MagForce — 2017 lays foundation for 2018 progress

MagForce (DB: MF6)

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Research: Healthcare

MagForce — 2017 lays foundation for 2018 progress

MagForce continues to execute its two-pronged strategy. With €35m now available in financing from the EIB, MagForce can now roll out its Nanotherm devices outside of Germany for the treatment of glioblastoma multiforme (GBM) patients. Plans for 2018 to expand into Poland and Italy reflect the high levels of enquires coming from both countries. In the US, the first patient is expected to enrol into the pivotal clinical trial for prostate cancer in Q218, following the investigational device exemption (IDE) approval in February 2018. We value MagForce at €11.7/share.

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Healthcare

MagForce

2017 lays foundation for 2018 progress

FY17 results

Healthcare equipment & services

17 May 2018

Price

€5.41

Market cap

€142m

$1.23/€

Net debt (€m)

4.3

Shares in issue

26.3m

Free float

70%

Code

MF6

Primary exchange

Frankfurt (Xetra)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(2.2)

(31.3)

(29.8)

Rel (local)

(6.7)

(34.1)

(30.8)

52-week high/low

€8.50

€5.14

Business description

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

Next events

US prostate cancer trial start enrolment

Q218

Further NanoActivator installations

2018

Analysts

Dr Susie Jana

+44 (0)20 3077 5700

Dr Daniel Wilkinson

+44 (0)20 3077 5734

MagForce is a research client of Edison Investment Research Limited

MagForce continues to execute its two-pronged strategy. With €35m now available in financing from the EIB, MagForce can now roll out its Nanotherm devices outside of Germany for the treatment of glioblastoma multiforme (GBM) patients. Plans for 2018 to expand into Poland and Italy reflect the high levels of enquires coming from both countries. In the US, the first patient is expected to enrol into the pivotal clinical trial for prostate cancer in Q218, following the investigational device exemption (IDE) approval in February 2018. We value MagForce at €11.7/share.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/16

0.5

(7.2)

(0.28)

0.0

N/A

N/A

12/17

0.8

(7.5)

(0.28)

0.0

N/A

N/A

12/18e

2.9

(8.8)

(0.33)

0.0

N/A

N/A

12/19e

7.1

(7.9)

(0.30)

0.0

N/A

N/A

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

Prostate US IDE approved; launch likely Q419

In February 2018, MagForce received IDE approval to start its first pivotal clinical trial evaluating NanoTherm focal ablation therapy for prostate cancer in the US. This is a major milestone for the company. Prostate cancer in the US presents a significant market opportunity (representing ~60% of our rNPV) and makes sense strategically as a first US indication. The company forecasts that NanoTherm could be launched for the commercial treatment of prostate cancer patients by end-2019.

Expansion to Poland and Italy to drive GBM uptake

In August 2017, MagForce announced financing from the European Investment Bank (EIB) of up €35m. This funding will in part enable MagForce to roll out its NanoTherm devices across Europe and reach patients who were previously reluctant to travel across the border to Germany for GBM treatment. MagForce has announced that Poland and Italy will be the next two targeted countries for treatment. We anticipate clinical location announcements later in the year. A key factor in the roll-out will be achieving reimbursement in selected European countries and raising clinicians’ and patients’ awareness of the therapy.

Financials: Funded into the near term

The net loss for FY17 was €7.5m for MagForce (FY16: €7.2m). FY17 revenues of €716K were driven by sales of the ambulatory NanoActivator device (2017 €175k; 2016 €217k) and NanoTherm to MagForce USA (2017 €316k; 2016 €81k). The €35m loan from the EIB, of which €10m was available for immediate drawdown, removes any near-term funding requirements.

Valuation: €307.6m (€11.7/share)

We value MagForce at €307.6m or €11.7/share (previously €302.6m, €11.5/share), based on a risk-adjusted NPV analysis. We have rolled forward our model and updated it to reflect FY17 results, including net debt of €4.3m at 31 December 2017.

FY17 results update

The net loss for FY17 was €7.5m for MagForce (FY16: €7.2m). FY17 revenues of €716K were driven by sales of the ambulatory NanoActivator device (2017 €175k; 2016 €217k) and NanoTherm to MagForce USA (2017 €316k; 2016 €81k). Treatment of fewer patients with NanoTherm therapy in the EU resulted in a small decrease in associated FY17 revenues to €152k (2015: €176k). Commercial revenues were generated by sales of NanoTherm particles and by the use of the NanoActivator devices. Revenues in Europe were affected by a lengthy reimbursement process (done on a per-patient basis) and ongoing negotiations with health insurers.

MagForce reported other operating income of €3.6m in FY17 (FY16: €2.5m), which was largely related to the transfer of shares of the Magforce USA to Magforce USA Holding (€2.0m).

Cost of materials increased to €974k (FY16: €574k) and was mainly attributed to the significant increase in purchased services, including the development of an ambulatory NanoActivator device.

Reported cash and cash equivalents at 31 December 2017 was €666k. In February 2017, Lipps & Associates granted a loan of €400k to MagForce. The loan is due on 30 June 2019 and has a 5% interest rate. In June 2017, a further €3.0m was loaned to MagForce at 4% interest, also due on 30 June 2019. In March, a €5m convertible bond was issued with a maturity of three years, an interest rate of 5% per annum and a conversion price of €5/share. In June, MagForce raised €5m via a capital raise with M&G International Investments, placing 0.7m shares at €6.94. In Q3, MagForce agreed a €35m loan from the EIB, of which €10m was available for immediate drawdown.

Valuation

Our updated valuation is €307.6m or €11.7 per MagForce share (previously €302.6m, €11.5share), based on a risk-adjusted NPV analysis. We have rolled forward our model and updated it to reflect FY17 results and net debt of €4.3mn at 31 December 2017. The breakdown of our rNPV valuation, which uses a 12.5% discount rate, is shown in Exhibit 1. For a full breakdown of our valuation, please see our note ‘US NanoTherm IDE approval a major milestone’, published in February.

Exhibit 1: MagForce risk-adjusted NPV valuation

Product

Indication

Launch

Peak sales (€m)

Peak sales ($m)

NPV
(€m)

Probability

MagForce beneficial interest

rNPV
(€m)

rNPV/
share (€)

NanoTherm EU

GBM – Germany

2016

10

12

29.3

100%

100%

29.3

1.1

GBM – broader use

2018

60

74

91.7

100%

100%

91.7

3.5

NanoTherm US

Prostate cancer

2019

210

268

297.8

80%

77%

183.3

7.0

Net debt (AG), Dec 2017

(4.3)

100%

100%

(4.3)

(0.2)

Net cash (US), Edison est.

10.0

100%

77%

7.7

0.3

Valuation

424.5

307.6

11.7

Source: Edison Investment Research. Note: peak sales are rounded to the nearest €5m/$5m for original currency.

Exhibit 2: Financial summary

€000s

2016

2017

2018e

2019e

December

HGB

HGB

HGB

HGB

PROFIT & LOSS

Revenue

 

 

474

716

2,898

7,107

Cost of Sales

(574)

(974)

(3,935)

(6,143)

Gross Profit

(101)

(258)

(1,037)

964

EBITDA

 

 

(6,554)

(6,739)

(7,613)

(6,646)

Operating Profit (before amort. and except.)

(4,871)

(7,456)

(7,456)

(7,410)

Intangible Amortisation

(5)

(1)

(2)

(0)

Exceptionals

0

0

0

0

Other

0

0

0

0

Operating Profit

(7,461)

(7,411)

(7,977)

(7,068)

Net Interest

231

(53)

(814)

(875)

Profit Before Tax (norm)

 

 

(7,225)

(7,463)

(8,788)

(7,943)

Profit Before Tax (reported)

 

 

(7,230)

(7,464)

(8,790)

(7,943)

Tax

(1)

(1)

0

0

Profit After Tax (norm)

(7,226)

(7,464)

(8,788)

(7,943)

Profit After Tax (reported)

(7,231)

(7,465)

(8,790)

(7,943)

Average Number of Shares Outstanding (m)

25.6

26.0

26.3

26.3

EPS - normalised (€)

 

 

(0.28)

(0.28)

(0.33)

(0.30)

EPS - normalised and fully diluted (€)

 

(0.18)

(0.28)

(0.28)

(0.33)

EPS - (reported) (€)

 

 

(0.28)

(0.28)

(0.33)

(0.30)

Dividend per share (€)

0.0

0.0

0.0

0.0

Gross Margin (%)

N/A

N/A

N/A

13.6

EBITDA Margin (%)

N/A

N/A

N/A

N/A

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

18,742

20,672

21,596

22,587

Intangible Assets

3

1

0

0

Tangible Assets

3,706

3,589

4,515

5,506

Investments

15,033

17,082

17,082

17,082

Current Assets

 

 

1,536

1,360

4,219

5,706

Stocks

71

301

323

505

Debtors

71

85

1,588

3,894

Cash

614

666

2,000

1,000

Other

780

307

307

307

Current Liabilities

 

 

(4,431)

(3,747)

(4,292)

(5,445)

Creditors

(4,431)

(3,747)

(4,292)

(5,445)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

(197)

(5,091)

(15,240)

(24,509)

Long term borrowings

0

(5,012)

(15,161)

(24,430)

Other long term liabilities

(197)

(79)

(78)

(78)

Net Assets

 

 

15,650

13,193

6,284

(1,660)

CASH FLOW

Operating Cash Flow

 

 

(1,078)

(7,930)

(8,594)

(7,981)

Net Interest

231

(53)

(814)

(875)

Tax

(1)

(1)

0

0

Capex

(115)

(553)

(1,287)

(1,413)

Acquisitions/disposals

0

0

0

0

Financing

0

5,000

0

0

Dividends

0

0

0

0

Net Cash Flow

(963)

(3,538)

(10,694)

(10,269)

Opening net debt/(cash)

 

 

(1,393)

(614)

4,347

13,161

HP finance leases initiated

0

0

0

0

Other

184

(1,423)

1,880

(0)

Closing net debt/(cash)

 

 

(614)

4,347

13,161

23,430

Source: MagForce Accounts, Edison Investment Research. Note: historical and forecast cash flow numbers are Edison estimates, as Magforce does not publish a statement of cash flows. All financial data is on an unconsolidated basis and does not include MagForce USA. *Gross equity proceeds.


Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by MagForce and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

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London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by MagForce and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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