4SC |
Core focus on track despite disappointing results |
Clinical progress update |
Pharma & biotech |
13 June 2016 |
Share price performance
Business description
Next events
Analysts
4SC is a research client of Edison Investment Research Limited |
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4SC has announced that its partner Yakult Honsha did not reach the primary endpoint in its Asian liver cancer trial with all-comer patients. As a result, it will not be progressing resminostat to a pivotal study. These results do not affect 4SC’s core focus on the launch of its pivotal EU Phase II resminostat study in CTCL and progression of its earlier pipeline. A positive partnership with Link Health (4SC-205) and data at ASCO (4SC-202) underline this. Removal of the Japan HCC contribution reduces our rNPV to €104m (vs €145m).
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/14 |
7.1 |
(8.8) |
(0.88) |
0.0 |
N/A |
N/A |
12/15 |
3.3 |
(8.4) |
(0.59) |
0.0 |
N/A |
N/A |
12/16e |
3.8 |
(11.4) |
(0.60) |
0.0 |
N/A |
N/A |
12/17e |
4.0 |
(10.2) |
(0.53) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Disappointing Phase II results from partner Yakult
Japanese partner Yakult Honsha (Yakult) has completed the Phase II part of a Phase I/II study of resminostat in combination with sorafenib in advanced liver cancer (HCC). The Phase II part (170 Asian patients) did not meet its primary endpoint of prolonged time to disease progression (TTP) compared to sorafenib monotherapy. Yakult has confirmed that it will not progress to a pivotal study in all-comer patients. However, early data appear to show that patients with certain expression levels of the ZFP64 biomarker at baseline had longer TTP when treated in combination with resminostat, a potentially positive indication. Further clinical trials in Japan are ongoing in NSCLC, pancreatic cancer and bile duct cancer.
Core focus – CTCL Phase II trial remains on track
The pivotal Phase II trial of resminostat in CTCL is on track to start in Europe in mid-2016. This 150-patient, double-blind, randomised controlled study will be conducted in 50 centres, across 10 countries. Initial results could be available in FY18.
Positive progress with early-stage pipeline
4SC has entered into a licensing and development partnership with Link Health in China for its oncology Eg5 inhibitor, 4SC-205. Link Health will undertake clinical development and the regulatory process, while 4SC will receive developmental milestones (€76m) and double-digit royalties. Also, further positive data have been presented (ASCO 2016) for its epigenetic compound, 4SC-202, demonstrating with preclinical evidence that it is an effective combination partner for checkpoint inhibitor therapies.
Valuation: Reduced to €104m, but potential upside
Our rNPV-based valuation reduces to €104m or €5.5 per share (previously €145m or €7.67/share), as we remove the Japan HCC rNPV contribution following Yakult’s decision not to progress in this indication. Nevertheless, we see some upside to our valuation as the pivotal Phase II CTCL trial is initiated later this year.
Valuation
We have reduced our rNPV of 4SC’s product portfolio to €104m (vs €145m), predominantly due to the removal of the Yakult HCC rNPV of €39m, or €2 per share, alongside a reduction in the probability of success (to 20%) for resminostat in the US and EU territories. This follows the announcement that the primary endpoint of the Phase II part of the trial was not met and therefore 4SC’s partner Yakult would not be taking it forward into a pivotal Phase III trial.
This is offset slightly by an increase in the rNPV value of the 4SC-205 product to €20m (or €1 per share) following its partnership with Link Health to develop and commercialise it in China, Hong Kong and Macau. The deal enables Link Health to clinically develop 4SC-205 and to have responsibility for taking it through the regulatory process in China. As a result, 4SC is entitled to developmental milestones of €76m and double-digit royalty payments on product sales. In addition, 4SC receives all the data, which could be useful in securing partnerships for other territories in the future. We do not currently include the milestone payments in our forecasts as the company has indicated that they do not have an immediate impact on cash flow and we have no visibility at this time as to how and when Link Health will progress the programme.
Our overall valuation for 4SC is now €104m (vs €145m previously), or €5.5 per share (vs €7.67 per share). Our other key assumptions remain unchanged. However, we see some upside potential to our valuation as the Phase II trial in CTCL is initiated later this year.
Exhibit 1: rNPV sum-of-the-parts valuation
Product |
Indication |
Region |
Status |
Partner |
NPV (€m) |
Prob. of success |
rNPV |
rNPV/ |
Launch |
Peak sales (€m) |
Net royalty estimate |
Resminostat |
First-line HCC |
China |
Phase I |
Menarini |
86.1 |
20% |
17.2 |
0.91 |
2022 |
259 |
15% |
|
US |
Phase II |
- |
59.0 |
20% |
11.8 |
0.62 |
2021 |
191 |
20% |
|
|
EU |
Phase II |
- |
62.2 |
20% |
12.4 |
0.66 |
2021 |
201 |
20% |
|
Resminostat |
Second-line NSCLC |
Japan |
Phase II |
Yakult Honsha |
63.6 |
10% |
6.4 |
0.34 |
2021 |
204 |
17.5% |
Resminostat |
Second-line CTCL |
EU |
Phase II |
- |
50.1 |
20% |
10.0 |
0.53 |
2020 |
123 |
25.0% |
4SC-202 |
Haematological/solid tumours |
WW |
Phase II-ready |
- |
209.6 |
15% |
34.4 |
1.82 |
2022 |
810 |
tiered up to 15% |
4SC-205 |
Haematological/solid tumours |
WW |
Phase I |
- |
20 |
1.05 |
|||||
R&D expenses |
(18.5) |
(0.98) |
2016-18 expenses (risk-adjusted) |
||||||||
Admin expenses |
(6.6) |
(0.35) |
2016-18 expenses (risk-adjusted) |
||||||||
Net cash (Q116) |
17.1 |
0.90 |
Includes €1.3m long-term financial asset |
||||||||
Total |
|
|
|
|
|
|
104 |
5.50 |
|
|
|
Source: Edison Investment Research
Exhibit 2: Financial summary
€000s |
2013 |
2014 |
2015 |
2016e |
2017e |
2018e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
4,904 |
7,055 |
3,266 |
3,800 |
4,000 |
5,000 |
Cost of sales |
(1,474) |
(4,080) |
(1,763) |
(1,710) |
(1,600) |
(1,750) |
||
Gross profit |
3,430 |
2,975 |
1,503 |
2,090 |
2,400 |
3,250 |
||
R&D expenditure |
(10,243) |
(8,504) |
(7,255) |
(11,000) |
(10,000) |
(7,500) |
||
Administrative, distribution and other |
(3,779) |
(3,908) |
(3,163) |
(3,447) |
(3,551) |
(3,657) |
||
Operating profit |
(10,592) |
(9,437) |
(8,915) |
(12,357) |
(11,151) |
(7,907) |
||
Intangible amortisation |
(1,593) |
(819) |
(827) |
(827) |
(827) |
(827) |
||
Exceptionals (impairment / restructuring costs) |
(862) |
0 |
0 |
0 |
0 |
0 |
||
Share-based payments |
(53) |
(3) |
2 |
(20) |
(20) |
(20) |
||
EBITDA |
|
|
(7,804) |
(8,339) |
(7,914) |
(11,285) |
(10,079) |
(6,835) |
Operating profit (before GW and except.) |
|
(8,084) |
(8,615) |
(8,090) |
(11,510) |
(10,304) |
(7,060) |
|
Net interest |
48 |
(228) |
(331) |
75 |
150 |
100 |
||
Other (profit/loss from associates) |
19 |
39 |
58 |
75 |
75 |
75 |
||
Profit before tax (norm) |
|
|
(8,036) |
(8,843) |
(8,421) |
(11,436) |
(10,154) |
(6,960) |
Profit before tax (FRS 3) |
|
|
(10,525) |
(9,626) |
(9,188) |
(12,208) |
(10,926) |
(7,732) |
Tax |
0 |
(70) |
(40) |
0 |
0 |
0 |
||
Profit after tax (norm) |
(8,017) |
(8,874) |
(8,403) |
(11,361) |
(10,079) |
(6,885) |
||
Profit after tax (FRS 3) |
(10,525) |
(9,696) |
(9,228) |
(12,208) |
(10,926) |
(7,732) |
||
Average number of shares outstanding (m) |
10.1 |
10.1 |
14.3 |
19.0 |
19.0 |
19.0 |
||
EPS - normalised (€) |
|
|
(0.80) |
(0.88) |
(0.59) |
(0.60) |
(0.53) |
(0.36) |
EPS - FRS 3 (€) |
|
|
(1.04) |
(0.96) |
(0.64) |
(0.64) |
(0.58) |
(0.41) |
Dividend per share (€) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
BALANCE SHEET |
||||||||
Fixed assets |
|
|
11,591 |
10,639 |
11,077 |
10,043 |
9,280 |
8,542 |
Intangible assets |
10,651 |
9,836 |
9,123 |
8,164 |
7,451 |
6,738 |
||
Tangible assets |
602 |
425 |
357 |
282 |
232 |
207 |
||
Investments and other |
338 |
378 |
1,597 |
1,597 |
1,597 |
1,597 |
||
Current assets |
|
|
6,114 |
4,295 |
22,415 |
10,665 |
10,201 |
2,555 |
Stocks |
23 |
25 |
20 |
20 |
20 |
20 |
||
Debtors |
346 |
652 |
94 |
94 |
94 |
94 |
||
Cash |
4,899 |
3,202 |
21,476 |
9,928 |
9,464 |
1,818 |
||
Other current assets |
846 |
393 |
817 |
623 |
623 |
623 |
||
Current liabilities |
|
|
(3,587) |
(4,842) |
(5,593) |
(3,187) |
(3,437) |
(3,937) |
Creditors |
(675) |
(993) |
(688) |
(688) |
(688) |
(688) |
||
Short-term borrowings |
0 |
(317) |
(1,962) |
0 |
0 |
0 |
||
Deferred revenue (short term) |
(1,589) |
(2,638) |
(1,779) |
(1,750) |
(2,000) |
(2,500) |
||
Other current liabilities |
(1,323) |
(894) |
(1,164) |
(749) |
(749) |
(749) |
||
Long-term liabilities |
|
|
(2,836) |
(8,042) |
(1,471) |
(188) |
(10,038) |
(10,038) |
Long-term borrowings |
0 |
(6,131) |
0 |
0 |
(10,000) |
(10,000) |
||
Deferred revenue (long term) |
(2,682) |
(1,788) |
(1,433) |
(150) |
0 |
0 |
||
Other long-term liabilities |
(154) |
(123) |
(38) |
(38) |
(38) |
(38) |
||
Net assets |
|
|
11,282 |
2,050 |
26,428 |
17,333 |
6,006 |
(2,878) |
CASH FLOW |
||||||||
Operating cash flow |
|
|
(7,052) |
(8,302) |
(8,916) |
(9,973) |
(10,179) |
(7,335) |
Net interest |
66 |
0 |
(2) |
2 |
4 |
3 |
||
Tax |
0 |
(70) |
(40) |
0 |
0 |
0 |
||
Capex |
(99) |
(100) |
(109) |
(150) |
(175) |
(200) |
||
Expenditure on intangibles |
(21) |
(3) |
(114) |
(114) |
(114) |
(114) |
||
Acquisitions/disposals |
10 |
0 |
0 |
650 |
0 |
0 |
||
Financing |
0 |
477 |
27,608 |
0 |
0 |
0 |
||
Other |
0 |
0 |
4,333 |
0 |
0 |
0 |
||
Net cash flow |
(7,096) |
(7,998) |
22,760 |
(9,586) |
(10,464) |
(7,647) |
||
Opening net debt/(cash) |
|
|
(12,064) |
(4,899) |
3,246 |
(19,514) |
(9,928) |
536 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
(69) |
(147) |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(4,899) |
3,246 |
(19,514) |
(9,928) |
536 |
8,182 |
Source: 4SC accounts, Edison Investment Research
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