Key catalyst approaching

Onxeo 23 August 2016 Update

Onxeo

Key catalyst approaching

Company update

Pharma & biotech

23 August 2016

Price

€3.11

Market cap

€129m

Net cash (€m) at end H116

19.5

Shares in issue

41.5m

Free float

85%

Code

ONXEO

Primary exchange

Euronext Paris

Secondary exchange

OMX Copenhagen

Share price performance

%

1m

3m

12m

Abs

0.3

(1.6)

(21.3)

Rel (local)

(0.4)

(2.6)

(17.9)

52-week high/low

€4.5

€2.3

Business description

Onxeo is focused on orphan cancer and has three late-stage orphan oncology assets it could commercialise alone in Europe (Livatag, Beleodaq and Validive). Royalty-earning Beleodaq (belinostat) is launched in the US, along with two non-core, partnered, specialty products. Recent acquisition of DNA Therapeutics adds a Phase I stage asset in DNA repair field to Onxeo’s pipeline.

Next events

Start of Phase III Beleodaq combo trial

End-2016

Preclinical data from ongoing Livatag and Beleodaq collaborations

H216

AsiDNA preclinical data

H216/H117

Livatag Phase III data

Mid-2017

Analysts

Jonas Peciulis

+44 (0)20 3077 5728

Lala Gregorek

+44 (0)20 3681 2527

Onxeo is a research client of Edison Investment Research Limited

With its H116 results, Onxeo reported that R&D is progressing according to plan. Preliminary data from the Phase III ReLive trial with Livatag are due around mid-2017, which is the main catalyst in the next 12 months. Update on the newly acquired DNA repair asset, AsiDNA, revealed that the project could enter the clinic already next year. Although sales of Onxeo’s third product Beleodaq somewhat lagged our expectations, H116 operating costs were managed well, suggesting that the key catalysts are achievable with current cash.

Year
end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/14

22.1

0.2

(0.05)

0.0

N/A

N/A

12/15

3.5

(20.0)

(0.44)

0.0

N/A

N/A

12/16e

3.5

(21.5)

(0.52)

0.0

N/A

N/A

12/17e

8.7

(16.8)

(0.41)

0.0

N/A

N/A

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

H116 results: Sales somewhat behind, costs in line

Onxeo reported H116 results, with recurring sales of its marketed products somewhat below our expectations but still representing 50% growth year-on-year, although from a low base of €1.2m in H115 to €1.8m in H116. The company mentioned that its partners Spectrum Pharmaceuticals and Cipher, which market Beleodaq (HDAC inhibitor for peripheral T-cell lymphoma, PTCL) and Sitavig (mucoadhesive formulation of acyclovir for herpes labialis) respectively, continue with intensive marketing efforts. Operating expenses were well in line with our expectations.

R&D progress according to plan

The development plan for AsiDNA, announced at the end of June, was a major R&D update, which provided more granularity about what lies ahead for the recently acquired first-in-class asset in the DNA repair field. Development progress with Beleodaq and Livatag is on track. The preparations for Beleodaq’s label-expansion Phase III trial in first-line PTCL are ongoing, in partnership with Spectrum and scheduled to start around end-2016. Of the planned 400 patients, 80% are now recruited in Livatag’s Phase III trial ReLive, with the first results expected in mid-2017, as guided previously.

Valuation: €339m or €8.2/share

Our valuation of Onxeo is largely unchanged at €339m or €8.2/share (from €343m or €8.3/share). The main adjustments include somewhat slower than expected Beleodaq sales uptake and a lower net cash position, partially offset by moving our model forward in time. Livatag Phase III preliminary data and results from preclinical studies with Beleodaq and Livatag in combination with other undisclosed anti-cancer compounds are the key catalysts within the next 12 months and achievable with current cash.

Update on AsiDNA: likely to move into clinic in 2017

According to the update on the development plans for AsiDNA, preclinical pharmacokinetic/ pharmacodynamic profile data after the intravenous administration should be obtained later this year, which will allow the project to progress into Phase I in 2017. Onxeo acquired AsiDNA, together with its original developer DNA Therapeutics, earlier this year. The compound has already been tested in Phase I DRIIM trial with 23 skin melanoma patients, where it was injected intratumourally or peritumourally alongside the radiation therapy. Onxeo’s plan is to expand AsiDNA’s potential by changing the administration route to intravenous administration.

Onxeo is able to leverage the existing clinical data from melanoma patients. Among other findings, lesions that were not injected with AsiDNA also demonstrated a response, indicating AsiDNA’s ability to circulate and potentially provide a systemic effect. Together with a good safety profile, this allowed for testing systemic delivery of AsiDNA (oral or intravascular), which in turn opens up possibilities for developing the drug in a variety of tumours and expanding product potential. Onxeo has not yet disclosed the first indication for AsiDNA, but the two likely indications are triple-negative breast cancer (TNBC) and platinum-resistant ovarian cancer, which we discuss in detail in our previous report.

First-in-class AsiDNA is based on signal-interfering DNA technology which, if introduced into a cell, acts as a signal mimicking the damage of the cell’s own DNA. AsiDNA then activates a cascade of repair proteins, which are recruited to ‘repair the damage’, as a result of which the actual damage of a cell’s DNA (such as from radiotherapy or chemotherapy) remains unrepaired, leading to cell death.

Beleodaq’s commercialisation and new R&D initiatives

In June Onxeo announced the first steps of an R&D initiative to develop belinostat in oral formulation. The newly obtained preclinical pharmacokinetic data on belinostat’s bioavailability in an oral formulation were positive. The oral formulation could open several opportunities for belinostat. This would be a competitive advantage compared to other PTCL treatments (more convenient administration than injectibles, likely better patient compliance, pain-free). Oral formulation would also allow for more flexibility in expanding to other indications and developing the drug in combination with other medicines. While still an early initiative and potential clinical development timelines are yet to be clarified, as a next step Onxeo plans to conduct preclinical in vivo efficacy studies.

With another new R&D initiative announced in July, Onxeo, together with the Royal College of Surgeons in Ireland (RCSI), will explore derivatives of belinostat (Beleodaq) with the goal of optimising the pharmacokinetic profile, which could lead to new IP. Research costs will be shared between the partners and Onxeo will have an option to license RCSI’s patents. Results are expected in 2017.

On the commercialisation front, Onxeo also released news about the addition of a new distributor, Pint Pharma, which will cover seven South American countries. The data filed with the NDA will most likely be sufficient to register Beleodaq in the same indication – second-line PTCL. Onxeo will receive an upfront payment, milestone payments and double-digit royalties for Beleodaq with a total deal value of $20m. While the timing for the registration remains somewhat undefined, Pint Pharma plans to establish an early access programme by end-2016.


Financials

Onxeo’s total revenues for H116 were €1.9m, of which €54k were non-recurring related to licensing agreements. Our focus was on recurrent sales, which totalled €1.8m. Onxeo does not provide a split per product, but breaks down sales into oncology products and other products. Consequently, the former category represents Beleodaq (€964k, up 48% y-o-y) and the latter Loramyc/Oravig and Sitavig (together €914k, up 4% y-o-y). Beleodaq grew substantially y-o-y, although from a low base and below our expectations, hence we have revised our sales ramp-up expectations downwards somewhat. Nevertheless, Beleodaq is the most advanced of Onxeo’s products, relatively recently marketed in the US by Spectrum since July 2014 and with at least another 10 years of IP protection, which provides leeway for market penetration. The drug is currently approved for second-line treatment of PTCL, but could also be developed for first-line treatment with the Phase III trial of Beleodaq in combination with standard-of-care chemotherapy to start around end 2016 (positive Phase I data released in December 2015).

Total H116 operating costs were in line with our expectations and came in at €13.0m versus €13.5m in H115. The only change to our cost estimates is the delay in sales and marketing costs related to Livatag, which we initially included in 2017, but now postpone to 2018. This allows time for Onxeo to deliver both preliminary (mid-2017) and full data readout from the ReLive Phase III study and file for regulatory approval in the case of a positive outcome. Following these changes, we have decreased our 2016 EPS estimate from -€0.48 to -€0.52, and increased our 2017 estimate from
-€0.46 to -€0.41.

Onxeo reported cash and equivalents at end-H116 of €19.6m (net cash €19.5m). In line with the company’s guidance, we believe this should be sufficient to fund operations well into 2017, likely until Q417.

Exhibit 1: Key changes to our financial forecasts

€m

2015

2016e

2017e

Actual

Old

New

Change (%)

Old

New

Change (%)

Revenue

3.482

5.260

3.483

(34)

11.339

8.697

(23)

Operating profit (reported)

(22.334)

(21.707)

(23.614)

9

(20.878)

(18.682)

(11)

Profit before tax (reported)

(19.972)

(19.614)

(21.521)

10

(19.018)

(16.822)

(12)

Profit after tax (reported)

(17.648)

(19.614)

(21.354)

9

(19.018)

(16.822)

(12)

EPS (norm, €)

(0.44)

(0.48)

(0.52)

8

(0.46)

(0.41)

(12)

Source: Onxeo accounts, Edison Investment Research

Valuation

Our valuation of Onxeo is largely unchanged at €339m or €8.2/share from €343m or €8.3/share. The main adjustments include a somewhat slower than expected Belodaq’s sales uptake, although we have not changed our peak sales assumption. Together with the lower net cash position (H116), this was partially offset by moving our model forward in time. Our other assumptions remain unchanged, including the recently added TNBC indication with AsiDNA. AsiDNA has clearly added value to Onxeo’s R&D pipeline and, to capture that, we have focused on TNBC, although the company has not revealed the precise indication for this asset. TNBC has a significant unmet need with no novel targeted treatment approved (see our previous report for more details).

Preliminary data from the c 400-patient, 80%-recruited ReLive Phase III trial with Livatag for liver cancer patients (hepatocellular carcinoma) are due in mid-2017 and represent the main catalyst for the company in the near term, which is reachable with current cash. In preclinical studies Onxeo is also exploring both Livatag and Beleodaq in combination with other undisclosed anti-cancer compounds, which may also deliver interesting feasibility data in the coming months.

Exhibit 2: Onxeo rNPV valuation

Product

Indication

Launch

Peak sales (€m)

NPV
(€m)

Probability
(%)

rNPV
(€m)

NPV/share
(€/share)

Validive

Oral mucositis (H&N cancer)

2021

200

67.7

50%

33.3

0.8

Livatag

Liver cancer

2018

250

183.7

40%

70.4

1.7

Beleodaq US

PTCL

2014

80

40.0

100%

40.0

1.0

Beleodaq EU

PTCL

2020

60

65.3

70%

44.0

1.1

AsiDNA

TNBC

2024

1,110

179.6

15%

35.5

0.9

Loramyc/Oravig

Oropharyngeal candidiasis

2007

50

26.1

100%

26.1

0.6

Sitavig

Recurrent herpes labialis

2014

110

70.5

100%

70.5

1.7

Net cash (at end H116)

19.5

100%

19.5

0.5

Valuation

 

 

 

652.4

 

339.3

8.2

Source: Edison Investment Research. Note: Specialty products shaded. PTCL = peripheral T-cell lymphoma, TNBC = triple negative breast cancer.

Exhibit 3: Financial summary

€000s

2010

2011

2012

2013

2014

2015

2016e

2017e

Year-end December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

22,532

3,231

4,028

1,467

22,081

3,482

3,483

8,697

Cost of Sales

(859)

(750)

(375)

(264)

(249)

(337)

(453)

(453)

Gross Profit

21,673

2,481

3,653

1,202

21,832

3,145

3,030

8,244

EBITDA

 

 

3,065

(14,429)

(11,300)

(15,189)

(4,505)

(20,355)

(21,605)

(16,638)

Operating Profit (before amort. and except.)

2,698

(14,841)

(11,506)

(15,412)

184

(20,574)

(22,009)

(17,058)

Intangible Amortisation

(105)

(97)

(9)

(10)

(800)

(1,600)

(1,605)

(1,624)

Exceptionals

0

0

0

0

(4,861)

(160)

0

0

Operating Profit

2,593

(14,938)

(11,515)

(15,422)

(5,477)

(22,334)

(23,614)

(18,682)

Other

0

0

0

(29)

(77)

(29)

0

0

Net Interest

217

316

(33)

126

5

602

488

236

Profit Before Tax (norm)

 

 

2,914

(14,525)

(11,539)

(15,286)

189

(19,972)

(21,521)

(16,822)

Profit Before Tax (reported)

 

 

2,809

(14,622)

(11,548)

(15,325)

(5,549)

(21,761)

(23,126)

(18,446)

Tax

(0)

0

0

0

(2,150)

2,353

167

0

Profit After Tax (norm)

2,914

(14,525)

(11,539)

(15,315)

(2,038)

(17,648)

(21,354)

(16,822)

Profit After Tax (reported)

2,809

(14,622)

(11,548)

(15,325)

(7,699)

(19,408)

(22,959)

(18,446)

Average Number of Shares Outstanding (m)

13.6

17.7

17.7

20.7

40.5

40.5

41.0

41.5

EPS - normalised (€)

 

 

0.21

(0.82)

(0.65)

(0.74)

(0.05)

(0.44)

(0.52)

(0.41)

EPS - normalised and fully diluted (€)

 

0.21

(0.82)

(0.65)

(0.74)

(0.05)

(0.44)

(0.52)

(0.41)

EPS - (reported) (€)

 

 

0.21

(0.83)

(0.65)

(0.74)

(0.19)

(0.48)

(0.56)

(0.44)

Dividend per share (€)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

96.2

76.8

90.7

82.0

98.9

90.3

87.0

94.8

EBITDA Margin (%)

13.6

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Operating Margin (before GW and except.) (%)

12.0

N/A

N/A

N/A

0.8

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

2,083

1,793

1,540

1,300

89,052

87,539

87,371

85,761

Intangible Assets

117

27

33

23

87,932

86,367

86,429

84,805

Tangible Assets

1,632

1,401

1,086

908

711

841

611

625

Investments

334

366

422

369

409

331

331

331

Current Assets

 

 

24,251

32,288

20,581

16,432

62,946

41,697

22,974

10,492

Stocks

38

1

3

3

65

106

142

142

Debtors

243

456

2,089

338

582

1,036

1,036

2,588

Cash

20,947

28,666

14,503

11,329

57,227

33,793

15,033

1,000

Other

3,023

3,164

3,986

4,762

5,073

6,762

6,762

6,762

Current Liabilities

 

 

(5,737)

(7,051)

(6,147)

(6,357)

(12,919)

(10,606)

(11,621)

(11,732)

Creditors

(5,680)

(6,881)

(6,090)

(6,266)

(11,290)

(10,537)

(11,552)

(11,663)

Short term borrowings

(57)

(170)

(57)

(91)

(1,630)

(69)

(69)

(69)

Long Term Liabilities

 

 

(1,745)

(4,128)

(4,231)

(3,487)

(17,108)

(15,831)

(15,831)

(20,690)

Long term borrowings

(1,131)

(2,237)

(511)

(303)

(138)

0

0

(4,859)

Other long term liabilities

(614)

(1,891)

(3,720)

(3,185)

(16,970)

(15,831)

(15,831)

(15,831)

Net Assets

 

 

18,852

22,902

11,742

7,888

121,971

102,799

82,892

63,831

CASH FLOW

Operating Cash Flow

 

 

3,492

(11,614)

(14,076)

(14,020)

(7,733)

(20,067)

(20,788)

(17,736)

Net Interest

(61)

(1,106)

1,837

333

843

579

489

236

Tax

0

0

0

0

0

(2,448)

714

42

Capex

(108)

(148)

(39)

(119)

(2)

(410)

(174)

(435)

Acquisitions/disposals

0

0

0

0

14,208

0

0

(1,000)

Financing

2,867

19,367

(46)

10,807

37,207

611

1,000

0

Dividends

0

0

0

0

0

0

0

0

Net Cash Flow

6,191

6,499

(12,324)

(3,000)

44,524

(21,735)

(18,760)

(18,893)

Opening net debt/(cash)

 

 

(13,569)

(19,760)

(26,259)

(13,935)

(10,935)

(55,459)

(33,724)

(14,964)

HP finance leases initiated

0

0

0

0

0

0

0

0

Other

0

0

0

(0)

0

0

0

0

Closing net debt/(cash)

 

 

(19,760)

(26,259)

(13,935)

(10,935)

(55,459)

(33,724)

(14,964)

3,928

Source: Edison Investment Research, Onxeo accounts. Note: Historic financials display standalone data only, with Topotarget consolidated from H214.

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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

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