H119 results

Elbit Medical Technologies 25 September 2019 Update
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Elbit Medical Technologies

H119 results

Financial update

Pharma & biotech

25 September 2019

Price*

NIS0.92

Market cap

NIS213m

*Priced as at 23 September 2019

NIS3.51/US$

Net debt ($m) at 30 June 2019

40.8

Shares in issue

231.5m

Free float

36.2

Code

EMTC

Primary exchange

TASE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

25.9

14.3

(8.2)

Rel (local)

21.0

10.2

(9.1)

52-week high/low

NIS1.1

NIS0.7

Business description

Elbit Medical Technologies is an Israeli biomedical and healthcare technology group. Its portfolio of two companies is focused on medical devices and therapeutics: InSightec, which develops and markets the ExAblate platform for non-invasive thermal tissue ablation, and Gamida Cell, which is developing a universal bone-marrow transplant.

Next events

Gamida Cell omidubicel Phase III top-line data

H120

Analysts

Maxim Jacobs

+1 646 653 7027

Nathaniel Calloway

+1 646 653 7036

Elbit Medical Technologies’ two portfolio investments continue to make progress. InSightec recently received both FDA approval and a CE mark for ExAblate Neuro compatible with the SIGNA Premier MRI system from GE Healthcare as the two companies work on improving incisionless brain surgery. Gamida Cell recently completed a $40m follow-on offering and expects to complete enrolment of the Phase III for NiCord (now called omidubicel) by the end of the year, with data in H120.

Year end

Revenue ($m)

PBT*
($m)

EPS*
($)

DPS
($)

P/E
(x)

Yield
(%)

12/16

0.0

(3.7)

(0.00)

0.0

N/A

N/A

12/17

0.0

(5.2)

(0.00)

0.0

N/A

N/A

12/18

35.0

26.8

0.12

0.0

N/A

N/A

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

Gamida Cell getting closer to data

Gamida Cell (~8% owned by Elbit Medical, ~7% fully diluted) is on track to complete enrolment for its Phase III trial of NiCord (now called omidubicel) in hematological malignancies by the end of 2019 (previously H219) with topline data expected in H120. If these Phase III data are positive, Gamida Cell plans to submit a biologic license application (BLA) filing for omidubicel in H220. The current cash runway is enough to fund operations into Q420.

Another set of approvals for InSightec

In July, InSightec announced it received both FDA approval and a CE mark for ExAblate Neuro compatible with the SIGNA Premier MRI system from GE Healthcare as the two companies work on improving incisionless brain surgery.

InSightec sales grew 19% in Q219

Revenues, which are based on the sale of ExAblate systems and corresponding annual service contract costs and consumables, were $9.0m in Q219, up 19% from the $7.5m in Q218. This is a deceleration from the 31% growth seen in Q1. For the first half as a whole, sales were $15.1m, up 24%.

Valuation: NIS353.1m or NIS1.53 per share

We have decreased our valuation from NIS507.4m or NIS2.19 per share, to NIS353.1m or NIS1.53 per share, mainly because InSightec sales have not been progressing as fast as expected (we have reduced peak sales from $647m to $583m, still assuming strong growth from current levels) and also due to the dilution of Elbit Medical’s stake in Gamida Cell following the secondary offering (from 8% to 7%). We have also delayed omidubicel’s launch from 2020 to 2021 to be a bit more conservative on timing. Additionally, net debt has increased since our previous note.

Gamida Cell Phase III to complete enrolment by YE19

Gamida Cell’s 120-patient Phase III study of omidubicel (formerly NiCord) in patients with hematological malignancies is ongoing. Omidubicel, which is the company’s lead asset, expands umbilical cord blood (UCB) cell graft ex vivo and enriches the specific subpopulation of stem and progenitor cells to treat hematological malignancies such as leukemia and lymphoma. Essentially, CD133+ cells selected from a single unit of UCB are cultured for approximately three weeks in nicotinamide, which are then cryopreserved until they are transplanted into the intended patients. This expansion is expected to provide a substantial advantage over a single UCB graft. The use of UCB for bone marrow transplantation (BMT) is limited by the minimal number of stem and progenitor cells. The omidubicel process seeks to provide a more viable alternative to BMT in cancer patients and only partial genetic matching is needed (ie a minimum requirement of four out of six human leukocyte antigen biomarkers). The registrational trial is investigating the ability of omidubicel to provide a graft with an ample number of cells that have fast and vigorous in vivo neutrophil- and platelet-producing potential to improve transplantation outcomes (as low cell dose is associated with delayed engraftment and poor outcomes). The primary endpoint for the trial is time to neutrophil engraftment following transplantation (on or before the 42nd day post-transplant) compared to an unmanipulated cord blood unit. Enrolment is on track for completion by year end with top-line data expected in H120. Provided that these Phase III data are positive, Gamida Cell plans to submit a BLA filing for omidubicel for the treatment of hematological malignancies in H220.

The company is also investigating omidubicel for the treatment of severe aplastic anemia (SAA) in an ongoing Phase I/II study. With patient inclusion in cohort one complete (and encouraging data presented on those first cohort patients at the annual Transplantation and Cellular Therapy meeting earlier this year), enrolment into cohort two began in June. Cohort two will evaluate engraftment and transplantation outcomes with the omidubicel-expanded unit alone (in other words, without a haploidentical donor).

Gamida Cell is also developing donor-derived natural killer (NK) cells for blood cancers in its GDA-201 program. NK cells are a type of lymphocyte, or white blood cell, that play a central role in lysing infected or transformed cells and therefore offer an innovative approach to cancer treatment. The company previously initiated a 24-patient Phase I trial with the University of Minnesota evaluating the safety and activity of nicotinamide-NK cells in patients with non-Hodgkin’s lymphoma and multiple myeloma with additional data expected by the end of the year. The company is working on a cryopreserved version of GDA-201 to enable a multi-centre, multi-dose study in non-Hodgkin’s lymphoma patients in 2020.

The company ended Q219 with $37.1m in cash and raised $40.3m in gross proceeds in July. Gamida Cell has guided for a $35–40m in cash outflow for operating activities over 2019 and expects its current resources to fund its operations into Q420.

Additional approvals for InSightec

The ExAblate system comprises magnetic resonance imaging and high-intensity focused ultrasound (MRgFUS) to perform non-invasive thermal tissue ablation for a wide range of neurology, oncology and gynecology clinical applications. By way of full clinical validation under the pre-market approval (PMA) route, the company has achieved FDA approval and CE markings for the ExAblate 2100 (Body) system for the treatment of symptomatic uterine fibroids and pain palliation caused by bone metastases, and for its ExAblate 4000 (Neuro) system for the treatment of medication-refractory ET (essential tremor) medication-refractory tremor-dominant Parkinson’s disease (PD). Moreover, the company has received CE markings for the treatment of prostate cancer, neuropathic pain and tremor-dominant PD.

So far this year has been a busy one for the company. In February 2019, InSightec announced that Noridian posted positive local coverage determination for MRgFUS effective 1 April 2019 and that Medicare beneficiaries in 38 US states will have coverage for the treatment of ET using MRgFUS. In June, the company announced that it received national reimbursement from the Japanese Ministry of Health, Labour and Welfare (MHLW) for treating essential tremor. And most recently, in July, it announced it received both FDA approval and a CE mark for ExAblate Neuro compatible with the SIGNA Premier MRI system from GE Healthcare.

InSightec recently reported its Q219 financials. Revenues, which are based on the sale of ExAblate systems and corresponding annual service contract costs and consumables, were $9.0m in Q219, up 19% from the $7.5m in Q218. This is a deceleration from the 31% growth seen in Q1. For the first half as a whole, sales were $15.1m, up 24% from H118. Cash flow for operating activities in the first half was a negative $26.0m and the company has $10.6m in cash, indicating a near-term fundraise may be needed, which will likely dilute Elbit’s share in the company. However, Elbit announced in September that InSightec is conducting early-stage negotiations with one or more investors which would include the acquisition by those investors of a significant portion of the stakes of existing investors, including Elbit Medical’s, and an additional investment into InSightec at a higher valuation than the previous round ($460m pre-money, $610m post-money fully diluted).

Valuation

We have decreased our valuation from NIS507.4m or NIS2.19 per share, to NIS353.1m or NIS1.53 per share, mainly because InSightec sales have not been progressing as fast as expected (we have reduced peak sales from $647m to $583m, still assuming strong growth from current levels) and also due to the dilution of Elbit Medical’s stake in Gamida Cell following the secondary offering (from 8% to 7%). We have also delayed omidubicel’s launch from 2020 to 2021 to be a bit more conservative on timing. Additionally, net debt increased to $40.8m since our previous note ($34.0m). Please note that we may need to amend our valuation in the coming months if a sale of a significant portion of Elbit Medical’s stake in InSightec is successfully negotiated.

Exhibit 1: Valuation of Elbit Medical Technologies

Product

Setting

Status

Launch

Peak sales ($m)

Probability of success

Royalty rate

rNPV ($m)

% owned by Elbit Medical (fully diluted)

Elbit Medical rNPV ($m)

InSightec

MRgFUS (for gynecology, oncology, neurology indications)

Market

Market

583

100%

100%

648

18.0%

116.6

Gamida cell

Leukemia (AML, ALL, CML, CLL)

Phase III

2021

370

50%

100%

346

7%

24.2

Portfolio total ($m)

140.8

Net cash/(debt) (as of 30 June 2019) ($m)

(40.8)

Overall valuation

100.0

Shekel/dollar conversion rate

3.5

Overall valuation in shekels (NISm)

353.1

Shares outstanding (m)

231.5

Per share (NIS)

1.53

Source: Elbit Medical Technologies reports, Edison Investment Research

Financials

Elbit Medical recently announced its H119 financial results. The post-tax loss was $14.7m, mainly due to changes in the fair value of assets and financial instruments. General and admin costs for the period were $0.2m, which includes management fees, professional services and other related expenses. The company had cash, cash equivalents and restricted cash of $3.9m at 30 June 2019 and $44.7m in debt. We outline historical financials in Exhibit 2. Note that with the H119 results, the company has changed how it characterizes certain aspects of its income statement and has restated 2018 results, although everything below the PBT line is identical to what it was previously. Please also note that we continue not to provide forward-looking financial forecasts at this time.

Exhibit 2: Financial summary

US$000s

2016

2017

2018

Year end 31 December

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

0

0

34,951

Cost of Sales

0

0

0

Gross Profit

0

0

34,951

R&D expenses

0

0

0

SG&A expenses

(553)

(677)

(918)

EBITDA

 

 

(553)

(677)

34,033

Operating Profit (before amort. and except.)

 

(553)

(677)

34,033

Intangible Amortization

0

0

0

Exceptionals

(15,000)

(5,518)

0

Operating Profit

(15,553)

(6,195)

34,033

Other

(3,101)

(4,557)

0

Net Interest

0

0

(7,212)

Profit Before Tax (norm)

 

 

(3,654)

(5,234)

26,821

Profit Before Tax (FRS 3)

 

 

(18,654)

(10,752)

26,821

Tax

0

0

0

Profit After Tax (norm)

(3,654)

(5,234)

26,821

Profit After Tax (FRS 3)

(18,654)

(10,752)

26,821

Average Number of Shares Outstanding (m)

1,851.9

1,851.9

231.5

EPS - normalized ($)

 

 

(0.00)

(0.00)

0.12

EPS - FRS 3 ($)

 

 

(0.01)

(0.01)

0.12

Dividend per share (c)

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

5,518

50

24,233

Intangible Assets

0

0

23,016

Tangible Assets

0

0

0

Other

5,518

50

1,217

Current Assets

 

 

30

40

3,797

Stocks

0

0

0

Debtors

15

8

11

Cash

15

32

3,786

Other

0

0

0

Current Liabilities

 

 

(57)

(60)

(1,526)

Creditors

(57)

(60)

(1,526)

Short term borrowings

0

0

0

Short term leases

0

0

0

Other

0

0

0

Long Term Liabilities

 

 

(37,126)

(42,415)

(41,998)

Long term borrowings

(37,126)

(42,415)

(39,030)

Long term leases

0

0

0

Other long-term liabilities

0

0

(2,968)

Net Assets

 

 

(31,635)

(42,385)

(15,494)

CASH FLOW

Operating Cash Flow

 

 

(3,394)

(4,858)

4,533

Tax

0

0

0

Capex

0

0

0

Acquisitions/disposals

0

0

0

Financing

0

0

0

Dividends

0

0

0

Other

0

0

0

Net Cash Flow

(3,394)

(4,858)

4,533

Opening net debt/(cash)

 

 

33,776

37,111

42,383

HP finance leases initiated

0

0

0

Other

59

(414)

2,606

Closing net debt/(cash)

 

 

37,111

42,383

35,244

Source: Company reports, Edison Investment Research


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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.

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.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Israel

Disclosure regarding the scheme to enhance the awareness of investors to public companies in the technology and biomed sectors that are listed on the Tel Aviv Stock Exchange and participate in the scheme (hereinafter respectively “the Scheme”, “TASE”, “Participant” and/or “Participants”). Edison Investment Research (Israel) Ltd, the Israeli subsidiary of Edison Investment Research Ltd (hereinafter respectively “Edison Israel” and “Edison”), has entered into an agreement with the TASE for the purpose of providing research analysis (hereinafter “the Agreement”), regarding the Participants and according to the Scheme (hereinafter “the Analysis” or “Analyses”). The Analysis will be distributed and published on the TASE website (Maya), Israel Security Authority (hereinafter “the ISA”) website (Magna), and through various other distribution channels. The Analysis for each participant will be published at least four times a year, after publication of quarterly or annual financial reports, and shall be updated as necessary after publication of an immediate report with respect to the occurrence of a material event regarding a Participant. As set forth in the Agreement, Edison Israel is entitled to fees for providing its investment research services. The fees shall be paid by the Participants directly to the TASE, and TASE shall pay the fees directly to Edison. Subject to the terms and principals of the Agreement, the Annual fees that Edison Israel shall be entitled to for each Participant shall be in the range of $35,000-50,000. As set forth in the Agreement and subject to its terms, the Analyses shall include a description of the Participant and its business activities, which shall inter alia relate to matters such as: shareholders; management; products; relevant intellectual property; the business environment in which the Participant operates; the Participant's standing in such an environment including current and forecasted trends; a description of past and current financial positions of the Participant; and a forecast regarding future developments in and of such a position and any other matter which in the professional view of the Edison (as defined below) should be addressed in a research report (of the nature published) and which may affect the decision of a reasonable investor contemplating an investment in the Participant's securities. To the extent it is relevant, the Analysis shall include a schedule of scientific analysis of an expert in the field of life sciences. An "equity research abstract" shall accompany each Equity Research Report, describing the main points addressed. The full scope reports and reports where the investment case has materially changed will include a thorough analysis and discussion. Short update notes, where the investment case has not materially changed, will include a summary valuation discussion. The Agreement with TASE regarding the participation of Edison in the scheme for the research analysis of public companies does not and shall not constitute an approval or consent on the part of TASE or the ISA or any other exchange on which securities of the Company are listed, or any other securities’ regulatory authority which regulates the issuance of securities by the Company to the content of the Report or to the recommendation contained therein. A summary of this report is also published in the Hebrew language. In the event of any contradiction, inconsistency, discrepancy, ambiguity or variance between the English Report and the Hebrew summary of said Report, the English version shall prevail; and a note to this effect shall appear in any Hebrew summary of a Report. Edison is regulated by the Financial Conduct Authority. According to Article 12.3.2, Chapter 12 of the Conduct of Business Sourcebook, Edison, which produces or disseminates non-independent research, must ensure that it: 1) is clearly identified as a marketing communication; and 2) contains a clear and prominent statement that (or, in the case of an oral recommendation, to the effect that) it: a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research; and b) is not subject to any prohibition on dealing ahead of the dissemination of investment research. The financial promotion rules apply to non-independent research as though it were a marketing communication.

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Israel

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Tel Aviv +44 (0)20 3734 1007
Azrieli Centre, Triangle Building

38th Floor, Tel Aviv, 4676652

Israel

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