Important progression of clinical pipeline in 2016

4SC 1 April 2016 Update

4SC

Important progression of clinical pipeline in 2016

FY15 results

Pharma & biotech

1 April 2016

Price

€3.88

Market cap

€74m

Net cash (€m) at 31 December 2015

19.5

Shares in issue (m)

19.0

Free float

38.1%

Code

VSC

Primary exchange

Frankfurt

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

7.2

1.2

(36.5)

Rel (local)

2.1

9.1

(23.7)

52-week high/low

€7.2

€2.4

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 (CTCL) (Phase II planned in H116), partnered with Yakult Honsha (Japan) and Menarini (Asia ex-Japan). Partners are sought for two Phase I oncology assets and a Phase IIb autoimmune asset.

Next events

Q116 results

12 May 2016

Resminostat Phase II EU CTCL starts

H116

Phase II data in HCC and NSCLC in Japan (Yakult)

Mid-2016

Analysts

Dr Linda Pomeroy

+44 (0)20 3077 5738

Christian Glennie

+44 (0)20 3077 5727

4SC is a research client of Edison Investment Research Limited

2016 is an important year for 4SC as it will launch its potentially pivotal Phase II study with resminostat, an epigenetic cancer drug, in CTCL. In addition, we expect partner Yakult to report Phase II Japanese trial data in HCC and NSCLC. Alongside its primary focus on resminostat for CTCL, 4SC is actively pursuing partnerships for its earlier stage assets, 4SC-202 and 4SC-205, which would enable both candidates to move into Phase II. We maintain our rNPV at €143m, with near-term potential catalysts.

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

6.8

(9.8)

(0.51)

0.0

N/A

N/A

12/17e

7.3

(8.2)

(0.43)

0.0

N/A

N/A

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

Resminostat advancing in 2016

4SC will be initiating a pivotal phase II trial in CTCL in Europe in H116. This will be a c 150 patient, double blind, randomised controlled study conducted in 50 centres, across 10 countries. Initial results could be available FY18, which could lead to EU approval by FY19 if the data are positive. Resminostat is being studied in a Phase II trial conducted by partner Yakult Honsha in liver cancer (HCC) in Japan. We expect results to be reported mid-2016, which if positive would pave the way for pivotal studies in multiple regions including the US where the IND has recently been confirmed. Resminostat also holds promising combination potential, as recently published at the ITOC3 conference in Munich, with immunotherapy agents (eg PD-1/PDL-1). This could offer a major developmental strategy moving forward.

Pipeline prospects

4SC-202, a dual-acting (HDAC and LSD1) epigenetic product with a unique mode of action, has shown promising results in Phase I and following further in-depth analysis has indicated that it can strengthen the endogenous immune response to cancer cells. In order to move this forward into Phase II a partner is required. This is also the case with 4SC-205 (Eg5 inhibitor), which has also completed Phase I.

Valuation: Maintained at €143m

Our rNPV-based valuation remains at €143m or €7.53 per share (vs €7.55 per share due to an increase in number of shares). FY15 reported revenue declined to €3.3m (vs €7.1m FY14) due principally to the impact of large upfront and milestone payments in 2014. We expect revenue in 2016 to return to 2014 levels, with potential milestones to be received from Yakult. 4SC is well funded, with a reported gross cash position of €22.8m at end-2015. We expect this to fund the majority of the Phase II trial of resminostat in CTCL. Technically the cash reach is into early 2018, but we now model a fresh funding of €10m as long-term debt in 2017, which should be sufficient to complete the CTCL study. 2016 is an important year for 4SC across many levels, with important data read-outs and trial initiations, which could help to advance and accelerate its partnering and fresh financing options.

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

6,800

7,300

8,300

Cost of sales

(1,474)

(4,080)

(1,763)

(3,060)

(2,920)

(2,905)

Gross profit

3,430

2,975

1,503

3,740

4,380

5,395

R&D expenditure

(10,243)

(8,504)

(7,255)

(11,000)

(10,000)

(7,500)

Administrative, distribution and other

(3,779)

(3,908)

(3,163)

(3,447)

(3,551)

(3,657)

Operating profit

(10,592)

(9,437)

(8,915)

(10,707)

(9,171)

(5,762)

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)

(9,635)

(8,099)

(4,690)

Operating profit (before GW and except.)

 

(8,084)

(8,615)

(8,090)

(9,860)

(8,324)

(4,915)

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)

(9,786)

(8,174)

(4,815)

Profit before tax (FRS 3)

 

 

(10,525)

(9,626)

(9,188)

(10,558)

(8,946)

(5,587)

Tax

0

(70)

(40)

0

0

0

Profit after tax (norm)

(8,017)

(8,874)

(8,403)

(9,711)

(8,099)

(4,740)

Profit after tax (FRS 3)

(10,525)

(9,696)

(9,228)

(10,558)

(8,946)

(5,587)

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)

(0.51)

(0.43)

(0.25)

EPS - FRS 3 (€)

 

 

(1.04)

(0.96)

(0.64)

(0.56)

(0.47)

(0.29)

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

10,289

9,526

8,788

Intangible assets

10,651

9,836

9,123

8,410

7,697

6,984

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

10,359

11,725

6,224

Stocks

23

25

20

20

20

20

Debtors

346

652

94

94

94

94

Cash

4,899

3,202

21,476

9,428

10,794

5,293

Other current assets

846

393

817

817

817

817

Current liabilities

 

 

(3,587)

(4,842)

(5,593)

(3,602)

(3,852)

(4,352)

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)

(1,164)

(1,164)

(1,164)

Long-term liabilities

 

 

(2,836)

(8,042)

(1,471)

(1,688)

(11,688)

(11,688)

Long-term borrowings

0

(6,131)

0

0

(10,000)

(10,000)

Deferred revenue (long term)

(2,682)

(1,788)

(1,433)

(1,650)

(1,650)

(1,650)

Other long-term liabilities

(154)

(123)

(38)

(38)

(38)

(38)

Net assets

 

 

11,282

2,050

26,428

15,358

5,711

(1,028)

CASH FLOW

Operating cash flow

 

 

(7,052)

(8,302)

(8,916)

(9,823)

(8,349)

(5,190)

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

0

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

(10,086)

(8,634)

(5,502)

Opening net debt/(cash)

 

 

(12,064)

(4,899)

3,246

(19,514)

(9,428)

(794)

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)**

(9,428)

(794)

4,707

Source: Company accounts and Edison research. Note: *Reflects completion of the Santo loan. **Does not include cash invested more than one year.

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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

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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