Prevention is commercially cost effective

Destiny Pharma 25 February 2019 Update
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Destiny Pharma

Prevention is commercially cost effective

Supportive publications

Pharma & biotech

25 February 2019

Price

79p

Market cap

£34m

$1.29/£

Net cash (£m) 30 June 2018

15.1

Shares in issue

43.6m

Free float

92.7%

Code

DEST

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

25.0

16.8

(39.2)

Rel (local)

20.4

13.2

(38.3)

52-week high/low

137.0p

61.5p

Business description

Destiny Pharma is dedicated to discovering, developing and commercialising new antimicrobial agents that have unique properties to improve outcomes for patients. Destiny’s first product, XF-73, is about to start a US Phase IIb clinical study.

Next events

FY18 results

11 April 2019

US Phase IIb XF-73 study start

Q119

H119 interims

October 2019

Final US Phase IIb study results

Q419

Analyst

Andy Smith

+44 (0)20 3077 5700

Destiny Pharma is a research client of Edison Investment Research Limited

XF-73, Destiny Pharma’s new antimicrobial, is in Phase IIb for the prevention of staphylococcal surgical infections and seems to be in the right place at the right time. Recent press reports suggest that in most developed markets, cutting screening for nasal staphylococcal carriage before surgery was associated with patient deaths. Another recent paper highlighted the mortality benefit of nasal decolonisation.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/17

0.0

(3.21)

(8.45)

0.0

N/A

N/A

12/18e

0.0

(7.32)

(14.28)

0.0

N/A

N/A

12/19e

0.5

(8.26)

(15.29)

0.0

N/A

N/A

12/20e

0.0

(3.58)

(7.06)

0.0

N/A

N/A

Note: *PBT and EPS are as reported.

Reduced screening in hospitals has negative effects

A recent press report from Scotland has linked the deaths of five hospitalised patients to reductions in the programme of screening for methicillin-resistant Staphylococcus aureus (MRSA) to prevent hospital-acquired infections. Screening fell from 92% to 60% of hospitalised patients. This is not surprising as preventative measures involving medical staff at admission, laboratory analysis and a clinical decision are convoluted and easy targets for cost cutting although MRSA bacteraemia surveillance has been mandatory in the UK since 2001. We believe any reduction in screening, although difficult to condone, is positive for Destiny’s XF-73 product for nasal decolonisation because its rapid bactericidal activity and lack of resistance could support the use in most patients admitted to hospital, without screening (saving costs) and should reduce post-surgical deaths.

Recent NEJM paper mirrors Destiny’s strategy

A recent paper in the New England Journal of Medicine compared the effect of nasal decolonisation on MRSA infection versus hygiene education alone. The nasal decolonisation regimen included off-label nasal mupirocin, which has its limitations with bacterial resistance and reimbursement. These issues are not relevant to Destiny’s XF-73 nasal formulation. Nasal decolonisation was associated with a 30% lower risk of MRSA infection over education alone. The number of patients needed to be treated (NNT) to avoid one infection was only 30. The NNT figure is more supportive of Destiny’s XF-73 nasal formulation, which has a shorter dosing period than nasal mupirocin’s three times a day for five days. In addition, XF-73’s shorter on-label preventative indication should ease reimbursement.

Valuation: Unchanged

We have not changed our valuation ahead of Destiny’s FY18 results in April. With the supportive commentary on the prevention of post-surgical infections, we may also revisit our assumptions on the market penetration of XF-73. At present, our model values XF-73 use only in high-risk screened surgical patients (neurosurgery, some cardiovascular and orthopaedic procedures). Our valuation remains £86.7m or £1.99 per share.

Exhibit 1: Financial summary

Accounts: IFRS, Year-end: December, GBP:(thousands)

 

2017

2018e

2019e

2020e

2021e

Income statement

 

 

 

 

 

 

 

Total revenues

 

 

0

0

500

0

0

Cost of sales

 

 

0

0

0

0

0

Gross profit

 

 

0

0

500

0

0

SG&A (expenses)

 

 

(1,011)

(2,100)

(1,900)

(1,700)

(1,700)

R&D costs

 

 

(387)

(4,700)

(6,900)

(1,900)

(1,900)

Other income/(expense)

 

 

(613)

0

0

0

0

Exceptionals and adjustments

 

(710)

(700)

(85)

(25)

(25)

Depreciation and amortisation

 

 

(2.1)

(3.9)

(2.3)

(2.3)

(2.4)

Reported EBIT

 

 

(3,222)

(7,504)

(8,387)

(3,627)

(3,627)

Finance income/(expense)

 

 

10.5

184.0

126.0

49.9

100.6

Reported PBT

 

 

(3,211)

(7,320)

(8,261)

(3,577)

(3,527)

Income tax expense (includes exceptionals)

 

 

234

1,100

1,600

500

500

Reported net income

 

 

(2,977)

(6,220)

(6,661)

(3,077)

(3,027)

Basic average number of shares, m

 

 

35,254

43,563

43,563

43,563

43,563

Basic EPS (p)

 

 

(8.45)

(14.28)

(15.29)

(7.06)

(6.95)

 

 

 

 

 

 

 

 

Balance sheet

 

 

 

 

 

 

 

Property, plant and equipment

 

 

22.3

29.5

27.7

25.9

24.0

Goodwill

 

 

0

0

0

0

0

Intangible assets

 

 

0

0

0

0

0

Other non-current assets

 

 

0

0

0

0

0

Total non-current assets

 

 

22.3

29.5

27.7

25.9

24.0

Cash and equivalents

 

 

11,724

7,457

537

5,148

2,148

Other financial assets (term deposits)

 

 

5,000

4,000

4,000

4,000

4,000

Inventories

 

 

0

0

0

0

0

Trade and other receivables

 

 

277

634

466

277

277

Other current assets

 

 

60

38

38

38

38

Total current assets

 

 

17,061

12,129

5,041

9,463

6,463

Non-current loans and borrowings

 

 

0

0

0

7,576

7,576

Other non-current liabilities

 

 

0

0

0

0

0

Total non-current liabilities

 

 

0

0

0

7,576

7,576

Trade and other payables

 

 

152

769

255

152

152

Current loans and borrowings

 

 

0

0

0

0

0

Other current liabilities

 

 

246

246

246

246

246

Total current liabilities

 

 

397

1,015

501

397

397

Equity attributable to company

 

 

16,686

11,166

4,590

1,537

(1,465)

Non-controlling interest

 

 

 

 

 

 

 

 

 

 

Cashflow statement

 

 

 

 

 

 

 

Profit for the year

 

 

(3,211)

(7,320)

(8,261)

(3,577)

(3,527)

Taxation expenses

 

 

Profit before tax

 

 

(3,211)

(7,320)

(8,261)

(3,577)

(3,527)

Net finance expenses

 

 

(10)

(184)

(126)

(50)

(101)

EBIT

 

 

(3,222)

(7,504)

(8,387)

(3,627)

(3,627)

Depreciation and amortisation

 

 

2.1

3.9

2.3

2.3

2.4

Share based payments

 

 

710

700

85

25

25

Other adjustments

 

 

0

0

0

0

0

Movements in working capital

 

 

165

260

(346)

85

0

Interest paid / received

 

 

0

0

0

0

0

Income taxes paid

 

 

192

1,100

1,600

500

500

Cash from operations (CFO)

 

 

(2,153)

(5,440)

(7,046)

(3,015)

(3,100)

Capex

 

 

(23.2)

(11.1)

(0.5)

(0.5)

(0.5)

Acquisitions & disposals net

 

 

0

0

0

0

0

Other investing activities

 

 

(4,990)

1,184

126

50

101

Cash used in investing activities (CFIA)

 

 

(5,013)

1,172.9

125.6

49.4

100.2

Net proceeds from issue of shares

 

 

17,409

0

0

0

0

Movements in debt

 

 

0

0

0

7,576

0

Dividends paid

 

 

0

0

0

0

0

Other financing activities

 

 

0

0

0

0

0

Cash from financing activities (CFF)

 

 

17,409

0

0

7,576

0

Currency translation differences and other

 

 

0

0

0

0

0

Increase/(decrease) in cash and equivalents

 

 

10,243

(4,267)

(6,920)

4,611

(3,000)

Currency translation differences and other

 

 

0

0

0

0

0

Cash and equivalents at end of period

 

 

11,724

7,457

537

5,148

2,148

Net (debt) cash (includes Term Deposits)

 

 

16,724

11,457

4,537

1,572

(1,428)

Movement in net (debt) cash over period

 

 

15,243

(5,267)

(6,920)

(2,965)

(3,000)

Source: Destiny Pharma, Edison Investment Research

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Germany

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London, WC1V 7EE

United Kingdom

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United States of America

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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

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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