy of Emergency Medicine
4-8 March American Academy of Allergy, Asthma and Immunology
4-8 March American Academy of Dermatology
2-4 April American College of Cardiology
9-12 April European Congress of Clinical Microbiology and Infectious Diseases
13-17 April European Association for the Study of the Liver
15-21 April American Academy of Neurology
21-24 April International Conference on Alzheimer’s disease
30 April – 4 May American Association of Neurological Surgeons
1-5 May Association for Research in Vision and Ophthalmology
6-10 May American Society of Cataract and Refractive Surgery
6-10 May American Urological Association
11-14 May American Pain Society
13-17 May American Association of Immunologists
13-18 May American Thoracic Society
14-17 May American College of Obstetrics/Gynaecology
14-18 May American Psychiatric Association
14-18 May American Association of Thoracic Surgery
21-24 May Digestive Disease Week
3-7 June American Society of Clinical Oncology
8-11 June European Congress of Rheumatology
9-11 June American Medical Association
10-14 June American Diabetes Association
16-20 June Interscience Conference on Antimicrobial Agents and Chemotherapy
27-31 August European Society of Cardiology
3-7 September European Respiratory Society Annual Congress
4-8 September European Association of Neurological Societies Annual Meeting
12-16 September European Association for the Study of Diabetes annual conference
25-28 September American Society for Therapeutic Radiology and Oncology
7-11 October Congress of the European Cancer Organisation and Congress of the
European Society for Medical Oncology
15-18 October American Association of Respiratory Care
15-18 October American Academy of Ophthalmology
15-19 October American Society of Reproductive Medicine
16-18 October American Neurological Association
16-20 October American College of Surgeons
21-26 October American College of Gastroenterology
22-26 October American College of Chest Physicians
11-15 November American Association for the Study of Liver Disease
11-16 November American College of Rheumatology
12-16 November American Heart Association
4-7 December American Society of Hematology
Source: RX Securities
Rx Securities 126
Sector note Company Update
7 January 2016 12 January 2015
Biotechnology
Share price performances over 2015
Table 42: Share price performance of European biotechnology companies over 2015
Company Share price performance over 2015
TIZIANA LIFE SCIENCES 322%
GALAPAGOS 266%
KARO BIO 204%
ONCODESIGN 172%
GENMAB 155%
VERONA PHARMA 140%
MEDIGENE 134%
TIGENIX 129%
CELLECTIS SA 128%
SANIONA 122%
AVACTA 110%
HUTCHISON CHINA MEDITECH 99%
ZEALAND PHARMA 83%
IMMUNICUM 82%
BAVARIAN NORDIC 81%
ABLYNX 76%
MOBERG PHARMA 74%
INNATE PHARMA 71%
SWEDISH ORPHAN BIOVITRUM 70%
BIOINVENT INTERNATIONAL AB 57%
PHOTOCURE 52%
VELOXIS PHARMACEUTICALS 52%
ADOCIA 52%
DBV TECHNOLOGIES 51%
QUANTUM GENOMICS 49%
ARGEN-X 46%
VERNALIS 46%
CELYAD 43%
LABORATORIOS FARMACÉUTICOS ROVI 40%
MOLECULAR PARTNERS 39%
VECTURA 37%
OXFORD PHARMASCIENCES 35%
ALK-ABELLÓ 35%
CLINIGEN GROUP 34%
PROBIODRUG 29%
OXFORD BIOMEDICA 24%
ADDEX THERAPEUTICS 23%
ACTELION 22%
C4X DISCOVERY 21%
ALLERGY THERAPEUTICS 20%
PAION 20%
Source: RX Securities
Rx Securities 127
Sector note Company Update
7 January 2016 12 January 2015
Biotechnology
Table 42 (cont.): Share price performance of European biotechnology companies over 2015
Company Share price performance over 2015
AFFIMED 15%
SINCLAIR PHARMA 14%
EVOTEC 13%
GW PHARMACEUTICALS 11%
COSMO PHARMACEUTICALS 10%
SUMMIT THERAPEUTICS 10%
DIAMYD MEDICAL 9%
AB SCIENCE 6%
SANTHERA 5%
BASILEA PHARMACEUTICA 5%
E-THERAPEUTICS 1%
VALNEVA -1%
NICOX -2%
NEWRON PHARMACEUTICALS -2%
MOLMED -2%
NANOBIOTIX -5%
ERYTECH PHARMA -5%
PHARMAMAR -6%
NEOVACS -7%
4 SC -7%
WILEX -8%
BTG -13%
GENFIT -14%
RENEURON -14%
BIOTIE THERAPIES -17%
BIOFRONTERA -18%
SILENCE THERAPEUTICS -19%
VALIRX -19%
MOLOGEN -20%
MORPHOSYS -25%
ACTIVE BIOTECH -27%
PHARMING GROUP -28%
MEDIVIR 'B' -29%
FLAMEL -29%
ONXEO -29%
BIONOR PHARMA -31%
SYNAIRGEN -31%
SCANCELL -33%
HYBRIGENICS -35%
PLETHORA SOLUTIONS -37%
IMMUPHARMA -41%
THROMBOGENICS -45%
Source: RX Securities
Rx Securities 128
Sector note Company Update
7 January 2016 12 January 2015
Biotechnology
Table 42 (cont.): Share price performance of European biotechnology companies over 2015
Company Share price performance over 2015
NORDIC NANOVECTOR -50%
SAREUM HOLDINGS -51%
OREXO -54%
TRANSGENE -64%
NEUROVIVE PHARMACEUTICAL -81%
SERENDEX -85%
HERANTIS PHARMA -87%
Source: RX Securities
Rx Securities 129
Sector note Company Update
7 January 2016 12 January 2015
Biotechnology
Notes
Rx Securities 130
Sector note Company Update
7 January 2016 12 January 2015
Biotechnology
Notes
Rx Securities 131
Sector note Company Update
7 January 2016 12 January 2015
Biotechnology
Whitman Howard Contacts
Chief Executive Officer
Richard Morecombe [email protected] +44 (0)20 7659 1260
Institutional Sales
Myles Brockbank [email protected] +44 (0)20 7659 1247
Araminta Lowes [email protected] +44 (0)20 7659 1221
Brian McCormack [email protected] +44 (0)20 7659 1232
Chris Morris [email protected] +44 (0)20 7659 1245
Mark Murphy [email protected] +44 (0)20 7659 1236
Phil Pickard [email protected] +44 (0)20 7659 1248
Max Sangster [email protected] +44 (0)20 7659 1244
John Tracey [email protected] +44 (0)20 7659 1222
Daryll Warnford-Davis [email protected] +44 (0)20 7659 1241
Donald Waterman [email protected] +44 (0)20 7659 1249
Rx Securities 132
Sector note Company Update
7 January 2016 12 January 2015
Biotechnology
Important Disclosures I, Samir Devani, hereby certify that the views about the companies and their securities discussed in this report are accurately expressed and I have
not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report.
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