Extra four years US patent life a welcome boost

Paion 17 February 2016 Update

Paion

Extra four years US patent life a welcome boost

US patent extended

Pharma & biotech

17 February 2016

Price

€1.70

Market cap

€86m

Net cash (€m) at 30 September 2015

40.5

Shares in issue

50.7m

Free float

78%

Code

PA8

Primary exchange

Frankfurt

Secondary exchange

Xetra

Share price performance

%

1m

3m

12m

Abs

(22.0)

(16.5)

(16.3)

Rel (local)

(19.2)

(2.8)

(0.3)

52-week high/low

€2.9

€1.1

Business description

Paion is an emerging specialty pharma company developing anaesthesia products. Lead product remimazolam is undergoing US Phase III trials and is partnered with Yichang (China), Hana Pharma (South Korea), Pendopharm (Canada) and R-Pharm (CIS, Turkey, MENA).

Next events

Pre-NDA meeting PMDA (Japan)

Q116

Complete patient recruitment into US Phase III colonoscopy study

Q116

Complete US Phase III bronchoscopy study

2016/17

Analysts

Dennis Hulme

+61 (0)2 9258 1161

Christian Glennie

+44 (0)20 3077 5727

Paion is a research client of Edison Investment Research Limited

The patent term of Paion’s new US patent covering the crystalline form of remimazolam besylate has been extended by 4.3 years due to delays in the US patent office. This will extend US market exclusivity for the ultra short-acting anaesthetic to late 2031 vs our previous expectation of 2027, which leads us to increase our valuation to €203m from €182m. We look toward to the outcome of the pre-NDA meeting in Japan (Q116) and results from the US colonoscopy Phase III as potential near-term catalysts.

Year end

Revenue (€m)

PBT* (€m)

EPS* (c)

DPS (c)

P/E (x)

Yield (%)

06/13

4.2

(2.6)

(7.2)

0.0

N/A

N/A

06/14

3.5

(11.6)

(22.9)

0.0

N/A

N/A

06/15e

0.0

(33.8)

(55.9)

0.0

N/A

N/A

06/16e

1.0

(30.8)

(52.2)

0.0

N/A

N/A

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

US patent extended to 2031, potentially more to come

The new US patent covers crystalline forms of the besylate salt of remimazolam, which Paion selected for use in the drug formulation due to its excellent stability profile. US market exclusivity may be further extended under the Hatch-Waxman Act following FDA approval, representing potential upside to our forecasts. The longer patent life dovetails neatly with the increased focus on the US Phase III trials of remimazolam following the recent discontinuation of the European Phase III.

US colonoscopy Phase III results mid-year

The US colonoscopy Phase III is on track to treat the last patient in Q116 and report results mid-year. Paion is redirecting resources from the discontinued EU general anaesthesia trial to complete recruitment in the US bronchoscopy Phase III in CY16; measures include adding new trial sites and providing additional support and training. If these measures succeed in improving recruitment, Paion expects to file for US approval in 2017.

General anaesthesia still a key target indication

At this week’s investor conference call, management highlighted that the discontinuation of the European Phase III in general anaesthesia was not due to any problems with the drug, but that the poor recruitment rates resulted from the fact that the study design, based on procedures that were used in the Phase II at Heart Center Leipzig, did not transfer easily to other institutions. A proposed new Phase III in general surgery patients is contingent on additional funding or partnering.

Valuation: Raised to €203m on longer patent life

We extend our revenue forecasts for Remimazolam in the US to 2031 (previously 2027) and raise our valuation to €203m or €4.01/share (vs €182m or €3.59/share). Cash at 30 September of €40.5m is sufficient to complete the ongoing Phase III studies. Paion is evaluating the prospect of self-commercialisation of remimazolam in the US, which could lead to 45% profit margins in some regions, subject to further fund-raising (our base case assumes a 23% blended royalty rate).

Exhibit 1: Financial summary

€'000s

2013

2014

2015e

2016e

Year end 31 December

PROFIT & LOSS

Revenue

 

 

4,228

3,456

0

1,000

Cost of sales

0

(4)

0

0

Gross profit

4,228

3,452

0

1,000

R&D expenditure

(4,583)

(11,799)

(28,000)

(25,000)

General, administrative & selling

(3,314)

(3,702)

(6,000)

(7,000)

Other

860

411

50

51

Operating profit

(2,810)

(11,639)

(33,950)

(30,949)

Depreciation and amortisation

(390)

(93)

(100)

(100)

Share-based payments

0

0

0

0

Exceptionals

0

0

0

0

EBITDA

 

 

(2,420)

(11,546)

(33,850)

(30,849)

Operating profit (before GW and except)

 

(2,420)

(11,546)

(33,850)

(30,849)

Net interest

(170)

(66)

50

50

Profit before tax (norm)

 

 

(2,590)

(11,612)

(33,800)

(30,799)

Profit before tax (reported)

 

 

(2,980)

(11,704)

(33,900)

(30,899)

Tax

768

2,468

5,500

4,375

Profit after tax (norm)

(1,822)

(9,143)

(28,300)

(26,424)

Profit after tax (reported)

(2,212)

(9,236)

(28,400)

(26,524)

Average number of shares outstanding (m)

25.4

39.9

50.7

50.7

EPS - normalised (c)

 

 

(7.2)

(22.9)

(55.9)

(52.2)

EPS - reported (c)

 

 

(8.7)

(23.2)

(56.1)

(52.4)

Dividend per share (c)

 

 

0.0

0.0

0.0

0.0

Gross margin (%)

NA

NA

NA

NA

EBITDA margin (%)

NA

NA

NA

NA

Operating margin (before GW and except.) (%)

NA

NA

NA

NA

BALANCE SHEET

Fixed assets

 

 

3,583

3,516

3,416

3,316

Intangible assets

3,494

3,440

3,365

3,290

Tangible assets

89

76

51

26

Refund from assumption of dev costs

0

0

0

0

Other

0

0

0

0

Current assets

 

 

14,433

63,032

38,140

11,717

Stocks

0

0

0

0

Debtors

0

467

25

25

Cash

13,292

58,912

33,115

6,692

Other

1,141

3,653

5,000

5,000

Current liabilities

 

 

(4,659)

(3,924)

(6,157)

(6,157)

Trade payables

(1,914)

(3,338)

(5,400)

(5,400)

Short-term borrowings

0

0

0

0

Provisions

(2,508)

(306)

(500)

(500)

Finance lease liabilities

0

0

0

0

Other current liabilities

(225)

(254)

(235)

(235)

Current deferred income

(11)

(26)

(22)

(22)

Long-term liabilities

 

 

(28)

(17)

(8)

(8)

Long-term borrowings

0

0

0

0

Provisions

0

0

0

0

Long-term deferred income

(28)

(17)

(8)

(8)

Deferred taxes

0

0

0

0

Other long-term liabilities

0

0

0

0

Net assets

 

 

13,329

62,607

35,391

8,868

CASH FLOW

Operating cash flow

 

 

(1,746)

(12,044)

(31,346)

(30,849)

Net interest

(170)

(66)

50

50

Tax

75

0

5,500

4,375

Capex

0

0

0

0

Purchase of intangibles

(5)

(26)

0

0

Acquisitions/disposals

0

0

0

0

Financing

(7,164)

57,618

0

0

Dividends

0

0

0

0

Other

0

0

0

0

Net cash flow

(9,010)

45,482

(25,796)

(26,424)

Opening net debt/(cash)

 

 

(22,336)

(13,292)

(58,912)

(33,115)

Effect of exchange rate changes

(130)

(72)

0

0

Other

96

210

0

0

Closing net debt/(cash)

 

 

(13,292)

(58,912)

(33,115)

(6,691)

Source: Edison Investment Research, company accounts

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60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

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NSW 2000, Australia

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New Zealand

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