Regeneus |
Several interested parties in Japan |
Japan deal near term |
Pharma & biotech |
4 September 2018 |
Share price performance
Business description
Next events
Analysts
Regeneus is a research client of Edison Investment Research Limited |
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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 |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
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
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