2016 was an important year for 4SC as it launched its potentially pivotal Phase II study with resminostat, an epigenetic cancer drug, in CTCL. In addition, it announced positive subgroup analysis of a Phase II study in HCC with its partner Yakult. It is streamlining its focus on three core assets: resminostat, 4SC-202 (initiating Phase II trials in 2017) and 4SC-208 (initiating preclinical development). We have slightly increased our rNPV to €124m, but note that we forecast a cash horizon to end 2017/early 2018.
Written by
4SC |
A streamlined focus moving forward |
FY16 results |
Pharma & biotech |
30 March 2017 |
Share price performance
Business description
Next events
Analysts
4SC is a research client of Edison Investment Research Limited |
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2016 was an important year for 4SC as it launched its potentially pivotal Phase II study with resminostat, an epigenetic cancer drug, in CTCL. In addition, it announced positive subgroup analysis of a Phase II study in HCC with its partner Yakult. It is streamlining its focus on three core assets: resminostat, 4SC-202 (initiating Phase II trials in 2017) and 4SC-208 (initiating preclinical development). We have slightly increased our rNPV to €124m, but note that we forecast a cash horizon to end 2017/early 2018.
Year |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/15 |
3.3 |
(8.4) |
(0.59) |
0.0 |
N/A |
N/A |
12/16 |
2.1 |
(10.9) |
(0.54) |
0.0 |
N/A |
N/A |
12/17e |
2.4 |
(9.9) |
(0.49) |
0.0 |
N/A |
N/A |
12/18e |
2.7 |
(7.2) |
(0.34) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Solid progress in 2016
4SC made good progress in 2016 by streamlining its focus on its lead clinical assets (resminostat, 4SC-202, 4SC-208) and developing its senior management team. Highlights include positive data from subgroup analysis of the Phase II study of resminostat in combination with sorafenib as first-line therapy in HCC (with partner Yakult), strong preclinical data on 4SC-202’s potential in monotherapy and in combination with checkpoint inhibitors, and the initiation of its pivotal study (RESMAIN) of resminostat as maintenance therapy in patients with advanced-stage CTCL. Alongside this 4SC has demonstrated its ability to achieve value from its non-core assets as it sold its discovery operation to BioNTech Small Molecules, its immunology portfolio to Immunic and licensed 4SC-205 to Link Health for its development and marketing in China, generating upfront and a mix of milestone and royalty payments.
Streamlined focus on core assets
4SC has defined its core focus in 2017 on three aspects: its pivotal RESMAIN study with resminostat in CTCL (for detail see here), the initiation of preclinical development of 4SC-208 and the initiation of two Phase II combination studies with 4SC-202 and an anti-PD-1 and anti-PD-L1 antibody in checkpoint-refractory melanoma and gastrointestinal cancer respectively. Alongside this it continues to discuss next steps with its partner Yakult for development of resminostat in HCC. The company has also indicated that it will continue to out-license its non-core assets.
Valuation: Increased to €124m
Our rNPV-based valuation has increased to €124m (vs €120m) or €6.5 per share (vs €6.3/share) following the release of FY16 results. We forecast cash reach to late 2017/early 2018 and model illustrative funding of €10m as long-term debt in 2017, which should be sufficient to complete the CTCL study. 2017 is an important year for 4SC as it further develops its core assets, potentially continues to leverage its non-core assets via out-licences and raises its next tranche of funding.
Exhibit 1: Financial summary
€'000s |
2013 |
2014 |
2015 |
2016 |
2017e |
2018e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
4,904 |
7,055 |
3,266 |
2,060 |
2,369 |
2,724 |
Cost of sales |
(1,474) |
(4,080) |
(1,763) |
(76) |
(948) |
(954) |
||
Gross profit |
3,430 |
2,975 |
1,503 |
1,984 |
1,421 |
1,771 |
||
R&D expenditure |
(10,243) |
(8,504) |
(7,255) |
(10,601) |
(10,000) |
(7,500) |
||
Administrative, distribution and other |
(3,779) |
(3,908) |
(3,163) |
(3,175) |
(2,422) |
(2,495) |
||
Operating profit |
(10,592) |
(9,437) |
(8,915) |
(11,792) |
(11,001) |
(8,224) |
||
Intangible amortisation |
(1,593) |
(819) |
(827) |
(892) |
(892) |
(892) |
||
Exceptionals (impairment / restructuring costs) |
(862) |
0 |
0 |
0 |
0 |
0 |
||
Share-based payments |
(53) |
(3) |
2 |
0 |
(20) |
(20) |
||
EBITDA |
|
|
(7,804) |
(8,339) |
(7,914) |
(10,900) |
(9,864) |
(7,087) |
Operating profit (before GW and except.) |
|
(8,084) |
(8,615) |
(8,090) |
(10,900) |
(10,089) |
(7,312) |
|
Net interest |
48 |
(228) |
(331) |
(14) |
150 |
100 |
||
Other (profit/loss from associates) |
19 |
39 |
58 |
711 |
711 |
711 |
||
Profit before tax (norm) |
|
|
(8,036) |
(8,843) |
(8,421) |
(10,914) |
(9,939) |
(7,212) |
Profit before tax (FRS 3) |
|
|
(10,525) |
(9,626) |
(9,188) |
(11,095) |
(10,140) |
(7,413) |
Tax |
0 |
(70) |
(40) |
(71) |
0 |
0 |
||
Profit after tax (norm) |
(8,017) |
(8,874) |
(8,403) |
(10,274) |
(9,228) |
(6,501) |
||
Profit after tax (FRS 3) |
(10,525) |
(9,696) |
(9,228) |
(11,166) |
(10,140) |
(7,413) |
||
Average number of shares outstanding (m) |
10.1 |
10.1 |
14.3 |
19.0 |
19.0 |
19.0 |
||
EPS - normalised (€) |
|
|
(0.80) |
(0.88) |
(0.59) |
(0.54) |
(0.49) |
(0.34) |
EPS - FRS 3 (€) |
|
|
(1.04) |
(0.96) |
(0.64) |
(0.59) |
(0.53) |
(0.39) |
Dividend per share (€) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
BALANCE SHEET |
||||||||
Fixed assets |
|
|
11,591 |
10,639 |
11,077 |
7,096 |
6,214 |
5,357 |
Intangible assets |
10,651 |
9,836 |
9,123 |
6,499 |
5,667 |
4,835 |
||
Tangible assets |
602 |
425 |
357 |
222 |
172 |
147 |
||
Investments and other |
338 |
378 |
1,597 |
375 |
375 |
375 |
||
Current assets |
|
|
6,114 |
4,295 |
22,415 |
11,959 |
12,603 |
5,081 |
Stocks |
23 |
25 |
20 |
0 |
0 |
0 |
||
Debtors |
346 |
652 |
94 |
95 |
95 |
95 |
||
Cash |
4,899 |
3,202 |
21,476 |
10,048 |
10,692 |
3,170 |
||
Other current assets |
846 |
393 |
817 |
1,816 |
1,816 |
1,816 |
||
Current liabilities |
|
|
(3,587) |
(4,842) |
(5,593) |
(3,257) |
(3,011) |
(3,188) |
Creditors |
(675) |
(993) |
(688) |
(834) |
(834) |
(834) |
||
Short-term borrowings |
0 |
(317) |
(1,962) |
0 |
0 |
0 |
||
Deferred revenue (short term) |
(1,589) |
(2,638) |
(1,779) |
(1,431) |
(1,185) |
(1,362) |
||
Other current liabilities |
(1,323) |
(894) |
(1,164) |
(992) |
(992) |
(992) |
||
Long-term liabilities |
|
|
(2,836) |
(8,042) |
(1,471) |
(525) |
(10,032) |
(10,032) |
Long-term borrowings |
0 |
(6,131) |
0 |
0 |
(10,000) |
(10,000) |
||
Deferred revenue (long term) |
(2,682) |
(1,788) |
(1,433) |
(493) |
0 |
0 |
||
Other long-term liabilities |
(154) |
(123) |
(38) |
(32) |
(32) |
(32) |
||
Net assets |
|
|
11,282 |
2,050 |
26,428 |
15,273 |
5,775 |
(2,782) |
CASH FLOW |
||||||||
Operating cash flow |
|
|
(7,052) |
(8,302) |
(8,916) |
(12,320) |
(9,124) |
(7,265) |
Net interest |
66 |
0 |
(2) |
(531) |
4 |
3 |
||
Tax |
0 |
(70) |
(40) |
(71) |
0 |
0 |
||
Capex |
(99) |
(100) |
(109) |
(404) |
(175) |
(200) |
||
Expenditure on intangibles |
(21) |
(3) |
(114) |
(60) |
(60) |
(60) |
||
Acquisitions/disposals |
10 |
0 |
0 |
2,808 |
0 |
0 |
||
Financing |
0 |
477 |
27,608 |
0 |
0 |
0 |
||
Other |
0 |
0 |
4,333 |
650 |
0 |
0 |
||
Net cash flow |
(7,096) |
(7,998) |
22,760 |
(9,928) |
(9,356) |
(7,522) |
||
Opening net debt/(cash) |
|
|
(12,064) |
(4,899) |
3,246 |
(19,514) |
(10,048) |
(692) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
(69) |
(147) |
0 |
462 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(4,899) |
3,246 |
(19,514) |
(10,048) |
(692) |
6,830 |
Source: Edison Investment Research and company accounts
|
|
Research: TMT
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