Acacia Pharma |
BARHEMSYS launched, BYFAVO hot on its heels |
Corporate update |
Pharma & biotech |
6 November 2020 |
Share price performance
Business description
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Analysts
Acacia Pharma is a research client of Edison Investment Research Limited |
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So far, 2020 has been transformational for Acacia Pharma. Significant milestones include two US drug approvals: BARHEMSYS (amisulpride injection) for the management of PONV and BYFAVO (remimazolam), an IV sedative for use during invasive medical procedures. BARHEMSYS was launched in the US (August) at a higher price than originally forecast. BYFAVO has now completed all regulatory requirements (DEA drug scheduling); we anticipate launch around the year end so have pushed out sales trajectories for both accordingly. We have reviewed our assumptions and increase our valuation to €1,170m.
Year end |
Revenue ($m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/18 |
0.0 |
(21.6) |
(0.45) |
0.00 |
N/A |
N/A |
12/19 |
0.0 |
(23.5) |
(0.37) |
0.00 |
N/A |
N/A |
12/20e |
0.2 |
(30.0) |
(0.32) |
0.00 |
N/A |
N/A |
12/21e |
8.0 |
(40.4) |
(0.45) |
0.00 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Two US approvals, two drug launches in 12 months
We expect early BARHEMSYS sales to trickle through as Acacia focuses on formulary wins against a tough COVID-19 background. A backlog of surgical procedures could aid early sales adoption; however, formulary wins are key for initial sales in the hospital setting. BYFAVO has been designated a Schedule IV (low potential for abuse and low risk of dependence) medicine by the US Drug Enforcement Agency; importantly, this is in line with its benzodiazepine peers. The pandemic has led to the inclusion of competitor procedural anaesthetics (midazolam and propofol) on the FDA drug shortage list, thus a timely launch of BYFAVO is key to benefit from increased pent up demand of these drug classes.
Investing for future growth
Acacia has near-term funding in place through the €45m combined equity investment and loan facility under the Cosmo deal and the €25m gross equity raise in August. This has enabled expansion of the commercial team by ~30 new hires in H220 to support the launch of both assets. Additional funding will be needed in late Q421 for further launch support. Given Acacia’s operational focus on the US and the opportunities for BARHEMSYS and BYFAVO in this key market, we believe a Nasdaq listing would be appropriate to further widen the investor base.
Valuation: €1,170m or €13.4/share
Our revised valuation is €1,170m or €13.4/share vs €989m or €11.6/share previously. We increase our forecast for peak BARHEMSYS sales to $405.3m to reflect a higher launch price and maintain BYFAVO sales of $125.6m. We have pushed back the sales trajectory for both by one year to reflect H220 launches and apply a 10% discount rate (vs 12.5%) to reflect the BARHEMSYS launch and BYFAVO’s imminent launch status. We have reduced our SG&A and R&D assumptions for FY20 and FY21, roll our model forward, update FX and reflect a net cash position of $21.9m at 30 June 2020.
Financials: Cash runway extended to Q421
We have reassessed our FY20 sales forecasts and FY21 sales trajectory for BARHEMSYS and BYFAVO, taking into account the potential late December 2020/early January 2021 launch of BYFAVO, late August 2020 launch of BARHEMSYS and the effect of COVID-19 on hospital formulary discussions. This has led to a reduction in our FY20 revenue forecasts, effectively pushing back our sales ramp up by a year for both assets. We now forecast revenues in FY20 of $0.2m (vs $2.1m), growing to $8.0m in FY21 (vs $28.8m). We have increased our forecast peak BARHEMSYS sales to $405.3m (vs $386.7m) to reflect a slightly higher launch price of $42.5 (vs $40.0) per 5mg vial (prophylactic dose) and $85.0 (vs $80.0) for a 10mg (rescue dose). Our forecast for peak BYFAVO sales of $125.6m is unchanged. As such, our revised FY21 forecasts could be conservative if, subject to formulary wins, the pent-up demand for surgical procedures and sedative drug shortages in the US lead to early sales uptake of Acacia’s products. Although we note that further delays in elective procedures are a distinct possibility and represent potential downside.
We have reduced our SG&A assumptions for FY20 to $26.0m (vs $31.6m) and FY21 to $42.2m (vs $54.7m), as we reduce sales force in 2020 to 30 reps (from 60 reps). We forecast a net operating loss of $27.3m in FY20 and $37.3m in FY21 and that Acacia will reach breakeven in 2024 (vs 2023 previously as we have pushed back the sales trajectory for both products by one year to reflect H220 launches). Management has reviewed its sales reps and support staff requirements within the context of COVID-19 and with greater efficiencies in targeting hospitals in place (virtual meetings with multiple P&T committees), it believes the initial deployment of 30 reps growing to ~60 reps by 2023 is the optimal size for now. We note that significant risk remains around commercial execution, particularly as continued financial investment in the launch of both products will require Acacia to raise further funds in 2021.
Acacia had previously drawn $10m from Hercules Technology Growth Capital (Hercules), as of 30 June approximately $7.8m of principal remains outstanding. The deal with Cosmo provides an additional €25m loan facility, interest-rate only until January 2023 and repayable over the following 24 months from then. Until the Hercules debt is fully repaid, the Cosmo loan interest is 11%, after which it decreases to 9%. Acacia reported cash and cash equivalents of $21.9m at 30 June 2020. Post the period end in August, Acacia raised €25m gross through the placing of 12.5m shares. Thus, including Cosmo’s equity investments (€20m), Acacia has gained access to €70m additional capital in the form of debt and equity this year to date. To fund further expansions in US operations, we forecast that an additional c $70m will need to be raised in 2021–22 ($35m in 2021 and $35m in 2022). We note that, for simplicity, in our model we illustrate this as long-term debt funding. A US listing could make sense in the future depending on market conditions and, importantly, Acacia’s status quo post approval of BARHEMSYS and BYFAVO with sales.