4SC |
Increased focus on core business |
Q1 results |
Pharma & biotech |
19 May 2016 |
Share price performance
Business description
Next events
Analysts
4SC is a research client of Edison Investment Research Limited |
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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 |
PBT* |
EPS* |
DPS |
P/E |
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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