Crossject
Written by
Crossject |
L15 unmasked |
Pipeline update |
Pharma & biotech |
23 June 2016 |
Share price performance
Business description
Next events
Analysts
Crossject is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||||
Recently, Crossject disclosed the identity of the product behind its L15 programme. L15 is its needle-free version of hydrocortisone, which Crossject will develop for the treatment of acute adrenal insufficiency, a potentially fatal condition. The company expects the commercial launch of the product in H118, although we believe peak sales will be a modest €9m as it is a niche market with little pricing power.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/14 |
1.7 |
(5.3) |
(0.66) |
0.0 |
N/A |
N/A |
12/15 |
2.4 |
(6.7) |
(0.85) |
0.0 |
N/A |
N/A |
12/16e |
3.1 |
(5.4) |
(0.62) |
0.0 |
N/A |
N/A |
12/17e |
3.0 |
(9.7) |
(1.05) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Tackling a potentially fatal condition
Adrenal insufficiency is a condition where a patient is missing certain hormones like cortisol, which helps the body use sugar and protein for energy and helps it recover from stresses and infections. The condition has multiple causes including autoimmune disease, tuberculosis, congenital adrenal hyperplasia (CAH), benign pituitary tumours, brain injury or even over-use of steroids.
A relatively niche market
While most of Crossject’s programmes focus on large indications like rheumatoid arthritis, migraine or epileptic seizures, acute adrenal insufficiency is relatively small. Based on prevalence data, we calculate almost 500,000 patients in the US and Europe. Approximately 30% of them carry an emergency kit with them, which will often include an anal suppository or a vial for intra-muscular injection.
RA product set to be commercialised in 2017
Crossject’s lead programme is ZENEO Methotrexate for rheumatoid arthritis (RA), which is an autoimmune inflammatory arthritis that affects 1.3 million adults in the United States. The company expects it to be commercialised in Europe in H217 and in China sometime in 2017. It already has regional partnerships in France, India and China, and Crossject will likely sign additional agreements to commercialise the product in other regions.
Valuation
We are increasing our risk-adjusted valuation slightly to €81.9m or €12.07 per share, from €81.1m or €11.96 per share due to the inclusion of the ZENEO Hydrocortisone programme. As of 2015 year-end, the company had €5.2m in cash. It expects to receive an additional €3.1m in grants in 2016 and has also recently announced an equity line, which could provide up to ~€10m. Between now and projected profitability in 2018, we forecast a total funding need of €15m for all projects.
Treating acute adrenal insufficiency
Adrenal insufficiency is a life-threatening condition that has multiple causes, including autoimmune disease, congenital adrenal hyperplasia (CAH), removal of the pituitary gland as well as certain medications, infections and surgeries. Patients with the condition are missing certain hormones like cortisol, which helps the body use sugar and protein for energy and helps it recover from stresses and infections. Hence, key symptoms of the disease are fatigue, weakness, weight loss, abdominal pain and dizziness when standing up.
Patients are generally classed with primary or secondary adrenal insufficiency. Primary adrenal insufficiency, also known as Addison’s disease, results from disease intrinsic to the adrenal cortex (such as CAH), which is situated along the perimeter of the adrenal gland and mediates the stress response through hormone secretion. It is primarily an autoimmune related disorder though tuberculosis can cause the condition as well. Secondary adrenal insufficiency is caused by a malfunctioning pituitary gland (often due to a benign tumour) or a lack of responsiveness of the adrenal glands to the hormones released by the pituitary gland. According to the EMA, prevalence is around 450 cases per million with approximately 34-38% being the primary form of the disease.1 This suggests almost 500,000 sufferers in the US and Europe.
Charmandari, E et al. Adrenal Insufficiency The Lancet 2014, Volume 383, Issue 9935, 2152-2167.
Treatment for both the primary and secondary forms is hormone replacement therapy through the use of hydrocortisone, fludrocortisone and prednisolone. This therapy is generally effective though sometimes patients will have acute attacks, which are often referred to as an adrenal crisis (AC). The incidence rate of these acute attacks is 6.3 crises per 100 patient years. Due to the threat of an acute attack, 29.6% of patients carry an emergency kit with emergency suppositories or intramuscular doses of steroid hormones.2
Hahner S et al., Epidemiology of adrenal crisis in chronic adrenal insufficiency European Journal of Endocrinology (2010) 162 597-602.
Exhibit 1: Frequency of adrenal crisis (AC) based on patient responses to a survey
Number of AC |
PAI (n=254) |
SAI (n=190) |
||
n |
% |
n |
% |
|
0 |
135 |
53.1 |
124 |
65.1 |
1 |
58 |
22.8 |
32 |
16.9 |
2 |
24 |
9.4 |
8 |
4.2 |
3 |
10 |
3.9 |
12 |
6.3 |
≥4 |
27 |
10.6 |
14 |
7.4 |
Source: Hahner S et al., Epidemiology of adrenal crisis in chronic adrenal insufficiency European Journal of Endocrinology (2010) 162 597-602
Crossject is targeting the emergency kit market, as ZENEO Hydrocortisone is capable of delivering the emergency dose in a single step in ~1/10th of a second. We assume the introduction of a more patient-friendly delivery mechanism would increase the penetration of emergency kits from 30% to 40% with an initial cost of €100 per dose in the US and €60 in the EU5, per company guidance. Our model assumes launch in H118, with peak penetration of 30% in both markets and total peak sales of €6m.
Valuation
We are increasing our risk-adjusted valuation slightly to €81.9m or €12.07 per share, from €81.1m or €11.96 per share, due to the inclusion of the ZENEO Hydrocortisone programme. We continue to exclude Crossject’s naloxone and apomorphine products, because their expected launch is further out and visibility on them is limited. Potential catalysts will likely include the announcement of additional partnerships for the various products as well as product approvals, which should start in earnest within the developed countries in H217.
Exhibit 2: Crossject valuation table
Product |
Main Indication |
Prob. of success |
Launch year |
WW Peak sales (€m) |
Patent protection |
Royalty |
rNPV (€m) |
|
Methotrexate |
Rheumatoid Arthritis |
60% |
2017 |
€100 |
2034 |
20% |
€18.4 |
|
Sumatriptan |
Acute Migraine |
60% |
2018 |
€82 |
2034 |
20% |
€14.1 |
|
Adrenaline |
Anaphylactic shock |
60% |
2018 |
€133 |
2034 |
25% US/20% EU |
€36.3 |
|
Midazolam |
Acute epileptic seizures |
60% |
2018 |
€58 |
2034 |
20% |
€8.3 |
|
Hydrocortisone |
Acute Adrenal Crisis |
60% |
2018 |
€9 |
2034 |
20% |
€0.8 |
|
Total |
|
|
|
|
|
|
€77.9 |
|
Cash and cash equivalents (Q116e) (€m) |
€3.91 |
|||||||
Total firm value (€m) |
€81.85 |
|||||||
Total basic shares (m) |
6.78 |
|||||||
Value per basic share (€) |
€12.07 |
|||||||
Stock options (3/2016e, m) |
0.62 |
|||||||
Weighted average exercise price (€) |
€2.68 |
|||||||
Cash on exercise (€m) |
€1.67 |
|||||||
Total firm value (€m) |
€83.52 |
|||||||
Total number of shares |
7.4 |
|||||||
Diluted value per share (€) |
€11.28 |
|||||||
Source: Edison Investment Research
Financials
As of year-end 2015, Crossject had €5.2m in cash and cash equivalents on hand. The company expects to receive an additional €3.1m in grants in 2016 and recently announced an equity line from Kepler Cheuvreux, which could provide ~€10m. The terms are that Kepler Cheuvreux has committed to subscribe over the next 24 months to a maximum of 1.2m shares at a 7% discount. Between now and expected profitability in 2018, we project a total funding need of €15m for Crossject and have modelled this via an illustrative long-term debt. This need would be mitigated somewhat by additional upfront payments from partners, as well as milestone payments on product approvals. With the addition of L15/ZENEO Hydrocortisone R&D expenses, we now expect a total of €10.5m in R&D expenses in 2016 and 2017 (versus €9m previously) and an additional €9m in SG&A (unchanged from our previous note).
Exhibit 3: Financial summary
2014 |
2015 |
2016e |
2017e |
2018e |
|||
Year end 31 December |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
1,744 |
2,370 |
3,100 |
3,000 |
14,830 |
Cost of Sales |
0 |
(0) |
0 |
0 |
0 |
||
Gross Profit |
1,744 |
2,369 |
3,100 |
3,000 |
14,830 |
||
R&D Expenses |
(2,421) |
(3,077) |
(3,721) |
(6,800) |
(7,820) |
||
SG&A and Other Expenses |
(3,388) |
(4,808) |
(4,354) |
(4,702) |
(6,079) |
||
EBITDA |
|
|
(4,066) |
(5,516) |
(4,975) |
(8,502) |
931 |
Operating Profit (before GW and except.) |
|
(5,108) |
(7,013) |
(4,975) |
(8,502) |
931 |
|
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
||
Other |
(0) |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
(5,108) |
(7,013) |
(4,975) |
(8,502) |
931 |
||
Net Interest |
(36) |
(19) |
(400) |
(1,200) |
(1,199) |
||
Other |
(160) |
299 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(5,334) |
(6,720) |
(5,375) |
(9,702) |
(268) |
Profit Before Tax (FRS 3) |
|
|
(5,304) |
(6,732) |
(5,375) |
(9,702) |
(268) |
Tax |
968 |
1,045 |
1,116 |
2,040 |
2,346 |
||
Deferred tax |
0 |
0 |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(4,366) |
(5,675) |
(4,259) |
(7,662) |
2,078 |
||
Profit After Tax (FRS 3) |
(4,336) |
(5,687) |
(4,259) |
(7,662) |
2,078 |
||
Average Number of Shares Outstanding (m) |
6.7 |
6.7 |
6.9 |
7.3 |
7.6 |
||
EPS - normalised (€) |
|
|
(0.66) |
(0.85) |
(0.62) |
(1.05) |
0.27 |
EPS - FRS 3 (€) |
|
|
(0.65) |
(0.86) |
(0.62) |
(1.05) |
0.27 |
Dividend per share (€) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
5,521 |
5,936 |
7,521 |
8,726 |
9,642 |
Intangible Assets |
2,327 |
2,330 |
2,330 |
2,330 |
2,330 |
||
Tangible Assets |
888 |
1,727 |
3,313 |
4,518 |
5,433 |
||
Other |
2,305 |
1,878 |
1,878 |
1,878 |
1,878 |
||
Current Assets |
|
|
12,853 |
7,943 |
7,112 |
8,245 |
9,407 |
Stocks |
0 |
761 |
761 |
761 |
761 |
||
Debtors |
1,926 |
1,991 |
1,991 |
1,991 |
1,991 |
||
Cash |
10,927 |
5,139 |
4,307 |
5,440 |
6,603 |
||
Other |
0 |
52 |
52 |
52 |
52 |
||
Current Liabilities |
|
|
(2,907) |
(3,261) |
(3,261) |
(3,261) |
(3,261) |
Creditors |
(2,907) |
(3,261) |
(3,261) |
(3,261) |
(3,261) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(982) |
(1,820) |
(6,820) |
(16,820) |
(16,820) |
Long term borrowings |
0 |
0 |
(5,000) |
(15,000) |
(15,000) |
||
Other long term liabilities |
(982) |
(1,820) |
(1,820) |
(1,820) |
(1,820) |
||
Net Assets |
|
|
14,484 |
8,797 |
4,552 |
(3,111) |
(1,032) |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
(3,163) |
(4,796) |
(3,845) |
(6,867) |
3,163 |
Net Interest |
0 |
0 |
0 |
0 |
0 |
||
Tax |
0 |
0 |
0 |
0 |
0 |
||
Capex |
(4,770) |
(1,805) |
(2,000) |
(2,000) |
(2,000) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
0 |
||
Financing |
17,873 |
0 |
0 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
483 |
0 |
0 |
0 |
||
Net Cash Flow |
9,940 |
(6,118) |
(5,845) |
(8,867) |
1,163 |
||
Opening net debt/(cash) |
|
|
(2,468) |
(10,927) |
(5,139) |
693 |
9,560 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
||
Exchange rate movements |
0 |
0 |
0 |
0 |
0 |
||
Other |
-1481 |
330 |
13 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(10,927) |
(5,139) |
693 |
9,560 |
8,397 |
Source: Crossject accounts, Edison Investment Research
|