CASI acquires an early stage CD38 mAb

CASI Pharmaceuticals 26 April 2019 Update
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CASI Pharmaceuticals

CASI acquires an early stage CD38 mAb

Business update

Pharma & biotech

26 April 2019

Price

US$3.34

Market cap

US$320m

Net cash ($m) at YE18 less transaction costs

75.78

Shares in issue

95.7m

Free float

44.83

Code

CASI

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

6.0

(3.7)

(48.3)

Rel (local)

1.4

(12.3)

(53.4)

52-week high/low

US$8.23

US$2.77

Business description

CASI Pharmaceuticals is a pharmaceutical company that has acquired or licensed a series of drugs that it intends to market in China. These include proprietary drugs licensed from Spectrum Pharmaceuticals and a portfolio of ANDAs. The goal is to seek approval through new pathways that have been opened in the quickly changing Chinese regulatory environment.

Next events

Evomela launch

Mid-2019

TSK011010 IND/IMPD filing

Late 2019/early 2020

Analyst

Nathaniel Calloway

+1 646 653 7036

CASI Pharmaceuticals is a research client of Edison Investment Research Limited

CASI announced on 17 April 2019 that it had in-licensed the novel CD38 monoclonal antibody TSK011010 from Black Belt Therapeutics. The deal includes a €7m upfront (€5m cash and €2m equity investment) and undisclosed milestones and royalties. The drug is in the pre-IND stage but CASI noted that the IND-enabling studies are complete and it expects to submit IND/IMPD applications at the end of 2019 or early 2020.

Year end

Revenue ($m)

PBT*
($m)

EPS*
($)

DPS
($)

P/E
(x)

Yield
(%)

12/17

0.0

(10.1)

(0.16)

0.0

N/A

N/A

12/18

0.0

(20.0)

(0.24)

0.0

N/A

N/A

12/19e

9.0

(16.8)

(0.17)

0.0

N/A

N/A

12/20e

33.5

(2.9)

(0.03)

0.0

N/A

N/A

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

Goal: Improve on Darzalex profile

CD38 has already been established as an active target for the treatment of hematological malignancies. Darzalex (daratumumab, Janssen) is an anti-CD38 monoclonal antibody that was approved in 2015 for the treatment of relapsed multiple myeloma. The drug generated $2.0bn in sales in 2018. However, Darzalex is associated with frequent adverse events such as infections, GI side effects, muscle spasms and infusion reactions. CASI stated that the goal with the TSK011010 is to improve on this profile while retaining activity.

Drug formerly an asset owned by Tusk

The new drug TSK011010 was formerly an asset of Tusk Therapeutics, which was acquired by Roche in 2018 for a €70m upfront payment. The acquisition was focused on Tusk’s CD25 antibody and the remaining assets were spun off into Black Belt. In addition to multiple myeloma, Tusk investigated the drug in preclinical studies of solid tumors, although CASI has not guided towards this direction.

A shift toward developing a hematology portfolio

The in-licensing of this drug marks a change from previous strategies that CASI has employed. CASI’s primary strategy has been to in-license drugs already approved in the US to expedite its regulatory process in China. However, the company has indicated with this asset that it intends to build on its other hematologic oncology assets from Spectrum to build a fully fledged hematology portfolio for the global market and is willing to undertake start-to-finish clinical development.

Valuation: Increased to $680m or $7.11/basic share

We have increased our valuation to $680m ($7.11 per basic share) from $675m ($7.06 per basic share) due to the inclusion of the new drug in our model, offset by the transaction cost. Our initial probability of success is 5% (our basic assumption for drugs at this stage), but we expect to increase this as TSK011010 progresses in the clinic. We forecast commercialization in 2028 and peak sales of $747m.

CASI to expand its clinical development

CASI recently announced that it had in-licensed the rights to the anti-CD38 antibody TSK011010 from Black Belt Therapeutics. Black Belt was recently spun off from Tusk Therapeutics when the latter merged with Roche in September 2018 (for €70m upfront and €585m in milestones) to acquire an unrelated asset (an anti-CD25 antibody). Tusk/Black Belt previously completed preclinical studies of the drug and CASI plans to submit IND and IMPD applications in late 2019 or early 2020. CASI will assume all development responsibility for the asset.

CD38 is a cell-surface protein expressed on a range of white blood cells, including the malignant B-cells present in multiple myeloma. The strategy of targeting CD38 has already been vetted clinically. The drug Darzalex (daratumumab, Janssen) is an anti-CD38 antibody that was approved in 2015 in the US for the treatment of multiple myeloma and had sales of $2.0bn in 2018. Inclusion of the drug in a regimen of lenalidomide and dexamethasone significantly improved progression free survival (HR=0.37, p<0.0001, median not reached at 21 months). However, despite its success Darzalex has been limited in part by its tolerability profile. The drug is associated with high rates of infusion reactions (48% as a monotherapy), fatigue (39%), back pain (23%), nausea (27%), vomiting (17%) and infections (20% upper respiratory, 15% nasopharyngitis, 11% pneumonia). There is ample room to improve on these results, particularly in the area of safety and tolerability.

There are a small number of other CD38 antibodies in clinical development (Exhibit 1), the most advanced of which is isatuximab (Sanofi), which recently reported positive results for its pivotal Phase III study in February 2019 (although the company has not reported detailed data).

Exhibit 1: Other anti-CD38 programs

Drug

Stage

Sponsor

Darzalex

Approved

Janssen

Isatuximab

Phase III complete

Sanofi

MOR202

Phase II

MorphoSys, I-Mab

TAK-079

Phase I

Takeda

TSK011010

Preclinical

CASI

Source: Evaluate Pharma

In addition to the obvious indication of multiple myeloma, TSK011010 has been investigated in preclinical studies for activity in solid tumors. CD38 is expressed in certain solid tumor cells and is believed to play a role in avoiding an anti-tumor immune response. Janssen also explored this possibility in the clinic combining the PD-L1 inhibitor Tecentriq (atezolizumab) with Darzalex for the treatment of non-small cell lung cancer (NSCLC). However, the study was terminated in May 2018 after finding higher mortality in the treatment arm, but there are other combination studies in solid tumors that remain ongoing.

The acquisition of this drug is different from the company’s previous strategy to acquire or in-license mature drugs and seek approval in China via new regulatory regimes in that country. However, it is consistent with the company’s previous acquisition of hematology drugs from Spectrum. The development and approval of TSK011010 will follow a more traditional route and will require Phase I through III trials. While we expect the company to seek approval for the drug in China, the major markets will be the US and Europe. However, the company will also be able to add the drug to its portfolio of other hematologic malignancy assets it acquired from Spectrum for marketing in China. It recently received approval in China for Evomela and has a launch planned for mid-2019.

Valuation

We have increased our valuation to $680m ($7.11 per basic share) from $675m ($7.06 per basic share) due to the inclusion of TSK011010 in our model at a present value of $12.6m. This is offset by a reduction in cash associated with the acquisition. There are number of unknown factors regarding the license agreement including future royalty and milestone payments, which are estimated at this time (5% royalty and $230m in development and commercial milestones). We assume pricing on par with Darzalex, which we adjust for future price inflation ($150,000 at launch in 2028). We assume a 5% probability of success, which is based on our standard prior assumptions for a drug at this stage, but we expect to increase this when the drug enters the clinic.

Exhibit 2: Valuation of CASI

Portfolio

Asset

Region

Peak sales ($m)

Margin

Clinical risk adjustment

Value
($m)

Spectrum

Evomela

China

15.5

46%

100%

27.69

Marqibo

China

8.3

58%

90%

8.65

Zevalin

China

23.9

64%

90%

48.61

Generics

China and US

212.0

49%

100%

504.93

Internal

ENMD-2076

China and US

25.2

51%

20%

1.90

TSK011010

China, US and Europe

746.8

59%

5%

12.60

Total

604.38

Net cash and equivalents (YE18 - TSK011010 transaction) ($m)

75.78

Total firm value ($m)

680.16

Total shares (m)

95.72

Value per basic share ($)

7.11

Dilutive warrants and options (est.) (m)

30.21

Value per diluted share ($)

6.13

Source: CASI reports, Edison Investment Research

Financials

The addition of TSK011010 has a relatively limited impact on our near-term forecasts, given the lack of activity we expect in 2019 associated with the asset. We have added the transaction to our 2019 estimates and we have increased our 2020 operating costs (by approximately $1.5m) associated with the IND filing and initial clinical studies. Otherwise our forecasts remain unchanged.

Exhibit 3: Financial summary

$000s

2017

2018

2019e

2020e

Year end 31 December

US GAAP

US GAAP

US GAAP

US GAAP

INCOME STATEMENT

Revenue

 

 

0.0

0.0

8,964.9

33,546.7

Cost of Sales

0.0

0.0

(2,479.5)

(8,127.2)

Gross Profit

0.0

0.0

6,485.4

25,419.5

EBITDA

 

 

(9,983.1)

(19,402.4)

(16,440.4)

1,624.0

Normalised operating profit

 

 

(10,100.9)

(19,767.9)

(16,790.5)

(2,932.8)

Amortization of acquired intangibles

0.0

(1,305.4)

(1,388.8)

(1,388.8)

Exceptionals

0.0

0.0

0.0

0.0

Share-based payments

(650.4)

(6,118.1)

(6,118.1)

(6,118.1)

Reported operating profit

(10,751.3)

(27,191.4)

(24,297.5)

(10,439.8)

Net Interest

1.0

(280.1)

0.0

0.0

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

Exceptionals

(19.9)

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

(10,119.8)

(20,048.1)

(16,790.5)

(2,932.8)

Profit Before Tax (reported)

 

 

(10,770.2)

(27,471.6)

(24,297.5)

(10,439.8)

Reported tax

0.0

0.0

0.0

0.0

Profit After Tax (norm)

(10,119.8)

(20,048.1)

(16,790.5)

(2,932.8)

Profit After Tax (reported)

(10,770.2)

(27,471.6)

(24,297.5)

(10,439.8)

Minority interests

0.0

0.0

0.0

0.0

Discontinued operations

0.0

0.0

0.0

0.0

Net income (normalised)

(10,119.8)

(20,048.1)

(16,790.5)

(2,932.8)

Net income (reported)

(10,770.2)

(27,471.6)

(24,297.5)

(10,439.8)

Basic average number of shares outstanding (m)

62

85

98

103

EPS - basic normalised (c)

 

 

(16.45)

(23.65)

(17.20)

(2.86)

EPS - diluted normalised (c)

 

 

(16.45)

(23.65)

(17.20)

(2.86)

EPS - basic reported (c)

 

 

(17.51)

(32.41)

(24.89)

(10.18)

Dividend (c)

0.00

0.00

0.00

0.00

BALANCE SHEET

Fixed Assets

 

 

1,288.5

20,845.4

48,330.2

71,768.4

Intangible Assets

0.0

18,784.7

25,235.9

23,847.0

Tangible Assets

1,046.5

1,750.6

22,784.3

47,611.3

Investments & other

242.0

310.0

310.0

310.0

Current Assets

 

 

43,812.4

92,564.6

48,609.1

21,920.7

Stocks

0.0

0.0

611.4

2,004.0

Debtors

0.0

0.0

1,473.7

5,514.5

Cash & cash equivalents

43,489.9

85,117.0

39,076.4

6,954.6

Other

322.5

7,447.6

7,447.6

7,447.6

Current Liabilities

 

 

(5,062.1)

(3,873.9)

(5,582.6)

(6,654.0)

Creditors

(4,316.1)

(968.0)

(4,176.2)

(5,247.6)

Tax and social security

0.0

0.0

0.0

0.0

Short term borrowings

0.0

(1,499.5)

0.0

0.0

Other

(746.0)

(1,406.4)

(1,406.4)

(1,406.4)

Long Term Liabilities

 

 

(1,498.8)

(73.6)

(73.6)

(73.6)

Long term borrowings

(1,498.8)

0.0

0.0

0.0

Other long term liabilities

0.0

(73.6)

(73.6)

(73.6)

Net Assets

 

 

38,540.1

109,462.5

91,283.1

86,961.4

Minority interests

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

38,540.1

109,462.5

91,283.1

86,961.4

CASH FLOW

Op Cash Flow before WC and tax

(9,983.1)

(19,402.4)

(16,440.4)

1,624.0

Working capital

3,572.4

(9,780.4)

1,123.1

(4,362.1)

Exceptional & other

8.5

598.9

0.0

0.0

Tax

0.0

0.0

0.0

0.0

Net operating cash flow

 

 

(6,402.2)

(28,583.9)

(15,317.3)

(2,738.1)

Capex

(934.7)

(1,131.1)

(21,383.8)

(29,383.8)

Acquisitions/disposals

0.0

(20,642.4)

(7,840.0)

0.0

Net interest

0.0

0.0

0.0

0.0

Equity financing

23,733.9

92,269.8

0.0

0.0

Dividends

0.0

912.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

Net Cash Flow

16,397.0

42,824.4

(44,541.1)

(32,121.9)

Opening net debt/(cash)

 

 

(25,601.7)

(41,991.7)

(83,617.5)

(39,076.4)

FX

0.0

(1,197.5)

0.0

0.0

Other non-cash movements

(7.0)

(1.0)

0.0

0.0

Closing net debt/(cash)

 

 

(41,991.7)

(83,617.5)

(39,076.4)

(6,954.6)

Source: CASI Pharmaceuticals reports, Edison Investment Research

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This report has been commissioned by CASI Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by CASI Pharmaceuticals. 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 Edison analyst 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.

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Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

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New Zealand

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United Kingdom

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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 (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

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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

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United States of America

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NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by CASI Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by CASI Pharmaceuticals. 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 Edison analyst 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

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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 Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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