First filings later this year

Paion 14 May 2018 Outlook
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Paion

First filings later this year

Filings pending

Pharma & biotech

14 May 2018

Price

€2.20

Market cap

€134m

US$1.10/€

Net cash (€m) at end March 2018

22.1

Shares in issue

61.1

Free float

75%

Code

PA8

Primary exchange

Frankfurt

Secondary exchange

Xetra

Share price performance

%

1m

3m

12m

Abs

(3.9)

(11.1)

(10.1)

Rel (local)

(9.2)

(17.2)

(12.1)

52-week high/low

€3.3

€2.2

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 Cosmo (US), Mundipharma (Japan), Yichang (China), Hana Pharma (South Korea), Pendopharm (Canada) and R-Pharm (CIS, Turkey, MENA).

Next events

Japan filing for GA by Mundipharma

2018

US filing for procedural sedation by Cosmo

Q418/Q119

Initiate GA Phase III in Europe

H218

Analysts

Dennis Hulme

+61 (0)2 8249 8345

Dr Susie Jana

+44 (0)20 3077 5700

Paion is a research client of Edison Investment Research Limited

In December 2017 Paion granted Mundipharma an exclusive licence to develop and commercialise its ultra-short-acting sedative/anaesthetic remimazolam in Japan. Paion is on track to file for approval in both Japan (for general anaesthesia, GA, via Mundipharma) and the US (in procedural sedation via partner Cosmo Pharmaceuticals) within the next 12 months. It plans to initiate a GA Phase III trial in Europe in H218 and intends to self-commercialise remimazolam if it gains marketing approval in Europe. Anticipated filing milestones of €9.5m would extend the funding runway into H219 and beyond top-line data from the EU Phase III expected mid-2019. We increase our valuation to €269m or €4.40 per share, from €260m or €4.25 per share.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/16

4.3

(25.1)

(37.8)

0.0

N/A

N/A

12/17

5.8

(15.9)

(20.5)

0.0

N/A

N/A

12/18e

3.1

(16.6)

(22.3)

0.0

N/A

N/A

12/19e

10.5

(6.4)

(6.6)

0.0

N/A

N/A

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

Commercialisation partner for Japan

The Mundipharma licence deal brings €1m upfront cash, regulatory and sales milestones of €25m and a tiered royalty starting in the low double digits to over 20% (we model average 16% royalty rate). Mundipharma will fund regulatory filing and commercialisation in Japan, and plans to file for market approval for GA in Japan in 2018. Paion expects to receive €2m in connection with filing in Japan.

Phase III for GA in Europe to commence H218

Based on a recent Phase I study and scientific advice from the European Medicines Agency (EMA), the company is planning to start a Phase III trial in GA in Europe in H218. The 450-500 patient trial would be similar in design to the successful Phase III trial in GA in Japan, but would target sicker and elderly patients who will gain the greatest benefit from the capacity of remimazolam to reduce the incidence of hypotension.

Cosmo plans US filing Q418 or Q119

Paion has completed clinical development of remimazolam for procedural sedation in the US, and is working to complete and deliver the data packages from the US development program to Cosmo. Cosmo plans to hold a pre-NDA meeting with the FDA shortly before filing, and expects to file for approval in Q418 or Q119.

Valuation: Lifted to €269m

We increase our valuation to €269m, or €4.40 per share, from €260m or €4.25 per share. We have adopted self-commercialisation of remimazolam in Europe with a 30% operating profit margin in our base case model (previously modelled a 20% royalty), and increased probabilities of success in Japan, Europe and Canada. This has more than offset later remimazolam launch dates in most regions and adjusting commercial terms in Japan to align with the Mundipharma deal terms.

Investment summary

Company description: Anaesthesia and critical care

Paion is a Frankfurt-listed emerging specialty pharma company that develops products for anaesthesia and critical care. Its headquarters are in Aachen, Germany. Paion is focusing on lead programme remimazolam, which it acquired in 2008 through its purchase of CeNeS Pharma for €12m. Short-acting sedative/anaesthetic remimazolam has potential in three indications: procedural sedation, general anaesthesia and intensive care unit (ICU) sedation. Paion has completed a successful clinical development programme in procedural sedation in the US, including two pivotal Phase III studies, and plans to initiate a Phase III trial in GA in Europe in H218. It has raised over €120m since flotation in 2005, including €46m at the IPO. Paion has out-licensed rights to remimazolam to partners in the US, Japan and a number of other territories, but plans to establish its own sales force to self-commercialise remimazolam in some or all of the EU (if approved). Its partners expect to file for marketing approval for remimazolam in the US, Japan and Russia over the coming year.

Valuation: Filings in the US and Japan on track

Our sum-of-the-parts DCF valuation is €269m or €4.40 per share, increased from €260m in our November report. With a partner in place and a clinical development programme successfully completed in the US, we assume an 85% probability of success in that country, which we would likely increase to 90% on filing. We take a slightly more cautious view on Japan with an 80% likelihood of approval, in view of Ono’s decision to return the rights in that country in 2014. In Europe, where a Phase III study is planned to commence in H218, we assume a 60% probability of success. We assume an average royalty rate of 20% in the US, with lower rates in other partnered territories. We assume a 30% operating profit margin for self-commercialisation in Europe.

Sensitivities: Filing and approval in the US and Japan

The main sensitivities for Paion are the success or failure of the pending marketing applications and clinical studies for the lead product remimazolam. There is already a substantial body of advanced clinical evidence for remimazolam showing it has a good safety and efficacy profile in comparison to the standard of care. This should support the product and the economic rationale, which will compete with established generic products. Other sensitivities include the usual regulatory, financial and partnering risks associated with a pharmaceutical company in the late stages of development and preparing for commercialisation.

Financials: Licensing deals have reduced funding risk

Paion reported revenues of €0.3m and a net loss of €3.1m for Q118 vs a loss of €2.2m in Q117. Operating cash outflow was €2.8m. R&D expenses declined by €0.7m to €3.4m due to lower costs for the Phase III studies in the US. Paion had €22.1m in net cash on 31 March 2018, which, when combined with €9.5m of milestone payments linked to anticipated filing in Japan and the US and €3m of UK income tax credits is expected to be sufficient to fund operations into H219. This will include preparations for filing in the US and Japan and conducting the Phase III GA trial in Europe. A further €15m funding would be required to support operations until filing in Europe, based on Paion’s current planning. Depending on timing of approvals, these funds could potentially be provided by milestones payments for approval in the US (€15m) and Japan (we model €5m). Our end-2018 cash estimate is €11.2m.

Paion: Specialty pharma enters the home stretch

Paion is at an advanced stage in developing remimazolam, an ultra-short-acting intravenous (IV) benzodiazepine sedative/anaesthetic, which is on track for potential approvals in Japan in 2019 for GA and in the US in H219/H120 for procedural sedation. European studies in GA are planned to restart in H218. Paion has licenced US rights to Cosmo Pharmaceuticals and Japan rights to Mundipharma, and has a further four partners in other territories, as shown in Exhibit 1. The economic rationale for remimazolam focuses on an improved safety profile and faster induction and recovery from sedation allowing higher patient throughput compared to generic alternatives.

Exhibit 1: Summary of remimazolam’s development status and global partners

Region/partner

Lead indication

Clinical status

Notes

US/Cosmo

Procedural sedation

Preparing to file

Clinical development programme successfully completed, including Phase III studies in colonoscopy and bronchoscopy and a safety study in higher-risk colonoscopy patients. Both pivotal Phase III studies were double-blind, placebo and midazolam controlled.

EU

General anaesthesia

New Phase III planned H218

Headline data from Phase II trial in cardiac surgery met the primary endpoint, efficacy as a general anaesthetic in 98% of pts in the two remimazolam groups vs 96% in the propofol group. Initial results indicate that both remimazolam groups experienced less cardiac depression. Randomised, Phase III study in general surgery patients planned to commence in H218. A previous Phase III in cardiac surgery patients was discontinued in February 2016 due to slow recruitment.

Japan/Mundipharma

General anaesthesia/ICU sedation

Preparing to file

Cardiovascular profile superior to standard-of-care propofol n=375. BP fell in 35.3%/34.7% of remimazolam pts vs 60% of propofol pts. Mundipharma is preparing for an NDA filing with Japanese regulator in 2018.

South Korea/Hana Pharma

Anaesthesia

Phase III

Phase III in GA initiated in March 2018. The Japanese filing document will be used as the basis for filing in South Korea.

China/Yichang Humanwell

Anaesthesia

Phase II in GA; Phase III in PS

Subject to the requirements of the SFDA. Has completed a Phase I study programme in China and is going to conduct a Phase III trial in procedural sedation and a Phase II study in GA.

CIS, Russia, Turkey, MENA/R-Pharm

Anaesthesia

Phase III in Russia underway

R-Pharm has a licence to develop, manufacture and commercialise remimazolam in these regions. It plans to file for approval in Russia in late 2018.

Canada/Pendopharm

Procedural sedation

Will file based on US dossier

Minimal additional development; intends to file after dossier has been submitted in the US.

Source: Paion, Edison Investment Research. Note: PS = procedural sedation; BP = blood pressure.

Remimazolam: Versatile, effective and safe sedation

Remimazolam has been shown to be a safer, faster alternative to approved sedatives and potentially carries a reduced risk of cardiac and respiratory depression, which is particularly significant for older and less healthy patients. Studies of remimazolam have shown it is suited for three indications requiring varying depths of sedation – general anaesthesia, procedural and ICU sedation – while maintaining the vital physiological and neurological functions of the patient.1 The characteristics of remimazolam compared to standard sedatives are shown in Exhibit 2.

Exhibit 2: Summary of key features of remimazolam vs approved anaesthetics

Key feature

Remimazolam

Propofol

Midazolam

Dexmedetomidine

Rapid onset

Yes

Yes

No

Yes

Rapid offset

Yes

Yes

No

No

Low respiratory depression

Yes

No

No

Yes

Cardiovascular stability

Yes

No

No

No

Early recovery to full cognition

Yes

No

Yes

Yes

Reversal agent available

Yes

No

Yes

No

Need to adjust dose for body weight

No

Yes

Yes

Yes

Source: Edison Investment Research

Partner Mundipharma to file in Japan in H218

In December Paion licenced the Japanese rights to remimazolam to Mundipharma. Financial terms included €1m upfront, up to €25m of additional payments for achieving certain regulatory and commercial milestones in the three indications procedural sedation, general anaesthesia and ICU sedation. Paion will receive tiered royalties starting in the low single digits to over 20% of net sales (we model an average 16% royalty rate).

The licence agreement is a positive development for Paion. Mundipharma takes over responsibility for filing for approval for GA in Japan, and has the right and obligation to further develop remimazolam in all indications in Japan (including procedural sedation and ICU sedation). Mundipharma will bear all of the costs for market authorisation and distribution, and it plans to file for market approval in Japan in 2018. Paion expects to receive payments of €2m in connection with the Japan filing (this sum includes a payment from Hana Pharma, which has licenced rights in South Korea).

With a partner in place, we have increased the probability of success in Japan from 60% to 80%. We would likely further increase the probability to 85% when the marketing dossier is filed.

Paion had previously licenced Japan rights to Ono, which conducted a successful Phase II/III trial in GA. The 375-patient trial met its primary endpoint and showed remimazolam was 100% effective in inducing and maintaining general anaesthesia. There was a statistically significantly lower incidence of hypotension (low blood pressure) in the remimazolam groups than in the propofol arm (low blood pressure events observed in 35.3% and 34.7% of patients in the high-and low-dose remimazolam groups, vs 60% of patients in the propofol arm). The data are consistent with other studies that indicated remimazolam’s good safety profile.

While the GA trial was very successful, in August 2013 Ono discontinued a separate Phase II dose-finding trial of remimazolam for sedation in ICUs. While all patients were sedated successfully and there were no significant unexpected adverse events, higher than expected plasma concentrations of remimazolam were observed in isolated cases after long-term treatment. The phenomenon of elevated remimazolam plasma concentrations could not be reproduced in preclinical studies or pharmacokinetic models. However, Ono subsequently terminated its licence agreement for remimazolam following a profit warning in October 2014. Anaesthesia is not a core business for Ono, and the anticipated delay in filing and the company’s increased focus on oncology were likely important factors in its decision to return the rights to Paion.

Further analysis by Paion has shown that pharmacokinetic deviations are common for sedatives like midazolam and propofol in the ICU and are probably related to the underlying conditions of the patients in the ICU. Paion concluded that the maximum dose level has been identified for ICU sedation. Under the licence agreement, Mundipharma has an obligation to further develop remimazolam in ICU sedation and procedural sedation in Japan. Given the overall safety record of remimazolam, we do not expect the plasma levels seen in the ICU sedation trial to interfere with approvals in GA or procedural sedation.

Cosmo plans US filing Q418 or Q119

Paion granted Cosmo Pharmaceuticals an exclusive licence for the development and commercialisation of remimazolam in the US in June 2016, soon after it reported positive results for its first US-based Phase III study in procedural sedation in patients undergoing a colonoscopy. Since then, Paion has successfully completed a second Phase III study (in bronchoscopy patients), a further Phase III study in higher risk patients undergoing a colonoscopy, plus two Phase I studies to assess the abuse potential of remimazolam. It was advised by the FDA in November that these studies provided all of the necessary data regarding the abuse potential in humans, so the clinical development programme for remimazolam in procedural sedation in the US is regarded as complete by Paion.

Paion is working to complete an integrated overall analysis of all clinical studies with remimazolam, and to complete and deliver the data packages from the US development programme to Cosmo. Cosmo plans to hold a pre-NDA meeting with the FDA shortly before filing.

The latest guidance from Cosmo is that it expects to file for approval in the US in Q418 or Q119. This represents slight slippage from previous guidance of filing in H218, although that target may yet be achieved. Paion has taken a conservative approach to timing and does not include filing milestones in its FY18 guidance. Given that filing may not occur until Q119, we have delayed our forecast US launch from 2019 to 2020.

We currently assume an 85% probability of approval, which we would increase to 90% when the marketing submission is filed.

Cosmo has disclosed remimazolam milestones

The Cosmo deal included €10m upfront, an equity injection of €10m, €42.5m in potential milestone payments, and a tiered royalty of 20-25% of sales. Cosmo’s 2017 annual report disclosed that the potential milestone payments comprise €7.5m on filing, €15m on approval in procedural sedation, plus €10m on each of the second and third indication approvals. We have revised our forecasts to include the disclosed milestone schedule (we had previously modelled €4m for filing, €22.5m for the first approval and €16m of sales milestones).

Positive trial results support US approval and uptake

Based on the results of Paion’s clinical development programme for procedural sedation, we believe there is a high likelihood that remimazolam will be granted marketing approval and capture a significant market share in the US. The US market opportunity represents approximately 50% of our valuation of remimazolam.

Remimazolam was highly successful in inducing sedation in the three US Phase III studies. Exhibit 3 shows that in each of the studies over 80% of patients achieved the primary efficacy endpoint, vs less than 5% of placebo-treated patients and less than 35% of those treated with midazolam. The primary outcome measure was a composite endpoint of no need for rescue medication, completion of the procedure and no more than five doses within any 15-minute window (no more than three doses in 12 minutes for midazolam).

Exhibit 3: Successful sedation with remimazolam in high proportion of patients in all three US trials

Source: Paion investor presentation. Note: ASA III/IV patients refers to the safety study in high-risk colonoscopy patients with severe systemic disease; *open label.

The patient populations in the three studies ranged from younger and mostly healthy individuals in the first Phase III colonoscopy study to a selected group of high-risk patients undergoing colonoscopy. These high-risk patients were classified as American Society of Anaesthesiologists (ASA) class III (patients with severe systemic disease) or class IV (patients with severe systemic disease that is a constant threat to life). The subjects in the bronchoscopy Phase III were intermediate between these two groups, with 38% ASA of subjects in class III compared to 7% in the colonoscopy Phase III trial.

Exhibits 4 and 5 show that induction of and recovery from sedation was faster for remimazolam than midazolam in each of the three studies.

Exhibit 4: Shorter time to start of procedure for remimazolam

Source: Paion investor presentation. Note: ASA III/IV patients refers to the safety study in high-risk colonoscopy patients with severe systemic disease.

Exhibit 5: Recovery faster with remimazolam in all three pivotal studies*

Source: Paion investor presentation. Note: ASA III/IV patients refers to the safety study in high-risk colonoscopy patients with severe systemic disease; * median times shown for bronchoscopy and ASA III/IV patient trials, mean times shown for Phase III colonoscopy trial.

Exhibit 6 summarises the sedation and recovery times for remimazolam and midazolam in the three studies. In each study the total induction and recovery times were between 17 and 20.3 minutes shorter for remimazolam than for midazolam (average 18.4 minutes).

As we previously noted in our report dated 21 November 2016, in the clinical setting midazolam is often administered at higher initial doses and with shorter intervals between top-ups than is recommended on the label. However, our review of published studies found that while this led to faster induction of sedation (six minutes) the average recovery times were significantly longer (30 minutes), so the total induction and recovery time in the published studies averaged 36 minutes, slightly longer than the 32 minutes total for midazolam in Paion’s Phase III colonoscopy study. It is possible that the more rapid administration of midazolam results in higher total doses leading to slower recovery from sedation.

Exhibit 6: Induction and recovery times for the three pivotal studies*

Bronchoscopy Phase III

Colonoscopy Phase III

High-risk colonoscopy

Remimazolam

Midazolam

Remimazolam

Midazolam

Remimazolam

Midazolam

Time to start of procedure (min)

5.0

16.0

4.1

15.9

5.0

19.0

End of procedure to fully alert (min)

6.0

12.0

7.2

15.7

3.0

7.0

Total induction plus recovery time

11.0

28.0

11.3

31.6

8.0

26.0

Time saving with remimazolam

17.0

20.3

18.0

Source: Edison Investment Research. Note: *Median times shown for bronchoscopy and high-risk colonoscopy trials, mean times shown for Phase III colonoscopy trial.

With the average time savings with remimazolam being almost 20 minutes and the average duration of the colonoscopy examination itself being less than 20 minutes,2 the results demonstrate that centres could significantly increase throughput by switching from midazolam to remimazolam. We expect this improved throughput to drive significant uptake of remimazolam in the addressable market of 35m procedures per year in the US.3

  Singh H et al. Propofol for sedation during colonoscopy. Cochrane Database of Systematic Reviews 2008, Issue 4. Art. No.: CD006268. DOI: 10.1002/14651858.CD006268.pub2.

  CDC procedural stats.

Paion to start GA Phase III in Europe in H218

Paion plans to initiate a Phase III trial in GA in Europe in H218. After successfully completing an additional GA Phase I trial in 2017 and receiving scientific advice from the EMA in January 2018, it assumes that 450-500 patients will be required for the Phase III, which is in line with our previous expectations.

The Phase III study will compare remimazolam to propofol in general surgery patients. The study design will be similar to the successful Phase III programme in GA in Japan, but will recruit sicker patients where the capacity of remimazolam to lead to reduced hypotensive events, as shown in Exhibit 7, is of greater benefit.

The fact that the planned Phase III will be targeting general surgery patients distinguishes it from the company’s previous European Phase III GA trial which recruited cardiac surgery patients. That study began in August 2015 but was terminated in February 2016 because recruitment proved difficult due to the complex study design. In contrast, Paion expects to complete the new study within 12 months and report results in mid-2019.

Exhibit 7: Less hypotension during GA with remimazolam in Japan Phase III

Source: Paion. Note: NNT= number needed to treat; APM = arterial pressure mean; BIS = bispectral index; Remi = remimazolam.

Targeting self-commercialisation in Europe

With its financial position strengthened by recent licence agreements in the US and Japan, Paion’s target is now to commercialise remimazolam on its own in the EU (or in certain markets within the EU) to maximise potential returns on sales. We have changed our modelling assumptions for Europe and now assume self-commercialisation in Europe delivering 30% operating profit margin on net sales as our base case vs prior assumption of a 20% royalty.

With Paion intending to establish its own sales force to market remimazolam in some or all of the EU if approved (we model a launch in Europe on 2022), the company will seek to expand its portfolio to include additional products that it can market to anaesthesiologists and critical care physicians. Its intention is to target small opportunities that are not attractive to big pharma. This is a longer-term strategy that is not likely to be pursued until after remimazolam marketing applications have been filed in the US and Japan.

Partners progressing remimazolam in a range of countries

Paion has adopted a regional partnering strategy to accelerate remimazolam’s global development and provide marketing partners in each region. The US and Japanese filing dossiers will be bridged to data from each region and could abbreviate clinical studies of remimazolam in these individual geographies. This strategy advances remimazolam’s global clinical status and market potential in a cost-effective way. Paion received upfront payments for each of its regional partners and is eligible to receive up to €88.8m of further milestone payments (Exhibit 8) plus royalties. These partners will commercialise remimazolam in the respective regions.

In August 2017 Paion announced that its partner R-Pharm had started a Phase III GA study in Russia in 150 general surgery patients, and plans to file for approval at the end of 2018. R-Pharm is also managing development in Turkey and the MENA region, where it will file based on the US or Japanese dossiers.

In March Hana Pharm initiated a Phase III study in 198 patients undergoing GA.

Yichang Humanwell has completed a Phase I study programme in China and is going to conduct a Phase III trial in procedural sedation and a Phase II study in GA.

Exhibit 8: Summary of upfront/milestone/royalties from remimazolam regional partners

Partner

Total received or upfront payment

Total outstanding

Yichang, China

€3m

Up to €4m

Hana Pharma, Korea

€1m

€2m

R-Pharm, CIS

€1m

€3m

R-Pharm, Turkey

€1m

€3m

R-Pharm, MENA

€1.5m

€5.5m

Pendopharm, Canada

€0.4m

~€3.8

Cosmo, US

€20m*

€42.5m

Mundipharma, Japan

€1m

€25m

Total

~€88.8m

Source: Paion. Note: *Comprises €10m upfront payment and €10m received via a private placement in June 2016.

Developing Remimazolam in ICU sedation is a longer term goal

As we outlined on page 3 of this report, following a detailed examination of the pharmacokinetics of Remimazolam, Paion is confident that the drug can be successfully developed for sedating patients while they are treated in an ICU.

Under their licensing agreements, partners Cosmo and Mundipharma are responsible for developing remimazolam for ICU sedation in the US and Japan, respectively, while Paion would be responsible for development in this indication in Europe. Paion envisages a collaborative development program, wherein each party is responsible for development in its own territory, but the parties also work together on some aspects of the program.

ICU sedation is a longer term opportunity, and is not part of Paion’s near-term clinical program, which is focused on its Phase III trial of remimazolam in GA in Europe.

Paion estimates that there are ~14m ICU patient days requiring ICU sedation in the US and EU each year, which represents a significant commercial opportunity. We do not currently include the ICU sedation in our sales forecasts for remimazolam, so successful development for this indication would represent upside to our valuation. Development for ICU sedation would require additional funds which are not considered in our current forecasts.

Sensitivities

The key sensitivity is the successful filing of marketing applications and subsequent regulatory approval decisions for remimazolam in the US and Japan. The successful execution and outcome of the planned European Phase III in GA is another key risk.

Paion has indicated that it intends to self-commercialise remimazolam in some or all of the EU (if approved). This strategy offers greater potential returns but higher risk than appointing a partner. Paion expects current cash of €24.8m plus tax credits and milestone payments associated with anticipated filings in Japan and the US to provide a funding runway into H219 and likely reporting of top-line data from the EU Phase III. A further €15m would be required to support operations until filing for market approval in the EU. While we model this funding being provided by further milestone payments, depending on the timing of income and expenditure, additional dilutive funds may be required.

Valuation

Our sum-of-the-parts DCF valuation is increased to €269m, or €4.40 per share, from €260m, or €4.25 per share. This is based on the assumption that Paion self-commercialises remimazolam in the EU with a 30% operating profit margin and forms post-approval commercialisation deals for remimazolam which yield a royalty rate of 20% in other unpartnered regions. The summary of changes to our assumptions includes:

increasing the likelihood of success in Europe and RoW markets from 50% to 60% now that Paion has committed to commencing a Phase III trial in Europe in H218 and has the funding in place to complete the study and report top-line data;

changing the commercialisation model in the EU from out-licensing to self-commercialisation with an operating profit margin of 30% of net sales;

reducing the average royalty rate for Japan from 20% to 16% (Mundipharma tiered royalties starting in the low double digits to over 20%);

increasing the likelihood of success in Japan from 60% to 80% now that licensee Mundipharma has taken over responsibility for obtaining regulatory approval and commercialising remimazolam Japan;

reducing the modelled upfront and milestone payments for Japan from €50m to €26m to align with the terms of the Mundipharma licence deal;

increasing the likelihood of success in Canada from 60% to 85%, in line with the US;

pushing back the timeline for launch by 12 months in all territories except for Canada to allow for later assumed filing dates.

In the US, our cost per procedure assumption for remimazolam is $40 and our peak sales estimate is $280m for the lead indication procedural sedation, assuming an addressable market of 35m procedures a year.4 In Canada, our peak sales assumption is $42m, for seven million procedures at a revenue per procedure of $30, and we use a market penetration estimate of 22% in the US and Canada, with time savings over midazolam seen in the colonoscopy and bronchoscopy Phase III trials expected to support market uptake.

  CDC procedural stats.

Our peak sales assumption in Europe for the lead general anaesthesia indication is $175m, assuming a price of $25 per procedure and 35 million high-risk or class III/IV discharges in the OECD region per year. In Japan, our peak sales assumption is $75m at an average price of $25 and 20 million procedures a year (in general anaesthesia). We assume a 20% market penetration in Europe and 15% in Japan.

Exhibit 9: Valuation assumptions for pipeline

Launch date

Peak sales

(US$m)

Risk adjustment

(%)

Market penetration

(%)

Royalty/ profit margin (%)

Remimazolam EU

2022

175

60

20

30*

Remimazolam US

2020

280

85

22

20

Remimazolam Japan

2020

75

80

15

17

Remimazolam RoW

2021

165

60

12

12

Remimazolam Canada

2020

42

85

22

15

Source: Edison Investment Research Note *operating margin

The key catalysts in 2018 include anticipated filings in Japan and potentially also in the US and Russia, initiation of the Phase III trial in Europe, as well as clinical development progress in other markets, including China and South Korea. Progress on these matters would likely lead us to increase our assumed likelihood of success in the affected territories.

Exhibit 10: Summary valuation

Value (€m)

Value per share (€)

Remimazolam EU

73.0

1.19

Remimazolam US

171.9

2.81

Remimazolam Japan

31.5

0.52

Remimazolam RoW

23.9

0.39

Remimazolam Canada

16.6

0.27

Risk adjusted milestones

40.3

0.66

Expenses

-29.7

-0.49

Tax

-69.6

-1.14

net cash FY18e

11.2

0.18

Total

269.1

4.40

Source: Edison Investment Research

Financials

Paion reported revenues of €0.3m and a net loss of €3.1m for Q118 vs a loss of €2.2m in Q117. Operating cash outflow was €2.8m. R&D expenses declined by €0.7m to €3.4m due to lower costs for the Phase III studies in the US.

Paion had €22.1m in net cash on 31 March 2018, which, when combined with €9.5m of milestone payments linked to anticipated filing in Japan and the US and €3m of UK income tax credits, is expected to be sufficient to fund operations into H219 including preparations for filing in the US and Japan and the conduct of the Phase III GA trial in Europe. A further €15m funding would be required to support operations until filing in Europe, based on Paion’s current planning. Depending on timing of approvals, this could potentially be provided by milestones payments for approval in the US (€15m) and Japan (we model €5m).

We have revised our forecasts for 2018, which are broadly in line with Paion’s financial outlook guidance, as shown in Exhibits 11 and 12. Our end-2018 cash estimate is €11.2m.

Exhibit 11: Main changes to our financial forecasts

2018

2018

 

€m 

Old

New

% Change

Revenue

3.5

3.1

-11%

Research and development

(13.0)

(16.0)

+23%

Selling, general and administration

(3.9)

(3.8)

-2%

Profit/(loss) before tax (reported)

(13.3)

(16.6)

+25%

Profit/(loss) after tax (reported)

(11.2)

(13.6)

+22%

Source: Edison Investment Research

Exhibit 12: Paion’s 2018 outlook versus our estimates

 

2018 targets

2018

€m

Low

High

Estimates

Revenue

3.0

N/A

3.1

Research and development

(15.0)

(17.0)

(16.0)

Income tax credits

3.0

N/A

3.0

Selling, general and administration

(3.5)

(4.0)

(3.8)

Profit/(loss) after tax (reported)

(12.5)

(15.0)

(13.6)

Source: Edison Investment Research, Paion

Exhibit 13: Financial summary

€'000s

2015

2016

2017

2018e

2019e

Year end 31 December

PROFIT & LOSS

Revenue

 

 

61

4,262

5,811

3,100

10,475

Cost of sales

0

0

0

0

0

Gross profit

61

4,262

5,811

3,100

10,475

R&D expenditure

(29,385)

(23,408)

(17,854)

(16,000)

(13,000)

General, administrative & selling

(5,729)

(5,129)

(3,828)

(3,820)

(3,935)

Other

965

(807)

(2)

51

51

Operating profit

(34,088)

(25,841)

(16,219)

(17,069)

(6,709)

Depreciation and amortisation

0

(759)

(347)

(400)

(300)

Share-based payments

0

0

0

0

0

Exceptionals

0

0

0

0

0

EBITDA

 

 

(34,088)

(25,082)

(15,872)

(16,669)

(6,409)

Operating profit (before GW and except)

(34,088)

(25,082)

(15,872)

(16,669)

(6,409)

Net interest

42

21

20

20

20

Profit before tax (norm)

 

 

(34,046)

(25,061)

(15,852)

(16,649)

(6,389)

Profit before tax (reported)

 

 

(34,046)

(25,061)

(15,852)

(16,649)

(6,389)

Tax

5,834

4,944

3,759

3,040

2,340

Profit after tax (norm)

(28,212)

(20,118)

(12,093)

(13,609)

(4,049)

Profit after tax (reported)

(28,212)

(20,118)

(12,093)

(13,609)

(4,049)

Average number of shares outstanding (m)

50.7

53.2

59.1

61.1

61.1

EPS - normalised (c)

 

 

(55.7)

(37.8)

(20.5)

(22.3)

(6.6)

EPS - reported (c)

 

 

(55.7)

(37.8)

(20.5)

(22.3)

(6.6)

Dividend per share (c)

 

 

0.0

0.0

0.0

0.0

0.0

Gross margin (%)

NA

NA

NA

NA

NA

EBITDA margin (%)

NA

NA

NA

NA

NA

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

NA

NA

NA

NA

NA

BALANCE SHEET

Fixed assets

 

 

3,417

2,855

2,529

2,529

2,529

Intangible assets

3,362

2,688

2,415

2,415

2,415

Tangible assets

56

167

114

114

114

Refund from assumption of dev costs

0

0

0

0

0

Other

0

0

0

0

0

Current assets

 

 

40,051

35,128

29,357

15,748

11,699

Stocks

0

0

0

0

0

Debtors

0

0

37

25

25

Cash

32,680

30,111

24,839

11,242

7,193

Other

7,371

5,017

4,481

4,481

4,481

Current liabilities

 

 

(7,901)

(13,040)

(6,656)

(6,656)

(6,656)

Trade payables

(7,332)

(6,353)

(5,921)

(5,921)

(5,921)

Short-term borrowings

0

0

0

0

0

Provisions

(224)

(555)

(391)

(391)

(391)

Finance lease liabilities

0

0

0

0

0

Other current liabilities

(305)

(359)

(325)

(325)

(325)

Current deferred income

(39)

(5,774)

(19)

(19)

(19)

Long-term liabilities

 

 

(6)

0

0

0

0

Long-term borrowings

0

0

0

0

0

Provisions

0

0

0

0

0

Long-term deferred income

(6)

0

0

0

0

Deferred taxes

0

0

0

0

0

Other long-term liabilities

0

0

0

0

0

Net assets

 

 

35,562

24,943

25,229

11,620

7,572

CASH FLOW

Operating cash flow

 

 

(28,212)

(17,135)

(22,318)

(16,657)

(6,409)

Net interest

43

19

20

20

20

Tax

2,575

5,529

4,577

3,040

2,340

Capex

0

7

0

0

0

Purchase of intangibles

(33)

0

0

0

0

Acquisitions/disposals

0

(199)

(25)

0

0

Equity Financing

22

9,212

12,494

0

0

Dividends

0

0

0

0

0

Other

0

0

0

0

0

Net cash flow

(25,605)

(2,567)

(5,251)

(13,597)

(4,049)

Opening net debt/(cash)

 

 

(58,912)

(32,680)

(30,111)

(24,839)

(11,242)

Effect of exchange rate changes

(66)

(2)

(22)

0

0

Other

(560)

0

0

0

0

Closing net debt/(cash)

 

 

(32,680)

(30,111)

(24,839)

(11,242)

(7,193)

Source: Edison Investment Research, company accounts

Contact details

Revenue by geography

Martinstraße 10-12

52062 Aachen

Germany
+49 241 4453 152
www.paion.com

N/A

Contact details

Martinstraße 10-12

52062 Aachen

Germany
+49 241 4453 152
www.paion.com

Revenue by geography

N/A

Management team

CEO: Dr Wolfgang Söhngen

CDO: Dr Jürgen Beck

Dr Söhngen co-founded Paion in 2000 and became CEO in 2004. Previously, he founded Virtuality, a consulting firm in 1997 and from 1987 worked in clinical development, project management, corporate development and strategic planning at Grünenthal. Before this, he was a pharmaceutical representative at Pfizer.

Dr Beck has over 25 years of experience in the European pharma business, with positions held in various drug development projects. He has held various senior management positions at Synthélabo, was managing director of the CRO Monitoring Force, senior vice president of Medical Affairs at Epigenomics and vice president of clinical operations Europe at InterMune Internationa.

Chairman of the supervisory board: Dr Jörg Spiekerkötter

CFO: Abdelghani Omari

Dr Spiekerkötter has been a board member since 2008. He worked as CFO of Schering and Organon Biosciences, and until December 2010 was CFO of Conergy.

Prior to joining Paion, Mr Omari held various positions at KPMG,

Cologne in auditing and advisory. He studied at the University of Aachen and

has a diploma in business administration.

Management team

CEO: Dr Wolfgang Söhngen

Dr Söhngen co-founded Paion in 2000 and became CEO in 2004. Previously, he founded Virtuality, a consulting firm in 1997 and from 1987 worked in clinical development, project management, corporate development and strategic planning at Grünenthal. Before this, he was a pharmaceutical representative at Pfizer.

CDO: Dr Jürgen Beck

Dr Beck has over 25 years of experience in the European pharma business, with positions held in various drug development projects. He has held various senior management positions at Synthélabo, was managing director of the CRO Monitoring Force, senior vice president of Medical Affairs at Epigenomics and vice president of clinical operations Europe at InterMune Internationa.

Chairman of the supervisory board: Dr Jörg Spiekerkötter

Dr Spiekerkötter has been a board member since 2008. He worked as CFO of Schering and Organon Biosciences, and until December 2010 was CFO of Conergy.

CFO: Abdelghani Omari

Prior to joining Paion, Mr Omari held various positions at KPMG,

Cologne in auditing and advisory. He studied at the University of Aachen and

has a diploma in business administration.

Principal shareholders

(%)

Cosmo Pharmaceuticals

9.1

TIAA Cref

3.0

Companies named in this report

Cosmo Pharmaceuticals, Ono, Pendopharm, Mundipharma

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Paion and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Limited (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Paion and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Limited (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4

95 Pitt Street, Sydney

NSW 2000, Australia

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