Wrapping up 2019 with a solid financial position

Pixium Vision 19 February 2020 Update
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Pixium Vision

Wrapping up 2019 with a solid financial position

Financial update

Healthcare equipment

& services

19 February 2020

Price

€1.04

Market cap

€26m

$1.08/€

Net cash (€m) at 31 December 2019

1.0

Shares in issue

24.9m

Free float

54%

Code

PIX

Primary exchange

Euronext Growth

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

10.5

46.5

(36.0)

Rel (local)

10.6

42.5

(45.3)

52-week high/low

€1.83

€0.53

Business description

Pixium Vision develops bionic vision systems for patients with severe vision loss. Its lead product, Prima, is a wireless sub-retinal implant system designed for dry-AMD. The firm completed five implantations in an EU feasibility study and recently began implantations in a US feasibility study.

Next events

Preliminary data on second-generation system

March 2020

Pivotal study filing

Mid-2020

Analysts

Pooya Hemami, CFA

+1 646 653 7026

Maxim Jacobs, CFA

+1 646 653 7027

Pixium Vision is a research client of Edison Investment Research Limited

Pixium Vision’s 2019 results showed better than anticipated cost containment, as Pixium’s R&D costs were c 20% lower than expected. The company also reaffirmed that it plans to file for a pivotal study (PRIMAVERA) in mid-2020 and start implantations before YE20. We anticipate potential launches in 2023 in Europe and sometime thereafter in the US, and our rNPV increases to €85m, from €78m previously.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/18

1.6

(7.7)

(0.42)

0.0

N/A

N/A

12/19

1.8

(9.8)

(0.44)

0.0

N/A

N/A

12/20e

1.6

(10.0)

(0.40)

0.0

N/A

N/A

12/21e

1.6

(13.9)

(0.56)

0.0

N/A

N/A

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

Data on second-generation system expected shortly

Patients in both the European and US Prima feasibility trials will be using the second-generation augmented reality (AR) glasses and second-generation pocket computer software and analytics. These transparent AR glasses allow for the combination of both prosthetic vision and natural residual vision, and the second-generation pocket computer software provides improved algorithms, designed to incorporate more advanced image processing and artificial intelligence functionality. Pixium states that preliminary results are encouraging and initial functional data using the second-generation system are expected in Q120.

PRIMAVERA pivotal study to start in H220

Pixium continues to intend to file for approval to start a pivotal study in European sites in mid-2020, and it expects the first implantations to occur before YE20. The firm’s preferred objective would be to harmonise study design requirements between the FDA and European regulators so it can combine facilities from Europe and the US into a single pivotal trial that would satisfy registration requirements in both territories. Discussions with regulatory authorities towards this objective are ongoing. We believe that 12 months of safety and efficacy data from the pivotal study can form the basis of a European market filing, leading to potential CE Mark and European launch in 2023.

Valuation: rNPV increases to €85m

After modestly reducing our cost assumptions and rolling forward our estimates, we obtain a pipeline rNPV (enterprise value, excluding net cash) of €85.1m, versus €78.1m previously. After including €1.0m in net cash at 31 December 2019, we obtain an equity valuation of c €86.1m, or €3.46 per share. Given the reduction in our expenditure forecasts, our base case now assumes that Pixium will need to raise €50m (including the remaining or unused €8.75m in tranches from the ESGO funding facility) to bring Prima to launch (in 2023), versus our prior estimate of €60m. We model that the company will raise €25m in illustrative debt in both 2020 and 2021.

Better than expected cost containment

Pixium Vision reported its 2019 financial results on 13 February 2020, which showed better than anticipated cost containment, as Pixium’s R&D costs (excluding amortisation and depreciation) were c 20% lower than expected, slightly offset by c 18% higher than anticipated SG&A costs. The R&D costs were largely attributable to study costs for the ongoing European Prima feasibility studies (and preparation for the US feasibility study, for which the first implantation occurred in January 2020) as well as for the design and development of the second-generation (transparent) augmented reality (AR) external glasses used as part of the Prima system. SG&A costs in 2019 also included an exceptional one-time cost of €0.56m linked to the leaving cost of its former CEO in May 2019.

Altogether, the 2019 operating loss (excluding one-time items) was €8.8m, lower than our €9.7m loss estimate. Operating cash burn (excluding net interest costs) was €7.3m, lower than our €10.2m forecast.

Exhibit 1: Pixium Vision 2019 results

€000s (except where stated)

2019

2019e

Difference (%)

2018

Difference yoy (%)

Revenues

Research tax credits, grants and subsidies

1,724

1,809

(4.7)

1,559

10.6

Other revenue

58

47

23.4

39

49.5

Total Revenues

1,782

1,856

(3.9)

1,598

11.5

Cost of goods sold

0

0

N/A

(41)

(100.0)

R&D Costs

(6,320)

(7,880)

(19.8)

(5,297)

19.3

SG&A Costs

(3,815)

(3,223)

18.4

(2,019)

89.0

EBITDA

(8,352)

(9,247)

(9.7)

(5,758)

45.0

Depreciation & Amortization

(448)

(478)

(6.1)

(677)

(33.8)

Operating income

(8,801)

(9,725)

(9.5)

(6,435)

36.8

Impairments and other one-time items

(69)

0

N/A

(5,859)

(98.8)

Net financial expenses

(1,006)

(749)

34.2

(1,277)

(21.2)

PBT

(9,876)

(10,474)

(5.7)

(13,571)

(27.2)

Tax expense

0

0

N/A

0

N/A

Net income

(9,876)

(10,474)

(5.7)

(13,571)

(27.2)

Reported EPS (€)

(0.44)

(0.46)

(3.4)

(0.73)

(39.7)

Adjusted EPS (€)

(0.44)

(0.46)

(4.0)

(0.42)

5.4

Year-end cash position

6,792

5,165

31.5

15,629

(56.5)

Year-end net cash/(debt)

1,004

(2,955)

(134.0)

7,760

(87.1)

Operating cash flow excluding net interest costs

(7,282)

(10,227)

(28.8)

(6,174)

18.0

Free cash flow

(8,322)

(11,930)

(30.2)

(7,481)

11.2

Source: Pixium Vision reports, Edison Investment Research

On the financing front, Pixium announced in November 2019 an agreement with a US-based investor, European Select Growth Opportunities Fund (ESGO), for the issue of up to €10m in 12-month bonds repayable in cash and/or new shares, over a period of up to 30 months. The first bond tranche (€1.25m) was issued on 6 November and has since been fully converted to common shares. As a result of this conversion to equity, and due to lower than expected 2019 cash burn, the company’s net cash position at YE19 was €1.0m (€6.8m gross cash offset by €2.6m in refundable advances and €3.2m in long-term debt), compared to our prior estimate of a net debt position of €3.0m.

Initial data on second-generation Prima expected in Q120

Patients in the ongoing, five-patient European Prima feasibility trial started to be transitioned in H219 to use the second-generation AR glasses and second-generation pocket computer software and analytics. These transparent AR glasses allow for the combination of both prosthetic vision and natural residual vision, and the second-generation pocket computer software provides improved algorithms, designed to incorporate more advanced image processing and artificial intelligence functionality to enhance the visual experience of patients implanted with the current-generation 378-electrode Prima chip. In addition, all patients in the ongoing five-patient US feasibility study will be using the second-generation AR glasses and pocket computer software (along with the 378-electrode Prima chip). Pixium states that preliminary results are encouraging and initial functional data using the second-generation system are expected in Q120. Implantations for the US feasibility study are also expected to be completed in H120.

PRIMAVERA pivotal study to begin in H220

Pixium continues to intend to file for approval to start a pivotal study (now called PRIMAVERA) at least in European sites in mid-2020, and it expects the first implantations to occur before YE20. Pixium’s preferred objective would be to harmonise study design requirements between the FDA and European regulators so it can potentially combine data and facilities from Europe and the US into a single pivotal trial that would satisfy registration requirements in both territories. Discussions with both the FDA and European regulatory authorities are ongoing towards this objective and in a best case scenario, Pixium could potentially receive approval from both agencies in 2020 for a combined pivotal programme covering both EU and US sites. We estimate that a single registration-enabling trial would involve approximately 70 implantations in total across both regions.

However, our base case continues to assume that European and US pivotal studies will be separate and that European market registration and launch will occur earlier than US approval. We anticipate the European pivotal programme (PRIMAVERA) will seek to recruit about 50 patients across multiple European sites, at a study cost of c €10–12m over three years. We believe this will satisfy European regulatory authorities’ requirements for CE mark approval, and continue to model that 12 months of safety and efficacy data from the pivotal study can form the basis of a European filing, leading to potential European launch in 2023. We model there will be a separate US pivotal study programme starting in 2021, potentially leading to US launch in 2025, and that the US pivotal study will cost c €10–13m.

If US and European regulators agree to a single pivotal study design containing sites in Europe and the US and satisfying both agencies’ regulatory requirements, we estimate that this could potentially bring forward the US launch to H223, and would increase the PRIMAVERA study size from an estimated 50 patients to approximately 70.

Financials and valuation

As stated previously, the company finished 2019 with a stronger than expected net cash position. As implantations for the PRIMAVERA pivotal study are expected to start in H220 and we believe the recruitment pace will be modest at first, we do not expect the company’s R&D costs and overall cash burn rate to increase significantly in 2020. As EU pivotal study recruitment picks up in 2021 (and as a potential US study begins), we expect these costs to increase in that year.

Given the company’s reported results, we have made some modifications to our expenditure assumptions. We now assume R&D expenses of €6.7m in 2020 and €8.5m in 2021, respectively, versus our prior estimates of €9.1m and €12.1m, respectively. We have reduced our 2020 and 2021 operating cash burn rates to €8.0m and €10.6m, respectively, versus our prior estimates of €9.9m and €12.9m, respectively.

Given the reduction in our expenditure forecasts, our base case now assumes that Pixium will need to raise €50m (including the remaining or unused €8.75m in tranches from ESGO funding facility) to bring Prima to launch (in 2023), versus our prior estimate of €60m. We model that the company will raise €25m in illustrative debt in both 2020 and 2021. We are now also publishing our 2022 financial estimates.

Exhibit 2: Pixium Vision rNPV assumptions

Product contributions (net of R&D and marketing costs)

Indication

Status

rNPV
(€m)

rNPV/
share (€)

Probability of success

Launch year

Peak WW sales (€m)

Prima (net of R&D and marketing costs)

Age-related macular degeneration with geographic atrophy

Human feasibility trials

163.0

6.55

15.00%

2023 (EU) and 2025 (US)

1,102 in 2029

G&A expenses

(21.8)

(0.88)

Net capex, NWC & taxes

(56.1)

(2.25)

Total rNPV

85.1

3.42

Net cash/(debt) (Q419)

1.0

0.04

Total equity value

86.1

3.46

FD shares outstanding (000s), 7 February 2020 data

24,903

Source: Edison Investment Research

We continue to value Pixium using an rNPV approach, employing a 12.5% cost of capital. Our valuation is based solely on the Prima opportunity in dry-AMD. We continue to apply a probability of success estimate for Prima-AMD in our model of 15% and we now assume an FX rate, for US sales, of $1.08/€ (versus $1.11/€ previously). After rolling forward our estimates and adjusting our cost assumptions as described above, we obtain a pipeline rNPV (enterprise value, excluding net cash) of €85.1m versus €78.1m previously.

After including €1.0m in net cash at 31 December 2019, we obtain an equity valuation of c €86.1m, or €3.46 per share (unchanged, as the higher total valuation is offset by increased shares outstanding).

Exhibit 3: Financial summary

€000s

2017

2018

2019

2020e

2021e

2022e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

2,535

1,598

1,782

1,600

1,600

1,600

Cost of Sales

(1,124)

(41)

0

0

0

0

General & Administrative

(5,324)

(2,019)

(3,815)

(3,200)

(3,280)

(4,162)

Research & Development

(7,817)

(5,297)

(6,320)

(6,700)

(8,500)

(9,900)

EBITDA

 

 

(11,731)

(5,758)

(8,352)

(8,300)

(10,180)

(12,462)

Depreciation

(936)

(677)

(448)

(449)

(531)

(639)

Amortization

0

0

0

0

0

0

Operating Profit (before exceptionals)

 

(12,666)

(6,435)

(8,801)

(8,749)

(10,711)

(13,101)

Exceptionals

0

(5,859)

(69)

0

0

0

Other

0

0

0

0

0

0

Operating Profit

(12,666)

(12,294)

(8,870)

(8,749)

(10,711)

(13,101)

Net Interest

(876)

(1,277)

(1,006)

(1,296)

(3,208)

(4,312)

Profit Before Tax (norm)

 

 

(13,542)

(7,712)

(9,806)

(10,045)

(13,918)

(17,413)

Profit Before Tax (FRS 3)

 

 

(13,542)

(13,571)

(9,876)

(10,045)

(13,918)

(17,413)

Tax

0

0

0

0

0

0

Profit After Tax and minority interests (norm)

(13,542)

(7,712)

(9,806)

(10,045)

(13,918)

(17,413)

Profit After Tax and minority interests (FRS 3)

(13,542)

(13,571)

(9,876)

(10,045)

(13,918)

(17,413)

Average Number of Shares Outstanding (m)

13.3

18.5

22.3

25.0

25.1

25.2

EPS - normalised (€)

 

 

(1.02)

(0.42)

(0.44)

(0.40)

(0.56)

(0.69)

EPS - normalised and fully diluted (€)

 

(1.02)

(0.42)

(0.44)

(0.40)

(0.56)

(0.69)

EPS - (IFRS) (€)

 

 

(1.02)

(0.73)

(0.44)

(0.40)

(0.56)

(0.69)

Dividend per share (€)

0.0

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

9,649

3,666

4,507

4,457

4,151

3,555

Intangible Assets

7,680

2,623

2,361

2,361

2,361

2,361

Tangible Assets

1,970

1,042

2,145

2,096

1,789

1,194

Current Assets

 

 

14,241

17,756

9,107

24,489

35,420

18,996

Short-term investments

0

0

0

0

0

0

Cash

10,532

15,629

6,792

22,092

33,023

16,599

Other

3,710

2,126

2,316

2,398

2,398

2,398

Current Liabilities

 

 

(2,752)

(2,044)

(2,880)

(2,880)

(2,037)

(2,037)

Creditors

(2,752)

(2,044)

(2,880)

(2,880)

(2,037)

(2,037)

Short term borrowings

0

0

0

0

0

0

Long Term Liabilities

 

 

(9,302)

(8,023)

(7,033)

(32,033)

(57,033)

(57,033)

Long term borrowings

(9,130)

(7,870)

(5,787)

(30,787)

(55,787)

(55,787)

Other long term liabilities

(172)

(153)

(1,246)

(1,246)

(1,246)

(1,246)

Net Assets

 

 

11,836

11,355

3,700

(5,967)

(19,499)

(36,519)

CASH FLOW

Operating Cash Flow

 

 

(10,605)

(6,174)

(7,282)

(8,004)

(10,637)

(12,068)

Net Interest

(876)

(1,277)

(1,006)

(1,296)

(3,208)

(4,312)

Tax

0

0

0

0

0

0

Capex

(191)

(31)

(34)

(400)

(224)

(44)

Acquisitions/disposals

0

0

0

0

0

0

Financing

519

14,068

2,034

0

0

0

Net Cash Flow

(11,153)

6,587

(6,288)

(9,700)

(14,069)

(16,424)

Opening net debt/(cash)

 

 

(12,911)

(1,401)

(7,760)

(1,004)

8,696

22,764

HP finance leases initiated

0

0

0

0

0

0

Other

(357)

(228)

(468)

0

0

0

Closing net debt/(cash)

 

 

(1,401)

(7,760)

(1,004)

8,696

22,764

39,189

Source: Company accounts, Edison Investment Research


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This report has been commissioned by Pixium Vision and prepared and issued by Edison, in consideration of a fee payable by Pixium Vision. 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.

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This report has been commissioned by Pixium Vision and prepared and issued by Edison, in consideration of a fee payable by Pixium Vision. 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.

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Australia

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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.

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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.

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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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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