Several interested parties in Japan

Regeneus 4 September 2018 Update
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Regeneus

Several interested parties in Japan

Japan deal near term

Pharma & biotech

4 September 2018

Price

A$0.18

Market cap

A$38m

US$0.75/A$

Net cash (A$m) at 30 June 2018

0.1

Shares in issue

208.9m

Free float

87%

Code

RGS

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(15)

41.7

41.7

Rel (local)

(16.2)

34.8

27.7

52-week high/low

A$0.2

A$0.1

Business description

Regeneus is an Australia-based, clinical-stage regenerative medicine company developing innovative cell-based therapies for the human and animal health markets. It is focused on osteoarthritis and other musculoskeletal disorders, oncology and dermatology diseases.

Next events

JV sublicenses clinical development partner in Japan

Q4 CY18

Progress Progenza licencing discussions for additional indications and territories

TBA

Progress Sygenus licensing discussions

TBA

Analysts

Dr Dennis Hulme

+61 (0)2 8249 8345

Dr Susie Jana

+44 (0)20 3077 5700

Regeneus is a research client of Edison Investment Research Limited

Regeneus has revised expected timing of an osteoarthritis (OA) clinical development licence deal for Progenza in Japan to Q4 CY18 (vs Q218); it is currently in active discussions with several parties. A licence deal would trigger a US$5m milestone payment from partner AGC and would effectively see Progenza commence a Phase II trial in knee OA in Japan. Regeneus is in separate discussions with potential licensees for other indications and territories for Progenza, as well as for its other pipeline products. We roll forward our rNPV model to FY19, which lifts our valuation to A$181m (vs A$170m) or A$0.87/share. Depending on the terms, we estimate an OA licence deal could add up to ~A$50m to our valuation.

Year
end

Revenue
(A$m)

PBT*
(A$m)

EPS*
(A$)

DPS
(A$)

P/E
(x)

Yield
(%)

06/17

10.0

3.3

0.02

0.0

N/A

N/A

06/18

0.6

(5.2)

(0.02)

0.0

N/A

N/A

06/19e

7.8

2.2

0.01

0.0

N/A

N/A

06/20e

1.6

(4.2)

(0.02)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding exceptionals and share-based payments.

Protracted negotiations preceded AGC deal in Japan

Regeneus is no stranger to protracted negotiations with Japanese companies. It successfully concluded a manufacturing licence agreement and JV with AGC in Japan in December 2016, after commencing partnering discussions the previous year, making it only the 17th Australian company to secure a significant technology licence in Japan in the past 20 years. It is well placed to achieve an OA licence deal in Japan, with a granted patent and manufacturing partner (AGC) in place, and promising signs of efficacy in the successful Phase I trial of Progenza in knee OA.

High regenerative medicine deal values in Japan

Japan has seen several high-value regenerative medicine deals. The most relevant is the January 2015 licence deal between Kolon Life Science and Mitsubishi Tanabe Pharma for the Japanese rights to a cell and gene therapy for knee OA, for US$24m upfront, US$410m in milestones and a double-digit royalty. In June Athersys expanded its Japan-focused stem cell therapy agreement with Healios that began in 2016, taking total upfronts to US$35m and milestones to ~US$360m.

Partnering other indications/territories/products

While the main partnering focus is Progenza for OA in Japan, Regeneus is also seeking to partner Progenza for additional territories and indications (including nerve pain); Progenza patents granted or allowed in the US, Australia, Japan and New Zealand will aid these partnering initiatives. It is also seeking partners for Sygenus for inflammatory skin conditions and for its RGSH4K cancer vaccine.

Valuation: Increased to A$181m, A$0.87 per share

We roll forward our model and lift our valuation to A$181m (vs A$170m), or A$0.87 per share (vs A$0.82/share). A deal comparable to the Kolon/Mitsubishi deal (with half of milestone payments for development and regulatory hurdles) would increase our valuation to ~A$231m or A$1.06/share. An A$1.9m loan and $2.2m R&D rebate will provide funds to end CY18 (quarterly cash burn A$1.7m). If the OA licence deal is delayed beyond Q4 CY18, additional funding will be needed.

Exhibit 1: Financial summary

 

A$'000s

2016

2017

2018

2019e

2020e

Year end 30 June

AASB

AASB

AASB

AASB

AASB

PROFIT & LOSS

Sales, royalties, milestones

Revenue

 

 

1,735

9,994

575

7,784

1,632

Cost of Sales

(292)

(55)

0

(17)

(15)

Gross Profit

1,444

9,939

575

7,767

1,617

R&D expenses

(4,309)

(4,456)

(3,957)

(3,957)

(4,115)

SG&A expenses

(3,578)

(3,570)

(3,937)

(3,774)

(3,948)

R&D tax incentive

2,732

2,608

2,165

2,176

2,263

EBITDA

 

 

(3,360)

4,856

(4,806)

2,340

(4,047)

Operating Profit (before GW and except.)

 

(3,696)

4,527

(5,150)

2,214

(4,182)

Intangible Amortisation

(15)

(5)

(4)

(1)

(0)

Exceptionals

0

0

0

0

0

Other

15

(1,309)

(40)

0

0

Operating Profit

(3,696)

3,212

(5,194)

2,213

(4,183)

Net Interest

122

58

9

(26)

(26)

Profit Before Tax (norm)

 

 

(3,559)

3,276

(5,180)

2,189

(4,208)

Profit Before Tax (IFRS)

 

 

(3,574)

3,271

(5,185)

2,187

(4,208)

Tax benefit

0

0

0

0

0

Profit After Tax (norm)

(3,559)

3,276

(5,180)

2,189

(4,208)

Profit After Tax (IFRS)

(3,574)

3,271

(5,185)

2,187

(4,208)

Average Number of Shares Outstanding (m)

208.9

208.9

208.9

209.9

210.9

EPS - normalised (A$)

 

 

(0.02)

0.02

(0.02)

0.01

(0.02)

EPS - IFRS (A$)

 

 

(0.02)

0.02

(0.02)

0.01

(0.02)

Dividend per share (A$)

0.00

0.00

0.00

0.00

0.00

BALANCE SHEET

Fixed Assets

 

 

2,432

904

670

722

737

Intangible Assets

11

6

2

20

40

Tangible Assets

802

610

417

451

446

Investments

1,619

288

251

251

251

Current Assets

 

 

3,503

8,261

4,313

6,448

2,224

Stocks

30

22

15

8

7

Debtors

22

88

0

0

0

Cash

529

4,135

1,092

3,223

(1,088)

Other

2,922

4,016

3,206

3,218

3,305

Current Liabilities

 

 

(1,006)

(876)

(1,819)

(1,819)

(1,819)

Creditors

(906)

(743)

(707)

(707)

(707)

Short term borrowings

0

0

(1,000)

(1,000)

(1,000)

Other

(99)

(133)

(111)

(111)

(111)

Long Term Liabilities

 

 

(144)

(189)

(243)

(243)

(243)

Long term borrowings

0

0

0

0

0

Other long term liabilities

(144)

(189)

(243)

(243)

(243)

Net Assets

 

 

4,785

8,100

2,922

5,109

900

CASH FLOW

Operating Cash Flow

 

 

(2,254)

3,588

(4,247)

2,310

(4,159)

Net Interest

0

0

0

0

0

Tax

0

0

0

0

0

Capex

(250)

(150)

(151)

(178)

(151)

Acquisitions/disposals

19

(78)

0

0

0

Financing

0

0

0

0

0

Dividends

0

0

0

0

0

Other

0

247

354

0

0

Net Cash Flow

(2,485)

3,607

(4,044)

2,131

(4,310)

Opening net debt/(cash)

 

 

(3,013)

(529)

(4,135)

(92)

(2,223)

HP finance leases initiated

0

0

0

0

0

Other

0

(0)

(0)

0

0

Closing net debt/(cash)

 

 

(529)

(4,135)

(92)

(2,223)

2,088

Source: Regeneus accounts, Edison Investment Research

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 Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Regeneus 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 Investment Research Pty Limited (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “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.

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

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

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 Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Regeneus 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 Investment Research Pty Limited (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “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.

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

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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