Novartis says yes to allogeneic technology

Celyad 4 May 2017 Update
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Celyad

Novartis says yes to allogeneic technology

Novartis deal

Pharma & biotech

4 May 2017

Price

€32.40

Market cap

€309m

$1.11/€

Cash (€m) at 31 December 2016

82.6

Shares in issue

9.52m

Free float

62.4%

Code

CYAD

Primary exchange

Euronext Brussels

Secondary exchange

NASDAQ

Share price performance

%

1m

3m

12m

Abs

22.9

57.4

(22.8)

Rel (local)

18.8

44.3

(33.6)

52-week high/low

€52.9

€14.8

Business description

Celyad is developing an innovative CAR T-cell (NKR-2) immuno-oncology technology. The THINK Phase Ib study is underway in haematological and five sold tumour types. Celyad is seeking a strategic partner for C-Cure, an autologous stem cell therapy for chronic heart disease.

Next events

Start of SHRINK

Q217

Start of LINK

Q317

H117 results

Q317

THINK final dose data

Q417

Analysts

John Savin PhD

+44 (0)20 3077 5735

Lala Gregorek

+44 (0)20 3681 2527

Celyad is a research client of Edison Investment Research Limited

Novartis has taken a non-exclusive licence to Celyad’s granted allogeneic US patent for $96m (an upfront fee, we assume $12m, and milestones) plus single-digit royalties. Novartis, a leading player in the haematological CAR T-cell cancer area, presumably aims to expand out of the limited autologous ALL indication where it has a filed BLA. The $96m deal sends a clear signal to other CAR T-cell companies to license quickly or risk being locked out of any allogeneic mass market until 2031. Celyad already has an allogeneic deal with ONO in Japan and Asia. Our indicative value has moved to €52.25 per share, formerly €45.

Year
end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/15

0.15

(27.80)

(3.20)

0.0

N/A

N/A

12/16

8.52

(22.83)

(2.09)

0.0

N/A

N/A

12/17e

8.28

(27.23)

(2.86)

0.0

N/A

N/A

12/18e

9.00

(25.21)

(2.65)

0.0

N/A

N/A

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

Novartis and allogeneic therapies

On 29 March 2017 Novartis announced the FDA acceptance of a priority review on its biological licence application (BLA) for CTL019 (tisagenlecleucel-T), an autologous CAR T-cell therapy for B-cell acute lymphoblastic leukaemia (ALL). This indication has a limited US market, including adults, of 5,970 new cases and 1,440 deaths per year (SEER). Broadening the use of CAR T-cell therapy and cutting costs by producing an ‘off the shelf’ allogeneic format is presumably commercially crucial for Novartis. Celyad has a US patent (US 9181527) granted until 2030 on allogeneic therapy to prevent graft versus host disease from transplanted CAR T-cells. This patent has survived two recent challenges; further worldwide patents are filed. Novartis presumably either needs to use this technology or would infringe the broad claim 1 of this patent; consequently, a non-exclusive deal (with an exclusive option) has been done. This complements the ONO deal in Japan and Asia done by Celyad in 2016 (see note from 13 July 2016). Celyad plans NKR-2 allogeneic trials in 2017. The current THINK NKR-2 CAR T-cell trial in two haematological and five solid tumours is at its second dose level with a US arm underway.

Valuation: Increased to €52.25 per share

Our valuation focuses on NKR-2 indications. We assume that US$12m of the US$96m Novartis deal value is paid in 2017; the net amount (less assumed royalties to the patent holder) is about €8m – this is comparable to the 2016 ONO deal. Celyad has guided that it plans to spend between €35m and €40m in 2017 and 2018, which gives cash into 2019; we have increased our 2018 year-end cash from €20m to €29m but costs may rise. The ex-royalty NPV of the Novartis deal is estimated by us at c €25m. As we believe that this deal will force other CAR T-cell companies to also license this patent or be locked out of the allogeneic market until 2031, we have increased the nominal allogeneic value from €10m to €50m, possibly conservatively. The increased allogenic value and reduced net operating cash use to 2023 takes the indicative value to €52.25/share, formerly €45/share.

Exhibit 1: Financial summary

€000s

2015

2016

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

0

8,523

8,280

9,000

Cost of Sales

(1)

(53)

0

0

Gross Profit

(1)

8,470

8,280

9,000

EBITDA

 

 

(28,089)

(24,065)

(26,720)

(24,700)

Operating Profit (before amort and except)

 

 

(28,362)

(24,825)

(27,480)

(25,460)

Intangible Amortisation

(760)

(756)

(756)

(756)

Other income and charges

0

(521)

0

0

Share-based payments

(795)

493

0

0

Operating Profit

(29,917)

(25,609)

(28,236)

(26,216)

Net Interest

558

1,997

250

250

Profit Before Tax (norm)

 

 

(27,804)

(22,828)

(27,230)

(25,210)

Profit Before Tax (FRS 3)

 

 

(29,359)

(23,612)

(27,986)

(25,966)

Tax

0

6

0

0

Profit After Tax (norm)

(27,804)

(19,482)

(27,230)

(25,210)

Profit After Tax (FRS 3)

(29,359)

(23,606)

(27,986)

(25,966)

Average Number of Shares Outstanding (m)

8.7

9.3

9.5

9.5

EPS - normalised (c)

 

 

(320)

(209)

(286)

(265)

EPS - (IFRS) (€)

 

 

(3.38)

(2.54)

(2.94)

(2.73)

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

 

 

50,105

53,440

52,074

50,708

Intangible Assets

48,789

49,566

48,810

48,054

Tangible Assets

1,136

3,563

2,953

2,343

Investments

180

311

311

311

Current Assets

 

 

109,420

85,366

57,636

31,923

Stocks

0

0

0

0

Debtors

549

1,359

1,359

1,359

Cash (cash plus deposits)

107,513

82,587

54,857

29,144

Other

1,358

1,420

1,420

1,420

Current Liabilities

 

 

(11,490)

(11,275)

(11,017)

(10,487)

Creditors

(10,592)

(9,960)

(9,960)

(9,960)

Deferred revenue

0

0

0

0

Walloon loans and bank loan

(898)

(1,315)

(1,057)

(527)

Long Term Liabilities

 

 

(36,561)

(36,646)

(35,796)

(34,946)

Loans (non-current) Bank and Walloon

(10,484)

(7,866)

(7,016)

(6,166)

Other long term liabilities

(26,077)

(28,780)

(28,780)

(28,780)

Net Assets

 

 

111,474

90,885

62,897

37,198

CASH FLOW

Operating Cash Flow

 

 

(27,862)

(26,689)

(27,192)

(24,578)

Net Interest

558

1,997

861

264

Tax

0

0

0

0

Capex

(838)

(1,782)

(150)

(150)

Acquisitions/disposals

(5,186)

(1,561)

0

0

Financing

109,155

0

0

0

Dividends

0

0

0

0

Other

(3,287)

3,109

(1,249)

(1,249)

Net Cash Flow

72,540

(24,926)

(27,730)

(25,713)

Opening net debt/(cash)

 

 

(16,078)

(96,131)

(73,406)

(46,784)

HP finance leases initiated

0

0

0

0

Loan and finance movements

7,513

2,201

1,108

1,380

Closing net debt/(cash)

 

 

(96,131)

(73,406)

(46,784)

(22,451)

Source: Edison Investment Research estimates, Celyad reports and announcements.

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 Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Celyad 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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 2017. “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 are 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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 Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Celyad 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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 2017. “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 are 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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