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Research: Healthcare
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.
Written by
MagForce |
2017 lays foundation for 2018 progress |
FY17 results |
Healthcare equipment & services |
17 May 2018 |
Share price performance
Business description
Next events
Analysts
MagForce is a research client of Edison Investment Research Limited |
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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* |
EPS* |
DPS |
P/E |
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 |
Probability |
MagForce beneficial interest |
rNPV |
rNPV/ |
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.
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Research: Financials
Numis has made good progress in the first half of 2018 with particularly strong revenues in corporate broking and advisory and a resilient result from the equities activity. Investment in people and platforms to support future growth and our expectation of lower portfolio gains restrains our earnings estimates for the moment but healthy deal pipelines, continued growth in the corporate client base and the strong balance sheet are positive indicators for the future, subject to market fluctuations.