CASI Pharmaceuticals — Evomela sales drive guidance upgrade

CASI Pharmaceuticals (US: CASI)

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Research: Healthcare

CASI Pharmaceuticals — Evomela sales drive guidance upgrade

CASI’s Q221 results were driven by strong sales momentum in Evomela, its proprietary formulation of melphalan for multiple myeloma (MM) in China. The in-clinic pipeline continues to make steady progress, led by CNCT19 (CD19 targeting CAR-T therapy for B-ALL and B-NHL) nearing completion of pivotal Phase II studies. We have raised our FY21–23 revenue estimates, as well as peak sales potential for Evomela, acknowledging its rapid growth in the past few quarters and CASI’s guidance upgrade for 2021. Our valuation ($4.07/share versus $3.56/share previously) also sees an uptick from the increased probability of success (from 10% to 30%) for CNCT19, offset by lower net cash.

Jyoti Prakash

Written by

Jyoti Prakash

Analyst, Healthcare

Healthcare

CASI Pharmaceuticals

Evomela sales drive guidance upgrade

Earnings update

Pharma & biotech

19 August 2021

Price

US$1.30

Market cap

US$182m

Net cash ($m) at 30 June 2021

70.9

Shares in issue

139.8m

Free float

72%

Code

CASI

Primary exchange

Nasdaq

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.8

(18.2)

(30.9)

Rel (local)

(0.9)

(23.3)

(46.7)

52-week high/low

US$3.63

US$1.16

Business description

CASI Pharmaceuticals is building a portfolio of drugs it intends to market for Chinese and worldwide markets, including Evomela launched in China, anti-CD19 CAR-T therapy CNCT19 and anti-CD38 drug CID-103, among others. The goal is to seek approval through new pathways that have opened in the quickly changing Chinese regulatory environment.

Next events

Phase II CAR-T studies complete

Q421

Analyst

Jyoti Prakash

+91 981 880 0393

CASI Pharmaceuticals is a research client of Edison Investment Research Limited

CASI’s Q221 results were driven by strong sales momentum in Evomela, its proprietary formulation of melphalan for multiple myeloma (MM) in China. The in-clinic pipeline continues to make steady progress, led by CNCT19 (CD19 targeting CAR-T therapy for B-ALL and B-NHL) nearing completion of pivotal Phase II studies. We have raised our FY21–23 revenue estimates, as well as peak sales potential for Evomela, acknowledging its rapid growth in the past few quarters and CASI’s guidance upgrade for 2021. Our valuation ($4.07/share versus $3.56/share previously) also sees an uptick from the increased probability of success (from 10% to 30%) for CNCT19, offset by lower net cash.

Year end

Revenue ($m)

PBT*
($m)

EPS*
($)

DPS
($)

P/E
(x)

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

28.9

(27.7)

(0.21)

0.00

N/A

N/A

12/22e

41.4

(22.4)

(0.16)

0.00

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortization of acquired intangibles, exceptional items and share-based payments.

Evomela continues to build traction

Evomela delivered stellar figures in Q221, reporting sales of $7.1m, up from $2.6m in Q220 and $5.7 in Q121 (170% y-o-y and 25% q-o-q growth, respectively). CASI continues to reap benefits from the shift to a dedicated supplier, with gross profit margin improving from 5.7% in Q220 to 58.4% in Q221, although it is flat q-o-q (58.9% in Q121), indicating a stabilized cost structure. CASI has upgraded its revenue guidance from 50% y-o-y growth in sales to 80% in 2021 but, at the current run rate, the likelihood of a full-year guidance beat remains high. Our top-line estimates factor in 90% y-o-y growth.

CAR-T therapy (CNCT19) nearing key milestone

Of the four partnered assets in the clinic, the Juventas-developed CNCT19 appears closest to being commercialized, with pivotal Phase II trials expected to conclude by end-2021/beginning-2022 and an NDA filing planned for late 2021/early 2022. We expect the local manufacturing footprint and a breakthrough therapy designation in B-ALL to provide certain advantages over the recently approved CD-19 CAR-T therapy, Yescarta in China (in particular, lower costs given the c $200,000 price of Yescarta in China in the difficult reimbursement environment).

Valuation: $569m or $4.07 per share

We upgrade our valuation for CASI to $569m ($4.07/share) from $498m ($3.56/share) previously, driven by higher peak sales estimates for Evomela ($66.9m from $39.1m) and a greater (30%) probability of success for CNCT19 (following commencement of pivotal Phase II studies). The gains were partially offset by a lower net cash position at end-Q221 ($70.9m from $77.1m). At the current run rate, this cash balance should provide runway until the end of 2022.

Gaining momentum

The key highlight of the company’s Q221 results was the continued strong performance of its commercial asset, Evomela in China. The drug is a proprietary formulation of melphalan originally developed by Spectrum Pharmaceuticals and in-licensed by CASI, and is approved as a conditioning treatment prior to stem cell transplantation and as a palliative treatment for patients with MM. As a reminder, melphalan is now generic in the US, but the proprietary injectable formulation means that it is treated as an innovative formulation in China and is currently the only approved injectable version of melphalan in the country (patent protection until 2030). The drug was launched in China in August 2019 and in recent quarters it has made rapid inroads in the Chinese market. Q221 sales of Evomela (which currently account for almost all of CASI’s revenue) came in at $7.1m, up from $2.6m in Q220 and $5.7 in Q121 (170% y-o-y and 25% q-o-q growth, respectively). The cost of revenue (excluding royalty payments of $1.4m and $0.5m in Q221 and Q220, respectively1) as a percentage of sales declined from 76% in Q220 ($2m) to 21% in Q221 ($1.5m). The reported operating loss stood at $8.0m in Q221 versus $8.9m in Q220 (operating loss as a percentage of sales improved from 128% to 91%). The Evomela-related sales team expansion resulted in selling and marketing expenses more than doubling to $3.4m in Q221 (versus $1.6m in Q220 and $2.7m in Q121), albeit as a percentage of sales the figure improved from 58% to 47%. We expect these expenses to continue to go up in the next few quarters. Since CASI employs a largely in-licensing business model, R&D expenses during the quarter were limited to its wholly owned asset CID-103 (Phase I) and post-marketing studies for Evomela ($2.3m versus $1.9m in Q220; $5.3m in Q121). The net loss came in at $6.7m, a significant improvement on the previous quarter’s $13.7m ($8.5m in Q220).

  Royalty payments made to Acrotech Biopharma (previously Spectrum Pharmaceuticals).

Increasing our peak Evomela sales as CASI raises guidance

CASI has upgraded its sales guidance from 50% y-o-y growth to 80% y-o-y growth in 2021. However, this would entail only flat q-o-q growth for the remaining two quarters of the year and looks conservative in our opinion. We have assumed a higher 90% sales growth in our 2021 estimates ($28.9m versus the $27.3 guided by the company). The sales momentum has also given us confidence to upgrade our peak sales estimates for the drug to $66.9m from our previous $39.1m. This optimism is supported by Evomela’s strong IP (patent protection until 2030) and its current monopoly in this market. This assumes 60% target market penetration, which leaves room for further upticks in the absence of new competitors in the space (a 90% market penetration would take us to CASI’s guided figure of $100m in peak sales for Evomela).

Pipeline continues to progress

CASI’s in-clinic development pipeline also made progress during the quarter, most notably CNCT19, the CD19 CAR-T asset being developed by partner Juventas Cell Therapy (in-licensed by CASI in June 2019). During its Q221 earnings call, CASI indicated that patient enrollment in pivotal Phase II studies for CNCT19 are nearly complete, with the aim of concluding clinical trials by end-2021 and NDA filing in B-ALL with the Chinese National Medical Products Administration (NMPA) by the beginning of 2022. The recent approval of Yescarta in China (in June 2021) may be of concern, but management highlights a lower price (Yescarta is expected to cost $185,000 in China), breakthrough therapy designation in B-ALL (Yescarta is not approved for B-ALL) and lower risk of the cytokine release-related side effects as potential advantages over the approved treatment.

Another clinical asset, CID-103 (anti-CD38 monoclonal antibody as second-line treatment for relapsed or refractory MM), commenced Phase I patient enrollment in June 2021 (previously planned for May 2021; the slight delay was due to COVID-19-related restrictions). The study is a dose escalation and expansion study in patients with previously treated, relapsed or refractory multiple myeloma and is designed to assess the safety, tolerability, pharmacology and clinical activity of CID-103. CASI acquired exclusive worldwide rights to CID-103 from Alesta Therapeutics (previously Black Belt Therapeutics) in April 2019 for $5.7m plus milestone and royalty payments. The First-Patient-In (FPI) milestone achieved in June 2021 triggered a milestone payment of $750,000 from CASI to Alesta.

Valuation

We have upgraded our valuation for CASI to $569m ($4.07/share) from $498m ($3.56/share) previously, driven by the strong top-line performance of Evomela and the subsequent increase in our peak sales estimate for the drug ($66.9m from $39.1m). The valuation is also driven by the higher probability of success (30% versus 10% previously) which we now assign to CNCT19 following the start of pivotal Phase II clinical trials. The gains were partially offset by a lower net cash position at end-Q221 ($70.9m from $77.1m).

Exhibit 1: Valuation of CASI

Portfolio

Asset

Region

Peak sales ($m)

Margins

Clinical risk adjustment

Value
($m)

Hematology

Evomela

China

66.9

37%

100%

114.29

Zevalin

China

25.5

64%

90%

46.94

Thiotepa

China

8.8

39%

90%

4.98

CID-103

China, US & Europe

766.6

59%

10%

43.52

CNCT19

China

306.2

up to 50% profit share

30%

83.10

BI-1206

China

249.9

59%

10%

18.84

CB-5339

China

77.3

52%

10%

10.20

Other products

ANDA portfolio

China & US

142.0

47%

100%

186.29

Octreotide LAI

China

15.7

41%

80%

13.05

Total

521.22

Net cash and equivalents (Q221) ($m)

70.93

Non-controlling interest ($m)

(22.7)

Total firm value ($m)

569.46

Total shares (m)

139.80

Value per basic share ($)

4.07

Dilutive warrants and options (m)

24.78

Value per diluted share ($)

3.74

Source: CASI reports, Edison Investment Research

Financials

Following the Q221 results and subsequent guidance upgrade, we have raised our top-line expectations for FY21–23. However, gross margins have been adjusted downwards (FY21 estimated gross margin decreases from 75% to 59%) given the higher royalty payments linked to improving revenues from Evomela ($1.4m in Q221 translating to c 20% of sales, with the remaining c 20% attributed to raw material costs). This margin tightening trickles down to the bottom line, where we now estimate the FY21 net loss at $28.5m versus our earlier estimate of $23.2m. The net margin expectation for Evomela reduces from 50% to 37%.

The net cash position remained strong at $70.9m ($60.4m cash plus $12.6m in marketable securities less $1.5m bank loan and $0.5m notes payable), albeit slightly lower than $77.1 at end-Q121. At the current run rate (free cash burn of $22.8m in H121 excluding the purchase of the convertible loan), this cash balance should provide runway until end 2022, although larger deals (partnerships/acquisitions) may require the company to raise additional funds from the market. We include $20m as an additional financing requirement in 2022 before profitability in 2024.

Exhibit 2: Financial summary

$'000s

2019

2020

2021e

2022e

2023e

31-December

US GAAP

US GAAP

US GAAP

US GAAP

US GAAP

INCOME STATEMENT

Revenue

 

 

4,131.0

15,141.0

28,854.3

41,398.5

59,344.5

Cost of Sales

(3,935.0)

(9,508.0)

(11,916.4)

(17,122.3)

(21,286.4)

Gross Profit

196.0

5,633.0

16,937.9

24,276.2

38,058.1

EBITDA

 

 

(37,495.0)

(41,361.0)

(27,131.2)

(21,520.2)

(16,643.2)

Normalised operating profit

 

 

(38,098.0)

(41,923.0)

(27,737.7)

(22,384.1)

(17,742.9)

Amortisation of acquired intangibles

(1,550.0)

(1,397.0)

(1,348.0)

(1,397.0)

(1,397.0)

Exceptionals

0.0

(385.0)

0.0

0.0

0.0

Share-based payments

(7,310.0)

(7,821.0)

(6,076.0)

(7,821.0)

(7,821.0)

Reported operating profit

(46,958.0)

(51,526.0)

(35,161.7)

(31,602.1)

(26,960.9)

Net Interest

1,062.0

866.0

0.0

0.0

0.0

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

0.0

Exceptionals

534.0

3,149.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

(36,502.0)

(37,908.0)

(27,737.7)

(22,384.1)

(17,742.9)

Profit Before Tax (reported)

 

 

(45,362.0)

(47,511.0)

(35,161.7)

(31,602.1)

(26,960.9)

Reported tax

0.0

0.0

0.0

0.0

0.0

Profit After Tax (norm)

(36,502.0)

(37,908.0)

(27,737.7)

(22,384.1)

(17,742.9)

Profit After Tax (reported)

(45,362.0)

(47,511.0)

(35,161.7)

(31,602.1)

(26,960.9)

Minority interests

(670.0)

(776.0)

(721.8)

0.0

0.0

Discontinued operations

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

(37,172.0)

(38,684.0)

(28,459.5)

(22,384.1)

(17,741.9)

Net income (reported)

(46,032.0)

(48,287.0)

(35,883.5)

(31,602.1)

(26,960.9)

Basic average number of shares outstanding (m)

96

110

136

136

136

EPS - basic normalised (c)

 

 

(38.74)

(35.04)

(20.92)

(16.45)

(13.04)

EPS - normalised fully diluted (c)

 

 

(38.74)

(35.04)

(20.92)

(16.45)

(13.04)

EPS - basic reported (c)

 

 

(47.98)

(43.73)

(26.37)

(23.23)

(19.82)

Dividend (c)

0.00

0.00

0.00

0.00

0.00

BALANCE SHEET

Fixed Assets

 

 

41,130.0

53,709.0

61,138.5

61,784.7

62,442.7

Intangible Assets

16,895.0

13,210.0

22,813.0

21,416.0

20,019.0

Tangible Assets

985.0

2,062.0

3,455.5

5,498.7

7,553.7

Investments & other

23,250.0

38,437.0

34,870.0

34,870.0

34,870.0

Current Assets

 

 

61,501.0

74,025.0

67,810.1

63,952.7

45,229.0

Stocks

4,542.0

1,356.0

3,917.7

5,629.2

6,998.3

Debtors

1,293.0

4,645.0

4,743.2

6,805.2

9,755.3

Cash & cash equivalents

54,246.0

66,373.0

57,569.2

49,938.2

26,895.4

Other

1,420.0

1,651.0

1,580.0

1,580.0

1,580.0

Current Liabilities

 

 

(7,947.0)

(7,976.0)

(8,908.5)

(9,478.4)

(10,552.6)

Creditors

(5,113.0)

(3,669.0)

(4,601.5)

(5,171.4)

(6,245.6)

Tax and social security

0.0

0.0

0.0

0.0

0.0

Short term borrowings

0.0

(1,292.0)

(1,292.0)

(1,292.0)

(1,292.0)

Other

(2,834.0)

(3,015.0)

(3,015.0)

(3,015.0)

(3,015.0)

Long Term Liabilities

 

 

(1,019.0)

(16,185.0)

(16,894.0)

(36,894.0)

(36,894.0)

Long term borrowings

0.0

0.0

(709.0)

(20,709.0)

(20,709.0)

Other long-term liabilities

(1,019.0)

(16,185.0)

(16,185.0)

(16,185.0)

(16,185.0)

Net Assets

 

 

93,665.0

103,573.0

103,146.1

79,365.0

60,225.1

Minority interests

20,670.0

22,033.0

22,164.0

22,164.0

22,164.0

Shareholders' equity

 

 

72,995.0

81,540.0

80,982.1

57,201.0

38,061.1

CASH FLOW

Op Cash Flow before WC and tax

(37,495.0)

(41,361.0)

(27,131.2)

(21,520.2)

(16,643.2)

Working capital

4,452.0

(3,318.0)

(1,727.3)

(3,203.7)

(3,244.9)

Exceptional & other

9,800.0

18,793.0

1,794.0

0.0

0.0

Tax

0.0

0.0

0.0

0.0

0.0

Net operating cash flow

 

 

(23,243.0)

(25,886.0)

(27,064.6)

(24,723.9)

(19,888.1)

Capex

(7,053.0)

(1,499.0)

(2,000.0)

(2,907.1)

(3,154.7)

Acquisitions/disposals

(21,005.0)

(21,529.0)

(11,000.0)

0.0

0.0

Net interest

0.0

0.0

0.0

0.0

0.0

Equity financing

3,545.0

45,904.0

30,481.0

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Other

20,000.0

2,309.0

71.0

0.0

0.0

Net Cash Flow

(27,756.0)

(701.0)

(9,512.6)

(27,631.0)

(23,042.8)

Opening net debt/(cash)

 

 

(83,617.5)

(54,245.5)

(65,080.5)

(55,567.9)

(27,936.9)

FX

(1,328.0)

2,895.0

0.0

0.0

0.0

Other non-cash movements

(288.0)

8,641.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(54,245.5)

(65,080.5)

(55,567.9)

(27,936.9)

(4,894.1)

Source: CASI reports, Edison Investment Research

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Wheaton Precious Metals — Solid Q221 results set up H221

WPM’s Q221 results were characterised by record quarterly revenue, which contributed towards record revenue and cash-flow for the half-year period and a fourth successive increase in the quarterly dividend, to US$0.15/share for Q321 (cf US$0.10/share for Q320). In general, financial results were closely aligned with our prior expectations and well within the range of analysts’ expectations. Production was strong from both Wheaton’s gold and silver divisions although, whereas the gold division’s sales were closely aligned with production, the silver division reverted to its more normal pattern of a 16.7% under-sale of metal relative to production and a consequent (albeit modest) increase in ounces produced but not yet delivered. In the wake of Q221 results, we have adjusted our forecasts for WPM for FY21 to reflect the ‘flash crash’ in precious metals prices between 4-10 August, although we do not believe that there will be an end to the structural bull market unless and until real interest rates in the US exceed 4% on a sustained basis.

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