Formycon — Building a pipeline of third-wave biosimilars

Formycon (DB: FYB)

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61.30

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Research: Healthcare

Formycon — Building a pipeline of third-wave biosimilars

Formycon has reported FY16 financial results that highlight the progress of its biosimilars pipeline. During 2016 partner Bioeq IP AG started a global Phase III study of Lucentis biosimilar FYB201 for neovascular age-related macular degeneration (nAMD); US and EU launches are planned for 2020 and 2022. Formycon disclosed that FYB203 is a proposed biosimilar of Eylea in preclinical studies. It targets all biologics in the nAMD market, which had revenues of $8.2bn in 2016. The company recently disclosed that FYB202 is a biosimilar of Stelara. Cash at end 2016 was €14m.

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Healthcare

Formycon

Building a pipeline of third-wave biosimilars

Pharma & biotech

Scale research report - update

11 May 2017

Price

€32.8

Market cap

€298m

Share price graph

Share details

Code

FYB

Listing

Deutsche Börse Scale

Shares in issue

9.1m

Cash at end 2016

€14m

Business description

Formycon is a biotechnology company focused on biosimilars. The lead product is FYB201, a Lucentis biosimilar in Phase III. FYB203 is an Eylea biosimilar in the preclinical stage. They are both partnered. It also has two unpartnered biosimilars: FYB202, a biosimilar candidate of Stelara; and FYB205, an undisclosed biosimilar.

Bull

Leading biosimilars company addressing an $11-12bn market.

Two partnered products in multi-million euro deals.

Potential first-to-market advantage for FYB201.

Bear

No EMA guidance for intraocular biosimilars.

US biosimilar market immature.

Lucentis market declined in 2014-16.

Analysts

Juan Pedro Serrate

+44 (0)20 3681 2534

Jonas Peciulis

+44 (0)20 3077 5728

Formycon has reported FY16 financial results that highlight the progress of its biosimilars pipeline. During 2016 partner Bioeq IP AG started a global Phase III study of Lucentis biosimilar FYB201 for neovascular age-related macular degeneration (nAMD); US and EU launches are planned for 2020 and 2022. Formycon disclosed that FYB203 is a proposed biosimilar of Eylea in preclinical studies. It targets all biologics in the nAMD market, which had revenues of $8.2bn in 2016. The company recently disclosed that FYB202 is a biosimilar of Stelara. Cash at end 2016 was €14m.

Global Phase III trial of Lucentis biosimilar underway

Formycon and its partner Bioeq IP AG are running a global Phase III clinical trial of lead asset FYB201, a biosimilar of Lucentis (2016 revenues $3.2bn). Development, regulatory and commercial milestones could be over three-digit million euros. The company aims for US launch in 2020 and the EU in 2022 on patent expiries. We view FYB201 as a potential first-to-market mover, as competitors are behind.

Biosimilar candidate for Eylea’s growing market

In February 2016 Formycon disclosed FYB203 is a proposed biosimilar of Eylea for nAMD (2016 sales $5bn). It is in preclinical studies and partnered with Santo Holding in a deal that involves an upfront payment of single-digit million euros (received) and ongoing payments for its product development activities up to regulatory approval; sales revenue may reach double digits. Eylea patents expire in 2023 in the US and 2025 in the EU. With no other known competitors, we believe that Formycon is uniquely positioned in the growing Eylea market.

FYB202 disclosed as a biosimilar of Stelara

Formycon has disclosed that FYB202 is a biosimilar candidate of Stelara (ustekinumab, 2016 sales $3.2bn) in pre-clinical stage. Stelara is indicated for psoriasis and Crohn’s disease. Consensus forecasts predict a market of $4.5bn in 2020 (EvaluatePharma). Patent protection ends in 2023 in the US and 2024 in the EU. Additionally, Formycon has an undisclosed biosimilar FYB205. It plans to partner both FYB205 and FYB202 in the future.

Valuation: Building a pure-play biosimilars pipeline

Formycon’s market cap is c €298m and its enterprise value (EV) is c €284m. Progression of the pipeline and additional partnerships should unlock further value.

Consensus estimates

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/15

16.92

0.60

0.07

0.0

N/A

N/A

12/16

19.53

(4.06)

(0.45)

0.0

N/A

N/A

12/17e

30.80

3.40

0.03

0.0

N/A

N/A

12/18e

29.80

(1.10)

(0.22)

0.0

N/A

N/A

Source: Bloomberg, Formycon data

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

Financials: FY16 results released

Formycon’s revenues increased to €19.53m in 2016 from €16.92m in 2015, mainly from out-licensing activities. The company is guiding for 2017 revenues of €25m, which could increase if FYB202 or FYB205 are partnered. Expenses increased from €16.6m in 2015 to €23.7m in 2016 in part associated with research and development as the number of employees increased from 53 to 70. According to Formycon, R&D will continue its expansion during 2017. EBITDA was a loss of €3.37m in 2016 vs a gain of €1.47m in 2015. The net loss was €4.07m in 2016 vs net income of €0.60m in 2015. Cash burn in 2016 was €6.4m. Cash and equivalents were €14m at end December 2016. The company has no financial debt.

Exhibit 1: Financial summary

Year end 31 December (€m)

2012

2013

2014

2015

2016

Income statement

Revenue

0.60

0.40

12.70

16.9

19.53

Profit before tax (as reported)

(2.40)

(7.77)

0.87

0.60

(4.06)

Net income (as reported)

(2.40)

(7.77)

0.87

0.60

(4.07)

EPS (as reported) (€)

N/A

N/A

N/A

N/A

N/A

Dividend per share (€)

0.00

0.00

0.00

0.00

0.00

Balance sheet

Total non-current assets

7.19

6.25

4.03

3.74

4.40

Total current assets

0.45

10.90

12.88

23.41

20.80

Total assets

7.64

17.20

16.91

27.15

25.19

Total current liabilities

(3.38)

(2.70)

(3.26)

(1.61)

(3.58)

Total non-current liabilities

0.00

(0.50)

(0.53)

(0.66)

(0.72)

Total liabilities

(3.38)

(3.19)

(3.80)

(2.28)

(4.30)

Net assets

4.26

13.90

13.11

24.87

20.89

Shareholders’ equity

4.26

13.90

13.11

24.87

20.89

Cash flow statement

Net cash from operating activities

2.16

(16.62)

(0.03)

0.52

(5.04)

Net cash from investing activities

(4.15)

(0.04)

(0.57)

(0.60)

(1.35)

Net cash from financing activities

1.52

17.43

(0.01)

11.15

0.06

Net cash flow

0.50

0.68

(0.61)

11.07

(6.33)

Cash & cash equivalent end of year

0.21

0.90

0.29

20.30

13.97

Source: Formycon accounts

Valuation

Formycon’s market cap is c €298m and enterprise value (EV) is c €284m. The company has two assets targeting the entire biologics nAMD market, which had total sales of $8.2bn in 2016 and is projected to reach c $10bn in 2020 (EvaluatePharma). Assuming a 50% discount and 50% penetration for biosimilars, the target market for Formycon’s nAMD products would be c $2.5bn, on which Formycon may receive royalties and milestones. Stelara had sales of $3.2bn in 2016 and EvaluatePharma’s consensus forecast is c $4.5bn in 2020. Using the same assumptions, the potential market for a biosimilar of Stelara would be c $1.13bn. The company plans to partner this product and the undisclosed biosimilar FYB205 in the future. We also believe that the valuation reflects the background, expertise and successful track record of the company’s management. Progression of the pipeline in the clinic and additional partnerships should unlock further value.

In our view, the closest peers are Pfenex (market cap €111m; EV €35.7m at a $1.09/€ exchange rate), Xbrane (market cap €17m; EV €13.7m at a SEK9.6/€ exchange rate) and Coherus BioSciences (market cap €1bn; EV €1bn at a $1.09/€ exchange rate); however, relative valuation metrics, such as P/E, are difficult to assess, given the early-stage and often loss-making nature of these development companies. Furthermore, all are at different stages of development with multiple other assets in the pipeline, further complicating any peer group comparison.

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