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EUR248m
Research: Healthcare
Oryzon Genomics reported Q322 results that are largely in line with our expectations. The clinical ramp up of its key assets, iadademstat and vafidemstat, has meant R&D expenses were higher than our estimates, largely offset by the higher R&D tax rebates. The Q322 net loss of US$0.6m (€0.7m) brought the 9M22 net loss to US$1.9m (€2.0m). As a result, we expect FY22 operating losses to decrease to €5.0m versus our previous estimates (€7.0m), reflecting the timing of R&D spend and associated tax rebates. Oryzon closed the quarter with a gross cash position, including marketable securities, of US$27.1m, implying an annual cash burn of approximately €14m, which assuming full drawdown of the €20m convertible debt facility, will see the company through into Q224 (including outstanding debts repayments). We value Oryzon at €861m or €16.2 per share, up from €802m or €15.1/share previously.
Written by
Oryzon Genomics |
Clinical ramp in Q3; several catalysts approaching |
Q322 update |
Pharma and biotech |
3 November 2022 |
Share price performance
Business description
Next events
Analysts
Oryzon Genomics is a research client of Edison Investment Research Limited |
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Oryzon Genomics reported Q322 results that are largely in line with our expectations. The clinical ramp up of its key assets, iadademstat and vafidemstat, has meant R&D expenses were higher than our estimates, largely offset by the higher R&D tax rebates. The Q322 net loss of US$0.6m (€0.7m) brought the 9M22 net loss to US$1.9m (€2.0m). As a result, we expect FY22 operating losses to decrease to €5.0m versus our previous estimates (€7.0m), reflecting the timing of R&D spend and associated tax rebates. Oryzon closed the quarter with a gross cash position, including marketable securities, of US$27.1m, implying an annual cash burn of approximately €14m, which assuming full drawdown of the €20m convertible debt facility, will see the company through into Q224 (including outstanding debts repayments). We value Oryzon at €861m or €16.2 per share, up from €802m or €15.1/share previously.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/20 |
9.5 |
(4.8) |
(0.07) |
0.0 |
N/A |
N/A |
12/21 |
10.6 |
(7.2) |
(0.09) |
0.0 |
N/A |
N/A |
12/22e |
14.4 |
(5.2) |
(0.06) |
0.0 |
N/A |
N/A |
12/23e |
15.9 |
(6.1) |
(0.07) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS is normalised, excluding amortisation of acquired intangibles, other income and exceptional items
Positive safety data for PORTICO
The most significant Q322 clinical news for Oryzon came in form of interim safety data from its Phase IIb PORTICO study, investigating the use of vafidemstat for the treatment of borderline personality disorder. The company reported that no serious adverse events have been observed from patients enrolled in the trial and that approval for the study to continue had been granted by the PORTICO independent data monitoring committee. This positive development means the trial is on track for interim readouts in Q123, which we see as a potential catalyst for share price.
Strong cash position past key readouts
At end Q322, Oryzon had a gross cash position including securities of US$27.1m (€27.3m) and has combined short- and long-term debt obligations of €17.6m (c €6m due in FY23 and €4.5m in FY24). The company has entered a convertible bond financing agreement where it can raise up to €20m over 30 months. Based on our annual cash burn projections, we estimate that at the current annual burn rate of around €14m (c €7m cash burn rate in H122), and assuming execution of all convertible notes, will provide a cash runway into Q224 (including outstanding debts repayments).
Valuation: €861m or €16.2/share
We value Oryzon at €861m or €16.2/share, based on a risk-adjusted NPV analysis using a 12.5% discount rate and Q322e net cash of c €9.7m. The valuation has increased as we have rolled our model forward four months, updated our exchange rate assumption to $1.01/€ (from $1.05/€) and updated our estimates, but our underlying long-term assumptions remain unchanged.
A period of catalysts on the horizon
Oryzon is gearing up for what is anticipated to be a busy six months for the clinical development of both iadademstat and vafidemstat.
For iadademstat in oncology, preliminary final data from the Phase II ALICE study will be presented at the American Society of Hematology (ASH) Annual Meeting and Exposition in December 2022. The study is investigating iadademstat in combination with azacitidine in acute myeloid leukaemia (AML) and has continued to show encouraging safety and efficacy data; the most recent readouts reported objective responses (OR) in 81% of patients.
In our view, final positive readouts from ALICE would bode well for Oryzon’s Phase Ib FRIDA trial investigating iadademstat in combination with gilteritinib (FDA-approved FLT3 inhibitor) for treating patients with relapsed/refractory (r/r) FLT3-mutated AML in a second-line setting. The latest ALICE data reported that patients possessing the FLT3 mutation also responded to treatment, providing promise for this further sub-population of AML patients in FRIDA. Having received IND approval, Oryzon will look to discuss with the FDA the plans for trial initiation, but has communicated that it expects the first patient to be recruited (FPI) in FRIDA in H222.
The IND for the Phase Ib/II STELLAR study in extensive disease small cell lung cancer (ED-SCLC) with iadademstat in combination with an immune checkpoint inhibitor (ICI) is also expected in in H222. If approved, we anticipate FPI in H123. In our view, ICI combination studies are critical in the development of new oncology treatment regimes. Additionally, Oryzon is planning a further combination Phase II trial for iadademstat in platinum r/r SCLC and extrapulmonary high-grade neuroendocrine tumours (NET); it expects FPI in H222.
In addition to the upcoming interim readouts from the PORTICO study, the most significant development for vafidemstat will be the initiation of the Phase Ib/II HOPE study in Kabuki syndrome. An IND is expected to be submitted in H222, with FPI in H123. The HOPE study represents Oryzon’s first clinical efforts in developing a precision medicine approach in tackling a monogenic central nervous system (CNS) indication. With the clinical successes achieved in targeting monogenic CNS diseases and potential upside from pursuing an orphan indication, we believe this represents a significant opportunity for Oryzon. For more information, please see our recent sector report on the field of neuroscience.
Valuation
We value Oryzon at €861m or €16.2/share, based on a risk-adjusted NPV analysis using a 12.5% discount rate and Q322e net cash of c €9.7m. Our underlying long-term assumptions remain unchanged, and we roll our model forward in time by four months. We have also updated our fx assumptions to $1.01/€ (from $1.05/€). Our model includes five rNPV projects (Exhibit 2, for more details see our Outlook note).
Exhibit 1: Valuation of Oryzon
Product |
Indication |
Launch |
Peak sales ($m) |
Value |
Probability |
rNPV |
NPV/share (€/share) |
|
Iadademstat |
2L AML |
2026 |
490 |
771.7 |
30% |
225.7 |
4.3 |
|
1L SCLC |
2026 |
720 |
814.5 |
25% |
197.4 |
3.7 |
||
Vafidemstat |
BPD |
2027 |
1,580 |
1,271.2 |
20% |
243.3 |
4.6 |
|
Schizophrenia, negative symptoms |
2027 |
690 |
640.2 |
15% |
88.1 |
1.7 |
||
Aggression in Alzheimer’s disease |
2028 |
890 |
681.8 |
15% |
97.7 |
1.8 |
||
Estimated net cash end Q322 |
9.7 |
100% |
9.1 |
0.2 |
||||
Valuation |
|
|
|
3,931.2 |
861 |
16.2 |
||
Source: Edison Investment Research
Financials
As a result of Oryzon’s ramp up in clinical development activities, the company reported research and development (R&D) expenses for Q322 of US$4.3m (€4.4m), bringing total R&D expenses for FY22 to date up to US$11.9m (€12.0m). With the increase in R&D spend, Oryzon will receive income associated with R&D tax credits, which we estimate will reach €14.4m by end FY22. In light of the quarterly update, we have updated our full year estimates and now forecast total operating expenses for FY22 to amount to €18.9m (previously €16.4m), with R&D expenses totalling €15.6m (previously €12.0m). We estimate free cash outflows of c €15.9m in FY22 and €17.1m in FY23, in line with current spending in operations and increased R&D activity. In our model, we project that Oryzon will launch its first product into the market in FY26. Based on the current annual cash burn projections (c €14m), we estimate that it will be required to raise a further c €30m, in addition to the €20m convertible bond financing, to continue to fund operations up to this point, which we model as illustrative debt. Based on our annual cash burn projections, we estimate that excluding debt repayment obligations and assuming execution of all convertible notes, Oryzon has a cash runway into Q224 (including outstanding debts repayments).
Exhibit 2: Financial summary
Accounts: Year end 31 December (€000s) |
2019 |
2020 |
2021 |
2022e |
2023e |
INCOME STATEMENT |
|
|
|
|
|
Total revenues |
10,278 |
9,521 |
10,615 |
14,418 |
15,860 |
Cost of sales |
(430) |
(526) |
(746) |
(473) |
(497) |
Gross profit |
9,847 |
8,995 |
9,869 |
13,945 |
15,363 |
Gross margin % |
96% |
94% |
93% |
97% |
97% |
SG&A (expenses) |
(2,983) |
(3,541) |
(3,782) |
(3,513) |
(3,864) |
R&D costs |
(11,322) |
(11,075) |
(13,023) |
(15,607) |
(17,253) |
Other income/(expense) |
779 |
1,476 |
73 |
6 |
6 |
Exceptionals and adjustments |
(11) |
(5) |
(4) |
0 |
0 |
Reported EBITDA |
(3,690) |
(4,149) |
(6,866) |
(5,169) |
(5,748) |
Depreciation and amortisation |
150 |
145 |
144 |
180 |
179 |
Reported EBIT |
(3,839) |
(4,294) |
(7,011) |
(4,989) |
(5,569) |
Finance income/(expense) |
(737) |
(485) |
(169) |
(236) |
(511) |
Other income/(expense) |
0 |
0 |
0 |
0 |
0 |
Reported PBT |
(4,576) |
(4,779) |
(7,180) |
(5,225) |
(6,080) |
Income tax expense (includes exceptionals) |
892 |
1,379 |
2,493 |
2,138 |
2,316 |
Reported net income |
(3,685) |
(3,400) |
(4,687) |
(3,087) |
(3,764) |
Basic average number of shares, m |
45.8 |
53.1 |
53.1 |
53.0 |
53.0 |
Basic EPS (€)I |
(0.09) |
(0.07) |
(0.09) |
(0.06) |
(0.07) |
|
|
|
|
|
|
Adjusted EBITDA |
(3,679) |
(4,145) |
(6,862) |
(5,169) |
(5,748) |
Adjusted EBIT |
(3,829) |
(4,290) |
(7,007) |
(4,989) |
(5,569) |
Adjusted PBT |
(4,566) |
(4,774) |
(7,176) |
(5,225) |
(6,080) |
Adjusted EPS (€) |
(0.1) |
(0.1) |
(0.1) |
(0.1) |
(0.1) |
Adjusted diluted EPS (€) |
(0.1) |
(0.1) |
(0.1) |
(0.1) |
(0.1) |
|
|
|
|
|
|
BALANCE SHEET |
|
|
|
|
|
Property, plant and equipment |
631 |
644 |
682 |
677 |
674 |
Intangible assets |
39,938 |
49,216 |
60,254 |
70,811 |
81,216 |
Investments |
67 |
66 |
29 |
29 |
29 |
Deferred tax assets |
1,721 |
1,803 |
1,812 |
1,812 |
1,812 |
Total non-current assets |
42,357 |
51,729 |
62,778 |
73,330 |
83,731 |
Cash and equivalents |
35,111 |
39,605 |
28,725 |
15,394 |
9,075 |
Trade and other receivables |
2,071 |
2,351 |
3,645 |
2,998 |
3,321 |
Inventories |
289 |
317 |
104 |
104 |
104 |
Other current assets |
267 |
105 |
132 |
132 |
132 |
Total current assets |
37,738 |
42,377 |
32,606 |
18,628 |
12,633 |
Deferred tax liabilities |
1,721 |
1,803 |
1,812 |
1,812 |
1,812 |
Long term debt |
6,699 |
8,680 |
13,354 |
13,354 |
21,354 |
Other non-current liabilities |
0 |
0 |
285 |
285 |
285 |
Total non-current liabilities |
8,420 |
10,483 |
15,451 |
15,451 |
23,451 |
Trade and other payables |
4,000 |
2,839 |
3,518 |
3,179 |
3,349 |
Short term debt |
6,547 |
4,854 |
4,306 |
4,306 |
4,306 |
Other current liabilities |
0 |
0 |
847 |
847 |
847 |
Total current liabilities |
10,546 |
7,693 |
8,672 |
8,332 |
8,502 |
Equity attributable to company |
61,129 |
75,931 |
71,262 |
68,175 |
64,411 |
|
0 |
0 |
0 |
0 |
0 |
CASH FLOW STATEMENT |
|
|
|
|
|
Profit before tax |
(4,576) |
(4,779) |
(7,180) |
(5,225) |
(6,080) |
Cash from operations (CFO) |
(3,934) |
(4,817) |
(3,626) |
(2,599) |
(3,739) |
Capex |
(9,585) |
(9,223) |
(11,761) |
(10,732) |
(10,580) |
Acquisitions & disposals net |
0 |
0 |
0 |
0 |
0 |
Acquistion of intangible assets |
(9,469) |
(9,070) |
(11,586) |
(10,557) |
(10,404) |
Other investing activities |
8 |
142 |
37 |
0 |
0 |
Cash used in investing activities (CFIA) |
(19,046) |
(18,152) |
(23,310) |
(21,289) |
(20,984) |
Net proceeds from issue of shares |
18,374 |
18,181 |
0 |
0 |
0 |
Movements in debt |
(4,112) |
200 |
4,123 |
0 |
8,000 |
Other financing activities |
0 |
0 |
0 |
0 |
0 |
Cash from financing activities (CFF) |
14,262 |
18,382 |
4,123 |
0 |
8,000 |
Increase/(decrease) in cash and equivalents |
791 |
4,494 |
(10,880) |
(13,331) |
(6,318) |
Currency translation differences and other |
40 |
11 |
348 |
0 |
0 |
Cash and equivalents at start of period |
34,320 |
35,111 |
39,605 |
28,725 |
15,394 |
Cash and equivalents at end of period |
35,111 |
39,605 |
28,725 |
15,394 |
9,075 |
Net (debt) cash |
21,866 |
26,071 |
11,065 |
(2,266) |
(24,584) |
Source: Oryzon Genomics, Edison Investment Research. Note: Oryzon reports in Spanish GAAP. *Includes cash outflows related to development costs that were capitalised.
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