A setback in Europe, but US on track

Paion 10 February 2016 Update

Paion

A setback in Europe, but US on track

EU Phase III stopped

Pharma & biotech

10 February 2016

Price

€1.99

Market cap

€101m

Net cash (€m) at 30 September 2015

40.5

Shares in issue

50.7m

Free float

78%

Code

PA8

Primary exchange

Frankfurt

Secondary exchange

Xetra

Share price performance

%

1m

3m

12m

Abs

(16.0)

(8.4)

(0.2)

Rel (local)

(6.8)

11.6

19.9

52-week high/low

€2.88

€1.85

Business description

Paion is an emerging specialty pharma company developing anaesthesia products. Lead product remimazolam is undergoing US Phase III trials and is partnered with Yichang (China), Hana Pharma (South Korea), Pendopharm (Canada) and R-Pharm (CIS, Turkey, MENA).

Next events

Pre-NDA meeting PMDA (Japan)

Q116

Complete patient recruitment into US Phase III colonoscopy study

Q116

Complete US Phase III bronchoscopy study

2016/17

Analysts

Dennis Hulme

+61 (0)2 9258 1161

Christian Glennie

+44 (0)20 3077 5727

Paion is a research client of Edison Investment Research Limited

Paion has discontinued its European Phase III trial of remimazolam for general anaesthesia in patients undergoing cardiac surgery due to slow recruitment. The US Phase III in colonoscopy is still on track to complete recruitment in the current quarter, but completion of the bronchoscopy Phase III may be pushed into 2017. Paion remains on track for a potential US filing in 2017, while a pre-NDA meeting with Japanese regulators in Q116 could clear the way for a filing in Japan, ideally with a partner. We delay our forecast launch date for general anaesthesia in Europe by two years to 2020 and lower our valuation to €182m from €230m.

Year end

Revenue (€m)

PBT* (€m)

EPS* (c)

DPS (c)

P/E (x)

Yield (%)

12/13

4.2

(2.6)

(7.2)

0.0

N/A

N/A

12/14

3.5

(11.6)

(22.9)

0.0

N/A

N/A

12/15e

0.0

(33.8)

(55.9)

0.0

N/A

N/A

12/16e

1.0

(30.8)

(52.2)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments.

We see potential two-year delay in Europe

Paion announced that the Phase III trial of the ultrashort-acting anaesthetic remimazolam in patients undergoing cardiac surgery faced recruitment challenges due to the complex study design. The discontinuation of the trial, initiated in August 2015, will allow additional resources to be allocated to the development of remimazolam in the US. Paion will work to design an alternative trial in general surgery patients, allowing it to develop a clinical plan in Europe once funding is available. We assume that the revised plan will enable approval for general anaesthesia in Europe in 2020 vs 2018 previously.

US Phase III trials on track, results in 2016

The US colonoscopy trial is expected to complete recruitment this quarter, with data in mid-2016, but moderate recruitment may see completion of the bronchoscopy Phase III pushed into 2017. Management cautioned that filing for approval in procedural sedation in the US by the end of 2017 is contingent on the success of ongoing measures to improve recruitment in the bronchoscopy trial, including opening new sites and increased support and training at existing centres. A pre-NDA meeting with the Japanese regulator (PMDA), scheduled for Q116, could clear the way for a filing for general anaesthesia in Japan, preferably in conjunction with a partner.

Valuation: Trimmed to €182m; trials fully funded

We have pushed back our launch date for remimazolam in Europe by two years to 2020, which reduces our sum-of-the-parts DCF valuation to €182m or €3.59/share (vs €230m). Cash at 30 September of €40.5m is sufficient to complete the ongoing Phase III studies. Savings from the discontinuation of the Phase III trial in Europe will be used to support and enhance the US clinical programme. Paion is evaluating the prospect of self-commercialisation of remimazolam in the US, which could lead to 45% profit margins in some regions, subject to further fund-raising (our current base case assumes a 23% blended royalty rate).

Exhibit 1: Financial summary

€000s

2013

2014

2015e

2016e

Year end 31 December

PROFIT & LOSS

Revenue

 

 

4,228

3,456

0

1,000

Cost of sales

0

(4)

0

0

Gross profit

4,228

3,452

0

1,000

R&D expenditure

(4,583)

(11,799)

(28,000)

(25,000)

General, administrative & selling

(3,314)

(3,702)

(6,000)

(7,000)

Other

860

411

50

51

Operating profit

(2,810)

(11,639)

(33,950)

(30,949)

Depreciation and amortisation

(390)

(93)

(100)

(100)

Share-based payments

0

0

0

0

Exceptionals

0

0

0

0

EBITDA

 

 

(2,420)

(11,546)

(33,850)

(30,849)

Operating profit (before GW and except)

 

(2,420)

(11,546)

(33,850)

(30,849)

Net interest

(170)

(66)

50

50

Profit before tax (norm)

 

 

(2,590)

(11,612)

(33,800)

(30,799)

Profit before tax (reported)

 

 

(2,980)

(11,704)

(33,900)

(30,899)

Tax

768

2,468

5,500

4,375

Profit after tax (norm)

(1,822)

(9,143)

(28,300)

(26,424)

Profit after tax (reported)

(2,212)

(9,236)

(28,400)

(26,524)

Average number of shares outstanding (m)

25.4

39.9

50.7

50.7

EPS - normalised (c)

 

 

(7.2)

(22.9)

(55.9)

(52.2)

EPS - reported (c)

 

 

(8.7)

(23.2)

(56.1)

(52.4)

Dividend per share (c)

 

 

0.0

0.0

0.0

0.0

Gross margin (%)

N/A

N/A

N/A

N/A

EBITDA margin (%)

N/A

N/A

N/A

N/A

Operating margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed assets

 

 

3,583

3,516

3,416

3,316

Intangible assets

3,494

3,440

3,365

3,290

Tangible assets

89

76

51

26

Refund from assumption of dev costs

0

0

0

0

Other

0

0

0

0

Current assets

 

 

14,433

63,032

38,140

11,717

Stocks

0

0

0

0

Debtors

0

467

25

25

Cash

13,292

58,912

33,115

6,692

Other

1,141

3,653

5,000

5,000

Current liabilities

 

 

(4,659)

(3,924)

(6,157)

(6,157)

Trade payables

(1,914)

(3,338)

(5,400)

(5,400)

Short-term borrowings

0

0

0

0

Provisions

(2,508)

(306)

(500)

(500)

Finance lease liabilities

0

0

0

0

Other current liabilities

(225)

(254)

(235)

(235)

Current deferred income

(11)

(26)

(22)

(22)

Long-term liabilities

 

 

(28)

(17)

(8)

(8)

Long-term borrowings

0

0

0

0

Provisions

0

0

0

0

Long-term deferred income

(28)

(17)

(8)

(8)

Deferred taxes

0

0

0

0

Other long-term liabilities

0

0

0

0

Net assets

 

 

13,329

62,607

35,391

8,868

CASH FLOW

Operating cash flow

 

 

(1,746)

(12,044)

(31,346)

(30,849)

Net interest

(170)

(66)

50

50

Tax

75

0

5,500

4,375

Capex

0

0

0

0

Purchase of intangibles

(5)

(26)

0

0

Acquisitions/disposals

0

0

0

0

Financing

(7,164)

57,618

0

0

Dividends

0

0

0

0

Other

0

0

0

0

Net cash flow

(9,010)

45,482

(25,796)

(26,424)

Opening net debt/(cash)

 

 

(22,336)

(13,292)

(58,912)

(33,116)

Effect of exchange rate changes

(130)

(72)

0

0

Other

96

210

0

0

Closing net debt/(cash)

 

 

(13,292)

(58,912)

(33,116)

(6,691)

Source: Edison Investment Research, company accounts

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Paion and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Share this with friends and colleagues