adult-close-up-eye-946727

Continuing to move towards data inflection points

Nicox 21 July 2021 Update
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Nicox

Continuing to move towards data inflection points

Mid-year update

Pharma & biotech

21 July 2021

Price

€3.37

Market cap

€125m

$1.18/€

Net cash (€m) at 30 June 2021

18.5

Shares in issue

37.1m

Free float

98%

Code

COX

Primary exchange

Euronext

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(15.9)

(18.8)

(16.2)

Rel to TA-100

(13.0)

(20.6)

(32.4)

52-week high/low

€5.88

€3.28

Business description

Based in France, Nicox develops therapeutics for the treatment of ocular conditions. Lead development candidate NCX-470 is in Phase III studies for the treatment of glaucoma. Nicox also receives licence revenue from its partners for its FDA-approved drugs Vyzulta and Zerviate.

Next events

Phase IIb NCX-4251 top-line results

Q321

Mont Blanc Phase III NCX-470 top-line results

Q222

Analysts

Pooya Hemami, CFA

+1 646 653 7026

Maxim Jacobs, CFA

+1 646 653 7027

Nicox is a research client of Edison Investment Research Limited

Nicox provided a mid-year business update on 16 July and reported details on the progress of its key programmes. The company’s lead internal programmes, NCX-470 and NCX-4251, continue to advance in their respective clinical trials. Top-line data from Mont Blanc, the first of two Phase III NCX-470 studies in glaucoma and ocular hypertension, is expected in Q222. Data from the second Phase III trial, Denali, are now expected in 2023 (versus Q422 previously), and we have revised our potential US launch timing estimate to H224 (vs H124 previously). Nicox recently completed final dosing and follow-up in the NCX-4251 Mississippi Phase IIb in acute blepharitis, an indication with no specific FDA-approved product to date. Top-line Mississippi data are expected in September 2021.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/19

8.3

(16.0)

(0.40)

0.0

N/A

N/A

12/20

14.4

(10.2)

(0.30)

0.0

N/A

N/A

12/21e

8.8

(17.2)

(0.46)

0.0

N/A

N/A

12/22e

11.9

(16.1)

(0.43)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. Normalised 2020 figures differ from reported amounts due primarily to the €6.9m loss reported following the divestment of Nicox’s holdings in VISUfarma.

NCX-470 promises best-in-class IOP lowering efficacy

We believe that NCX-470, if approved, could become the most potent single-agent glaucoma drug on the market in terms of intraocular pressure (IOP) lowering efficacy. NCX-470 (0.065%) has shown statistical superiority in IOP lowering to prostaglandin F2α (PGA) drug latanoprost in Phase II, delivering up to 1.4mmHg further IOP reduction at day 28. The higher NCX-470 concentration (0.1%) used in the Phase III programme may allow for even higher incremental IOP reduction to latanoprost. If efficacy is met in these trials, NCX-470 could potentially become the first non-combination glaucoma drug product in pivotal studies with statistical superiority to a standalone PGA drug, which we believe should support its market adoption and competitiveness.

Partnered commercial products continue to grow

Nicox reported that the number of US prescriptions for Vyzulta rose by 21% y-o-y in Q221 and that for Zerviate it increased by 712% y-o-y, with q-o-q growth shown in each quarter since Zerviate’s Q120 launch. While prescriptions growth has been robust, total net royalties were flat y-o-y and q-o-q in Q221, at €0.6m. The lower than anticipated sales growth was due to pricing considerations in reimbursement.

Valuation: rNPV of €325m

Nicox reported H121 gross cash and equivalents of €36.5m, which we believe should fund its operations into H222. We have rolled forward our estimates and, as stated above, pushed back our NCX-470 launch timeline to H224. We now obtain a risked net present value (rNPV) of €325m, up from €322.4m previously. After adding €18.5m in net H121 cash, we obtain an equity value of €343.5m, or €9.26 per share.

Mid-year pipeline update

Nicox provided a mid-year business update on 16 July and reported details on the progress of its key programmes. Overall progress was generally consistent with our prior expectations as the company’s lead internal programmes, NCX-470 and NCX-4251, continue to advance in their respective clinical trials.

NCX-470 is based on the company’s proprietary nitric oxide (NO) donating platform, which combines an NO-donating molecule with an analogue of established prostaglandin F2α (PGA) drug bimatoprost, thereby providing an additional mechanism for the drug to reduce IOP. Top-line data from Mont Blanc, the first of two Phase III studies, continues to be guided for Q222. More than 443 out of the 670 patients planned to be included in the Mont Blanc study have been randomized into the study, and 318 patients have completed the three-month efficacy evaluation. Results from the second Phase III study, Denali, previously guided for Q422, have been pushed back to 2023. We have pushed back our forecast NCX-470 launch timeline from H124 to H224.

The primary endpoint of both studies is the mean IOP reduction from a time-matched baseline at 8am and 4pm time points at weeks two and six and month three visits. IOP reduction is the most widely accepted measure of a glaucoma treatment’s efficacy in decelerating disease progression. As discussed in our initiation report, PGA drugs are the most commonly used first-line glaucoma treatment, and bimatoprost (marketed as Lumigan 0.01% by AbbVie) is currently the best-selling branded glaucoma drug in the United States in terms of revenue. In Nicox’s Phase II study (Dolomites), NCX-470 (at 0.065% concentration) demonstrated both statistical non-inferiority and superiority in IOP lowering than PGA drug latanoprost at day 28, being up to 1.4mmHg superior (in IOP lowering efficacy) to it at day 28 (p<0.025). The chosen NCX-470 concentration (0.1%) in Mont Blanc and Denali is higher than the 0.065% used in the Dolomites study and hence it is possible that these trials could show a higher incremental IOP reduction to latanoprost. If such efficacy is confirmed in these trials, NCX-470 could potentially become the first non-combination glaucoma drug product in pivotal studies with statistical superiority to a standalone PGA drug, which we believe should support its market adoption and competitiveness.

NCX-4251 is a proprietary ophthalmic suspension of fluticasone propionate nanocrystals being developed for acute exacerbations of blepharitis. On 2 July, Nicox announced that the last patient in the NCX-4251 Mississippi Phase IIb study had completed the two-week treatment phase as well as the required two-week follow-up period. The study enrolled over 200 patients and top-line results are expected in September 2021. If the results are positive, an end-of-Phase II meeting with the FDA is planned for early 2022, which will help inform the next development steps.

Partnered products see prescription increases

Nicox obtains recurring revenue from two out-licensed, commercial-stage assets, Vyzulta (latanoprostene bunod) and Zerviate (topical cetirizine). Vyzulta, the first NO-donating PGA drug approved for the treatment of glaucoma, is commercialised by Bausch + Lomb (B+L), Nicox’s exclusive commercial partner for the product, entitling Nicox to net royalties of c 6–12% of global sales. Nicox reported that the number of US prescriptions for Vyzulta rose by 21% y-o-y in Q221 (compared to an 18% y-o-y increase in Q121 as reported by B+L). In addition to the US, B+L is also commercializing Vyzulta in Canada, Argentina, Mexico, Hong Kong and Taiwan, and the drug is also approved in Brazil, Colombia, Qatar, South Korea, United Arab Emirates and Ukraine.

Zerviate is an antihistamine drug approved by the FDA for the treatment of ocular itching associated with allergic conjunctivitis. Zerviate is licensed by Nicox in the United States to Eyevance (acquired by Santen in September 2020) and was launched in the United States in Q120. Nicox’s effective royalty from Eyevance is c 5% until certain manufacturing costs under their licensing agreement are covered, after which the royalty rate rises to 8–15%. Nicox reported that the total number of US Zerviate prescriptions increased by 712% y-o-y in Q221 (which we estimate corresponds to c 11,300 in Q221), showing a healthy increase from the period following the launch, although Santen/Eyevance sales have not been disclosed yet. Nicox also licensed Zerviate to Ocumension in the Chinese market, to Samil in South Korea, and in Q221 the company out-licensed it to Laboratorios Grin (a wholly owned subsidiary of Lupin), for Mexico. Zerviate has not yet been commercialised in these regions yet.

While prescriptions for both Vyzulta and Zerviate have risen y-o-y, net royalties (consisting of total royalty payments received by Nicox after its own royalty payment obligations1 to Pfizer are paid) were flat y-o-y and q-o-q in Q221, at €0.6m. Nicox indicates that for Vyzulta, the Q221 revenue growth trend was lower than anticipated due to pricing considerations in reimbursement. This could be due to a decrease in the net selling price per bottle as new insurer(s) negotiated lower reimbursement prices, or re-negotiations of existing coverage plans resulting in pricing adjustments, or that the ‘coverage mix’ of prescriptions reflected a lower net pricing mix (from all the plans covering Vyzulta), or a combination of these factors. Altogether, as Vyzulta’s market presence matures (the product was launched in the United States in late 2017), these factors or fluctuations should diminish and there should be less fluctuation in the net realized average price, so we would anticipate that net sales growth should match net prescriptions growth more closely going forward.

Nicox recovered rights to latanoprostene bunod from Pfizer in 2009 and it must pay royalties to Pfizer proportionate to the product’s net sales. After giving effect to these payments, the net royalty that Nicox receives on net Vyzulta sales is between 6% and 12% of net product sales. We model the payments to Pfizer as part of Nicox’s cost of sales.

Financials

Nicox reported that at 30 June 2021 it had €36.5m in cash and equivalents versus €42.0m at 31 March 2021. It also reported €18.0m in gross H121 debt consisting of €16.0m in the form of a bond financing agreement with Kreos Capital and a €2m credit agreement with Société Générale and LCL, guaranteed by the French State and granted in August 2020. Nicox expects the cash at mid-2021 to be sufficient for it to meet its current requirements for the next 12 months. This is consistent with our maintained estimate that Nicox has sufficient funds on hand to operate into H222.

Nicox also reported in July that it will receive $2m from Ocumension after amending its March 2019 agreement with Ocumension covering the latter’s exclusive rights to develop and commercialise Zerviate in the Chinese and majority of South-East Asian markets. Nicox received $2m as a full advance payment of the future development and regulatory milestones for the product, but will remain eligible to receive the same sales milestones of up to $17.2m, together with tiered royalties of between 5% and 9% of net Zerviate sales by Ocumension. Zerviate is currently being assessed in a confirmatory Phase III trial in China by Ocumension, to support a Chinese new drug application for the treatment of ocular itching associated with allergic conjunctivitis. We view this revision of their agreement as a positive as it confirms the value that Ocumension sees in Zerviate for the Chinese market, and also helps provide non-dilutive capital to Nicox.

While we have revised our working capital and stock-based compensation forecasts and revised deferred revenue timing assumptions relating to the company’s agreement with Ocumension, we have not adjusted our near- to medium-term operating expense forecasts. We may review our assumptions once the company reports full H121 financial results in September. We have pushed back our estimate for the potential launch of NCX-470 from H124 to H224, to account for the new timeline for Denali clinical data.

We continue to model a €10m fund-raise in 2022, followed by an additional €10m in 2023 and €20m in 2024 (all fund-raisings modelled as illustrative debt). Following the anticipated NCX-470 launch in H224, we do not expect Nicox to require additional capital as its royalty streams plus NCX-470 sales should enable it to start achieving consistent positive operating income starting in FY25.

Valuation

We have rolled forward our estimates and, as stated above, pushed back our NCX-470 launch timeline to H224. We have also adjusted our US$/€ forex assumption to 1.18, from 1.19 previously. Following these changes, we now obtain an rNPV of €325m, up from €322.4m previously. After adding €18.5m in net H121 cash, we obtain an equity value of €343.5m, or €9.26 per share.

Exhibit 1: Nicox rNPV assumptions

Product contribution

Indication

Stage

NPV (€m)

Probability of success

rNPV
(€m)

rNPV/
share
(€)

Launch year

Peak sales (€m) in 2030

NCX-470 (net of R&D and SG&A costs) in US market

Glaucoma

Phase III ongoing

393.7

50%

189.7

5.11

2024

310

NCX-470 (net of R&D and SG&A costs) in Europe and unpartnered regions

Glaucoma

Phase III

190.9

35%

62.0

1.67

2026

157

NCX-470 licence fees from Ocumension (China and other)

Glaucoma

Phase III ongoing

9.3

50%

4.4

0.12

2024

2.7*

NCX-4251 (net of R&D and SG&A costs) sales and licence fees/royalties

Acute blepharitis

Phase IIb ongoing

58.8

40%

20.7

0.56

2025

52.0

Vyzulta royalties from Bausch + Lomb

Glaucoma

Commercial

93.5

100%

93.5

2.52

2017

18.2*

Zerviate royalties from Eyevance and others

Allergic conjunctivitis

Commercial

20.3

100%

20.3

0.55

2020

4.9*

Corporate costs

(65.7)

100%

(65.7)

(1.77)

Total

700.7

325.0

8.76

Net cash (H121) excluding lease liabilities

18.5

18.5

0.50

Total equity value

719.2

343.5

9.26

FD shares outstanding (000s) (30 June 2021)

37,113

Source: Edison Investment Research. Note: *Reflects net licence income and royalties received by Nicox and not commercial sales by licensee.

Exhibit 2: Financial summary

€’000s

2018

2019

2020

2021e

2022e

2023e

2024e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

4,717

8,260

14,423

8,822

11,886

17,345

23,047

Cost of Sales

(690)

(1,405)

(1,516)

(1,578)

(2,387)

(4,817)

(5,880)

Gross Profit

4,027

6,855

12,907

7,244

9,499

12,528

17,168

General & Administrative

(9,506)

(7,666)

(6,677)

(6,837)

(7,097)

(10,432)

(23,026)

Net Research & Development

(15,491)

(16,883)

(11,991)

(16,700)

(17,350)

(12,350)

(7,350)

Amortisation of intangible assets

0

(659)

(1,252)

(1,162)

(1,141)

(1,121)

(1,101)

Operating profit before exceptionals

(20,970)

(18,353)

(7,013)

(17,454)

(16,089)

(11,374)

(14,309)

EBITDA

 

 

(20,718)

(17,230)

(5,270)

(15,939)

(14,597)

(9,916)

(12,838)

Depreciation & other

(252)

(464)

(491)

(354)

(350)

(338)

(370)

Operating Profit (before amort. and except.)

(20,970)

(17,694)

(5,761)

(16,292)

(14,948)

(10,254)

(13,208)

Exceptionals including asset impairment

302

(6,115)

(6,621)

0

0

0

0

Other

0

0

0

0

0

0

0

Operating Profit

(20,668)

(23,809)

(12,382)

(16,292)

(14,948)

(10,254)

(13,208)

Net Interest

2,390

1,690

(4,436)

(901)

(1,171)

(2,153)

(3,073)

Profit Before Tax (norm)

 

 

(18,580)

(16,004)

(10,197)

(17,193)

(16,118)

(12,406)

(16,281)

Profit Before Tax (FRS 3)

 

 

(18,278)

(22,778)

(18,070)

(18,355)

(17,259)

(13,527)

(17,381)

Tax

(113)

3,856

(28)

0

0

0

0

Profit After Tax and minority interests (norm)

(18,693)

(12,148)

(10,225)

(17,193)

(16,118)

(12,406)

(16,281)

Profit After Tax and minority interests (FRS 3)

(18,391)

(18,922)

(18,098)

(18,355)

(17,259)

(13,527)

(17,381)

Average Number of Shares Outstanding (m)

29.6

30.3

33.7

37.2

37.3

37.5

37.6

EPS - normalised (€)

 

 

(0.63)

(0.40)

(0.30)

(0.46)

(0.43)

(0.33)

(0.43)

EPS - normalised and fully diluted (€)

 

(0.63)

(0.40)

(0.30)

(0.46)

(0.43)

(0.33)

(0.43)

EPS - (IFRS) (€)

 

 

(0.62)

(0.62)

(0.54)

(0.49)

(0.46)

(0.36)

(0.46)

Dividend per share (€)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

112,498

110,660

89,745

88,586

87,421

86,395

85,501

Intangible Assets

71,397

72,120

64,848

63,686

62,545

61,424

60,323

Tangible Assets

25,628

27,517

24,829

24,832

24,808

24,903

25,109

Investments in long-term financial assets

15,473

11,023

68

68

68

68

68

Current Assets

 

 

26,092

32,146

52,521

36,048

26,005

26,738

28,121

Short-term investments

0

0

0

0

0

0

0

Cash

22,059

28,102

47,195

28,988

18,499

16,136

16,902

Other

4,033

4,044

5,326

7,060

7,506

10,602

11,218

Current Liabilities

 

 

(8,069)

(9,828)

(15,405)

(15,468)

(12,546)

(15,094)

(12,263)

Creditors

(8,069)

(7,751)

(10,116)

(10,179)

(7,257)

(9,805)

(6,974)

Short term borrowings

0

(2,077)

(5,289)

(5,289)

(5,289)

(5,289)

(5,289)

Long Term Liabilities

 

 

(16,868)

(23,681)

(26,051)

(26,051)

(34,351)

(44,351)

(64,351)

Long term borrowings

0

(9,045)

(12,687)

(12,687)

(22,687)

(32,687)

(52,687)

Other long-term liabilities

(16,868)

(14,636)

(13,364)

(13,364)

(11,664)

(11,664)

(11,664)

Net Assets

 

 

113,653

109,297

100,810

83,115

66,529

53,688

37,007

CASH FLOW

Operating Cash Flow

 

 

(21,533)

(17,741)

(956)

(16,949)

(18,992)

(9,777)

(15,585)

Net interest and financing income (expense)

2,390

1,690

(4,436)

(901)

(1,171)

(2,153)

(3,073)

Tax

0

0

0

0

0

0

0

Capex

(268)

(95)

(20)

(357)

(326)

(434)

(576)

Acquisitions/disposals

0

0

0

0

0

0

0

Financing

0

11,290

13,321

0

0

0

0

Dividends

0

0

0

0

0

0

0

Net Cash Flow

(19,411)

(4,856)

7,909

(18,207)

(20,489)

(12,363)

(19,234)

Opening net debt/(cash)

 

 

0

(37,532)

(28,003)

(29,287)

(11,080)

9,409

21,772

HP finance leases initiated

0

0

0

0

0

0

0

Other

56,943

(4,673)

(6,625)

0

0

(0)

0

Closing net debt/(cash)

 

 

(37,532)

(28,003)

(29,287)

(11,080)

9,409

21,772

41,006

Lease debt

N/A

1,527

1,099

1,099

1,099

1,099

1,099

Closing net debt/(cash) inclusive of IFRS 16 lease debt

(37,532)

(26,476)

(28,188)

(9,981)

10,508

22,871

42,105

Source: Company reports, Edison Investment Research


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United Kingdom

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United States of America

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Australia

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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

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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

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

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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