Colonoscopy Phase III success prompts US deal

Paion 5 July 2016 Update

Paion

Colonoscopy Phase III success prompts US deal

Phase III success and
out-licence

Pharma & biotech

5 July 2016

Price

€2.15

Market cap

€120m

€1=US$1.10

Net cash (€m) at 31 March 2016

25.6

Shares in issue

55.7m

Free float

84%

Code

PA8

Primary exchange

Frankfurt

Secondary exchange

Xetra

Share price performance

%

1m

3m

12m

Abs

10.7

3.2

(7.2)

Rel (local)

15.2

4.4

5.7

52-week high/low

€2.7

€1.1

Business description

Paion is an emerging specialty pharma company developing anaesthesia products. Lead product remimazolam is undergoing US Phase III trials and is partnered with Cosmo (US), Yichang (China), Hana Pharma (South Korea), Pendopharm (Canada) and R-Pharm (CIS, Turkey, MENA).

Next events

Fully recruit bronchoscopy Phase III

H216/H117

Bronchoscopy Phase III results

H117

Finalise Japan partnering discussions

2016/17

Analysts

Dennis Hulme

+61 (0)2 9258 1161

Lala Gregorek

+44 (0)20 3681 2527

Paion is a research client of Edison Investment Research Limited

Paion reported positive top-line results from its Phase III colonoscopy trial and promptly out-licensed US rights to Cosmo Pharmaceuticals. The deal brings c €20m of cash (including a €9.6m share purchase), €42.5m potential milestones and a 20-25% royalty. The next goal is end of recruitment in the bronchoscopy Phase III expected in late 2016/early 2017, with results two to three months later. We lift our valuation to €203m (vs €193m); the share issue sees our per-share valuation fall to €3.65/share (vs €3.81/share).

Year end

Revenue (€m)

PBT* (€m)

EPS* (c)

DPS (c)

P/E (x)

Yield (%)

12/14

3.5

(11.6)

(22.9)

0.0

N/A

N/A

12/15

0.1

(34.0)

(55.7)

0.0

N/A

N/A

12/16e

10.1

(20.6)

(30.7)

0.0

N/A

N/A

12/17e

2.2

(8.4)

(13.3)

0.0

N/A

N/A

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

Positive results from US colonoscopy Phase III

Paion reported positive top-line results from the first of two US pivotal studies of short-acting anaesthetic remimazolam in procedural sedation; 91% of patients in the remimazolam arm achieved the primary outcome (completion of the colonoscopy procedure without rescue medication) and 5% on placebo. The success rate was comparable to the three remimazolam dose groups in Phase II (92.5-97.5%). The safety profile was consistent with that seen in earlier studies.

Colonoscopy market a core focus for Cosmo

The licence deal brings €10m upfront cash, an equity injection of €10m (€0.4m deferred) plus regulatory milestones of €42.5m and a tiered royalty of 20-25% (which can be as low as 15% in certain product pricing conditions). Cosmo will fund regulatory filing and commercialisation in the US, while Paion will fund the bronchoscopy Phase III. Cosmo is active in the colonoscopy market, with an approved product (Eleview) and another (Methylene Blue MMX) in Phase III; remimazolam’s rapid onset and short wake-up time in procedural sedation will be a complementary addition to its product portfolio and improve its offering to gastroenterologists.

Deal reduces funding and execution risk

The €19.6m cash from Cosmo plus €25.6m cash at 31 March is sufficient to fund operations to potential US approval at end-2018, while the decision not to self-commercialise remimazolam in the US further reduces risk. Paion is in discussions with prospective partners for a potential Japan filing (we assume filing in H217).

Valuation: Cash plus lower risk lifts value to €203m

Cosmo upfronts and milestones totalling €52.5m are below our forecast €85m total. Headline royalty rates of 20-25% are in line, but the possibility of the rate falling as low as 15% sees us lower our royalty assumption to 20% (vs 23%). We adjust our deal terms for Europe and Japan down to match the US deal. Success in the first Phase III trial sees us increase likelihood of US approval to 75% (vs 60%). These changes and the equity issue lift our valuation to €203m (vs €193m); per share valuation falls to €3.65/share (vs €3.81/share) due to the shares issued to Cosmo.

Exhibit 1: Financial summary

€'000s

2014

2015

2016e

2017e

Year end 31 December

PROFIT & LOSS

Revenue

 

 

3,456

61

10,100

2,225

Cost of sales

(4)

0

0

0

Gross profit

3,452

61

10,100

2,225

R&D expenditure

(11,799)

(29,385)

(26,000)

(6,000)

General, administrative & selling

(3,702)

(5,729)

(4,900)

(4,800)

Other

411

965

51

51

Operating profit

(11,639)

(34,088)

(20,749)

(8,524)

Depreciation and amortisation

(93)

0

(100)

(100)

Share-based payments

0

0

0

0

Exceptionals

0

0

0

0

EBITDA

 

 

(11,546)

(34,088)

(20,649)

(8,424)

Operating profit (before GW and except)

 

(11,546)

(34,088)

(20,649)

(8,424)

Net interest

(66)

42

50

20

Profit before tax (norm)

 

 

(11,612)

(34,046)

(20,599)

(8,404)

Profit before tax (reported)

 

 

(11,704)

(34,046)

(20,699)

(8,504)

Tax

2,468

5,834

4,290

990

Profit after tax (norm)

(9,143)

(28,212)

(16,309)

(7,414)

Profit after tax (reported)

(9,236)

(28,212)

(16,409)

(7,514)

Average number of shares outstanding (m)

39.9

50.7

53.2

55.7

EPS - normalised (c)

 

 

(22.9)

(55.7)

(30.7)

(13.3)

EPS - reported (c)

 

 

(23.2)

(55.7)

(30.8)

(13.5)

Dividend per share (c)

 

 

0.0

0.0

0.0

0.0

Gross margin (%)

NA

NA

NA

NA

EBITDA margin (%)

NA

NA

NA

NA

Operating margin (before GW and except.) (%)

NA

NA

NA

NA

BALANCE SHEET

Fixed assets

 

 

3,516

3,417

3,317

3,217

Intangible assets

3,440

3,362

3,287

3,212

Tangible assets

76

56

31

6

Refund from assumption of dev costs

0

0

0

0

Other

0

0

0

0

Current assets

 

 

63,032

40,051

33,342

30,928

Stocks

0

0

0

0

Debtors

467

0

0

25

Cash

58,912

32,680

25,971

23,532

Other

3,653

7,371

7,371

7,371

Current liabilities

 

 

(3,924)

(7,901)

(7,901)

(7,901)

Trade payables

(3,338)

(7,332)

(7,332)

(7,332)

Short-term borrowings

0

0

0

0

Provisions

(306)

(224)

(224)

(224)

Finance lease liabilities

0

0

0

0

Other current liabilities

(254)

(305)

(305)

(305)

Current deferred income

(26)

(39)

(39)

(39)

Long-term liabilities

 

 

(17)

(6)

(6)

(5,006)

Long-term borrowings

0

0

0

(5,000)

Provisions

0

0

0

0

Long-term deferred income

(17)

(6)

(6)

(6)

Deferred taxes

0

0

0

0

Other long-term liabilities

0

0

0

0

Net assets

 

 

62,607

35,562

28,753

21,239

CASH FLOW

Operating cash flow

 

 

(12,044)

(28,212)

(20,649)

(8,449)

Net interest

(66)

43

50

20

Tax

0

2,575

4,290

990

Capex

0

0

0

0

Purchase of intangibles

(26)

(33)

0

0

Acquisitions/disposals

0

0

0

0

Equity Financing

57,618

22

9,600

0

Dividends

0

0

0

0

Other

0

0

0

0

Net cash flow

45,482

(25,605)

(6,709)

(7,439)

Opening net debt/(cash)

 

 

(13,292)

(58,912)

(32,680)

(25,971)

Effect of exchange rate changes

(72)

(66)

0

0

Other

210

(560)

0

0

Closing net debt/(cash)

 

 

(58,912)

(32,680)

(25,971)

(18,532)

Source: Edison Investment Research, Paion accounts

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