Recent deals enable greater focus on the core

Medigene 8 February 2016 Update

Medigene

Recent deals enable greater focus on the core

Deal updates

Pharma & biotech

8 February 2016

Price

€7.77

Market cap

€153m

Net cash (€m) at 30 September 2015

50.8

Shares in issue

19.7m

Free float

55.6%

Code

MDG1

Primary exchange

XETRA

Secondary exchange

Frankfurt

Share price performance

%

1m

3m

12m

Abs

(12.5)

32.0

96.2

Rel (local)

(2.8)

54.8

130.5

52-week high/low

€14.9

€3.9

Business description

Medigene is a German biotech company with a core technology platform in cancer immunotherapy. dendritic cell (DC) vaccines are in Phase I/II clinical studies, while a T-cell receptor (TCR) candidate should enter the clinic in 2016.

Next event

FY15 results

17 March 2016

Analysts

Dr Linda Pomeroy

+44 (0)20 3077 5700

Christian Glennie

+44 (0)20 3077 5727

Medigene is a research client of Edison Investment Research Limited

Recent non-core, business-related newsflow has proved highly beneficial to Medigene. The full and final transference of EndoTAG-1 rights to SynCore and the sale of its Catherex subsidiary to Amgen for $10.5m (40% to Medigene) tidies up its legacy pipeline and IP assets, while providing a decent revenue stream. Medigene’s core focus remains on its immune-oncology franchise, and we look forward to significant progress in 2016. Our rNPV-based valuation increases to €216m or €10.98 per share.

Year end

Revenue
(€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/13

7.6

(9.7)

(1.01)

0.0

N/A

N/A

12/14

13.8

(5.3)

(0.42)

0.0

N/A

N/A

12/15e

7.4

(12.2)

(0.72)

0.0

N/A

N/A

12/16e

8.1

(12.8)

(0.64)

0.0

N/A

N/A

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

Non-core business benefits realised

A spin-out of Medigene, Catherex has now been fully acquired by Amgen. Catherex held IP related to Amgen’s recently approved and launched Imlygic, an oncolytic viral therapy for melanoma. The deal included a $10.5m upfront payment, of which Medigene will receive 40%. There is also the potential of future milestones and royalties from sales of Imlygic. Medigene also recently completed the full transference of EndoTAG-1 rights to SynCore for €5m (to be paid in five annual instalments), while retaining potential upside from future milestones and royalties.

Promising early data with dendritic cell vaccines

Promising early data from its two independent clinical programmes in patient groups with acute myeloid leukaemia (AML) were presented at the American Society of Hematology (ASH) meeting in December 2015. The data indicate an excellent safety profile and the capacity to induce T-cell responses in elderly patients unable to undergo stem cell transplantation.

Core focus underpinned by CEO appointment

We also note the recent appointment of Professor Dolores Schendel as CEO. As CSO and co-founder of Trianta Immunotherapy, acquired by Medigene in 2014 and now the core technology, this is a logical appointment.

Valuation: Raised to €216m from €208m

Our rNPV-based valuation increases to €216m (from €208m), or €10.98 per share (vs €10.60/share), primarily as a result of the Catherex-Amgen deal. Medigene is entitled to 40% of the upfront payment (estimated at €3.85m), milestones and royalties from sales of Imlygic, recently approved and launched in Europe and the US for the treatment of advanced, metastatic melanoma. Using consensus (Bloomberg) forecasts for Imlygic, which indicate peak sales of $455m by 2022, and applying an estimated 1% royalty on sales, we value the Imlygic royalties (including the upfront payment of €3.85m) at €20m.

Valuation

We have increased our rNPV of Medigene’s product portfolio to €171m (vs €154m), due to the addition of the potential Imlygic royalty stream following Amgen’s acquisition of Catherex. We include the upfront fee estimate of €3.85m and a 1% royalty on consensus (Bloomberg) forecasts for Imlygic, which indicate peak sales of $455m by 2022.

Offsetting this is a reduction in Veregen peak sales estimate (to $48m vs $55m) based on the lower than expected Q315 run rate. With estimated FY15 cash of €44.2m, our overall valuation for Medigene is now €216m (vs €208m previously), or €10.98 per share (vs €10.60/share). We previously removed EndoTAG-1 from our valuation model, so the SynCore deal has no impact on our valuation, although we acknowledge the potential upside from royalties on sales of the drug if it reaches the market (SynCore is currently planning a Phase III study). Our other key assumptions remain unchanged, although we have rebased the model to 2016, which results in a modest increase in the rNPV of each programme (Exhibit 1).

Exhibit 1: NPV sum-of-the-parts

Product

Status

Launch

NPV (€m)

Peak sales
($m)

Probability of success

Royalty rate

rNPV
(€m)

rNPV/share
(€)

Veregen

Marketed

2009

20

48

100%

20%

20

1.02

Imlygic

Marketed*

2015

20

455

100%

1%

20

1.01

DC vaccine - AML

Phase I/II

2022

58

333

25%

15%

11

0.57

DC vaccine - prostate cancer

Phase II

2024

143

1,002

25%

15%

36

1.82

TCR

Pre-clinical

2024

743

4,214

5%

20%

30

1.55

DC vaccine deal metrics

200

25%

34

1.71

TCR deal metrics

500

5%

21

1.04

Portfolio total

984

171

8.73

Net cash (FY15e)

44.2

2.25

Overall valuation

216

10.98

Source: Edison Investment Research, *Marketed by Amgen

Financials

Medigene’s last reported financials at Q315 were revenue of €5.3m (vs €8.4m in Q314) and cash of €50.8m. The lower revenues were partly due to lower supply chain orders than anticipated for Veregen in Q315, while Q314 included significant one-off revenues. As a result, company guidance for FY15 Veregen revenues has been reduced (see Exhibit 2). We have lowered our FY15 total revenues from €8.4m to €7.4m and FY16 from €9.7m to €8.1m. The company has also altered EBITDA (loss) guidance due to lower R&D costs than planned for its immunotherapies programme. These are a result of lower third-party charges and personnel costs. We have adjusted for this and reduced our EBITDA (loss) to €9.2m (vs €11.9m). FY16 balance sheet adjustments for the Amgen acquisition of Catherex (Medigene’s subsidiary) include cash of €3.85m (upfront fee) and a reduction in intangible assets to €34m (vs €37.4m) and current liabilities to €6.5m (vs €7.8m).

Exhibit 2: Medigene guidance and Edison forecasts for FY15

€m

FY14
(actual)

FY15 previous
Medigene guidance

FY15 revised
Medigene guidance

Edison FY15e
previous

Edison FY15e
new

Edison FY15e
vs FY14 (%)

Veregen royalties

2.4

Double-digit percentage
increase

High single-digit percentage
increase

2.9

2.5

5.7

Veregen total revenue

5.2

Stable

3-4

4.4

3.5

(32.7)

EBITDA loss

2.0

11-13

9-10

11.9

9.2

N/A

Source: Medigene Q315 presentation, Edison Investment Research

Exhibit 3: Financial summary

€'000s

2013

2014

2015e

2016e

2017e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

7,592

13,784

7,405

8,102

8,957

of which: Veregen revenues (royalties/milestones/supply)

4,209

5,195

3,497

3,940

4,311

Imlygic revenues (royalties)

0

0

0

569

1,053

R&D partnering (SynCore/Falk Pharma/grants)

890

6,096

1,414

1,100

1,100

Non-cash income (Eligard)

2,493

2,493

2,493

2,493

2,493

Cost of sales

(1,735)

(2,086)

(1,299)

(1,496)

(1,644)

Gross profit

5,857

11,698

6,106

6,606

7,313

Selling, general & administrative spending

(8,273)

(7,081)

(7,616)

(7,834)

(8,058)

R&D expenditure

(6,605)

(7,498)

(8,500)

(9,775)

(10,753)

Other operating spending

0

0

.

0

0

Operating profit

(9,021)

(2,881)

(10,674)

(11,003)

(11,498)

Goodwill & intangible amortisation

(485)

(527)

(500)

(475)

(474)

Exceptionals

0

0

(664)

0

0

Share-based payment

(60)

(66)

(50)

(50)

(50)

EBITDA

 

 

(8,210)

(2,005)

(9,210)

(10,253)

(10,749)

Operating profit (before GW and except.)

 

 

(8,476)

(2,288)

(9,460)

(10,478)

(10,974)

Net interest

(1,553)

(1,774)

(2,870)

(2,485)

(2,317)

Other (forex gains/losses; associate profit/loss)

310

(1,257)

150

150

151

Profit before tax (norm)

 

 

(9,719)

(5,319)

(12,180)

(12,813)

(13,140)

Profit before tax (FRS 3)

 

 

(10,264)

(5,912)

(13,394)

(13,338)

(13,664)

Tax

(18)

155

0

0

0

Profit/(loss) from discontinued operations

0

0

0

0

0

Profit after tax (norm)

(9,737)

(5,164)

(12,180)

(12,813)

(13,140)

Profit after tax (FRS 3)

(10,282)

(5,757)

(13,394)

(13,338)

(13,664)

Average number of shares outstanding (m)

9.6

12.2

16.8

19.9

20.2

EPS - normalised (€)

 

 

(1.01)

(0.42)

(0.72)

(0.64)

(0.65)

EPS - FRS 3 (€)

 

 

(1.07)

(0.47)

(0.80)

(0.67)

(0.68)

Dividend per share (€)

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed assets

 

 

36,392

46,617

55,329

51,849

51,650

Intangible assets & goodwill

29,170

38,377

37,877

34,122

33,648

Tangible assets

405

951

1,201

1,476

1,751

Other non-current assets

6,817

7,289

16,251

16,251

16,251

Current assets

 

 

16,263

24,666

52,722

42,270

26,988

Stocks

3,046

4,406

6,500

6,500

6,500

Debtors

1,363

1,733

1,200

1,200

1,200

Cash

10,166

14,976

44,219

33,767

18,485

Other

1,688

3,551

803

803

803

Current liabilities

 

 

(5,092)

(7,755)

(9,356)

(8,068)

(8,068)

Trade accounts payable

(1,419)

(1,785)

(1,500)

(1,500)

(1,500)

Short-term borrowings

0

0

0

0

0

Deferred income

(22)

(57)

(56)

(56)

(56)

Other

(3,651)

(5,913)

(7,800)

(6,512)

(6,512)

Long-term liabilities

 

 

(11,287)

(14,457)

(14,449)

(14,449)

(14,449)

Pension provisions

(304)

(413)

(405)

(405)

(405)

Long-term borrowings

0

0

0

0

0

Other liabilities (Deferred taxes; Trianta milestones)

(291)

(3,221)

(3,221)

(3,221)

(3,221)

Deferred revenues (Eligard non-cash income)

(10,692)

(10,823)

(10,823)

(10,823)

(10,823)

Net assets

 

 

36,276

49,071

84,246

71,602

56,121

CASH FLOW

Operating cash flow

 

 

(11,597)

(8,765)

(12,742)

(13,638)

(13,965)

Net interest

12

9

(1,370)

(985)

(817)

Tax

(661)

0

0

0

0

Capex

(142)

(873)

(500)

(500)

(500)

Expenditure on intangibles

0

0

0

0

0

Acquisitions/disposals

0

0

0

3,853

0

Equity financing

2,378

14,502

43,855

819

0

Other

0

(62)

0

0

0

Net cash flow

(10,010)

4,811

29,243

(10,451)

(15,282)

Opening net debt/(cash)

 

 

(20,113)

(10,166)

(14,976)

(44,219)

(33,767)

HP finance leases initiated

0

0

0

0

0

Other (foreign exchanges differences)

63

(1)

(0)

0

0

Closing net debt/(cash)

 

 

(10,166)

(14,976)

(44,219)

(33,767)

(18,485)

Source: Company accounts, Edison Investment Research

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

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Germany

London +44 (0)20 3077 5700

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London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

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