Accelerating clinical studies

Quantum Genomics 4 April 2017 Update
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Quantum Genomics

Accelerating clinical studies

Earnings report

Pharma & biotech

4 April 2017

Price

€5.22

Market cap

€46m

$1.07/€1

Net cash (€m)
at December 2016

11.2

Shares in issue

8.75m

Free float

62%

Code

ALQGC

Primary exchange

Alternext Paris

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.9)

(28.2)

(17.6)

Rel (local)

(3.9)

(31.2)

(30.0)

52-week high/low

€7.90

€4.52

Business description

Quantum Genomics is a biopharmaceutical company developing QGC001, a brain aminopeptidase A inhibitor for the treatment of hypertension and heart failure. Its mechanism is implicated in the 25% of patients resistant to treatment. In-human efficacy data are expected in June 2017.

Next events

Hypertension Phase IIa data

June 2017

Hypertension Phase IIb start

H217

Heart failure Phase IIa data

H118

Analysts

Maxim Jacobs

+1 646 653 7027

Nathaniel Calloway

+1 646 653 7036

Quantum Genomics is a research client of Edison Investment Research Limited

Quantum Genomics reported its yearly results, which highlighted the significant progress the company has made towards the commercialisation of its product, QGC001, for treatment of hypertension (HT) and heart failure (HF). In 2016, the company both completed a 34-person Phase II HT trial (results expected June 2017) and initiated a 75-person European Phase II trial examining the drug for HF (results early 2018). The company is also set up to initiate a US Phase II for HT in H217.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/15

0.1

(4.5)

(0.55)

0.0

N/A

N/A

12/16

0.0

(6.2)

(0.60)

0.0

N/A

N/A

12/17e

0.0

(7.4)

(0.71)

0.0

N/A

N/A

12/18e

0.0

(12.8)

(1.17)

0.0

N/A

N/A

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

HF at full sail

The company announced that all 10 centres in its Phase II HF trial are now enrolling patients. The trial will examine changes in the HF biomarker N-terminal pro b-type natriuretic peptide over the course of 28 days in diagnosed worsening HF patients. The trial is expected to be completed by the end of 2017 and we expect a data readout shortly afterwards in H118.

US HT trial ready to start

The company has been in the planning stages of a US-based HT trial and is currently completing the final toxicology studies necessary to file an IND with the FDA mid-year. It has also met with the FDA and received the agency’s approval for a ‘targeted’ trial design, which we assume will allow the company to specifically evaluate patients with low-renin HT. Low-renin patients are a particularly underserved population, making up 25% of the 70 million HT patients in the US and 52% of African American HT patients, but can potentially be treated with QGC001.

YE16 results: Cash and spending on track

Quantum Genomics had operational spending of €6.2m in 2016, up from €4.3m in 2015. This increase was predominantly due to the initiation of the Phase II HF trial, and we expect spending to continue to increase with the initiation of the US HT trial in H217. We currently forecast €7.1m in opex in 2017. The company ended the year with €11.2m, although we expect the company to require an additional €20m to bring both programmes to Phase III ready status and potential licensing.

Valuation: Increased to €180m or €20.60 per share

We have increased our valuation of Quantum Genomics to €180m or €20.60 per share from €172m or €20.51 per share. This is due to advancing our NPVs, offset by lower net cash and moving up some R&D spending. We expect to update our valuation following the release of results in June 2017 from the previously completed Phase IIa HT trial.

Investment summary

Quantum Genomics made significant progress in 2016 towards the clinical development and ultimate commercialisation of QGC001 for HT and HF. QGC001 is an inhibitor of brain angiotensin III, a component of the renin-angiotensin system important for the maintenance of blood pressure. Angiotensin receptor blockers (ARBs) and angiotensin converting enzyme (ACE) inhibitors are two widely studied and successful classes of drug that target angiotensin II to manage blood pressure. However, despite the role of the brain renin-angiotensin system in some forms of HT, this axis of the disease has not been previously targeted. In particular, patients with so-called low-renin HT respond very poorly to ARBs and ACE inhibitors. This variant is present in 25% of the 70 million HT patients in the US, but is endemic among hypertensive African Americans (52%).

Clinical progress

Quantum Genomics completed a 34-person Phase II clinical trial in April 2016. The company reported limited top-line results of the study in September 2016, but did not provide a detailed breakdown of the results. It has announced that the full data from the trial will be released at the European Meeting of Hypertension and Cardiovascular Protection organised by the European Society of Hypertension in June 2017. This trial did not segregate individuals on the basis of their renin status, and as such we anticipate that the drug benefit will be varied between different patient subtypes, and that this information can be used to structure future trials.

To this end, the company is designing a US-based Phase II trial of QGC001 named NEW HOPE. In 2016, the company secured the necessary patents to begin and met with the FDA with regard to the trial’s design. With the FDA’s blessing, the trial will target specific HT populations, which we assume will include the low-renin group. The previous Phase II clinical study could not be structured to target this group because of French legislation regarding clinical trial enrolment criteria. The company is in the final stage of preclinical toxicology studies necessary to file an IND by mid-2017. It intends to initiate NEW HOPE in H217 and we expect more details of the design to be forthcoming.

Quantum Genomics is also investigating QGC001 for the treatment of HF (under the designation QGC101). HT has an exceptionally high comorbidity with HF and virtually every drug approved for the former is also approved for the latter. However, the HF development pathway has significant advantages over HT. First, HF drugs command significantly higher prices at approximately $4000-5000 per year compared to approximately $1000 for the highly genericised HT market. Additionally, clinical trials for HF require significantly fewer patients. The ongoing Phase III clinical trial for Vericiguat (Merck/Bayer) has a targeted enrolment of 4,872, compared to the tens of thousands needed for HT trials like the 19,394-person trial of Zestril (AstraZeneca).

The company initiated its HF programme in 2016 with a 75-person Phase II clinical trial in Europe, termed QUID HF (Quantum Genomics Incremental Dosing in Heart Failure). The trial will enrol patients with diagnosed worsening HF and the end point for the study is a decrease in N-terminal pro b-type natriuretic peptide, a key marker of heart dysfunction. All 10 participating hospitals are currently enrolling patients and we expect the trial to provide preliminary data in early 2018.

Quantum Genomics recently received its first patent on combination therapies including QGC001, which is important for understanding the future direction of the company beyond the current clinical programmes. The patent filed with the European Patent Office (2,793,878) describes the co-formulation of the molecule with ARBs and ACE inhibitors. These combinations will likely be able to address a broader spectrum of HT patients by targeting multiple pathways, and there is potential for synergies, although this is currently unknown. Moreover, future development partners may see a QGC001 combination as a viable pipeline management solution. The timeline for any combination clinical programmes is unknown as this time, but the company has stated that it is performing clinically enabling studies of QGC001 in combination with an ACE inhibitor.

Valuation

We have increased our valuation of Quantum Genomics to €180m or €20.60 per share from €172m or €20.51 per share. This increase is due to advancing our NPVs to YE16, partially offset by lower net cash (€11.2m vs €13.22) and moving up certain R&D costs to reflect the clinical timeline and historical spending. We expect that we will adjust our valuation following the June 2017 release of data from the Phase II HT clinical trial.

Exhibit 1: Quantum Genomics valuation

Product

Main Indication

Local

Status

Prob. of success

Launch year

Peak sales ($m)

Patent protection

rNPV
(€m)

QGC001

HT

US

Phase Ila complete

15%

2023

1,110

2031

105.13

QGC001

HT

Europe

Phase Ila complete

15%

2023

959

2031

89.18

QGC001

Development costs

 

 

 

 

-110.90

QGC101

HF

US

Phase IIa

15%

2023

574

2031

66.91

QGC101

HF

Europe

Phase IIa

15%

2023

687

2031

79.39

QGC101

Development costs

-60.64

Total

 

 

 

 

 

 

 

169.07

Cash and cash equivalents (YE16) (€m)

11.20

Total firm value (€m)

180.26

Total shares (m)

8.75

Value per basic share (€)

20.61

Source: Edison Investment Research, Quantum Genomics reports

Financials

Quantum genomics reported an operational loss of €6.2m in 2016 compared to €4.3m in 2015, with the increase primarily driven by the advancement of the clinical programme and the initiation of the European Phase II HF trial. We expect this spending on R&D to continue to increase in 2017 and currently predict operating losses of €7.2m for the year. This is an increase from our previous estimates of €5.3m for 2017, as the HT trial is progressing at a faster pace than we previously modelled, as well as adjustments to baseline burn rates. However, this does not impact our financing timeline because these changes are largely temporal adjustments. The company ended the year with €11.2m in cash and investments, which we expect will be sufficient to finance the HF Phase II trial, but we suggest that the company will need €20m in additional financing to progress the current clinical programmes to be Phase III ready, and we currently model this financing in 2018 (as illustrative debt). We expect further development to be financed via a partnership.

Exhibit 2: Financial summary

€000s

2014

2015

2016

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

324

144

0

0

0

Cost of Sales

0

(0)

0

0

0

Gross Profit

324

144

0

0

0

EBITDA

 

 

(2,418)

(4,310)

(6,216)

(7,172)

(10,948)

Operating Profit (before GW and except.)

 

(2,418)

(4,310)

(6,216)

(7,172)

(10,948)

Intangible Amortisation

0

0

0

0

0

Other

0

0

1

0

0

Exceptionals

0

0

0

0

0

Operating Profit

(2,418)

(4,310)

(6,216)

(7,172)

(10,948)

Net Interest

(20)

(222)

0

(217)

(1,816)

Other

(105)

54

18

0

0

Profit Before Tax (norm)

 

 

(2,537)

(4,503)

(6,216)

(7,390)

(12,764)

Profit Before Tax (FRS 3)

 

 

(2,542)

(4,479)

(6,198)

(7,390)

(12,764)

Tax

335

714

958

961

1,659

Deferred tax

0

0

0

0

0

Profit After Tax (norm)

(2,202)

(3,789)

(5,258)

(6,429)

(11,105)

Profit After Tax (FRS 3)

(2,207)

(3,765)

(5,240)

(6,429)

(11,105)

Average Number of Shares Outstanding (m)

4.8

6.9

8.7

9.1

9.5

EPS - normalised (€)

 

 

(0.46)

(0.55)

(0.60)

(0.71)

(1.17)

EPS - FRS 3 (€)

 

 

(0.46)

(0.54)

(0.60)

(0.71)

(1.17)

Dividend per share (€)

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

623

520

701

711

719

Intangible Assets

66

108

142

142

142

Tangible Assets

32

54

60

70

78

Other

525

358

500

500

500

Current Assets

 

 

4,129

10,020

13,809

7,370

16,257

Stocks

0

14

1,011

1,011

1,011

Debtors

811

1,354

1,599

1,599

1,599

Cash

3,318

8,652

11,198

4,758

13,646

Other

0

0

1

1

1

Current Liabilities

 

 

(4,035)

(728)

(1,269)

(1,269)

(1,269)

Creditors

(728)

(728)

(1,268)

(1,268)

(1,268)

Short term borrowings

(3,308)

(1)

(1)

(1)

(1)

Long Term Liabilities

 

 

(847)

(1,790)

(2,718)

(2,718)

(22,718)

Long term borrowings

(847)

(1,790)

(2,715)

(2,715)

(22,715)

Other long term liabilities

0

0

(4)

(4)

(4)

Net Assets

 

 

(130)

8,022

10,524

4,095

(7,010)

CASH FLOW

Operating Cash Flow

 

 

(2,791)

(3,142)

(5,531)

(6,415)

(11,088)

Net Interest

0

0

0

0

0

Tax

0

0

0

0

0

Capex

(304)

(72)

(66)

(25)

(25)

Acquisitions/disposals

0

0

0

0

0

Financing

3,699

12,150

7,744

0

0

Dividends

0

0

0

0

0

Other

116

(296)

399

0

0

Net Cash Flow

719

8,640

2,546

(6,439)

(11,113)

Opening net debt/(cash)

 

 

118

837

(6,861)

(8,482)

(2,043)

HP finance leases initiated

0

0

0

0

0

Exchange rate movements

0

0

0

0

0

Other

-1438

-942

-925

0

0

Closing net debt/(cash)

 

 

837

(6,861)

(8,482)

(2,043)

9,070

Source: Edison Investment Research, Quantum Genomics reports

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 Quantum Genomics 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

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245 Park Avenue, 39th Floor

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US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

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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 Quantum Genomics 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

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