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Time to capitalise on growth potential

MagForce 14 July 2021 Update
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MagForce

Time to capitalise on growth potential

Healthcare equipment & services

Scale research report - Update

14 July 2021

Price

€3.55

Market cap

€104m

Share price graph

Share details

Code

MF6

Listing

Deutsche Börse Scale

Shares in issue

29.4m

Net debt (€m) at 31 December 2020

€21.1m

Business description

MagForce is a German firm with the first European-approved, nanotechnology-based therapy to treat brain tumours. NanoTherm therapy consists of nanoparticle instillation into the tumour, activated by an alternating magnetic field, producing heat and thermally destroying or sensitising tumours.

Bull

US prostate cancer market presents a huge commercial opportunity.

Proprietary technology is clinically validated.

CEO has a proven track record.

Bear

Reimbursement has been difficult to obtain in Germany to date.

Approval in the United States is needed before launch.

Uptake of NanoTherm has been slow and is susceptible to significant impact by COVID-19.

Analysts

Dr John Priestner

+44 (0)20 3077 5700

Dr Susie Jana

+44 (0)20 3077 5700

In FY20, MagForce made steady progress in its strategy to drive uptake of its nanotechnology-based thermal ablation treatment, NanoTherm. In Europe, NanoTherm is approved for glioblastoma (brain tumours) and, despite the considerable impact of COVID-19, MagForce saw a significant increase in treatments as it benefited from newly established treatment centres in Germany and Poland. In the US, NanoTherm is moving into the final phase (Stage 2b) of a registrational study in prostate cancer; approval and launch are now expected in H122 (vs H221 previously). Approval in this indication could be the catalyst for meaningful growth in the top line and the path to sustainable profitability. Our forecasts are under review.

EU growth affected by COVID-19

Revenues from the commercial treatment of patients in Germany and Poland have grown strongly (FY20: €527k versus FY19: €85k). A total of 23 patients were treated in FY20, with the majority taking place in Q1 before the forced closure of treatment centres due to COVID-19. As pandemic headwinds abate, we expect the planned opening of additional European sites to resume and for sales growth to regain momentum. MagForce now expects to install the first device in Spain in Q421 and is in advanced negotiations with potential partners in Italy, Austria and Germany. By 2022, MagForce expects to have doubled the number of NanoTherm treatment centres in Europe to eight and the planned HTA application implies federal reimbursement in Germany could start during H222. However, timely execution is critical and potential delays due to COVID-19 present uncertainty.

US prostate cancer launch expected in H122

MagForce is now recruiting patients into the final stage of the pivotal US study. Stage 2b will enrol 100 patients in a single arm to establish efficacy in thermally ablating prostate cancer lesions using the streamlined one-day protocol. MagForce will start commercial preparations in H221 while the study completes and intends to have five proprietary treatment sites ready for potential approval and launch in H122 (assuming no further COVID-19-related delays). MagForce’s renewed US commercialisation strategy utilising company-owned and operated treatment sites will allow it to significantly increase revenues per patient and generate higher margins by billing for the entire procedure versus solely supplying NanoTherm.

Valuation: Timely roll-out in the EU and US is key

MagForce’s market cap is €104m with an EV of €125m. Growth in European sales, driven by reimbursement and the ongoing roll-out of devices, as well as the potential launch in the US, will be key to crystallising value.

Consensus estimates

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/19

0.8

(8.7)

(0.32)

0.0

N/A

N/A

12/20

0.6

14.7

0.53

0.0

6.7

N/A

12/21e

3.4

(6.8)

(0.18)

0.0

N/A

N/A

12/22e

15.9

0.7

(0.01)

0.0

N/A

N/A

Source: Refinitiv, MagForce accounts

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

Financials

MagForce AG (MagForce) is the parent company of the MagForce group, which consists of seven companies including MagForce USA, and the wholly owned regional sales subsidiaries MagForce sp. z o.o. in Poland and MagForce Nanomedicine S.L. in Spain. Under HGB accounting standards, MagForce does not report consolidated financial statements, and thus MagForce USA is not currently consolidated as per company reporting and our financial forecasts.

MagForce’s revenues amounted to €621k in FY20 (FY19: €840k), as a significant increase in the commercial treatment of patients in Germany and Poland to €527k (FY19: €85k) offset a reduction in NanoTherm deliveries to subsidiaries which declined to €94k (FY19: €755k) as the prior year benefited from a one-off stocking effect. A total of 23 patients were treated in FY20 (17 in H120 and six in H220), with the majority taking place in Q1 before the forced closure of NanoTherm treatment centres due to COVID-19. As pandemic headwinds abate, we expect the planned opening of additional European sites to resume and for sales growth to regain momentum.

Other operating income, reported at €26.5m in FY20 (FY19: €0.9m), was largely attributed to the intra-group transfer of shares in MagForce USA and the consequent booking of hidden reserves of €25.6m at the parent company level, based on the fair market value. A similar intra-group transfer in FY18 realised hidden reserves of €13.9m, which are booked as investments on the balance sheet. Personnel expenses remained relatively stable at €4.1m (FY19: €4.0m) and reflect expenses for salaries and retirement benefits.

Reported operating income in FY20 stated a profit of €18.6m (versus a loss of €6.2m in FY19) due to the booking of hidden reserves. We highlight that this is a non-cash item and believe it is non-operating in nature, thus the FY20 adjusted operating income represents a loss €7.0m, which is broadly in line with the company’s previous guidance. While management expects a significant increase in revenues from commercially treated patients in Europe in FY21, due to the continued expenses from the European expansion strategy, management expects a sustained operating loss in FY21. By 2022, MagForce expects to have doubled the number of NanoTherm treatment centres in Europe to eight and the planned HTA application implies that federal reimbursement in Germany could start during H222. The US prostate cancer opportunity is the key driver for growth in the long term. Positive findings from the Stage 2a 10-patient study confirmed only minimal treatment-related side effects with the streamlined protocol, which are tolerable and similar to those observed with the extended protocol and biopsies. This means patients can receive treatment in an outpatient facility in one day rather than weeks as previously, reducing the healthcare burden of repeated visits. The FDA is currently reviewing the results from Stage 2a and MagForce is now recruiting patients into the final phase (Stage 2b) of the registrational study. Approval and launch are now expected in H122 (versus H221 previously) and could be the catalyst for meaningful top line growth and sustainable profitability.

MagForce reported cash and cash equivalents of €1.7m at 31 December 2020, following a gross €4.7m share placing in December which strengthened the balance sheet and will continue to fund its growth strategy. MagForce USA had cash of €4.0m at 31 December 2020, which will ensure funding for completion of the US prostate cancer trial and preparations for commercialisation in H122. MagForce AG’s holding in MagForce USA is 65.3%.

In January 2020, the second €3.0m tranche of a €35.0m loan facility with the European Investment Bank (EIB) was disbursed, and in June 2020 the first €2.5m tranche of a €15.0m convertible bond facility with Yorkville Advisors Global LP was drawn. MagForce will require additional funding until profitability and we expect that this will be drawn from the remaining €12.5m zero interest-bearing convertible notes with Yorkville or the remaining €22m of the EIB loan facility. In FY20, interest expenses increased to €3.0m (FY19: €1.7m) due to new borrowings and higher interest rates for share price linked liabilities. At 31 December 2020, MagForce had net debt of €21.1m.

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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 research department of Edison 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.

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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 2021 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

This document is prepared and provided by Edison 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.

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.

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

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

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United States of America

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