Increased focus on core business

4SC 19 May 2016 Update

4SC

Increased focus on core business

Q1 results

Pharma & biotech

19 May 2016

Price

€2.92

Market cap

€55m

Net cash (€m) at 31 March 2016

17.1

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

(19.4)

(6.4)

(39.1)

Rel (local)

(18.0)

(10.9)

(29.0)

52-week high/low

€5.0

€2.4

Business description

4SC is a Munich-based cancer R&D company. Epigenetic compound resminostat (HDAC inhibitor) is the lead candidate for (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

Resminostat Phase II EU CTCL starts

H116

Phase II data in HCC and NSCLC Japan (Yakult)

Mid-2016

Interim 2016 results

11 August 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

4SC’s Q1 results highlight an increased focus on its core business of epigenetic research and commercialisation, resulting from the sale of the operational assets (for €650k in proceeds) of its discovery and collaborative segment, 4SC Discovery. 2016 is an important year for 4SC with expected newsflow from its clinical pipeline including the launch of its potentially pivotal EU Phase II study with resminostat in Cutaneous T-cell lymphoma (CTCL) and expected Phase II Japanese trial data in HCC and NSCLC (from partner Yakult).

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

(11.4)

(0.60)

0.0

N/A

N/A

12/17e

4.0

(10.2)

(0.53)

0.0

N/A

N/A

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

Enhanced core business focus

4SC announced the sale of key operating assets of 4SC Discovery to BioNTech Small Molecules for €650k. 4SC retains the product candidates and temporary access to the research services. This disposal serves to streamline the focus on its core business of epigenetic research and treatments.

2016 an important year for clinical pipeline

4SC will be initiating a pivotal phase II trial of resminostat in CTCL in Europe mid-2016. This will be a 150-patient, double-blind, randomised controlled study conducted in 50 centres, across 10 countries. Initial results could be available in FY18, which could lead to EU approval FY20 if the data are positive. Resminostat is also being studied in a Phase II trial conducted by partner Yakult Honsha in liver cancer (HCC) in Japan, with data expected mid-2016. 4SC-202, a dual-acting (HDAC and LSD1) epigenetic product with a unique mode of action, has shown promising results in Phase I. Following further in-depth analysis, the company presented data at the ITOC3 conference in Munich, indicating it can strengthen the endogenous immune response to cancer cells. The company is pursuing partners to develop 4SC-202 and 4SC-205, an Eg5 inhibitor that has also completed Phase I.

Valuation: Slight increase to €145m

We have rolled the model forward by three months and now use Q116 cash of €17.1m and a projected cash burn of €1.2m per month. Our rNPV-based valuation has increased to €145m (vs €143m) or €7.67 per share (vs €7.53). The company forecasts sufficient cash to 2018 and that will fund the majority of the Phase II trial of resminostat in CTCL. We have lowered our FY16 revenues from €6.8m to €3.8m and FY17 from €7.3m to €4m to reflect the disposal of 4SC Discovery. We maintain operating expenses at the same level, as the reduction in costs from the disposal is offset by an increase in the CTCL trial costs (150 patients vs 120 patients). FY16 balance sheet adjustments for the disposal include cash of €650k offset by a reduction in assets of €440k and current liabilities to €3.2m (vs €3.6m).

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)

(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)

(12,357)

(11,151)

(7,907)

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)

(11,285)

(10,079)

(6,835)

Operating profit (before GW and except.)

 

(8,084)

(8,615)

(8,090)

(11,510)

(10,304)

(7,060)

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)

(11,436)

(10,154)

(6,960)

Profit before tax (FRS 3)

 

 

(10,525)

(9,626)

(9,188)

(12,208)

(10,926)

(7,732)

Tax

0

(70)

(40)

0

0

0

Profit after tax (norm)

(8,017)

(8,874)

(8,403)

(11,361)

(10,079)

(6,885)

Profit after tax (FRS 3)

(10,525)

(9,696)

(9,228)

(12,208)

(10,926)

(7,732)

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)

(0.60)

(0.53)

(0.36)

EPS - FRS 3 (€)

 

 

(1.04)

(0.96)

(0.64)

(0.64)

(0.58)

(0.41)

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

10,665

10,201

2,555

Stocks

23

25

20

20

20

20

Debtors

346

652

94

94

94

94

Cash

4,899

3,202

21,476

9,928

9,464

1,818

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

17,333

6,006

(2,878)

CASH FLOW

Operating cash flow

 

 

(7,052)

(8,302)

(8,916)

(9,973)

(10,179)

(7,335)

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

(9,586)

(10,464)

(7,647)

Opening net debt/(cash)

 

 

(12,064)

(4,899)

3,246

(19,514)

(9,928)

536

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)

(9,928)

536

8,182

Source: Company accounts, Edison Investment Research

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Germany

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United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

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