4SC |
Yakult joined the pivotal RESMAIN study |
FY17 results |
Pharma & biotech |
28 March 2018 |
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Together with its Q417 results announced last week, 4SC also reported progress with its R&D activities. All three lead assets – resminostat, 4SC-202 and 4SC-208 – remain on course to be developed for specialty dermato-oncological indications. New details include an update on the 4SC-202 development plan and the news that 4SC’s Japanese partner, Yakult Honsha, joined 4SC’s pivotal resminostat study and will enrol patients in Japan. Our valuation is largely unchanged at €349m or €11.4/share (€11.3/share previously).
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16 |
2.1 |
(10.9) |
(0.54) |
0.0 |
N/A |
N/A |
12/17 |
4.2 |
(10.0) |
(0.41) |
0.0 |
N/A |
N/A |
12/18e |
4.7 |
(17.6) |
(0.57) |
0.0 |
N/A |
N/A |
12/19e |
3.1 |
(19.2) |
(0.63) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Resminostat on track for pivotal data readout in H119
A recent major development was the news from 4SC’s partner Yakult that it had joined the pivotal RESMAIN study. By enrolling additional patients in Japan, Yakult will be able to submit resminostat for approval, assuming the data are positive. In our view, this indicates an external validation of 4SC’s R&D strategy. Resminostat (a broad-spectrum histone deacetylase [HDAC] inhibitor) is uniquely positioned 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. Timelines remain unchanged for the study to report data in H119. Yakult is also committed to initiate the next Phase II trial with resminostat in biliary tract cancer patients in Japan after it reported positive data from a Phase I trial.
Broad development plan for 4SC-202
4SC has a broad development plan for its second lead product 4SC-202 (HDAC Class I specific inhibitor) positioned to be used in combination with checkpoint inhibitors with the rationale to tackle the high non-responder issue. 4SC is running a Phase Ib/II trial SENSITIZE in unresectable melanoma in combination with Keytruda. Final results are expected in H119, but the company plans several interim readouts starting this year. Another investigator-led Phase II study will test 4SC-202 in combination with the anti-PD-L1 antibody avelumab for treating GI tumours. Beyond SENSITIZE and EMERGE, the company sees potential for 4SC-202 in other solid tumours and plans to explore this in several other Phase II trials in combination with checkpoint inhibitors. 4SC will use the insights from these trials for potential partnering discussions, while ultimately the company plans to run its own pivotal trial with 4SC-202 in an orphan indication Merkel-cell carcinoma.
Valuation: Marginally upped to €349m or €11.4/share
We have updated our rNPV-based valuation which is now €349m or €11.4/share versus €345m or €11.3/share previously, due to rolling our model forward. We keep all our assumptions for the assets unchanged. First interim data from both SENSITIZE and EMERGE studies are expected later this year.
Financials and valuation
Total FY17 revenues of €4.2m were ahead of our estimate of €3.4m and included income from services, changes in deferred income accounting and smaller milestone payments, including “a single digit million euros” milestone from Immunic as announced in December 2017. Total operating expenses of €14.6m were better than our expected €17.0m mainly due to lower R&D spend of €11.5m (our estimate €14.0m). 4SC guided a monthly cash burn of €1.2-1.4m for 2017, but due to the deferral of clinical expenses from 2017 into 2018, this measure was better than expected at €723k.
Following the postponed clinical costs we have revised our estimates and now forecast FY18 R&D spend of €19.6m compared with €16.8m previously, while our FY18 G&A estimate is little changed at €3.2m. The cash position at the year-end was €41.3m. After fine-tuning the estimates, our model is in line with 4SC’s updated guidance of monthly cash burn of €1.8-2.0m for FY18.
4SC received a milestone payment from Yakult after it had joined the RESMAIN study. While the specific amount has not been not disclosed, we include €2m in our financial estimates in H118. The existing cash should be sufficient to fund operations until FY20.
Our updated rNPV-based valuation is marginally higher at €349m or €11.4/share compared to €345m or €11.3/share previously. All our assumptions for the risk-adjusted NPV valuation of the assets are unchanged, as summarised in our last outlook report.
Exhibit 1: Risked NPV valuation
Product |
Indication |
Partner |
Launch |
Peak sales, (€m) |
NPV |
Probability of success |
rNPV |
rNPV/ |
|||||||||
Core assets/indications |
|||||||||||||||||
Resminostat |
Maintenance CTCL |
2021 |
216 |
548.5 |
50% |
274.2 |
8.9 |
||||||||||
4SC-202 |
r/r MCC |
2022 |
237 |
222.4 |
20% |
44.5 |
1.5 |
||||||||||
4SC-208 |
Advanced BCC |
2023 |
386 |
386.2 |
5% |
19.3 |
0.6 |
||||||||||
Out-licensed assets/indications |
|||||||||||||||||
Resminostat |
Biliary tract cancer |
Yakult Honsha |
2024 |
149 |
36.2 |
20% |
15.9 |
0.5 |
|||||||||
4SC-205 |
Link Health |
32.4 |
3% |
11.3 |
0.4 |
||||||||||||
Kv1.3 inhibitors |
Maruho |
58.4 |
3% |
10.5 |
0.3 |
||||||||||||
R&D expenses |
(54.0) |
(54.0) |
(1.8) |
||||||||||||||
Admin expenses |
(10.0) |
(10.0) |
(0.3) |
||||||||||||||
Net cash (as of 20 March 2018) |
37.0 |
37.0 |
1.2 |
||||||||||||||
Total |
|
|
|
|
1,257.2 |
348.7 |
11.4 |
||||||||||
Source: Edison Investment Research
Upcoming newsflow, within cash reach
2018
■
First data read-out from Phase Ib/II SENSITIZE study in melanoma (4SC-202 with pembrolizumab) in H218 (first patient in Q417)
■
Completion of recruitment to resminostat pivotal RESMAIN CTCL study
■
Initiation of the next Phase II trial with resminostat in biliary tract cancer by Yakult in H118
■
Initiation of Phase II EMERGE study (4SC-202 with avelumab) in H118, and safety data expected H218
■
Data from preclinical studies with 4SC-202 in combination with checkpoint inhibitors published at oncological conferences in 2018
■
Expected initiation of additional 4SC-202 checkpoint combination studies, including the first triple combination therapy study in collaboration with a new partner
■
At least one new non-core asset licensing/partnering deal
2019
■
CTCL pivotal RESMAIN study with resminostat data read-out in H119
■
Final data read-out from Phase Ib/II SENSITIZE study
■
Interim data from Phase II EMERGE study
2020
■
4SC-208 entering the clinic in Q119, data read-out in Q419/Q120
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 |
2017 |
2018e |
2019e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
3,266 |
2,060 |
4,197 |
4,724 |
3,133 |
Cost of sales |
(1,763) |
(76) |
(574) |
(574) |
(574) |
||
Gross profit |
1,503 |
1,984 |
3,623 |
4,150 |
2,559 |
||
R&D expenditure |
(7,255) |
(10,601) |
(11,475) |
(19,555) |
(19,461) |
||
Administrative, distribution and other |
(3,163) |
(3,175) |
(3,084) |
(3,195) |
(3,289) |
||
Operating profit |
(8,915) |
(11,792) |
(10,936) |
(18,600) |
(20,191) |
||
Intangible amortisation |
(827) |
(892) |
(892) |
(892) |
(892) |
||
Exceptionals (impairment / restructuring costs) |
0 |
0 |
0 |
0 |
|||
Share-based payments |
2 |
0 |
0 |
(20) |
(20) |
||
EBITDA |
|
|
(7,914) |
(10,900) |
(9,819) |
(17,463) |
(19,054) |
Operating profit (before amort and except.) |
|
(8,090) |
(10,900) |
(10,044) |
(17,688) |
||
Net interest |
(331) |
(14) |
9 |
100 |
100 |
||
Other (profit/loss from associates) |
58 |
711 |
0 |
0 |
0 |
||
Profit before tax (norm) |
|
|
(8,421) |
(10,914) |
(10,035) |
(17,588) |
(19,179) |
Profit before tax (FRS 3) |
|
|
(9,188) |
(11,095) |
(10,927) |
(18,500) |
(20,091) |
Tax |
(40) |
(71) |
(33) |
0 |
0 |
||
Profit after tax (norm) |
(8,403) |
(10,274) |
(10,068) |
(17,588) |
(19,179) |
||
Profit after tax (FRS 3) |
(9,228) |
(11,166) |
(10,960) |
(18,500) |
(20,091) |
||
Average number of shares outstanding (m) |
14.3 |
19.0 |
24.8 |
30.6 |
|||
EPS - normalised (€) |
|
|
(0.59) |
(0.54) |
(0.41) |
(0.57) |
(0.63) |
EPS - FRS 3 (€) |
|
|
(0.64) |
(0.59) |
(0.44) |
(0.60) |
(0.66) |
Dividend per share (€) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
BALANCE SHEET |
|||||||
Fixed assets |
|
|
11,077 |
7,096 |
6,365 |
5,452 |
4,539 |
Intangible assets |
9,123 |
6,499 |
5,694 |
4,806 |
3,918 |
||
Tangible assets |
357 |
497 |
570 |
545 |
520 |
||
Investments and other |
1,597 |
100 |
101 |
101 |
101 |
||
Current assets |
|
|
22,415 |
11,959 |
41,548 |
22,957 |
4,522 |
Stocks |
20 |
0 |
0 |
0 |
0 |
||
Debtors |
94 |
95 |
30 |
30 |
30 |
||
Cash |
21,476 |
10,048 |
41,327 |
22,736 |
4,301 |
||
Other current assets |
817 |
1,816 |
191 |
191 |
191 |
||
Current liabilities |
|
|
(5,593) |
(3,257) |
(2,759) |
(3,636) |
(2,840) |
Creditors |
(688) |
(834) |
(1,175) |
(1,175) |
(1,175) |
||
Short-term borrowings |
(1,962) |
0 |
0 |
0 |
0 |
||
Deferred revenue (short term) |
(1,779) |
(1,431) |
(1,485) |
(2,362) |
(1,566) |
||
Other current liabilities |
(1,164) |
(992) |
(99) |
(99) |
(99) |
||
Long-term liabilities |
|
|
(1,471) |
(525) |
(461) |
(511) |
(486) |
Long-term borrowings |
0 |
0 |
0 |
0 |
0 |
||
Deferred revenue (long term) |
(1,433) |
(493) |
(394) |
(444) |
(419) |
||
Other long-term liabilities |
(38) |
(32) |
(67) |
(67) |
(67) |
||
Net assets |
|
|
26,428 |
15,273 |
44,693 |
24,263 |
5,735 |
CASH FLOW |
|||||||
Operating cash flow |
|
|
(8,916) |
(12,320) |
(8,508) |
(18,390) |
(18,234) |
Net interest |
(2) |
(531) |
0 |
3 |
3 |
||
Tax |
(40) |
(71) |
(33) |
0 |
0 |
||
Capex |
(109) |
(404) |
(168) |
(200) |
(200) |
||
Expenditure on intangibles |
(114) |
(60) |
(4) |
(4) |
(4) |
||
Acquisitions/disposals |
0 |
2,808 |
39 |
0 |
0 |
||
Financing |
27,608 |
0 |
39,953 |
0 |
0 |
||
Other |
4,333 |
650 |
0 |
0 |
0 |
||
Net cash flow |
22,760 |
(9,928) |
31,279 |
(18,591) |
(18,435) |
||
Opening net debt/(cash) |
|
|
3,246 |
(19,514) |
(10,048) |
(41,327) |
(22,736) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
462 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(19,514) |
(10,048) |
(41,327) |
(22,736) |
(4,301) |
Source: Company accounts, Edison Investment Research
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