Focus on Phase II CTCL launch, Q416

4SC 15 August 2016 Update

4SC

Focus on Phase II CTCL launch, Q416

H1 results

Pharma & biotech

15 August 2016

Price

€2.25

Market cap

€43m

Net cash (€m) at 30 June 2016

13.8

Shares in issue

19.0m

Free float

38.1%

Code

VSC

Primary exchange

Frankfurt

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(5.4)

(28.7)

(39.5)

Rel (local)

(12.0)

(34.4)

(38.3)

52-week high/low

€4.2

€2.1

Business description

4SC is a Munich-based cancer R&D company. Epigenetic compound resminostat (HDAC inhibitor) is the lead candidate for Cutaneous T-Cell Lymphoma (Phase II planned in H216), partnered with Yakult Honsha (Japan) and Menarini (Asia ex-Japan). 4SC is partnered with Link Health for a Phase I oncology asset. It is seeking partners for a Phase I oncology asset and a Phase IIb autoimmune asset.

Next events

Q316 results

10 November 2016

Resminostat Phase II EU CTCL starts

Q416

Phase II data in NSCLC Japan (Yakult)

End 2016

Analysts

Dr Linda Pomeroy

+44 (0)20 3077 5738

Lala Gregorek

+44 (0)20 3681 2527

4SC is a research client of Edison Investment Research Limited

H1 results were in line with our expectations and primarily underscored the potential importance of more detailed analysis of the Phase II Yakult Phase I/II trial data (expected early 2017) and the launch of its potentially pivotal Phase II study with resminostat in CTCL (Q416). 4SC is also progressing its earlier-stage assets such as 4SC-205, being developed in China with partner Link Health, and indicates that it is actively pursuing a partner for 4SC-202. We slightly raise our rNPV to €110m.

Year
end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/14

7.1

(8.8)

(0.88)

0.0

N/A

N/A

12/15

3.3

(8.4)

(0.59)

0.0

N/A

N/A

12/16e

3.8

(14.8)

(0.78)

0.0

N/A

N/A

12/17e

4.0

(4.0)

(0.21)

0.0

N/A

N/A

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

Important step forward expected in H216

The potentially pivotal Phase II trial of resminostat in CTCL is expected to start in Q416. This 150-patient, double-blind, randomised controlled study will be conducted in 50 centres, across 10 countries. 4SC has funding to enable the majority of the trial to be completed. We forecast that it has enough cash into 2018, at which time it will need to raise further funding to complete the trial.

Potential for further newsflow from HCC Yakult trial

Japanese partner Yakult Honsha (Yakult) announced that its Phase II study did not meet its primary endpoint of prolonged time to disease progression (TTP) compared to sorafenib monotherapy. The company has highlighted that early data appears to show that patients with certain expression levels of the ZFP64 biomarker at baseline had longer TTP when treated in combination with resminostat. We expect the outcome of this analysis early in 2017.

Early pipeline licensing and development partnership

4SC entered into a licensing and development partnership with Link Health in China for its oncology Eg5 inhibitor, 4SC-205. This agreement enables Link Health to develop 4SC-205 further and conduct the regulatory process, while 4SC receives developmental milestones (up to €76m) and double-digit royalties.

Valuation: Slightly increased to €110m

Our rNPV-based valuation has increased slightly to €110m or €5.8 per share (previously €104m or €5.5/share), as we have rolled the model forward by three months, pushed out the potential milestone income from Menarini (from 2016 to 2017) and used H116 reported cash of €13.8m. We note that the projected milestones from Yakult and Menarini are delayed while the analysis of the Yakult trial data is ongoing. We have also increased our R&D spend estimate, and therefore cash burn, in 2016 and reduced it in 2017 in line with the expected profile of CTCL clinical trial cost.

Exhibit 1: Financial summary

€'000s

2013

2014

2015

2016e

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

4,904

7,055

3,266

3,800

4,000

5,000

Cost of sales

(1,474)

(4,080)

(1,763)

(1,710)

(1,600)

(1,750)

Gross profit

3,430

2,975

1,503

2,090

2,400

3,250

R&D expenditure

(10,243)

(8,504)

(7,255)

(13,300)

(5,000)

(3,750)

Administrative, distribution and other

(3,779)

(3,908)

(3,163)

(4,557)

(2,369)

(2,440)

Operating profit

(10,592)

(9,437)

(8,915)

(15,767)

(4,969)

(2,940)

Intangible amortisation

(1,593)

(819)

(827)

(827)

(827)

(827)

Exceptionals (impairment / restructuring costs)

(862)

0

0

0

0

0

Share-based payments

(53)

(3)

2

(20)

(20)

(20)

EBITDA

 

 

(7,804)

(8,339)

(7,914)

(14,695)

(3,897)

(1,868)

Operating profit (before GW and except.)

 

(8,084)

(8,615)

(8,090)

(14,920)

(4,122)

(2,093)

Net interest

48

(228)

(331)

75

150

100

Other (profit/loss from associates)

19

39

58

75

75

75

Profit before tax (norm)

 

 

(8,036)

(8,843)

(8,421)

(14,845)

(3,972)

(1,993)

Profit before tax (FRS 3)

 

 

(10,525)

(9,626)

(9,188)

(15,617)

(4,744)

(2,765)

Tax

0

(70)

(40)

0

0

0

Profit after tax (norm)

(8,017)

(8,874)

(8,403)

(14,770)

(3,897)

(1,918)

Profit after tax (FRS 3)

(10,525)

(9,696)

(9,228)

(15,617)

(4,744)

(2,765)

Average number of shares outstanding (m)

10.1

10.1

14.3

19.0

19.0

19.0

EPS - normalised (€)

 

 

(0.80)

(0.88)

(0.59)

(0.78)

(0.21)

(0.10)

EPS - FRS 3 (€)

 

 

(1.04)

(0.96)

(0.64)

(0.82)

(0.25)

(0.15)

Dividend per share (€)

0.0

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed assets

 

 

11,591

10,639

11,077

10,043

9,280

8,542

Intangible assets

10,651

9,836

9,123

8,164

7,451

6,738

Tangible assets

602

425

357

282

232

207

Investments and other

338

378

1,597

1,597

1,597

1,597

Current assets

 

 

6,114

4,295

22,415

7,256

12,973

10,294

Stocks

23

25

20

20

20

20

Debtors

346

652

94

94

94

94

Cash

4,899

3,202

21,476

6,519

12,236*

9,557

Other current assets

846

393

817

623

623

623

Current liabilities

 

 

(3,587)

(4,842)

(5,593)

(3,187)

(3,437)

(3,937)

Creditors

(675)

(993)

(688)

(688)

(688)

(688)

Short-term borrowings

0

(317)

(1,962)

0

0

0

Deferred revenue (short term)

(1,589)

(2,638)

(1,779)

(1,750)

(2,000)

(2,500)

Other current liabilities

(1,323)

(894)

(1,164)

(749)

(749)

(749)

Long-term liabilities

 

 

(2,836)

(8,042)

(1,471)

(188)

(10,038)

(10,038)

Long-term borrowings

0

(6,131)

0

0

(10,000)

(10,000)

Deferred revenue (long term)

(2,682)

(1,788)

(1,433)

(150)

0

0

Other long-term liabilities

(154)

(123)

(38)

(38)

(38)

(38)

Net assets

 

 

11,282

2,050

26,428

13,924

8,778

4,861

CASH FLOW

Operating cash flow

 

 

(7,052)

(8,302)

(8,916)

(13,383)

(3,997)

(2,368)

Net interest

66

0

(2)

2

4

3

Tax

0

(70)

(40)

0

0

0

Capex

(99)

(100)

(109)

(150)

(175)

(200)

Expenditure on intangibles

(21)

(3)

(114)

(114)

(114)

(114)

Acquisitions/disposals

10

0

0

650

0

0

Financing

0

477

27,608

0

0

0

Other

0

0

4,333

0

0

0

Net cash flow

(7,096)

(7,998)

22,760

(12,995)

(4,282)

(2,680)

Opening net debt/(cash)

 

 

(12,064)

(4,899)

3,246

(19,514)

(6,519)

(2,236)

HP finance leases initiated

0

0

0

0

0

0

Other

(69)

(147)

0

0

0

0

Closing net debt/(cash)

 

 

(4,899)

3,246

(19,514)

(6,519)

(2,236)

443

Source: 4SC accounts, Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. 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 and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by 4SC 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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 2016. “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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. 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 and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by 4SC 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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 2016. “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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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