Crossject
Written by
Crossject |
Timeline adjustments |
Development update |
Pharma & biotech |
9 December 2016 |
Share price performance
Business description
Next events
Analysts
Crossject is a research client of Edison Investment Research Limited |
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As part of its revised strategic plan, Crossject has expanded its partnership with CENEXI to fill and finish all of Crossject’s products in all regions for a period of five years, with a potential extension up to 10 years. Also, the timelines for its expected regulatory submissions have shifted across the board; most notably, the EU filing for ZENEO Methotrexate has been pushed back from H216 to H218 due to its non-emergency nature and higher requirement for manufacturing resources than other products. As a result, we reduce our valuation to €9.91 per share (from €12.07).
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 |
(6.3) |
(0.81) |
0.0 |
N/A |
N/A |
12/17e |
0.0 |
(10.7) |
(1.26) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
CENEXI deal expanded
Originally, the CENEXI agreement was for three years and focused on ZENEO Methotrexate for the Indian and Chinese markets. It has now expanded to cover all products in all regions for a period of five years with a potential extension up to 10 years. Manufacturing of clinical batches should begin in Q217, with a mass production line capable of filling up to 10m units (a number greater than our peak estimates) available in H118.
Timeline delays
The timelines for the submission and approval of Crossject’s products have been pushed back across the board. Five products that had originally been expected to have applications submitted by the end of 2017 will now have their applications submitted by the end of 2018, with some US submissions not occurring until 2020.
Reprioritising the pipeline
The pipeline has been prioritised in favour of emergency products that will require fewer resources and with a focus on the US market. ZENEO Methotrexate for rheumatoid arthritis, a chronic indication, would tie up a disproportionate amount of manufacturing resources to produce multiple dose strengths, so its EU submission date has been moved from H216 to H218, with US filing in H120.
Valuation
We are decreasing our valuation from €81.9m or €12.07 per share to €68.2m or €9.91 per share, mainly due to timeline delays and a reduction in the probability of success of the ZENEO Methotrexate programme from 60% to 30% due to its de-prioritisation. This was mitigated partly by the addition of the naloxone and apomorphine products into our valuation model. As of 30 September, Crossject had €2.0m in cash, indicating a near-term capital requirement. The company expects to receive an additional €11m in grants, subsidies, tax credits and warrant exercises over the next 18 months. Between now and projected profitability in 2020 (previously 2018), we forecast a total funding need of €35m (previously €15m).
Increased capacity but longer timelines
Crossject has announced that it has expanded its partnership with CENEXI, which currently has around €160m in annual revenue and manufactures 15m syringes per year for its customers. It has three sites covering 27,000m2 that are approved by the FDA, the French National Agency for Medicines and Health Products Safety (ANSM) and the French Federal Agency for Medicines and Health Products (AFMPS).
In exchange for five years of exclusivity (extendable to 10 years), CENEXI will provide over €5m worth of capital expenditures, 15 full-time equivalents (duties divided among 25 employees), a fast-track line to handle clinical batches by Q217 and a scale-up line with a maximum capacity of 10m units per year by H118. The original partnership with CENEXI was for three years, was focused on ZENEO methotrexate and would have led to a maximum capacity of 1-2m units. Following this agreement, Crossject will be responsible for the immersion and preparation of tubes (washing, siliconizing, sterilisation) and actuator assembly, while CENEXI will be responsible for formulation, filling, final assembly and packaging. Based on our estimates, Crossject should be able to handle all of its manufacturing needs for all current pipeline products and regions, which is likely to be viewed positively by potential partners.
Crossject has also announced that the fast-track line to handle clinical batches will not be available until Q217 and that its original timelines for expected EU submission have to be pushed out (see Exhibit 1). Its first submission for a product approval is now likely to be ZENEO Sumatriptan in H118.
Exhibit 1: Pipeline timeline changes
Product |
Indication |
Initial expectation for submission (EU) |
New expectation for submission (EU) |
Expectation for US submission |
Sumatriptan |
Acute migraine |
H117 |
H118 |
H218 |
Midazolam |
Epilepsy |
H217 |
H218 |
H119 |
Adrenaline |
Anaphylactic shock |
H217 |
H218 |
H119 |
Methotrexate |
Rheumatoid arthritis |
H216 |
H218 |
H120 |
Hydrocortisone |
Acute adrenal insufficiency |
H117 |
H218 |
H119 |
Naloxone |
Opioid overdose |
H118 |
H218 |
H119 |
Apomorphine |
Parkinson’s disease |
H218 |
H119 |
H120 |
Source: Crossject
Notably, ZENEO Methotrexate, which previously had been the lead product, has been de-prioritised, with EU submission expected to come in H218 instead of H216. This was due to the company deciding to prioritise pipeline products based on four criteria. Priority was given to products that are life-saving, are attractive to US partners, require fewer resources for submission and have consistent submission requirements for the US and EU. As ZENEO Methotrexate is for rheumatoid arthritis, a chronic and not life-threatening indication, and would take a lot of capacity from the fast-track line due to the need to manufacture multiple dosage strengths, its development has been pushed back. ZENEO Sumatriptan is also for a non-life-threatening condition but its ease of manufacture and lower level of investment needed versus ZENEO Methotrexate has made Crossject decide to prioritise that product.
Valuation
We are decreasing our valuation from €81.9m or €12.07 per share to €68.2m or €9.91 per share, mainly due to timeline delays and a reduction in the probability of success of the ZENEO Methotrexate programme from 60% to 30% due to its de-prioritisation. This was mitigated partly by the addition of the naloxone and apomorphine products into our valuation model, which we now include due to indications from the company that these products are becoming increasingly attractive.
Naloxone is an opioid antagonist that is able to reduce respiratory and mental depression due to opioids and hence can be very useful in saving lives when available. The need is clear; according to the Drug Abuse Warning Network, in 2011 there were 258,482 emergency room visits in the United States due to heroine and another 488,004 due to nonmedical use of prescription opioids. Naloxone is available in traditional intramuscular, intramuscular/subcutaneous auto-injector and intranasal forms, all of which work within six to eight minutes of administration. Our model assumes a 60% probability of success, a launch in 2020, with peak penetration of 8% in both markets and total peak sales of €14m.
Apomorphine is a dopamine agonist and is used to treat/manage sudden and unexpected bouts of hypomobility associated with Parkinson’s disease (PD). According to the Parkinson’s Disease Foundation, the prevalence of Parkinson’s is one million people in the US, with 7-10 million people worldwide suffering from the disease. Once patients are on standard PD drug treatments for four to five years, they experience bouts of hypomobility, including the inability to rise from a chair, speak or walk. Often these can be treated by changing their treatment regimen. However, according to BlueShield of Northeastern New York, approximately 12,000 patients have severe hypomobility that requires apomorphine, which reverses symptoms in 7-14 minutes. As a month’s supply is typically ~$2,000/month, this could be a potentially lucrative market. Our model assumes launch in 2020 with peak penetration of 8% in the US and 6% in the EU, with total peak sales of €53m. We have assigned a 30% chance of success as its profile is similar to that of methotrexate. It is a non-emergency product that will use a disproportionate amount of manufacturing resources due to the need of multiple dosage strengths.
Exhibit 2: Crossject valuation table
Product |
Main indication |
Prob. of success |
Launch year |
WW peak sales (€m) |
Patent protection |
Royalty |
rNPV |
Methotrexate |
Rheumatoid arthritis |
30% |
2020 |
€100 |
2034 |
20% |
€8.0 |
Sumatriptan |
Acute migraine |
60% |
2019 |
€82 |
2034 |
20% |
€10.7 |
Adrenaline |
Anaphylactic shock |
60% |
2020 |
€133 |
2034 |
25% US/20% EU |
€28.5 |
Midazolam |
Acute epileptic seizures |
60% |
2020 |
€58 |
2034 |
20% |
€7.9 |
Hydrocortisone |
Acute adrenal crisis |
60% |
2020 |
€9 |
2034 |
20% |
€0.5 |
Naloxone |
Opioid overdose |
60% |
2020 |
€14 |
2034 |
20% |
€0.8 |
Apomorphine |
Parkinson’s disease |
30% |
2020 |
€53 |
2034 |
20% |
€9.7 |
Total |
|
|
|
|
€66.2 |
||
Cash and cash equivalents (H116) (€m) |
€2.00 |
||||||
Total firm value (€m) |
€68.20 |
||||||
Total basic shares (m) |
6.88 |
||||||
Value per basic share (€) |
€9.91 |
||||||
Stock options (3/2016e, m) |
0.62 |
||||||
Weighted average exercise price (€) |
€2.68 |
||||||
Cash on exercise (€m) |
€1.67 |
||||||
Total firm value (€m) |
€69.86 |
||||||
Total number of shares (m) |
7.5 |
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Diluted value per share (€) |
€9.31 |
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Source: Edison Investment Research
Financials
As of 30 September, the company had €2.0m in cash, indicating a need for the company to raise additional capital in the very short term. Based on its H116 cash outflow from operations of €2.55m, its runway with current funds probably extends into Q117. Crossject expects to receive an additional €11m in grants, subsidies, tax credits and warrant exercises over the next 18 months, with €2.8m in repayable grants expected to come in early 2017. However, we are not assuming recurring grants and subsides (other than R&D credits) at this stage for FY18e and beyond.
Due to the delayed development timelines as mentioned above, we have pushed out our R&D expenditure assumptions for 2017 and 2018 by €2m and €2.3m per year, respectively. As we now expect the company will not break even until 2020 (previously 2018), we forecast an additional funding need of €20m, resulting in a total funding gap of €35m (previously €15m).
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 |
0 |
0 |
Cost of Sales |
0 |
(0) |
(501) |
0 |
0 |
||
Gross Profit |
1,744 |
2,369 |
2,599 |
0 |
0 |
||
R&D Expenses |
(2,421) |
(3,077) |
(2,421) |
(4,800) |
(5,520) |
||
SG&A and Other Expenses |
(3,388) |
(4,808) |
(4,354) |
(4,702) |
(5,079) |
||
EBITDA |
|
|
(4,066) |
(5,516) |
(4,176) |
(9,502) |
(10,599) |
Operating Profit (before GW and except.) |
|
(5,108) |
(7,013) |
(5,926) |
(9,502) |
(10,599) |
|
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) |
(5,926) |
(9,502) |
(10,599) |
||
Net Interest |
(36) |
(19) |
(400) |
(1,200) |
(1,999) |
||
Other |
(160) |
299 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(5,334) |
(6,720) |
(6,326) |
(10,702) |
(12,598) |
Profit Before Tax (FRS 3) |
|
|
(5,304) |
(6,732) |
(6,326) |
(10,702) |
(12,598) |
Tax |
968 |
1,045 |
726 |
1,440 |
1,656 |
||
Deferred tax |
0 |
0 |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(4,366) |
(5,675) |
(5,600) |
(9,262) |
(10,942) |
||
Profit After Tax (FRS 3) |
(4,336) |
(5,687) |
(5,600) |
(9,262) |
(10,942) |
||
Average Number of Shares Outstanding (m) |
6.7 |
6.7 |
6.9 |
7.4 |
7.7 |
||
EPS - normalised (c) |
|
|
(65.64) |
(85.33) |
(80.59) |
(125.75) |
(142.83) |
EPS - FRS 3 (€) |
|
|
(0.65) |
(0.86) |
(0.81) |
(1.26) |
(1.43) |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
5,521 |
5,936 |
6,103 |
7,513 |
8,585 |
Intangible Assets |
2,327 |
2,330 |
2,344 |
2,344 |
2,344 |
||
Tangible Assets |
888 |
1,727 |
2,366 |
3,776 |
4,848 |
||
Other |
2,305 |
1,878 |
1,393 |
1,393 |
1,393 |
||
Current Assets |
|
|
12,853 |
7,943 |
7,647 |
6,975 |
4,961 |
Stocks |
0 |
761 |
961 |
961 |
961 |
||
Debtors |
1,926 |
1,991 |
1,826 |
1,826 |
1,826 |
||
Cash |
10,927 |
5,139 |
4,860 |
4,188 |
2,174 |
||
Other |
0 |
52 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(2,907) |
(3,261) |
(2,131) |
(2,131) |
(2,131) |
Creditors |
(2,907) |
(3,261) |
(2,131) |
(2,131) |
(2,131) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(982) |
(1,820) |
(6,712) |
(16,712) |
(26,712) |
Long term borrowings |
0 |
0 |
(5,000) |
(15,000) |
(25,000) |
||
Other long term liabilities |
(982) |
(1,820) |
(1,712) |
(1,712) |
(1,712) |
||
Net Assets |
|
|
14,484 |
8,797 |
4,907 |
(4,355) |
(15,297) |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
(3,163) |
(4,796) |
(4,898) |
(8,695) |
(10,035) |
Net Interest |
0 |
0 |
0 |
0 |
0 |
||
Tax |
0 |
0 |
0 |
0 |
0 |
||
Capex |
(4,770) |
(1,805) |
(1,978) |
(1,978) |
(1,978) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
0 |
||
Financing |
17,873 |
0 |
1,709 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
483 |
(1,249) |
0 |
0 |
||
Net Cash Flow |
9,940 |
(6,118) |
(6,416) |
(10,673) |
(12,013) |
||
Opening net debt/(cash) |
|
|
(2,468) |
(10,927) |
(5,139) |
140 |
10,812 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
||
Exchange rate movements |
0 |
0 |
0 |
0 |
0 |
||
Other |
(1,481) |
330 |
1137 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(10,927) |
(5,139) |
140 |
10,812 |
22,826 |
Source: Crossject accounts, Edison Investment Research
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