Japan deal on NKR-T cancer therapy

Celyad 13 July 2016 ADR Update

Celyad

Japan deal on NKR-T cancer therapy

NKR-T allogeneic deal

Pharma & biotech

13 July 2016

ADR research

Price

$25.90

Market cap

$241m

ADR/Ord conversion ratio 1:1

Cash ($m) as at 31 March 2016

104.2

ADRs in issue

9.31m

ADR Code

CYAD

ADR exchange

NASDAQ

Underlying exchange

Euronext Brussels

Depository

CITI

ADR share price performance

52-week high/low

$61.3

$24.6

Business description

Celyad is developing an innovative CAR T-cell (NKR-T) immuno-oncology technology. Phase I/II studies have reached the highest 30m cell dose. C-Cure, an autologous stem cell therapy for chronic heart disease, missed its primary endpoint but an EMA filing is possible. A part-US trial may run if partnered.

Next events

Interim results

Q316

CHART-1 data detail

28 August 2016

Analyst

Dr John Savin MBA

+44 (0)20 3077 5735

Lala Gregorek

+44 (0)20 3681 2527

Celyad is a research client of Edison Investment Research Limited

The Japanese pharmaceutical company ONO is jumping a therapeutic generation by licensing Celyad’s allogeneic preclinical NKR-T cancer cell therapy for Japan, Korea and Taiwan. Allogeneic NKR-T has the same action as the Phase I/II NKR-T autologous product; allogeneic versions could be mass produced and provided “off the shelf”. ONO paid $12.38m cash with $297.83m possible in milestones plus royalties. NKR-T is being tested in two hematological cancers with trials in solid tumors planned for early 2017. On an interim basis, until more data on NKR-T and C-Cure are available, the indicative value moves from $35 to $45 per share.

Year end

Revenue ($m)

PTP*
($m)

EPADR
($)

DPADR
($)

P/E
(x)

Gross Yield
(%)

12/14

0.2

(20.3)

(2.7)

0.0

N/A

N/A

12/15

0.0

(31.2)

(3.3)

0.0

N/A

N.A

12/16e

12.4

(15.7)

(1.5)

0.0

N/A

N/A

12/17e

0.0

(63.5)

(6.2)

0.0

N/A

N/A

Note: Converted at €0.90/US$1 Dividend yield excludes withholding tax. Investors should consult their tax advisor regarding the application of any domestic and foreign tax laws.

ONO buys into allogeneic

The NKR-T technology uses a ubiquitous set of ligands expressed on many cancerous cell types. These ligands are recognised by the natural killer NKG2 receptor. By creating T-cells with the NKG2 receptor added, a variety of cancer types, including solid tumors, in theory, can be targeted. Preclinical models of cancer support this. Currently, this is being trialled in autologous cell therapy where the patient’s own cells are harvested, transformed and transfused. The allogeneic version uses the same general mechanism, but is still preclinical. CAR approaches by other companies need a new ligand type every time unless the cancer types are very similar. This CAR complexity and cost explains ONO’s interest in allogeneic NKR-T: a single, mass produced cancer therapy against multiple cancers.

Current status of NKR-T

The US NKR-2 immuno-oncology autologous Phase I is dosing at the anticipated maximum 30m cell dose level (report). It is not certain if this will be the maximum tolerated dose (MTD). Once a dose is found, the trial will move into an expansion phase where six acute myeloid leukemia (AML) and six multiple myeloma (MM) patients are recruited in total. Celyad management expects solid tumor indication studies to move into clinical development from late 2016-Q117.

Valuation: Revised from $35 to $45 per share

ONO has given the allogeneic technology a benchmark value in its deal for Japan, Korea and Taiwan (plus an option over autologous). This supports NKR-T generally. On an interim basis, we have increased the NKR-T probability from 17.5 to 18.5% while clinical data are awaited, probably by late summer. A nominal $11m value for allogeneic is also added for the first time. This moves the indicative value to $45/share from $35 previously. A scenario value of up to $571m If NKR-T moved into solid tumor indications was presented in our 8 April 2015 note.

Exhibit 1: Financial summary

US$000s

2014

2015

2016e

2017e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

161

3

12,375

0

Cost of Sales

(127)

(1)

0

0

Gross Profit

34

2

12,375

0

EBITDA

 

 

(20,072)

(31,503)

(15,971)

(63,436)

Operating Profit (before amort and except)

 

 

(20,284)

(31,803)

(16,271)

(63,736)

Intangible Amortization

(745)

(836)

(836)

(836)

Other income and charges

4,156

0

0

0

Share-based payments

(1,208)

(875)

(875)

(875)

Operating Profit

(18,081)

(33,514)

(17,982)

(65,447)

Net Interest

(18)

614

550

275

Pre-tax profit (norm)

 

 

(20,302)

(31,189)

(15,721)

(63,461)

Pre-tax profit (FRS 3)

 

 

(18,098)

(32,900)

(17,432)

(65,172)

Tax

0

0

0

0

Profit After Tax (norm)

(20,302)

(31,189)

(15,721)

(63,461)

Profit After Tax (FRS 3)

(18,098)

(32,900)

(17,432)

(65,172)

Average number of ADRs outstanding (m)

6.8

8.7

9.3

9.3

EPS - normalized ($)

 

 

(2.73)

(3.26)

(1.54)

(6.20)

EPS - (IFRS) ($)

 

 

(2.44)

(3.44)

(1.70)

(6.37)

Dividend per share (c)

0.0

0.0

0.0

0.0

Gross Margin (%)

N/A

N/A

N/A

N/A

EBITDA Margin (%)

N/A

N/A

N/A

N/A

Operating Margin (before GW and except) (%)

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

12,145

55,116

54,144

53,173

Intangible Assets

11,293

53,668

52,832

51,996

Tangible Assets

658

1,250

1,114

979

Investments

195

198

198

198

Current Assets

 

 

33,292

120,362

96,184

32,090

Stocks

0

0

0

0

Debtors

913

604

604

0

Cash

30,396

118,264

94,200

30,711

Other

1,982

1,494

1,379

1,379

Current Liabilities

 

 

(6,658)

(12,639)

(12,751)

(12,336)

Creditors

(5,804)

(11,651)

(11,651)

(11,651)

Deferred revenue

0

0

0

0

Walloon loans for cash payment

(855)

(988)

(1,100)

(685)

Long Term Liabilities

 

 

(12,363)

(40,217)

(33,393)

(33,393)

Walloon loans (non-current)

(11,856)

(11,532)

(10,208)

(10,208)

Other long term liabilities

(507)

(28,685)

(23,185)

(23,185)

Net Assets

 

 

26,415

122,621

104,184

39,534

CASH FLOW

Operating Cash Flow

 

 

(19,138)

(30,648)

(20,821)

(62,541)

Net Interest

(18)

614

710

136

Tax

0

0

0

0

Capex

(704)

(922)

(165)

(165)

Acquisitions/disposals

(1,705)

(5,705)

0

0

Financing

29,059

120,071

0

0

Dividends

0

0

0

0

Other

1,802

(3,616)

(1,266)

(1,259)

Net Cash Flow

9,296

79,794

(21,542)

(63,828)

Opening net debt/(cash)

 

 

(10,513)

(17,686)

(105,744)

(85,414)

HP finance leases initiated

0

0

0

0

Walloon loan recognition (non-cash)

(2,123)

8,264

1,212

46

Closing net debt/(cash)

 

 

(17,686)

(105,744)

(85,414)

(21,632)

Source: Edison Investment Research, Celyad accounts. Note: Solely for the convenience of US readers the financial summary table has been converted at a rate of US$1 to €0.90. Celyad reports statutory accounts in euros. These translations should not be considered representations that any such amounts have been or could be converted into US dollars at the assumed conversion rate.

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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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