A streamlined focus moving forward

4SC 30 March 2017 Update
Download PDF

4SC

A streamlined focus moving forward

FY16 results

Pharma & biotech

30 March 2017

Price

€2.60

Market cap

€50m

Net cash (€m) at 31 December 2016

10.0

Shares in issue

19.0m

Free float

38.1%

Code

VSC

Primary exchange

Frankfurt

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.6

12.1

(35.9)

Rel (local)

(2.5)

5.2

(48.1)

52-week high/low

€3.96

€2.09

Business description

4SC is a Munich-based cancer biopharmaceutical company. Epigenetic compound resminostat (HDAC inhibitor) is the lead candidate for Cutaneous T-Cell Lymphoma (CTCL, pivotal study started in Q416), partnered with Yakult Honsha (Japan) and Menarini (Asia ex-Japan). 4SC is partnered with Link Health for a Phase I oncology asset.

Next events

Q1 results

May 2017

Further Phase II data analysis in HCC

2017

4SC-202 Phase II trials initiated

Q417

Analysts

Dr Linda Pomeroy

+44 (0)20 3077 5738

Lala Gregorek

+44 (0)20 3681 2527

4SC is a research client of Edison Investment Research Limited

2016 was an important year for 4SC as it launched its potentially pivotal Phase II study with resminostat, an epigenetic cancer drug, in CTCL. In addition, it announced positive subgroup analysis of a Phase II study in HCC with its partner Yakult. It is streamlining its focus on three core assets: resminostat, 4SC-202 (initiating Phase II trials in 2017) and 4SC-208 (initiating preclinical development). We have slightly increased our rNPV to €124m, but note that we forecast a cash horizon to end 2017/early 2018.

Year
end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/15

3.3

(8.4)

(0.59)

0.0

N/A

N/A

12/16

2.1

(10.9)

(0.54)

0.0

N/A

N/A

12/17e

2.4

(9.9)

(0.49)

0.0

N/A

N/A

12/18e

2.7

(7.2)

(0.34)

0.0

N/A

N/A

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

Solid progress in 2016

4SC made good progress in 2016 by streamlining its focus on its lead clinical assets (resminostat, 4SC-202, 4SC-208) and developing its senior management team. Highlights include positive data from subgroup analysis of the Phase II study of resminostat in combination with sorafenib as first-line therapy in HCC (with partner Yakult), strong preclinical data on 4SC-202’s potential in monotherapy and in combination with checkpoint inhibitors, and the initiation of its pivotal study (RESMAIN) of resminostat as maintenance therapy in patients with advanced-stage CTCL. Alongside this 4SC has demonstrated its ability to achieve value from its non-core assets as it sold its discovery operation to BioNTech Small Molecules, its immunology portfolio to Immunic and licensed 4SC-205 to Link Health for its development and marketing in China, generating upfront and a mix of milestone and royalty payments.

Streamlined focus on core assets

4SC has defined its core focus in 2017 on three aspects: its pivotal RESMAIN study with resminostat in CTCL (for detail see here), the initiation of preclinical development of 4SC-208 and the initiation of two Phase II combination studies with 4SC-202 and an anti-PD-1 and anti-PD-L1 antibody in checkpoint-refractory melanoma and gastrointestinal cancer respectively. Alongside this it continues to discuss next steps with its partner Yakult for development of resminostat in HCC. The company has also indicated that it will continue to out-license its non-core assets.

Valuation: Increased to €124m

Our rNPV-based valuation has increased to €124m (vs €120m) or €6.5 per share (vs €6.3/share) following the release of FY16 results. We forecast cash reach to late 2017/early 2018 and model illustrative funding of €10m as long-term debt in 2017, which should be sufficient to complete the CTCL study. 2017 is an important year for 4SC as it further develops its core assets, potentially continues to leverage its non-core assets via out-licences and raises its next tranche of funding.

Exhibit 1: Financial summary

€'000s

2013

2014

2015

2016

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

4,904

7,055

3,266

2,060

2,369

2,724

Cost of sales

(1,474)

(4,080)

(1,763)

(76)

(948)

(954)

Gross profit

3,430

2,975

1,503

1,984

1,421

1,771

R&D expenditure

(10,243)

(8,504)

(7,255)

(10,601)

(10,000)

(7,500)

Administrative, distribution and other

(3,779)

(3,908)

(3,163)

(3,175)

(2,422)

(2,495)

Operating profit

(10,592)

(9,437)

(8,915)

(11,792)

(11,001)

(8,224)

Intangible amortisation

(1,593)

(819)

(827)

(892)

(892)

(892)

Exceptionals (impairment / restructuring costs)

(862)

0

0

0

0

0

Share-based payments

(53)

(3)

2

0

(20)

(20)

EBITDA

 

 

(7,804)

(8,339)

(7,914)

(10,900)

(9,864)

(7,087)

Operating profit (before GW and except.)

 

(8,084)

(8,615)

(8,090)

(10,900)

(10,089)

(7,312)

Net interest

48

(228)

(331)

(14)

150

100

Other (profit/loss from associates)

19

39

58

711

711

711

Profit before tax (norm)

 

 

(8,036)

(8,843)

(8,421)

(10,914)

(9,939)

(7,212)

Profit before tax (FRS 3)

 

 

(10,525)

(9,626)

(9,188)

(11,095)

(10,140)

(7,413)

Tax

0

(70)

(40)

(71)

0

0

Profit after tax (norm)

(8,017)

(8,874)

(8,403)

(10,274)

(9,228)

(6,501)

Profit after tax (FRS 3)

(10,525)

(9,696)

(9,228)

(11,166)

(10,140)

(7,413)

Average number of shares outstanding (m)

10.1

10.1

14.3

19.0

19.0

19.0

EPS - normalised (€)

 

 

(0.80)

(0.88)

(0.59)

(0.54)

(0.49)

(0.34)

EPS - FRS 3 (€)

 

 

(1.04)

(0.96)

(0.64)

(0.59)

(0.53)

(0.39)

Dividend per share (€)

0.0

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed assets

 

 

11,591

10,639

11,077

7,096

6,214

5,357

Intangible assets

10,651

9,836

9,123

6,499

5,667

4,835

Tangible assets

602

425

357

222

172

147

Investments and other

338

378

1,597

375

375

375

Current assets

 

 

6,114

4,295

22,415

11,959

12,603

5,081

Stocks

23

25

20

0

0

0

Debtors

346

652

94

95

95

95

Cash

4,899

3,202

21,476

10,048

10,692

3,170

Other current assets

846

393

817

1,816

1,816

1,816

Current liabilities

 

 

(3,587)

(4,842)

(5,593)

(3,257)

(3,011)

(3,188)

Creditors

(675)

(993)

(688)

(834)

(834)

(834)

Short-term borrowings

0

(317)

(1,962)

0

0

0

Deferred revenue (short term)

(1,589)

(2,638)

(1,779)

(1,431)

(1,185)

(1,362)

Other current liabilities

(1,323)

(894)

(1,164)

(992)

(992)

(992)

Long-term liabilities

 

 

(2,836)

(8,042)

(1,471)

(525)

(10,032)

(10,032)

Long-term borrowings

0

(6,131)

0

0

(10,000)

(10,000)

Deferred revenue (long term)

(2,682)

(1,788)

(1,433)

(493)

0

0

Other long-term liabilities

(154)

(123)

(38)

(32)

(32)

(32)

Net assets

 

 

11,282

2,050

26,428

15,273

5,775

(2,782)

CASH FLOW

Operating cash flow

 

 

(7,052)

(8,302)

(8,916)

(12,320)

(9,124)

(7,265)

Net interest

66

0

(2)

(531)

4

3

Tax

0

(70)

(40)

(71)

0

0

Capex

(99)

(100)

(109)

(404)

(175)

(200)

Expenditure on intangibles

(21)

(3)

(114)

(60)

(60)

(60)

Acquisitions/disposals

10

0

0

2,808

0

0

Financing

0

477

27,608

0

0

0

Other

0

0

4,333

650

0

0

Net cash flow

(7,096)

(7,998)

22,760

(9,928)

(9,356)

(7,522)

Opening net debt/(cash)

 

 

(12,064)

(4,899)

3,246

(19,514)

(10,048)

(692)

HP finance leases initiated

0

0

0

0

0

0

Other

(69)

(147)

0

462

0

0

Closing net debt/(cash)

 

 

(4,899)

3,246

(19,514)

(10,048)

(692)

6,830

Source: Edison Investment Research and company accounts

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. 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 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by 4SC 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 2017. “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 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. 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 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by 4SC 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 2017. “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 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Share this with friends and colleagues