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Basilea Pharmaceutica — Update 22 April 2016

Basilea Pharmaceutica (SIX: BSLN)

Last close As at 17/04/2024

CHF41.70

▲ 0.60 (1.46%)

Market capitalisation

CHF547m

More on this equity

Research: Healthcare

Basilea Pharmaceutica — Update 22 April 2016

Basilea Pharmaceutica

Analyst avatar placeholder

Written by

Healthcare

Basilea Pharmaceutica

Zevtera US development full steam ahead

Corporate update

Pharma & biotech

22 April 2016

Price

CHF83

Market cap

CHF979m

£/CHF1.38

Net cash (CHFm) at December 2015

170

Shares in issue*
*Including 1m treasury shares

11.8m

Free float

90.4%

Code

BSLN

Primary exchange

SIX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

12.7

10.6

(27.5)

Rel (local)

8.4

8.9

(17.4)

52-week high/low

CHF134.8

CHF59.5

Business description

Basilea is a Swiss biopharmaceutical company focused on anti-infectives and oncology. Its lead products are Cresemba, an antifungal that is approved in the US and Europe, and Zevtera, an anti-MRSA broad-spectrum antibiotic, approved in Europe for pneumonia.

Next events

2016 half-year results

15 August 2016

Initiate Zevtera US Phase III trials

2016/17

Analysts

Dr Susie Jana

+44 (0) 20 3681 2521

Lala Gregorek

+44 (0) 20 3077 2527

Basilea Pharmaceutica is a research client of Edison Investment Research Limited

Basilea has announced that BARDA, a division of the US Department of Health & Human Services Office, has awarded a contract of up to $100m for the Phase III development of antibacterial agent ceftobiprole (Zevtera) for the US market. Critically, this means that the Phase III trials in skin and bacteraemia (blood) infections could start as soon as late 2016/early 2017 once the company has agreed the Phase III study Special Protocol Assessments (SPAs) with the FDA. The BARDA contract now removes the uncertainty in timing for the Phase III clinical trial programme that would support Zevtera’s US regulatory filing. We value Basilea at CHF1,114m or CHF103.2/share.

Year end

Revenue
(CHFm)

PBT*
(CHFm)

EPS*
(CHF)

DPS
(CHF)

P/E
(x)

Yield
(%)

12/14

42.6

(41.2)

(4.14)

0.0

N/A

N/A

12/15

52.8

(61.3)

(6.07)

0.0

N/A

N/A

12/16e

59.3

(63.3)

(5.81)

0.0

N/A

N/A

12/17e

84.9

(45.0)

(4.04)

0.0

N/A

N/A

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

Zevtera US trials to start end 2016/early 2017

The Biomedical Advanced Research and Development Authority (BARDA), a division of the US Department of Health & Human Services Office, has entered into a contract with Basilea for the Phase III development of Zevtera for the US market. Under the terms of the contract, Basilea will receive $20m over the initial 18-month period, with and additional $80m potentially due contingent on exercisable options by BARDA over a 4.5-year period. Our forecasts assumed that Basilea will contribute around 30% of the total $120-150m development costs, hence the BARDA contract does not affect our forecasts at this time.

Total Zevtera peak sales forecast $556m

We forecast $100m peak sales for Zevtera in Europe and $456m for RoW (including $317m for the US opportunity, which is risk adjusted). We expect Basilea to look for a commercialisation partner in the US for Zevtera once the Phase III clinical development programme is underway. If Basilea is able to partner Zevtera in the US, it could lead to upfront and future milestone income, also not included in our financial forecasts, hence any milestones could provide upside to our financial forecasts.

Valuation: rNPV of CHF1,114m or CHF103/share

Our Basilea valuation is unchanged at CHF1,114m or CHF103.2/share based on an NPV analysis, which includes the main portfolio of products and net cash. Cresemba, based on $600m peak sales, is worth nearly 60% of our rNPV and underpins c 75% of the current market cap. We also include Zevtera in Europe, in addition to risk-adjusted contributions for the US opportunity and the earlier-stage pipeline.

Zevtera: BARDA contract funds US development

In the US, the FDA had advised Basilea that new Phase III studies for Zevtera would be needed to be eligible for review. Ceftobiprole has been awarded qualified infectious disease product (QIDP) designation for both CAP and acute bacterial skin and skin structure infections. The company is in the process of preparing Phase III study protocols seeking agreement on SPAs with the FDA by mid-year. An SPA provides written guidance by the FDA that the agreed clinical trial design would support a regulatory submission for drug approval if the study meets its objectives. Previously, Basilea had expected to initiate Phase III studies only once a US collaboration deal was finalised, hence the BARDA contract now removes the uncertainty in timing for the Phase III clinical trial programme that would support Zevtera’s US regulatory filing and provides a path to create further value by enabling non-dilutive funding for the programme before seeking a commercialisation partner for the US market.

Following discussions with the FDA, Basilea will consider conducting cross-supportive clinical studies for the indications of acute bacterial skin and skin structure infections, community acquired bacterial pneumonia and/or Staphylococcus aureus bloodstream infections, or bacteraemia (including bacterial endocarditis). Staphylococcus aureus bacteraemia (presence of bacteria in the blood) is an indication where few antibiotics are currently approved and which the FDA considers an area of unmet need. Thus Basilea intends to conduct a bacteraemia study to further differentiate Zevtera from available cephalosporins. With the announcement of the BARDA contract, Phase III trials could commence in late 2016/early 2017 (we anticipate three-year duration), implying that a US 2021 launch date could be feasible with an initial focus of bacteraemia and acute bacterial skin and skin structure infections.

Basilea estimates that each trial will cost around $40-50m, with all three trials therefore costing some $120-150m. Our forecasts currently assume that Basilea will contribute around 30% of this total. Hence the BARDA contract does not affect our forecasts at this time.

Exhibit 1: Overview of Zevtera and bacterial infections

Zevtera/Mabelio

Zevtera/Mabelio (ceftobiprole) is a broad spectrum antibiotic for the treatment of gram-positive, including MRSA (methicillin-resistant Staphylococcus aureus), one of the major hospital superbugs that is resistant to a number of existing antibiotics, and negative bacterial infections, including Pseudomonas.

Mechanism of action

Zevtera is a fifth-generation cephalosporin and kills bacteria in a similar fashion to penicillin, by blocking a key enzyme involved in cell wall synthesis. Zevtera has a broad spectrum of activity and can therefore be administered empirically when the underlying cause of infection is unknown.

Dosing and administration

Zevtera is dosed intravenously (IV) three times per day.

Approvals

EU: community-acquired pneumonia (CAP) and hospital-acquired pneumonia (HAP) in adults, excluding ventilator-associated pneumonia (VAP).

Source: Edison Investment Research

Zevtera approved in Europe for pneumonia

Zevtera was approved in Europe for hospital-acquired and hospitalised community-acquired pneumonia towards the end of 2013. Since then, national launches have occurred in Germany, France, Italy, Austria, Switzerland and the UK, with a launch in Spain expected in 2016. Basilea is commercialising Zevtera alone in core European markets through a fee-for-service contract salesforce in place through Quintiles. Sales build-up for novel antibiotics takes time to materialise, as regional access often needs to be granted, and then hospitals generally test new antibiotics to ensure effectiveness against specific pathogens found in the hospital (antibiotic stewardship). Basilea has disclosed CHF0.5m reported product sales for Zevtera in 2015.

Total Zevtera peak sales forecast $556m

We forecast $100m peak sales for Zevtera in Europe (for the currently approved indications) and $456m for RoW (including $317m for the US opportunity, which is risk adjusted). Our peak sales forecast for Europe could be achieved with only 3.2% penetration of pneumonia patients (22% of the c 4-5 million patients that receive treatment annually for serious bacterial infections) and an average treatment price per patient of €2,160 based on the midpoint price and treatment duration (Zevtera is priced in Europe at €160-198/day with average treatment duration of 10 days). We forecast peak sales around six years from 2016. Phase III data from the US trials, if positive, could be used to expand Zevtera’s EU/RoW label to include Staphylococcus aureus bacteraemia and acute skin and skin structure infections indications. Our current peak sales estimates for EU/RoW do not include these indications, hence this could provide upside to our financial forecasts.

In the US we believe Zevtera could generate around $317m in peak sales. This assumes use in bacteraemia, pneumonia and skin indications and is based on a 2.5% penetration of the 4-5 million patient market with pricing of $2,000 per patient. Given the US market has generally been more willing to accept new antibiotics, this penetration could be overly conservative. A 5% penetration would equate to $650m peak sales in the US alone. We expect Basilea to look for a commercialisation partner in the US for Zevtera once the Phase III clinical development programme is underway. If Basilea is able to partner Zevtera in the US, it could lead to upfront and future milestone income, also not included in our financial forecasts, hence any milestones could provide upside to our financial forecasts.

Zevtera has been awarded QIDP in the US for both pneumonia and skin infections, which should provide at least 10 years of market exclusivity (includes an additional five years of exclusivity in the US on top of standard data exclusivity, ie five years for a new chemical entity) from the date of approval. In the US the ceftobiprole composition of matter patent is due to expire in 2019 (although Basilea will be eligible for a supplemental protection certificate [SPC] adding up to five years of patent protection, ie through 2024), although generics cannot launch even at risk in the data exclusivity period. In Europe, where no QIDP equivalent exists, Zevtera will benefit from the standard eight years of data exclusivity and two years of market exclusivity.

Valuation: rNPV of CHF1,114m or CHF103/share

Our Basilea valuation is CHF1,114m or CHF103.2/share based on an NPV analysis, which includes the main portfolio of products and net cash. Cresemba, based on $600m peak sales, is worth nearly 60% of our rNPV and underpins >100% of the current market cap. We also include Zevtera in Europe, in addition to risk-adjusted contributions for the US opportunity and the earlier-stage pipeline. The breakdown of our valuation is shown in Exhibit 2.

Exhibit 2: Basilea rNPV valuation

Product

Indication

Launch

Peak sales
($m)

NPV
(CHFm)

Probability

rNPV
(CHFm)

NPV/share
(CHF/share)

Cresemba (isavuconazole)

Invasive mold infections

2015 (US); 2016 (EU)

600

727.1

100%

727.1

67.3

Zevtera/Mabelio (ceftobiprole)

Severe bacterial infections

2015 (EU)

100

79.3

100%

79.3

7.3

2018 (RoW); 2021(US)

456

153.2

50%

81.2

7.5

BAL101553

Resistant tumours

2021

500

194.6

20%

49.1

4.5

BAL3833

Resistant tumours

2022

500

94.1

15%

7.3

0.7

Last reported net cash

170.0

100%

170.0

15.7

Valuation

 

 

1418.4

 

1,114.0

103.2

Source: Edison Investment Research.

Exhibit 3: Financial summary

CHF000s

2013

2014

2015

2016e

2017e

2018e

December

US GAAP

US GAAP

US GAAP

US GAAP

US GAAP

US GAAP

PROFIT & LOSS

Revenue

 

 

41,376

42,634

52,825

59,324

84,855

101,522

Cost of Sales

0

0

0

(638)

(2,426)

(5,210)

Gross Profit

41,376

42,634

52,825

58,686

82,429

96,312

Research and development

(53,349)

(54,377)

(60,075)

(62,088)

(66,034)

(62,186)

EBITDA

 

 

(30,571)

(39,239)

(58,885)

(56,052)

(38,090)

(22,274)

Operating Profit (before amort. and except.)

(32,971)

(41,539)

(61,285)

(58,389)

(40,535)

(24,859)

Intangible Amortisation

(315)

(291)

(200)

(206)

(117)

0

Exceptionals

0

0

0

0

0

0

Other

0

0

0

0

0

0

Operating Profit

(33,286)

(41,830)

(61,485)

(58,596)

(40,652)

(24,859)

Net Interest

294

311

(35)

(4,948)

(4,425)

(4,108)

Profit Before Tax (norm)

 

 

(32,677)

(41,228)

(61,320)

(63,337)

(44,960)

(28,967)

Profit Before Tax (reported)

 

 

(32,993)

(41,519)

(61,520)

(63,544)

(45,078)

(28,967)

Tax

(27)

(26)

(83)

(26)

(26)

(26)

Profit After Tax (norm)

(32,704)

(41,255)

(61,403)

(63,363)

(44,987)

(28,994)

Profit After Tax (reported)

(33,020)

(41,546)

(61,603)

(63,570)

(45,104)

(28,994)

Average Number of Shares Outstanding (m)

9.7

10.0

10.1

10.9

11.1

11.4

EPS - normalised (CHF)

 

 

(3.37)

(4.14)

(6.07)

(5.81)

(4.04)

(2.55)

EPS - normalised fully diluted (CHF)

 

(3.37)

(4.14)

(6.07)

(5.81)

(4.04)

(2.55)

EPS - (reported) (CHF)

 

 

(3.40)

(4.17)

(6.09)

(5.83)

(4.05)

(2.55)

Dividend per share (CHF)

5.0

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

100.0

100.0

100.0

98.9

97.1

94.9

EBITDA Margin (%)

N/A

N/A

N/A

N/A

N/A

N/A

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

13,590

12,807

13,870

13,017

13,000

13,460

Intangible Assets

432

224

346

117

0

0

Tangible Assets

13,043

12,157

10,724

10,100

10,200

10,660

Investments

114

426

2,800

2,800

2,800

2,800

Current Assets

 

 

286,167

244,571

384,865

279,056

193,916

149,698

Stocks

0

4,904

9,579

7,650

10,710

7,137

Debtors

3,883

1,171

1,545

1,625

2,325

2,781

Cash

273,898

226,125

364,688

260,997

172,098

130,997

Other

8,386

12,371

9,053

8,783

8,783

8,783

Current Liabilities

 

 

(60,306)

(61,690)

(68,836)

(70,840)

(53,499)

(33,246)

Creditors

(60,306)

(61,690)

(68,836)

(70,840)

(53,499)

(33,246)

Short term borrowings

0

0

0

0

0

0

Long Term Liabilities

 

 

(168,577)

(137,756)

(315,043)

(260,997)

(228,997)

(217,197)

Long term borrowings

0

0

(194,706)

(194,706)

(194,706)

(194,706)

Other long term liabilities

(168,577)

(137,756)

(120,337)

(66,291)

(34,291)

(22,491)

Net Assets

 

 

70,874

57,931

14,856

(39,765)

(75,580)

(87,285)

CASH FLOW

Operating Cash Flow

 

 

(59,470)

(71,461)

(67,780)

(96,957)

(81,902)

(33,921)

Net Interest

0

0

0

(4,948)

(4,425)

(4,108)

Tax

0

0

0

(26)

(26)

(26)

Capex

(1,103)

(1,247)

(1,009)

(1,780)

(2,546)

(3,046)

Acquisitions/disposals

0

0

0

0

0

0

Financing

0

0

(0)

0

0

0

Other

38,470

24,937

12,645

20

0

0

Dividends

(47,955)

0

0

0

0

0

Net Cash Flow

(70,058)

(47,772)

(56,143)

(103,691)

(88,899)

(41,101)

Opening net debt/(cash)

 

 

(343,955)

(273,898)

(226,125)

(169,982)

(66,291)

22,608

HP finance leases initiated

0

0

0

0

0

0

Other

(0)

0

0

0

0

0

Closing net debt/(cash)

 

 

(273,898)

(226,125)

(169,982)

(66,291)

22,608

63,709

Source: Basilea accounts, Edison Investment Research. Note: During 2013 Basilea distributed CHF5.0/share, equivalent to CHF48m to shareholders, which we classify as a dividend. This followed a shareholder request (from HBM Healthcare Investments, which held 24.97%), which was approved at the 2013 AGM.

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