Looking ahead to a pivotal year

Paion 18 November 2015 Update

Paion

Looking ahead to a pivotal year

Q315 results

Pharma & biotech

18 November 2015

Price

€2.05

Market cap

€104m

Net cash (€m) at 30 Sep 2015

40.5

Shares in issue

50.7m

Free float

78%

Code

PA8

Primary exchange

Frankfurt

Secondary exchange

Xetra

Share price performance

%

1m

3m

12m

Abs

(7.2)

(15.4)

(14.3)

Rel (local)

(14.5)

(15.6)

(27.3)

52-week high/low

€2.88

€1.85

Business description

Paion is an emerging specialty pharma company developing anaesthesia products. Lead product remimazolam is undergoing US/EU Phase III trials and is partnered with Yichang (China), Hana Pharma (South Korea), Pendopharm (Canada) and R-Pharm (CIS, Turkey, MENA).

Next events

Pre-NDA meeting PMDA (Japan)

Q116

Complete patient recruitment into US Phase III colonoscopy study

Q116

Complete US Phase III bronchoscopy study

2016

Analysts

Dennis Hulme

+61 (0)2 9258 1161

Christian Glennie

+44 (0)20 3077 5727

Paion is a research client of Edison Investment Research Limited

Paion is at an advanced stage of developing its ultrashort-acting sedative remimazolam for use in procedural sedation and general anaesthesia. Three Phase III studies are due to report results in 2016, ahead of potential filings in the US and Europe in 2017. A positive outcome from a pre-NDA meeting with Japanese regulators in Q116 could lead to a filing in Japan in H216. We raise our valuation modestly to €230m from €224m as these milestones approach.

Year end

Revenue
(€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E

(x)

Yield
(%)

12/13

4.2

(2.6)

(7.2)

0.0

N/A

N/A

12/14

3.5

(11.6)

(22.9)

0.0

N/A

N/A

12/15e

0.0

(33.8)

(55.9)

0.0

N/A

N/A

12/16e

1.0

(30.8)

(52.2)

0.0

N/A

N/A

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

Pre-NDA meeting Q116; potential Japan filing H216

Paion has made good progress towards a potential regulatory filing in Japan since it regained the rights from Ono to remimazolam. The Japanese regulator (PMDA) accepts that drug manufactured by Paion in Europe is equivalent to that used by Ono in its clinical trials. A Japanese CRO is preparing the draft dossier for a pre-NDA meeting with the PMDA that is expected to take place in Q116. If the regulator does not require any additional evaluation to be completed, Paion could potentially file for approval in Japan in H216. However, there is still some uncertainty about the outcome in light of Ono’s decision not to file for approval, possibly related to high plasma levels observed in an ICU sedation study. Positive feedback from the PMDA could also be a catalyst to help conclude discussions with potential partners in Japan.

Phase III trials on track, results in 2016

Initial recruitment in the three Phase III remimazolam trials was moderate as expected, as sites are trained and brought up to speed, but the overall recruitment timetable remains on track. The US colonoscopy trial should complete recruitment in Q116 with data in mid-2016, while the US bronchoscopy study should complete in 2016. Results from the EU general anaesthesia trial are expected before the end of 2016. Paion expects to file for approval in 2017 in the US (procedural sedation) and Europe (general anaesthesia) if the trials are successful. Remimazolam offers a superior safety profile to gold-standard propofol in general anaesthesia and increased patient throughput or reduced patient supervision in procedural sedation.

Valuation: Raised to €230m; trials fully funded

Our sum-of-the-parts DCF valuation is €230m or €4.55/share (vs €224m) after rolling forward our DCF model to 2016, offset by modest increases in expenses in line with FY15 guidance. Cash at 30 September of €40.5m is sufficient to complete the Phase III studies, but the company states that a further €10m may be required for launch preparations and the Japan filing dossier, which may dilute our valuation per share. Paion is evaluating the prospect of self-commercialisation, which could lead to 45% profit margins in some regions, subject to further fundraising.

Exhibit 1: Financial summary

€000s

2013

2014

2015e

2016e

Year end 31 December

PROFIT & LOSS

Revenue

 

 

4,228

3,456

0

1,000

Cost of sales

0

(4)

0

0

Gross profit

4,228

3,452

0

1,000

R&D expenditure

(4,583)

(11,799)

(28,000)

(25,000)

General, administrative & selling

(3,314)

(3,702)

(6,000)

(7,000)

Other

860

411

50

51

Operating profit

(2,810)

(11,639)

(33,950)

(30,949)

Depreciation and amortisation

(390)

(93)

(100)

(100)

Share-based payments

0

0

0

0

Exceptionals

0

0

0

0

EBITDA

 

 

(2,420)

(11,546)

(33,850)

(30,849)

Operating profit (before GW and except)

 

(2,420)

(11,546)

(33,850)

(30,849)

Net interest

(170)

(66)

50

50

Profit before tax (norm)

 

 

(2,590)

(11,612)

(33,800)

(30,799)

Profit before tax (reported)

 

 

(2,980)

(11,704)

(33,900)

(30,899)

Tax

768

2,468

5,500

4,375

Profit after tax (norm)

(1,822)

(9,143)

(28,300)

(26,424)

Profit after tax (reported)

(2,212)

(9,236)

(28,400)

(26,524)

Average number of shares outstanding (m)

25.4

39.9

50.7

50.7

EPS - normalised (c)

 

 

(7.2)

(22.9)

(55.9)

(52.2)

EPS - reported (c)

 

 

(8.7)

(23.2)

(56.1)

(52.4)

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

 

 

3,583

3,516

3,416

3,316

Intangible assets

3,494

3,440

3,365

3,290

Tangible assets

89

76

51

26

Refund from assumption of dev costs

0

0

0

0

Other

0

0

0

0

Current assets

 

 

14,433

63,032

38,140

11,717

Stocks

0

0

0

0

Debtors

0

467

25

25

Cash

13,292

58,912

33,115

6,692

Other

1,141

3,653

5,000

5,000

Current liabilities

 

 

(4,659)

(3,924)

(6,157)

(6,157)

Trade payables

(1,914)

(3,338)

(5,400)

(5,400)

Short-term borrowings

0

0

0

0

Provisions

(2,508)

(306)

(500)

(500)

Finance lease liabilities

0

0

0

0

Other current liabilities

(225)

(254)

(235)

(235)

Current deferred income

(11)

(26)

(22)

(22)

Long-term liabilities

 

 

(28)

(17)

(8)

(8)

Long-term borrowings

0

0

0

0

Provisions

0

0

0

0

Long-term deferred income

(28)

(17)

(8)

(8)

Deferred taxes

0

0

0

0

Other long-term liabilities

0

0

0

0

Net assets

 

 

13,329

62,607

35,391

8,868

CASH FLOW

Operating cash flow

 

 

(1,746)

(12,044)

(31,346)

(30,849)

Net interest

(170)

(66)

50

50

Tax

75

0

5,500

4,375

Capex

0

0

0

0

Purchase of intangibles

(5)

(26)

0

0

Acquisitions/disposals

0

0

0

0

Financing

(7,164)

57,618

0

0

Dividends

0

0

0

0

Other

0

0

0

0

Net cash flow

(9,010)

45,482

(25,796)

(26,424)

Opening net debt/(cash)

 

 

(22,336)

(13,292)

(58,912)

(33,116)

Effect of exchange rate changes

(130)

(72)

0

0

Other

96

210

0

0

Closing net debt/(cash)

 

 

(13,292)

(58,912)

(33,116)

(6,691)

Source: Edison Investment Research, company accounts

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New Zealand

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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