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Research: Healthcare
CASI announced that it has received approval in China for Evomela. The drug is a formulation of melphalan hydrochloride used in the treatment of multiple myeloma, and CASI obtained the rights to the drug in Greater China from its original developer, Spectrum Pharmaceuticals, in 2014. This put CASI in a unique position to take advantage of the regulatory reforms in China. The drug was approved under the new priority review pathway at the National Medical Products Administration (NMPA, formerly the CFDA) and serves as a test case for this new regulatory regime.
Written by
CASI Pharmaceuticals |
Evomela approved in China |
Regulatory update |
Pharma & biotech |
10 December 2018 |
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CASI Pharmaceuticals is a research client of Edison Investment Research Limited |
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CASI announced that it has received approval in China for Evomela. The drug is a formulation of melphalan hydrochloride used in the treatment of multiple myeloma, and CASI obtained the rights to the drug in Greater China from its original developer, Spectrum Pharmaceuticals, in 2014. This put CASI in a unique position to take advantage of the regulatory reforms in China. The drug was approved under the new priority review pathway at the National Medical Products Administration (NMPA, formerly the CFDA) and serves as a test case for this new regulatory regime.
Year end |
Revenue ($m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16 |
0.0 |
(6.5) |
(0.12) |
0.0 |
N/A |
N/A |
12/17 |
0.0 |
(10.1) |
(0.16) |
0.0 |
N/A |
N/A |
12/18e |
0.0 |
(18.8) |
(0.23) |
0.0 |
N/A |
N/A |
12/19e |
10.9 |
(14.3) |
(0.15) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Approved for the same indications as in the US
Evomela was approved by the NMPA for the use as a conditioning agent prior to stem cell transplant and for palliative treatment for multiple myeloma patients who cannot take oral drugs, with the former being the primary commercial driver. Conditioning is the treatment of a patient with high doses of chemotherapy to remove their native stem cells (and cancer) prior to replacement with a transplant, and is common in the treatment of multiple myeloma. The drug is approved for the same indications in the US, and Spectrum reported sales of $6.8m for Q318.
Multiple myeloma: A significant burden
There is uncertainty about the precise estimates of the rate of multiple myeloma in China, but it is understood that it is rarer (along with other hematologic malignancies) in China than in the US. Estimates of the incidence rate are approximately one per 100,000 compared with seven per 100,000 in the US (on an age adjusted bases). However, given the substantially larger population, it is estimated to have the second highest number of patients after the US with ~17,000.
A successful test of the new priority review pathway
CASI sought approval of Evomela through a previously untested pathway. The regulatory authorities in China recently underwent a series of reforms aimed at increasing the number of foreign drugs approved, which included instituting a priority review pathway for select set of drugs. Evomela qualified for this pathway because it would be the first formulation of melphalan approved in China. This allowed it to be approved with its existing data package and without the need for confirmatory Chinese trials.
Valuation: Increased to $759m or $8.11
We have increased our valuation to $759m or $8.11 per basic share from $754m or $8.06 per basic share. This reflects the approval; the increase is relatively small given that most of the decision was already priced in given our high level of confidence.
Evomela approved in China
On 3 December 2018, CASI announced that the NMPA had approved its priority review application for marketing of Evomela in China. This was the company’s first attempt at independent approval and one of the first tests of the new priority review pathway in China by any company. Regional rights to Evomela in Greater China were originally licensed from Spectrum Pharmaceuticals in 2014 in a deal that also included Marqibo and Zevalin rights in exchange for 17% of CASI stock and a $1.5m promissory note.
Evomela is most commonly used as a conditioning agent prior to stem cell transplant in patients with multiple myeloma. To ensure that a patient’s own diseased bone marrow is replaced with the transplanted tissue, prior to transplantation the patient is ‘conditioned’ either with radiation or a large dose of chemotherapy. The melphalan in Evomela is a nitrogen mustard chemotherapy that is commonly used as a conditioning agent. The innovative aspect of Evomela is that it contains the solubilizing agent Captisol (developed by Ligand Pharmaceuticals) to aid the dissolution of the drug in water. This avoids the use of propylene glycol used in other formulations that can cause adverse reactions. Spectrum had sales of $6.8m in Q318, which was down year-on-year (from $10.5m in Q317) due to pricing pressure.
The multiple myeloma market
Multiple myeloma, like other forms of hematologic cancers, is substantially less common in China (and other East Asian countries) than in the west. There are varying estimates of the epidemiology of the disease in China, but the most consistent estimates we have found based on reported cases indicate an age adjusted incidence of approximately one per 100,000. 1,2 However, this statistic masks the true burden of the disease. There are an estimated 17,000 new cases of multiple myeloma in China every year, which makes it the second largest geography of the disease after the US (~24,000). The burden of multiple myeloma has also grown dramatically across East Asia – 262% between 1990 and 2016 – driven by ageing populations, population growth and increases in age-specific incidence factors.2
Globocan
Cowan AJ, et al. (2018) Global Burden of Multiple Myeloma A Systematic Analysis for the Global Burden of Disease Study 2016. J Am Med Assoc Oncol 4, 1221-1227.
A test of the priority review process
The priority review process was only recently established by the NMPA to encourage an increase in drug approvals. One of the factors that can qualify a drug for priority review is that it is not commercially available in China and is already approved overseas. Although generic melphalan is available elsewhere, there are no approvals in China, making Evomela the first formulation of the drug marketed in the country and therefore a candidate for priority review. Additionally, as part of these reforms, the government stipulated that under certain circumstances, a drug could be approved using purely foreign clinical trial data, without the need for confirmatory Chinese clinical trials. There was some uncertainly regarding this regulation, as the process stipulated that the ‘existence of ethnic differences’ be considered in the data. However, this approval stands as a testament to the regulators’ flexibility in this regard. The pivotal study performed by Spectrum was a 61-patient Phase IIb with a single Asian patient. No additional data were necessary for Evomela’s approval.
Valuation
We have increased our valuation to $759m or $8.11 per basic share from of $754m or $8.06 per basic share. The change is associated with increasing the probability of success for Evomela from 90% to 100%. We have also slightly moved forward the commercialization timeline because we expected the NMDA decision in 2019. The change in valuation is small because a majority of the value of the asset was already priced in, in accordance with our high level of confidence. Our model only accounts for penetration into the urban population given better insurance coverage and financial means in this population (approximately 35%), although we may update our valuation in the future if further reforms improve the access to medical products in other population groups.
Exhibit 1: Valuation of CASI
Portfolio |
Asset |
Region |
Peak sales ($m) |
Margin |
Clinical risk adjustment |
Value ($m) |
Spectrum |
Evomela |
China |
15.5 |
46% |
100% |
26.26 |
Marqibo |
China |
8.3 |
58% |
90% |
7.97 |
|
Zevalin |
China |
23.9 |
64% |
90% |
47.00 |
|
Generics |
China & US |
249.7 |
49% |
100% |
578.17 |
|
Internal |
ENMD-2076 |
China & US |
25.2 |
51% |
20% |
1.43 |
Total |
660.83 |
|||||
Net cash and equivalents (Q218) ($m) |
98.53 |
|||||
Total firm value ($m) |
759.36 |
|||||
Total shares (m) |
93.59 |
|||||
Value per basic share ($) |
8.11 |
|||||
Dilutive warrants and options (est.) |
31.81 |
|||||
Value per diluted share ($) |
6.81 |
|||||
Source: Edison Investment Research, CASI reports
Financials
Our financial projections have changed slightly to reflect the earlier than expected approval of Evomela. Our expected revenue for 2019 is $10.9m (up from $9.6m) to reflect this development, but the largest proportion of this revenue remains the generics portfolio. We believe the company’s current assets are sufficient to bring it to profitability in 2021.
Exhibit 2: Financial summary
$'000s |
2016 |
2017 |
2018e |
2019e |
||
31-December |
US GAAP |
US GAAP |
US GAAP |
US GAAP |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
0.0 |
0.0 |
0.0 |
10,853.3 |
Cost of Sales |
0.0 |
0.0 |
0.0 |
(3,046.0) |
||
Gross Profit |
0.0 |
0.0 |
0.0 |
7,807.3 |
||
EBITDA |
|
|
(6,358.9) |
(9,983.1) |
(18,433.0) |
(9,823.3) |
Normalised operating profit |
|
|
(6,425.4) |
(10,100.9) |
(18,733.2) |
(14,332.0) |
Amortisation of acquired intangibles |
0.0 |
0.0 |
(1,291.8) |
(1,388.8) |
||
Exceptionals |
0.0 |
0.0 |
(687.0) |
0.0 |
||
Share-based payments |
(2,995.2) |
(650.4) |
(5,222.8) |
(5,222.8) |
||
Reported operating profit |
(9,420.6) |
(10,751.3) |
(25,934.7) |
(20,943.6) |
||
Net Interest |
(26.1) |
1.0 |
38.5 |
0.0 |
||
Joint ventures & associates (post tax) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
(6.8) |
(19.9) |
(67.3) |
0.0 |
||
Profit Before Tax (norm) |
|
|
(6,458.2) |
(10,119.8) |
(18,762.0) |
(14,332.0) |
Profit Before Tax (reported) |
|
|
(9,453.5) |
(10,770.2) |
(25,963.5) |
(20,943.6) |
Reported tax |
0.0 |
0.0 |
0.0 |
0.0 |
||
Profit After Tax (norm) |
(6,458.2) |
(10,119.8) |
(18,762.0) |
(14,332.0) |
||
Profit After Tax (reported) |
(9,453.5) |
(10,770.2) |
(25,963.5) |
(20,943.6) |
||
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Discontinued operations |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
(6,458.2) |
(10,119.8) |
(18,762.0) |
(14,332.0) |
||
Net income (reported) |
(9,453.5) |
(10,770.2) |
(25,963.5) |
(20,943.6) |
||
Basic average number of shares outstanding (m) |
56 |
62 |
83 |
95 |
||
EPS - basic normalised (c) |
|
|
(11.56) |
(16.45) |
(22.61) |
(15.01) |
EPS - diluted normalised (c) |
|
|
(11.56) |
(16.45) |
(22.61) |
(15.01) |
EPS - basic reported (c) |
|
|
(16.92) |
(17.51) |
(31.29) |
(21.94) |
Dividend (c) |
0.00 |
0.00 |
0.00 |
0.00 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
264.1 |
1,288.5 |
39,535.4 |
33,953.0 |
Intangible Assets |
0.0 |
0.0 |
16,763.2 |
15,374.4 |
||
Tangible Assets |
229.6 |
1,046.5 |
22,543.7 |
18,350.2 |
||
Investments & other |
34.5 |
242.0 |
228.4 |
228.4 |
||
Current Assets |
|
|
27,448.8 |
43,812.4 |
72,641.3 |
59,825.0 |
Stocks |
0.0 |
0.0 |
0.0 |
751.1 |
||
Debtors |
0.0 |
0.0 |
0.0 |
1,784.1 |
||
Cash & cash equivalents |
27,092.9 |
43,489.9 |
71,297.6 |
56,219.2 |
||
Other |
355.9 |
322.5 |
1,343.7 |
1,343.7 |
||
Current Liabilities |
|
|
(1,315.6) |
(5,062.1) |
(6,022.9) |
(4,199.9) |
Creditors |
(1,064.6) |
(4,316.1) |
(3,722.7) |
(3,398.9) |
||
Tax and social security |
0.0 |
0.0 |
0.0 |
0.0 |
||
Short term borrowings |
0.0 |
0.0 |
(1,499.3) |
0.0 |
||
Other |
(251.0) |
(746.0) |
(801.0) |
(801.0) |
||
Long Term Liabilities |
|
|
(5,613.5) |
(1,498.8) |
0.0 |
0.0 |
Long term borrowings |
(1,491.3) |
(1,498.8) |
0.0 |
0.0 |
||
Other long term liabilities |
(4,122.3) |
0.0 |
0.0 |
0.0 |
||
Net Assets |
|
|
20,783.8 |
38,540.1 |
106,153.7 |
89,647.6 |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
20,783.8 |
38,540.1 |
106,153.7 |
89,647.6 |
CASH FLOW |
||||||
Op Cash Flow before WC and tax |
(6,358.9) |
(9,983.1) |
(18,433.0) |
(9,823.3) |
||
Working capital |
348.0 |
3,572.4 |
(1,055.7) |
(2,859.0) |
||
Exceptional & other |
(12.2) |
8.5 |
44.6 |
0.0 |
||
Tax |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net operating cash flow |
|
|
(6,023.1) |
(6,402.2) |
(19,444.0) |
(12,682.2) |
Capex |
(64.8) |
(934.7) |
(21,861.1) |
(315.2) |
||
Acquisitions/disposals |
0.0 |
0.0 |
(19,172.0) |
0.0 |
||
Net interest |
0.0 |
0.0 |
0.0 |
0.0 |
||
Equity financing |
28,049.7 |
23,733.9 |
89,580.4 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
0.0 |
0.0 |
(117.2) |
0.0 |
||
Net Cash Flow |
21,961.8 |
16,397.0 |
28,986.2 |
(12,997.5) |
||
Opening net debt/(cash) |
|
|
(3,639.8) |
(25,601.7) |
(41,991.7) |
(69,798.3) |
FX |
0.0 |
0.0 |
(1,178.5) |
0.0 |
||
Other non-cash movements |
0.0 |
(7.0) |
(1.0) |
0.0 |
||
Closing net debt/(cash) |
|
|
(25,601.7) |
(41,991.7) |
(69,798.3) |
(56,219.2) |
Source: Edison Investment Research, CASI reports
|
|
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