e-Therapeutics — Keeping the faith

e-Therapeutics — Keeping the faith

e-Therapeutics’ (ETX) H118 results were a routine financial update highlighting its continuing focus on partnering the Network-driven Drug Discovery (NDD) platform, out-licensing its NDD-derived preclinical immunoncology (I/O) assets and financial prudence. The H118 operating loss was £2.8m. Cash outflow was £2.0m, resulting in a cash balance of £7.6m at the end of H118. Both R&D and administrative expenses had been reduced from H117.

e-Therapeutics

Keeping the faith

Interim results

Pharma & biotech

8 October 2018

Price

7.25p

Market cap

£20m

Net cash (£m) at 31 July 2018

7.6

Shares in issue

268.6m

Free float

44.6%

Code

ETX

Primary exchange

AIM

Secondary exchange

NA

Share price performance

%

1m

3m

12m

Abs

(12.1)

(5.2)

(31.8)

Rel (local)

(11.1)

(1.6)

(30.2)

52-week high/low

10.6p

5.9p

Business description

e-Therapeutics is a UK-based drug discovery company that has developed an in silico network-driven drug discovery platform. Following a strategic review by the new CEO, the focus is now on commercialisation: securing partners for its platform, discovery and development projects.

Next events

Partnering update

H218

FY18 results

March 2019

Analyst

Andy Smith

+44 (0)20 3077 5700

e-Therapeutics is a research client of Edison Investment Research Limited

e-Therapeutics’ (ETX) H118 results were a routine financial update highlighting its continuing focus on partnering the Network-driven Drug Discovery (NDD) platform, out-licensing its NDD-derived preclinical immunoncology (I/O) assets and financial prudence. The H118 operating loss was £2.8m. Cash outflow was £2.0m, resulting in a cash balance of £7.6m at the end of H118. Both R&D and administrative expenses had been reduced from H117.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

01/17

0.0

(14.1)

(4.1)

0.0

N/A

N/A

01/18

0.0

(6.7)

(2.0)

0.0

N/A

N/A

01/19e

0.0

(5.1)

(1.4)

0.0

N/A

N/A

01/20e

0.0

(4.0)

(1.1)

0.0

N/A

N/A

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

H118 financials demonstrate continued prudence

ETX’s H118 operating loss was £2.8m (vs £3.7m H117). Both R&D and administrative expenses, of £2.1m and £0.7m respectively, had been reduced compared to those of H117 (£2.7m and £1.0m, respectively). We now estimate that FY19 R&D and administrative expenses will be c £0.9m lower than we had forecast. Cash outflow was £2.0m (H117: £1.6m), which was softened by the £1.4m R&D tax credit (H117: £3.0m). Cash and deposits at the end of H118 were £7.6m compared with £12.4m at the end of H117. We estimate that this cash runway will reach until at least 2020, before which time a licensing transaction inflow is expected.

The pace of I/O transactions has not slowed

The frenetic rate of licensing transactions for preclinical I/O assets like ETX’s two most advanced products (described in our previous note) has not slowed. More recently, this included Boehringer Ingelheim’s €210m acquisition of Germany’s preclinical-stage ViraTherapeutics, AbbVie’s c $625m licensing transaction of argenx’s ARGX-115 and Roche’s acquisition of the preclinical I/O company Tusk Therapeutics for €70m upfront plus up to €585m in milestones. ETX has recently demonstrated a transactional track record with the two AI collaborations with Intellegens and Biorelate, aimed at enhancing the NDD platform, and the more recent collaboration with C4X Discovery.

Valuation: Virtually unchanged

In our last note, we changed our preclinical valuation methodology from Lerner’s VC method to one where we added the value of a single, median, preclinical transaction to ETX’s market capitalisation. The latter represents a market valuation of ETX’s NDD platform, while the former represents the value of only one of two possible preclinical licensing transactions. We have maintained this valuation methodology, which has only increased slightly due to transaction values being in dollars or euros. Our valuation is £63.5m or 24p per share.

Exhibit 1: Financial summary

£'000s

2017

2018

2019e

2020e

Year ending 31 January

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

0

0

0

0

R&D

(10,911)

(5,019)

(3,851)

(3,000)

G&A

(2,641)

(1,749)

(1,242)

(1,000)

EBITDA

 

 

(14,200)

(6,696)

(5,035)

(3,995)

Operating Profit (before amort. and except.)

 

(14,256)

(6,768)

(5,093)

(4,001)

Share-based payment

(99)

(105)

(60)

(50)

Operating profit

(16,456)

(6,873)

(5,153)

(4,050)

Net interest

132

49

23

15

Profit Before Tax (norm)

 

 

(14,124)

(6,719)

(5,070)

(3,986)

Profit Before Tax (reported)

 

 

(16,324)

(6,824)

(5,130)

(4,035)

Tax

3,073

1,360

1,355

1,000

Profit after tax (norm.)

(11,051)

(5,359)

(3,715)

(2,985)

Profit after tax (as reported)

(13,251)

(5,464)

(3,775)

(3,035)

Average Number of Shares Outstanding (m)

267.1

268.5

268.5

268.5

EPS - normalised (p)

 

 

(4.1)

(2.0)

(1.4)

(1.1)

EPS - as reported (p)

 

 

(5.0)

(2.0)

(1.4)

(1.1)

Dividend per share (p)

0.0

0.0

0.0

0.0

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

 

 

207

206

197

171

Intangible assets

156

135

141

133

Tangible assets

51

71

56

38

Current assets

 

 

18,225

11,556

6,714

3,512

Stocks

0

0

0

0

Debtors

3,749

1,455

717

717

Cash

13,975

9,597

5,502

2,795

Other

501

504

495

0

Current liabilities

 

 

(1,951)

(1,024)

(704)

(452)

Creditors

(1,951)

(1,024)

(704)

(452)

Other creditors

0

0

0

0

Short-term borrowings

0

0

0

0

Long-term liabilities

 

 

0

0

0

0

Long-term borrowings

0

0

0

0

Deferred taxation

0

0

0

0

Other long-term liabilities

0

0

0

0

Net assets

 

 

16,481

10,738

6,207

3,231

CASH FLOW

Operating cash flow

 

 

(12,509)

(7,373)

(5,453)

(3,702)

Net interest

194

86

23

15

Tax

3,073

2,968

1,355

1,000

Capex

(22)

(66)

(5)

(5)

Purchase of intangibles

(143)

(5)

(15)

(15)

Acquisitions/disposals

(1,473)

0

0

0

Financing

13

12

0

0

Dividends

0

0

0

0

Other

0

0

0

0

Net cash flow

(10,867)

(4,378)

(4,095)

(2,707)

Opening net debt/(cash)

 

 

(24,842)

(13,975)

(9,597)

(5,502)

HP finance leases initiated

0

0

0

0

Other

0

0

0

0

Closing net debt/(cash)

 

 

(13,975)

(9,597)

(5,502)

(2,795)

Source: e-therapeutics, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

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Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by e-Therapeutics and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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Sydney +61 (0)2 8249 8342

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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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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