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Research: Healthcare
Nicox’s headline FY22 results were in line with the Q422 update provided in January, although greater clarity on gross product sales royalties suggests that Vyzulta sales traction is stronger than we had anticipated. Gross product sales-related licensing revenue came in at €5.2m (+39% year-on-year), the bulk of which we assume was derived from Vyzulta royalties, above our €4.9m estimate. We modestly increased our Vyzulta forecasts, although we note that NCX-470 remains the primary driver for our valuation, and our local currency NCX-470 estimates are unchanged. Given a strengthening euro versus the US dollar and increases in our R&D cost estimates following the FY22 results, we revise our rNPV valuation down to €166.8m (versus €190.4m previously).
Nicox |
Continuing NCX-470 development strategy |
FY22 update |
Pharma and biotech |
27 March 2023 |
Share price performance
Business description
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Analysts
Nicox is a research client of Edison Investment Research Limited |
Nicox’s headline FY22 results were in line with the Q422 update provided in January, although greater clarity on gross product sales royalties suggests that Vyzulta sales traction is stronger than we had anticipated. Gross product sales-related licensing revenue came in at €5.2m (+39% year-on-year), the bulk of which we assume was derived from Vyzulta royalties, above our €4.9m estimate. We modestly increased our Vyzulta forecasts, although we note that NCX-470 remains the primary driver for our valuation, and our local currency NCX-470 estimates are unchanged. Given a strengthening euro versus the US dollar and increases in our R&D cost estimates following the FY22 results, we revise our rNPV valuation down to €166.8m (versus €190.4m previously).
Year |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/21 |
8.6 |
(15.5) |
(0.32) |
0.0 |
N/A |
N/A |
12/22 |
5.2 |
(18.3) |
(0.34) |
0.0 |
N/A |
N/A |
12/23e |
7.5 |
(19.0) |
(0.38) |
0.0 |
N/A |
N/A |
12/24e |
9.8 |
(23.6) |
(0.47) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Vyzulta continues to show traction
Total US Vyzulta prescriptions grew c 20% in Q422 according to Bausch + Lomb (B+L), with B+L’s reported Vyzulta revenue growing 31% in FY22. While the US market is the predominant driver for Vyzulta sales, the drug has been launched in 15 countries worldwide, and B+L expects it be launched in 10 additional countries in 2023 and beyond. Nicox expects net Vyzulta royalties to continue to grow based on prescription growth and geographic expansion.
NCX-470 development on track
Nicox continues to expect to report top-line results in 2025 for Denali, its second Phase III study of lead candidate NCX-470 in patients with open-angle glaucoma or ocular hypertension. Given the favourable safety profile shown and primary efficacy endpoint being met in Mont Blanc, the first Phase III study, we remain optimistic about NCX-470’s likelihood of eventually obtaining FDA approval, which we model in 2027. Nicox also plans to start two Phase IIIb studies in H123 as part of its refined development strategy aimed at differentiating the potential benefits of NCX-470 in glaucoma versus competing drugs.
Valuation: FX effects lead to adjustment
We obtain an rNPV valuation for Nicox of €166.8m (versus €190.4m previously). After including Q422 net cash of €3.4m, we obtain an equity value of €170.2m, or €3.39 per basic share (versus €4.10 previously). The potential dilutive effect of options and warrants and their effects on net cash would result in a valuation of €3.19 (versus €3.75 previously) per fully diluted share. The strengthening of the euro vs the US dollar is the largest driver of the changes in valuation, followed by the increases in our R&D cost estimates. Nicox is funded through Q224 and we model that it will require €95m in added funding to bring NCX-470 to market.
FY22 results show higher than expected royalties
Nicox’s headline FY22 results were in line with the Q422 update reported in January, but the additional granularity provided on gross royalties and operating expenses provide helpful insights on current operating trends, and allow us to adjust our forecasts accordingly.
Gross product sales-related licensing revenue (primarily gross royalties from B+L from the sale of Vyzulta in the US and other approved markets and, to a lesser extent, Zerviate US royalties from Eyevance/Santen) came in at €5.2m (+39% y-o-y), above our €4.9m estimate.
Cost of sales, which reflects royalties on Vyzulta sales that Nicox must pay to Pfizer, were €2.0m. Hence, FY22 net royalties were €3.3m, up from €2.3m in FY21. The company also noted a c 100% y-o-y elevation in Q422 net royalties to €1.0m (having reached the €1m quarterly run rate for the first time). As a reminder, as part of Nicox’s arrangement with Vyzulta global licensee B+L, it is entitled to tiered net royalties of 6–12% on net sales, which takes into account the Vyzulta-related royalties that Nicox must pay to Pfizer.
It also appears that earlier pricing issues in Vyzulta reimbursement (whereby Vyzulta revenue growth lagged prescription growth) have now abated. Altogether, we believe these yearly increases are largely due to strengthened Vyzulta-related revenue, as total US Vyzulta prescriptions grew c 20% in Q422 according to B+L, with B+L’s reported Vyzulta revenue growing 31% in FY22. While the US market is the predominant driver for Vyzulta sales, the drug has been launched in 15 countries worldwide, and B+L expects it be launched in 10 additional countries in 2023 and beyond. Nicox expects net Vyzulta royalties to continue to grow based on growth in prescriptions and geographic expansion.
The company recognized €4.8m in licence revenue in its FY21 results as part of a €15m payment from Ocumension received in FY20.
Exhibit 1: Nicox FY22 results
€000s (except EPS) |
FY22 |
FY22e |
Difference |
FY21 |
Difference y-o-y (%) |
Licence milestones and other revenue |
- |
300 |
(100.0) |
4,821 |
(100.0) |
Licence royalty payments |
5,242 |
4,893 |
7.1 |
3,762 |
39.3 |
Total revenue |
5,242 |
5,193 |
0.9 |
8,583 |
(38.9) |
Cost of sales |
(1,971) |
(1,592) |
23.8 |
(1,350) |
46.0 |
Gross profit |
3,271 |
3,601 |
(9.2) |
7,233 |
(54.8) |
General & Administrative |
(7,479) |
(7,905) |
(5.4) |
(7,000) |
6.8 |
Gross research & development costs |
(17,992) |
(15,803) |
13.9 |
(17,910) |
0.5 |
Financial and other income (expenses) |
3,942 |
2,374 |
66.1 |
930 |
323.9 |
Exceptional items including asset impairment |
(12,029) |
(11,631) |
3.4 |
(30,658) |
(60.8) |
PBT (reported) |
(30,287) |
(29,364) |
3.1 |
(47,405) |
(36.1) |
PBT (normalised)* |
(18,258) |
(17,310) |
5.5 |
(15,542) |
17.5 |
Tax credit (expense) |
2,528 |
1,679 |
50.6 |
3,644 |
(30.6) |
Net income (reported) |
(27,759) |
(27,685) |
0.3 |
(43,761) |
(36.6) |
Net income (normalised)* |
(15,730) |
(15,631) |
0.6 |
(11,898) |
32.2 |
Reported EPS (€) |
(0.59) |
(0.59) |
0.2 |
(1.17) |
(49.1) |
Normalised EPS (€) |
(0.34) |
(0.33) |
0.6 |
(0.32) |
13.8 |
Source: Edison Investment Research, company reports. Note: *FY22 result is estimated. Full FY22 financials and cash flow statements have not been released and hence amounts such as the extent of R&D tax credits (needed for our measures of net R&D expense, EBITDA and normalised earnings) and total depreciation have not been provided. We expect these amounts to be made available when the annual statement is filed in April 2023.
Gross R&D costs, which are predominantly based on the company’s Denali and Mont Blanc trials (the latter of which was completed in Q422) for lead candidate NCX-470, came in at €18m, above our €15.8m estimate.
Financial and other income in FY22 included non-recurring €3.0m income to reflect the change of the present value of the put option granted by Nicox to Armistice in the Q422 €10m equity financing.
Nicox reported gross cash of €27.7m at 31 December 2022 (versus €25.6m at end September), boosted by the €10m (€8.9m net) private placement announced last November. It reported gross financial debt of c €24.6m at end FY22, consisting of a €18.7m Kreos Capital loan, a €1.8m French state-guaranteed loan (both unchanged versus prior periods) and €4.2m of present value assigned to the put option granted in the Q422 equity financing. We calculate net cash ex-leases of €3.4m after including €0.3m in non-current financial assets.
NCX-470 remains development focus for Nicox
Nicox reiterates that it expects to report top-line results in 2025 for Denali, its second Phase III study of lead candidate NCX-470 in patients with open-angle glaucoma or ocular hypertension. NCX-470 is a second clinical-stage compound based on the company’s proprietary NO-donating platform that combines a nitric oxide (NO) donating molecule with an established prostaglandin F2α analogue (PGA) drug. As explained in an earlier note, Mont Blanc results in Q422 represented the first registration trial whereby a monotherapy drug candidate was able to show statistical non-inferiority to a PGA drug. Given the favourable safety profile also shown, we believe these results bode well for the product’s likelihood of obtaining FDA approval, provided Denali demonstrates similar efficacy parameters. We continue to anticipate potential FDA approval and launch in 2027.
To strengthen NCX-470’s positioning, in Q422 Nicox announced a refined development strategy aiming to build on previously reported preclinical retinal data to help demonstrate that, in addition to lowering intraocular pressure, NCX-470 may improve retinal perfusion and/or retinal cell health and thereby provide a supplemental therapeutic benefit in patients with glaucoma. The company is planning to start two Phase IIIb clinical studies in H123 and additional non-clinical activities to work towards this objective. One of these studies will assess the drug’s possible retinal blood flow effects using optical coherence tomography angiography and the other will assess the drug’s capability to reduce episcleral venous pressure and enhance aqueous humor outflow through the trabecular meshwork. We note that most PGA drugs reduce intraocular pressure through the uveoscleral pathway and not the trabecular meshwork, hence the NO-donating effects of NCX-470 could be a potential differentiator in this regard.
Financials and valuation
Following the FY22 results, we have adjusted our FX assumptions to $1.07/€ versus parity previously, which has the effect of reducing our valuation (as discussed below) as well as longer-term revenue expectations in euros (although our local currency estimates for all products except Vyzulta are unchanged).
Given higher than expected FY22 royalties (which we attribute to stronger than anticipated Vyzulta net revenue), we have increased our medium-term growth expectations for Vyzulta sales and net royalties, although this is offset by our new FX expectations, resulting in a minor change to our peak (FY30e) net royalty forecast (€11.5m versus €11.1m previously).
While we had previously already modelled a y-o-y reduction in FY23e R&D costs (given the completion of Mont Blanc), we have raised our net R&D estimates slightly, although still forecasting a y-o-y decrease in FY22. We now forecast FY23 and FY24 net R&D expenses of €15.3m and €17.1m, respectively, versus our prior estimates of €13.3m and €16.1m, respectively. We now model operating cash burn rates of €17.5m and €25.8m in FY23 and FY24, respectively, versus our prior forecasts of €17.8m and €23.1m, respectively.
In addition to the changes above, we have rolled forward our forecasts, which has resulted in a change in our equity valuation. We now obtain an rNPV valuation for Nicox of €166.8m (versus €190.4m previously). After including Q422 net cash of €3.4m, we obtain an equity value of €170.2m, or €3.39 per basic share (down from €4.10 previously). After considering the potential dilutive effect of options and warrants and their effects on net cash, our fully diluted valuation would be €3.19 (versus €3.75 previously) per fully diluted share. The strengthening of the euro versus the US dollar is the largest driver of the change in valuation, followed by the increases in our R&D cost estimates.
Exhibit 2: Nicox SA rNPV assumptions
Product contribution |
Indication |
Stage |
NPV |
Probability of success |
rNPV |
rNPV/basic share (€) |
Launch year |
Peak sales (€m)* |
NCX-470 (net of R&D and SG&A costs) in US Market |
Glaucoma |
Phase III ongoing |
132.5 |
75% |
85.6 |
1.71 |
2027 |
240 |
NCX-470 (net of R&D and SG&A costs) in Europe and unpartnered regions |
Glaucoma |
Phase III |
68.9 |
60% |
39.4 |
0.79 |
2028 |
122 |
NCX-470 licence fees from Ocumension (China and other) |
Glaucoma |
Phase III ongoing |
6.4 |
75% |
4.6 |
0.09 |
2027 |
2.7** |
NCX-4251 (net of R&D and SG&A costs) sales and licence fees/royalties |
Dry eye disease |
Phase IIb |
149.1 |
25% |
37.3 |
0.74 |
2028 |
78** |
Vyzulta royalties from Bausch + Lomb |
Glaucoma |
Commercial |
39.8 |
100% |
39.8 |
0.79 |
2017 |
11.5** |
Zerviate royalties from Eyevance and others |
Allergic conjunctivitis |
Commercial |
26.4 |
100% |
26.4 |
0.53 |
2020 |
6.3** |
Corporate costs |
(66.2) |
100% |
(66.2) |
(1.32) |
||||
Total |
356.8 |
166.8 |
3.33 |
|||||
Net cash (Q422) excluding lease liabilities |
3.4 |
3.4 |
0.07 |
|||||
Total equity value |
360.2 |
170.2 |
3.39 |
|||||
Basic shares outstanding (000) |
50,157 |
|||||||
Outstanding options and warrants (000) |
12,991 |
|||||||
FD shares outstanding (000) |
63,148 |
Source: Edison Investment Research. Note: *Peak projected sales shown for year 2032 except for Vyzulta, where peak anticipated royalties are shown for year 2030. **Reflects net licence and royalties received by Nicox and not commercial sales by licensee.
Nicox continues to expect that funds on hand (€27.7m at end FY22) will be sufficient to maintain operations into Q224 based on the development of NCX-470 alone and our forecasts are similar. We expect the company will require €95m in added funding before the anticipated US launch of NCX-470 (which we forecast in 2027), after which we expect it to be profitable on a self-sustaining basis. Our projections do not include any potential proceeds from the exercise of options or warrants which, if exercised, would lower our funding forecasts accordingly. Our model assumes all financings will be raised through illustrative debt, as per our usual methodology. If our projected funding need of €95m is raised through equity issuances at the prevailing market price of c €0.68, our effective value per share would decrease to €2.24.
The amount of fund-raising which we estimate is necessary for Nicox to bring NCX-470 to commercialisation independently is larger than its current market capitalisation, although we note that funding intervals may be staggered over the next several years, which may alleviate the potential challenges associated with raising sums in excess of a company’s market capitalisation. Furthermore, NIcox is actively seeking potential partnership arrangements in the US and Japanese markets, which could provide non-dilutive funding and alleviate part of our expected funding requirements.
Exhibit 3: Financial summary
€’000s |
2018 |
2019 |
2020 |
2021 |
2022 |
2023e |
2024e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||||
Revenue |
|
|
4,717 |
8,260 |
14,423 |
8,583 |
5,242 |
7,475 |
9,831 |
Cost of Sales |
(690) |
(1,405) |
(1,516) |
(1,350) |
(1,971) |
(1,812) |
(2,226) |
||
Gross Profit |
4,027 |
6,855 |
12,907 |
7,233 |
3,271 |
5,664 |
7,605 |
||
General & Administrative |
(9,506) |
(7,666) |
(6,677) |
(7,000) |
(7,479) |
(7,629) |
(10,886) |
||
Net Research & Development |
(15,491) |
(16,883) |
(11,991) |
(17,194) |
(17,276) |
(15,336) |
(17,136) |
||
Amortisation of intangible assets |
0 |
(659) |
(1,252) |
(1,205) |
0 |
(787) |
(768) |
||
Operating profit before exceptionals |
(20,970) |
(18,353) |
(7,013) |
(18,166) |
(21,484) |
(18,088) |
(21,185) |
||
EBITDA |
|
|
(20,718) |
(17,230) |
(5,270) |
(16,505) |
(21,096) |
(17,197) |
(20,277) |
Depreciation & other |
(252) |
(464) |
(491) |
(456) |
(388) |
(104) |
(140) |
||
Operating Profit (before amort. and except.) |
(20,970) |
(17,694) |
(5,761) |
(16,961) |
(21,484) |
(17,301) |
(20,417) |
||
Exceptionals including asset impairment |
302 |
(6,115) |
(6,621) |
(30,658) |
(12,029) |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
(20,668) |
(23,809) |
(12,382) |
(47,619) |
(33,513) |
(17,301) |
(20,417) |
||
Net Interest |
2,390 |
1,690 |
(4,436) |
1,419 |
3,226 |
(1,735) |
(3,206) |
||
Profit Before Tax (norm) |
|
|
(18,580) |
(16,004) |
(10,197) |
(15,542) |
(18,258) |
(19,036) |
(23,623) |
Profit Before Tax (FRS 3) |
|
|
(18,278) |
(22,778) |
(18,070) |
(47,405) |
(30,287) |
(19,824) |
(24,391) |
Tax |
(113) |
3,856 |
(28) |
3,644 |
2,528 |
0 |
0 |
||
Profit After Tax and minority interests (norm) |
(18,693) |
(12,148) |
(10,225) |
(11,898) |
(15,730) |
(19,036) |
(23,623) |
||
Profit After Tax and minority interests (FRS 3) |
(18,391) |
(18,922) |
(18,098) |
(43,761) |
(27,759) |
(19,824) |
(24,391) |
||
Average Basic Number of Shares Outstanding (m) |
29.6 |
30.3 |
33.7 |
37.5 |
46.7 |
50.4 |
50.8 |
||
EPS - normalised (€) |
|
|
(0.63) |
(0.40) |
(0.30) |
(0.32) |
(0.34) |
(0.38) |
(0.47) |
EPS - normalised and fully diluted (€) |
|
(0.63) |
(0.40) |
(0.30) |
(0.32) |
(0.34) |
(0.38) |
(0.47) |
|
EPS - (IFRS) (€) |
|
|
(0.62) |
(0.62) |
(0.54) |
(1.17) |
(0.59) |
(0.39) |
(0.48) |
Dividend per share (€) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
112,498 |
110,660 |
89,745 |
66,871 |
59,480 |
58,775 |
58,113 |
Intangible Assets |
71,397 |
72,120 |
64,848 |
39,974 |
31,692 |
30,905 |
30,137 |
||
Tangible Assets |
25,628 |
27,517 |
24,829 |
26,660 |
27,463 |
27,546 |
27,652 |
||
Investments in long-term financial assets |
15,473 |
11,023 |
68 |
237 |
325 |
325 |
325 |
||
Current Assets |
|
|
26,092 |
32,146 |
52,521 |
47,738 |
33,684 |
31,989 |
32,019 |
Short-term investments |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Cash |
22,059 |
28,102 |
47,195 |
41,970 |
27,650 |
26,974 |
26,951 |
||
Other |
4,033 |
4,044 |
5,326 |
5,768 |
6,034 |
5,015 |
5,067 |
||
Current Liabilities |
|
|
(8,069) |
(9,828) |
(15,404) |
(8,000) |
(8,206) |
(8,004) |
(5,124) |
Creditors |
(8,069) |
(7,751) |
(10,115) |
(8,000) |
(8,206) |
(8,004) |
(5,124) |
||
Short term borrowings |
0 |
(2,077) |
(5,289) |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(16,868) |
(23,681) |
(26,027) |
(31,057) |
(32,525) |
(49,525) |
(75,525) |
Long term borrowings |
0 |
(9,045) |
(12,687) |
(20,520) |
(24,606) |
(41,606) |
(67,606) |
||
Other long term liabilities |
(16,868) |
(14,636) |
(13,340) |
(10,537) |
(7,919) |
(7,919) |
(7,919) |
||
Net Assets |
|
|
113,653 |
109,297 |
100,835 |
75,552 |
52,433 |
33,236 |
9,483 |
CASH FLOW |
|||||||||
Operating Cash Flow |
|
|
(21,533) |
(17,741) |
(956) |
(19,900) |
(26,442) |
(15,754) |
(22,571) |
Net interest and financing income (expense) |
2,390 |
1,690 |
(4,436) |
1,419 |
3,226 |
(1,735) |
(3,206) |
||
Tax |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net Operating Cash Flow |
(19,143) |
(16,051) |
(5,392) |
(18,481) |
(23,216) |
(17,489) |
(25,777) |
||
Capex |
(268) |
(95) |
(20) |
(8) |
(83) |
(187) |
(246) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
37 |
0 |
0 |
||
Financing |
0 |
11,290 |
13,321 |
13,804 |
9,086 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
(19,411) |
(4,856) |
7,909 |
(4,685) |
(14,176) |
(17,676) |
(26,023) |
||
Opening net debt/(cash) |
|
|
0 |
(37,532) |
(28,003) |
(29,287) |
(21,687) |
(3,369) |
14,307 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
56,943 |
(4,673) |
(6,625) |
(2,915) |
(4,142) |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(37,532) |
(28,003) |
(29,287) |
(21,687) |
(3,369) |
14,307 |
40,330 |
Lease debt |
N/A |
1,527 |
1,099 |
986 |
828 |
828 |
828 |
||
Closing net debt/(cash) inclusive of IFRS 16 lease debt |
(37,532) |
(26,476) |
(28,188) |
(20,701) |
(2,541) |
15,135 |
41,158 |
Source: Edison Investment Research, company reports
|
|
Research: TMT
Datatec expects to report FY23 revenue of $5.16bn, which represents growth of 13% compared to FY22 and is 3% ahead of our forecast. Westcon performance was well ahead of our expectations, with Logicalis International slightly ahead and Logicalis Latin America below. Overall, the group saw signs of improvement in the supply chain, although the backlog remained elevated at the year-end. The secular growth in networking and cyber security solutions continues to be the main driver of demand. We maintain our forecasts pending full FY23 results in May.
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