Destiny Pharma’s imminent Phase IIb study start dominated the FY18 results announcement. The US Phase IIb study of XF-73 is open and recruiting with results expected around YE19. Destiny’s operating loss increased to £6.1m (vs £3.2m in FY17) with R&D costs of £3.5m (vs £0.4m in FY17) comprising the majority of operational expense. Cash at the end of FY18 was £12.1m, which gives Destiny a runway well into 2020.
Written by
Destiny Pharma |
Well-funded with clinical results in a year |
FY18 results |
Pharma & biotech |
11 April 2019 |
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Destiny Pharma’s imminent Phase IIb study start dominated the FY18 results announcement. The US Phase IIb study of XF-73 is open and recruiting with results expected around YE19. Destiny’s operating loss increased to £6.1m (vs £3.2m in FY17) with R&D costs of £3.5m (vs £0.4m in FY17) comprising the majority of operational expense. Cash at the end of FY18 was £12.1m, which gives Destiny a runway well into 2020.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/17 |
0.0 |
(3.21) |
(8.45) |
0.0 |
N/A |
N/A |
12/18 |
0.0 |
(6.01) |
(11.86) |
0.0 |
N/A |
N/A |
12/19e |
0.3 |
(8.51) |
(17.69) |
0.0 |
N/A |
N/A |
12/20e |
0.0 |
(4.68) |
(7.06) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are as reported.
FY18 results: Building up to Phase IIb results
Destiny’s preparations for its US Phase IIb study have driven its FY18 results, with total operating expenses of £6.1m (£3.2m in FY17), which was driven by R&D costs of £3.5m and £1.8m in SG&A (£0.4m and £1.0m in FY17, respectively). This was lower than our previous FY18 total operating expense and R&D cost estimates of £6.8m and £4.7m, respectively. Cash at the end of FY18 was £12.1m (vs £16.7m at end FY17 and £15.1m at the end of H118), higher than our £11.5m estimate. We estimate Destiny has enough financial resources to last well into 2020, by which time we expect the Phase IIb study to have reported and XF-73 to have been partnered in a transaction that we have assumed will be accompanied by at least a $10m upfront payment.
Phase II study funded and well on track
Destiny has the financial resources to execute the Phase IIb study, a supportive Chinese partner and shareholder in China Medical Systems and the latitude to invest in its early-stage pipeline. The latter attracted £1.8m in grant funding during FY18 and Q119. The first of 200 patients will soon be dosed in the US clinical study of its novel antimicrobial agent XF-73 for the prevention of post-surgical infections. As well as being potentially the only product that would be approved for this preventative indication, XF-73 is also expected to be cheaper to manufacture than the off-label generic competition (should mupirocin calcium generics become available) but without mupirocin’s antimicrobial resistance (AMR) issues. Clinical studies recruiting on schedule usually means motivated investigators, which are probably bolstered by the high-profile AMR debate, and no shortage of patients.
Valuation: Virtually unchanged
We have updated our valuation for exchange rates and the cash balance at YE18 (which is mostly obviated by moving the risk-adjusted NPV calculation forward a year). We have also increased our expectations for XF-73 in China. Our valuation moves slightly from £86.7m or £1.99 per share to £86.2m or £1.98 per share, mostly due to foreign exchange rates and a slightly lower cash balance.
More to Destiny than XF-73
Beyond the Phase IIb study
For the next year, much of the focus of investors’ attention is likely to be on Destiny’s most advanced asset, XF-73, and its US Phase IIb placebo-controlled clinical study in the prevention of post-surgical infections. Since its IPO, Destiny has kept its promises on the Phase IIb study, and in addition, it has been expanding its earlier-stage pipeline in commercial and academic collaborations, which have, in part, been grant-funded.
Ophthalmic and dermal indicators
Destiny’s most recent announcement was on a commercial collaboration with MedPharm aimed at developing topical and transdermal formulations for the XF-series of antimicrobials for ocular and dermal indications like bacterial conjunctivitis and diabetic foot ulcers, respectively. This most recent announcement is linked to Destiny’s previous award of a two-year £1.6m UK-China AMR grant earlier in 2019. The collaboration is being conducted with Cardiff and Tianjin Medical universities and directed at treating resistant bacteria using Destiny’s novel antimicrobial agents. While the ongoing US Phase IIb study is being conducted with the nasal gel formulation, decolonisation in the nose requires a formulation that will not irritate mucous membranes and this should be different from the formulations needed to treat dermal and ocular indications.
Biofilm indicators
At the start of 2019 Destiny announced the receipt of a joint National Biofilms Innovation Centre grant award with the University of Southampton to investigate the use of Destiny’s XF-series of antimicrobial agents to prevent, control and eradicate chronic clinical infections with an underlying biofilm involvement. This collaboration is linked to an earlier three-year research collaboration that started in July 2018 with Aston University on the XF-series of antimicrobials where antibacterial activity in biofilm models has already been demonstrated.
These types of infections involving biofilms include cystic fibrosis. Cystic fibrosis and associated lung indications are a particularly high unmet need with well-defined endpoints that regulators understand and we will be exploring this in more detail in a later note.
Valuation
A recent study published by UBS using data from the IQVIA prescription audit in China examined the transition of Roche’s Avastin (bevacizumab) from limited use in the private sector, to access to the National Reimbursement Drug List (NRDL). For Avastin, access to the NRDL was associated with a 50% price cut, but a 300% increase in volumes, which resulted in about a 3.5-fold increase in Avastin revenues. Access to the NRDL is not immediate in China and can take four to five years so we have replicated the Avastin dynamics in our forecasts for XF-73 in China and have deleted the gross-to-net discounts we had previously applied from five years after launch. Our peak sales estimates for XF-73 in China increase from $24m to $62m in 2032, although our worldwide XF-73 sales peak at $2.1bn in 2028.
This change to XF-73’s sales in China results in a modest c 1% increase to our rNPV before the changes we made to exchange rates, which were also minor, and Destiny’s cash balance updated to the end of FY18.
FY18 financials
Despite Destiny’s investment in its imminent US Phase IIb study, the FY18 total operating expense of £6.1m (£3.2m in FY17) was below our £6.8m estimate. Part of this lower operating expense than we had estimated was due to grant funding of its earlier-stage pipeline, which will have resulted in £1.8m being announced and recognised between FY18 and Q119, and the R&D tax credit of £0.84m. These contributed to Destiny’s FY18 loss per share of 11.9p (8.45p per share in FY17) being lower than our previous estimate of 14.3p per share.
Destiny’s YE18 cash was £12.1m (vs £16.7m at YE17 and £15.1m at the end of H118), which exceed our previous £11.5m estimate. Destiny believes that it has enough financial resources to last well into 2020, which, with the Phase IIb study reading-out either late in 2019 or early in Q120, should be enough to carry Destiny through to its key inflection points in 2020.
Exhibit 1: Financial summary
Accounts: IFRS; year end 31 December; £000s |
|
2017 |
2018 |
2019e |
2020e |
2021e |
|
INCOME STATEMENT |
|
|
|
|
|
|
|
Total revenues |
|
|
- |
- |
250 |
- |
- |
Cost of sales |
|
|
- |
- |
- |
- |
- |
Gross profit |
|
|
- |
- |
250 |
- |
- |
SG&A (expenses) |
|
|
(1,011) |
(1,800) |
(1,900) |
(1,700) |
(1,700) |
R&D costs |
|
|
(387) |
(3,546) |
(6,900) |
(3,000) |
(1,900) |
Other income/(expense) |
|
|
(613) |
- |
- |
- |
- |
Exceptionals and adjustments |
|
(710) |
(738) |
(85) |
(25) |
(25) |
|
Depreciation and amortisation |
|
|
(2.1) |
(3.9) |
(2.3) |
(2.3) |
(2.4) |
Reported EBIT |
|
|
(3,222) |
(6,084) |
(8,637) |
(4,727) |
(3,627) |
Finance income/(expense) |
|
|
10.5 |
76.0 |
132.7 |
52.4 |
94.0 |
Reported PBT |
|
|
(3,211) |
(6,008) |
(8,505) |
(4,675) |
(3,533) |
Income tax expense (includes exceptionals) |
|
|
234 |
841 |
800 |
1,600 |
678 |
Reported net income |
|
|
(2,977) |
(5,167) |
(7,705) |
(3,075) |
(2,855) |
Basic average number of shares, m |
|
|
35,254 |
43,563 |
43,563 |
43,563 |
43,563 |
Basic EPS (p) |
|
|
(8.45) |
(11.86) |
(17.69) |
(7.06) |
(6.55) |
BALANCE SHEET |
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
22.3 |
30.4 |
28.6 |
26.7 |
24.8 |
Goodwill |
|
|
- |
- |
- |
- |
- |
Intangible assets |
|
|
- |
- |
- |
- |
- |
Other non-current assets |
|
|
- |
- |
- |
- |
- |
Total non-current assets |
|
|
22.3 |
30.4 |
28.6 |
26.7 |
24.8 |
Cash and equivalents |
|
|
11,724 |
7,061 |
759 |
4,549 |
1,720 |
Other financial assets (term deposits) |
|
|
5,000 |
5,000 |
4,000 |
4,000 |
4,000 |
Inventories |
|
|
- |
- |
- |
- |
- |
Trade and other receivables |
|
|
277 |
931 |
466 |
277 |
277 |
Other current assets |
|
|
60 |
36 |
36 |
36 |
36 |
Total current assets |
|
|
17,061 |
13,028 |
5,261 |
8,862 |
6,034 |
Non-current loans and borrowings |
|
|
- |
- |
- |
7,752 |
7,752 |
Other non-current liabilities |
|
|
- |
- |
- |
- |
- |
Total non-current liabilities |
|
|
- |
- |
- |
7,752 |
7,752 |
Trade and other payables |
|
|
152 |
404 |
255 |
152 |
152 |
Current loans and borrowings |
|
|
- |
- |
- |
- |
- |
Other current liabilities |
|
|
246 |
398 |
246 |
246 |
246 |
Total current liabilities |
|
|
397 |
802 |
501 |
397 |
397 |
Equity attributable to company |
|
|
16,686 |
12,257 |
4,637 |
1,587 |
(1,243) |
Non-controlling interest |
|
|
- |
- |
- |
- |
- |
CASH FLOW STATEMENT |
|
|
|
|
|
|
|
Profit for the year |
|
|
(3,211) |
(6,008) |
(8,505) |
(4,675) |
(3,533) |
Taxation expenses |
|
|
- |
- |
- |
- |
- |
Profit before tax |
|
|
(3,211) |
(6,008) |
(8,505) |
(4,675) |
(3,533) |
Net finance expenses |
|
|
(10) |
(76) |
(133) |
(52) |
(94) |
EBIT |
|
|
(3,222) |
(6,084) |
(8,637) |
(4,727) |
(3,627) |
Depreciation and amortisation |
|
|
2.1 |
9.7 |
2.3 |
2.3 |
2.4 |
Share based payments |
|
|
710 |
738 |
85 |
25 |
25 |
Other adjustments |
|
|
- |
- |
- |
- |
- |
Movements in working capital |
|
|
165 |
381 |
316 |
85 |
- |
Interest paid / received |
|
|
- |
- |
- |
- |
- |
Income taxes paid |
|
|
192 |
234 |
800 |
1,600 |
678 |
Cash from operations (CFO) |
|
|
(2,153) |
(4,721) |
(7,434) |
(3,015) |
(2,922) |
Capex |
|
|
(23.2) |
(17.8) |
(0.5) |
(0.5) |
(0.5) |
Acquisitions & disposals net |
|
|
- |
- |
- |
- |
- |
Other investing activities |
|
|
(4,990) |
76 |
133 |
52 |
94 |
Cash used in investing activities (CFIA) |
|
|
(5,013) |
58.2 |
132.2 |
51.9 |
93.6 |
Net proceeds from issue of shares |
|
|
17,409 |
- |
- |
- |
- |
Movements in debt |
|
|
- |
- |
- |
7,752 |
- |
Dividends paid |
|
|
- |
- |
- |
- |
- |
Other financing activities |
|
|
- |
- |
- |
- |
- |
Cash from financing activities (CFF) |
|
|
17,409 |
- |
- |
7,752 |
- |
Currency translation differences and other |
|
|
- |
- |
- |
- |
- |
Increase/(decrease) in cash and equivalents |
|
|
10,243 |
(4,663) |
(7,301) |
4,789 |
(2,828) |
Currency translation differences and other |
|
|
- |
- |
- |
- |
- |
Cash and equivalents at end of period |
|
|
11,724 |
7,061 |
(241) |
5,549 |
1,720 |
Net (debt)/cash (includes Term Deposits) |
|
|
16,724 |
12,061 |
4,759 |
797 |
(2,032) |
Movement in net (debt)/cash over period |
|
|
15,243 |
(4,663) |
(7,301) |
(3,963) |
(2,828) |
Source: Destiny Pharma accounts, Edison Investment Research
|
|
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