AFT Pharmaceuticals — Growth despite COVID-19 challenges

AFT Pharmaceuticals (ASX: AFT)

Last close As at 27/03/2024

NZD3.05

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NZD320m

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Research: Healthcare

AFT Pharmaceuticals — Growth despite COVID-19 challenges

AFT Pharmaceuticals recently reported its results for the first half of FY21. Operating revenue grew by a strong 4% year-on-year to NZ$48.8m driven mainly by 11% growth in Australia and despite the impact of COVID-19 across the business. Reported group operating profit was NZ$2.4m compared to NZ$13.7m in the same period a year ago (NZ$3.9m if a one-time gain of NZ$9.8m from the first half of FY20 is excluded). Importantly, AFT continues to guide to operating profit of NZ$14–18m in FY21.

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Healthcare

AFT Pharmaceuticals

Growth despite COVID-19 challenges

Financial update

Pharma & biotech

24 November 2020

Price

NZ$4.89

Market cap

NZ$511m

NZ$0.69/US$

Net debt (NZ$m) at 30 September 2020

34.3

Shares in issue

104.6m

Free float

31.3%

Code

AFT

Primary exchange

NZX

Secondary exchange

ASX

Share price performance

%

1m

3m

12m

Abs

(0.6)

(2.2)

57.7

Rel (local)

(0.8)

(6.7)

41.3

52-week high/low

NZ$5.46

NZ$3.10

Business description

AFT Pharmaceuticals is a specialty pharmaceutical company that operates primarily in Australasia but has product distribution agreements across the globe. The company’s product portfolio includes prescription and over-the-counter drugs to treat a range of conditions and a proprietary nebuliser.

Next events

Additional Maxigesic launches

FY21

Analysts

Maxim Jacobs

+1 646 653 7027

Nathaniel Calloway

+1 646 653 7036

AFT Pharmaceuticals is a research client of Edison Investment Research Limited

AFT Pharmaceuticals recently reported its results for the first half of FY21. Operating revenue grew by a strong 4% year-on-year to NZ$48.8m driven mainly by 11% growth in Australia and despite the impact of COVID-19 across the business. Reported group operating profit was NZ$2.4m compared to NZ$13.7m in the same period a year ago (NZ$3.9m if a one-time gain of NZ$9.8m from the first half of FY20 is excluded). Importantly, AFT continues to guide to operating profit of NZ$14–18m in FY21.

Year end

Revenue (NZ$m)

PBT*
(NZ$m)

EPS*
(NZ$)

DPS
(NZ$)

P/E
(x)

Yield
(%)

03/19

85.1

(2.1)

(0.02)

0.0

N/A

N/A

03/20

105.6

3.4

0.03

0.0

N/A

N/A

03/21e

117.6

13.3

0.13

0.0

37.6

N/A

03/22e

139.4

25.9

0.21

0.0

23.3

N/A

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

Closer to FDA approval for Maxigesic

AFT received a complete response letter (CRL) from the FDA for the tablet form of Maxigesic in November. The only significant ‘deficiency’ cited in the application was that the FDA needed to inspect the manufacturing facilities, which they were unable to do by the PDUFA date due to COVID-19 related travel restrictions (which has become a relatively common problem for the industry). The timing of an inspection, whether physical or virtual, is unclear. Otherwise, the FDA only requested minor labelling changes and updated safety data.

Maxigesic launched in 34 countries

Maxigesic is now sold and launched in 34 countries, up from 28 at the end of March. The company expects to have Maxigesic launched in an additional nine countries in the second half of FY21. Licensing momentum was hurt by COVID-19 travel restrictions, but has been improving, though this may slow down again with the more recent lockdowns.

COVID-19 impact across the business

The pandemic has had an impact across the business, including product sales, supply and licensing negotiations for Maxigesic. This was mainly due to government restrictions limiting the ability to travel/export and restrictions that hampered the ability of consumers to have non-COVID-19 related medical visits and to have product dispensed at pharmacies. With vaccines likely to be approved shortly, we expect any further negative impact to be relatively brief.

Valuation: NZ$629m or NZ$6.02 per share

We are increasing our valuation from NZ$596m or NZ$5.94 per share to NZ$629m or NZ$6.02 per share, mainly due to rolling forward our NPV and lower net debt. This was partially offset by lower near-term operating profit forecasts due to slower than expected sales in the rest of world region. The company reported NZ$5.9m in cash and NZ$40.1m in debt at the end of the first half of FY21.

H121 results

AFT has reported revenue of NZ$48.8m for the first half of FY21 (H121), the period ending 30 September 2020. This represents a 4% increase over the same period in the prior year. Revenue in Australia was up 11% to NZ$28.6m. The OTC channel, which represents approximately 60% of revenue for Australia, grew 9% (to NZ$17.2m). This was negatively affected by weak Maxigesic sales due to COVID-19 restrictions though this was offset in part by strong growth in eyecare as well as sales of hand sanitizer and face masks. The hospital channel grew by 13% to NZ$8.6m and was helped by antibiotic sales in response to the pandemic. The prescription channel grew 17% thanks to new product introductions but was hampered due to a decline in visits to general practitioners for non-COVID-19 related purposes. Despite all these challenges, operating profits rose to NZ$3.2m in Australia from NZ$1.9m in the same period in FY20.

New Zealand revenue was flat at NZ$13.7m. The OTC channel grew 3% to NZ$7.6m thanks to allergy medicines and face masks. The hospital channel grew by 11% to NZ$2.2m due to strong antibiotic sales. The prescription channel fell by 9% to NZ$4.0m due to restrictions on visits to general practitioners and governments preventing pharmacists from dispensing more than 30 days of medicine. The operating loss (including head office costs) was NZ$1.4m, 3% larger than in the same period last year.

Asia revenue fell by 7% to NZ$2.2m. The OTC segment benefited from COVID-19 related stockpiling of Maxigesic in Singapore, while the hospital and prescription channels declined due to a transition to higher-margin products. This transition helped increase operating profit from NZ$0.1m in H120 to NZ$0.7m in H121. Importantly, e-commerce sales have commenced in China and sales are expected to begin in South Korea in the near future.

Exhibit 1: H121 results by segment

NZ$000s

Revenues H121

Revenues H120

Operating profit before tax H121

Operating profit before tax H120

Australia

28,552

25,697

3,195

1,861

New Zealand

13,709

13,691

(1,425)*

(1,378)*

Asia

2,198

2,369

721

98

Rest of world

4,362

5,189

(69)

13,110**

Total

48,821

46,946

2,422

13,691

Source: AFT Pharmaceuticals. Note: *New Zealand profit before tax includes head office expenses. **Rest of world profit before tax includes a non-recurring gain of NZ$9.8m; without this gain profit before tax for this region would have been NZ$3.3m.

Rest of world revenues declined by 16% to NZ$4.4m as licensing income fell by 88% due to delayed deal-signing as a result of COVID-19 related travel restrictions. Deal momentum has been improving according to management, though there may be additional issues as a second wave of lockdowns have occurred. To help mitigate this impact, AFT relocated one of its business development personnel to Switzerland. Revenue from ROW product sales grew by 57% to NZ$3.9m. Sales were assisted by new launch orders shipped to Mexico, Germany, Belgium and Luxembourg, but were negatively affected by COVID-19 in India where Maxigesic is being manufactured. The company is currently in the process of diversifying its manufacturing base.

Maxigesic tablets are now sold and launched in 34 countries, up from 28 at the end of March. The company expects to have Maxigesic launched in an additional nine countries in the second half of FY21. To assist with sales and regulatory filings in Europe, AFT has set up an EU-based affiliate in Ireland. During the first half of FY20, 10 Maxigesic IV licensing and distribution agreements were signed, including in Germany, Austria, France and Italy. And since the end of the period there were additional signings for Maxigesic tablets in Greece and Pakistan and for Maxigesic IV in Hong Kong and the UK. The company continues to work on licensing agreements for both the tablet and intravenous forms of Maxigesic in the US, Japan and China. The fact that the only significant ‘deficiency’ cited in the FDA new drug approval application for the tablet form of Maxigesic was due to COVID-19 related manufacturing facility inspection delays is a positive and should give potential partners comfort.

Exhibit 2: Maxigesic product country totals by status

Maxigesic tablets

Maxigesic IV

Maxigesic oral solution

September 2020

March 2020

September 2020

March 2020

September 2020

March 2020

Licensed

125+

125+

90

80

122

122

Registered

46

44

20

3

Sold in

34

28

3

Source: AFT Pharmaceuticals

With regards to NasoSURF, engineering batches have been successfully completed and development work on a specific dose form has commenced. Clinical studies are planned for calendar year 2021. The 120-patient Pascomer Phase II/III clinical study is continuing to enrol patients, although there have been delays in recruitment due to COVID-19. Study completion is expected in the 2021 calendar year.

Valuation

We are increasing our valuation from NZ$596m or NZ$5.94 per share to NZ$629m or NZ$6.02 per share, mainly due to rolling forward our NPV and lower net debt. This was partially offset by lower near-term operating profit forecasts due to slower than expected sales in the rest of world region.

Exhibit 3: DCF sensitivity table (NZ$/share)

Terminal EBIT margin

Terminal revenue growth

30.00%

34.00%

36.0%

40.0%

45.0%

-2%

4.06

4.40

4.57

4.91

5.33

-1%

4.28

4.65

4.83

5.20

5.67

0%

4.54

4.95

5.15

5.56

6.06

1%

4.86

5.31

5.54

5.99

6.55

2%

5.26

5.76

6.02

6.52

7.16

3%

5.77

6.35

6.64

7.22

7.94

4%

6.45

7.12

7.46

8.14

8.98

5%

7.40

8.21

8.61

9.42

10.43

Source: Edison Investment Research

Financials

We have decreased our revenue estimate for FY21 to NZ$117.6m from NZ$125.1m and for FY22 to NZ$139.4m from NZ$146.5m mainly due to delays in additional licence agreements and launches of Maxigesic in the rest of world region. We have lowered our SG&A estimate for FY21 by NZ$5.8m and for FY22 by NZ$6.2m. The reason for this was that SG&A expenses in the first half fell by 7% and we had forecast them increasing, so our new forecast puts these expenses more in line with the current run rate. We have also increased our R&D expense estimate by NZ$1.5m in both years as this line item was higher than anticipated. After these changes, our FY21 normalised PBT estimate is NZ$13.3m, compared to NZ$15.5m previously, while our normalised FY22 PBT estimate is now NZ$25.9m, compared to NZ$27.2m previously.

Exhibit 4: Edison forecast changes

FY21e

FY22e

Old

New

Old

New

Revenue (NZ$m)

125.1

117.6

146.5

139.4

PBT, normalised (NZ$m)

15.5

13.3

27.2

25.9

EPS, normalised (NZ$)

0.15

0.13

0.23

0.21

Source: Edison Investment Research

The company reported NZ$5.9m in cash and NZ$40.1m in debt at the end of the first half of FY21. AFT raised approximately NZ$12m through the issuance of new equity (c 3.2m shares at NZ$3.75 per share) during the first half, using NZ$3m to pay off debt. The company had expected to use more of the cash to pay off its debt but instead built inventory (inventory increased by NZ$13.3m compared to the same period in the prior year) to mitigate the business impact of COVID-19 related supply and freight difficulties. We believe AFT will be able to further pay down the debt from operating cash flow and is not in need of additional financing.

Exhibit 5: Financial summary

NZ$000

2019

2020

2021e

2022e

Year end 31 March

NZ GAAP

NZ GAAP

NZ GAAP

NZ GAAP

PROFIT & LOSS

Revenue

 

 

85,127

105,597

117,570

139,439

Cost of Sales

(44,397)

(57,332)

(64,045)

(69,711)

Gross Profit

40,730

48,265

53,526

69,728

EBITDA

 

 

6,205

10,894

15,426

27,692

Operating Profit (before amort. and except.)

 

 

6,320

11,708

16,240

28,506

Intangible Amortisation

(204)

(286)

(286)

(286)

Exceptionals

0

9,784

0

0

Other

0

0

0

0

Operating Profit

6,116

21,206

15,954

28,220

Net Interest

(8,375)

(8,329)

(2,935)

(2,603)

Profit Before Tax (norm)

 

 

(2,055)

3,379

13,306

25,903

Profit Before Tax (reported)

 

 

(2,259)

12,877

13,020

25,617

Tax

(168)

(185)

(74)

(3,586)

Profit After Tax (norm)

(2,223)

3,194

13,232

22,316

Profit After Tax (reported)

(2,427)

12,692

12,946

22,030

Average Number of Shares Outstanding (m)

97.3

97.3

104.6

104.6

EPS - normalised (c)

 

 

(2.28)

3.28

12.65

21.34

EPS - (reported) (NZ$)

 

 

(0.03)

0.12

0.12

0.21

Dividend per share (c)

0.00

0.00

0.00

0.00

Gross Margin (%)

47.8

45.7

45.5

50.0

EBITDA Margin (%)

7.3

10.3

13.1

19.9

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

7.4

11.1

13.8

20.4

BALANCE SHEET

Fixed Assets

 

 

12,334

31,716

35,424

38,465

Intangible Assets

8,239

26,984

30,704

33,629

Tangible Assets

357

315

295

411

Investments

3,738

4,417

4,425

4,425

Current Assets

 

 

51,261

55,336

64,485

78,882

Stocks

25,158

22,734

35,995

39,595

Debtors

19,187

25,969

16,567

22,856

Cash

6,916

6,119

11,815

16,323

Other

0

514

108

108

Current Liabilities

 

 

(58,504)

(25,102)

(19,906)

(19,121)

Creditors

(16,368)

(22,993)

(19,713)

(19,121)

Short term borrowings

(41,750)

(2,000)

0

0

Other

(386)

(109)

(193)

0

Long Term Liabilities

 

 

0

(44,695)

(38,195)

(34,195)

Long term borrowings

0

(41,200)

(34,700)

(30,700)

Other long term liabilities

0

(3,495)

(3,495)

(3,495)

Net Assets

 

 

5,091

17,255

41,808

64,031

CASH FLOW

Operating Cash Flow

 

 

9,610

21,999

11,287

18,839

Net Interest

(8,375)

(6,936)

(2,935)

(2,603)

Tax

(168)

(185)

(74)

(3,586)

Capex

(3,465)

(6,562)

(3,952)

(4,141)

Acquisitions/disposals

(1,419)

0

0

0

Financing

0

3

11,652

0

Dividends

(134)

(566)

(187)

0

Net Cash Flow

(3,951)

7,753

15,792

8,509

Opening net debt/(cash)

 

 

23,708

34,834

37,081

22,885

HP finance leases initiated

0

0

0

0

Other

(7,175)

(10,000)

(1,596)

0

Closing net debt/(cash)

 

 

34,834

37,081

22,885

14,377

Source: company reports, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by AFT Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by AFT 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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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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General disclaimer and copyright

This report has been commissioned by AFT Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by AFT 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).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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United States of America

Sydney +61 (0)2 8249 8342

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Kazia Therapeutics — Phase IIa shows good safety, consistent efficacy

Kazia presented the results from a new interim data analysis of its ongoing Phase IIa study of paxalisib in glioblastoma multiforme (GBM). The data were consistent with previous data and showed progression-free survival (PFS) of 8.4 months and overall survival (OS) of 17.5 months. Importantly, Kazia also published some of the first safety data at the full 60mg dose, which show an attractive profile compared to other members of this class.

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