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Research: Healthcare
Following guidance from the US FDA, Acacia Pharma has now outlined the regulatory pathway for its lead asset, BARHEMSYS, and plans to resubmit the new drug application (NDA) in Q319. This could enable a launch in H120 if approved by the FDA. Ongoing deficiencies with Acacia’s chosen contract manufacturing organisation (CMO), which led to two complete response letters (CRL), have resulted in the appointment of a new CMO. With increased visibility on the strategy, we have reintroduced our previously withdrawn forecasts and adjusted our launch timelines for BARHEMSYS in the US. We now forecast a launch in H120 (previously H119). We have also reduced our cost expectations in 2019 as Acacia delays its marketing operations. We now value Acacia at €631m.
Written by
Acacia Pharma |
BARHEMSYS NDA refiling Q319, launch in Q120 |
Regulatory update |
Pharma & biotech |
11 July 2019 |
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Following guidance from the US FDA, Acacia Pharma has now outlined the regulatory pathway for its lead asset, BARHEMSYS, and plans to resubmit the new drug application (NDA) in Q319. This could enable a launch in H120 if approved by the FDA. Ongoing deficiencies with Acacia’s chosen contract manufacturing organisation (CMO), which led to two complete response letters (CRL), have resulted in the appointment of a new CMO. With increased visibility on the strategy, we have reintroduced our previously withdrawn forecasts and adjusted our launch timelines for BARHEMSYS in the US. We now forecast a launch in H120 (previously H119). We have also reduced our cost expectations in 2019 as Acacia delays its marketing operations. We now value Acacia at €631m.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/17 |
0.0 |
(6.5) |
(2.32) |
0.00 |
N/A |
N/A |
12/18 |
0.0 |
(16.2) |
(0.35) |
0.00 |
N/A |
N/A |
12/19e |
0.0 |
(16.8) |
(0.30) |
0.00 |
N/A |
N/A |
12/20e |
1.1 |
(48.3) |
(0.88) |
0.00 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Confidence placed in a new CMO for BARHEMSYS
The receipt of two CRLs from the US FDA in the past nine months has weighed heavily on Acacia’s share price. However, both CRLs related to problems at Acacia’s CMO and not the clinical data package. The recent appointment of a new CMO for BARHEMSYS means the approval pathway is clearer. The new CMO has a track record in manufacturing amisulpride (the active pharmaceutical ingredient of BARHEMSYS) and has regularly undergone successful FDA inspections, most recently in September 2018 when its facility was rated ‘no action indicated’, the best possible outcome.
Capital raise likely after potential approval
Following the delay to approval of BARHEMSYS, we have reduced our forecast 2019 SG&A to reflect delayed sales activities. While Acacia has halted the hiring of sales reps, key senior sales personnel are being retained and will continue to educate and prepare the market for the potential BARHEMSYS launch in 2020. We have also reduced our forecast 2019 R&D spend (on development of BARHEMYS in chemotherapy-induced nausea and vomiting) as cost controls take effect. We forecast c £40m will need to be raised in H120 (following potential approval) to fund operations, with additional future funding dependent on sales execution.
Valuation: €631m or €11.8/share
Our revised valuation of €631m or €11.8/share (vs €635m or €11.9/share previously) is based on a risk-adjusted NPV model. We have updated our model to reflect the delay in the US launch to H120 (from H119 previously). We have also rolled our model forward, updated for FX rates and adjusted for net cash of 31 May, which we calculate at £12.6m. We note FX rates have had a significant positive impact on our valuation.
Exhibit 1: Financial summary
Accounts: IFRS, year-end: December, £m |
|
|
2016 |
2017 |
2018 |
2019e |
2020e |
PROFIT & LOSS |
|
|
|||||
Revenue |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
1.1 |
Operating revenues |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
1.1 |
Cost of sales |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
(0.1) |
Gross profit |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
1.1 |
Gross margin % |
|
|
n/a |
n/a |
n/a |
n/a |
0.9 |
SG&A (expenses) |
|
|
(0.8) |
(1.5) |
(11.3) |
(13.4) |
(41.1) |
R&D costs |
|
|
(13.6) |
(1.5) |
(3.8) |
(1.2) |
(5.6) |
Other income/(expense) |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
EBITDA (reported) |
|
|
(14.4) |
(3.0) |
(15.0) |
(14.6) |
(45.6) |
Depreciation and amortisation |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Reported Operating Income |
|
|
(14.4) |
(3.0) |
(15.0) |
(14.6) |
(45.6) |
Operating Margin % |
|
|
n/a |
n/a |
n/a |
n/a |
n/a |
Finance income/(expense) |
|
|
(1.8) |
(3.5) |
(1.1) |
(2.2) |
(2.6) |
Exceptionals and adjustments |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Reported PBT |
|
|
(16.3) |
(6.5) |
(16.2) |
(16.8) |
(48.3) |
Income tax expense (includes exceptionals) |
|
|
2.8 |
0.3 |
0.7 |
0.6 |
1.5 |
Reported net income |
|
|
(13.5) |
(6.2) |
(15.5) |
(16.2) |
(46.8) |
Basic average number of shares, m |
|
|
2.7 |
2.7 |
44.1 |
53.3 |
53.3 |
Year-end number of shares, m |
|
|
2.7 |
2.7 |
53.3 |
53.3 |
53.3 |
Basic EPS (€) |
|
|
(5.06) |
(2.32) |
(0.35) |
(0.30) |
(0.88) |
Adjusted EPS (€) |
|
|
(5.06) |
(2.32) |
(0.35) |
(0.30) |
(0.88) |
Dividend per share (€) |
|
|
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
BALANCE SHEET |
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
1.2 |
Goodwill |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Intangible assets |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Other non-current assets |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Total non-current assets |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
1.2 |
Cash and equivalents |
|
|
6.9 |
3.1 |
29.4 |
10.1 |
6.8 |
Inventories |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Trade and other receivables |
|
|
0.5 |
0.2 |
0.3 |
0.0 |
0.2 |
Other current assets |
|
|
2.8 |
0.3 |
0.7 |
0.7 |
0.7 |
Total current assets |
|
|
10.2 |
3.6 |
30.4 |
10.8 |
7.7 |
Non-current loans and borrowings |
|
|
5.0 |
0.0 |
7.0 |
7.0 |
47.0 |
Other non-current liabilities |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Total non-current liabilities |
|
|
5.0 |
0.0 |
7.0 |
7.0 |
47.0 |
Trade and other payables |
|
|
5.1 |
1.0 |
3.7 |
0.7 |
5.6 |
Current loans and borrowings |
|
|
2.7 |
5.2 |
0.3 |
0.0 |
0.0 |
Other current liabilities |
|
|
9.1 |
15.2 |
0.0 |
0.0 |
0.0 |
Total current liabilities |
|
|
17.0 |
21.4 |
4.1 |
0.7 |
5.6 |
Equity attributable to company |
|
|
(11.7) |
(17.8) |
19.3 |
3.1 |
(43.7) |
CASH FLOW STATEMENT |
|
|
|
|
|
|
|
Operating Profit |
|
|
(16.3) |
(6.5) |
(16.2) |
(16.8) |
(48.3) |
Depreciation and amortisation |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Share based payments |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Other adjustments |
|
|
1.9 |
3.7 |
1.6 |
2.2 |
2.6 |
Movements in working capital |
|
|
2.0 |
(3.8) |
2.6 |
(2.7) |
4.7 |
Interest paid/received |
|
|
0.0 |
0.0 |
0.2 |
(2.2) |
(2.6) |
Income taxes paid |
|
|
2.2 |
2.8 |
0.3 |
0.6 |
1.5 |
Cash from operations (CFO) |
|
|
(10.2) |
(3.7) |
(11.6) |
(19.0) |
(42.1) |
Capex |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
(1.2) |
Acquisitions & disposals net |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Other investing activities |
|
|
0.0 |
0.0 |
0.2 |
0.1 |
0.1 |
Cash used in investing activities (CFIA) |
|
|
0.0 |
0.0 |
0.2 |
0.1 |
(1.1) |
Net proceeds from issue of shares |
|
|
4.5 |
3.4 |
34.2 |
0.0 |
0.0 |
Movements in debt |
|
|
7.1 |
(3.4) |
1.5 |
(0.3) |
40.0 |
Other financing activities |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Cash from financing activities (CFF) |
|
|
11.7 |
0.0 |
35.7 |
(0.3) |
40.0 |
Cash and equivalents at beginning of period |
|
|
5.5 |
6.9 |
3.1 |
29.4 |
10.1 |
Increase/(decrease) in cash and equivalents |
|
|
1.4 |
(3.8) |
26.3 |
(19.2) |
(3.3) |
Cash and equivalents at end of period |
|
|
6.9 |
3.1 |
29.4 |
10.1 |
6.8 |
Source: Company data, Edison Investment Research
|
|
Research: Industrials
Diskus Werke has countered the disappointment of its September profit warning by clearly exceeding reduced PBT guidance for 2018 (€14.6m vs €14m) and securing a strong 9% rise in its year-end order book. This is impressive, given a slowing German machine tool market and procurement cost pressures. As in 2017, continued loss elimination at three problematic subsidiaries has been accompanied by volatility at some larger businesses. Current-year guidance is for 4% revenue growth at higher margin, driving a 10% increase in PBT to c €16m (€14.6m). Finances remain resilient (the debt/equity ratio is down slightly at 51%).