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Research: Healthcare
SUDA has had a busy couple of months, announcing approval for ZolpiMist in Australia by the Therapeutics Goods Administration (TGA) in July, as well as raising A$4.1m in additional capital. The TGA approval demonstrates SUDA’s compliance with Good Manufacturing Practice (GMP) as well as an ability to obtain regulatory approvals. This approval will assist SUDA’s current partners in their submissions in the territories for which they are responsible.
Written by
Maxim Jacobs
SUDA Pharmaceuticals |
A TGA approval and a capital raise |
Financial update |
Pharma & biotech |
3 September 2020 |
Share price performance
Business description
Next events
Analysts
SUDA Pharmaceuticals is a research client of Edison Investment Research Limited |
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SUDA has had a busy couple of months, announcing approval for ZolpiMist in Australia by the Therapeutics Goods Administration (TGA) in July, as well as raising A$4.1m in additional capital. The TGA approval demonstrates SUDA’s compliance with Good Manufacturing Practice (GMP) as well as an ability to obtain regulatory approvals. This approval will assist SUDA’s current partners in their submissions in the territories for which they are responsible.
Year end |
Revenue (A$m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
06/19 |
1.2 |
(2.4) |
(0.02) |
0.0 |
N/A |
N/A |
06/20 |
0.5 |
(4.7) |
(0.03) |
0.0 |
N/A |
N/A |
06/21e |
0.6 |
(5.5) |
(0.02) |
0.0 |
N/A |
N/A |
06/22e |
1.1 |
(5.6) |
(0.02) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
TGA approval for ZolpiMist
ZolpiMist is an oro-mucosal spray version of Ambien, which has a faster onset than the pill form. SUDA had submitted a marketing authorisation application (MAA) to the TGA in April 2019 for ZolpiMist in Australia. It had most recently expected completion of the TGA review in Q4 CY20, so approval in July comes a few months ahead of schedule.
Commercialising ZolpiMist globally
SUDA has the rights outside North America and has out-licensed rights in Mexico, Brazil and Chile to Teva, and in Singapore, Malaysia, the Philippines and Korea to Mitsubishi Tanabe. Royalties are typically double digit and include a handling fee. The TGA approval will assist SUDA’s current partners in their submissions in the territories for which they are responsible.
A$4.1m in additional capital
SUDA conducted an entitlement offer in which eligible shareholders were able to subscribe for one new share at A$0.025 for each share currently held, and one option for each three shares subscribed for. Through this, A$3.6m in gross proceeds was raised. Due to the high demand for shares in the entitlement offer, the company subsequently raised an additional A$0.5m via a private placement.
Valuation: A$24m or A$0.08 per basic share
We have adjusted our valuation for SUDA to A$24m or A$0.08 per basic share (A$0.06 per diluted share) from A$18m or A$0.13 per basic share (A$0.09 per diluted share). The total valuation has increased due to higher net cash and rolling forward our NPV, while the per-share value has decreased due to a greater number of shares outstanding. The company had A$1.0m in cash on hand at 30 June 2020 and raised an additional A$4.1m. After taking into account the recent raise, we estimate the need to raise an additional A$6m in FY21 (A$18.5m total over the next three years) to fund operations based on the current business plan.
FY20 results
ZolpiMist is the oro-mucosal spray version of zolpidem tartrate (the branded form is the blockbuster insomnia drug Ambien), which has 30m prescriptions written for it in the US annually. Approximately 2.5m prescriptions are written for novel formulations, such as controlled release and sublingual tablets. The main benefit of ZolpiMist is the fast onset of action. Therapeutic levels were reached within 15 minutes following administration of the 10mg dose of ZolpiMist in 79% of patients compared to only 26% with the tablet version.1
Neubauer et al., ZolpiMist: a new formulation of zolpidem tartrate for the short-term treatment of insomnia in the US. Nature and Science of Sleep 2010:2 79–84.
ZolpiMist has been approved in the US since 2008 (where Aytu BioScience has the rights) and this approval in Australia is the first outside the US and the first by SUDA. SUDA has out-licensed ZolpiMist to Teva for Mexico, Chile and Brazil, and to two separate divisions of Mitsubishi Tanabe for Singapore, Malaysia, the Philippines and South Korea. While upfront payments have been small, the royalty rates are all double digit and SUDA will also receive a handling fee. The company has stated that it is in discussions for licensing deals for additional territories (SUDA has rights outside the US and Canada), in line with the strategy of commercialising the product globally.
Exhibit 1: ZolpiMist licensing deals
Partner |
Countries |
Populations |
Terms |
Comments |
Teva |
Mexico, Chile and Brazil |
Mexico: 123m, Chile: 17m, |
US$300,000 upfront, commercial milestones of US$700,000 and double-digit royalties |
Agreement signed in 2017. Teva is currently working on approval in the three countries, launch timing undisclosed |
Mitsubishi Tanabe Korea |
South Korea |
South Korea: 51m |
US$100,000 upfront, US$100,000 on approval, up to US$300,000 in commercial milestones, a 12% royalty and a handling fee |
Signed in 2020. Timing of approval and launch tbd |
Mitsubishi Tanabe Singapore |
Singapore, Malaysia, Philippines |
Singapore: 6m, Malaysia: 32m, Philippines: 109m |
US$100,000 upfront, US$770,000 in regulatory and commercial milestones, a double-digit royalty and a handling fee |
Signed in 2018. Timing of approval and launch tbd |
Source: SUDA Pharmaceuticals
Valuation
We have adjusted our valuation for SUDA to A$24m or A$0.08 per basic share (A$0.06 per diluted share) from A$18m or A$0.13 per basic share (A$0.09 per diluted share). The total valuation has increased due to higher net cash and rolling forward our NPV, while the per-share value has decreased due to a greater number of shares outstanding.
Exhibit 2: SUDA valuation table
Product |
Main indication |
Status |
Probability of successful commercialisation |
Approval year |
Peak sales (A$m) |
Economics |
rNPV |
ZolpiMist |
Insomnia |
Registered (Australia), pre-registration (other regions) |
70% |
2020 |
19.50 |
Double digit royalties |
18.7 |
Total |
|
|
|
|
|
|
18.7 |
Net cash (at 30 June 2020 + offering) |
5.1 |
||||||
Total firm value (A$) |
23.79 |
||||||
Total basic shares (m) |
305.8 |
||||||
Value per basic share (A$) |
0.08 |
||||||
Options (m) |
68.1 |
||||||
Total number of shares (m) |
374.0 |
||||||
Diluted value per share (A$) |
0.06 |
||||||
Source: Edison Investment Research
Financials
For FY20, the company reported A$0.5m in revenue (down 56% compared to FY19, mainly due to the timing of licensing, upfront and milestone payments) and a loss of A$9.9m, although A$5.9m was due to intangible asset impairment related to ArTiMist. Operating cash burn for the year was A$2.9m. We have not made substantial changes to our FY21 estimates and introduce our FY22 estimates, which feature A$1.1m in revenues and include some ZolpiMist royalties flowing through.
SUDA had A$1.0m in cash on hand at 30 June 2020 and raised an additional A$4.1m after the end of the fiscal year. It raised A$3.6m in an entitlement offer through the issue of 142.3m shares and 47.4m listed options at a cost of A$0.025 per unit. The options expire on 31 July 2022 and have an exercise price of A$0.05. Due to the high demand seen in the entitlement offering, the company placed an additional 21.3m shares at A$0.025 per share with no additional options in a private placement, raising A$0.5m.
After taking into account the recent raise, we estimate the need to raise an additional A$6m in FY21 (A$18.5m total over the next three years) to fund operations based on the current business plan.
Exhibit 3: Financial summary
A$'000s |
2019 |
2020 |
2021e |
2022e |
||
Year end 30 June |
AIFRS |
AIFRS |
AIFRS |
AIFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
1,219 |
533 |
566 |
1,138 |
Cost of Sales |
0 |
0 |
0 |
0 |
||
Gross Profit |
1,219 |
533 |
566 |
1,138 |
||
Sales, General and Administrative Expenses |
(3,129) |
(4,788) |
(4,979) |
(5,178) |
||
Research and Development Expense |
0 |
0 |
(500) |
(1,020) |
||
EBITDA |
|
|
(1,878) |
(4,112) |
(4,913) |
(5,061) |
Operating Profit (before amort. and except.) |
|
|
(2,349) |
(4,684) |
(5,485) |
(5,633) |
Intangible Amortisation |
0 |
0 |
0 |
0 |
||
Other |
32 |
143 |
0 |
0 |
||
Exceptionals |
(6,277) |
(5,938) |
0 |
0 |
||
Operating Profit |
(8,626) |
(10,622) |
(5,485) |
(5,633) |
||
Net Interest |
(94) |
22 |
23 |
24 |
||
Other |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(2,443) |
(4,662) |
(5,462) |
(5,609) |
Profit Before Tax (FRS 3) |
|
|
(8,720) |
(10,600) |
(5,462) |
(5,609) |
Tax |
925 |
656 |
0 |
0 |
||
Deferred tax |
(0) |
(0) |
(0) |
(0) |
||
Profit After Tax (norm) |
(1,518) |
(4,006) |
(5,462) |
(5,609) |
||
Profit After Tax (FRS 3) |
(7,795) |
(9,944) |
(5,462) |
(5,609) |
||
Average Number of Shares Outstanding (m) |
98.6 |
142.3 |
306.0 |
309.1 |
||
EPS - normalised ($) |
|
|
(0.02) |
(0.03) |
(0.02) |
(0.02) |
EPS - Reported ($) |
|
|
(0.08) |
(0.07) |
(0.02) |
(0.02) |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
10,658 |
4,673 |
4,941 |
5,215 |
Intangible Assets |
10,291 |
4,251 |
4,384 |
4,517 |
||
Tangible Assets |
367 |
365 |
500 |
641 |
||
Other |
0 |
57 |
57 |
57 |
||
Current Assets |
|
|
5,595 |
2,035 |
6,618 |
8,792 |
Stocks |
45 |
22 |
22 |
22 |
||
Debtors |
1,121 |
869 |
913 |
114 |
||
Cash |
4,314 |
977 |
5,517 |
8,490 |
||
Other |
115 |
166 |
166 |
166 |
||
Current Liabilities |
|
|
(1,349) |
(2,022) |
(1,677) |
(1,677) |
Creditors |
(1,312) |
(2,010) |
(1,677) |
(1,677) |
||
Short term borrowings |
(36) |
(12) |
0 |
0 |
||
Long Term Liabilities |
|
|
(927) |
(550) |
(6,724) |
(14,225) |
Long term borrowings |
(17) |
(4) |
(6,178) |
(13,678) |
||
Other long-term liabilities |
(910) |
(545) |
(546) |
(546) |
||
Net Assets |
|
|
13,978 |
4,135 |
3,157 |
(1,895) |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(2,495) |
(2,884) |
(5,160) |
(4,127) |
Net Interest |
0 |
0 |
0 |
0 |
||
Tax |
0 |
0 |
0 |
0 |
||
Capex |
(1,384) |
(388) |
(394) |
(400) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
||
Financing |
8,095 |
0 |
4,093 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
4,215 |
(3,272) |
(1,460) |
(4,527) |
||
Opening net debt/(cash) |
|
|
1,951 |
(4,260) |
(961) |
661 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Exchange rate movements |
0 |
0 |
0 |
0 |
||
Other |
1,996 |
(27) |
(162) |
(162) |
||
Closing net debt/(cash) |
|
|
(4,260) |
(961) |
661 |
5,350 |
Source: Edison Investment Research, company reports
|
|
Research: Metals & Mining
On 30 July, Alkane achieved its goal of demerging Australian Strategic Materials (ASM) in order to become a purely gold-focused miner. Since then, it has announced FY20 results, including an updated reserve & resource statement and the results of additional drilling at Boda, which continue to be consistent (in our opinion) with its hosting a multi-million-ounce gold resource. This note updates our financial forecasts and valuation in the aftermath of the ASM demerger in particular and also the material (12.0%) strengthening of the Australian dollar vs the US dollar.
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