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Trinity Delta view: Mereo BioPharma had previously reported very promising Phase II data suggesting that acumapimod is an effective treatment of AECOPD, and on the back of this, has already generated significant interest from various potential partners. However, uncertainty about the route-to-market for acumapimod had hindered negotiations; with this now better understood, we expect Mereo BioPharma to soon enter more meaningful discussions with potential partners that could result in a deal by year end.
Our valuation of Mereo BioPharma is currently under review, as the company is executing the proposed business combination with NASDAQ-listed OncoMed Pharmaceuticalsin (due to complete in the coming weeks). Prior to the announced combination, we valued Mereo BioPharma at £510m, or 615p/share.
Lighthouse
16 April 2019
| Price | 165p |
| Market Cap | £118m |
| Primary exchange | AIM London |
| Sector | Healthcare |
| Company Code | MPH |
| Corporate client | Yes |
Company description
Mereo BioPharma develops and commercialises innovative therapeutics addressing rare and specialty diseases. These are acquired or licensed in at clinical stages from large pharmaceutical companies. The portfolio consists of four compounds that are progressing through late clinical development.
Analysts
Mick Cooper PhD
mcooper@trinitydelta.org
+44 (0) 20 3637 5042
Lala Gregorek
lgregorek@trinitydelta.org
+44 (0) 20 3637 5043
Disclaimer
Trinity Delta Research Limited (“TDRL”; firm reference number: 725161), which trades as Trinity Delta, is an appointed representative of Equity Development Limited (“ED”). The contents of this report, which has been prepared by and is the sole responsibility of TDRL, have been reviewed, but not independently verified, by ED which is authorised and regulated by the FCA, and whose reference number is 185325.
ED is acting for TDRL and not for any other person and will not be responsible for providing the protections provided to clients of TDRL nor for advising any other person in connection with the contents of this report and, except to the extent required by applicable law, including the rules of the FCA, owes no duty of care to any other such person. No reliance may be placed on ED for advice or recommendations with respect to the contents of this report and, to the extent it may do so under applicable law, ED makes no representation or warranty to the persons reading this report with regards to the information contained in it.
In the preparation of this report TDRL has used publically available sources and taken reasonable efforts to ensure that the facts stated herein are clear, fair and not misleading, but make no guarantee or warranty as to the accuracy or completeness of the information or opinions contained herein, nor to provide updates should fresh information become available or opinions change.
Any person who is not a relevant person under section of Section 21(2) of the Financial Services & Markets Act 2000 of the United Kingdom should not act or rely on this document or any of its contents. Research on its client companies produced by TDRL is normally commissioned and paid for by those companies themselves (‘issuer financed research’) and as such is not deemed to be independent, as defined by the FCA, but is ‘objective’ in that the authors are stating their own opinions. The report should be considered a marketing communication for purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. TDRL does not hold any positions in any of the companies mentioned in the report, although directors, employees or consultants of TDRL may hold positions in the companies mentioned. TDRL does impose restrictions on personal dealings. TDRL might also provide services to companies mentioned or solicit business from them.
This report is being provided to relevant persons to provide background information about the subject matter of the note. This document does not constitute, nor form part of, and should not be construed as, any offer for sale or purchase of (or solicitation of, or invitation to make any offer to buy or sell) any Securities (which may rise and fall in value). Nor shall it, or any part of it, form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information that we provide is not intended to be, and should not in any manner whatsoever be, construed as personalised advice. Self-certification by investors can be completed free of charge at www.fisma.org. TDRL, its affiliates, officers, directors and employees, and ED will not be liable for any loss or damage arising from any use of this document, to the maximum extent that the law permits.
Copyright 2019 Trinity Delta Research Limited. All rights reserved.
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Trinity Delta view: Chi-Med continues to perform to our expectations. The depth of the development pipeline means the coming year should see a steady stream of share price catalysts. Our valuation employs a DCF-based sum-of-the-parts approach, which includes a detailed rNPV model of the clinical pipeline. Our current valuation is $4.5bn/£3.4bn, which is equivalent to $33.49/ADS or £51.52/share.
Although Chi-Med has not given any indication of the size of the primary capital offering, we would estimate that it would be looking to raise in the order of $200m to $250m based on the company’s expected cash burn over the next two years. This would allow the Chi-Med to maintain its focus on maximising the value of its broad pipeline, which currently has eight compounds in clinical development in over 30 clinical trials in China and around the world. On top of the primary raise, the secondary placement of CK Hutchison-owned shares will be c$300m based on the current share price.
We value Chi-Med at $4.74bn ($35.57/ADS) or £3.65bn (£54.72/share) and with the rich news flow for 2019 and beyond, we anticipate clinical, regulatory, and commercial catalysts that will unlock further value.
Lighthouse
15 April 2019
| Price (US ADS) (UK share) | $31.20 4,750p |
| Market Cap | $4.12bn £3.16bn |
| Exchanges | NASDAQ AIM London |
| Sector | Healthcare |
| Company Codes | HCM HCM.L |
| Corporate client | Yes |
Company description
Hutchison China MediTech is a Hong Kong headquartered biopharma with an established Commercial Platform in China, and a diverse pipeline of first-in-class/best-in-class selective oral tyrosine kinase inhibitors (Innovation Platform). Its pipeline, discovered in-house, is in development for the China and global oncology markets.
Analysts
Franc Gregori
fgregori@trinitydelta.org
+44 (0) 20 3637 5041
Mick Cooper PhD
mcooper@trinitydelta.org
+44 (0) 20 3637 5042
Lala Gregorek
lgregorek@trinitydelta.org
+44 (0) 20 3637 5043
Disclaimer
Trinity Delta Research Limited (“TDRL”; firm reference number: 725161), which trades as Trinity Delta, is an appointed representative of Equity Development Limited (“ED”). The contents of this report, which has been prepared by and is the sole responsibility of TDRL, have been reviewed, but not independently verified, by ED which is authorised and regulated by the FCA, and whose reference number is 185325.
ED is acting for TDRL and not for any other person and will not be responsible for providing the protections provided to clients of TDRL nor for advising any other person in connection with the contents of this report and, except to the extent required by applicable law, including the rules of the FCA, owes no duty of care to any other such person. No reliance may be placed on ED for advice or recommendations with respect to the contents of this report and, to the extent it may do so under applicable law, ED makes no representation or warranty to the persons reading this report with regards to the information contained in it.
In the preparation of this report TDRL has used publically available sources and taken reasonable efforts to ensure that the facts stated herein are clear, fair and not misleading, but make no guarantee or warranty as to the accuracy or completeness of the information or opinions contained herein, nor to provide updates should fresh information become available or opinions change.
Any person who is not a relevant person under section of Section 21(2) of the Financial Services & Markets Act 2000 of the United Kingdom should not act or rely on this document or any of its contents. Research on its client companies produced by TDRL is normally commissioned and paid for by those companies themselves (‘issuer financed research’) and as such is not deemed to be independent, as defined by the FCA, but is ‘objective’ in that the authors are stating their own opinions. The report should be considered a marketing communication for purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. TDRL does not hold any positions in any of the companies mentioned in the report, although directors, employees or consultants of TDRL may hold positions in the companies mentioned. TDRL does impose restrictions on personal dealings. TDRL might also provide services to companies mentioned or solicit business from them.
This report is being provided to relevant persons to provide background information about the subject matter of the note. This document does not constitute, nor form part of, and should not be construed as, any offer for sale or purchase of (or solicitation of, or invitation to make any offer to buy or sell) any Securities (which may rise and fall in value). Nor shall it, or any part of it, form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information that we provide is not intended to be, and should not in any manner whatsoever be, construed as personalised advice. Self-certification by investors can be completed free of charge at www.fisma.org. TDRL, its affiliates, officers, directors and employees, and ED will not be liable for any loss or damage arising from any use of this document, to the maximum extent that the law permits.
Copyright 2019 Trinity Delta Research Limited. All rights reserved.
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Data at AACR from two key non-small cell lung cancer (NSCLC) trials has shown that savolitinib has encouraging anti-tumour activity and an acceptable safety profile both as monotherapy in exon 14m/del NSCLC, and in combination with osimertinib in MET+ EGFR-TKI refractory NSCLC. These presentations increase our confidence in Hutchison China MediTech (Chi-Med) and partner AstraZeneca’s ability to launch savolitinib, as the first available selective c-Met inhibitor, in its respective NSCLC settings in 2021 (China: MET exon 14m/del) and 2022 (Global: in combination with osimertinib), subject to positive trial read outs and subsequent approvals. We upgrade our valuation to $35.57/ADS or £54.72/share.
| Year-end: December 31 | 2017 | 2018 | 2019E | 2020E |
| Sales (US$m) | 241.2 | 214.1 | 168.6 | 207.6 |
| Adj. PBT (US$m) | (53.5) | (86.7) | (205.6) | (204.5) |
| Net Income (US$m) | (23.0) | (71.3) | (170.6) | (166.9) |
| Earnings per ADS (US$) | (0.22) | (0.57) | (1.31) | (1.28) |
| Cash (US$m) | 358.3 | 301.0 | 150.8 | 11.3 |
| Adj. EBITDA (US$m) | (17.2) | (69.7) | (163.9) | (159.5) |
Update
9 April 2019
| Price (US ADS) (UK share) | $31.78 4,675p |
| Market Cap | $4.24bn £3.12bn |
| Enterprise Value | $3.94bn £2.89bn |
| Shares in issue (ADS) (shares) | 133.3m 66.7m |
| 12-month range | $20.83-$39.68 3,180p-5,668p |
| Free float | 32% |
| Exchanges | NASDAQ AIM |
| Sector | Healthcare |
| Company Code | HCM HCM.L |
| Corporate client | Yes |
Company description
Hutchison China MediTech is a Hong Kong headquartered biopharma with an established Commercial Platform in China, and a diverse pipeline of first-in-class/best-in-class selective oral tyrosine kinase inhibitors (Innovation Platform). Its pipeline, discovered in-house, is in development for the China and global oncology markets.
Analysts
Franc Gregori
fgregori@trinitydelta.org
+44 (0) 20 3637 5041
Mick Cooper PhD
mcooper@trinitydelta.org
+44 (0) 20 3637 5042
Lala Gregorek
lgregorek@trinitydelta.org
+44 (0) 20 3637 5043
Hutchison China MediTech (Chi-Med) remains on track for near-term filings of savolitinib in China and globally in non-small cell lung cancer (NSCLC). Savolitinib has the potential to be the first approved selective cMet inhibitor in its respective NSCLC settings. Data from two key trials presented at AACR increase our confidence that anticipated filing and approval time lines for savolitinib will be met. We also upgrade our Chi-Med valuation to $4.742bn ($35.57/ADS) or £3.648bn (£54.72/share), previously $4.456bn ($33.49/ADS) or £3.428bn (£51.52/share). Of this, savolitinib represents 17% or $6.18/ADS ($824m) or £9.51/share (£634m). With rich news flow for 2019 and beyond, we anticipate future clinical, regulatory, and commercial catalysts will unlock further value.
Initial data from the China Phase II exon 14m/del NSCLC study of savolitinib monotherapy, and mature data from the savolitinib plus osimertinib combination in the ‘B cohort’ of the global Phase Ib/II TATTON trial were presented at AACR in a plenary session entitled ‘Can the challenge of NSCLC resistance be MET or will we not MEK it?’. The following sections provide an overview of the data.
To recap, Chi-Med and partner AstraZeneca intend to file a China NDA in 2020, assuming that data from the ongoing China >50-pt single arm Phase II study of savolitinib monotherapy in MET exon 14m/del NSCLC meets an agreed efficacy threshold. Initial data from the first 41 patients treated (31 of which were efficacy evaluable) was presented at AACR. As per the abstract, at December 2018, 12/31 patients evaluated had partial responses (39% objective response rate, ORR), with a median treatment duration of 34+ weeks. However, data presented had a later cut off (February 2019), with 16/31 PR (ORR of 51.6%), and a disease control rate of 93.5% (29/31).
Outside of China, data review from the dose expansion parts of the Phase Ib/II TATTON study (TATTON B and D) coupled to the outcome of regulatory discussions will determine pivotal trial design, dosing, and target patient populations for global savolitinib + osimertinib combination studies.
A potentially pivotal global Phase II study, SAVANNAH, evaluating savolitinib + osimertinib in c-Met+ 2L/3L EGFR/T790M refractory NSCLC is already underway, and due to read out in 2021. TATTON B data at AACR in a similar albeit not identical patient population (osimertinib approval in the 1L setting occurred after TATTON has initiated), showed a 25% ORR (12/48 partial responses) and a median duration of response of 9.7 months. Additional potentially pivotal NSCLC combination trials should be announced later in 2019.
Preliminary findings from the expansion phase (TATTON B) of the open-label, multi -centre Phase Ib TATTON study demonstrated that the combination of savolitinib (600mg QD) and osimertinib (80mg QD) in patients with EGFR-mutant, MET-amplified NSCLC has an acceptable safety/tolerability profile (primary objective) with preliminary anti-tumour activity (secondary objective).
TATTON B data from two distinct patient populations that had failed prior EGFR TKI therapy were presented and are summarised in Exhibits 1 and 2. This efficacy data (ORR, PR) is broadly comparable with initial TATTON B data presented at WCLC 2017 (Exhibit 3), but includes more patients and the disclosure of duration of response data for both patient groups.
The primary objective of TATTON B was safety/tolerability; the data supports an acceptable risk-benefit profile in what is a late-stage and heavily pre-treated patient population. The savolitinib + osimertinib combination did generate some additive toxicity, resulting in several treatment discontinuations. In addition, one of the two deaths (due to acute kidney injury) in the T790M-/MET+ cohort was possibly treatment related, although the principal investigator stated that it was ‘difficult to evaluate’. Overall, the most frequent adverse events were nausea, vomiting, diarrhoea, and lowered leukocyte and platelet counts.
We note that there is potential to manage this side-effect profile and reduce the 20-35% discontinuations due to adverse events, with a lower savolitinib dose. TATTON A, the dose-finding part of the study, established the 600mg savolitinib qd + 80mg osimertinib qd dose regime. The optimal dose may be lower. TATTON D is evaluating a meaningfully lower savolitinib dose of 300mg qd + 80mg osimertinib qd, and the Phase II SAVANNAH study has two dose levels: either savolitinib 300mg or 600mg qd in combination with 80mg osimertinib qd.
Efficacy as measured by RECIST criteria was the secondary object of the study. TATTON B yielded an ITT (intent to treat) ORR of 52% (24/46) for EGFR TKI T790M-/Met+ patients (post-gefitinib or erlotinib), with an efficacy evaluable ORR of 58% (24/42), with a median DoR of 7.1 months. In osimertinib-resistant Met+ patients the ORR for the ITT population was 25% (12/48), and the ORR for the efficacy evaluable population was 28% (12/43) as 5 patients were enrolled less than 8 weeks prior to cut off, with a median DoR of 9.7 months.
TATTON B data suggests that the savolitinib/osimertinib combination could offer an additional survival benefit as an effective targeted treatment option which can overcome MET-driven resistance mechanisms irrespective of prior EGFR-TKI therapy. Osimertinib was designed to provide a treatment option for EGFR T790M+ patients who have progressed after EGFR TKI therapy, but, as Exhibit 4 overleaf illustrates, c-met amplification is one of the most frequent acquired resistance mechanisms to osimertinib with 20-30% frequency (depending on whether is based analysis of circulating tumour cells or from tumour biopsy).
Osimertinib was approved in the 1L setting for EGFRm NSCLC after initiation of the TATTON study, thus only a subset of patients in the TATTON B cohorts received prior 1L osimertinib and developed MET-driven resistance. Increased 1L use of osimertinib will likely increase the addressable pool of c-Met+ patients.
A key challenge is developing a prospective MET biomarker strategy, with standardised MET patient selection criteria, and robust assays techniques. A poster at AACR summarising the TATTON biomarker analysis highlighted these issues, and concluded that this data could be combined with future clinical efficacy data to inform a prospective biomarker strategy to detect MET-driven EGFR-TKI resistance in NSCLC.
TATTON is an exploratory study. Randomised confirmatory trials would quantify the potential benefit and support a regulatory filing; however, they may not be necessary for an accelerated approval. The first potentially registrational trial, the 172-pt SAVANNAH Phase II, initiated in December 2018 and is investigating the savolitinib/osimertinib combination in EGFRm MET+ NSCLC patients who have progressed on osimertininb. This is evaluating a similar, albeit not identical population, to one of the cohorts in the TATTON study. Data is anticipated in 2021, which may be sufficient for a filing for accelerated approval.
Promising anti-tumour activity (including in brain metastases) and a tolerable side-effect profile was also confirmed by preliminary efficacy and safety data (abstract CT031) from the first 34 patients treated with savolitinib monotherapy in the China >50-pt single arm Phase II study in MET exon 14m/del NSCLC.
Of the first 34 patients treated (with a 17 December 2018 cut off), 17 were treatment-naïve, 13 were 2L, and 4 had ≥2 prior regimens. 31 patients were evaluated for efficacy. Tumour responses were rapid and durable, with 12/31 confirmed partial responses (PR), a 39% objective response rate (ORR). A further 4 PRs were yet to be confirmed; including these, the ORR rises to 52%. Of the remaining patients, 10 had stable disease, 2 showed disease progression, and 3 patients were unevaluable due to early discontinuation. Median treatment duration for confirmed PR was >34 weeks (16-96+ weeks).
Data presented at AACR had a later cut-off of 26 February 2019. This updated information showed 16/31 PR (ORR of 51.6%), with one unconfirmed response, and a disease control rate of 93.5% (29/31).
Savolitinib was generally well tolerated, with adverse events (AEs) mainly Grade 1/2, and most frequently nausea, peripheral oedema, increased liver enzymes, and vomiting. 12/34 (35%) of patients had Grade ≥3 AEs, with 5 (15%) discontinuing due to AEs, most commonly due to liver toxicity (6%).
This study continues to enrol, with recruitment expected to complete in mid-H219. The primary endpoint is ORR, and should an agreed efficacy threshold be met, a China NDA will be filed in 2020 seeking accelerated approval.
We value Chi-Med using a sum-of-the-parts model, incorporating an earnings-based multiple for the Commercial Platform and an rNPV analysis of the late-stage clinical pipeline for the Innovation Platform. The progress being seen across the businesses means we have raised our valuation to $4,742m (£3,638m), which is equivalent to $35.57 per ADS and £54.72 per share. For comparison, our previous valuation was $4,456m (equivalent to $33.49 per ADS) or £3,428m (£51.52 per share).
Exhibit 5 shows an overview of the relative importance of the various assets to the valuation; a description of our valuation methodology and a detailed breakdown its components can be found in our February 2019 initiation. Our valuation is split between the Innovation Platform, which contributes $3,394m or £2,610m, and the Commercial Platform, which adds $1,134m or £872m.
It is worth stressing that we employ conservative assumptions throughout our modelling; hence any number of incremental improvements on our base case scenarios (notably with the Innovation Platform) could result in sizeable uplifts in our valuation. It is also worth noting that this is a current valuation, based on the situation as we see it now, and not a price target for some time in the future. Often such price targets are expectations of what the share price should be, typically, in 12 months’ time as various value inflection points are achieved. Such price targets run counter to our conservative approach; we strive to ensure our risk-adjusted models capture the various possible scenarios, relative to both upside and downside, and then we will update our valuations as the key points are reached. Although resulting in less dramatic upside potential, we believe our valuations are more realistic, attainable and, ultimately, credible.
Disclaimer
Trinity Delta Research Limited (“TDRL”; firm reference number: 725161), which trades as Trinity Delta, is an appointed representative of Equity Development Limited (“ED”). The contents of this report, which has been prepared by and is the sole responsibility of TDRL, have been reviewed, but not independently verified, by ED which is authorised and regulated by the FCA, and whose reference number is 185325.
ED is acting for TDRL and not for any other person and will not be responsible for providing the protections provided to clients of TDRL nor for advising any other person in connection with the contents of this report and, except to the extent required by applicable law, including the rules of the FCA, owes no duty of care to any other such person. No reliance may be placed on ED for advice or recommendations with respect to the contents of this report and, to the extent it may do so under applicable law, ED makes no representation or warranty to the persons reading this report with regards to the information contained in it.
In the preparation of this report TDRL has used publically available sources and taken reasonable efforts to ensure that the facts stated herein are clear, fair and not misleading, but make no guarantee or warranty as to the accuracy or completeness of the information or opinions contained herein, nor to provide updates should fresh information become available or opinions change.
Any person who is not a relevant person under section of Section 21(2) of the Financial Services & Markets Act 2000 of the United Kingdom should not act or rely on this document or any of its contents. Research on its client companies produced by TDRL is normally commissioned and paid for by those companies themselves (‘issuer financed research’) and as such is not deemed to be independent, as defined by the FCA, but is ‘objective’ in that the authors are stating their own opinions. The report should be considered a marketing communication for purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. TDRL does not hold any positions in any of the companies mentioned in the report, although directors, employees or consultants of TDRL may hold positions in the companies mentioned. TDRL does impose restrictions on personal dealings. TDRL might also provide services to companies mentioned or solicit business from them.
This report is being provided to relevant persons to provide background information about the subject matter of the note. This document does not constitute, nor form part of, and should not be construed as, any offer for sale or purchase of (or solicitation of, or invitation to make any offer to buy or sell) any Securities (which may rise and fall in value). Nor shall it, or any part of it, form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information that we provide is not intended to be, and should not in any manner whatsoever be, construed as personalised advice. Self-certification by investors can be completed free of charge at www.fisma.org. TDRL, its affiliates, officers, directors and employees, and ED will not be liable for any loss or damage arising from any use of this document, to the maximum extent that the law permits.
Copyright 2019 Trinity Delta Research Limited. All rights reserved.
Trinity Delta view: BerGenBio has already reported promising bemcentinib monotherapy data from this Phase II trial (CR/CRi/CRp rate of 22% from all 27 patients treated and 43% from the 14 patients with low levels of the sAxl biomarker, see Outlook note from January 2019). This data suggests that bemcentinib can also increase the activity of LDAC, the current standard of care for elderly AML patients and that has an ORR of only c18%.
Our valuation of BerGenBio is NOK3,143m ($370m) or NOK57.45/share and data from the Phase II study in NSCLC with pembrolizumab due in the coming months could be important share price catalysts. The overall survival data from the first stage of the Phase II study in NSCLC with pembrolizumab and initial results from the trial’s second stage are due in Q219.
Lighthouse
2 April 2019
| Price | NOK25.00 |
| Market Cap | NOK1 371m |
| Primary exchange | Oslo |
| Sector | Healthcare |
| Company Code | BGBIO |
| Corporate client | Yes |
Company description
BerGenBio is a clinical-stage, drug development company based in Bergen, Norway and Oxford, UK. It is developing innovative anti-cancer therapies that act on the promising Axl signalling pathway. The lead oncology compound, bemcentinib, is in a number of Phase II trials.
Analysts
Mick Cooper PhD
mcooper@trinitydelta.org
+44 (0) 20 3637 5042
Lala Gregorek
lgregorek@trinitydelta.org
+44 (0) 20 3637 5043
Disclaimer
Trinity Delta Research Limited (“TDRL”; firm reference number: 725161), which trades as Trinity Delta, is an appointed representative of Equity Development Limited (“ED”). The contents of this report, which has been prepared by and is the sole responsibility of TDRL, have been reviewed, but not independently verified, by ED which is authorised and regulated by the FCA, and whose reference number is 185325.
ED is acting for TDRL and not for any other person and will not be responsible for providing the protections provided to clients of TDRL nor for advising any other person in connection with the contents of this report and, except to the extent required by applicable law, including the rules of the FCA, owes no duty of care to any other such person. No reliance may be placed on ED for advice or recommendations with respect to the contents of this report and, to the extent it may do so under applicable law, ED makes no representation or warranty to the persons reading this report with regards to the information contained in it.
In the preparation of this report TDRL has used publically available sources and taken reasonable efforts to ensure that the facts stated herein are clear, fair and not misleading, but make no guarantee or warranty as to the accuracy or completeness of the information or opinions contained herein, nor to provide updates should fresh information become available or opinions change.
Any person who is not a relevant person under section of Section 21(2) of the Financial Services & Markets Act 2000 of the United Kingdom should not act or rely on this document or any of its contents. Research on its client companies produced by TDRL is normally commissioned and paid for by those companies themselves (‘issuer financed research’) and as such is not deemed to be independent, as defined by the FCA, but is ‘objective’ in that the authors are stating their own opinions. The report should be considered a marketing communication for purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. TDRL does not hold any positions in any of the companies mentioned in the report, although directors, employees or consultants of TDRL may hold positions in the companies mentioned. TDRL does impose restrictions on personal dealings. TDRL might also provide services to companies mentioned or solicit business from them.
This report is being provided to relevant persons to provide background information about the subject matter of the note. This document does not constitute, nor form part of, and should not be construed as, any offer for sale or purchase of (or solicitation of, or invitation to make any offer to buy or sell) any Securities (which may rise and fall in value). Nor shall it, or any part of it, form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information that we provide is not intended to be, and should not in any manner whatsoever be, construed as personalised advice. Self-certification by investors can be completed free of charge at www.fisma.org. TDRL, its affiliates, officers, directors and employees, and ED will not be liable for any loss or damage arising from any use of this document, to the maximum extent that the law permits.
Copyright 2019 Trinity Delta Research Limited. All rights reserved.
Further support for bemcentinib’s broad potential from preclinical data at AACR
Lighthouse | 1 April 2019
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Trinity Delta view: These new data lend further support to the broad potential of bemcentinib in different settings and its proposed mode of action in reversing immune suppression and therapy resistance. The results from the preclinical studies with NSCLC models provide further scientific rationale for combining bemcentinib with PD1/PD-L1 inhibitors, as well as opening-up a potential new setting for bemcentinib in combination with DDR agents. Similarly, the data from the pancreatic cancer studies lend support to the use of bemcentinib in this indication.
Our valuation of BerGenBio is NOK3,143m ($370m) or NOK57.45/share. The next significant catalysts for the shares are expected to be overall survival data from the first stage of the Phase II study in NSCLC with pembrolizumab and the results from the trial’s second stage, both of which should be reported in Q219.
Lighthouse
1 April 2019
| Price | NOK25.60 |
| Market Cap | NOK1,404m |
| Primary exchange | Oslo |
| Sector | Healthcare |
| Company Code | BGBIO |
| Corporate client | Yes |
Company description
BerGenBio is a clinical-stage, drug development company based in Bergen, Norway and Oxford, UK. It is developing innovative anti-cancer therapies that act on the promising Axl signalling pathway. The lead oncology compound, bemcentinib, is in a number of Phase II trials.
Analysts
Mick Cooper PhD
mcooper@trinitydelta.org
+44 (0) 20 3637 5042
Lala Gregorek
lgregorek@trinitydelta.org
+44 (0) 20 3637 5043
Disclaimer
Trinity Delta Research Limited (“TDRL”; firm reference number: 725161), which trades as Trinity Delta, is an appointed representative of Equity Development Limited (“ED”). The contents of this report, which has been prepared by and is the sole responsibility of TDRL, have been reviewed, but not independently verified, by ED which is authorised and regulated by the FCA, and whose reference number is 185325.
ED is acting for TDRL and not for any other person and will not be responsible for providing the protections provided to clients of TDRL nor for advising any other person in connection with the contents of this report and, except to the extent required by applicable law, including the rules of the FCA, owes no duty of care to any other such person. No reliance may be placed on ED for advice or recommendations with respect to the contents of this report and, to the extent it may do so under applicable law, ED makes no representation or warranty to the persons reading this report with regards to the information contained in it.
In the preparation of this report TDRL has used publically available sources and taken reasonable efforts to ensure that the facts stated herein are clear, fair and not misleading, but make no guarantee or warranty as to the accuracy or completeness of the information or opinions contained herein, nor to provide updates should fresh information become available or opinions change.
Any person who is not a relevant person under section of Section 21(2) of the Financial Services & Markets Act 2000 of the United Kingdom should not act or rely on this document or any of its contents. Research on its client companies produced by TDRL is normally commissioned and paid for by those companies themselves (‘issuer financed research’) and as such is not deemed to be independent, as defined by the FCA, but is ‘objective’ in that the authors are stating their own opinions. The report should be considered a marketing communication for purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. TDRL does not hold any positions in any of the companies mentioned in the report, although directors, employees or consultants of TDRL may hold positions in the companies mentioned. TDRL does impose restrictions on personal dealings. TDRL might also provide services to companies mentioned or solicit business from them.
This report is being provided to relevant persons to provide background information about the subject matter of the note. This document does not constitute, nor form part of, and should not be construed as, any offer for sale or purchase of (or solicitation of, or invitation to make any offer to buy or sell) any Securities (which may rise and fall in value). Nor shall it, or any part of it, form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information that we provide is not intended to be, and should not in any manner whatsoever be, construed as personalised advice. Self-certification by investors can be completed free of charge at www.fisma.org. TDRL, its affiliates, officers, directors and employees, and ED will not be liable for any loss or damage arising from any use of this document, to the maximum extent that the law permits.
Copyright 2019 Trinity Delta Research Limited. All rights reserved.
Trinity Delta view: The value of Nexstim’s proprietary NBT platform is increasingly becoming visible. Whilst the first commercial delivery in the US for the depression indication is a useful milestone, the real value of the platform lies in the stroke rehabilitation indication. The major inflection point is rapidly approaching, with the results of the important E-FIT trial expected within circa three weeks. Assuming a positive outcome, the next stage will be to raise sufficient cash to implement a comprehensive commercialisation strategy and to progress the proposed clinical trial programme.
It should be remembered that Nexstim has significant opportunities ahead, if it is able to overcome its financial difficulties. In particular, transcranial magnetic stimulation is increasingly being recognised as a therapy for c 6m MDD patients, and NBT is the only system that can deliver accurate and reproducible treatment. Nexstim has also recently had a rapid treatment protocol approved by the FDA, reducing treatment time to 3 minutes vs 37 minutes currently, which should make the NBT system more competitive.
Prior to the announcement of the rights issue we valued Nexstim at €10.5m or €3.23/share; we will be reviewing our valuation once the results of the capital raise are reported.
Lighthouse
28 March 2019
| Price | €0.50 |
| Market Cap | €1.6m |
| Primary exchange | Helsinki |
| Sector | Healthcare |
| Company Code | NXTMH/NXTMS |
| Corporate client | Yes |
Company description
Nexstim is a targeted neuro-modulation company that has developed a proprietary navigated rTMS platform for use in diagnostics (NBS) and therapeutics (NBT). NBS is used in planning brain surgery while NBT is focused on depression and chronic pain. FDA approval for depression was given in 2017, and the focus is on its commercial roll out in the US, Europe and Asia.
Analysts
Mick Cooper PhD
mcooper@trinitydelta.org
+44 (0) 20 3637 5042
Lala Gregorek
lgregorek@trinitydelta.org
+44 (0) 20 3637 5043
Disclaimer
Trinity Delta Research Limited (“TDRL”; firm reference number: 725161), which trades as Trinity Delta, is an appointed representative of Equity Development Limited (“ED”). The contents of this report, which has been prepared by and is the sole responsibility of TDRL, have been reviewed, but not independently verified, by ED which is authorised and regulated by the FCA, and whose reference number is 185325.
ED is acting for TDRL and not for any other person and will not be responsible for providing the protections provided to clients of TDRL nor for advising any other person in connection with the contents of this report and, except to the extent required by applicable law, including the rules of the FCA, owes no duty of care to any other such person. No reliance may be placed on ED for advice or recommendations with respect to the contents of this report and, to the extent it may do so under applicable law, ED makes no representation or warranty to the persons reading this report with regards to the information contained in it.
In the preparation of this report TDRL has used publically available sources and taken reasonable efforts to ensure that the facts stated herein are clear, fair and not misleading, but make no guarantee or warranty as to the accuracy or completeness of the information or opinions contained herein, nor to provide updates should fresh information become available or opinions change.
Any person who is not a relevant person under section of Section 21(2) of the Financial Services & Markets Act 2000 of the United Kingdom should not act or rely on this document or any of its contents. Research on its client companies produced by TDRL is normally commissioned and paid for by those companies themselves (‘issuer financed research’) and as such is not deemed to be independent, as defined by the FCA, but is ‘objective’ in that the authors are stating their own opinions. The report should be considered a marketing communication for purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. TDRL does not hold any positions in any of the companies mentioned in the report, although directors, employees or consultants of TDRL may hold positions in the companies mentioned. TDRL does impose restrictions on personal dealings. TDRL might also provide services to companies mentioned or solicit business from them.
This report is being provided to relevant persons to provide background information about the subject matter of the note. This document does not constitute, nor form part of, and should not be construed as, any offer for sale or purchase of (or solicitation of, or invitation to make any offer to buy or sell) any Securities (which may rise and fall in value). Nor shall it, or any part of it, form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information that we provide is not intended to be, and should not in any manner whatsoever be, construed as personalised advice. Self-certification by investors can be completed free of charge at www.fisma.org. TDRL, its affiliates, officers, directors and employees, and ED will not be liable for any loss or damage arising from any use of this document, to the maximum extent that the law permits.
Copyright 2019 Trinity Delta Research Limited. All rights reserved.
Bringing Global Innovation and China Oncology into focus
Update | 21 March 2019
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Hutchison China MediTech’s (Chi-Med’s) noteworthy achievements in FY18 include the landmark approval and launch of Elunate (fruquintinib) in China in 3L mCRC; the continued maturation of the tyrosine kinase inhibitor (TKI) pipeline with multiple assets either in, or approaching, China or Global registrational trials; and significant investment in building the US infrastructure to support the Global Innovation pipeline. 2019 should bring further progress, with a steady stream of clinical catalysts. Next up will be savolitinib NSCLC data at AACR (March 29-April 3). We continue to value Chi-Med at $33.49/ADS or £51.52/share.
| Year-end: December 31 | 2017 | 2018 | 2019E | 2020E |
| Sales (US$m) | 241.2 | 214.1 | 168.6 | 207.6 |
| Adj. PBT (US$m) | (53.5) | (86.7) | (205.6) | (204.5) |
| Net Income (US$m) | (23.0) | (71.3) | (170.6) | (166.9) |
| Earnings per ADS (US$) | (0.22) | (0.57) | (1.31) | (1.28) |
| Cash (US$m) | 358.3 | 301.0 | 150.8 | 11.3 |
| Adj. EBITDA (US$m) | (17.2) | (69.7) | (163.9) | (159.5) |
Update
21 March 2019
| Price (US ADS) (UK share) | $29.35 4,390p |
| Market Cap | $3.91bn £2.93bn |
| Enterprise Value | $3.61bn £2.70bn |
| Shares in issue (ADS) (shares) | 133.3m 66.7m |
| 12-month range | $20.83-$39.68 3,180p-5,668p |
| Free float | 32% |
| Exchanges | NASDAQ AIM |
| Sector | Healthcare |
| Company Code | HCM HCM.L |
| Corporate client | Yes |
Company description
Hutchison China MediTech is a Hong Kong headquartered biopharma with an established Commercial Platform in China, and a diverse pipeline of first-in-class/best-in-class selective oral tyrosine kinase inhibitors (Innovation Platform). Its pipeline, discovered in-house, is in development for the China and global oncology markets.
Analysts
Franc Gregori
fgregori@trinitydelta.org
+44 (0) 20 3637 5041
Mick Cooper PhD
mcooper@trinitydelta.org
+44 (0) 20 3637 5042
Lala Gregorek
lgregorek@trinitydelta.org
+44 (0) 20 3637 5043
2018 marked several important achievements for Hutchison China MediTech (Chi-Med), and 2019 will be another critical year for the company with a rich vein of news flow (Exhibit 1). Several clinical studies are due to produce both interim and mature results, and various new trials will initiate, including global proof of concept studies for Syk inhibitor HMPL-523 and PI3Kδ inhibitor HMPL-689. However, the focus for investors will largely be on Chi-Med’s two most valuable assets – fruquintinib (Elunate) and savolitinib – and on the burgeoning US infrastructure and Global Innovation pipeline. We continue to value Chi-Med at $4.5bn ($33.49/ADS) or £3.4bn (£51.52/share) but expect to revisit our assumptions as clinical, regulatory, and commercial catalysts unlock further value.
Elunate (fruquintinib) was the first domestically discovered and developed innovative oncology compound approved in China. Following launch in 3L mCRC last November, Elunate is showing solid early signs of clinical acceptance. In the first five weeks on the market, it generated revenue of $3.6m for Chi-Med, broken down as $3.3m from product purchases (manufacturing) and royalties of $0.3m (15% of c$2m in end-user sales) from partner EIi Lilly. Management also confirmed that by end-January (ie the first nine weeks on market), over 1,000 patients had received Elunate therapy.
Elunate is currently an out-of-pocket drug, priced at RMB 21,960 per 4-week cycle (equivalent to US$3,300), although a domestic Patient Access Programme (PAP) essentially limits the pateint’s cost of treatment to a maximum of three cycles. The PAP is designed to ensure broad availability while reimbursement discussions are ongoing.
Eli Lilly and Chi-Med have focused on ensuring patient access to increase penetration into the 3L mCRC setting, and drive sales through volume rather than solely price. Negotiations to secure National Drug Reimbursement List (NDRL) inclusion in a potential 2019 update will be pursued. We believe there is strong potential for Elunate’s future inclusion on the NDRL given the precedent set by the listing of domestically developed drugs such as apatinib (in gastric cancer) and anlotinib (in NSCLC).
On the development front, an interim analysis for futility for the Phase III FRUTIGA trial in 2L gastric cancer is imminent, and PD-1/PD-L1 combination studies are planned as part of the first wave of life cycle indications (LCIs). Chi-Med’s pursuit of LCI development is facilitated by the amendment to the Eli Lilly collaboration announced in December. This amendment provides Chi-Med with greater control over China R&D plans (including LCIs) in exchange for assuming R&D funding. Amended terms are shown in Exhibit 2.
Fruquintinib is a core asset in both China Oncology and Global Innovation. The deal amendment expands the potential Elunate market opportunity in China, which coupled to potential co-promotion rights (from 2021+), significantly improves Chi-Med’s share of deal economics. It also leverages Chi-Med’s commercial acumen and provides a cornerstone product for the nascent Oncology Commercial organisation (currently c30-strong but expanding to 200 by end-2021). Fruquintinib is also one of five Global Innovation clinical assets, which, excepting savolitinib (partnered with AstraZeneca), will be sold through the global marketing organisation.
Elunate is currently Chi-Med’s most valuable China asset, contributing $8.51/ADS ($1,132m) or £13.09/share (£871m) to our Chi-Med valuation.
Savolitinib development has been prioritised in non-small cell lung cancer (NSCLC) by Chi-Med and partner AstraZeneca. Data from two key NSCLC trials will be presented at AACR. These trials are critical in determining the potential for accelerated launch in China (as monotherapy in 1L MET exon 14m/del NSCLC), and the global development timeline and positioning of the savolitinib/osimertinib combination in EGFR/T790M refractory NSCLC.
Read out of the complete data set from the China 92-pt single arm Phase II study in MET exon 14m/del NSCLC will establish potential for accelerated approval of savolitinib monotherapy in this indication. Enrolment is on track to complete in H219, data read out is expected in 2020. Should an agreed efficacy threshold be met, an NDA could be filed in 2020 with potential for China approval in 2021.
Data review from the dose expansion parts of the Phase Ib/II TATTON study (TATTON B and D) coupled to the outcome of regulatory discussions will determine pivotal trial design and dosing for global savolitinib + osimertinib combination studies. SAVANNAH, a global Phase II study evaluating savolitinib + osimertinib in c-Met+ 2L EGFR/T790M refractory NSCLC, which could enable US approval, was initiated in December 2018 and should read out in 2021. However, Chi-Med/AstraZeneca have indicated that they anticipate announcing plans for further potentially pivotal combination trials later this year. This strategy of running two global trials in parallel in two NSCLC target patient populations with breakthrough therapy designation (BTD) potential should increase the probability that the combination reaches the market rapidly. We believe savolitinib could receive FDA approval in combination with osimertinib by 2022, if not earlier.
Initial data from the China Phase II study in exon 14m/del NSCLC and mature data from the B cohort of the global Phase Ib/II TATTON combination study will be presented orally on March 31 in a plenary session entitled ‘Can the challenge of NSCLC resistance be MET or will we not MEK it?’. Abstracts are currently embargoed, but titles have been released:
In addition, a biomarker analysis of the TATTON study will be presented in a poster on April 3: Detection of MET-mediated EGFR tyrosine kinase inhibitor (TKI) resistance in advanced non-small cell lung cancer (NSCLC): biomarker analysis of the TATTON study (4897/20).
We currently value savolitinib at $5.61/ADS ($746m) or £8.63/share (£574m).
We value Chi-Med using a sum-of-the-parts methodology, incorporating an earnings-based multiple for the Commercial Platform and an rNPV model for the Innovation Platform. Our valuation remains $4,456m (equivalent to $33.49 per ADS) or £3,428m (£51.52 per share).
Exhibit 3 provides a high-level overview of the relative importance of the various assets to the valuation; a detailed breakdown of our valuation can be found in our February 2019 initiation. Our valuation is broadly split between the Innovation Platform which contributes $3,029m or £2,330m, and the Commercial Platform which adds $1,131m or £870m.
We employ conservative assumptions throughout our modelling; therefore, any number of incremental improvements on our base case scenarios (notably within the Innovation Platform) could result in sizeable uplifts in our valuation. Additionally, visibility on the late-stage clinical programmes is increasing, with a rich news flow over the coming years. This suggests that there is significant upside potential, with multiple catalysts expected over the coming 24 months.
Chi-Med reported FY18 results that met or beat expectations. Group revenues were $214.1m, down 11.2% (FY17: $241.2m) due to the implementation of the ‘two-invoice’ accounting/booking system which altered how domestic China sales are reported. Revenue growth at the JVs of 13.4% to $491.5m (from $433.3m) provides a better reflection of the Commercial Platform’s performance. R&D spend in the Innovation Platform of $142.2m, up 61.6% from $88.0m, rose in line with the increasing number of later-stage clinical studies that are underway. This translated into an attributable net loss rising at the Group level to $74.8m, against $26.7m last year.
Cash resources remained strong, with $420.3m available at December 2018, vs $479.6m at end-2017. This consists of cash, cash equivalents, and short-term investment of $301m, and unutilised bank facilities of $119m. An additional $42m in available cash resources is held within the non-consolidated JVs. Management are confident this should support the increased spending in R&D through to at least 2020. We believe, given the clinical opportunities, that it would be judicious to issue some additional debt (c $30m in FY20 in our modelling), in the absence of an additional capital raise. Debt financing for Chi-Med could be an attractive option for the company, given the strength of its commercial operations, broad pipeline and backing (implicit and explicit) from CK Hutchison.
For FY19, Chi-Med has streamlined its financial guidance, focusing on the most important guidance metrics: R&D investment and adjusted Group net cash flows.
We estimate that Chi-Med will be investing $200.5m and $220.6m in R&D in FY19 and FY20, respectively. to support the growing number of pivotal studies and increased investment in Global Innovation.
We have revised our estimates as indicated in Exhibit 4, to take into account the FY18 results and management guidance; and our financial forecasts are shown in Exhibit 5 overleaf.
Disclaimer
Trinity Delta Research Limited (“TDRL”; firm reference number: 725161), which trades as Trinity Delta, is an appointed representative of Equity Development Limited (“ED”). The contents of this report, which has been prepared by and is the sole responsibility of TDRL, have been reviewed, but not independently verified, by ED which is authorised and regulated by the FCA, and whose reference number is 185325.
ED is acting for TDRL and not for any other person and will not be responsible for providing the protections provided to clients of TDRL nor for advising any other person in connection with the contents of this report and, except to the extent required by applicable law, including the rules of the FCA, owes no duty of care to any other such person. No reliance may be placed on ED for advice or recommendations with respect to the contents of this report and, to the extent it may do so under applicable law, ED makes no representation or warranty to the persons reading this report with regards to the information contained in it.
In the preparation of this report TDRL has used publically available sources and taken reasonable efforts to ensure that the facts stated herein are clear, fair and not misleading, but make no guarantee or warranty as to the accuracy or completeness of the information or opinions contained herein, nor to provide updates should fresh information become available or opinions change.
Any person who is not a relevant person under section of Section 21(2) of the Financial Services & Markets Act 2000 of the United Kingdom should not act or rely on this document or any of its contents. Research on its client companies produced by TDRL is normally commissioned and paid for by those companies themselves (‘issuer financed research’) and as such is not deemed to be independent, as defined by the FCA, but is ‘objective’ in that the authors are stating their own opinions. The report should be considered a marketing communication for purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. TDRL does not hold any positions in any of the companies mentioned in the report, although directors, employees or consultants of TDRL may hold positions in the companies mentioned. TDRL does impose restrictions on personal dealings. TDRL might also provide services to companies mentioned or solicit business from them.
This report is being provided to relevant persons to provide background information about the subject matter of the note. This document does not constitute, nor form part of, and should not be construed as, any offer for sale or purchase of (or solicitation of, or invitation to make any offer to buy or sell) any Securities (which may rise and fall in value). Nor shall it, or any part of it, form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information that we provide is not intended to be, and should not in any manner whatsoever be, construed as personalised advice. Self-certification by investors can be completed free of charge at www.fisma.org. TDRL, its affiliates, officers, directors and employees, and ED will not be liable for any loss or damage arising from any use of this document, to the maximum extent that the law permits.
Copyright 2019 Trinity Delta Research Limited. All rights reserved.
Nexstim is embarking on the next stage of its journey in commercialising its Navigated Brain Therapy (NBT) platform in MDD (major depressive disorder). The recently reported FY18 results confirmed operational progress was much as expected. A sizeable rights issue is planned, with the aim of securing sufficient funding to support the commercial roll-outs of NBT in depression in North America and Europe. It was also announced that the NBS pre-surgical mapping platform may be divested. We have updated our valuation and financial model to reflect the expected changes. We now value the company at €10.5m or €3.23 per share (also €3.23 diluted), against €32.0m, or €10.5/share (also €10.5 diluted) were financial risk removed.
| Year-end: December 31 | 2017 | 2018 | 2019E | 2020E |
| Sales (€m) | 2.6 | 2.7 | 4.0 | 6.0 |
| PBT (€m) | (7.43) | (6.2) | (6.8) | (6.1) |
| Net Income (€m) | (7.3) | (6.2) | (6.7) | (6.1) |
| EPS (€) | (2.77) | (1.93) | (2.06) | (1.87) |
| Cash* (€m) | 8.5 | 7.2 | 4.4 | 12.3 |
| EBITDA (€m) | (5.3) | (5.9) | (6.0) | (5.3) |
Update
18 March 2019
| Price | €0.88 |
| Market Cap | €2.9m |
| Enterprise Value | €5.0m |
| Shares in issue | 3.3m |
| 12 month range | €0.05-0.40 |
| Free float | 85.8% |
| Primary exchange | Helsinki |
| Other exchanges | Stockholm |
| Sector | Healthcare |
| Company Codes | NXTMH/NXTMS |
| Corporate client | Yes |
Company description
Nexstim is a targeted neuro-modulation company that has developed a proprietary navigated rTMS platform for use in diagnostics (NBS) and therapeutics (NBT). NBS is used in planning brain surgery while NBT is focused on depression and chronic pain. FDA approval for depression was given in 2017, and the focus is on commercial roll out in the US, Europe and Asia.
Analysts
Mick Cooper PhD
mcooper@trinitydelta.org
+44 (0) 20 3637 5042
Lala Gregorek
lgregorek@trinitydelta.org
+44 (0) 20 3637 5041
Nexstim’s management is seeking to secure a solid financial foundation for its commercial future. Following last year’s disappointing result in the pivotal E-FIT Phase III stroke trial, the strategy was re-focussed on maximising the market potential of its highly accurate TMS (Transcranial Magnetic Stimulation) system as a treatment for major depressive disease (MDD).
The recent publication of FY18 results showed that revenues were €2.672m, vs €2.645m in FY17 and our forecast of €2.934m. Good cost control saw the net loss fall to €6.154m, from €7.328m the prior year and beat our expected €6.487m. The loss per share was €1.93 from €2.77, and similarly better than our forecast €2.03. The operating cash flows showed an outflow of €6.193m as a result of the residual R&D spend of the stroke programme, coupled with continuing investment in expanding the sales and marketing infrastructure. The outflow in FY17 was €5.403m, and our FY18 forecast was €7.122m.
The cash position at December 2018 was €7.175m, against €8.474m the previous year; this includes the €4.0m loan from Kreos Capital. Management estimates it will require a minimum of €3m to maintain its going concern basis (sufficient through to December 2019) if the terms of the Kreos loan agreement are maintained. The amount required would rise to around €6m, including outstanding interest and fees, if Kreos were enabled to call the loan in prematurely.
Management’s priority is to strengthen its financial position and is evaluating options that include equity funding and the divestment of non-core assets.
We detailed Nexstim’s proprietary TMS technology and its clinical applications in previous notes (notably our comprehensive Initiation July 2018), with an extensive note examining its use in depression and its commercial prospects (Update October 2018). To recap briefly, the platform is currently employed in two related albeit commercially separate divisions: Diagnostics and Therapeutics (Exhibit 1). The diagnostics division comprises the Navigated Brain Stimulation (NBS) system which is used, and extensively validated, in pre-surgical brain mapping, while the Navigated Brain Therapy (NBT) system has been optimised for therapeutic use.
NBS is principally used as a diagnostic tool in pre-surgical mapping (PSM), where it provides greater mapping precision, allowing surgeons to be more aggressive in tumour resection, thus improving treatment outcomes. The NBS system was launched in 2003 and has subsequently developed an impressive, and supportive, client list. The global installed base is around 160 NBS systems, including numerous world-renowned cancer centres (for instance: Mayo Clinic, Karolinska, MD Anderson, Charité, Great Ormond Street Hospital, and UCSF).
Management’s stated strategy is to focus on the NBT clinical applications and is considering viable options for the NBS unit, including its divestment through a partnership or trade sale, although the details have yet to be made public. The suggestion is that the available options will be discussed at the AGM, scheduled for March 25.
As yet, management has not indicated what the likely divestment value will be. We value the NBS unit, using a risk-adjusted DCF model, at €6.2m. This figure does not include the specific direct and indirect costs, particularly regulatory and field support and R&D efforts, as these were allocated across the whole company. Allowing for these, and to reflect the reduced negotiating room management has, we estimate the realisable value to be around €3m to €4m.
The Navigated Brain Therapy (NBT) platform was FDA approved for MDD in December 2017 and launched in the US in May 2018. It is the only FDA approved device with built-in navigation, ensuring accurate and reproducible treatment. This is achieved through precise mapping of the motor cortex, and via proprietary e-field modelling to account for distortion caused by bone and brain tissue, accurately visualising the exact location, orientation, and magnitude of the stimulation. This means NBT can target the DLPFC (dorsolateral prefrontal cortex) 100% of the time vs 30% with other TMS approaches. Early indications are that the benefits of accurate navigation are readily understood by clinicians.
The opportunity in MDD is material and timely. Treatment resistant depression (ie unresponsive to pharmacological anti-depressant medication) has a current addressable market of c 6m patients but is growing rapidly. The use of repetitive TMS (rTMS) is accepted as a second-line therapy, with the first FDA approval occurring in 2008 (Neuronetics’ Neurostar focal iron core coil TMS platform). It is also reimbursed in the US and various European countries.
In the US, the commercial strategy is direct sales, with ten people currently in the sales team addressing four key geographic areas (North East states, South East states, Texas, and California) where TMS is already established and high-volume psychiatric practices appear primed. In Europe and Asia, a mixed direct and distributor model is being deployed, with the recent Ampere Medical distribution deal for Hong Kong demonstrating progress in developing new markets.
The commercial priority is to raise market awareness of its NBT system. Growth in patient registry data in MDD (including a comparative element with non-navigated systems) will supplement the body of clinical outcomes evidence and should support a shift from existing treatment practices and increase adoption of NBT. Growing understanding of the value proposition (ie improved patient outcomes and economic benefit to clinicians) should be a key driver of uptake.
We value NBT’s use in treating MDD, again using our risk-adjusted DCF model, at €21.5m. This is based on peak sales of €22.4m being achieved in 2028, which should be attainable through the use of a targeted sales team in the direct markets and well-motivated distributors in the other territories. Arguably this figure should be reduced to reflect the larger cost contribution this business area would carry to reflect the possible divestment of the NBS unit, but we are assuming overheads will be trimmed. In fairness, we are already employing conservative assumptions throughout (notably regarding clinical adoption), so the effect is, in any case, relatively minor.
The treatment of chronic neuropathic pain is currently the largest application in the neuromodulation market. While Nexstim’s NBT is CE Marked for chronic neuropathic pain, the FDA has yet to approve any rTMS device for this indication. This largely reflects the fact that no large, multi-centre, randomised clinical trials have yet been undertaken by any manufacturer.
Following encouraging results from an exploratory 39-patient Phase II study at The Walton Centre, Neuroscience Research Centre, Liverpool (detailed in our Initiation note), Nexstim was evaluating potential clinical trials for neuropathic and related chronic pain. The pressing need to finance adequately the depression opportunity suggests that, despite the clinical potential, pursuing the neuropathic pain indication will be a lesser priority.
We value the pain indication at €5.4m, with peak sales of around €25.8m by 2033 and a success probability of only 25% (reflecting the early nature of the clinical studies). We should note that this indication is the one most sensitive to Nexstim’s financial position, where limited funds would, rightly in our view, be channelled towards commercialising MDD.
We believe a risk-adjusted DCF model is the most appropriate method to value Nexstim, and this shows that the company is undervalued at current levels. However, realistically, the single major consideration lies in ensuring sufficient financing is in place to execute the commercial plans for the MDD indication.
The financial uncertainty surrounding the company is understandable, weighs heavily on the share price, and does cloud our investment case. To reflect this, we have maintained our previous assumptions based on sufficient funding being in place to support the commercial operations adequately. However, to this clean operational scenario we have added a further risk probability to present the possibility that the necessary funds will not be available in a timely manner.
In order to maintain the desired transparency in our modelling we show two valuation figures for each business unit: the first is based on the commercial outcomes we would expect if funding were not an issue; and the second introduces a risk adjustment for the current funding uncertainties. Obviously, assuming the funding picture becomes clearer, the second valuation figure should converge with the first valuation over time.
NBT MDD is the largest element, with the “commercial” valuation being $21.5m, but reducing to €7.5m when we overlay our “financial risk” adjustment. The NBS diagnostic unit is valued at €6.2m and reduces to €2.2m after risk adjustment. Similarly, the NBT Pain indication is valued at €5.4m and €1.9m respectively. Obviously, the net cash/debt position remains at -€1.1m under both scenarios. This results in our valuation for the company being €10.5m, which is equivalent to €3.23/share and also €3.23/share diluted (based on in-the-money options and warrants). This compares to €32.0m or €10.5/share were the financial risk removed. For context, our previously published valuation was €35.9m or €11.04/share and €10.30/share diluted.
It is worth highlighting that we always seek to apply conservative assumptions regarding patient populations, market sizes and growth rates, net pricing, adoption curves, and peak market penetration. Also, we only value the existing clinical assets with potential supplementary clinical indications and off-label usage excluded. Additionally, as before, we have also sought to account for the known dilution from the outstanding warrants and options.
Nexstim had net cash of around €1.1m at December 2018 which, despite the cessation of clinical work on stroke and other cost cutting, means the need for funding is pressing in our view. Although still unclear, our forecasts (based on the Kreos loan facility being in place) suggest that Nexstim needs around €6m over the next 12 months to properly execute its commercialisation plans for NBT in MDD. Depending on the level of subsequent investment needed in the commercial infrastructure and the level of sales performance, further funds may be required: we model €15m in FY20. However, the actual amount and timings will depend on the rate of clinical acceptance and institutional adoption on the one hand, and the investments in clinical data and marketing effort on the other.
Disclaimer
Trinity Delta Research Limited (“TDRL”; firm reference number: 725161), which trades as Trinity Delta, is an appointed representative of Equity Development Limited (“ED”). The contents of this report, which has been prepared by and is the sole responsibility of TDRL, have been reviewed, but not independently verified, by ED which is authorised and regulated by the FCA, and whose reference number is 185325.
ED is acting for TDRL and not for any other person and will not be responsible for providing the protections provided to clients of TDRL nor for advising any other person in connection with the contents of this report and, except to the extent required by applicable law, including the rules of the FCA, owes no duty of care to any other such person. No reliance may be placed on ED for advice or recommendations with respect to the contents of this report and, to the extent it may do so under applicable law, ED makes no representation or warranty to the persons reading this report with regards to the information contained in it.
In the preparation of this report TDRL has used publically available sources and taken reasonable efforts to ensure that the facts stated herein are clear, fair and not misleading, but make no guarantee or warranty as to the accuracy or completeness of the information or opinions contained herein, nor to provide updates should fresh information become available or opinions change.
Any person who is not a relevant person under section of Section 21(2) of the Financial Services & Markets Act 2000 of the United Kingdom should not act or rely on this document or any of its contents. Research on its client companies produced by TDRL is normally commissioned and paid for by those companies themselves (‘issuer financed research’) and as such is not deemed to be independent, as defined by the FCA, but is ‘objective’ in that the authors are stating their own opinions. The report should be considered a marketing communication for purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. TDRL does not hold any positions in any of the companies mentioned in the report, although directors, employees or consultants of TDRL may hold positions in the companies mentioned. TDRL does impose restrictions on personal dealings. TDRL might also provide services to companies mentioned or solicit business from them.
This report is being provided to relevant persons to provide background information about the subject matter of the note. This document does not constitute, nor form part of, and should not be construed as, any offer for sale or purchase of (or solicitation of, or invitation to make any offer to buy or sell) any Securities (which may rise and fall in value). Nor shall it, or any part of it, form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information that we provide is not intended to be, and should not in any manner whatsoever be, construed as personalised advice. Self-certification by investors can be completed free of charge at www.fisma.org. TDRL, its affiliates, officers, directors and employees, and ED will not be liable for any loss or damage arising from any use of this document, to the maximum extent that the law permits.
Copyright 2019 Trinity Delta Research Limited. All rights reserved.
FY18 results as expected, plentiful news flow in FY19
Lighthouse | 11 March 2019
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Trinity Delta view: Chi-Med continues to perform to our expectations. The depth of the development pipeline means the coming year should see a steady stream of share price catalysts. Our valuation employs a DCF-based sum-of-the-parts approach, which includes a detailed rNPV model of the clinical pipeline. Our current valuation is $4.5bn/£3.4bn, which is equivalent to $33.49/ADS or £51.52/share.
Lighthouse
11 March 2019
| Price (US ADS) (UK share) | $27.29 3,980p |
| Market Cap | $3.51bn £2.79bn |
| Exchanges | NASDAQ AIM London |
| Sector | Healthcare |
| Company Codes | HCM HCM.L |
| Corporate client | Yes |
Company description
Hutchison China MediTech is a Hong Kong headquartered biopharma with an established Commercial Platform in China, and a diverse pipeline of first-in-class/best-in-class selective oral tyrosine kinase inhibitors (Innovation Platform). Its pipeline, discovered in-house, is in development for the China and global oncology markets.
Analysts
Mick Cooper PhD
mcooper@trinitydelta.org
+44 (0) 20 3637 5042
Lala Gregorek
lgregorek@trinitydelta.org
+44 (0) 20 3637 5043
Disclaimer
Trinity Delta Research Limited (“TDRL”; firm reference number: 725161), which trades as Trinity Delta, is an appointed representative of Equity Development Limited (“ED”). The contents of this report, which has been prepared by and is the sole responsibility of TDRL, have been reviewed, but not independently verified, by ED which is authorised and regulated by the FCA, and whose reference number is 185325.
ED is acting for TDRL and not for any other person and will not be responsible for providing the protections provided to clients of TDRL nor for advising any other person in connection with the contents of this report and, except to the extent required by applicable law, including the rules of the FCA, owes no duty of care to any other such person. No reliance may be placed on ED for advice or recommendations with respect to the contents of this report and, to the extent it may do so under applicable law, ED makes no representation or warranty to the persons reading this report with regards to the information contained in it.
In the preparation of this report TDRL has used publically available sources and taken reasonable efforts to ensure that the facts stated herein are clear, fair and not misleading, but make no guarantee or warranty as to the accuracy or completeness of the information or opinions contained herein, nor to provide updates should fresh information become available or opinions change.
Any person who is not a relevant person under section of Section 21(2) of the Financial Services & Markets Act 2000 of the United Kingdom should not act or rely on this document or any of its contents. Research on its client companies produced by TDRL is normally commissioned and paid for by those companies themselves (‘issuer financed research’) and as such is not deemed to be independent, as defined by the FCA, but is ‘objective’ in that the authors are stating their own opinions. The report should be considered a marketing communication for purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. TDRL does not hold any positions in any of the companies mentioned in the report, although directors, employees or consultants of TDRL may hold positions in the companies mentioned. TDRL does impose restrictions on personal dealings. TDRL might also provide services to companies mentioned or solicit business from them.
This report is being provided to relevant persons to provide background information about the subject matter of the note. This document does not constitute, nor form part of, and should not be construed as, any offer for sale or purchase of (or solicitation of, or invitation to make any offer to buy or sell) any Securities (which may rise and fall in value). Nor shall it, or any part of it, form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information that we provide is not intended to be, and should not in any manner whatsoever be, construed as personalised advice. Self-certification by investors can be completed free of charge at www.fisma.org. TDRL, its affiliates, officers, directors and employees, and ED will not be liable for any loss or damage arising from any use of this document, to the maximum extent that the law permits.
Copyright 2019 Trinity Delta Research Limited. All rights reserved.
e-therapeutics ended its FY19 (year-ending 31 January 2019) on a high, securing its first commercial collaboration with Novo Nordisk in December (see Update note). Business development and cost control were the focus areas for FY19. The Novo deal in Type 2 diabetes marked a first success on the former, providing important validation for e-therapeutics’ proprietary Network-Driven Drug Discovery (NDD) platform. Prudent cost management means end-FY19 cash of £5.9m, coupled with an anticipated £1.1m tax credit, provides a two-year runway on our estimates. The goal is to now capitalise on ongoing, and new, business development discussions covering the full range of e-therapeutics’ assets and capabilities, to help progress NDD-derived projects and further exploit the NDD platform. Our valuation is £57.8m (21.9p/share).
| Year-end: December | 2017 | 2018 | 2019E | 2020E |
| Sales (£m) | 0.0 | 0.0 | 0.0 | 0.5 |
| Adj. PBT (£m) | (13.4) | (6.7) | (5.4) | (3.9) |
| Net Income (£m) | (13.1) | (5.4) | (4.3) | (3.1) |
| Adj. EPS (p) | (3.9) | (2.0) | (1.6) | (1.1) |
| Cash (£m) | 14.0 | 9.6 | 5.2 | 2.6 |
| EBITDA (£m) | (13.7) | (6.7) | (5.4) | (3.9) |
Update
6 March 2019
| Price | 6.75p |
| Market Cap | £18.1m |
| Enterprise Value | £10.5m |
| Shares in issue | 268.6m |
| 12 month range | 5.8p-10.4p |
| Free float | 28% |
| Primary exchange | AIM London |
| Other exchanges | NA |
| Sector | Healthcare |
| Company Code | ETX |
| Corporate client | Yes |
Company description
e-Therapeutics is a drug discovery company with a proprietary network driven drug discovery (NDD) platform. Following management changes and a strategic review in 2017, the focus is now on optimising its discovery processes and platform, and securing industry collaborations and partners for its projects.
Analysts
Lala Gregorek
lgregorek@trinitydelta.org
+44 20 3637 5043
Mick Cooper PhD
mcooper@trinitydelta.org
+44 20 3637 5042
Disclaimer
Trinity Delta Research Limited (“TDRL”; firm reference number: 725161), which trades as Trinity Delta, is an appointed representative of Equity Development Limited (“ED”). The contents of this report, which has been prepared by and is the sole responsibility of TDRL, have been reviewed, but not independently verified, by ED which is authorised and regulated by the FCA, and whose reference number is 185325.
ED is acting for TDRL and not for any other person and will not be responsible for providing the protections provided to clients of TDRL nor for advising any other person in connection with the contents of this report and, except to the extent required by applicable law, including the rules of the FCA, owes no duty of care to any other such person. No reliance may be placed on ED for advice or recommendations with respect to the contents of this report and, to the extent it may do so under applicable law, ED makes no representation or warranty to the persons reading this report with regards to the information contained in it.
In the preparation of this report TDRL has used publically available sources and taken reasonable efforts to ensure that the facts stated herein are clear, fair and not misleading, but make no guarantee or warranty as to the accuracy or completeness of the information or opinions contained herein, nor to provide updates should fresh information become available or opinions change.
Any person who is not a relevant person under section of Section 21(2) of the Financial Services & Markets Act 2000 of the United Kingdom should not act or rely on this document or any of its contents. Research on its client companies produced by TDRL is normally commissioned and paid for by those companies themselves (‘issuer financed research’) and as such is not deemed to be independent, as defined by the FCA, but is ‘objective’ in that the authors are stating their own opinions. The report should be considered a marketing communication for purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. TDRL does not hold any positions in any of the companies mentioned in the report, although directors, employees or consultants of TDRL may hold positions in the companies mentioned. TDRL does impose restrictions on personal dealings. TDRL might also provide services to companies mentioned or solicit business from them.
This report is being provided to relevant persons to provide background information about the subject matter of the note. This document does not constitute, nor form part of, and should not be construed as, any offer for sale or purchase of (or solicitation of, or invitation to make any offer to buy or sell) any Securities (which may rise and fall in value). Nor shall it, or any part of it, form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information that we provide is not intended to be, and should not in any manner whatsoever be, construed as personalised advice. Self-certification by investors can be completed free of charge at www.fisma.org. TDRL, its affiliates, officers, directors and employees, and ED will not be liable for any loss or damage arising from any use of this document, to the maximum extent that the law permits.
Copyright 2018 Trinity Delta Research Limited. All rights reserved.