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4SC 9 February 2018 Update
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4SC

Steady R&D newsflow

Company update

Pharma & biotech

9 February 2018

Price

€6.28

Market cap

€192m

Net cash (€m) at end Q317

43.4

Shares in issue

30.6m

Free float

30%

Code

VSC

Primary exchange

Frankfurt (Xetra)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

27.5

19.4

126.1

Rel (local)

39.0

30.3

112.8

52-week high/low

€7.0

€2.3

Business description

4SC is a Munich-based cancer biopharmaceutical company. Resminostat (HDAC inhibitor) is the lead candidate for cutaneous T-Cell lymphoma (CTCL, pivotal study started in Q416). It has a second compound, 4SC-202 (Phase Ib/II started in Q317) and a preclinical asset, 4SC-208. 4SC also has several partners including Yakult Honsha for resminostat in Japan in various indications.

Next events

Annual report 2017

28 March 2018

Initiation of Phase II trial with resminostat in biliary tract cancer by Yakult

H118

4SC-208 preclinical data

2018

Analyst

Jonas Peciulis

+44 (0)20 3077 5728

4SC is a research client of Edison Investment Research Limited

Over the past several months 4SC has reported progress with both its clinical-stage assets – resminostat and 4SC-202. The pivotal trial with resminostat as a maintenance therapy in advanced CTCL passed the first DSMB review and is on track to report data in H119. The Phase Ib/II study with 4SC-202 for melanoma has been initiated, while another Phase II study with 4SC-202 for GI cancer should start in Q118. 4SC-208 completes the core portfolio and is expected to enter the clinic in early 2019. Our valuation is largely unchanged at €347m or €11.3/share (€344m previously).

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/15

3.3

(8.4)

(0.59)

0.0

N/A

N/A

12/16

2.1

(10.9)

(0.54)

0.0

N/A

N/A

12/17e

3.4

(12.8)

(0.49)

0.0

N/A

N/A

12/18e

2.7

(16.3)

(0.51)

0.0

N/A

N/A

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

Pivotal RESMAIN: First DSMB review passed

On 31 January 2018, 4SC reported that an independent data safety monitoring board (DSMB) had recommended the continuation of the ongoing pivotal RESMAIN study with resminostat, a pan-histone deacetylase (HDAC) inhibitor. 4SC remains blinded to the data and efficacy analysis was not part of the review, therefore the continuation without any changes to the protocol was the best possible outcome. Two additional DSMB reviews are planned until the study is fully enrolled with 150 patients. As a reminder, the trial is designed to uniquely position resminostat as a maintenance therapy to make remissions more durable for patients with advanced cutaneous T-cell lymphoma (CTCL) who have achieved remission with systemic therapy (detailed analysis in our last outlook report). 4SC reiterated that the study is on track for the data read-out in H119.

First patient in Phase Ib/II SENSITIZE with 4SC-202

In November 2017, the first patient has been recruited into a Phase Ib/II study with 4SC-202 in a combination with Keytruda (anti-PD-1, Merck & Co) for patients with unresectable melanoma. 4SC-202, HDAC Class I specific inhibitor, is the company’s second lead asset positioned for the use in combinations with checkpoint inhibitors with the rationale to tackle high non-responder issues. Top line results are expected in H218. In another investigator-led Phase II study 4SC-202 will be tested in combination with the anti-PD-L1 antibody avelumab for treating GI tumours. 4SC’s plan is to use the insights from these trials for potential partnering discussions in larger oncological indications, while ultimately the company plans to run its own pivotal trial with 4SC-202 in an orphan indication Merkel-cell carcinoma.

Valuation: Marginally higher at €347m or €11.3/share

Our new rNPV-based valuation is slightly increased to €345m or €11.3/share versus €344m or €11.2/share previously, as a lower cash position was offset by rolling our model forward. We keep all our assumptions for the assets unchanged. Following the €41m gross capital raise in July 2017, 4SC is funded into FY20 on current forecasts and past a number of potential key inflection points (see overleaf).

Valuation and financials

Our updated rNPV-based valuation is marginally higher at €347m or €11.3/share compared to €344m or €11.2/share previously, as a lower cash position (we use our estimate for end-2017) was offset by rolling our model forward. We maintain all our assumptions for the risk-adjusted NPV valuation of the assets unchanged, as summarised in our last outlook report.

Exhibit 1: Risked NPV valuation

Product

Indication

Partner

Launch

Peak sales, €m

NPV
(€m)

Probability of success

rNPV
(€m)

rNPV/
share (€)

Core assets/indications

Resminostat

Maintenance CTCL

2021

216

532.5

50%

266.3

8.7

4SC-202

r/r MCC

2022

237

219.0

20%

43.8

1.4

4SC-208

Advanced BCC

2023

386

380.3

5%

19.0

0.6

Out-licensed assets/indications

Resminostat

Biliary tract cancer

Yakult Honsha

2024

149

35.2

20%

15.4

0.5

4SC-205

Link Health

31.9

3%

11.1

0.4

Kv1.3 inhibitors

Maruho

57.5

3%

10.3

0.3

R&D expenses

(46.5)

(46.5)

(1.5)

Admin expenses

(9.3)

(9.3)

(0.3)

Net cash (end-2017)

36.5

36.5

1.2

Total

 

 

 

 

1,237.2

346.7

11.3

Source: Edison Investment Research

4SC will report its FY17 results on 28 March 2018. In December 2017, 4SC announced that it had received “a single digit million euros” milestone payment from Immunic. The payment relates to a deal signed in September 2016, when 4SC passed the rights for a non-core immunology portfolio of preclinical stage assets to Immunic (deal details not disclosed). While the specific amount received has not been not disclosed, we include €1m in or financial estimates in Q417. We make no other changes to our estimates as detailed in the outlook report).

Following the €41m gross (estimated €40m net) capital raise in July 2017, 4SC is well-funded (into FY20 on current forecasts), which should enable it to execute on progressing its pipeline. A number of potential key inflection points over the next three to four years are expected, including:

2018

initiation of the next trial with resminostat in biliary tract cancer by Yakult;

data read-out from Phase Ib/II study with 4SC-202 in melanoma in H218 (first patient in Q417);

2019

CTCL pivotal RESMAIN study with resminostat data read-out in H119;

starting Phase II study with 4SC-202 in Q118 in GI cancer (investigator-led), data readout in H219;

2020

4SC-208 entering the clinic in Q119, data read-out in 2020;

2021

pivotal study with 4SC-202 following on from melanoma and GI cancer studies in MCC in Q119, data readout 2021.

Exhibit 2: Financial summary

€'000s

2015

2016

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

3,266

2,060

3,369

2,724

Cost of sales

(1,763)

(76)

(202)

(163)

Gross profit

1,503

1,984

3,167

2,561

R&D expenditure

(7,255)

(10,601)

(14,000)

(16,800)

Administrative, distribution and other

(3,163)

(3,175)

(3,022)

(3,113)

Operating profit

(8,915)

(11,792)

(13,855)

(17,352)

Intangible amortisation

(827)

(892)

(892)

(892)

Exceptionals (impairment / restructuring costs)

0

0

0

0

Share-based payments

2

0

(20)

(20)

EBITDA

 

 

(7,914)

(10,900)

(12,718)

(16,215)

Operating profit (before amort and except.)

 

(8,090)

(10,900)

(12,943)

(16,440)

Net interest

(331)

(14)

150

100

Other (profit/loss from associates)

58

711

711

711

Profit before tax (norm)

 

 

(8,421)

(10,914)

(12,793)

(16,340)

Profit before tax (FRS 3)

 

 

(9,188)

(11,095)

(12,994)

(16,541)

Tax

(40)

(71)

0

0

Profit after tax (norm)

(8,403)

(10,274)

(12,082)

(15,629)

Profit after tax (FRS 3)

(9,228)

(11,166)

(12,994)

(16,541)

Average number of shares outstanding (m)

14.3

19.0

24.8

30.6

EPS - normalised (€)

 

 

(0.59)

(0.54)

(0.49)

(0.51)

EPS - FRS 3 (€)

 

 

(0.64)

(0.59)

(0.52)

(0.54)

Dividend per share (€)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed assets

 

 

11,077

7,096

6,214

5,357

Intangible assets

9,123

6,499

5,667

4,835

Tangible assets

357

222

172

147

Investments and other

1,597

375

375

375

Current assets

 

 

22,415

11,959

38,449

22,299

Stocks

20

0

0

0

Debtors

94

95

95

95

Cash

21,476

10,048

36,538

20,388

Other current assets

817

1,816

1,816

1,816

Current liabilities

 

 

(5,593)

(3,257)

(3,511)

(3,188)

Creditors

(688)

(834)

(834)

(834)

Short-term borrowings

(1,962)

0

0

0

Deferred revenue (short term)

(1,779)

(1,431)

(1,685)

(1,362)

Other current liabilities

(1,164)

(992)

(992)

(992)

Long-term liabilities

 

 

(1,471)

(525)

(32)

(32)

Long-term borrowings

0

0

0

0

Deferred revenue (long term)

(1,433)

(493)

0

0

Other long-term liabilities

(38)

(32)

(32)

(32)

Net assets

 

 

26,428

15,273

41,120

24,435

CASH FLOW

Operating cash flow

 

 

(8,916)

(12,320)

(12,479)

(15,893)

Net interest

(2)

(531)

4

3

Tax

(40)

(71)

0

0

Capex

(109)

(404)

(175)

(200)

Expenditure on intangibles

(114)

(60)

(60)

(60)

Acquisitions/disposals

0

2,808

0

0

Financing

27,608

0

39,200

0

Other

4,333

650

0

0

Net cash flow

22,760

(9,928)

26,490

(16,150)

Opening net debt/(cash)

 

 

3,246

(19,514)

(10,048)

(36,538)

HP finance leases initiated

0

0

0

0

Other

0

462

(0)

0

Closing net debt/(cash)

 

 

(19,514)

(10,048)

(36,538)

(20,388)

Source: Edison Investment Research, 4SC accounts

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 4SC 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 Ltd (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 4SC 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 Ltd (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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