Paion |
Positive data in bronchoscopy Phase III |
Headline trial results |
Pharma & biotech |
7 July 2017 |
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Business description
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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* |
EPS* |
DPS |
P/E |
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 |
|
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.
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Exhibit 2: Comparable treatment success rates in the different patient populations |
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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.
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Exhibit 3: Similar patterns of time to start of procedure for remimazolam and midazolam |
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Source: Paion investor presentation. Note: ASA III/IV patients refers to the safety study in high-risk colonoscopy patients with severe systemic disease. |
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Exhibit 4: Recovery faster with remimazolam in all three pivotal studies |
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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 |
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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 |
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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 |
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Year end 31 December |
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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 |
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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
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