New FDA demands delay US launch further

Epigenomics 10 November 2015 QuickView

Epigenomics

New FDA demands delay US launch further

Pharma & biotech

QuickView

10 December 2015

Price

€2.68

Market cap

€49m

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Share details

Code

ECX

Listing

Frankfurt

Shares in issue

18.1m

Business description

Epigenomics is a German molecular diagnostics company focused on the early detection of cancer. Its main product is Epi proColon, a blood-based DNA test for colorectal cancer, which uses a sophisticated PCR assay to detect methylated copies of the Septin9 gene. It has 37 employees.

Bull

US guidelines target CRC screening compliance of 80%.

A blood-based test could prove an alternative for the non-compliant population.

Epi proColon PMA submission study met its key endpoint, non-inferiority of total sensitivity across all CRC clinical stages of 72% vs 68% for standard FIT (faecal immunochemical test).

Bear

Requirement for post-approval study delays the launch and imposes additional costs and effort.

Uncertainty of the FDA decision.

Higher overall efficacy of Exact Sciences' Cologuard combined FIT and a stool DNA test.

Analysts

Hans Bostrom

+44 (0)20 3681 2522

Christian Glennie

+44 (0)20 3077 5727

Epigenomics is a research client of Edison Investment Research Limited

Epigenomics announced another delay to the US launch of its blood-based CRC diagnostic test Epi proColon and a moderate downgrade to its FY15 guidance. The FDA demands more evidence of increased compliance in CRC screening using Epi proColon, which is likely to necessitate a further study. With a current cash reach to H216, a cash call is likely before a possible US approval.

High compliance rate in test group likely causes delay

In its response to the ADMIT study concluded in May, the FDA has requested yet more data to show that Epigenomics’ blood-based test raises willingness to screen for CRC in the 75% of patients normally resisting a standard faecal-based FIT test. ADMIT showed 99.5% adherence to Epi proColon vs an exceptional 88.1% for FIT. Designed to assess if adherence to Epi proColon would be higher than FIT plus an 8.2% margin, the study fell short of statistical significance (p=0.059).

A redesigned behavioural study likely next step

Epigenomics will shortly meet the FDA to discuss the next steps, but it looks probable that a new study is necessary. We believe a key priority of a new trial would be to mimic a normal test environment so as to preclude abnormal patient compliance. We note that ADMIT took nearly a year to prepare and conclude and cost c €1m, which may be indicative for a new behavioural study. While the timing of a possible US launch of Epi proColon is uncertain, we consider it unlikely before H216.

Guidance reviewed: Pre-approval cash call likely

Epigenomics has reviewed its financial guidance for FY15, previously based on an expected US launch of Epi proColon in Q315. It now expects revenues to exceed €1.5m (€3-4m earlier) and that EBIT and cash consumption may fall slightly short of the previous -€10-11m and €9.5-10.5m guidance, respectively. It is looking to conserve cash by deferring planned hiring in the US and halt the recent inventory build (< €0.5m) tied to the expected launch. We expect a further cash call will be needed before a possible approval of Epi proColon. Epigenomics had €9.8m liquid resources (H115). A further €5.2m may be raised from the exercise of convertible notes (2m new shares). Its quarterly cash burn has averaged €2.5m in the past year.

Valuation: Upside if regulatory hurdles are cleared

The EV of €40m reflects uncertainty about the FDA approval. It compares with its cancer diagnostic peers Exact Sciences’ €562m (€/$1.09) and VolitionRx at €63m.

Consensus estimates

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/13

1.6

(7.3)

(0.62)

0.0

N/A

N/A

12/14

1.5

(8.4)

(0.74)

0.0

N/A

N/A

12/15e

2.8

(11.6)

(0.67)

0.0

N/A

N/A

12/16e

N/A

N/A

N/A

N/A

N/A

N/A

Source: Bloomberg, Company data

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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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