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Research: Healthcare
The year 2020 was one of challenges for CASI, as it was for the rest of the world, but the company was able to continue to advance the commercialization of Evomela and jumpstart its clinical development engine. CASI is continuing to execute on its strategy of opportunistically in-licensing assets and the recent trend has been to earlier-stage assets such as its latest acquisition, the Chinese rights to the Phase I broad spectrum anti-cancer drug CB-5339, announced in March.
Written by
CASI Pharmaceuticals |
Continuing to advance and expand the pipeline |
Earnings update |
Pharma & biotech |
6 April 2021 |
Share price performance
Business description
Next events
Analyst
CASI Pharmaceuticals is a research client of Edison Investment Research Limited |
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The year 2020 was one of challenges for CASI, as it was for the rest of the world, but the company was able to continue to advance the commercialization of Evomela and jumpstart its clinical development engine. CASI is continuing to execute on its strategy of opportunistically in-licensing assets and the recent trend has been to earlier-stage assets such as its latest acquisition, the Chinese rights to the Phase I broad spectrum anti-cancer drug CB-5339, announced in March.
Year end |
Revenue ($m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/19 |
4.1 |
(36.5) |
(0.39) |
0.00 |
N/A |
N/A |
12/20 |
15.1 |
(37.9) |
(0.35) |
0.00 |
N/A |
N/A |
12/21e |
25.8 |
(23.2) |
(0.17) |
0.00 |
N/A |
N/A |
12/22e |
28.8 |
(23.8) |
(0.17) |
0.00 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortization of acquired intangibles, exceptional items and share-based payments.
CB-5339: A novel drug for a range of tumors
CASI acquired the rights to CB-5339 in mainland China (as well as Taiwan, Hong Kong and Macau) from Cleave Therapeutics, a private pharma company based in San Francisco, for $5.5m upfront, $74m in milestones and mid-single to mid-double-digit royalties. Additionally, CASI made a $5.5m investment in Cleave through a convertible note. The drug is an inhibitor of valosin-containing protein (VCP)/p97 and has the potential for activity in hematologic and solid tumors. It is in a Phase I dosing study in acute myeloid leukemia (AML) and myelodysplastic syndrome (MDS) patients (sponsored by Cleave) and an NCI-sponsored study in hematologic and solid tumors.
Continued focus on early-stage assets
CASI has described its business-development strategy as opportunistic and the products it has licensed for the Chinese and worldwide markets are from a range of classes, from market-ready products such as Evomela, to generics. However, the recent trend has been to license early-stage assets. CASI has four assets being tested in Phase I, including CID-103, which entered the clinic in March 2021.
More money to support increased development
CASI ended 2020 with $57.1m, recently bolstered with a $32.5m (gross) offering (at $2.05 per share for 15.85m new shares). This has significantly offset our expected future financing for the company (reduced to $20m from $55m). However, we expect CASI to continue to deploy this cash in strategic ways to advance its pipeline through the in-licensing of assets.
Valuation: Increased to $500m from $431m
We have increased our valuation to $500m or $3.54 per share, from $431m or $3.47 per share, previously, driven by increased cash, increased probability of success for CIB-103 (to 10% from 5%) and the addition of CB-5339. The per share amount is only slightly changed given the increased shares outstanding.
The new drug
On 8 March 2021, CASI announced it has in-licensed the Chinese rights to the investigational drug CB-5339 from Cleave Therapeutics.
CB-5339 is an anti-cancer drug with potential applicability to both solid tumors and hematologic neoplasms. It is an inhibitor of VCP/p97, a protein involved in the maintenance and degradation of other proteins in the cell. Its inhibition can induce DNA damage, to which cancer cells are sensitive. The protein’s primary function is to isolate certain proteins and traffic them to degradation in the proteasome. We therefore expect the profile of the drug (if it is active) to resemble that of proteasome inhibitors such as Velcade (bortezomib, Takeda). Drugs of the proteasome inhibitor class are used in the treatment of multiple myeloma and indolent non-Hodgkin lymphomas, such as mantle cell lymphoma. These drugs as a class have significant adverse effect profiles that include cytopenias, gastrointestinal upset and peripheral neuropathy, among others. A drug such as CB-5339 may be a viable alternative to proteasome inhibitors if it can improve on this adverse effect profile.
CB-5339 is being evaluated in a Phase I dosing study in patients with AML and MDS sponsored by Cleave Therapeutics. Additionally, it is in a Phase I study sponsored by the National Cancer Institute, investigating it for lymphomas and solid tumors. CASI will be obligated to perform the clinical studies necessary for approval in China, but we expect this to be relatively limited in scope, such as a relatively small bridging study (eg, n=30). The company intends to file for clinical trial authorization in China sometime in the next year.
This drug continues the recent trend of the company to in license early-stage assets. The economics of such deals can be much more attractive that later-stage assets (which typically command much higher up-front costs), albeit with higher development risk. Moreover, in the case of CB-5339 and the company’s other most recent acquisition, BI-1206, CASI has a relatively limited clinical commitment. In both cases, the pivotal studies will be supported primarily by the company’s partners, and although we expect CASI to enroll patients for these studies in China, the cost will be much smaller than if it were itself running the entire clinical program. Through these early-stage licensing agreements, the company has been able to assemble a relatively large pipeline of programs. We expect CASI to continue to use this strategy to deploy some of the capital from its recent offering (described below) to support the continued pipeline development.
Valuation
We have increased our valuation to $500m or $3.54 per basic share, from $431m or $3.47 per basic share, previously. A major factor driving this valuation is the increase in net cash ($90.8m pro forma, compared to $57.1m previously) following the offering announced on 24 March. We assume the underwriters of the offering will use the full greenshoe (underwriters’ options to purchase 2.38m shares for up to 30 days), which is still available at the time of this report (resulting in $35.4m total net proceeds). The pro-forma net cash value also includes the cost of the Cleave transaction ($11m total) and the company’s liquid investments ($9.3m at the end of 2020). Another major factor driving the increased valuation is that we have increased the probability of success for CID-103 to 10% from 5%, as this product has now entered clinical trials. This increased the valuation for this asset to $41.0m from $14.9m previously.
We have added CB-5339 to our model, with an initial valuation of $10.1m. We assume for the initial indication the drug will be approved for AML. We assume the drug will be launched in 2028 with a price of US$37,000 per patient. This is a significant discount to the pricing for similar agents in Western countries. For instance, Venclexta (venetoclax, AbbVie) has an estimated price of $122,000 in the US (Evaluate Pharma). We model a 30% peak penetration into the AML market if the drug is successful. We estimate a probability of success of 15%, which is average for drugs in Phase I dosing studies. Our model includes royalties payable to Cleave (10% on average) and $40m of the $74m in planned milestones ($20m clinical/regulatory and $20m sales based). We assume CASI will be responsible for development activity in China and this will be supported with a small (30-patient) bridging study run concurrently with the pivotal Phase III study (supported by Cleave). In addition, our line item for CB-5339 includes the convertible note issued to Cleave ($5.5m), valued at cost.
Exhibit 1: Valuation of CASI
Portfolio |
Asset |
Region |
Peak sales ($m) |
Margins |
Clinical risk adjustment |
Value |
||
Hematology |
Evomela |
China |
39.1 |
50% |
100% |
92.09 |
||
Zevalin |
China |
25.5 |
64% |
90% |
44.75 |
|||
Thiotepa |
China |
8.8 |
39% |
90% |
4.75 |
|||
CID-103 |
China, US & Europe |
766.6 |
59% |
10% |
41.03 |
|||
CNCT19 |
China |
306.2 |
up to 50% profit share |
10% |
26.82 |
|||
BI-1206 |
China |
249.9 |
59% |
10% |
17.76 |
|||
CB-5339 |
China |
77.3 |
52% |
10% |
10.07 |
|||
Other products |
ANDA portfolio |
China & US |
142.0 |
47% |
100% |
180.88 |
||
Octreotide LAI |
China |
15.7 |
41% |
80% |
12.75 |
|||
Total |
430.90 |
|||||||
Net cash and equivalents (Q420 unaudited) ($m) pro-forma of Q121 financing and Cleave transaction |
90.81 |
|||||||
Noncontrolling interest ($m) |
(22.03) |
|||||||
Total firm value ($m) |
499.68 |
|||||||
Total shares (m) assuming underwriters exercise full greenshoe |
141.23 |
|||||||
Value per basic share ($) |
3.54 |
|||||||
Dilutive warrants and options (m) |
16.75 |
|||||||
Value per diluted share ($) |
3.45 |
|||||||
Source: CASI reports, Edison Investment Research
Financials
As mentioned above, CASI performed an offering in March 2021 that raised $32.5m gross (at $2.05 per share for 15.8m new shares). This substantially reduces our expected financing requirement for the company to $20m from $55m (which we include in 2022 as illustrative debt). We expect CASI to deploy at least a portion of this capital through the continued expansion of its pipeline, so the company may raise additional capital beyond this, but we expect these deals to be accretive.
Other changes to our model are largely to align it with the company’s recently published annual report, and these changes have little impact on our forecasts. For a more detailed breakdown of our revenue forecasts, see our previous report on the company’s preliminary earnings. The company reported an operating loss of $51.5m, but $17.8m of this amount was payments associated with its licensed programs. We expect recurring operating expenses to expand in 2021 (to $51.8m), but to be offset by increased gross profit from Evomela ($19.3m) for an expected FY21 operating loss of $32.4m. This increase in expenses is associated with its ongoing development programs, which we expect will now be less hindered by COVID-19.
Exhibit 2: Financial summary
$'k |
2019 |
2020 |
2021e |
2022e |
||
Year end 31 December |
US GAAP |
US GAAP |
US GAAP |
US GAAP |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
4,131.0 |
15,141.0 |
25,750.0 |
28,791.2 |
Cost of Sales |
(3,935.0) |
(9,508.0) |
(6,402.5) |
(7,162.8) |
||
Gross Profit |
196.0 |
5,633.0 |
19,347.5 |
21,628.4 |
||
EBITDA |
|
|
(37,495.0) |
(41,361.0) |
(23,086.1) |
(22,889.1) |
Normalised operating profit |
|
|
(38,098.0) |
(41,923.0) |
(23,223.6) |
(23,771.2) |
Amortization of acquired intangibles |
(1,550.0) |
(1,397.0) |
(1,397.0) |
(1,397.0) |
||
Exceptionals |
0.0 |
(385.0) |
0.0 |
0.0 |
||
Share-based payments |
(7,310.0) |
(7,821.0) |
(7,821.0) |
(7,821.0) |
||
Reported operating profit |
(46,958.0) |
(51,526.0) |
(32,441.6) |
(32,989.2) |
||
Net Interest |
1,062.0 |
866.0 |
0.0 |
0.0 |
||
Joint ventures & associates (post tax) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
534.0 |
3,149.0 |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
(36,502.0) |
(37,908.0) |
(23,223.6) |
(23,771.2) |
Profit Before Tax (reported) |
|
|
(45,362.0) |
(47,511.0) |
(32,441.6) |
(32,989.2) |
Reported tax |
0.0 |
0.0 |
6,488.3 |
6,597.8 |
||
Profit After Tax (norm) |
(36,502.0) |
(37,908.0) |
(23,223.6) |
(23,771.2) |
||
Profit After Tax (reported) |
(45,362.0) |
(47,511.0) |
(25,953.3) |
(26,391.4) |
||
Minority interests |
(670.0) |
(776.0) |
0.0 |
0.0 |
||
Discontinued operations |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
(37,172.0) |
(38,684.0) |
(23,223.6) |
(23,771.2) |
||
Net income (reported) |
(46,032.0) |
(48,287.0) |
(25,953.3) |
(26,391.4) |
||
Basic average number of shares outstanding (m) |
96 |
110 |
137 |
144 |
||
EPS - basic normalised (c) |
|
|
(38.74) |
(35.04) |
(16.96) |
(16.54) |
EPS - diluted normalised (c) |
|
|
(38.74) |
(35.04) |
(16.96) |
(16.54) |
EPS - basic reported (c) |
|
|
(47.98) |
(43.73) |
(18.96) |
(18.36) |
Dividend (c) |
0.00 |
0.00 |
0.00 |
0.00 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
41,130.0 |
53,709.0 |
74,481.4 |
87,628.5 |
Intangible Assets |
16,895.0 |
13,210.0 |
17,313.0 |
15,916.0 |
||
Tangible Assets |
985.0 |
2,062.0 |
13,231.4 |
27,775.5 |
||
Investments & other |
23,250.0 |
38,437.0 |
43,937.0 |
43,937.0 |
||
Current Assets |
|
|
61,501.0 |
74,025.0 |
70,905.1 |
59,421.4 |
Stocks |
4,542.0 |
1,356.0 |
2,104.9 |
2,354.9 |
||
Debtors |
1,293.0 |
4,645.0 |
4,232.9 |
4,732.8 |
||
Cash & cash equivalents |
54,246.0 |
66,373.0 |
62,987.3 |
50,753.7 |
||
Other |
1,420.0 |
1,651.0 |
1,580.0 |
1,580.0 |
||
Current Liabilities |
|
|
(7,947.0) |
(7,976.0) |
(8,320.9) |
(8,554.7) |
Creditors |
(5,113.0) |
(3,669.0) |
(4,013.9) |
(4,247.7) |
||
Tax and social security |
0.0 |
0.0 |
0.0 |
0.0 |
||
Short term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(2,834.0) |
(4,307.0) |
(4,307.0) |
(4,307.0) |
||
Long Term Liabilities |
|
|
(1,019.0) |
(16,185.0) |
(16,185.0) |
(36,185.0) |
Long term borrowings |
0.0 |
0.0 |
0.0 |
(20,000.0) |
||
Other long term liabilities |
(1,019.0) |
(16,185.0) |
(16,185.0) |
(16,185.0) |
||
Net Assets |
|
|
93,665.0 |
103,573.0 |
120,880.5 |
102,310.2 |
Minority interests |
20,670.0 |
22,033.0 |
22,033.0 |
22,033.0 |
||
Shareholders' equity |
|
|
72,995.0 |
81,540.0 |
98,847.5 |
80,277.2 |
CASH FLOW |
||||||
Op Cash Flow before WC and tax |
(37,495.0) |
(41,361.0) |
(23,086.1) |
(22,889.1) |
||
Working capital |
4,452.0 |
(3,318.0) |
8.1 |
(516.1) |
||
Exceptional & other |
9,800.0 |
18,793.0 |
6,488.3 |
6,597.8 |
||
Tax |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net operating cash flow |
|
|
(23,243.0) |
(25,886.0) |
(16,589.7) |
(16,807.4) |
Capex |
(7,053.0) |
(1,499.0) |
(11,306.8) |
(15,426.2) |
||
Acquisitions/disposals |
(21,005.0) |
(21,529.0) |
(5,500.0) |
0.0 |
||
Net interest |
0.0 |
0.0 |
0.0 |
0.0 |
||
Equity financing |
3,545.0 |
45,904.0 |
35,440.0 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
20,000.0 |
2,309.0 |
71.0 |
0.0 |
||
Net Cash Flow |
(27,756.0) |
(701.0) |
2,114.5 |
(32,233.6) |
||
Opening net debt/(cash) |
|
|
(83,617.5) |
(54,245.5) |
(66,372.5) |
(62,987.0) |
FX |
(1,328.0) |
2,895.0 |
0.0 |
0.0 |
||
Other non-cash movements |
(288.0) |
9,933.0 |
(5,500.0) |
0.0 |
||
Closing net debt/(cash) |
|
|
(54,245.5) |
(66,372.5) |
(62,987.0) |
(30,753.4) |
Source: CASI reports, Edison Investment Research
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