PRIMA_subretinal_3D

Back to basics as Second Sight deal is called off

Pixium Vision 7 April 2021 Update
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Pixium Vision

Back to basics as Second Sight deal is called off

Merger termination

Healthcare equipment
& services

7 April 2021

Price

€1.58

Market cap

€75m

$1.18/€

Net cash (€m) at 31 December 2020 (excluding lease liabilities)

3.3

Shares in issue

47.3m

Free float

60%

Code

ALPIX

Primary exchange

Euronext Growth Paris

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

20.0

26.3

128.4

Rel (local)

13.4

16.5

61.4

52-week high/low

€2.09

€0.5

Business description

Pixium Vision develops bionic vision systems for patients with severe vision loss. Its lead product, Prima, is a wireless sub-retinal implant system designed for dry-AMD. The company recently started a European pivotal study.

Next events

Annual general meeting

May 2021

Analysts

Pooya Hemami, CFA

+1 646 653 7026

Maxim Jacobs, CFA

+1 646 653 7027

Pixium Vision is a research client of Edison Investment Research Limited

Pixium announced on 3 April that it had been notified by Second Sight of its unilateral decision to terminate the January 2021 memorandum of understanding (MOU) relating to the proposed business combination of both entities. Although Pixium is seeking legal avenues to gain compensation from Second Sight in excess of the €1m termination fee that had already been offered, we are not entirely disappointed the business combination plan fell through, because Pixium’s shareholders will now benefit from the full future economics of the Prima system. Pixium remains focused and committed to advancing Prima, which is continuing in a pivotal EU study (PRIMAvera), and the company is examining short- and longer-term financing options, including methods to access US markets.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/19

1.8

(9.8)

(0.44)

0.0

N/A

N/A

12/20

2.1

(8.7)

(0.26)

0.0

N/A

N/A

12/21e

1.6

(11.0)

(0.24)

0.0

N/A

N/A

12/22e

1.6

(15.4)

(0.32)

0.0

N/A

N/A

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

Pixium shareholders retain full ownership of Prima

Under the MOU, Pixium shareholders would have had their interest in Prima assets diluted by c 40% (pre-financing) in exchange for c 24% interest (pre-financing) in Second Sight’s assets (Orion and Argus II), which we believe are of less risk-adjusted value than Prima. Essentially, the main benefit of the transaction to Pixium, in our view, was the expanded access to US investors offered by Second Sight’s Nasdaq listing. We expect Pixium to accelerate its efforts to shore up short- and longer-term financing solutions and seek an alternate strategy to access US markets and investors, preferably with less dilution than the Second Sight deal would have entailed. Pixium plans to update shareholders on potential alternative financing solutions at its annual general meeting (planned for May 2021).

Prima vision benefits for at least 24–30 months

A recent paper showed the second-generation transparent augmented reality (AR) glasses in the Prima system enables Prima-implanted patients to integrate their natural peripheral vision (in both the implanted and fellow eye) with the ‘prosthetic vision’ supplied by the system. Further, visual acuity (VA) improvements from the Prima chip were maintained at 24–30 months follow-up post-implantation, suggesting continued safety and stability of the implant over this period.

Valuation: Rolling forward estimates

We have rolled forward our valuation by a quarter, which increases our rNPV to €142.8m (from €138.7m previously). After adding €2.1m in Q121e net cash, we obtain an equity valuation of €144.9m, or €3.07 per share, versus our prior values of €142.0m and €3.23, respectively. The per-share value has decreased due to increased shares outstanding. We estimate that Pixium’s gross cash (€9.3m Q121e) should last into FY22. We assume Pixium will need to raise €33.7m (from €35m previously) in additional funds before year-end 2023, modelled as illustrative long-term debt, to complete the PRIMAvera study and launch the product.

Second sight deal falls through, but Prima still on track

Pixium announced on 3 April it had been notified by Second Sight of its unilateral decision to terminate the January 2021 MOU relating to the proposed business combination of both entities. According to Pixium, this notification came after Pixium had offered Second Sight an opportunity to renegotiate the MOU to preserve the possibility of a business combination following Second Sight’s $27.9m private placement in March, which Pixium states was explicitly prohibited under the MOU and detrimental to the company’s interests. Pixium indicates that Second Sight never responded to the proposals it made in good faith and the MOU did not allow Second Sight to unilaterally terminate the MOU. Pixium stated it will ‘consider all measures available (including any legal proceedings, in particular with the relevant stock exchange authorities) to preserve its rights and obtain compensation for its entire damages.’

To this end, Second Sight indicated on 5 April it has offered Pixium $1m liquidated damages contemplated by the MOU or a licence to certain Second Sight patents to settle matters between the parties. According to Second Sight, Pixium stated in writing that it considered this termination wrongful, rejected its offers and demanded €6m in damages, indicating it would pursue litigation. Second Sight indicates it plans to pay the $1m termination fee as provided in the MOU, but it appears from this chain of events that Pixium will be seeking higher amounts.

Pixium shareholders retain full ownership of Prima assets

We will refrain from analysing the merits of the legal dispute between these parties and on speculating what may be the final net amount Pixium will receive from Second Sight. We are not entirely disappointed the business combination plan fell through and the termination of this arrangement may even turn out to be a positive outcome for Pixium’s shareholders, as they will now fully benefit from the future economics of the Prima system. Under the MOU, Pixium shareholders would have had their interest in Prima assets diluted by c 40% (pre-financing) as contemplated by the MOU and in exchange would have received a c 24% interest (pre-financing) in Second Sight’s assets (primarily those relating to the Orion Visual Cortical Prosthesis System, as well as Second Sight’s de-prioritised Argus II) and indirect access to Second Sight’s US exchange listing. The applicable details of the proposed combination were discussed in our prior note. Altogether, the Prima system is much more clinically advanced than Orion (as Prima is in pivotal EU studies and has shown strong evidence of utility, as described below) and has a clearer development and commercial path (and less invasive implantation procedure, as in retinal surgery versus neurosurgery). The Argus II retinal implant had been de-prioritised (we believe largely due to limited commercial success) and the numerous advantages of Prima compared to Argus were discussed in our prior outlook report. Effectively, the main benefit of the transaction to Pixium, in our view, was the expanded access to US investors (for subsequent financings) offered by Second Sight’s Nasdaq listing.

With the Second Sight transaction now off the table, Pixium will need to accelerate its efforts to shore up short and longer-term financing solutions and seek an alternate strategy to access US markets and investors, and preferably with less dilution than the Second Sight deal would have entailed. We still see merit in the company’s goal to seek closer ties to US markets, as that should facilitate longer-term funding needs. It plans to update shareholders on potential alternative financing solutions at its annual general meeting (planned for May 2021). In January 2021, Pixium raised another €1.25m tranche from its European Select Growth Opportunities Fund (ESGO) convertible debt financing facility and we estimate that its current funds on hand should last into FY22.

Integration of prosthetic and natural vision demonstrated

As announced on March 30, a recent paper covering updated data from the European feasibility study (PRIMA-FS) was released showing the second-generation and transparent AR glasses and improved analytics system (from the second-generation pocket computer) has fulfilled its promise of enabling Prima-implanted patients to integrate their natural peripheral vision with the ‘prosthetic vision’ supplied by the Prima Bionic Vision System (which comprises the 378-electrode photovoltaic chip implanted into the retina, along with externally worn AR glasses and the supplied pocket computer). As a reminder, in mid-2019, patients from the PRIMA-FS trial were transitioned towards use of the second-generation glasses and pocket computers instead of the initial-generation components. One of the key benefits of the second-generation AR glasses is that they are transparent and would allow patients to combine both prosthetic and natural residual (ie peripheral) vision, as the initial-generation glasses were opaque. On 31 March 2020, the company reported 18-month data on four of the five EU patients implanted in PRIMA-FS (one of the five patients implanted has passed away due to health reasons completely unrelated to Prima implantation or usage), showing several promising aspects from this transition. Use of the second-generation components has led to some measurable improvements in VA, in part due to some of the features of the external device components, which include improved magnification capabilities. The new paper reported that under room lighting conditions, these patients could simultaneously use prosthetic central vision and their remaining peripheral vision in the implanted eye and the fellow eye.

Further, VA improvements from the Prima chip were maintained at 24–30 months follow-up post-implantation, suggesting continued safety and stability of the implant over this period. Using electronic magnification, which allows up to 8x magnification/zoom, patients (n=4) gained VA in the range of 20/63 to 20/98 (reflecting 32% to 20%, respectively, of the normal 20/20 VA in healthy persons), which exceeds the threshold of legal blindness (20/200). The raw or unassisted (ie, without magnification) prosthetic VA among all the patients was very consistent (20/438 to 20/564), which is very close to the theoretical pixel size of the device. This suggests further improvements in pixel density (and raw resulting prosthetic VA) may be contemplated in subsequent higher-resolution iterations of the implant chip, but we believe Pixium’s focus remains on obtaining market approval for the current Prima system (based on the 378-electrode current implant) before considering studies on potential subsequent, higher-resolution implant devices.

Financials and valuation

We have made no significant local currency changes to our forecasts, but have rolled forward our valuation by a quarter, which increases our rNPV to €142.8m (from €138.7m, previously). We have also adjusted the net cash component of our valuation, to reflect our Q121 net cash estimate of €2.1m (versus €3.3m from Q420, previously).

Exhibit 1: Pixium Vision rNPV assumptions

Product contribution

Indication

Status

NPV (€m)

Probability of success

rNPV (€m)

rNPV/ share (€)

Launch year

Peak sales (€m)

Prima (net of R&D and SG&A costs) in EU Market

Age-related macular degeneration with geographic atrophy

Pivotal study

676.6

25.00%

164.7

3.49

H223

515

Prima (net of R&D and SG&A costs) in US Market

Age-related macular degeneration with geographic atrophy

Human feasibility trials

424.5

20.00%

85.0

1.80

H225

531

Net capex, NWC & taxes (Global)

(424.9)

(106.9)

(2.26)

Total

676.1

142.8

3.02

Net cash (Q121e)

2.1

2.1

0.04

Total equity value

678.2

144.9

3.07

FD shares outstanding (000s) (31 March 2021)

47,266

Source: Edison Investment Research

The company had a Q420 net cash position of €3.3m (€10.6m in gross cash and €7.2m gross debt), excluding €1.3m in lease liabilities. As stated above, since YE20, the company raised another €1.25m tranche from its ESGO financing facility and converted about €1.28m of its outstanding ESGO debt into equity. We forecast Pixium’s Q121 cash burn rate was €2.5m and hence we estimate Q121e net cash of €2.1m (and Q121e gross cash of €9.3m).

After adding €2.1m in Q121e net cash, we obtain an equity valuation of €144.9m, or €3.07 per share, versus our prior values of €142.0m and €3.23, respectively. The per-share value has decreased due to increased shares outstanding.

As stated above, we estimate that Pixium’s funds on hand should last into FY22. Our model assumes Pixium will need to raise €33.7m (from €35m, previously) in additional funds before year-end 2023, modelled as illustrative long-term debt, to complete the PRIMAvera pivotal study, all EU-related regulatory and preparatory commercial activities and bring Prima to commercial launch. We expect part of this requirement will be fulfilled using the remaining (or unused) €5.0m in tranches from the ESGO funding facility.

Exhibit 2: Financial summary

€000

2017

2018

2019

2020

2021e

2022e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

2,535

1,598

1,782

2,092

1,600

1,600

Cost of Sales

(1,124)

(41)

0

0

0

0

General & Administrative

(5,324)

(2,019)

(3,572)

(4,017)

(3,303)

(4,185)

Research & Development

(7,817)

(5,297)

(6,563)

(5,711)

(8,000)

(10,400)

EBITDA

 

 

(11,731)

(5,758)

(8,352)

(7,636)

(9,703)

(12,985)

Depreciation

(936)

(677)

(448)

(366)

(409)

(497)

Amortization

0

0

0

0

0

0

Operating Profit (before exceptionals)

 

(12,666)

(6,435)

(8,801)

(8,003)

(10,112)

(13,483)

Exceptionals

0

(5,859)

(69)

(448)

0

0

Other

0

0

0

0

0

0

Operating Profit

(12,666)

(12,294)

(8,870)

(8,450)

(10,112)

(13,483)

Net Interest

(876)

(1,277)

(1,006)

(700)

(877)

(1,891)

Profit Before Tax (norm)

 

 

(13,542)

(7,712)

(9,806)

(8,703)

(10,989)

(15,374)

Profit Before Tax (FRS 3)

 

 

(13,542)

(13,571)

(9,876)

(9,150)

(10,989)

(15,374)

Tax

0

0

0

0

0

0

Profit After Tax and minority interests (norm)

(13,542)

(7,712)

(9,806)

(8,703)

(10,989)

(15,374)

Profit After Tax and minority interests (FRS 3)

(13,542)

(13,571)

(9,876)

(9,150)

(10,989)

(15,374)

Average Number of Shares Outstanding (m)

13.3

18.5

22.3

34.0

46.5

47.9

EPS - normalised (€)

 

 

(1.02)

(0.42)

(0.44)

(0.26)

(0.24)

(0.32)

EPS - normalised and fully diluted (€)

 

(1.02)

(0.42)

(0.44)

(0.26)

(0.24)

(0.32)

EPS - (IFRS) (€)

 

 

(1.02)

(0.73)

(0.44)

(0.27)

(0.24)

(0.32)

Dividend per share (€)

0.0

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

9,649

3,666

4,507

3,411

3,226

2,772

Intangible Assets

7,680

2,623

2,361

1,727

1,727

1,727

Tangible Assets

1,970

1,042

2,145

1,684

1,499

1,046

Current Assets

 

 

14,241

17,756

9,107

12,721

13,625

11,658

Short-term investments

0

0

0

0

0

0

Cash

10,532

15,629

6,792

10,566

11,385

9,418

Other

3,710

2,126

2,316

2,155

2,240

2,240

Current Liabilities

 

 

(2,752)

(2,044)

(2,880)

(3,795)

(2,559)

(2,559)

Creditors

(2,752)

(2,044)

(2,880)

(3,260)

(2,023)

(2,023)

Short term borrowings

0

0

0

(536)

(536)

(536)

Long Term Liabilities

 

 

(9,302)

(8,023)

(7,033)

(7,851)

(19,071)

(31,571)

Long term borrowings

(9,130)

(7,870)

(5,787)

(6,695)

(17,915)

(30,415)

Other long term liabilities

(172)

(153)

(1,246)

(1,157)

(1,157)

(1,157)

Net Assets

 

 

11,836

11,355

3,700

4,485

(4,780)

(19,700)

CASH FLOW

Operating Cash Flow

 

 

(10,605)

(6,174)

(7,282)

(6,206)

(10,580)

(12,532)

Net Interest

(876)

(1,277)

(1,006)

(700)

(877)

(1,891)

Tax

0

0

0

0

0

0

Capex

(191)

(31)

(34)

(82)

(224)

(44)

Acquisitions/disposals

0

0

0

0

0

0

Financing

519

14,068

2,034

9,055

1,280

0

Net Cash Flow

(11,153)

6,587

(6,288)

2,068

(10,401)

(14,467)

Opening net debt/(cash)

 

 

(12,911)

(1,401)

(7,760)

(1,004)

(3,336)

7,065

HP finance leases initiated

0

0

0

0

0

0

Other

(357)

(228)

(468)

264

0

0

Closing net debt/(cash)

 

 

(1,401)

(7,760)

(1,004)

(3,336)

7,065

21,532

Lease debt

N/A

N/A

1,346

1,258

1,258

1,258

Closing net debt/(cash) inclusive of IFRS16 lease debt

(1,401)

(7,760)

342

(2,078)

8,323

22,790

Source: Company accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Pixium Vision and prepared and issued by Edison, in consideration of a fee payable by Pixium Vision. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

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This report has been commissioned by Pixium Vision and prepared and issued by Edison, in consideration of a fee payable by Pixium Vision. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for ‘wholesale clients’ within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the ‘FPO’) (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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