Positive data in bronchoscopy Phase III

Paion 7 July 2017 Update
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Paion

Positive data in bronchoscopy Phase III

Headline trial results

Pharma & biotech

7 July 2017

Price

€3.12

Market cap

€182m

US$1.10/€

Net cash (€m) at 31 March 2017

28.7

Shares in issue

58.2m

Free float

75%

Code

PA8

Primary exchange

Frankfurt (Xetra)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

26.1

29.3

40.8

Rel (local)

29.2

27.7

6.6

52-week high/low

€3.3

€2.1

Business description

Paion is an emerging specialty pharma company developing anaesthesia products. Lead product remimazolam is undergoing US Phase III trials and is partnered with Cosmo (US), Yichang (China), Hana Pharma (South Korea), Pendopharm (Canada) and R-Pharm (CIS, Turkey, MENA).

Next events

Complete abuse potential studies

H217

Pre NDA meeting with FDA

Q417

FDA filing

mid 2018

Analysts

Dennis Hulme

+61 (0)2 9258 1161

Susie Jana

+44 (0)20 3681 2527

Paion is a research client of Edison Investment Research Limited

Paion announced positive top-line results from the confirmatory Phase III trial of remimazolam for procedural sedation in bronchoscopy, adding to the positive results of a Phase III colonoscopy trial. It is currently conducting additional Phase I studies to further assess abuse potential as the final step of its US clinical development program. Paion is on track to file for approval in both the US (in procedural sedation via partner Cosmo Pharmaceuticals) and Japan (for general anaesthesia) by mid-2018. With the successful completion of the Phase III program for procedural sedation we increase our valuation to €240m (vs €214m) or €4.13 per share.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/15

0.1

(34.0)

(55.7)

0.0

N/A

N/A

12/16

4.3

(24.3)

(36.4)

0.0

N/A

N/A

12/17e

5.9

(16.4)

(23.2)

0.0

N/A

N/A

12/18e

3.5

(12.9)

(18.6)

0.0

N/A

N/A

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

Positive top-line bronchoscopy data

The primary endpoint of successful completion of the bronchoscopy procedure without the need for rescue medication or more than five top-up doses was easily met: procedural success was 82.5% for remimazolam vs 3.4% for placebo (p<0.0001). Adverse events occurred less frequently with remimazolam compared to midazolam. The results in the secondary endpoints were in keeping with the Phase III colonoscopy study and the high-risk colonoscopy safety study, with induction and recovery from sedation faster with remimazolam than midazolam or placebo.

US filing for procedural sedation expected mid 2018

Paion has initiated additional Phase I studies to further assess abuse potential, ahead of a pre-NDA meeting planned for the end of 2017. A US filing by partner Cosmo is expected in mid-2018 (pending successful abuse potential studies).

Japan filing likely mid-2018, GA Phase I to start soon

Paion has begun to prepare a dossier for a potential mid-2018 filing for remimazolam for general anaesthesia (GA) in Japan, and is in ongoing discussions as it seeks to partner in the Japanese market. Paion will shortly commence a Phase I trial to collect data to aid the design of an EU Phase III study for GA in general surgery patients. The Phase III could start in 2018, subject to funding.

Valuation: Increased to €240m or €4.13 per share

We increase the probability of success in the US to 85%, which lifts our valuation to €240m or €4.13/share (vs €214m or €3.68/share). Paion’s cash reach extends beyond end 2018, which would allow it to complete filings in the US (via partner Cosmo) and Japan. Paion has guided that it would need an additional ~€20-25m to restart development of remimazolam in Europe (we model the funds coming from Cosmo milestones, but a licence deal or capital raise could also contribute).

Positive results in bronchoscopy Phase III trial

Paion reported positive results from the confirmatory US pivotal study of remimazolam in patients undergoing bronchoscopy; 83% of patients in the remimazolam arm achieved the composite primary outcome (completion of the bronchoscopy procedure without rescue medication) vs 3.4% on placebo (Exhibit 1). The time from start of medication to start of procedure (induction time) was 5 minutes for remimazolam vs 16 minutes for midazolam, while time from end of procedure to fully alert was 6 minutes for remimazolam vs 12 minutes for midazolam. There were also fewer instances of hypotension and bradycardia in the remimazolam arm. One patient in the remimazolam arm experienced two treatment related serious adverse events after being administered the opioid pain reliever fentanyl at twice the dose allowed by the study protocol.

Exhibit 1: Key results from Phase III colonoscopy procedural sedation trial

Remimazolam

Placebo

Midazolam
(open label)

Initial/top up dose (mg)

5/2.5

1.75/1.0*

Procedural success

82.5%

3.4%

34.8%

Use of rescue sedation

16.2%

96.6%

56.5%

Start of medication to start of procedure (median, minutes)

5.0

17.0

16.0

End of procedure to fully alert (mean, minutes)

6.0

14.0

12.0

Back to normal (min)

404

935

479

Source: Paion, Edison Investment Research. Note: *1.0/0.5 mg for elderly/debilitated/chronically ill.

The dosage protocols for remimazolam allow for top-up doses to be administered at one minute intervals to facilitate more rapid induction of sedation. The midazolam label specifies a two-minute interval between top-up doses, and midazolam was administered in accordance with the label in the trial protocol.

For this reason the criterion for procedural success in the composite primary outcome shown above was slightly different for the open-label midazolam arm than it was for the double-blind remimazolam and placebo arms. The definition of procedural success was: no need for rescue medication, completion of the procedure and no more than five doses within any 15-minute window for remimazolam/placebo and no more than three doses within any 12-minute window for midazolam.

Exhibit 2 shows that the relative treatment success rates for remimazolam compared to midazolam were similar across the different patient populations in the two pivotal studies and the high-risk colonoscopy study.

Exhibit 2: Comparable treatment success rates in the different patient populations

Source: Paion investor presentation. Note: ASA III/IV patients refers to the safety study in high-risk colonoscopy patients with severe systemic disease.

The patient populations in the three studies ranged from younger and mostly healthy individuals in the Phase III colonoscopy study to a selected group of high-risk patients undergoing colonoscopy. These high-risk patients were classified as American Society of Anaesthesiologists (ASA) class III (patients with severe systemic disease) or class IV (patients with severe systemic disease that is a constant threat to life). The subjects in the bronchoscopy Phase III were intermediate between these two groups, with 38% ASA of subjects in class III compared to 7% in the colonoscopy Phase III trial.

Exhibits 3 and 4 show that induction of and recovery from sedation was faster for remimazolam than midazolam in each of the three studies.

Exhibit 4 shows that for each of the treatments the absolute recovery times were shorter in the sicker patient populations where lower doses of sedation agents were use. However, in each study recovery was faster for remimazolam than midazolam.

Exhibit 3: Similar patterns of time to start of procedure for remimazolam and midazolam

Source: Paion investor presentation. Note: ASA III/IV patients refers to the safety study in high-risk colonoscopy patients with severe systemic disease.

Exhibit 4: Recovery faster with remimazolam in all three pivotal studies

Source: Paion investor presentation. Note: ASA III/IV patients refers to the safety study in high-risk colonoscopy patients with severe systemic disease.

Exhibit 5 summarises the sedation and recovery times for remimazolam and midazolam in the three studies. In each study the induction and recovery times were shorter for remimazolam than for midazolam, with total induction and recovery times between 17 and 23.5 minutes shorter for remimazolam than for midazolam (average 19.5 minutes).

As we previously noted in our report dated 21 November 2016, in the clinical setting midazolam is often administered at higher initial doses and with shorter intervals between top-ups than is recommended on the label. However, our review of published studies found that while this led to faster induction of sedation (6 minutes) the average recovery times were significantly longer (30 minutes), so the total induction and recovery time in the published studies averaged 36 minutes, similar to the 35 minutes total for midazolam in Paion’s Phase III colonoscopy study. It is possible that the more rapid administration of midazolam results in higher total doses leading to slower recovery from sedation.

Exhibit 5: Induction and recovery times for the three pivotal studies

Bronchoscopy Phase III

Colonoscopy Phase III

High-risk colonoscopy

Remimazolam

Midazolam

Remimazolam

Midazolam

Remimazolam

Midazolam

Time to start of procedure (min)

5.0

16.0

4.0

19.0

5.0

19.0

End of procedure to fully alert (min)

6.0

12.0

7.2

15.7

3.0

7.0

Total induction plus recovery time

11.0

28.0

11.2

34.7

8.0

26.0

Time saving with remimazolam

17.0

23.5

18.0

Source: Edison Investment Research

The longer total induction and recovery times for midazolam compared to remimazolam are supportive of the business case that remimazolam will enable more colonoscopy procedures to be completed in a given time period and thus increase patient throughput. We expect this improved throughput to drive significant uptake of remimazolam in the addressable market of 35m procedures per year in the US.1

  CDC procedural stats.


Sensitivities

The key sensitivity is the outcome of clinical trials with remimazolam, notably the outcome of abuse potential studies in the US. The Cosmo licence deal means that Paion should be fully funded until it begins to receive royalty income from US sales, but this is dependent on successful completion of the abuse potential studies and timely regulatory review and subsequent approval by the FDA.

Paion has sufficient cash to fund operations beyond the end of 2018, which would allow it to complete filings in the US (via partner Cosmo) and Japan. Management has guided that ~€20-25m of additional funds would be needed should it choose to restart development of remimazolam in Europe – while we model these funds coming from Cosmo milestone payments, we note that a licence deal or a capital raise are also potential sources.

Valuation

Our sum-of-the-parts DCF valuation increases to €240m, or €4.13 per share, from €214m or €3.68 per share. We have increased the likelihood of success in the US from 75% to 85% following the successful completion of the Phase III development program for remimazolam in procedural sedation, and have rolled forward the DCF model to the mid-year. Our other valuation assumptions are unchanged. Our financial forecasts are also unchanged except for a €0.4m increase in risk-adjusted milestone revenue in 2018 due to the increased probability of success in the US.

Exhibit 6 shows our key valuation assumptions and Exhibit 7 shows a breakdown of the contribution of the individual components of our valuation.

Exhibit 6: Valuation assumptions for pipeline

Launch date

Peak sales US$m

Risk adjustment (%)

Market penetration (%)

Royalty (%)

Remimazolam EU

2021

175

50

15

20

Remimazolam US

2019

280

85

20

20

Remimazolam Japan

2019

75

60

15

20

Remimazolam RoW

2020

165

50

12

12

Remimazolam Canada

2020

42

60

20

15

Source: Edison Investment Research

The potential catalysts in H217 include completion of the Phase I abuse potential trials and the European Phase I trial in general anaesthesia, the pre-NDA meeting with the FDA, and an update on partnering options for Japan. Paion is evaluating its commercialisation options in unpartnered regions, which could lead us to adjust our royalty rate assumptions.

Exhibit 7: Summary valuation

Value (€m)

Value per share (€)

Remimazolam EU

36.4

0.63

Remimazolam US

184.4

3.17

Remimazolam Japan

47.0

0.81

Remimazolam RoW

21.3

0.37

Remimazolam Canada

10.6

0.18

Risk-adjusted milestones

59.0

1.01

Expenses

(54.4)

(0.93)

Tax

(80.2)

(1.38)

Net cash FY17e

15.9

0.27

Total

240.1

4.13

Source: Edison Investment Research

Exhibit 8: Financial summary

€000s

2014

2015

2016

2017e

2018e

Year end 31 December

PROFIT & LOSS

Revenue

 

 

3,456

61

4,262

5,874

3,500

Cost of sales

(4)

0

0

0

0

Gross profit

3,452

61

4,262

5,874

3,500

R&D expenditure

(11,799)

(29,385)

(23,408)

(19,000)

(13,000)

General, administrative & selling

(3,702)

(5,729)

(5,129)

(3,800)

(3,914)

Other

411

965

(807)

51

51

Operating profit

(11,639)

(34,088)

(25,082)

(16,875)

(13,363)

Depreciation and amortisation

(93)

0

(759)

(500)

(400)

Share-based payments

0

0

0

0

0

Exceptionals

0

0

0

0

0

EBITDA

 

 

(11,546)

(34,088)

(24,323)

(16,375)

(12,963)

Operating profit (before GW and except)

 

(11,546)

(34,088)

(24,323)

(16,375)

(12,963)

Net interest

(66)

42

21

20

20

Profit before tax (norm)

 

 

(11,612)

(34,046)

(24,302)

(16,355)

(12,943)

Profit before tax (reported)

 

 

(11,704)

(34,046)

(25,061)

(16,855)

(13,343)

Tax

2,468

5,834

4,944

3,135

2,145

Profit after tax (norm)

(9,143)

(28,212)

(19,359)

(13,220)

(10,798)

Profit after tax (reported)

(9,236)

(28,212)

(20,118)

(13,720)

(11,198)

Average number of shares outstanding (m)

39.9

50.7

53.2

57.0

58.2

EPS - normalised (c)

 

 

(22.9)

(55.7)

(36.4)

(23.2)

(18.6)

EPS - reported (c)

 

 

(23.2)

(55.7)

(37.8)

(24.1)

(19.2)

Dividend per share (c)

 

 

0.0

0.0

0.0

0.0

0.0

Gross margin (%)

NA

NA

NA

NA

NA

EBITDA margin (%)

NA

NA

NA

NA

NA

Operating margin (before GW and except.) (%)

NA

NA

NA

NA

NA

BALANCE SHEET

Fixed assets

 

 

3,516

3,417

2,855

2,355

1,955

Intangible assets

3,440

3,362

2,688

2,313

2,013

Tangible assets

76

56

167

42

-58

Refund from assumption of dev costs

0

0

0

0

0

Other

0

0

0

0

0

Current assets

 

 

63,032

40,051

35,128

20,925

10,127

Stocks

0

0

0

0

0

Debtors

467

0

0

25

25

Cash

58,912

32,680

30,111

15,883

5,085

Other

3,653

7,371

5,017

5,017

5,017

Current liabilities

 

 

(3,924)

(7,901)

(13,040)

(7,266)

(7,266)

Trade payables

(3,338)

(7,332)

(6,353)

(6,353)

(6,353)

Short-term borrowings

0

0

0

0

0

Provisions

(306)

(224)

(555)

(555)

(555)

Finance lease liabilities

0

0

0

0

0

Other current liabilities

(254)

(305)

(359)

(359)

(359)

Current deferred income

(26)

(39)

(5,774)

0

0

Long-term liabilities

 

 

(17)

(6)

0

0

0

Long-term borrowings

0

0

0

0

0

Provisions

0

0

0

0

0

Long-term deferred income

(17)

(6)

0

0

0

Deferred taxes

0

0

0

0

0

Other long-term liabilities

0

0

0

0

0

Net assets

 

 

62,607

35,562

24,943

16,014

4,816

CASH FLOW

Operating cash flow

 

 

(12,044)

(28,212)

(17,135)

(22,174)

(12,963)

Net interest

(66)

43

19

20

20

Tax

0

2,575

5,529

3,135

2,145

Capex

0

0

7

0

0

Purchase of intangibles

(26)

(33)

0

0

0

Acquisitions/disposals

0

0

(199)

0

0

Equity Financing

57,618

22

9,212

4,790

0

Dividends

0

0

0

0

0

Other

0

0

0

0

0

Net cash flow

45,482

(25,605)

(2,567)

(14,229)

(10,798)

Opening net debt/(cash)

 

 

(13,292)

(58,912)

(32,680)

(30,111)

(15,883)

Effect of exchange rate changes

(72)

(66)

(2)

0

0

Other

210

(560)

0

0

0

Closing net debt/(cash)

 

 

(58,912)

(32,680)

(30,111)

(15,883)

(5,085)

Source: Edison Investment Research, Paion accounts

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 Paion 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.
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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

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Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Paion 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.
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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

New York, NY10017

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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