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Efficacy maintained in second interim analysis

Sequana Medical 7 July 2021 Update

Sequana Medical

Efficacy maintained in second interim analysis

7 July 2021

Price

€8.66

Market cap

€161m

$1.21/€

Net cash (€m) at 31 December 2020
(excluding €0.4m lease liabilities)

3.6

Shares in issue

18.58m

Free float

50%

Code

SEQUA

Primary exchange

Euronext

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.6)

(2.7)

36.6

Rel (local)

(5.2)

(7.8)

14.1

52-week high/low

€11.80

€5.96

Business description

Based in Belgium, Sequana Medical develops devices based on its alfapump platform for the treatment of diuretic-resistant fluid overload in liver disease, malignant ascites and heart failure. Alfapump is CE marked for refractory ascites and is in a pivotal North American study for this indication.

Next events

Last patient enrolment POSEIDON alfapump pivotal study

Q321

Interim data for SAHARA DESERT alfapump DSR study

Q421

Analysts

Pooya Hemami, CFA

+1 646 653 7026

Maxim Jacobs, CFA

+1 646 653 7027

Sequana Medical is a research client of Edison Investment Research Limited

Sequana has reported positive data from the second interim analysis in roll-in cohort patients from the POSEIDON pivotal study. Results from 26 subjects confirmed the efficacy trends from the initial analysis in Q420 (which only reflected the first 13 patients in the cohort). As in that analysis, the subjects had a greater than 90% reduction in mean frequency of therapeutic paracentesis (TP) versus baseline, and all patients experienced at least 50% reduction in mean TP frequency per month versus baseline. Maintaining this efficacy level in a larger total group size provides added confidence in the efficacy profile to date, as these trends significantly exceed the primary endpoints as defined for the study (pivotal) cohort, for which primary endpoint data are now expected in Q322.

Interim POSEIDON results

Pharma & biotech

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/19

1.0

(14.9)

(1.22)

0.0

N/A

N/A

12/20

1.0

(19.0)

(1.25)

0.0

N/A

N/A

12/21e

1.1

(17.9)

(0.96)

0.0

N/A

N/A

12/22e

1.2

(17.7)

(0.95)

0.0

N/A

N/A

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

Slight delays as some subjects no longer met criteria

Sequana now anticipates that c 10 additional patients will need to be enrolled in the pivotal cohort to meet the target of 50 implantations for the primary endpoint analysis. This is largely due to delays caused by COVID-19 restrictions on elective surgery, leading to disease progression in some of the patients in the pre-implantation observation period, whereby they no longer met inclusion criteria by the time of expected implantation. The company now expects patient recruitment is to complete in Q321 (instead of Q221) and reporting of the primary endpoint in Q322 (vs Q222, previously). It expects to file for Pre-Market Approval (PMA) to the FDA in Q422, which is broadly in line with prior guidance.

Safety profile within expectations

Three out of the 26 roll-in patients experienced a composite primary safety event, one of which occurred following a car accident and may not have a bearing on overall product safety. Given the low survival rate of refractory ascites patients in general, we believe the safety profile to date is encouraging.

Valuation: Minor adjustments

The only adjustment to our forecasts is that we are increasing our 2022 R&D expense estimate by €0.7m to account for the minor extension of the POSEIDON study and of the need to recruit c 10 additional patients. We continue to expect Sequana’s funds on hand should be sufficient for it to maintain operations into Q222. The effect on our valuation is marginal as we now obtain a pipeline rNPV of €248.2m, versus €248.7m previously.

Efficacy maintained in POSEIDON interim roll-in cohort

Sequana reported positive data from the second interim analysis in patients in the roll-in cohort, from the POSEIDON pivotal study in patients with refractory or recurrent ascites (RRA) due to liver cirrhosis. As a reminder, POSEIDON is single-arm, open-label, within-subject crossover study, whereby patients will serve as their own controls. The study allows for up to 30 patients to be enrolled in a training (or ‘roll in’) cohort (which will be excluded from primary efficacy analysis), to ensure centres are experienced with the alfapump before the actual study (pivotal) cohort is enrolled.

Importantly, the second interim read from this roll-in cohort (26 subjects) confirmed the efficacy trends first reported in Q420 from the initial interim analysis (which reflected the first 13 patients in the cohort). As in that first interim analysis, the subjects had a greater than 90% reduction in mean frequency of TP versus baseline, and all patients experienced at least 50% reduction in mean frequency of TP per month versus baseline. However, these trends were now reported over a larger sample size (26 vs 13) compared to the initial interim analysis, which in our view, provides added confidence in the efficacy profile to date.

In the POSEIDON trial, patients in the pivotal cohort enter a three-month pre-implant observation period in which they will receive standard-of-care therapy, consisting of TP, before the alfapump is implanted. Eligible patients will be implanted with the alfapump and during the three-month stabilisation period their alfapump settings will be adjusted as needed and patients will be fully trained. After the stabilisation period, a three-month post-implant observation period will begin. The primary effectiveness outcomes include:

the proportion of patients with a 50% reduction in the overall average frequency of TP per month in the post-implant observation period (reflecting month four to month six after implantation) as compared to the pre-implant observation period; and

whether at least 50% of patients receive a 50% reduction in their monthly frequency of required TP post-implantation compared to the average monthly number of TP required pre-implantation.

Before enrolment, the roll-in cohort subjects required on average 3.8 TP per month, and as stated above, the data from this cohort significantly exceed the primary endpoints as defined for the pivotal cohort, given a mean reduction of over 90% in the frequency of TP post-implant versus baseline and all patients having at least a 50% reduction in the mean monthly TP frequency.

Exhibit 1: Interim roll-in cohort data on primary efficacy measures

Source: Sequana Medical

Overall, the second and larger interim POSEIDON study analysis of the roll-in cohort provides us confidence the study is on track to meet the primary efficacy endpoint. Further, the company reported quality of life (QoL) data, determined through health-survey questionnaires SF36 (a general health quality survey) and Ascites Q (a questionnaire developed for patients with ascites), which demonstrate a rapid positive impact of the alfapump on patient’s QoL.

Exhibit 2: QoL measures

Source: Sequana Medical

Management indicates that both the mean physical component score of SF36 and the mean score of Ascites Q show a clinically important improvement (exceeding the threshold for Minimal Clinically Important Difference, according to management) from baseline to six months post-implantation and the improvement in QoL measures was maintained for up to 12 months post-implantation (n=6 patients at 12 months). The reduced need for patients to undergo TP post-implantation largely explains these QoL improvements.

Mild delay as some subjects fail to maintain inclusion criteria

Sequana also announced that, based on an analysis of attrition rates between study enrolment and alfapump implantation, it anticipates c 10 additional patients will need to be enrolled in the pivotal cohort to meet its target of 50 implantations for the primary efficacy analysis. This is largely due to delays caused by COVID-19 restrictions on elective surgery, which for several patients resulted in their pre-implantation observation period exceeding the originally planned three months. As a result, some of the patients who were affected by the longer observation period experienced disease progression during the interval, and they no longer met study inclusion criteria by the (revised) time of expected implantation.

Consequently, the company now expects patient recruitment to complete in Q321 (instead of Q221) and reporting of the primary endpoint in Q322 (vs Q222, previously). It expects to file for PMA to the FDA in Q422, which is broadly in line with prior guidance. We believe the company is still able to meet our H223 US launch forecast. The additional delay may result in a minor increased cost for the POSEIDON study but management noted this is not expected to be substantial, given the bulk of study trial costs are for those patients who are implanted with alfapump and monitored afterwards (ie, costs for the three-month pre-implantation observation period is not as meaningful and it is for this component of the study where the company will now need to recruit additional patients). We do not believe the reason for the higher than anticipated attrition rate (largely due to a more rapid than anticipated deterioration of subject health) has any material bearing on the commercial prospects of alfapump in RRA. If anything, it illustrates the severe level of liver disease in such patients and highlights where a treatment aimed at improving QoL, such as alfapump, could provide benefit.

Exhibit 3: alfapump for RRA upcoming milestones

Event

Timing

POSEIDON PMA-enabling study last patient enrolment

Q321

POSEIDON PMA-enabling study primary endpoint

Q322

US regulatory filing

Q422

Potential US launch

H223

Event

POSEIDON PMA-enabling study last patient enrolment

POSEIDON PMA-enabling study primary endpoint

US regulatory filing

Potential US launch

Timing

Q321

Q322

Q422

H223

Source: Sequana Medical

Three composite safety events within 26 patient roll-in cohort

POSEIDON’s primary safety endpoint is the rate of alfapump related re-interventions as determined by the Clinical Events Committee (CEC), at six months post implantation. To this end, the company reported that its CEC determined or adjudicated that three out of the 26 roll-in patients experienced a composite primary safety event. Two of these three required explantations, one due to wound dehiscence (which management indicates is not unusual given the high level of underlying disease in the RRA subjects) and one following a motor-vehicle accident that resulted in persistent haematuria. There was also one subject who received an arterial injury during implantation, which resulted in the patient’s death. Arterial injury is a very low-frequency event that may occur in abdominal surgical procedures (such as laparoscopic surgeries, gastric tubes, TP, and so on). Management indicates the literature suggests an incidence in 1–3% of such procedures. Importantly, the company commented that out of the 850 alfapump implantations that have occurred since 2011 (mostly in Europe), this arterial injury event in the roll-in cohort was the first to have occurred with alfapump implantation and hence, given this historical track record, we do not believe there is a material probability of repeated arterial injury event occurrences in the pivotal cohort of the POSEIDON study.

The CEC adjudicated that two of the events (ie the hematuria and the wound dehiscence) were potentially related to the device, and the arterial injury was potentially related to the implantation procedure.

Exhibit 4: Safety data in line with expectations

Source: Sequana Medical

Given that refractory ascites patients are estimated to have a one-year survival rate under 50%,1 we believe the relatively low three out of 26 (c 12%) composite primary safety event rate at six months, if sustained in the pivotal cohort, should satisfy any FDA safety considerations when considering product approval. Further, the company commented there were no unanticipated adverse device effects during the trial among these roll-in patients. Hence, to date, we believe the safety profile remains encouraging.

  Fede G, D'Amico G, Arvaniti V, et al. J Hepatol. 2012 Apr;56(4):810-8. doi: 10.1016/j.jhep.2011.10.016. Epub 2011 Dec 13. PMID: 22173162 Review.

Financials and valuation

We are maintaining our revenue forecasts for alfapump or the Direct Sodium Removal (DSR) programmes, as explained in our initiation of coverage report. The only adjustment to our expenditure forecasts is that we are increasing our 2022 R&D expense estimate by €0.7m to account for the minor (c three month) extension of the POSEIDON study and the need to recruit c 10 additional patients. We continue to expect Sequana’s funds on hand should be sufficient for it to maintain operations into Q222. We continue to model the company will raise €15m in 2022, €20m in 2023 and an additional €50m before FY26, the point at which we believe the company will reach consistent operating profitability. As per our usual policy, we model these financing requirements as illustrative debt.

The effect of the minor increase in our 2022 expense forecast is marginal on our rNPV valuation as we maintain our prior probability of success estimates (60% for alfapump in RRA in North American markets and 25% for alfapump DSR in heart failure). Altogether, we obtain a pipeline rNPV of €248.2m, versus €248.7m previously. After adding Q121e net cash of €22.2m (excluding lease liabilities), we obtain an equity valuation of €270.4m or €14.56 per share (€13.31 fully diluted).

Exhibit 5: Financial summary

€(000)

2018

2019

2020

2021e

2022e

2023e

2024e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

1,029

971

963

1,056

1,214

3,236

9,444

Cost of Sales

(158)

(198)

(202)

(211)

(243)

(647)

(1,889)

Gross Profit

871

773

761

845

971

2,589

7,555

General & Administrative

(8,206)

(7,102)

(6,738)

(6,394)

(6,534)

(8,380)

(13,938)

Net Research & Development

(5,816)

(7,652)

(11,835)

(12,000)

(11,200)

(10,500)

(12,500)

Operating profit before exceptionals

(13,150)

(13,981)

(17,813)

(17,549)

(16,762)

(16,291)

(18,883)

EBITDA

 

 

(13,070)

(13,737)

(17,506)

(17,282)

(16,545)

(16,134)

(18,737)

Depreciation & other

(81)

(244)

(307)

(267)

(217)

(157)

(146)

Operating Profit (before amort. and except.)

(13,150)

(13,981)

(17,813)

(17,549)

(16,762)

(16,291)

(18,883)

Exceptionals including asset impairment

74

18

41

0

0

0

0

Operating Profit

(13,077)

(13,964)

(17,771)

(17,549)

(16,762)

(16,291)

(18,883)

Net Interest

(883)

(878)

(1,178)

(343)

(951)

(2,454)

(4,335)

Profit Before Tax (norm)

 

 

(14,033)

(14,859)

(18,991)

(17,892)

(17,713)

(18,745)

(23,218)

Profit Before Tax (FRS 3)

 

 

(13,960)

(14,841)

(18,949)

(17,892)

(17,713)

(18,745)

(23,218)

Tax

(24)

(136)

(157)

0

0

0

0

Profit After Tax and minority interests (norm)

(14,057)

(14,995)

(19,148)

(17,892)

(17,713)

(18,745)

(23,218)

Profit After Tax and minority interests (FRS 3)

(13,983)

(14,977)

(19,106)

(17,892)

(17,713)

(18,745)

(23,218)

Average Number of Shares Outstanding (m)

10.0

12.3

15.3

18.6

18.7

18.7

18.8

EPS - normalised (€)

 

 

(1.41)

(1.22)

(1.25)

(0.96)

(0.95)

(1.00)

(1.24)

EPS - normalised and fully diluted (€)

 

(1.41)

(1.22)

(1.25)

(0.96)

(0.95)

(1.00)

(1.24)

EPS - (IFRS) (€)

 

 

(1.40)

(1.22)

(1.25)

(0.96)

(0.95)

(1.00)

(1.24)

Dividend per share (€)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

242

829

772

720

536

460

550

Tangible Assets

184

765

705

653

469

393

483

Investments in long-term financial assets

58

63

67

67

67

67

67

Current Assets

 

 

3,099

8,522

13,441

16,787

13,039

14,474

16,570

Short-term investments

0

0

0

0

0

0

0

Cash

1,318

5,586

11,016

15,680

11,766

12,249

13,134

Other

1,782

2,935

2,425

1,107

1,273

2,225

3,436

Current Liabilities

 

 

(18,727)

(5,315)

(5,966)

(4,391)

(2,906)

(2,738)

(2,865)

Creditors

(6,654)

(4,855)

(5,966)

(4,391)

(2,906)

(2,738)

(2,865)

Short term borrowings

(12,073)

(459)

0

0

0

0

0

Long Term Liabilities

 

 

(3,374)

(3,110)

(8,135)

(7,516)

(22,516)

(42,516)

(67,516)

Long term borrowings

(2,582)

(2,261)

(7,473)

(6,854)

(21,854)

(41,854)

(66,854)

Other long term liabilities

(792)

(849)

(662)

(662)

(662)

(662)

(662)

Net Assets

 

 

(18,760)

926

113

5,600

(11,846)

(30,320)

(53,261)

CASH FLOW

Operating Cash Flow

 

 

(8,987)

(17,596)

(15,791)

(17,278)

(17,930)

(16,982)

(19,543)

Net interest and financing income (expense)

(883)

(878)

(1,178)

(343)

(951)

(2,454)

(4,335)

Tax

(5)

(9)

(36)

0

0

0

0

Net Operating Cash Flow

 

 

(9,875)

(18,482)

(17,005)

(17,621)

(18,881)

(19,437)

(23,879)

Capex

(39)

(106)

(138)

(215)

(34)

(81)

(236)

Acquisitions/disposals

0

0

0

0

0

0

0

Financing

2

26,165

19,000

23,119

0

0

0

Dividends

0

0

0

0

0

0

0

Other

0

0

0

0

0

0

0

Net Cash Flow

(9,912)

7,576

1,857

5,283

(18,914)

(19,517)

(24,115)

Opening net debt/(cash)

 

 

0

13,279

(2,929)

(3,611)

(8,894)

10,020

29,538

HP finance leases initiated

0

0

0

0

0

0

0

Other

(3,367)

8,632

(1,175)

0

0

0

(0)

Closing net debt/(cash)

 

 

13,279

(2,929)

(3,611)

(8,894)

10,020

29,538

53,653

Lease debt

N/A

504

387

387

387

387

387

Closing net debt/(cash) inclusive of IFRS16 lease debt

13,279

(2,425)

(3,224)

(8,507)

10,407

29,924

54,039

Source: Company data, Edison Investment Research

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This report has been commissioned by Sequana Medical and prepared and issued by Edison, in consideration of a fee payable by Sequana Medical. 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.

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General disclaimer and copyright

This report has been commissioned by Sequana Medical and prepared and issued by Edison, in consideration of a fee payable by Sequana Medical. 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.

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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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