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Continuing to advance and expand the pipeline

CASI Pharmaceuticals 6 April 2021 Update
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CASI Pharmaceuticals

Continuing to advance and expand the pipeline

Earnings update

Pharma & biotech

6 April 2021

Price

US$2.15

Market cap

US$301m

Net cash ($m) at 31 December 2020

57.1

Shares in issue

139.8m

Free float

70.5

Code

CASI

Primary exchange

Nasdaq

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(5.3)

(22.9)

15.0

Rel (local)

(10.8)

(29.6)

(29.8)

52-week high/low

US$3.6

US$1.5

Business description

CASI Pharmaceuticals is building a portfolio of drugs it intends to market for Chinese and worldwide markets, including Evomela launched in China, anti-CD19 CAR-T therapy CNCT19 and anti-CD38 drug CID-103, among others. The goal is to seek approval through new pathways that have opened in the quickly changing Chinese regulatory environment.

Next events

B-ALL Phase II initiation

Q121

Phase I CAR-T studies complete

Q121

Analyst

Nathaniel Calloway

+1 646 653 7036

CASI Pharmaceuticals is a research client of Edison Investment Research Limited

The year 2020 was one of challenges for CASI, as it was for the rest of the world, but the company was able to continue to advance the commercialization of Evomela and jumpstart its clinical development engine. CASI is continuing to execute on its strategy of opportunistically in-licensing assets and the recent trend has been to earlier-stage assets such as its latest acquisition, the Chinese rights to the Phase I broad spectrum anti-cancer drug CB-5339, announced in March.

Year end

Revenue ($m)

PBT*
($m)

EPS*
($)

DPS
($)

P/E
(x)

Yield
(%)

12/19

4.1

(36.5)

(0.39)

0.00

N/A

N/A

12/20

15.1

(37.9)

(0.35)

0.00

N/A

N/A

12/21e

25.8

(23.2)

(0.17)

0.00

N/A

N/A

12/22e

28.8

(23.8)

(0.17)

0.00

N/A

N/A

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

CB-5339: A novel drug for a range of tumors

CASI acquired the rights to CB-5339 in mainland China (as well as Taiwan, Hong Kong and Macau) from Cleave Therapeutics, a private pharma company based in San Francisco, for $5.5m upfront, $74m in milestones and mid-single to mid-double-digit royalties. Additionally, CASI made a $5.5m investment in Cleave through a convertible note. The drug is an inhibitor of valosin-containing protein (VCP)/p97 and has the potential for activity in hematologic and solid tumors. It is in a Phase I dosing study in acute myeloid leukemia (AML) and myelodysplastic syndrome (MDS) patients (sponsored by Cleave) and an NCI-sponsored study in hematologic and solid tumors.

Continued focus on early-stage assets

CASI has described its business-development strategy as opportunistic and the products it has licensed for the Chinese and worldwide markets are from a range of classes, from market-ready products such as Evomela, to generics. However, the recent trend has been to license early-stage assets. CASI has four assets being tested in Phase I, including CID-103, which entered the clinic in March 2021.

More money to support increased development

CASI ended 2020 with $57.1m, recently bolstered with a $32.5m (gross) offering (at $2.05 per share for 15.85m new shares). This has significantly offset our expected future financing for the company (reduced to $20m from $55m). However, we expect CASI to continue to deploy this cash in strategic ways to advance its pipeline through the in-licensing of assets.

Valuation: Increased to $500m from $431m

We have increased our valuation to $500m or $3.54 per share, from $431m or $3.47 per share, previously, driven by increased cash, increased probability of success for CIB-103 (to 10% from 5%) and the addition of CB-5339. The per share amount is only slightly changed given the increased shares outstanding.

The new drug

On 8 March 2021, CASI announced it has in-licensed the Chinese rights to the investigational drug CB-5339 from Cleave Therapeutics.

CB-5339 is an anti-cancer drug with potential applicability to both solid tumors and hematologic neoplasms. It is an inhibitor of VCP/p97, a protein involved in the maintenance and degradation of other proteins in the cell. Its inhibition can induce DNA damage, to which cancer cells are sensitive. The protein’s primary function is to isolate certain proteins and traffic them to degradation in the proteasome. We therefore expect the profile of the drug (if it is active) to resemble that of proteasome inhibitors such as Velcade (bortezomib, Takeda). Drugs of the proteasome inhibitor class are used in the treatment of multiple myeloma and indolent non-Hodgkin lymphomas, such as mantle cell lymphoma. These drugs as a class have significant adverse effect profiles that include cytopenias, gastrointestinal upset and peripheral neuropathy, among others. A drug such as CB-5339 may be a viable alternative to proteasome inhibitors if it can improve on this adverse effect profile.

CB-5339 is being evaluated in a Phase I dosing study in patients with AML and MDS sponsored by Cleave Therapeutics. Additionally, it is in a Phase I study sponsored by the National Cancer Institute, investigating it for lymphomas and solid tumors. CASI will be obligated to perform the clinical studies necessary for approval in China, but we expect this to be relatively limited in scope, such as a relatively small bridging study (eg, n=30). The company intends to file for clinical trial authorization in China sometime in the next year.

This drug continues the recent trend of the company to in license early-stage assets. The economics of such deals can be much more attractive that later-stage assets (which typically command much higher up-front costs), albeit with higher development risk. Moreover, in the case of CB-5339 and the company’s other most recent acquisition, BI-1206, CASI has a relatively limited clinical commitment. In both cases, the pivotal studies will be supported primarily by the company’s partners, and although we expect CASI to enroll patients for these studies in China, the cost will be much smaller than if it were itself running the entire clinical program. Through these early-stage licensing agreements, the company has been able to assemble a relatively large pipeline of programs. We expect CASI to continue to use this strategy to deploy some of the capital from its recent offering (described below) to support the continued pipeline development.

Valuation

We have increased our valuation to $500m or $3.54 per basic share, from $431m or $3.47 per basic share, previously. A major factor driving this valuation is the increase in net cash ($90.8m pro forma, compared to $57.1m previously) following the offering announced on 24 March. We assume the underwriters of the offering will use the full greenshoe (underwriters’ options to purchase 2.38m shares for up to 30 days), which is still available at the time of this report (resulting in $35.4m total net proceeds). The pro-forma net cash value also includes the cost of the Cleave transaction ($11m total) and the company’s liquid investments ($9.3m at the end of 2020). Another major factor driving the increased valuation is that we have increased the probability of success for CID-103 to 10% from 5%, as this product has now entered clinical trials. This increased the valuation for this asset to $41.0m from $14.9m previously.

We have added CB-5339 to our model, with an initial valuation of $10.1m. We assume for the initial indication the drug will be approved for AML. We assume the drug will be launched in 2028 with a price of US$37,000 per patient. This is a significant discount to the pricing for similar agents in Western countries. For instance, Venclexta (venetoclax, AbbVie) has an estimated price of $122,000 in the US (Evaluate Pharma). We model a 30% peak penetration into the AML market if the drug is successful. We estimate a probability of success of 15%, which is average for drugs in Phase I dosing studies. Our model includes royalties payable to Cleave (10% on average) and $40m of the $74m in planned milestones ($20m clinical/regulatory and $20m sales based). We assume CASI will be responsible for development activity in China and this will be supported with a small (30-patient) bridging study run concurrently with the pivotal Phase III study (supported by Cleave). In addition, our line item for CB-5339 includes the convertible note issued to Cleave ($5.5m), valued at cost.

Exhibit 1: Valuation of CASI

Portfolio

Asset

Region

Peak sales ($m)

Margins

Clinical risk adjustment

Value
($m)

Hematology

Evomela

China

39.1

50%

100%

92.09

Zevalin

China

25.5

64%

90%

44.75

Thiotepa

China

8.8

39%

90%

4.75

CID-103

China, US & Europe

766.6

59%

10%

41.03

CNCT19

China

306.2

up to 50% profit share

10%

26.82

BI-1206

China

249.9

59%

10%

17.76

CB-5339

China

77.3

52%

10%

10.07

Other products

ANDA portfolio

China & US

142.0

47%

100%

180.88

Octreotide LAI

China

15.7

41%

80%

12.75

Total

430.90

Net cash and equivalents (Q420 unaudited) ($m) pro-forma of Q121 financing and Cleave transaction

90.81

Noncontrolling interest ($m)

(22.03)

Total firm value ($m)

499.68

Total shares (m) assuming underwriters exercise full greenshoe

141.23

Value per basic share ($)

3.54

Dilutive warrants and options (m)

16.75

Value per diluted share ($)

3.45

Source: CASI reports, Edison Investment Research

Financials

As mentioned above, CASI performed an offering in March 2021 that raised $32.5m gross (at $2.05 per share for 15.8m new shares). This substantially reduces our expected financing requirement for the company to $20m from $55m (which we include in 2022 as illustrative debt). We expect CASI to deploy at least a portion of this capital through the continued expansion of its pipeline, so the company may raise additional capital beyond this, but we expect these deals to be accretive.

Other changes to our model are largely to align it with the company’s recently published annual report, and these changes have little impact on our forecasts. For a more detailed breakdown of our revenue forecasts, see our previous report on the company’s preliminary earnings. The company reported an operating loss of $51.5m, but $17.8m of this amount was payments associated with its licensed programs. We expect recurring operating expenses to expand in 2021 (to $51.8m), but to be offset by increased gross profit from Evomela ($19.3m) for an expected FY21 operating loss of $32.4m. This increase in expenses is associated with its ongoing development programs, which we expect will now be less hindered by COVID-19.

Exhibit 2: Financial summary

$'k

2019

2020

2021e

2022e

Year end 31 December

US GAAP

US GAAP

US GAAP

US GAAP

INCOME STATEMENT

Revenue

 

 

4,131.0

15,141.0

25,750.0

28,791.2

Cost of Sales

(3,935.0)

(9,508.0)

(6,402.5)

(7,162.8)

Gross Profit

196.0

5,633.0

19,347.5

21,628.4

EBITDA

 

 

(37,495.0)

(41,361.0)

(23,086.1)

(22,889.1)

Normalised operating profit

 

 

(38,098.0)

(41,923.0)

(23,223.6)

(23,771.2)

Amortization of acquired intangibles

(1,550.0)

(1,397.0)

(1,397.0)

(1,397.0)

Exceptionals

0.0

(385.0)

0.0

0.0

Share-based payments

(7,310.0)

(7,821.0)

(7,821.0)

(7,821.0)

Reported operating profit

(46,958.0)

(51,526.0)

(32,441.6)

(32,989.2)

Net Interest

1,062.0

866.0

0.0

0.0

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

Exceptionals

534.0

3,149.0

0.0

0.0

Profit Before Tax (norm)

 

 

(36,502.0)

(37,908.0)

(23,223.6)

(23,771.2)

Profit Before Tax (reported)

 

 

(45,362.0)

(47,511.0)

(32,441.6)

(32,989.2)

Reported tax

0.0

0.0

6,488.3

6,597.8

Profit After Tax (norm)

(36,502.0)

(37,908.0)

(23,223.6)

(23,771.2)

Profit After Tax (reported)

(45,362.0)

(47,511.0)

(25,953.3)

(26,391.4)

Minority interests

(670.0)

(776.0)

0.0

0.0

Discontinued operations

0.0

0.0

0.0

0.0

Net income (normalised)

(37,172.0)

(38,684.0)

(23,223.6)

(23,771.2)

Net income (reported)

(46,032.0)

(48,287.0)

(25,953.3)

(26,391.4)

Basic average number of shares outstanding (m)

96

110

137

144

EPS - basic normalised (c)

 

 

(38.74)

(35.04)

(16.96)

(16.54)

EPS - diluted normalised (c)

 

 

(38.74)

(35.04)

(16.96)

(16.54)

EPS - basic reported (c)

 

 

(47.98)

(43.73)

(18.96)

(18.36)

Dividend (c)

0.00

0.00

0.00

0.00

BALANCE SHEET

Fixed Assets

 

 

41,130.0

53,709.0

74,481.4

87,628.5

Intangible Assets

16,895.0

13,210.0

17,313.0

15,916.0

Tangible Assets

985.0

2,062.0

13,231.4

27,775.5

Investments & other

23,250.0

38,437.0

43,937.0

43,937.0

Current Assets

 

 

61,501.0

74,025.0

70,905.1

59,421.4

Stocks

4,542.0

1,356.0

2,104.9

2,354.9

Debtors

1,293.0

4,645.0

4,232.9

4,732.8

Cash & cash equivalents

54,246.0

66,373.0

62,987.3

50,753.7

Other

1,420.0

1,651.0

1,580.0

1,580.0

Current Liabilities

 

 

(7,947.0)

(7,976.0)

(8,320.9)

(8,554.7)

Creditors

(5,113.0)

(3,669.0)

(4,013.9)

(4,247.7)

Tax and social security

0.0

0.0

0.0

0.0

Short term borrowings

0.0

0.0

0.0

0.0

Other

(2,834.0)

(4,307.0)

(4,307.0)

(4,307.0)

Long Term Liabilities

 

 

(1,019.0)

(16,185.0)

(16,185.0)

(36,185.0)

Long term borrowings

0.0

0.0

0.0

(20,000.0)

Other long term liabilities

(1,019.0)

(16,185.0)

(16,185.0)

(16,185.0)

Net Assets

 

 

93,665.0

103,573.0

120,880.5

102,310.2

Minority interests

20,670.0

22,033.0

22,033.0

22,033.0

Shareholders' equity

 

 

72,995.0

81,540.0

98,847.5

80,277.2

CASH FLOW

Op Cash Flow before WC and tax

(37,495.0)

(41,361.0)

(23,086.1)

(22,889.1)

Working capital

4,452.0

(3,318.0)

8.1

(516.1)

Exceptional & other

9,800.0

18,793.0

6,488.3

6,597.8

Tax

0.0

0.0

0.0

0.0

Net operating cash flow

 

 

(23,243.0)

(25,886.0)

(16,589.7)

(16,807.4)

Capex

(7,053.0)

(1,499.0)

(11,306.8)

(15,426.2)

Acquisitions/disposals

(21,005.0)

(21,529.0)

(5,500.0)

0.0

Net interest

0.0

0.0

0.0

0.0

Equity financing

3,545.0

45,904.0

35,440.0

0.0

Dividends

0.0

0.0

0.0

0.0

Other

20,000.0

2,309.0

71.0

0.0

Net Cash Flow

(27,756.0)

(701.0)

2,114.5

(32,233.6)

Opening net debt/(cash)

 

 

(83,617.5)

(54,245.5)

(66,372.5)

(62,987.0)

FX

(1,328.0)

2,895.0

0.0

0.0

Other non-cash movements

(288.0)

9,933.0

(5,500.0)

0.0

Closing net debt/(cash)

 

 

(54,245.5)

(66,372.5)

(62,987.0)

(30,753.4)

Source: CASI 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 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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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 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).

Australia

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.

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

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.

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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

New York +1 646 653 7026

1185 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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