Zevtera path to US approval open

Basilea Pharmaceutica 1 July 2022 Update
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Basilea Pharmaceutica

Zevtera path to US approval open

Clinical trial update

Pharma and biotech

1 July 2022

Price

CHF37.9

Market cap

CHF493m

Net debt (CHFm) at 31 December 2021

69.3

Shares in issue
(excluding 1.15m treasury shares)

11.85m

Free float

90%

Code

BSLN

Primary exchange

SIX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

8.3

3.7

(14.6)

Rel (local)

17.0

17.4

(5.0)

52-week high/low

CHF48.96

CHF29.95

Business description

Basilea is focused on infectious diseases and oncology. Its marketed products are Cresemba (an antifungal) and Zevtera (an anti-MRSA broad-spectrum antibiotic). The oncology R&D pipeline consists of three assets including clinical-stage products lisavanbulin and derazantinib.

Next events

Zevtera NDA filling

End 2022

Cresemba approval decision in Japan

H222

Analysts

Soo Romanoff

+44 (0)20 3077 5700

Dr Harry Shrives

+44 (0)20 3077 5700

Basilea Pharmaceutica is a research client of Edison Investment Research Limited

On 28 June 2022, Basilea announced positive top-line results from the Phase III ERADICATE study, investigating the use of its drug-resistant antibacterial agent, Zevtera (ceftobiprole) in the treatment of Staphylococcus aureus bacteraemia (SAB). In combination with the 2019 Phase III TARGET study in acute bacterial skin and skin structure infections (ABSSSI), the results complete the data package for Basilea to seek FDA approval for Zevtera in both indications. Management expects to file a new drug application (NDA) with the FDA around year-end 2022. Due to higher pricing, wider reimbursement and a higher incidence of MRSA infections, we continue to view the US market as a considerable commercial opportunity for Zevtera. We value Basilea at CHF886.7m or CHF74.9/share (versus CHF847.7m or CHF71.6/share previously).

Year end

Revenue (CHFm)

PBT*
(CHFm)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/20

127.6

(29.6)

(288.5)

0.0

N/A

N/A

12/21

148.1

(6.6)

(56.9)

0.0

N/A

N/A

12/22e

108.9

(30.9)

(260.9)

0.0

N/A

N/A

12/23e

133.8

19.4

200.5

0.0

19.0

N/A

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

NDA submission by year end

With positive data from the ERADICATE study, Basilea expects to submit an NDA application by the end of 2022. As the FDA had previously reached agreement with Basilea on trial designs for the Phase III ERADICATE and TARGET studies, we do not foresee any issues. In our view, the US opportunity for Zevtera remains strong and is supported by differentiation from competitors in terms of safety and the broad range of indications and bacteria which the drug can treat.

Oncology transactions on track

In a recent update, management stated that transactions for BAL0891 and other preclinical assets will be concluded in H222 and Basilea will return the rights to derazantinib to Merck & Co by year-end 2022. We believe these developments represent good progress for the company’s anti-infective-focused strategy and expect Basilea to pursue licensing and transaction deals to refill the development pipeline with new anti-infective assets soon.

Valuation: CHF886.7m or CHF74.9/share

We value Basilea Pharmaceutica at CHF886.7m or CHF74.9/share (previously CHF847.7m or CHF71.6/share). Our valuation is based on a risk-adjusted NPV analysis of Cresemba, Zevtera and the oncology assets using a blended 10–12.5% discount rate and including estimated net debt of CHF77.5m at end H122. Taking into account new clinical data from the ERADICATE study, we increase our probability of success for Zevtera in the US to 85% from 75%. We have rolled our model forward and updated out foreign exchange estimates.

Zevtera’s road to approval

As a reminder, Zevtera (ceftobiprole) is a broad-spectrum antibiotic for the treatment of drug-resistant, gram-positive infections, including methicillin-resistant Staphylococcus aureus (MRSA) and gram-negative bacterial infections, including Pseudomonas. Zevtera is already approved for the treatment of various bacterial pneumonias in major European countries and some international markets. The FDA requested two new Phase III clinical studies before the drug could be considered for approval in the US: TARGET in ABSSSI and ERADICATE in SAB. In August 2019, Basilea reported data from the TARGET study for ceftobiprole in the treatment of ABSSSI, in which the drug met primary and secondary efficacy endpoints including non-inferiority to standard-of-care (SoC) vancomycin plus aztreonam in the intent-to-treat population.

ERADICATE completes the data package

The company’s Phase III ERADICATE study was a double-blind, randomised trial investigating the treatment of adult SAB patients (including those with infective endocarditis, IE). The study protocol (Exhibit 1) enrolled 390 patients with SAB caused by methicillin-resistant or methicillin-susceptible Staphylococcus aureus (MRSA or MRSS, respectively), who were randomised into either the active arm (ceftobiprole iv infusion) or the comparator arm (daptomycin with or without aztreonam for gram-negative infections). The primary endpoint was the demonstration of non-inferiority (15% non-inferiority margin) versus the comparator arm in the modified intent-to-treat population.

Exhibit 1: ERADICATE study design

Source: Basilea investor presentation, June 2022. Note: R = randomization. SAB = Staphylococcus aureus bacteraemia.

Newly presented top-line data from ERADICATE demonstrate an overall success rate of 69.8% in the ceftobiprole arm versus 68.7% in the daptomycin (± aztreonam) arm, indicating that the primary non-inferiority endpoint had been reached. In addition, Basilea reported that initial subgroup analysis showed no significant differences between the two treatment groups. Safety data from the study showed that ceftobiprole’s safety profile was consistent with previous data and the overall rate of adverse events was similar between the two groups.

Next step: NDA submission

Management will now prepare the data required for the NDA submission to the FDA, which Basilea has stated that it will submit around year-end 2022. As the FDA had reached agreement with Basilea on the ERADICATE and TARGET trial designs under a special protocol assessment, we do not foresee any problems. We expect the final FDA label to be informed by the various subgroup analyses being conducted (MRSA versus MSSA, IE or non-IE, gram-negative versus gram-positive infection). The company intends to present these findings at upcoming scientific conferences. We maintain that a US launch date of H223 for ceftobiprole with a focus on SAB and ABSSSI is feasible, based on timely NDA submission at the end of 2022. As such, we expect the company will look to partner before approval. However, given the crucial nature of the prospective Zevtera launch in the United States, we believe Basilea will continue its pre-launch activities even if it does not conclude a partnership deal in the pre-launch period.

Therapeutic landscape represents unmet medical need

In addition to ABSSSI and SAB, we expect Basilea will also explore approval for the treatment of community-acquired bacterial pneumonia (CABP), based on data from a 2006–07 Phase III trial. Exhibit 2 highlights a segment of the treatment landscape for these indications.

Exhibit 2: SAB, ABSSSI and CAP therapeutic landscape

Drug

Relevant
indications

2021 sales*
(US$m)

2028 estimated sales* (US$m)

Notes

Vancomycin

SAB, IE

251

312

First-line therapy for MRSA-bacteraemia and IE. Dosing can be challenging, often carries risk of nephrotoxicity. Resistance is known.

Daptomycin (Cubicin)

SAB, IE

254

173

First-line therapy for MRSA-bacteraemia and IE. Cannot be used secondary to pneumonia. Resistant MRSA strains are well described.

Dalbavancin (Dalvance)

ABSSSI

18

69

Approved in 2014. long-acting, single-dose injectable, shown to be non-inferior to vancomycin in ABSSSI. Common side-effects included nausea, headache and diarrhoea.

Delafloxacin (Baxdela)

CAPB, ABSSSI

48

375

Approved in 2017 (ABSSSI) and 2019 (CABP). Shown to be statistically non-inferior to vancomycin plus aztreonam.

Omadacycline (Nuzyra)

CAPB, ABSSSI

53

450

Approved in 2018. Demonstrated as non-inferior to moxifloxacin in CAP and linezolid in ABSSI.

Source: Edison Investment Research. Note: *Sales and estimates from EvaluatePharma.

Currently there are only two approved first-line treatments for MRSA bacteraemia or IE: vancomycin and daptomycin, both of which are generic medicines. Importantly, we see ceftobiprole as having clear differentiation from daptomycin in the SAB setting as it can be used for gram-negative bacteria and in patients with pneumonia. For these reasons, we believe the SAB indication represents a clear opportunity for Zevtera to gain market share. We also note that the FDA has awarded Zevtera a Qualified Infectious Disease Product (QIDP) designation. This designation extends market exclusivity to 10 years (from five) based on the approval date.

However, potential competitor drugs may disrupt the landscape in future. For example, Exebacase, an anti-bacterial lysin being developed by ContraFect, is currently in Phase III development (NCT04160468) for the treatment of MRSA bacteraemia including endocarditis. Importantly, this randomised, double-blind, placebo-controlled study will investigate superiority of Exebacase plus SoC antibiotics versus SoC alone. Positive results could have an impact on Basilea’s target SAB market in the US. However, in our view, the potential adoption of ceftobiprole as SoC creates an opportunity for its use in combination with Exebacase.

Anti-infective focused strategy remains on track

In a recent update on Basilea’s strategic refocusing, management reiterated guidance that oncology-related expenses will not be material beyond 2022 and that it would reach sustained profitability in 2023. The company intends to engage in separate transactions for the oncology asset BAL0891 (a dual TTK/PLK1 inhibitor) and other preclinical assets, which it expects to conclude in H222. In addition, it continues to explore partnering options for lisavanbulin and will return the rights to derazantinib to Merck & Co by year-end 2022, due to an increasingly competitive landscape for FGFR inhibitors. In view of recent milestone payments and approvals in China for Cresemba (isavuconazole), we see these developments as a good sign for the company’s anti-infective-focused strategic direction. To increase focus and momentum in the anti-infective pipeline, we expect Basilea to pursue licensing and/or transaction deals for further clinical-stage, anti-infective assets in the near-future.

Valuation and financials

We value Basilea at CHF886.7m or CHF74.9/share (previously CHF847.7m or CHF71.6/share). Our valuation is based on a risk-adjusted NPV analysis of Cresemba, Zevtera and the oncology assets using a blended discount rate of 10–12.5% and including estimated net debt of CHF77.5m at end H122 (Exhibit 3). Taking into account the positive data from the Phase III ERADICATE trials, we have increased our probability of success for Zevtera in the US to 85% from 75% previously. In addition, we have updated out FX assumptions and rolled our model forward. Despite the recently announced update on the oncology pipeline, we maintain our valuation of the company’s oncology assets until full details of the strategic transactions are made public. We expect these details to be fully divulged by end-2022.Our remaining underlying assumptions are unchanged, a full breakdown of which can be found in our recent outlook report.

Exhibit 3: Risk-adjusted NPV for Basilea Pharmaceutica

Product

Indication

Launch

Peak sales ($m)

NPV (CHFm)

Probability

rNPV (CHFm)

rNPV/share (CHF)

Cresemba (isavuconazole)

Severe fungal infections

2015 (US); 2016 (EU); 2018 (RoW); 2022 (Japan)

614

659.4

75–100%*

614.6

51.9

Zevtera/Mabelio (ceftobiprole)

Severe bacterial infections

2015 (EU); 2018 (RoW); 2023 (US)

550

189.3

85–100%**

164.4

13.9

 

 

 

 

 

 

 

 

Oncology assets (subject to strategic transactions)

 

884

529.1

 

185.2

15.6

 

 

 

 

 

 

 

 

Est net debt at end H122

 

 

(77.5)

100%

(77.5)

(6.5)

Valuation

 

 

 

1,300.4

 

886.7

74.9

Source: Edison Investment Research. Note: Treasury shares (1.15m shares) are not included in the per-share valuation. *100% probability for the US and EU, 75% for RoW and Japan. **100% probability for the EU, 75% probability for China, RoW and 85% for the US.

We have updated our foreign exchange assumptions and, as a result, have amended our forecasts for FY22 and FY23 (Exhibit 4). We now estimate FY22 revenues of CHF108.9m (previously CHF109.5m) and FY23 revenues of CHF133.8m (previously CHF128.1m). As Basilea receives cumulative milestone payments from the sale of isavuconazole, our amended FX assumptions have had an impact on these payments in FY22 and FY23. We now expect the company to receive slightly lower milestone revenue in FY21, but this will result in higher milestones in FY23, which explains the increase in our revenue estimate for this year. As a result, we have increased our FY22 estimate of net loss (normalised) by 1% to CHF30.9m (previously CHF30.1m), although our FY23 estimate has risen to CHF23.7m, from CHF19.1m previously. We continue to estimate that Basilea will reach sustainable profitability in FY23.

Exhibit 4: Financial summary

Accounts: US GAAP, year-end: 31 December, CHF’000s

 

 

2019

2020

2021

2022e

2023e

PROFIT & LOSS

 

 

 

 

 

 

 

Total revenues

 

 

134,381

127,629

148,122

108,916

133,766

Product revenues (Cresemba and Zevtera)

 

 

114,461

112,032

131,382

101,753

129,619

Cost of sales

 

 

(18,868)

(24,054)

(24,072)

(21,774)

(26,196)

Gross profit

 

 

115,513

103,575

124,050

87,142

107,570

Research and development expenses (net)

 

 

(102,662)

(97,410)

(93,157)

(85,420)

(63,751)

SG&A costs

 

 

(30,051)

(29,422)

(29,721)

(24,784)

(16,607)

Other income/(expense)

 

 

0

0

0

0

0

Exceptionals and adjustments

 

 

0

15,035

15

0

0

EBITDA (reported)

 

 

(15,561)

(7,032)

1,941

(22,349)

27,962

Reported operating income

 

 

(17,200)

(8,222)

1,187

(23,062)

27,212

Operating margin %

 

 

n/a

n/a

n/a

n/a

n/a

Finance income/(expense)

 

 

(5,182)

(6,445)

(7,982)

(8,037)

(8,014)

Exceptionals and adjustments

 

 

0

0

0

0

0

Profit before tax (reported)

 

 

(22,382)

(14,667)

(6,795)

(31,099)

19,198

Profit before tax (normalised)

 

 

(22,282)

(29,602)

(6,610)

(30,899)

19,405

Income tax expense (includes exceptionals)

 

 

(40)

(55)

(37)

0

4,333

Net income (reported)

 

 

(22,422)

(14,722)

(6,832)

(31,099)

23,531

Net income (normalised)

 

 

(22,322)

(29,657)

(6,647)

(30,899)

23,738

Basic average number of shares, m

 

 

10.8

10.3

11.7

11.8

11.8

Basic EPS (CHF c)

 

 

(208.5)

(143.2)

(58.5)

(262.6)

198.7

Adjusted EPS (CHF c)

 

 

(207.5)

(288.5)

(56.9)

(260.9)

200.5

Dividend per share (CHF c)

 

 

0

0

0

0

0

BALANCE SHEET

 

 

 

 

 

 

 

Tangible assets

 

 

5,162

2,627

2,018

2,505

2,962

Intangible assets

 

 

372

672

632

632

625

Long-term investments

 

 

30,000

0

2,390

2,390

2,390

Other non-current assets

 

 

1,073

2,967

1,161

1,161

1,161

Total non-current assets

 

 

36,607

6,266

6,201

6,688

7,138

Cash and equivalents

 

 

109,024

60,749

53,700

38,564

54,056

Short-term investments

 

 

20,000

101,023

95,000

95,000

95,000

Inventories

 

 

18,569

21,192

22,783

20,608

24,794

Trade and other receivables

 

 

6,242

8,710

24,947

18,344

22,529

Other current assets

 

 

31,025

31,854

44,636

40,136

40,136

Total current assets

 

 

184,860

223,528

241,066

212,651

236,515

Convertible senior unsecured bonds (long-term)

 

 

197,740

239,668

94,544

219,145

219,145

Deferred revenue

 

 

16,471

13,158

11,926

6,436

946

Non-current operating lease liabilities

 

 

548

896

10

10

10

Other non-current liabilities

 

 

24,174

27,957

24,986

24,986

24,986

Total non-current liabilities

 

 

238,933

281,679

131,466

250,577

245,087

Convertible senior unsecured bonds (short-term)

 

 

0

0

123,505

0

0

Accounts payable

 

 

6,765

13,151

10,617

9,603

11,554

Deferred revenue

 

 

32,873

2,556

1,233

5,490

5,490

Current operating lease liabilities

 

 

352

1,752

896

896

896

Other current liabilities

 

 

35,504

32,702

38,157

38,157

38,157

Total current liabilities

 

 

75,494

50,161

174,408

54,146

56,097

Net assets

 

 

(92,960)

(102,046)

(58,607)

(85,384)

(57,531)

CASH FLOW STATEMENT

 

 

 

 

 

 

 

Reported net income

 

 

(22,422)

(14,722)

(6,831)

(31,099)

23,531

Depreciation and amortisation

 

 

1,639

1,190

754

713

750

Share based payments

 

 

3,048

3,525

4,322

4,322

4,322

Other adjustments

 

 

758

(13,365)

1,522

1,096

0

Movements in working capital

 

 

(46,859)

(30,762)

(31,787)

11,032

(11,910)

Cash from operations (CFO)

 

 

(63,836)

(54,134)

(32,020)

(13,936)

16,693

Capex

 

 

(294)

(1,823)

(581)

(1,000)

(1,000)

Short-term investments

 

 

30,000

(51,023)

6,023

0

0

Long-term investments

 

 

(30,000)

0

0

0

0

Other investing activities

 

 

(110)

17,883

(1,867)

(200)

(200)

Cash used in investing activities (CFIA)

 

 

(404)

(34,963)

3,575

(1,200)

(1,200)

Net proceeds from issue of shares

 

 

0

0

42,240

0

0

Movements in debt

 

 

0

43,451

(23,212)

0

0

Other financing activities

 

 

1,309

1,616

(2,388)

0

0

Cash from financing activities (CFF)

 

 

1,309

45,067

16,640

0

0

Cash and equivalents at beginning of period

 

 

173,908

111,044

66,256

54,953

39,817

Increase/(decrease) in cash and equivalents

 

 

(62,931)

(44,030)

(11,805)

(15,136)

15,493

Effect of FX on cash and equivalents

 

 

67

(758)

501

0

0

Cash and equivalents at end of period

 

 

111,044

66,256

54,952

39,817

55,309

Net (debt)/cash

 

 

(68,716)

(77,896)

(69,349)

(85,581)

(70,089)

Source: Basilea Pharmaceutica company accounts, Edison Investment Research

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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

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United States

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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

1185 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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