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On track for operating profitability in FY23

Basilea Pharmaceutica 17 August 2022 Update
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Basilea Pharmaceutica

On track for operating profitability in FY23

H122 results

Pharma and biotech

17 August 2022

Price

CHF43.4

Market cap

CHF564m

$1.05/CHF

Net debt (CHFm) at 30 June 2022

71.2

Shares in issue

(excluding 1.15m treasury shares)

11.85m

Free float

90%

Code

BSLN

Primary exchange

SIX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

4.0

29.8

(12.3)

Rel (local)

2.6

36.2

(2.2)

52-week high/low

CHF49

CHF30

Business description

Basilea Pharmaceutica is focused on treating infectious diseases. Its marketed products are Cresemba (an antifungal) and Zevtera (an anti-MRSA broad-spectrum antibiotic). The company plans to file for US approval for Zevtera.

Next events

Zevtera NDA filing

End 2022

Cresemba approval decision in Japan

H222

Analysts

Soo Romanoff

+44 (0)20 3077 5700

Dr Harry Shrives

+44 (0)20 3077 5700

Dr Adam McCarter

+44 (0)20 3077 5700

Basilea Pharmaceutica is a research client of Edison Investment Research Limited

Basilea’s H122 revenues of CHF58.7m were roughly in line with our annualised estimates (FY22e: CHF110.0m) and company guidance, including CHF28.9m in royalty payments from sales of Cresemba (H121: CHF23.6m, a 22.5% increase). We see this as a positive sign for the company as we expect Cresemba royalties to provide important support for the top-line. Following positive results from the Phase III ERADICATE study in June 2022 and winding down of oncology activities in H122, R&D expenses fell to CHF37.1m (from CHF41.7m in H121) resulting in a reduction in the operating loss to CHF9.0m, 42% lower than H121 (CHF15.4m). We see this as encouraging support for management’s goal of reaching operating profitability in FY23. Basilea reduced its December 2022-maturing convertible bond position by CHF6.6m in H122 and we expect further information on the company’s debt strategy in H222. Our financial estimates are affected only by our updated FX rate assumptions. We value Basilea at CHF893.8 or CHF75.5/share (previously CHF886.7m or CHF74.9/share).

Year end

Revenue (CHFm)

PBT*
(CHFm)

EPS*
(CHFc)

DPS
(CHFc)

P/E
(x)

Yield
(%)

12/20

127.6

(29.6)

(288.5)

0.0

N/A

N/A

12/21

148.1

(6.61)

(56.9)

0.0

N/A

N/A

12/22e

110.0

(29.5)

(249.5)

0.0

N/A

N/A

12/23e

128.8

14.5

164.6

0.0

26.4

N/A

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

Cresemba royalty growth supports revenues

Continued growth in Cresemba royalties should support the company’s top-line going into FY23. We expect future revenue growth to be driven by global Cresemba sales (the approval for Chinese state reimbursement will be an important catalyst) and the potential approval of Zevtera in the US (expected NDA submission in H222), following positive Phase III results in bloodstream infections in June 2022.

Targeting sustainable profitability in FY23

Management has confirmed that it expects a c 30% reduction in R&D expenses in FY23, due largely to the expected strategic exit from the oncology portfolio by end-FY22. R&D expenses for H122 were CHF37.1m; 11% lower than H121. We anticipate FY22 R&D figures will be roughly in line with this as oncology activities cease and we have adjusted our forecast expense distribution accordingly. We continue to expect the company to reach operating profitability in FY23.

Valuation: CHF893.8 or CHF75.5/share

We have updated or model to reflect the H122 results and value Basilea at CHF893.8 or CHF75.5/share (CHF886.7m or CHF74.9/share previously). We include a net debt position of CHF71.2m at end-June 2022. Over H122, Basilea reduced its December 2022-maturing convertible bond position by CHF6.6m, we expect management to provide more information on its debt strategy in H222.

Exhibit 1: Financial summary

Accounts: US GAAP, Yr end: December 31, CHF:000s

 

2019

2020

2021

2022e

2023e

PROFIT & LOSS

 

 

 

 

 

 

 

Total revenues

 

 

134,381

127,629

148,122

110,021

128,820

Product revenues (Cresemba and Zevtera)

 

 

114,461

112,032

131,382

102,859

124,673

Cost of sales

 

 

(18,868)

(24,054)

(24,072)

(21,722)

(26,135)

Gross profit

 

 

115,513

103,575

124,050

88,300

102,685

Research and development expenses (net)

 

 

(102,662)

(97,410)

(93,157)

(73,111)

(63,751)

SG&A costs

 

 

(30,051)

(29,422)

(29,721)

(36,894)

(16,607)

Other income/(expense)

 

 

0

0

0

0

0

Exceptionals and adjustments

 

 

0

15,035

15

0

0

EBITDA (reported)

 

 

(15,561)

(7,032)

1,941

(20,992)

23,077

Reported operating income

 

 

(17,200)

(8,222)

1,187

(21,705)

22,327

Operating margin %

 

 

n/a

n/a

n/a

n/a

n/a

Finance income/(expense)

 

 

(5,182)

(6,445)

(7,982)

(8,037)

(8,014)

Exceptionals and adjustments

 

 

0

0

0

0

0

Profit before tax (reported)

 

 

(22,382)

(14,667)

(6,795)

(29,742)

14,313

Profit before tax (normalised)

 

 

(22,282)

(29,602)

(6,610)

(29,542)

14,520

Income tax expense (includes exceptionals)

 

 

(40)

(55)

(37)

0

4,968

Net income (reported)

 

 

(22,422)

(14,722)

(6,832)

(29,742)

19,281

Net income (normalised)

 

 

(22,322)

(29,657)

(6,647)

(29,542)

19,488

Basic average number of shares, m

 

 

10.8

10.3

11.7

11.8

11.8

Basic EPS (CHF c)

 

 

(208.5)

(143.2)

(58.5)

(251.2)

162.8

Adjusted EPS (CHF c)

 

 

(207.5)

(288.5)

(56.9)

(249.5)

164.6

Dividend per share (CHF c)

 

 

0

0

0

0

0

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

Tangible assets

 

 

5,162

2,627

2,018

3,129

3,586

Intangible assets

 

 

372

672

632

1,137

1,130

Long-term investments

 

 

30,000

0

2,390

2,390

2,390

Other non-current assets

 

 

1,073

2,967

1,161

19,405

19,405

Total non-current assets

 

 

36,607

6,266

6,201

26,061

26,511

Cash and equivalents

 

 

109,024

60,749

53,700

38,642

50,919

Short-term investments

 

 

20,000

101,023

95,000

94,990

94,980

Inventories

 

 

18,569

21,192

22,783

20,559

24,735

Trade and other receivables

 

 

6,242

8,710

24,947

18,530

21,696

Other current assets

 

 

31,025

31,854

44,636

40,136

40,136

Total current assets

 

 

184,860

223,528

241,066

212,856

232,466

Convertible senior unsecured bonds (long-term)

 

 

197,740

239,668

94,544

219,145

219,145

Deferred revenue

 

 

16,471

13,158

11,926

6,436

946

Non-current operating lease liabilities

 

 

548

896

10

18,254

18,254

Other non-current liabilities

 

 

24,174

27,957

24,986

24,986

24,986

Total non-current liabilities

 

 

238,933

281,679

131,466

268,821

263,331

Convertible senior unsecured bonds (short-term)

 

 

0

0

123,505

0

0

Accounts payable

 

 

6,765

13,151

10,617

9,580

11,527

Deferred revenue

 

 

32,873

2,556

1,233

5,490

5,490

Current operating lease liabilities

 

 

352

1,752

896

896

896

Other current liabilities

 

 

35,504

32,702

38,157

38,157

38,157

Total current liabilities

 

 

75,494

50,161

174,408

54,123

56,070

Net assets

 

 

(92,960)

(102,046)

(58,607)

(84,027)

(60,424)

 

 

 

 

 

 

 

 

CASH FLOW STATEMENT

 

 

 

 

 

 

 

Reported net income

 

 

(22,422)

(14,722)

(6,831)

(29,742)

19,281

Depreciation and amortisation

 

 

1,639

1,190

754

713

750

Share based payments

 

 

3,048

3,525

4,322

4,322

4,322

Other adjustments

 

 

758

(13,365)

1,522

1,096

0

Movements in working capital

 

 

(46,859)

(30,762)

(31,787)

10,872

(10,886)

Cash from operations (CFO)

 

 

(63,836)

(54,134)

(32,020)

(12,739)

13,467

Capex

 

 

(294)

(1,823)

(581)

(1,624)

(1,000)

Short-term investments

 

 

30,000

(51,023)

6,023

10

10

Long-term investments

 

 

(30,000)

0

0

0

0

Other investing activities

 

 

(110)

17,883

(1,867)

(705)

(200)

Cash used in investing activities (CFIA)

 

 

(404)

(34,963)

3,575

(2,319)

(1,190)

Net proceeds from issue of shares

 

 

0

0

42,240

0

0

Movements in debt

 

 

0

43,451

(23,212)

0

0

Other financing activities

 

 

1,309

1,616

(2,388)

0

0

Cash from financing activities (CFF)

 

 

1,309

45,067

16,640

0

0

Cash and equivalents at beginning of period

 

 

173,908

111,044

66,256

54,953

39,895

Increase/(decrease) in cash and equivalents

 

 

(62,931)

(44,030)

(11,805)

(15,058)

12,277

Effect of FX on cash and equivalents

 

 

67

(758)

501

0

0

Cash and equivalents at end of period

 

 

111,044

66,256

54,952

39,895

52,172

Net (debt)/cash

 

 

(68,716)

(77,896)

(69,349)

(85,513)

(73,246)

Source: Basilea Pharmaceutica company accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Basilea Pharmaceutica and prepared and issued by Edison, in consideration of a fee payable by Basilea Pharmaceutica. Edison Investment Research standard fees are £60,000 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 2022 Edison Investment Research Limited (Edison).

Australia

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

1185 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

1185 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

General disclaimer and copyright

This report has been commissioned by Basilea Pharmaceutica and prepared and issued by Edison, in consideration of a fee payable by Basilea Pharmaceutica. Edison Investment Research standard fees are £60,000 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 2022 Edison Investment Research Limited (Edison).

Australia

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

1185 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

1185 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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