Strategic alliance validates TCR technology

Medigene 5 October 2016 Update

Medigene

Strategic alliance validates TCR technology

Strategic alliance

Pharma & biotech

5 October 2016

Price

€8.13

Market cap

€160m

Net cash (€m) at 30 June 2016

48.7

Shares in issue

19.7m

Free float

62.6%

Code

MDG1

Primary exchange

XETRA

Secondary exchange

Frankfurt

Share price performance

%

1m

3m

12m

Abs

17.8

21.3

25.4

Rel (local)

18.5

10.9

12.8

52-week high/low

€9.3

€5.2

Business description

Medigene is a German biotech company with complementary technology platforms in cancer immunotherapy. Dendritic cell vaccines are in Phase I/II clinical studies, while a T-cell receptor candidate should enter the clinic in 2017.

Next events

Q3 results

11 November 2016

TCR (IIT) clinical trial initiation

2017

First TCR (CIT) clinical trial initiation

2017

Analysts

Dr Linda Pomeroy

+44 (0)20 3077 5738

Lala Gregorek

+44 (0)20 3681 2527

Medigene is a research client of Edison Investment Research Limited

Medigene has announced an alliance with bluebird bio, a prominent T-cell immunology company. It is Medigene’s first commercial partnering agreement based on its proprietary T-cell receptor (TCR) technology platform. The collaboration will seek to identify four TCR therapeutic candidates against four targets. This is a positive development as it validates Medigene’s TCR technology and makes use of technological synergies to develop new immuno-oncology products, which could prove beneficial. Importantly, it does this while retaining all rights for its proprietary TCR development programme and TCR library. We have increased our valuation to €233m (vs €219m), as we have rolled the model forward to an estimated Q3 position and included the upfront payment.

Year end

Revenue
(€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/14

13.8

(5.3)

(0.42)

0.0

N/A

N/A

12/15

6.8

(12.8)

(0.74)

0.0

N/A

N/A

12/16e

7.1

(13.1)

(0.66)

0.0

N/A

N/A

12/17e

10.7

(10.2)

(0.50)

0.0

N/A

N/A

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

T-cell immunotherapy alliance with bluebird bio

Medigene has announced its first commercial partnering agreement based on its proprietary TCR technology platform with bluebird bio. The deal is to produce TCR therapeutic candidates against four targets using Medigene’s TCR technology platform and bluebird bio’s lentiviral vector, gene editing, synthetic biology and manufacturing capabilities. The partnership will be executed with Medigene having responsibility for generating and delivering the relevant TCRs to bluebird bio, as well as joint development of preclinical product candidates, and bluebird bio taking responsibility for clinical development and any resulting commercialisation.

Validation of technology and attractive deal metrics

Medigene will receive an upfront payment of $15m R&D funding (specific to the collaboration) and potential milestones resulting from preclinical and clinical development, along with any resulting commercialisation (company guidance indicates royalty payments could range from single to double digits). The deal offers validation of its TCR technology and also has wide-ranging potential as the four targets could be utilised across a number of indications.

Valuation: Increased to €233m with upside potential

We increase our rNPV-based valuation to €233m or €11.8 per share from €219m (€11.08), as we have rolled the model forward to an estimated Q3 position and included the upfront payment of €13.4m (expected early Q4). We have also increased deferred revenue in FY16 and included the recognition of the revenue over four years, starting in FY17 (we will review this treatment following Q3 results). This is positive progress and we expect upside as the programme of four targets and potential subsequent move into the clinic progresses. It is well funded to execute its clinical development strategy.

Exhibit 1: Financial summary

€'000s

2014

2015

2016e

2017e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

13,784

6,808

7,056

10,667

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

5,195

3,101

3,462

3,737

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

6,096

1,214

1,100

1,100

Non-cash income (Eligard)

2,493

2,493

2,493

2,493

Bluebird bio partnership

3,338

Cost of sales

(2,086)

(1,103)

(1,305)

(1,415)

Gross profit

11,698

5,705

5,751

9,253

Selling, general & administrative spending

(7,081)

(7,615)

(7,833)

(8,057)

R&D expenditure

(7,498)

(8,529)

(9,808)

(10,789)

Other operating spending

0

0

0

0

Operating profit

(2,881)

(10,439)

(11,890)

(9,593)

Goodwill & intangible amortisation

(527)

(526)

(525)

(524)

Exceptionals

0

0

0

0

Share-based payment

(66)

(111)

(50)

(50)

EBITDA

 

 

(2,005)

(9,384)

(11,090)

(8,794)

Operating profit (before GW and except.)

 

 

(2,288)

(9,802)

(11,315)

(9,019)

Net interest

(1,774)

(2,914)

(2,529)

(2,361)

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

(1,257)

(46)

719

1,204

Profit before tax (norm)

 

 

(5,319)

(12,762)

(13,126)

(10,177)

Profit before tax (FRS 3)

 

 

(5,912)

(13,399)

(13,701)

(10,751)

Tax

155

400

0

0

Profit/(loss) from discontinued operations

0

0

0

0

Profit after tax (norm)

(5,164)

(12,362)

(13,126)

(10,177)

Profit after tax (FRS 3)

(5,757)

(12,999)

(13,701)

(10,751)

Average number of shares outstanding (m)

12.2

16.8

19.9

20.2

EPS - normalised (€)

 

 

(0.42)

(0.74)

(0.66)

(0.50)

EPS - FRS 3 (€)

 

 

(0.47)

(0.77)

(0.69)

(0.53)

Dividend per share (€)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed assets

 

 

46,617

53,631

45,730

46,309

Intangible assets & goodwill

38,377

37,792

35,188

34,664

Tangible assets

951

2,502

3,605

4,708

Other non-current assets

7,289

13,337

6,937

6,937

Current assets

 

 

24,666

59,900

67,714

54,524

Stocks

4,406

6,654

6,654

6,654

Debtors

1,733

763

763

763

Cash

14,976

46,759

59,029

45,839

Other

3,551

5,724

1,268

1,268

Current liabilities

 

 

(7,755)

(9,664)

(8,376)

(8,376)

Trade accounts payable

(1,785)

(1,354)

(1,354)

(1,354)

Short-term borrowings

0

0

0

0

Deferred income

(57)

(226)

(226)

(226)

Other

(5,913)

(8,084)

(6,796)

(6,796)

Long-term liabilities

 

 

(14,457)

(13,879)

(27,229)

(23,892)

Pension provisions

(413)

(359)

(359)

(359)

Long-term borrowings

0

0

0

0

Other liabilities (Deferred taxes; Trianta milestones)

(3,221)

(2,915)

(2,915)

(2,915)

Deferred revenues (Eligard non-cash income & bluebird bio)

(10,823)

(10,605)

(23,955)

(20,618)

Net assets

 

 

49,071

89,988

77,839

68,565

CASH FLOW

Operating cash flow

 

 

(8,765)

(10,585)

3,855

(11,002)

Net interest

9

(20)

(1,029)

(861)

Tax

0

0

0

0

Capex

(873)

(1,328)

(1,328)

(1,328)

Expenditure on intangibles

0

0

0

0

Acquisitions/disposals

0

0

9,953

0

Equity financing

14,502

43,695

819

0

Other

(62)

21

0

0

Net cash flow

4,811

31,783

12,270

(13,191)

Opening net debt/(cash)

 

 

(10,166)

(14,976)

(46,759)

(59,029)

HP finance leases initiated

0

0

0

0

Other (foreign exchanges differences)

(1)

0

0

0

Closing net debt/(cash)

 

 

(14,976)

(46,759)

(59,029)

(45,839)

Source: Company accounts, Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. 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 Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Medigene 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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 2016. “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.

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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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. 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 Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Medigene 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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 2016. “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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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