Services and oncology businesses to split

Selvita 8 April 2019 Update
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Selvita

Services and oncology businesses to split

Q418 company update

Pharma & biotech

8 April 2019

Price

PLN63.4

Market cap

PLN1014m

Net cash (PLNm) at end-Q418

121.4

Shares in issue

16.0m

Free float

40%

Code

SLV

Primary exchange

WSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

21.9

20.1

5.7

Rel (local)

20.4

16.7

0.8

52-week high/low

PLN64.4

PLN45.0

Business description

Selvita is an R&D and drug discovery services company. It operates three business segments: Innovations Platform (internal R&D pipeline), Research Services (medicinal chemistry/biology, biochemistry) and Ardigen (a spin-out bioinformatics company, 52% owned). The lead asset is wholly owned SEL120, currently Phase I-ready after the FDA approved an IND application in March 2019. Selvita is focusing on its other projects in a broad pipeline dedicated to oncology.

Next events

SEL24 Phase I/II data readout

2019

SEL120 Phase I study – first patient dosed

H219

Q119 results

22 May 2019

Analyst

Jonas Peciulis

+44 (0)20 3077 5728

Selvita is a research client of Edison Investment Research Limited

Selvita’s announcement of an intention to split into two separate companies was the hallmark event in the Q418 results presentation. By end of 2019, the drug discovery services and oncology R&D will be split into separate listed entities (subject to financial authorities and shareholders' approvals. We believe both businesses have sufficient momentum to sustain such a split. The profitable Services segment again delivered substantial sales growth of 34% in 2018. The R&D pipeline is progressing according to plan and two clinical trials with SEL24 and SEL120 could deliver data over 2019–2020. Our valuation is slightly higher than before at PLN1.34bn or PLN83.9/share.

Year end

Revenue (PLNm)

PBT*
(PLNm)

EPS*
(PLN)

DPS
(PLN)

P/E
(x)

Yield
(%)

12/17

105.9

10.2

0.51

0.0

N/A

N/A

12/18

110.1

9.0

(0.01)

0.0

N/A

N/A

12/19e

130.7

(13.1)

(0.88)

0.0

N/A

N/A

12/20e

153.1

(10.7)

(0.73)

0.0

N/A

N/A

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

A significant step in corporate history

With its Q418 results Selvita released a major announcement about its plans to split into two distinct companies. One company will provide drug discovery services while the other will focus on developing the innovative oncology compound portfolio, which roughly correspond to the current Services (including Ardigen) and Innovations business segments. Both companies will be listed on the Warsaw Stock Exchange. Selvita stated the rationale for the split is primarily related to the different risk and cash-flow profiles of the businesses. Because both parts of the company are mature enough to continue as separate entities, Selvita believes the timing for the split is right.

Services segment backlog indicates good 2019

Selvita’s reported total 2018 revenues of PLN110.1m (up 4% y-o-y) were largely in line with our expectations. Operating loss of PLN13.6m was slightly better than our expected PLN16.3m loss, as total operating expenses came in at PLN123.7m compared to our forecast PLN121.0m. As usual, Selvita released its first 2019 backlog with its Q418 results. The Services segment had already contracted revenues of PLN41.7m for 2019, up from PLN29.1m a year ago over the same period, which indicates another good year for this segment.

Valuation: Slightly up to PLN1.34bn or PLN83.9/share

Our valuation of Selvita is slightly higher at PLN1.34bn or PLN83.9/share versus PLN1.24bn or PLN77.6/share previously. Both the revision of the operating estimates and rolling the model forward had a small positive effect on the rNPV values of the R&D projects and the DCF. Data readouts from ongoing clinical trials with SEL24 and SEL120 should be released over 2019–2020.

Details of transaction and the two new companies

According to the initial details released by Selvita, the innovative oncology company will control the current R&D pipeline of small molecules and the platform technology (targeted therapeutics, cancer metabolism/immunometabolism and immunooncology platforms). The Selvita branding will be retained by the services company. Around 170 employees will be part of the innovative oncology company and the remaining 325 will join the services company. The separation is expected to be complete by end of 2019. Subject to approval by shareholders and the supervisory board, current Selvita CEO Pawel Przewiezlikowski will be CEO of the oncology company and COO Boguslaw Sieczkowski will become CEO of the contract research company (both are co-founders of Selvita). The current shareholding structure of Selvita should be maintained by both new companies. For each existing share in Selvita, the shareholders will receive one share in the innovative R&D company and one share in the services company. All Ardigen (Bioinformatics spin off) shares owned by Selvita will be allocated to the services company and all NodThera’s shares owned by Selvita will be allocated to the new R&D company.

Between 2014 and 2018 Selvita’s research Services grew by more than 30% per year to a total of PLN59m in 2018. The services company will seek to maximise its sales and profitability via organic growth and acquisition of complementary drugs discovery service providers. Of note is that the latter strategic option will become available as debt funding will be more accessible to the profitable services company.

We provided a detailed overview of Selvita’s R&D pipeline in our recent outlook report, including the two most advanced assets in clinical development, SEL24, a dual PIM/FLT3 inhibitor, and wholly owned SEL120, a selective CDK8 inhibitor. SEL24 is out-licensed to Menarini Group (and is now known as MEN1703), therefore we expect the new oncology company will focus on SEL120 and on advancing the broad preclinical pipeline. Selvita indicated that the existing pipeline of R&D projects would allow it to progress one new drug candidate into the clinic every year.

Our take

We believe such a split will be beneficial for investors as it will offer investors an investment option to match their risk/return profile. The Services segment is fast growing and profitable. As a standalone entity it will be able to diversify its capital structure, lower overall costs of capital and complement organic growth with acquisitions. The innovative R&D company will likely resemble a classic drug developer, which tends to be a high-risk but high-reward type of business. In Selvita’s case, the R&D pipeline is broad and the company has the same business goals it described in its 20172021 development strategy, which are to:

sign a partnership contract for further development and commercialisation of SEL120 in Phase II on significantly better terms than for SEL24; and

independently develop and partner one R&D project a year.

If these goals are met, the newsflow should be sufficient to support the share price. Therefore, both businesses appear to have enough momentum to continue as standalone entities. Data readouts could be released from both ongoing clinical trials with SEL24 and SEL120 this year, which are key catalysts for the share price as Selvita splits.

R&D progress

According to the Q418 update, Selvita made progress across its R&D pipeline and is on track with the plans announced in conjunction with the 2018 share issue.

Exhibit 1: Selvita R&D pipeline

Source: Selvita

Targeted therapeutics platform

The Phase I/II trial with SEL24/MEN1703 in acute myeloid leukaemia (AML) patients is progressing according to plan and now is run solely by Menarini, which should provide trial updates at scientific and medical conferences in 2019. Selvita anticipates the first clinical data could be released in 2020.

The second lead drug candidate, SEL120, is now ready to enter the Phase I trial after the FDA approved an IND application in March 2019 in patients with AML or high-risk myelodysplastic syndrome. The open-label, dose-escalation study is designed to evaluate safety, tolerability and recommended dose of SEL120. Selvita indicated that the activation of clinical centres in the US started in Q219 and administering SEL120 to the first patients could start in Q319 and, if all goes to plan, the data readout is planned for 2020. This focus on haematological malignancies is supported by the Leukemia and Lymphoma Society and Selvita has received US$1.1m in research funding in total since the collaboration was established in August 2017. However, the company believes the potential of SEL120 is much wider and could be used in various solid tumours, including in combinations with checkpoint inhibitors.

The targeted therapeutics platform also includes an ongoing project exploring the BRM/SMARCA2 target in the so-called synthetic lethality space and other projects with undisclosed epigenetic modulators. We reviewed all available preclinical data released by Selvita in our recent outlook report.

Immunooncology platform

The STING agonist project is at the most advanced discovery stage in this platform. One of the key potential competitive advantages of Selvita’s compounds is that they are small molecules suitable for systemic administration, rather than several other technologies that are in a clinical stage and based on cyclic dinucleotides scaffolds that are mostly administered intratumorally. In 2018, Selvita continued optimising the compounds and aims to identify the drug candidate for late-stage preclinical development by the end of 2019.

Another project in an earlier preclinical stage focuses on regulating the T-cell dependent immune response. It involves the target HPK1 (MAP4K1), which is one of the major proteins in the signalling cascade triggered by TCR activation. Inhibition of this kinase leads to prolonged activation of T-cells and stimulates dendritic cells’ antigen presentation, which eventually leads to improved mounting of the immune response directed against the cancerous cells.

Cancer metabolism and immunometabolism platform

In this platform Selvita has its own projects and a longstanding collaboration with Merck (compounds undisclosed). Of the internally run projects, the most advanced are focused on the adenosine pathway, more specifically on the modulation of the production of adenosine by tumour cells (CD39/CD73 enzymes) and its effects on immune cells (A2A/B receptors).

Selvita is focusing on best-in-class dual A2A/A2B receptor antagonists and expects to nominate the drug candidate for IND-enabling studies in 2019. Compounds are differentiated versus competitors and showed excellent anti-tumour efficacy in combination with immuno- and chemotherapies in preclinical studies. Entering the Phase I clinical trial is planned in 2020. Another project in this platform involves SHMT2 inhibitors in early discovery stages of preclinical development.

NodThera NLRP3 inflammasome technology

In June 2018 Selvita’s spin-out, NodThera, announced a £28m fundraise from a consortium of investors co-led by Sofinnova Partners and 5AM Ventures. Selvita’s last reported ownership of NodThera is 14% on a fully diluted basis. NodThera was created around Selvita’s NLRP3 inflammasome inhibitor technology with first-in-class compounds. Inflammasomes have been identified as the molecular mechanism behind the activation cascade of interleukin (IL)-1. IL-1 is a family of pro-inflammatory cytokines that have been widely implicated in pain, inflammation and autoimmune conditions and more recently in cancer.

We note that inflammasome inhibitors continue to draw the pharma industry’s attention. The most recent example is the deal announced on 1 April 2019 by Novartis and IFM Tre. Novartis paid $310m upfront and up to $1.265bn in potential milestones to acquire IFM Tre. Novartis gained access to a portfolio of two preclinical and one clinical NLPR3 antagonist for an array of chronic inflammatory disorders including atherosclerosis and non-alcoholic steatohepatitis. IFM Tre was a spin out from IFM Therapeutics, which sold STING and NLRP3 assets targeting oncological indications to Bristol-Myers Squibb in August 2017 for $300m upfront and potential milestones of up to $1.01bn. IFM Therapeutics was seeded with just $2m in October 2015, so a combined upfront of $610m and potential milestones $2.28bn in less than five years represent a very attractive reward.

Financials

Selvita’s reported total 2018 revenues of PLN110.1m (4% y-o-y) were largely in line with our expectations. The total top-line y-o-y growth was achieved despite strong Q117, when a large income of PLN20.3m was recognised after the company out-licensed SEL24 to Menarini Group. Selvita reports in three business segments: Services, Innovation (income from SEL24 was included in this segment) and Bioinformatics.

The Services segment generated sales of PLN59.1m (excluding subsidies) in 2018, an increase of 34% y-o-y, reflecting continuing solid organic growth. Subsidies in this segment were PLN3.2m, while operating profit was PLN8.8m versus PLN5.3m a year ago, improving the operating margin from 10.8% to 13.5%.

Commercial revenues from the Innovations segment were PLN9.7m in 2018 vs PLN36.7m in 2017, with the out-licensing of SEL24 to the Menarini Group in March 2017 the main reason behind the strong performance in 2017. In addition, Selvita stopped capitalising the R&D costs in early 2018. Commercial revenues from this segment came from payments related to different partnerships, such as milestone payments from drug discovery collaborations, and therefore tend to be volatile from quarter to quarter but offer potentially higher margins. Subsidies in this segment were PLN26.2m (versus PLN15.9m a year ago), while the operating loss was PLN24.6m.

The Bioinformatics (Ardigen) segment recorded revenues of PLN8.6m versus PLN6.9m a year ago. This business was spun out from Selvita (which holds 52% of the shares) in October 2015 and in 2018 the sales grew by 24.3% to PLN8.6m. So while still a small operation for Selvita, the growth rate is very high. Revenues from subsidies in this segment were PLN2.6m and operating profit was PLN2.2m.

Selvita’s 2018 net income was also affected by Selvita’s spin out NodThera raising new funds from a consortium. Selvita changed the accounting of NodThera’s shares from the equity method to fair value and booked PLN16.6m in profit.

We have made some revisions to our revenue estimates in each segment. Overall 2018 revenues slightly surpassed our expectations. As usual, Selvita released its first 2019 order backlog:

Services PLN41.7m, up from PLN29.1m over the same period a year ago.

Innovation PLN2.5m, down from PLN6.9m y-o-y.

Bioinformatics PLN6.7m, up from PLN4.7m y-o-y.

Subsidies PLN31.1m, up from PLN27.8m y-o-y.

The Services segment again appears to be poised for substantial growth in 2019, as does Bioinformatics. Subsidies should also increase as Selvita advances its R&D pipeline. Contracted revenues for the Innovations segment could decrease this year, but as we describe above, the value in this segment is created via R&D and actual revenues can fluctuate substantially. Operating loss of PLN13.6m was slightly better than our expected PLN16.3m. Total operating expenses were PLN123.7m compared to our expected PLN121.0m. Exhibit 2 summarises our estimate changes post Q418 results. Selvita reported cash of PLN125m at end-Q418 (PLN114m as of 22 March 2019) and PLN4.1m in debt.

Exhibit 2: Key changes to our financial forecasts and introduction of FY20 forecasts

PLN000s

FY18

FY19e

FY20e

Est

Act

Change (%)

Old

New

Change (%)

New

Revenue

104,700

110,098

+5%

119,905

130,688

+9%

153,121

--- Services

58,360

59,084

+1%

67,417

78,692

+17%

94,431

--- Innovation

8,400

9,741

+16%

22,207

6,000

-73%

15,000

--- Bioinformatics

8,400

8,557

+2%

9,240

11,294

+22%

12,988

--- Subsidies

28,900

32,014

+11%

20,400

34,000

+67%

30,000

Operating profit/loss (norm)

(16,251)

(13,611)

-16%

(15,824)

(13,119)

-17%

(10,686)

Profit/loss before tax (norm)*

(14,905)

(11,802)

-21%

(15,778)

(13,064)

-17%

(10,667)

Profit/loss after tax (norm)*

(19,060)

(19,895)

+4%

(15,778)

(13,064)

-17%

(10,667)

EPS (norm) (PLN)*

(1.28)

(1.35)

+5%

(0.99)

(0.88)

-17%

(0.73)

Source: Selvita accounts, Edison Investment Research. Note: Profit before tax, net profit and EPS are adjusted for the change in accounting method of NodThera’s shares from equity method to fair value (PLN20.8m booked in 2018).

Valuation

Our valuation of Selvita is slightly higher at PLN1.34bn or PLN83.9/share versus PLN1.24bn or PLN77.6/share previously. The revision of the operating estimates and rolling the model forward had a small positive effect on the rNPV values of the R&D projects and the DCF. We maintain our valuation approach and assumptions discussed in detail in our last outlook report. We use risk-adjusted NPV models with a discount rate of 12.5% for Selvita’s R&D projects at various stages. Separately, we use DCF-based calculations with a discount rate of 10% to value the core drug discovery services business and research collaborations.

We have made one substantial update to our rNPV calculation by replacing the SHMT2 inhibitor project with STING. While both projects are active, we see the STING agonist making rapid progress towards clinical development. According to the latest update, Selvita aims to identify the drug candidate in this project for late-stage preclinical development by the end of 2019. We use the following assumptions for this project:

Market potential. STING agonists have broad potential to be used in combinations with other chemotherapeutic agents and immunoncology drugs, such as checkpoint inhibitors (CPIs). The strong rationale for combinations with CPIs is based on the fact that they act late in the immunity cycle (which makes the tumour ‘visible’ to T-cells), while the STING pathway appears to prime cancer-specific T-cells, so both technologies are potentially synergistic (see the overview in our last outlook report). Because of the early stage of development and lack of clarity on specific indications, but to reflect the broad potential, we use $1bn as our peak sales assumption, in line with our other preclinical projects.

R&D costs and timelines. We assume that a clinical candidate will be identified in 2019 and partnered in 2021. We assume the R&D cost for Selvita to develop the asset to a partnership deal is $2.5m. Phase I will start in 2022, and the partner continues the development and launches in 2031 with peak sales reached in six years.

Licensing terms. We use the terms of the recent deal between Aduro and Eli Lilly involving the preclinical-stage STING asset. Lilly paid $12m upfront and $620m in milestone payments. We assume 7–10% royalty rates. An earlier deal between Aduro and Novartis was even more impressive, where Novartis paid $200m up front, invested $25m in Aduro, while up to $500m are due in milestones. We use the deal with Lilly to err on the conservative side and due to the fact that it is the most recent one. We assume market protection until late 2030.

Exhibit 3: Sum-of-the-parts Selvita valuation

Product

Launch

Peak sales
($m)

NPV
(PLNm)

NPV/share (PLN)

Probability

rNPV
(PLNm)

rNPV/share (PLN)

Innovation

SEL24

2023

750

744.5

46.6

15%

147.4

9.2

SEL120

2025

1,500

1,563.7

97.9

10%

181.7

11.4

SMARCA2 inhibitor

2030

1,000

729.0

45.6

2%

118.1

7.4

A2A/A2B antagonist

2030

1,000

810.1

50.7

2%

113.2

7.1

STING agonist

2031

1,000

759.4

47.6

2%

132.1

8.3

Merck collaborations

2026

2,000

50.7

3.2

5%

8.3

0.5

Services (including Ardigen)

Market

DCF (Q119-2027)

100%

122.7

7.7

Terminal value

100%

395.3

24.7

Net cash (end-Q418)

100%

121.4

7.6

Valuation

4,657.4

291.6

1,340.1

83.9

Source: Edison Investment Research. Note: WACC = 12.5% for product valuations, WACC = 10% for the Services segment.

Exhibit 4: Financial summary

PLN'000s

2016

2017

2018

2019e

2020e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

66,721

105,872

110,098

130,688

153,121

of which: Services (research outsourcing)

32,404

44,208

59,084

78,692

94,431

Innovation platform

18,353

36,727

9,741

6,000

15,000

Subsidies

12,067

17,591

32,014

34,000

30,000

Bioinformatics

3,431

6,885

8,557

11,294

12,988

EBITDA

 

 

8,264

18,462

(5,386)

(7,803)

(1,716)

Operating Profit (before amort. and except.)

4,646

13,222

(13,611)

(13,119)

(10,686)

Intangible Amortisation

0

0

0

0

0

Exceptionals/Other*

(5,860)

(583)

0

0

0

Operating Profit

(1,214)

12,639

(13,611)

(13,119)

(10,686)

Net Interest

947

(1,956)

1,810

55

19

Share in profit/(loss) of assocs. and JVs**

(1,016)

(1,082)

20,787

0

0

Other

0

0

0

0

0

Profit Before Tax (norm)

 

 

4,577

10,183

8,986

(13,064)

(10,667)

Profit Before Tax (reported)

 

 

(1,283)

9,600

8,986

(13,064)

(10,667)

Tax

0

(345)

(8,093)

0

0

Deferred tax

3,968

(2,523)

0

0

0

Profit After Tax (norm)

8,545

7,315

892

(13,064)

(10,667)

Profit After Tax (reported)

2,685

6,732

892

(13,064)

(10,667)

Average Number of Shares Outstanding (m)

13.4

13.8

15.5

16.0

16.0

EPS - normalised (PLN)

 

 

0.64

0.51

(0.01)

(0.88)

(0.73)

EPS - reported (PLN)

 

 

0.20

0.47

(0.01)

(0.88)

(0.73)

Dividend per share (PLN)

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

41,451

43,701

82,482

142,166

158,196

Intangible Assets

6,640

2,638

2,684

2,684

2,684

Tangible Assets

21,833

31,377

52,440

112,124

128,154

Other

12,979

9,686

27,358

27,358

27,358

Current Assets

 

 

47,669

59,873

173,218

100,092

73,395

Stocks

1,403

1,591

1,989

1,989

1,989

Debtors

16,320

19,226

43,292

43,292

43,292

Cash

29,095

36,124

110,374

37,248

10,551

Other

851

2,932

17,563

17,563

17,563

Current Liabilities

 

 

(18,933)

(26,752)

(35,568)

(35,189)

(35,189)

Creditors

(7,883)

(10,873)

(18,999)

(18,999)

(18,999)

Provisions

(3,600)

(5,150)

(7,179)

(7,179)

(7,179)

Deferred revenues

(5,469)

(8,451)

(4,419)

(4,419)

(4,419)

Short term borrowings

(859)

(912)

(895)

(895)

(895)

Other

(1,122)

(1,366)

(4,077)

(3,698)

(3,698)

Long Term Liabilities

 

 

(14,477)

(12,826)

(25,272)

(25,272)

(25,272)

Long term borrowings

(4,792)

(3,982)

(3,172)

(3,172)

(3,172)

Deferred revenues

(6,382)

(4,233)

(10,503)

(10,503)

(10,503)

Other long term liabilities

(3,303)

(4,611)

(11,596)

(11,596)

(11,596)

Net Assets

 

 

55,711

63,996

194,860

181,796

171,130

CASH FLOW

Operating Cash Flow

 

 

(6,280)

10,265

(36,239)

(41,748)

(31,697)

Net Interest

0

0

0

0

0

Tax

0

717

(178)

(379)

0

Capex

(21,210)

(21,558)

(23,447)

(65,000)

(25,000)

Acquisitions/disposals

0

10

0

0

0

Financing

303

715

134,200

0

0

Dividends

0

0

0

0

0

Other (incl. subsidies)

21,859

19,174

741

34,000

30,000

Net Cash Flow

(5,329)

9,323

75,077

(73,127)

(26,697)

Opening net debt/(cash)

 

 

(28,773)

(23,445)

(31,230)

(106,307)

(33,181)

HP finance leases initiated

0

0

0

0

0

Exchange rate movements

0

0

0

0

0

Other

0

(1,537)

0

0

0

Closing net debt/(cash)

 

 

(23,445)

(31,230)

(106,307)

(33,181)

(6,484)

Source: Company accounts, Edison Investment Research. Note: *Non-cash cost related to the employee stock options programme. **Profit and loss from 2016 include share in NodThera’s earnings according to an equity method valuation; in Q118 this was changed to fair value method. Please note the number of shares changed in 2017 as a result of NodThera's capital increase.

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Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

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

General disclaimer and copyright

This report has been commissioned by Selvita and prepared and issued by Edison, in consideration of a fee payable by Selvita. Edison Investment Research standard fees are £49,500 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 Edison analyst 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

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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