CASI Pharmaceuticals — Evomela supply secured, CNCT19 on track

CASI Pharmaceuticals (US: CASI)

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CASI Pharmaceuticals — Evomela supply secured, CNCT19 on track

CASI reported sales of $2.6m for Evomela in Q220, down slightly from Q1 ($3.4m). The lower revenue was due to logistics disruptions as the company shifted to a new supplier for the drug as well as impacts of COVID-19. Management indicates that the new suppler will substantially improve cost-of-goods. The company is guiding to sales of at least $10m for 2020, but believes that this is a conservative estimate.

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Healthcare

CASI Pharmaceuticals

Evomela supply secured, CNCT19 on track

Earnings update

Pharma & biotech

14 August 2020

Price

US$1.9

Market cap

US$235m

¥6.94/US$

Net cash ($m) at June 2020 + offering + ANDA sale

88.4

Shares in issue

123.9m

Free float

50.6%

Code

CASI

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(12.3)

10.3

(37.7)

Rel (local)

(18.0)

(7.8)

(45.9)

52-week high/low

US$3.8

US$1.4

Business description

CASI Pharmaceuticals is building a portfolio of drugs it intends to produce for Chinese and worldwide markets including Evomela launched in China, an anti-CD19 CAR-T therapy CNCT19, and the 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

CID-103 trial start

Q121

CNCT19 Phase I trials complete

By Q121

Analyst

Nathaniel Calloway

+1 646 653 7036

CASI Pharmaceuticals is a research client of Edison Investment Research Limited

CASI reported sales of $2.6m for Evomela in Q220, down slightly from Q1 ($3.4m). The lower revenue was due to logistics disruptions as the company shifted to a new supplier for the drug as well as impacts of COVID-19. Management indicates that the new suppler will substantially improve cost-of-goods. The company is guiding to sales of at least $10m for 2020, but believes that this is a conservative estimate.

Year end

Revenue ($m)

PBT*
($m)

EPS*
($)

DPS
($)

P/E
(x)

Yield
(%)

12/18

0.0

(20.0)

(0.24)

0.00

N/A

N/A

12/19

4.1

(36.5)

(0.39)

0.00

N/A

N/A

12/20e

11.5

(28.6)

(0.26)

0.00

N/A

N/A

12/21e

20.2

(27.8)

(0.21)

0.00

N/A

N/A

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

New Evomela supply secured

Evomela was approved in August 2019, and marketing began shortly thereafter. Since that time the drug has been provided to the company via a transitional supply agreement with an undisclosed partner, which has had exceptionally high cost of goods. Gross margins for Q220 were 4%. CASI was pleased to report it secured a long-term supplier with significantly lower costs and that new product from the agreement will be in the distribution channel before the end of August 2020.

First reports of efficacy for CNCT19

On the company’s earnings call, it provided the first window into the ongoing Phase I for CNCT19. It is currently in two dose ranging studies for relapsed and refractory non-Hodgkin lymphoma (NHL) and B-cell acute lymphoblastic leukemia (B-ALL). The company stated that even at the lower doses of dose escalation, it is seeing cases where patients achieve complete responses (CRs) and that this is consistent with the earlier published data from investigator led studies, which reported 90% CRs or CRs with incomplete platelet or neutrophil count recovery (CRi).

Lean pivotal program for CNCT19 planned

The company also revealed that based on discussions with the National Medical Products Administration (NMPA), it would be planning single-arm, open-label pivotal studies for CNCT19 with 35–40 patients each. This is significantly leaner than our previously speculated plans (120 patients in a randomized trial), and we believe reflective of the incentives to approve such a therapy at the NMPA.

Valuation: Increased to $399.4m

We have increased our valuation of CASI to $399.4m from $341.4m, although it is lower on a per share basis: $3.22 per basic share from $3.38. This increase is driven primarily by an increase in net cash (to $88.4m) from the July offering of 23m shares at $1.90 ($41.3m estimated net) and by softening our COVID-19 risk adjustment (90% from 80%), as well as other changes based on the company’s report.

High-cost supply issues resolved

The company reported sales of $2.6m for Evomela in Q220, which is down sequentially from $3.4m in Q120. The reason for the loss in revenue is that the company is transitioning to a permanent, lower cost supplier of the product and there were some disruptions in the supply during the period. The company also cited the impact of COVID-19 as a factor in lower sales, but stated that the supply issues had the bigger effect. The company also reported that the first shipments of new product from the new supplier have been received and the old inventory eliminated (as of August 2020). The company expects COGS to be significantly improved going forward, which we estimate at 25%. We expect sales to return to the original trajectory for the rest of this year with the improved margins, although some effects from the transition may appear on the Q320 report reflecting sales before the new inventory was received (ie in July). We have increased our full year estimate for the product to $11.4m (from $10.0m) to align with this, as we previously estimated a larger impact from COVID-19.

A peek at CNCT19

During the company’s Q220 conference call, management highlighted the previous clinical results for its CAR-T program CNCT19, in which researchers from the Institute of Hematology and Blood Diseases Hospital in Tianjin, China, reported CR and CRi rates in the range of 90% in patients with B-ALL. The company stated that it has seen CRs (although CR or CRi not specified) in the current ongoing Phase I clinical trials of CNCT19 in China, consistent with the earlier reported activity. These are dose-ranging studies, and CRs have been observed in the lower dose cohort. This is very encouraging as it suggests that the company is replicating the previous academic data and that the product has activity, but we will need to see the complete data from these studies to draw a full picture of its profile. The company stated that it should make these available following the completion of the studies (by Q121).

The company also provided an update to the plans for the future pivotal clinical studies it intends to initiate following the completion of Phase I trials. Based on discussions with the NMPA, the company is planning to perform single-arm, open-label pivotal studies (one pivotal study per indication), with approximately 35–40 patients each. Moreover, the company believes that it can complete the trial and have a marketing application submitted in 2022. This is both a substantially smaller clinical study than we forecasted (n=120) and a more aggressive schedule (marketing application submission in 2023 or 2024 previously anticipated). We have adjusted our timelines and estimates to reflect this.

The proposed clinical plan is very favorable to the company (since it will likely lead to quicker and less costly registration trials than we previously assumed), and we believe that this is indicative of the NMPA’s priorities of approving these types of products. There is already a special pathway in China that allows cell based regenerative therapies to be approved on the basis of two clinical studies (or, as the company has proposed, the ongoing Phase I studies and the planned pivotal study for each indication). The flexibility that the agency has supported in the design of the pivotal study program may reflect a significant incentive to approve these types of products. A Chinese domestic CAR-T therapy could potentially be provided at a significantly reduced cost compared to foreign products, and CASI is well suited for this role as one of the very few China-based companies focused on blood cancers, with a dedicated hematology salesforce.

Clinical trial authorization submitted for CID-103

CASI announced in June 2020 that it had filed a clinical trial authorization application in the UK to begin a trial there with its investigational CD-38 antibody CID-103. The planned Phase I study will investigate the drug for the treatment of multiple myeloma and other hematologic malignancies. The company believes that it can start the study in Q121. The company is currently in the stage of getting approval for individual clinical sites.

CASI recapitalized, looking for acquisitions

The company completed an underwritten offering of 23m shares at $1.90 in July. This amounts to gross proceeds of $43.7m. We expect the proceeds from this offering to be used to expand the company’s pipeline and to build its manufacturing facility in Wuxi. The company continues to search for additional products to add to its portfolio, and with the new capital, we expect the company to be able to execute on this expansion when attractive deal opportunities arise. The company has stated that it will remain consistent with its current specialization and will focus on hematologic oncology products.

Valuation

We have increased our valuation of CASI to $399.4m from $341.4m, although it is lower on a per share basis: $3.22 per basic share from $3.38. This increase is driven by the offering mentioned above. Additionally, we have changed our COVID-19 risk adjustment to 90% from 80% because we believe that the impact of COVID-19 is becoming increasingly priced into the model in the form of the current modelled timelines for development-stage programs, and our Evomela commercial assumptions. We have also made adjustments to Evomela sales as described above and adjusted our CNCT19 clinical program to reflect the scope of the planned pivotal study. Finally, these changes are offset slightly by pushing back on the timing for building the company’s Wuxi production facility, which supports product sales from the ANDA portfolio. The company states that it still intends to break ground on the project in 2020.

Our net cash estimates include the cash and investments at the end of Q220 ($45.8m), estimated net cash from the offering ($41.3m) and $1.25m in cash the company received from the sale of four undisclosed ANDAs that occurred after the end of the period. These are ANDAs that the company did not indent to commercialize.

The new cash inflows (from the equity financing and ANDA sales) has reduced our expected financing requirement for the company to $70m (which we record in 2022 as illustrative debt) from $120m previously. This financing requirement does not account for any additional acquisitions, and we expect to update our forecasts if the company acquires additional products.

Exhibit 1: Valuation of CASI

Portfolio

Asset

Region

Peak sales ($m)

Margin

Clinical risk adjustment

COVID-19 risk

Value
($m)

Hematology

Evomela

China

35.4

49%

100%

90%

66.77

Marqibo

China

9.2

56%

90%

90%

6.90

Zevalin

China

25.5

64%

90%

90%

38.40

Thiotepa

China

8.8

39%

90%

90%

4.07

CID-103

China & US & Europe

766.6

59%

5%

90%

12.66

CNCT19

China

306.2

54%

10%

90%

38.96

Other products

ANDA portfolio

China & US

142.0

47%

100%

90%

153.49

Octreotide LAI

China

15.7

41%

80%

90%

10.81

Total

332.07

Net cash and equivalents (Q220 + offering + ANDA sale) ($m)

88.39

Noncontrolling interest

(21.07)

Total firm value ($m)

399.38

Total shares (m)

123.94

Value per basic share ($)

3.22

Dilutive warrants and options (m)

15.91

Value per diluted share ($)

3.17

Source: CASI reports, Edison Investment Research.

Exhibit 2: Financial summary

$'k

2018

2019

2020e

2021e

Year end 31 December

US GAAP

US GAAP

US GAAP

US GAAP

INCOME STATEMENT

Revenue

 

 

0.0

4,131.0

11,487.0

20,153.5

Cost of Sales

0.0

(3,935.0)

(7,209.4)

(5,021.4)

Gross Profit

0.0

196.0

4,277.6

15,132.1

EBITDA

 

 

(19,402.4)

(37,495.0)

(28,125.3)

(26,884.3)

Normalised operating profit

 

 

(19,767.9)

(38,098.0)

(28,661.3)

(27,895.6)

Amortisation of acquired intangibles

(1,305.4)

(1,550.0)

(3,054.0)

(1,508.0)

Exceptionals

0.0

0.0

(1,087.0)

0.0

Share-based payments

(6,118.1)

(7,310.0)

(7,310.0)

(7,310.0)

Reported operating profit

(27,191.4)

(46,958.0)

(40,112.3)

(36,713.6)

Net Interest

(280.1)

1,062.0

48.6

48.6

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

Exceptionals

0.0

534.0

0.0

0.0

Profit Before Tax (norm)

 

 

(20,048.1)

(36,502.0)

(28,612.8)

(27,847.0)

Profit Before Tax (reported)

 

 

(27,471.6)

(45,362.0)

(40,063.8)

(36,665.0)

Reported tax

0.0

0.0

0.0

7,333.0

Profit After Tax (norm)

(20,048.1)

(36,502.0)

(28,612.8)

(27,847.0)

Profit After Tax (reported)

(27,471.6)

(45,362.0)

(40,063.8)

(29,332.0)

Minority interests

0.0

(670.0)

0.0

0.0

Discontinued operations

0.0

0.0

0.0

0.0

Net income (normalised)

(20,048.1)

(37,172.0)

(28,612.8)

(27,847.0)

Net income (reported)

(27,471.6)

(46,032.0)

(40,063.8)

(29,332.0)

Basic average number of shares outstanding (m)

85

96

112

130

EPS - basic normalised (c)

 

 

(23.65)

(38.74)

(25.56)

(21.39)

EPS - diluted normalised (c)

 

 

(23.65)

(38.74)

(25.56)

(21.39)

EPS - basic reported (c)

 

 

(32.41)

(47.98)

(35.80)

(22.53)

Dividend (c)

0.00

0.00

0.00

0.00

BALANCE SHEET

Fixed Assets

 

 

20,845.4

41,130.0

51,641.8

78,506.3

Intangible Assets

18,784.7

16,895.0

13,222.0

11,714.0

Tangible Assets

1,750.6

985.0

15,169.8

43,542.3

Investments & other

310.0

23,250.0

23,250.0

23,250.0

Current Assets

 

 

92,564.6

61,501.0

65,184.6

17,518.7

Stocks

0.0

4,542.0

2,370.2

1,650.9

Debtors

0.0

1,293.0

1,888.3

3,312.9

Cash & cash equivalents

85,117.0

54,246.0

59,506.1

11,134.9

Other

7,447.6

1,420.0

1,420.0

1,420.0

Current Liabilities

 

 

(3,873.9)

(7,947.0)

(9,345.6)

(10,566.2)

Creditors

(968.0)

(5,113.0)

(6,511.6)

(7,732.2)

Tax and social security

0.0

0.0

0.0

0.0

Short term borrowings

(1,499.5)

0.0

0.0

0.0

Other

(1,406.4)

(2,834.0)

(2,834.0)

(2,834.0)

Long Term Liabilities

 

 

(73.6)

(1,019.0)

(781.0)

(781.0)

Long term borrowings

0.0

0.0

0.0

0.0

Other long term liabilities

(73.6)

(1,019.0)

(781.0)

(781.0)

Net Assets

 

 

109,462.5

93,665.0

106,699.8

84,677.8

Minority interests

0.0

20,670.0

20,670.0

20,670.0

Shareholders' equity

 

 

109,462.5

72,995.0

86,029.8

64,007.8

CASH FLOW

Op Cash Flow before WC and tax

(19,402.4)

(37,495.0)

(28,125.3)

(26,884.3)

Working capital

(9,780.4)

4,452.0

2,975.1

515.3

Exceptional & other

598.9

9,800.0

(1,310.0)

7,333.0

Tax

0.0

0.0

0.0

0.0

Net operating cash flow

 

 

(28,583.9)

(23,243.0)

(26,460.2)

(19,035.9)

Capex

(1,131.1)

(7,053.0)

(14,720.8)

(29,383.8)

Acquisitions/disposals

(20,642.4)

(21,005.0)

619.0

0.0

Net interest

0.0

0.0

(275.4)

48.6

Equity financing

92,269.8

3,545.0

46,277.7

0.0

Dividends

912.0

0.0

0.0

0.0

Other

0.0

20,000.0

0.0

0.0

Net Cash Flow

42,824.4

(27,756.0)

5,440.3

(48,371.2)

Opening net debt/(cash)

 

 

(41,991.7)

(83,617.5)

(54,245.5)

(59,196.8)

FX

(1,197.5)

(1,328.0)

(489.0)

0.0

Other non-cash movements

(1.0)

(288.0)

0.0

0.0

Closing net debt/(cash)

 

 

(83,617.5)

(54,245.5)

(59,196.8)

(10,825.6)

Source: CASI reports, Edison Investment Research

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.

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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 2020 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 2020 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

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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

1,185 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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