NGAL test hits a snag at FDA

BioPorto Diagnostics 9 October 2018 Update
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BioPorto Diagnostics

NGAL test hits a snag at FDA

Regulatory update

Healthcare equipment & services

9 October 2018

Price

DKK4.01

Market cap

DKK624m

DKK6.38/US$

Net cash (DKKm) at 30 June 2018

22.5

Shares in issue

155.5m

Free float

83.8%

Code

BIOPOR

Primary exchange

NASDAQ Copenhagen

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

20.4

26.7

22.3

Rel (local)

31.4

34.6

36.5

52-week high/low

DKK6.2

DKK3.0

Business description

BioPorto is a diagnostic company focused on the development and marketing of antibodies and other products for research and diagnostics. This includes a portfolio of products marketed for research use and The NGAL Test, which the company has submitted to the FDA for the prediction of acute kidney injury.

Next events

Paediatric AKI results

H119

FDA decision on The NGAL Test

Mid-2019

Analysts

Nathaniel Calloway

+1 646 653 7036

Maxim Jacobs

+1 646 653 7027

BioPorto Diagnostics is a research client of Edison Investment Research Limited

BioPorto announced on 3 October 2018 that it had received feedback from the FDA on its outstanding 510(k) application for The NGAL Test for risk use with acute kidney injury (AKI). The agency said that additional data would be required to support a ‘rule-out’ claim (ie that the test can exclude the risk of AKI). The company is engaged in discussions with the agency and has revised its timeline: an FDA decision in mid-2019.

Year end

Revenue (DKKm)

PBT*
(DKKm)

EPS*
(DKK)

DPS
(DKK)

P/E
(x)

Yield
(%)

12/16

20.7

(22.4)

(1.57)

0.0

N/A

N/A

12/17

25.2

(33.7)

(2.03)

0.0

N/A

N/A

12/18e

29.6

(37.2)

(2.09)

0.0

N/A

N/A

12/19e

34.7

(17.0)

(0.91)

0.0

N/A

N/A

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

Reasons for delay unclear

It is difficult to assess the specific area of data deficiency for which the FDA requires more data, but the rule-out claim that was cited is contingent on the negative predictive value (NPV) of the test. This statistic depends upon on both the sensitivity and specificity of the test, as well as the underlying rate of the disorder (AKI). The latter is further complicated by the fact that AKI is defined in terms of serum creatinine, on which NGAL is aiming to improve. Any of these factors could be elements on which the agency requires clarification, albeit not limited to these.

Pathway forward depends on data needed

There are number of different paths forward for the company, which depend on the precise data requested. The FDA may want more confidence that the rate of AKI in the study reflects rates more globally (so that the NPV is representative), and this may be addressed using existing historical data, without a new trial. However, we cannot rule out the possibility that more clinical data may be needed. However, we see the FDA keeping the application open as an indication that there are no fatal flaws.

Changing claims is a possible way forward

The agency previously approved the product Nephrocheck with the claim that it was ‘intended to be used in conjunction with clinical evaluation’. This is a weaker claim than the rule-out claim being examined, but the agency’s openness indicates a potential pathway in which BioPorto adjusts its claims. We expect more detail following further discussions with the FDA, although the timeline is unclear.

Valuation: Lowered to DKK895m or DKK5.76

We have reduced our valuation to DKK895m or DKK5.76 per basic share from DKK1,105m or DKK7.10 per basic share. This is driven by a delay in the commercialisation of The NGAL Test. We now expect potential approval in late 2019 with first significant sales in 2020 in the US, and this has similarly pushed back our follow-on indications. Our probability of success remains unchanged as we do not consider that this feedback reflects the ultimate approvability of the product.

More data needed for AKI approval

The company stated that ‘additional data will be required to support the AKI rule-out claim in order to continue the application process’. The ability of a test to rule out a specific outcome is contingent on the negative predictive value (NPV) of the test. The NPV of a test is the rate at which a negative test result represents a true negative outcome (ie the patient does not develop AKI). Other commonly used diagnostic statistics like sensitivity and specificity are independent of the underlying rate of the condition being tested. However, NPV does depend on this rate (as well as incorporating sensitivity and specificity). Therefore, to support a rule-out claim, the company must provide some data regarding the rates of ‘true AKI’ observed in its study as well as in the broader population. There are additional complexities regarding what constitutes a ‘true AKI’ as the benchmark for this diagnosis is the flawed serum creatinine test, on which The NGAL Test aims to improve. In our initiation we detailed some of the issues involved in using a flawed benchmark to evaluate a better test.

It is important to note that the FDA’s request for more data should not be interpreted as a rejection of the company’s application. During the company’s previous iteration of the 510(k) process for The NGAL Test in 2016, the FDA rejected two applications from the company. That is not the case in this instance, which suggests that the agency sees specific points of uncertainty in the application, but does not necessarily see the test as flawed. We have not seen the data being submitted to the FDA, so it is difficult to pinpoint the specific nature of the data deficiency, but we believe a deficiency in the sensitivity or specificity of the test would be a fatal flaw that would result in rejection. However, it should be noted that we cannot categorically exclude any of these possibilities at this time.

There are a number of potential pathways forward at this point, depending on the specific data requested by the FDA and how the company approaches it. In the best-case scenario, the agency wants more information on the underlying rate of AKI in ICU patients and the company can provide historical data. In this case, no additional clinical studies are needed. However, there is also the possibility, given the wide variation in the observed rates of AKI in studies, that these data are not sufficiently conclusive, or that the nature of the data deficiency cannot be addressed with historical data. In this case, the company may still be able to seek approval without additional clinical data if it modifies its claims. It could remove the rule-out claim, and the data could potentially support approval for a more broad risk assessment. However, this will affect how the company can market the test, but it may be able to add these claims in the future after approval with additional clinical data. Finally, there is the possibility that the data deficiency cannot be addressed without the company performing additional clinical studies.

We should note that the recently approved AKI test, Nephrocheck, has the specific labelling that it is ‘intended to be used in conjunction with clinical evaluation’. This is a weaker claim than a rule-out claim because the test is only labelled to inform a diagnosis, as opposed to provide a definitive answer. We view the fact that the FDA was amenable to this labelling in this case as encouraging that the agency will exercise similar latitude with The NGAL Test. Although a change in labelling would not be ideal, it may be a viable way to avoid the need for additional clinical data.

Valuation

We have reduced our valuation to DKK895m or DKK5.76 per basic share from DKK1105m or DKK7.10 per basic share. This change is driven by the delay in commercialising The NGAL Test. We have delayed initial sales on the test in accordance with its new timeline (mid-2019 response from the FDA) to initial commercialisation in the US in late 2019 and significant sales in 2020. Follow-on indications (emergency department and post-surgery) are similarly pushed back, and the paediatric test (although it is technically a different product) is also similarly delayed because we do not expect the retrospective trial to be sufficient to support approval before the supporting adult AKI approval. We also include in our model a 30% probability that they will need an additional clinical trial at a cost of approximately DKK6m. We may update this assessment of clinical costs and risk if we receive more data regarding the current submission. Our probabilities of success remain unchanged, because we do not believe the current communication reflects on the ultimate approvability of the product, although we may amend this view with more insight.

Exhibit 1: Valuation of BioPorto

Programme

Market

Prob. of success

Peak revenue ($m)

Valuation (DKKm)

The NGAL Test

ICU

50%

185.4

611.9

ED

30%

173.8

278.4

Post-surgery

30%

55.7

83.6

Research

100%

2.6

21.8

Paediatrics

45%

17.4

18.4

Other products

Research

100%

3.9

33.1

Unallocated costs

(174.8)

Total

872.4

Net cash and equivalents (Q218) (DKKm)

22.5

Total firm value (DKKm)

895.0

Total shares (m)

155.51

Value per share (DKK)

5.76

Dilutive warrants (m)

11.6

Total diluted shares

167.1

Value per diluted share (DKK)

5.58

Source: BioPorto reports, Edison Investment Research

Financials

We have adjusted our R&D spending schedule to match the new approval timeline. This has delayed the costs associated with follow-on studies for the emergency department and post-surgery markets until after potential FDA approval. This has reduced our expected R&D expenditures in 2019 to DKK10.0m from DKK35.5m, assuming that no additional studies are needed, although we may update this based on feedback from the company. Our funding requirement remains unchanged at DKK60m, which we model as illustrative debt in 2018.

Exhibit 2: Financial summary

DKK'000s

2016

2017

2018e

2019e

31-December

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

20,720

25,155

29,561

34,650

Cost of Sales

(5,027)

(6,907)

(8,095)

(9,489)

Gross Profit

15,693

18,248

21,466

25,161

Sales

(18,041)

(18,545)

(19,033)

(19,603)

R&D

(9,669)

(21,930)

(27,533)

(9,959)

Administrative

(13,030)

(14,267)

(15,923)

(16,719)

EBITDA

 

 

(22,596)

(33,134)

(37,632)

(17,729)

Normalised operating profit

 

 

(22,596)

(33,134)

(37,632)

(17,729)

Amortisation of acquired intangibles

(182)

(329)

(329)

(329)

Exceptionals

0

0

0

0

Share-based payments

(2,061)

(2,856)

(2,856)

(2,856)

Reported operating profit

(24,839)

(36,319)

(40,817)

(20,914)

Net Interest

148

(570)

462

711

Joint ventures & associates (post tax)

0

0

0

0

Exceptionals

0

0

0

0

Profit Before Tax (norm)

 

 

(22,448)

(33,704)

(37,170)

(17,018)

Profit Before Tax (reported)

 

 

(24,691)

(36,889)

(40,355)

(20,203)

Reported tax

2,099

4,821

4,160

2,093

Profit After Tax (norm)

(20,538)

(29,297)

(33,336)

(15,251)

Profit After Tax (reported)

(22,592)

(32,068)

(36,195)

(18,110)

Minority interests

0

0

0

0

Discontinued operations

0

0

0

0

Net income (normalised)

(20,538)

(29,297)

(33,336)

(15,251)

Net income (reported)

(22,592)

(32,068)

(36,195)

(18,110)

Basic average number of shares outstanding (m)

131

145

160

168

EPS - basic normalised (ore)

 

 

(157)

(203)

(209)

(91)

EPS - diluted normalised (ore)

 

 

(157)

(203)

(209)

(91)

EBITDA Margin (%)

-109.1

-131.7

-127.3

-51.2

Normalised Operating Margin

-109.1

-131.7

-127.3

-51.2

BALANCE SHEET

Fixed Assets

 

 

3,069

2,623

3,158

2,622

Intangible Assets

1,959

1,629

1,223

894

Tangible Assets

400

263

1,204

997

Investments & other

710

731

731

731

Current Assets

 

 

47,572

62,981

90,103

73,961

Stocks

3,941

3,434

2,661

3,120

Debtors

4,662

6,380

7,289

8,544

Cash & cash equivalents

35,641

47,080

72,412

54,556

Other

3,328

6,087

7,741

7,741

Current Liabilities

 

 

(5,146)

(8,653)

(9,751)

(8,533)

Creditors

(1,169)

(3,412)

(5,523)

(4,305)

Tax and social security

(242)

(182)

0

0

Short term borrowings

0

0

0

0

Other

(3,735)

(5,059)

(4,228)

(4,228)

Long Term Liabilities

 

 

(1,204)

(883)

(61,040)

(61,040)

Long term borrowings

0

0

(60,000)

(60,000)

Other long term liabilities

(1,204)

(883)

(1,040)

(1,040)

Net Assets

 

 

44,291

56,068

22,470

7,010

Minority interests

0

0

0

0

Shareholders' equity

 

 

44,291

56,068

22,470

7,010

CASH FLOW

Op Cash Flow before WC and tax

(22,596)

(33,134)

(37,632)

(17,729)

Working capital

839

2,325

918

(2,930)

Exceptional & other

(239)

(595)

462

711

Tax

2,336

2,005

2,888

2,093

Net operating cash flow

 

 

(19,660)

(29,399)

(33,363)

(17,855)

Capex

(357)

(38)

(1,148)

0

Acquisitions/disposals

0

0

0

0

Net interest

0

0

0

0

Equity financing

20,858

40,921

0

0

Dividends

0

0

0

0

Other

(67)

(45)

(157)

0

Net Cash Flow

774

11,439

(34,668)

(17,855)

Opening net debt/(cash)

 

 

(34,867)

(35,641)

(47,080)

(12,412)

FX

0

0

0

0

Other non-cash movements

0

0

0

0

Closing net debt/(cash)

 

 

(35,641)

(47,080)

(12,412)

5,444

Source: BioPorto reports, 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

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by BioPorto Diagnostics 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.

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

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

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 BioPorto Diagnostics 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.

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

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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