Novartis extends commercial supply agreement

Oxford BioMedica 19 December 2019 Update
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Oxford Biomedica

Novartis extends commercial supply agreement

Corporate update

Pharma & biotech

19 December 2019

Price

632p

Market cap

£486m

$:£0.8; €:£0.88; $:€0.91

Net cash (£m) at 30 June 2019 (excluding £11.5m Axovant milestone)

26.1

Shares in issue

76.8m

Free float

69%

Code

OXB

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

13.9

19.3

(9.8)

Rel (local)

9.8

14.7

(21.1)

52-week high/low

771.0p

496.5p

Business description

Oxford Biomedica’s (OXB) LentiVector technology underpins the company’s strategy. OXB generates significant revenue from partners that use its technology, notably Novartis, Bioverativ (Sanofi), Orchard Therapeutics and Immune Design. OXB is implementing significant capacity upgrades to enable more partnering/out-licensing agreements.

Next events

New out-licence or partnership

H120

AXO-Lenti-PD cohort 2 data

H120

OTL-101 BLA/MAA submission

2020

Analysts

Dr Daniel Wilkinson

+44 (0)20 3077 5734

Dr Susie Jana

+44 (0)20 3077 5700

Oxford Biomedica is a research client of Edison Investment Research Limited

Oxford Biomedica (OXB) has announced the expansion of its commercial supply agreement with Novartis by five years. While expected, this removes any uncertainty around the future of the partnership and is a validation of OXB’s investment in new manufacturing facilities. Novartis is now committed to paying OXB a minimum of $75m (for vector batches) in manufacturing revenue over the five-year extension. Additionally, OXB will be paid a mid-single digit £m facility reservation fee. As part of this, OXB will dedicate some of its new 7,800m2 manufacturing facility (OxBox) to Novartis while also ensuring that at least two of its GMP facilities are capable of commercial supply, essentially ensuring a dual-sourced supply if the need arose. We value OXB at £692m vs £673m previously.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/17

37.6

(13.1)

(16.7)

0.0

N/A

N/A

12/18

66.8

0.3

4.3

0.0

147.0

N/A

12/19e

76.9

(7.9)

(7.3)

0.0

N/A

N/A

12/20e

89.8

2.9

7.4

0.0

85.4

N/A

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

Novartis committed to CAR-T as programmes expand

OXB has announced that it is now working on five different lentiviral vectors for use in Novartis’s CAR-T products. While the targets are undisclosed by OXB, we assume (based on Novartis’s recent R&D day) that these are focused on CD19, BCMA, CD22, IL3RA and EGFRvIII. We note that the $75m minimum revenue announced in the expanded commercial partnership is for vector batches only. As a result, OXB will benefit separately from development revenue for these new assets, which could provide substantial upside to our current assumptions. Kymriah sales have initially been below market expectations (due to a deepening competitive landscape and US manufacturing/specification issues). However, sales continue to demonstrate strong quarter-on-quarter growth (Q319: $79m vs Q219: $58m). Kymriah is now approved for reimbursement in over 20 countries, with more than 160 qualified centres able to offer the treatment, and we expect OXB to benefit from increasing royalty and manufacturing revenue.

Expanded partnership validates OxBox investment

OXB’s new OxBox facility will more than double capacity and is expected to be ready for commercial vector production in H120. The announcement on the extension of the Novartis commercial supply agreement reinforces the need to continue investing in the growth of OXB. As vector manufacturing capacity continues to be constrained globally, companies like OXB are in a strong position to drive value for their platform. Additionally, OXB’s expertise in lentiviral development means it continues to remain extremely attractive to future and existing partners.

Valuation: £692m vs £673m previously

We value OXB at £692m (£9.02/share) vs £673m (£8.77/share) previously. We assume a $7m (c £5.2m) reservation fee will be spread across the five-year contract with no financial impact until 2021. We have also rolled forward our model.

Exhibit 1: Financial summary

Accounts: IFRS, year-end: December, £000s

 

2016

2017

2018

2019e

2020e

INCOME STATEMENT

 

 

 

 

 

 

Total revenues

 

27,776

37,590

66,778

76,907

89,799

Cost of sales

 

(11,835)

(18,442)

(22,763)

(24,240)

(26,807)

Gross profit

 

15,941

19,148

44,015

52,667

62,991

Administrative expenses

 

(5,957)

(7,276)

(7,433)

(10,035)

(13,547)

R&D and bioprocessing costs

 

(24,299)

(21,611)

(29,714)

(44,264)

(46,532)

Other income/(expense)

 

3,002

1,774

1,064

0

0

Exceptionals and adjustments

 

0

2,297

5,983

(1,411)

0

Operating profit/(loss)

 

(11,313)

(5,668)

13,915

(3,043)

2,913

Finance income/(expense)

 

(8,994)

(6,093)

(8,901)

(6,238)

6

Reported PBT

 

(20,307)

(11,761)

5,014

(9,280)

2,919

Income tax expense (includes exceptionals)

 

3,666

2,744

2,527

2,653

2,786

Reported net income

 

(16,641)

(9,017)

7,541

(6,627)

5,705

Basic average number of shares, m

 

56

62

65

71

77

Basic EPS (p)

 

(29.9)

(14.6)

11.6

(9.3)

7.4

Adjusted EBITDA

 

(6,773)

(2,645)

13,535

5,333

10,868

Adjusted EBIT

 

(10,448)

(7,020)

9,178

(1,632)

2,913

Adjusted PBT

 

(19,442)

(13,113)

277

(7,869)

2,919

Adjusted EPS (p)

 

(28.4)

(16.7)

4.3

(7.3)

7.4

BALANCE SHEET

 

 

 

 

 

 

Property, plant and equipment

 

27,514

25,370

31,791

51,119

58,422

Intangible assets

 

1,330

97

117

113

109

Other non-current assets

 

657

2,954

10,966

0

0

Total non-current assets

 

29,501

28,421

42,874

51,232

58,532

Cash and equivalents

 

15,335

14,329

32,244

8,532

1,256

Inventories

 

2,202

3,332

4,251

4,527

5,006

Trade and other receivables

 

6,904

17,088

30,585

37,927

44,284

Other current assets

 

3,000

2,232

2,446

13,619

13,752

Total current assets

 

27,441

36,981

69,526

64,605

64,298

Non-current loans and borrowings

 

34,389

36,864

41,153

0

0

Contract liabilities and deferred income

 

0

0

6,434

6,434

6,434

Other non-current liabilities

 

622

630

1,566

9,735

9,735

Total non-current liabilities

 

35,011

37,494

49,153

16,169

16,169

Trade and other payables

 

6,003

8,690

11,422

12,163

13,451

Contract liabilities and deferred income

 

3,313

13,072

17,084

17,084

17,084

Total current liabilities

 

9,316

21,762

28,506

29,247

30,535

Equity attributable to company

 

12,615

6,146

34,741

70,420

76,125

CASH FLOW STATEMENT

 

 

 

 

 

 

Operating profit/(loss)

 

(11,313)

(5,668)

13,915

(3,043)

2,913

Depreciation and amortisation

 

3,675

4,375

4,357

6,964

7,955

Share based payments

 

865

945

1,246

0

0

Other adjustments

 

(579)

(1,326)

(8,012)

0

0

Movements in working capital

 

1,423

141

(2,292)

(6,876)

(5,549)

Income taxes paid

 

4,081

4,512

3,654

2,446

2,653

Cash from operations (CFO)

 

(1,848)

2,979

12,868

(509)

7,973

Capex

 

(6,458)

(1,969)

(10,148)

(26,288)

(15,255)

Other investing activities

 

47

38

52

43

6

Cash used in investing activities (CFIA)

 

(6,411)

(1,931)

(10,096)

(26,245)

(15,249)

Net proceeds from issue of shares

 

17,497

385

19,808

50,475

0

Movements in debt

 

0

8,361

0

(41,153)

0

Interest paid

 

(3,258)

(10,800)

(4,665)

(6,280)

0

Other financing activities

 

0

0

0

0

0

Cash from financing activities (CFF)

 

14,239

(2,054)

15,143

3,042

0

Increase/(decrease) in cash and equivalents

 

5,980

(1,006)

17,915

(23,712)

(7,276)

Currency translation differences and other

 

0

0

0

0

0

Cash and equivalents at beginning of period

 

9,355

15,335

14,329

32,244

8,532

Cash and equivalents at end of period

 

15,335

14,329

32,244

8,532

1,256

Net (debt)/cash

 

(19,054)

(22,535)

(8,909)

8,532

1,256

Source: Oxford Biomedica accounts, Edison Investment Research

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This report has been commissioned by Oxford Biomedica and prepared and issued by Edison, in consideration of a fee payable by Oxford Biomedica. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

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This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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Schumannstrasse 34b

60325 Frankfurt

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London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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Level 4, Office 1205

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General disclaimer and copyright

This report has been commissioned by Oxford Biomedica and prepared and issued by Edison, in consideration of a fee payable by Oxford Biomedica. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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