Basilea Pharmaceutica — BARDA backs Basilea’s anti-infectives programme

Basilea Pharmaceutica (SIX: BSLN)

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Research: Healthcare

Basilea Pharmaceutica — BARDA backs Basilea’s anti-infectives programme

Basilea has bagged a multi-year agreement with the Biomedical Advanced Research and Development Authority (BARDA), potentially worth US$268m, to advance its anti-infectives franchise. The Other Transaction Agreement (OTA) will include an initial payment of US$29m to support clinical development work for fosmanogepix and BAL2062 as they prepare to enter the next phase of clinical development. The agreement will last up to 12 years and management expects it to cover 60% of its development costs related to the covered programmes over the period. These expected inflows have triggered another guidance upgrade for FY24 (revenue of CHF203m, from CHF196m previously) with a significant uptick in the bottom line on increased deferred taxes (net profit guided to be CHF60m vs CHF42m previously). We have adjusted our estimates to reflect the potential non-dilutive funding from BARDA, with our valuation increasing to CHF95.3/share, from CHF89.7/share previously.

Jyoti Prakash

Written by

Jyoti Prakash

Analyst, Healthcare

Healthcare

Basilea Pharmaceutica

BARDA backs Basilea’s anti-infectives programme

Funding update

Pharma and biotech

24 September 2024

Price

CHF46.0

Market cap

CHF558m

US$1.16/CHF

Net debt (CHFm) at 30 June 2024

26.2

Shares in issue (excluding 1.12m treasury shares)

12.1m

Free float

90%

Code

BSLN

Primary exchange

SIX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.8

13.4

7.7

Rel (local)

5.0

13.9

(0.8)

52-week high/low

CHF47.05

CHF32.25

Business description

Basilea Pharmaceutica is focused on treating infectious diseases. Its marketed products are Cresemba (an antifungal) and Zevtera (an anti-MRSA broad-spectrum antibiotic). In late 2023, it expanded its clinical pipeline to include two antifungals, Phase III-ready, novel broad-spectrum antifungal treatment fosmanogepix (two Phase III trials to start in 2024) and Phase II asset BAL2062, and one antibiotic, tonabacase. In January 2024, Basilea acquired the preclinical LptA inhibitor antibiotics programme from Spexis.

Next events

Announcement of US partner for Zevtera

H224

Fosmanogepix Phase III initiation (candidemia/invasive candidiasis)

H224

Analysts

Jyoti Prakash, CFA

+44 (0)20 3077 5700

Dr Arron Aatkar

+44 (0)20 3077 5700

Basilea Pharmaceutica is a research client of Edison Investment Research Limited

Basilea has bagged a multi-year agreement with the Biomedical Advanced Research and Development Authority (BARDA), potentially worth US$268m, to advance its anti-infectives franchise. The Other Transaction Agreement (OTA) will include an initial payment of US$29m to support clinical development work for fosmanogepix and BAL2062 as they prepare to enter the next phase of clinical development. The agreement will last up to 12 years and management expects it to cover 60% of its development costs related to the covered programmes over the period. These expected inflows have triggered another guidance upgrade for FY24 (revenue of CHF203m, from CHF196m previously) with a significant uptick in the bottom line on increased deferred taxes (net profit guided to be CHF60m vs CHF42m previously). We have adjusted our estimates to reflect the potential non-dilutive funding from BARDA, with our valuation increasing to CHF95.3/share, from CHF89.7/share previously.

Year end

Revenue
(CHFm)

PBT*
(CHFm)

EPS*
(CHFc)

DPS
(CHFc)

P/E
(x)

Yield
(%)

12/22

147.8

12.3

104.1

0.0

44.2

N/A

12/23

157.6

10.8

89.7

0.0

51.3

N/A

12/24e

203.0

38.9

499.4

0.0

9.2

N/A

12/25e

219.1

50.7

419.3

0.0

11.0

N/A

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

Another dose of funding from BARDA…

Basilea’s efforts towards building a pipeline of novel treatments for serious infections has received BARDA’s support since 2013 (R&D funding for BAL30072 and more recently for Zevtera) and we believe this most recent funding reflects the continued strategic focus of the agency on this underserved market. The OTA includes options for up to US$268m in funding covering a period of up to 12 years and allowing for BARDA and Basilea to jointly make decisions on portfolio candidates and churn. The initial US$29m will focus on fosmanogepix (which has now initiated the first Phase III study) and BAL2062, and we expect Basilea to access these funds over a 15- to 18-month period (c US$7m in reimbursement expected during FY24).

…De-risks Basilea’s development programmes

Management estimates the US$268m in R&D funding to cover c 60% of clinical costs over the course of the agreement, which should significantly de-risk ongoing and planned clinical programmes, comprising fosmanogepix, BAL2062 and the antibiotics tonabacase and LptA inhibitors. We note that the first Phase III clinical trial for fosmanogepix (in candidemia/invasive candidiasis) has now commenced, with the second trial (in invasive mould infection) around year-end. We estimate Phase III trial costs for fosmanogepix to be US$150m, with c 60% contributed by BARDA.

Valuation: CHF1,155.5m or CHF95.3 per share

We adjust our estimates and valuation for fosmanogepix to reflect the BARDA reimbursement. Our projections do not currently include the preclinical programmes, and we note the potential upside as they enter the clinic, led by BAL2062 in 2025. We also upgrade our FY24 and FY25 estimates to factor in the revenue uplift from the BARDA funding. Our valuation rises to CHF1,155.5m or CHF95.3/share (from CHF1,087.2m or CHF89.7/share previously).

Non-dilutive BARDA funding to support growth plans…

BARDA has been spearheading the development of medical countermeasures and has previously supported Basilea’s R&D efforts towards invasive and serious fungal and bacterial infections. In June 2013, the company signed its first contract with BARDA for up to US$89m for clinical development of its Gram-negative antibiotic, BAL30072. While this programme was subsequently shelved (following completion of the Phase I clinical trial) the company recognised CHF13.5m in BARDA reimbursements between FY14 and FY15. Notably, BARDA had also provided funding for the Phase III development of Basilea’s lead antibacterial candidate, Zevtera, which recently received US regulatory approval, with launch expected in the coming weeks, pending finalisation of the licensing partner. The contract for Zevtera was signed in April 2016, with BARDA providing funding of US$111.9m, covering c 75% of Zevtera’s development costs of c US$150m. Moreover, CARB-X, a global non-profit partnership co-founded by BARDA, provided an initial grant of US$0.9m to Basilea’s preclinical LptA antibiotic programme in April 2024.

The recent agreement structurally differs from the previous contracts, as it has been signed as an OTA, which allows for greater flexibility and oversight from BARDA, with both parties jointly able to make decisions on portfolio constituents and churn based on performance, risk and need. The agreement includes potentially US$268m of non-dilutive funding to be provided to Basilea over up to 12 years, which management estimates will cover c 60% of its development costs over this period. We note, however, that it is conditional on BARDA exercising all additional options to extend the agreement, which will be contingent on the company meeting certain predefined clinical and regulatory milestones. However, the initial proceeds of US$29m are committed towards R&D activities related to the Phase III asset fosmanogepix and BAL2062 (currently undergoing preclinical profiling, with the Phase II trial planned to initiate in 2025). We expect these initial funds to be provided/recognised over the next 15–18 months, with a majority directed towards fosmanogepix, which has now commenced the first Phase III trial in candidemia and invasive candidiasis (discussed below), with the second Phase III trial in invasive mould infections expected to start around year-end.

Driven by these expected receipts, management has upgraded its revenue guidance for FY24 from CHF196m to CHF203m, which indicates that CHF7m (US$8.2m) of BARDA receipts will likely be recognised within FY24. While the operating expense guidance remains unchanged at c CHF120m, net profitability gets a leg up from additional deferred taxes recognised due to the expected medium-term impact of the OTA on Basilea’s financial performance. The revised guidance is presented in Exhibit 1.

Exhibit 1: Revised company guidance

CHFm

FY24 new guidance

FY24 previous guidance

FY23

Cresemba- and Zevtera-related revenue

c 190

c 190

150.3

Of which – royalty income

c 92

c 92

78.9

Total revenue

c 203

c 196

157.6

Cost of products sold

c 40

c 40

26.8

Operating expenses

c 120

c 120

111.7

Operating profit

c 43

c 36

19.2

Net profit

c 60

c 42

10.5

Source: Basilea press release, September 2024


…starting with first Phase III trial for fosmanogepix

The latest BARDA agreement was quickly followed by the announcement of the initiation of the first Phase III trial for fosmanogepix, a significant development given the strategic importance of the asset in Basilea’s longer-term growth plans. Fosmanogepix is a first-in-class, broad-spectrum antifungal (including multidrug-resistant strains such as Candida auris and Fusarium spp.) with a novel mechanism of action, a key differentiator in the rise of antifungal drug resistance. The drug was acquired by Basilea in November 2023 from Amplyx Pharmaceuticals (for an upfront payment of US$37m and potential milestone payments of US$506m), an affiliate of Pfizer. It holds Fast Track and Orphan Drug designations from the FDA, as well as a qualified infectious disease product (QIDP) tag, providing regulatory and commercial benefits, as well as at least 12 years of market exclusivity post launch. Fosmanogepix, which is being developed in both oral and intravenous (IV) formulations, has shown activity against both yeast and moulds (including drug-resistant varieties) and is widely regarded as a potential successor to Cresemba (market exclusivity expiring in the US and Europe in late 2027), if clinical data are supportive.

The first Phase III registrational study (FAST-IC) will evaluate fosmanogepix against the standard of care (SoC) in the treatment of patients with candidemia and/or invasive candidiasis (yeast bloodstream or deep-seated tissue infections). The study is a global, multi-centre, randomised double-blind, active-controlled study, aiming to recruit c 450 patients, randomised 2:1 between fosmanogepix and the SoC caspofungin. The study is also designed to include an optional oral step-down (from the initial IV administration) in the fosmanogepix arm and to fluconazole in the caspofungin arm. As part of the deal terms agreed when acquiring fosmanogepix, Basilea will be required to make a milestone payment of US$6m on enrolment of the first patient in the study. This payment is reflected in the FY24 financial guidance, according to management. As indicated earlier, we expect BARDA to reimburse c 60% of the fosmanogepix trial costs in addition to other development programmes over the agreement period.

Financials and valuation get an upgrade

We adjust our FY24 and FY25 estimates to reflect the expected inflows from BARDA. For FY24, we include CHF7m in BARDA reimbursement, to incorporate management guidance, and the remaining c CHF18m in FY25, assuming the entire US$29m (c CHF25m) will be paid out by end-FY25. This results in our FY24 and FY25 revenue estimates increasing to CHF203.0m and CHF219.1m (from CHF196.0m and CHF201.6m), respectively. We keep our opex estimates unchanged, with the increase in operating income (FY24: CHF42.9m, FY25: CHF54.2m) almost entirely due to the increase in revenues. In line with management guidance, we increase our expectation of deferred taxes to CHF21.5m in FY24, resulting in net income of CHF60.1m versus CHF42.1m previously.

The primary change to our risk-adjusted net present valuation (rNPV) comes from the upgrades to our cash flow projections from the expected BARDA inflows for fosmanogepix, the only clinical-stage asset currently included in our valuation for Basilea. Cresemba and Zevtera are commercial products, and BAL2062 and tonabacase are currently undergoing preclinical studies and are hence excluded from our valuation. Our model estimates clinical trial costs of c US$150m for fosmanogepix, which we previously assumed the company would fund from internally generated capital. We now project BARDA to fund c 60% of these costs (which translates to c US$90m) between FY24 and FY29. This results in our rNPV for fosmanogepix increasing to CHF175.4m, from CHF118.3m previously, driving our overall valuation for Basilea to CHF1,155.5m or CHF95.3/share (from CHF1,087.2m or CHF89.7/share previously). Exhibit 2 presents a breakdown of our rNPV valuation of Basilea by asset.

Exhibit 2: Basilea Pharmaceutica valuation

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 (China), 2023 (Japan)

747

690.0

100%

690.0

56.9

Zevtera/Mabelio (ceftobiprole)

Severe bacterial infections

2015 (EU), 2018 (RoW), 2025 (US)

486

316.3

100%

316.3

26.1

Fosmanogepix

Severe fungal infections

2029 (US, EU and Japan), 2030 (RoW)

801

316.0

60%

175.4

14.5

Net cash/(debt) at end June 2024

 

 

(26.2)

100%

(26.2)

(2.2)

Valuation

 

 

 

1,296.1

1,155.5

95.3

Source: Edison Investment Research

Note that our valuation currently does not account for other early-stage programmes (BAL2062 and tonabacase) or the potential BARDA reimbursements for these assets, which may lead to additional upside as these assets move into the clinic.

Exhibit 3: Financial summary

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

 

 

2021

2022

2023

2024e

2025e

PROFIT & LOSS

 

 

 

 

 

 

 

Total revenues

 

 

148,122

147,765

157,634

203,042

219,055

Product revenues (Cresemba and Zevtera)

 

 

131,382

122,315

150,275

190,242

195,823

Cost of sales

 

 

(24,072)

(24,603)

(26,794)

(40,041)

(34,616)

Gross profit

 

 

124,050

123,162

130,840

163,001

184,439

Research and development expenses (net)

 

 

(93,157)

(73,804)

(77,852)

(84,869)

(92,343)

SG&A costs

 

 

(29,721)

(30,815)

(33,783)

(35,208)

(37,919)

Exceptionals and adjustments

 

 

15

0

0

0

0

EBITDA (reported)

 

 

1,941

19,640

20,782

44,130

55,462

Reported operating income

 

 

1,187

18,543

19,205

42,924

54,178

Operating margin %

 

 

n/a

n/a

n/a

n/a

n/a

Finance income/(expense)

 

 

(7,982)

(6,441)

(8,744)

(4,356)

(3,803)

Profit before tax (reported)

 

 

(6,795)

12,102

10,461

38,568

50,375

Profit before tax (normalised)

 

 

(6,610)

12,302

10,761

38,859

50,678

Income tax expense (includes exceptionals)

 

 

(37)

45

(10)

21,500

0

Net income (reported)

 

 

(6,832)

12,147

10,451

60,068

50,375

Net income (normalised)

 

 

(6,647)

12,347

10,751

60,359

50,678

Basic average number of shares, m

 

 

11.68

11.86

11.99

12.09

12.09

Basic EPS (CHF c)

 

 

(58.5)

102.4

87.2

497.0

416.8

Adjusted EPS (CHF c)

 

 

(56.9)

104.1

89.7

499.4

419.3

BALANCE SHEET

 

 

 

 

 

 

 

Restricted cash

 

 

0

22,000

0

0

0

Tangible assets

 

 

2,018

4,277

3,757

3,942

4,061

Intangible assets

 

 

632

578

548

457

354

Long-term investments

 

 

2,390

1,266

0

0

0

Deferred tax assets

 

 

0

0

0

21,500

21,500

Other non-current assets

 

 

1,161

17,363

16,839

16,839

16,839

Total non-current assets

 

 

6,201

45,484

21,144

42,738

42,754

Cash and equivalents

 

 

53,700

84,659

59,933

68,282

123,500

Restricted cash

 

 

1,253

1,908

4,389

4,389

4,389

Short-term investments

 

 

95,000

0

0

0

0

Inventories

 

 

22,783

24,244

26,410

39,467

34,120

Trade and other receivables

 

 

24,947

33,152

27,891

35,925

38,759

Other current assets

 

 

43,383

31,401

33,522

33,522

33,522

Total current assets

 

 

241,066

175,364

152,145

181,586

234,290

Convertible senior unsecured bonds (long-term)

 

 

94,544

95,000

95,455

95,455

95,455

Senior secured loan

 

 

0

36,360

0

0

0

Deferred revenue

 

 

11,926

10,693

9,460

8,227

6,994

Non-current operating lease liabilities

 

 

10

16,323

15,636

15,636

15,636

Other non-current liabilities

 

 

24,986

8,337

15,149

15,149

15,149

Total non-current liabilities

 

 

131,466

166,713

135,700

134,467

133,234

Convertible senior unsecured bonds (short-term)

 

 

123,505

0

0

0

0

Senior secured loan

 

 

0

37,467

15,453

0

0

Accounts payable

 

 

10,617

191

5,847

8,738

7,554

Deferred revenue

 

 

1,233

1,233

1,233

1,233

1,233

Current operating lease liabilities

 

 

896

1,988

2,062

2,062

2,062

Other current liabilities

 

 

38,157

33,971

22,997

22,997

22,997

Total current liabilities

 

 

174,408

74,850

47,592

35,030

33,846

Net assets

 

 

(58,607)

(20,715)

(10,003)

54,827

109,964

CASH FLOW STATEMENT

 

 

 

 

 

 

 

Reported net income

 

 

(6,831)

12,147

10,451

60,068

50,375

Depreciation and amortisation

 

 

754

1,097

1,577

1,206

1,284

Share based payments

 

 

4,322

3,598

4,762

4,762

4,762

Deferred tax

 

 

0

0

0

(21,500)

0

Other adjustments

 

 

1,522

497

1,443

0

0

Movements in working capital

 

 

(31,787)

(10,282)

(3,988)

(19,434)

97

Cash from operations (CFO)

 

 

(32,020)

7,057

14,245

25,102

56,518

Capex

 

 

(581)

(3,138)

(813)

(1,100)

(1,100)

Short-term investments

 

 

6,023

94,951

0

0

0

Long-term investments

 

 

0

0

0

0

0

Other investing activities

 

 

(1,867)

(165)

(221)

(200)

(200)

Cash used in investing activities (CFIA)

 

 

3,575

91,648

(1,034)

(1,300)

(1,300)

Net proceeds from issue of shares

 

 

42,240

250

(381)

0

0

Movements in debt

 

 

(23,212)

(49,672)

(59,314)

(15,453)

0

Other financing activities

 

 

(2,388)

4,176

2,390

0

0

Cash from financing activities (CFF)

 

 

16,640

(45,246)

(57,305)

(15,453)

0

Cash and equivalents at beginning of period

 

 

66,256

54,952

108,566

64,322

72,671

Increase/(decrease) in cash and equivalents

 

 

(11,805)

53,459

(44,094)

8,349

55,218

Effect of FX on cash and equivalents

 

 

501

155

(151)

0

0

Cash and equivalents at end of period

 

 

54,952

108,566

64,321

72,671

127,889

Net (debt)/cash

 

 

(68,096)

(60,260)

(46,586)

(22,784)

32,434

Source: Company reports, Edison Investment Research

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United Kingdom

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20 Red Lion Street

London, WC1R 4PS

United Kingdom

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