Approaching release of Phase II renal data

Cerulean Pharma 16 March 2016 Update

Cerulean Pharma

Approaching release of Phase II renal data

Full year results

Pharma & biotech

16 March 2016

Price

US$2.15

Market cap

US$59m

Net cash ($m) at end December 2015

55.6

Shares in issue

27.3m

Free float

62%

Code

CERU

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

10.3

(32.3)

(73.2)

Rel (local)

2.0

(31.4)

(72.7)

52-week high/low

US$10.66

US$1.92

Business description

Cerulean is a US-based cancer company with a proprietary platform utilizing nanoparticle-drug conjugates. Lead product CRLX101 combined with Avastin is in Phase II clinical trials in third- and fourth-line RCC and second- and third-line ovarian cancer. Second compound CRLX301 with its payload docetaxel will enter Phase IIa in solid tumors.

Next events

Phase II results CRLX101 RCC

H116

Phase IIb results CRLX101 ovarian (GOG) trial

H116

Phase IIa initiation CRLX301 in solid tumors

H116

Analysts

Katherine Genis

+1 646 653 7026

Christian Glennie

+44 (0)20 3077 5727

Cerulean Pharma is a research client of Edison Investment Research Limited

On 10 March Cerulean reassured the market by reporting in-line full-year 2015 results, reiterating an expected cash runway into 2017 and confirming timelines for releasing clinical data for key pipeline projects in H116 are on track. Phase II data in renal cancer are expected by end June for its high-profile CRLX101, which uses its nanoparticle drug delivery system.

Year end

Revenue
($m)

PBT*
($m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/14

0.0

(21.4)

(1.64)

0.0

N/A

N/A

12/15

0.0

(39.6)

(1.56)

0.0

N/A

N/A

12/16e

0.0

(40.4)

(1.48)

0.0

N/A

N/A

12/17e

0.0

(42.7)

(1.52)

0.0

N/A

N/A

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

Critical newsflow concentrated into coming weeks

Management has reassured that the battery of clinic-related events for CRLX101 and CRLX301 expected in H1 are well on track. By 30 June Cerulean will report highly awaited top-line data (progression-free survival and overall response rates) from its Phase II trial of CRLX101 in combination with Avastin in advanced renal cell carcinoma. If positive, this will lead to the initiation of a Phase III study in metastatic renal cell carcinoma (mRCC) by year end. Other key upcoming news includes preliminary results for CRLX101 with weekly paclitaxel from the ongoing Phase Ib trial in relapsed ovarian cancer with the GOG Foundation, and additional CRLX301 data from a Phase I trial at the International Congress on Target Anticancer Therapies in April. Cerulean also plans to initiate a Phase IIa trial of CRLX301 in solid tumors (at a maximum tolerated dose of 75/mg2 once every three weeks) and dose first patients in a Phase Ib/II trial for the Cerulean-AZ-NCI collaboration. We forecast peak sales of $490m for CRLX-101 with Avastin in mRCC ($340m and $770m in follow-on indications of ovarian and rectal cancers respectively) and $550m for CRLX301.

Full-year results confirm company on track

Full-year 2015 results were announced with little surprise, falling in line with our own and market expectations. Cerulean reported a net loss of $10.7m in Q4 (net loss/share of $0.30). Cash holdings of $75.9m at end 2015 were shored up in Q4 through a $6m drawdown in the second tranche of the Hercules Loan Agreement – we forecast a cash burn of $38.4m in 2016. Management confirms that cash utilization expected in the coming quarters should enable a cash runway into 2017.

Valuation: Moves to $264m from $273m ($9.65/share)

We value Cerulean at $264m or $9.65/share, down slightly since our last note in November 2015 as we roll our valuation forward one quarter. Our fair value offers significant upside on the current share price of $2.15, which has fallen considerably in recent months, influenced by the re-rating of worldwide biotech indices amid a stretch at Cerulean with little news to stimulate investor interest. We see numerous forthcoming share price inflection points that, if positive, have the capacity to catalyze a re-rating of the shares, now trading just slightly above net cash.

Financial summary

Exhibit 1: Financial summary

$000s

2013

2014

2015

2016e

2017e

Year end 31 December

US GAAP

US GAAP

US GAAP

US GAAP

US GAAP

PROFIT & LOSS

Revenue

 

 

6

80

0

0

0

Cost of Sales

0

0

0

0

0

Gross Profit

6

80

0

0

0

Research and development

(9,700)

(11,772)

(25,948)

(27,500)

(28,500)

General & administrative

(6,166)

(8,587)

(11,224)

(12,346)

(13,581)

EBITDA

 

 

(16,057)

(20,405)

(37,364)

(40,019)

(42,287)

Operating Profit (before GW and except.)

 

 

(15,860)

(20,279)

(37,172)

(39,846)

(42,081)

Intangible Amortization

0

0

0

0

0

Exceptionals/Other

0

0

0

0

0

Operating Profit

(15,860)

(20,279)

(37,172)

(39,846)

(42,081)

Net Interest

(1,485)

(1,074)

(2,422)

(602)

(612)

Other (includes change in fair value of warrants)

202

(1,989)

0

0

0

Profit Before Tax (norm)

 

 

(17,345)

(21,353)

(39,594)

(40,449)

(42,693)

Profit Before Tax (FRS 3)

 

 

(17,143)

(23,342)

(39,594)

(40,449)

(42,693)

Tax

0

0

0

0

0

Deferred tax

0

0

0

0

0

Profit After Tax (norm)

(17,345)

(21,353)

(39,594)

(40,449)

(42,693)

Profit After Tax (FRS 3)

(17,143)

(23,342)

(39,594)

(40,449)

(42,693)

Average Number of Shares Outstanding (m)

0.7

14.5

25.4

27.3

28.1

EPS - normalized fully diluted (c)

 

 

(25.35)

(1.64)

(1.56)

(1.48)

(1.52)

EPS - FRS 3 (c)

 

 

(25.35)

(1.64)

(1.56)

(1.48)

(1.52)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

380

557

923

1,034

1,119

Intangible Assets

0

0

0

0

0

Tangible Assets

245

342

576

687

772

Other

135

215

347

347

347

Current Assets

 

 

6,447

52,836

77,302

39,020

38,914

Stocks

0

0

0

0

0

Debtors

959

1,662

1,394

1,394

1,394

Cash

5,488

51,174

75,908

37,626

37,520

Other

0

0

0

0

0

Current Liabilities

 

 

(15,146)

(8,061)

(16,337)

(16,337)

(16,337)

Creditors

(12,012)

(4,937)

(8,685)

(8,685)

(8,685)

Short term borrowings

(3,134)

(3,124)

(7,652)

(7,652)

(7,652)

Long Term Liabilities

 

 

(85,980)

(7)

(13,145)

(13,346)

(53,549)

Long term borrowings

(3,124)

0

(12,672)

(12,873)

(53,076)

Other long term liabilities

(82,856)

(7)

(473)

(473)

(473)

Net Assets

 

 

(94,299)

45,325

48,743

10,370

(29,853)

CASH FLOW

Operating Cash Flow

 

 

(17,202)

(19,477)

(31,915)

(37,706)

(39,868)

Net Interest

588

416

0

610

616

Tax

0

0

0

0

0

Capex

(7)

(225)

(277)

(284)

(291)

Acquisitions/disposals

0

40

23

0

0

Equity Financing

35

60,002

39,813

0

0

Dividends

0

0

0

0

0

Other

8,236

8,064

(412)

(1,035)

0

Net Cash Flow

(8,350)

48,820

7,232

(38,415)

(39,543)

Opening net debt/(cash)

 

 

(7,580)

770

(48,050)

(55,584)

(17,100)

HP finance leases initiated

0

0

0

0

0

Exchange rate movements

0

0

0

0

0

Other

0

0

302

(69)

288

Closing net debt/(cash)

 

 

770

(48,050)

(55,584)

(17,100)

22,155

Source: Cerulean Pharma accounts, Edison Investment Research

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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

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