CASI Pharmaceuticals — Evomela strong despite COVID-19

CASI Pharmaceuticals (US: CASI)

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Research: Healthcare

CASI Pharmaceuticals — Evomela strong despite COVID-19

CASI has made surprising progress despite COVID-19. The company reported Evomela sales of $3.37m in Q120, significantly exceeding our expectations. This is the highest single quarter revenue to date (out of three since its August 2019 approval in China). The impact of COVID-19 on sales appears to be low thus far, or at least surpassed by the underlying growth. Moreover, the company continued to advance its development programs CNCT19 and CID-103 at a steady pace.

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Healthcare

CASI Pharmaceuticals

Evomela strong despite COVID-19

Earnings update

Pharma & biotech

12 May 2020

Price

US$1.74

Market cap

US$175m

Net cash ($m) at 31 March 2020

53.9

Shares in issue

100.9m

Free float

51.5%

Code

CASI

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(11.2)

(24.7)

(48.2)

Rel (local)

(15.5)

(13.7)

(49.1)

52-week high/low

US$3.8

US$1.4

Business description

CASI Pharmaceuticals has acquired or licensed a series of drugs that it intends to market in China. These include proprietary drugs licensed from Spectrum Pharmaceuticals and a portfolio of ANDAs. The goal is to seek approval through new pathways that have been opened in the quickly changing Chinese regulatory environment.

Next events

CID-103 CTA application

H120

CID-103 trial start

Late 2020/H121

CNCT19 trials complete

End of 2020

Analyst

Nathaniel Calloway

+1 646 653 7036

CASI Pharmaceuticals is a research client of Edison Investment Research Limited

CASI has made surprising progress despite COVID-19. The company reported Evomela sales of $3.37m in Q120, significantly exceeding our expectations. This is the highest single quarter revenue to date (out of three since its August 2019 approval in China). The impact of COVID-19 on sales appears to be low thus far, or at least surpassed by the underlying growth. Moreover, the company continued to advance its development programs CNCT19 and CID-103 at a steady pace.

Year end

Revenue ($m)

PBT*
($m)

EPS*
($)

DPS
($)

P/E
(x)

Yield
(%)

12/18

0.0

(20.0)

(0.24)

0.00

N/A

N/A

12/19

4.1

(36.5)

(0.39)

0.00

N/A

N/A

12/20e

10.0

(29.7)

(0.29)

0.00

N/A

N/A

12/21e

17.5

(34.6)

(0.33)

0.00

N/A

N/A

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

Margins affected by 2019 supply agreement

Despite the record sales of Evomela, margins on the product remained low with COGS virtually wiping out sales ($0.16m net). This is the lingering impact of the transitional supply agreement signed by the company in 2019 as it runs down this inventory. The company has signed with an alternate supplier and expects COGS to go down significantly, although a timeline has not been provided.

Other programs also remain on track

CASI also reported that its joint venture to develop the CAR-T therapy CNCT19 with its partner Juventas Cell Therapy has begun work on the product. The company has dosed the first patients in both its Phase I trial for B-Cell non-Hodgkin lymphoma (B-NHL) and for the Phase I trial for B-cell acute lymphoblastic leukemia (B-ALL). These trials are expected to be complete by the end of 2020. Additionally, the company remains on course to submit its IND application for the CD38 targeted CID-103 in H120. The product for multiple myeloma is expected to enter clinical studies around the end of 2020 or H121.

Valuation: Increased to $341.4m or $3.38/share

We have increased our valuation to $341.4m or $3.38 per basic share, from $333.6m or $3.37 per basic share. We have reduced the expected impact of COVID-19 on Evomela sales and increased expected revenue for 2020 to $9.98m from $7.87m. Additionally we have rolled forward our NPVs, but otherwise our models remain unchanged. We expect the company to need $120m in additional capital before profitability in 2026.

Progress unabated by COVID-19

We are impressed by CASI’s ability to continue to make progress with its commercial and development programs in the face of the COVID-19 pandemic. Sales of Evomela for Q120 surpassed our expectations: $3.37m for the period compared to our previous estimates of $7.9m for the year as a whole. Sales of the product to date have been lumpy (Q319: $2.75m; Q419: $1.31m), so it is unclear if Q120 represents a trend, but regardless we remain impressed at the relatively minor apparent impact of COVID-19. We have increased our revenue forecast to $9.98m for the year (from $7.87m), which reflects the annualized sales from the previous three quarters, which we believe is conservative until a clear growth trajectory has been established.

Unfortunately, despite record sales, the company was unable to recognize much cash flow from the product because revenue was almost entirely consumed by high COGS: $3.21m for the quarter. This is because of the lingering effect of the company’s transitional supply agreement it entered into in 2019 before contracting a dedicated supplier. The company is running down the inventory from this agreement, but has a new supplier in place and expects to report much improved margins in the future.

The company’s development programs also seem to be progressing at a steady pace despite the pandemic. The company recently initiated two clinical studies for its CAR-T product CNCT19 (for B-NHL and B-ALL) and the company reported that both of these studies have dosed their first patients. Delays in clinical trial timelines have been widespread across the healthcare industry as enrolment deteriorates and medical resources are diverted to the crisis, and the company is certainly not out of the woods yet, but the progress is highly encouraging. Patients with these severe diseases have very few treatment options and very high mortality, which may make this study easier to enroll in the current climate than other, less essential treatments for other diseases. Enrolment in both studies will be 18 patients, and the company expects to start CNCT19 Phase II registrational trials around the end of 2020 or the beginning of 2021.

The company’s other lead program CID-103 for the treatment of multiple myeloma also remains on track to have an IND/IMPD submitted in H120. There is potential for the regulatory process to be delayed on account of COVID-19, but we believe these applications are likely to be approved in time for the current timeline. The current plan is to initiate Phase I studies in late 2020 or H121. The company says the trial start date has been affected by the closure of clinical sites in Europe, but this is sufficiently far in the future that we would be surprised by further delays

The company ended the period with net cash of $53.9m at the end of Q120. This is actually a slight improvement over the previous quarter ($53.6m), as operational cash flow was offset by financing through the company’s ATM agreements and option exercises ($4.94m net financing cash flows during the quarter). We expect the company to need $120m in additional financing to reach profitability in 2026 ($50m in 2020, $70m in 2022, recorded as illustrative debt). The biggest near-term financial obligation for the company is its contractual agreements to finance the construction of a production facility on a plot in Wuxi ($50m total). However, the company stated on the conference call that it believes it has a significant degree of latitude with regards to these agreements. They were previously signed to support the production for the ANDA portfolio, which has since been deprioritized, but the company plans on using the land for other needs. We are retaining the costs associated with this project in our projections for the time being pending renegotiation, but a deferral of this construction would significantly reduce the company’s cash needs.

Valuation

We have increased our valuation to $341.4m or $3.38 per basic share, from $333.6m or $3.37 per basic share. We have reduced the near-term expected impact of COVID-19 on Evomela sales as described above and rolled forward our NPVs. Otherwise our models remain largely unchanged. Despite our improved outlook for Evomela, we are retaining our COVID-19 risk adjustment until we have greater visibility on the risks associated with the pandemic or they are otherwise priced into our model (eg if a trial is delayed).

Exhibit 1: Valuation of CASI

Portfolio

Asset

Region

Peak sales ($m)

Margin

Clinical risk adjustment

COVID-19 risk

Value
($m)

Hematology

Evomela

China

35.4

49%

100%

80%

57.61

Marqibo

China

9.2

56%

90%

80%

5.99

Zevalin

China

25.5

64%

90%

80%

33.33

Thiotepa

China

0.0

39%

90%

80%

3.54

CID-103

China & US & Europe

766.6

59%

5%

80%

10.92

CNCT19

China

306.2

54%

10%

80%

31.42

Generics

ANDA portfolio

China & US

145.6

48%

100%

80%

155.57

Octreotide LAI

China

15.7

41%

80%

80%

9.39

Total

307.76

Net cash and equivalents (Q120) ($m)

54.50

Noncontrolling interest

(20.88)

Total firm value ($m)

341.38

Total shares (m)

100.91

Value per basic share ($)

3.38

Dilutive warrants and options (m)

15.82

Value per diluted share ($)

3.30

Source: CASI Pharmaceuticals reports, Edison Investment Research

Exhibit 2: Financial summary

$000s

2018

2019

2020e

2021e

Year end 31 December

US GAAP

US GAAP

US GAAP

US GAAP

INCOME STATEMENT

Revenue

 

 

0.0

4,131.0

9,981.3

17,505.1

Cost of Sales

0.0

(3,935.0)

(4,037.1)

(4,359.3)

Gross Profit

0.0

196.0

5,944.2

13,145.8

EBITDA

 

 

(19,402.4)

(37,495.0)

(29,538.2)

(33,641.1)

Normalised operating profit

 

 

(19,767.9)

(38,098.0)

(29,735.2)

(34,675.1)

Amortization of acquired intangibles

(1,305.4)

(1,550.0)

(1,550.0)

(1,550.0)

Exceptionals

0.0

0.0

0.0

0.0

Share-based payments

(6,118.1)

(7,310.0)

(7,310.0)

(7,310.0)

Reported operating profit

(27,191.4)

(46,958.0)

(38,595.2)

(43,535.1)

Net Interest

(280.1)

1,062.0

48.6

48.6

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

Exceptionals

0.0

534.0

0.0

0.0

Profit Before Tax (norm)

 

 

(20,048.1)

(36,502.0)

(29,686.6)

(34,626.5)

Profit Before Tax (reported)

 

 

(27,471.6)

(45,362.0)

(38,546.6)

(43,486.5)

Reported tax

0.0

0.0

0.0

8,697.3

Profit After Tax (norm)

(20,048.1)

(36,502.0)

(29,686.6)

(34,626.5)

Profit After Tax (reported)

(27,471.6)

(45,362.0)

(38,546.6)

(34,789.2)

Minority interests

0.0

(670.0)

0.0

0.0

Discontinued operations

0.0

0.0

0.0

0.0

Net income (normalised)

(20,048.1)

(37,172.0)

(29,686.6)

(34,626.5)

Net income (reported)

(27,471.6)

(46,032.0)

(38,546.6)

(34,789.2)

Basic average number of shares outstanding (m)

85

96

101

106

EPS - basic normalised (c)

 

 

(23.65)

(38.74)

(29.47)

(32.73)

EPS - diluted normalised (c)

 

 

(23.65)

(38.74)

(29.47)

(32.73)

EPS - basic reported (c)

 

 

(32.41)

(47.98)

(38.26)

(32.89)

Dividend (c)

0.00

0.00

0.00

0.00

BALANCE SHEET

Fixed Assets

 

 

20,845.4

41,130.0

53,653.8

80,453.7

Intangible Assets

18,784.7

16,895.0

14,895.0

13,345.0

Tangible Assets

1,750.6

985.0

15,508.8

43,858.7

Investments & other

310.0

23,250.0

23,250.0

23,250.0

Current Assets

 

 

92,564.6

61,501.0

73,572.7

21,204.9

Stocks

0.0

4,542.0

1,327.3

1,433.2

Debtors

0.0

1,293.0

1,640.8

2,877.6

Cash & cash equivalents

85,117.0

54,246.0

69,184.7

15,474.2

Other

7,447.6

1,420.0

1,420.0

1,420.0

Current Liabilities

 

 

(3,873.9)

(7,947.0)

(9,330.4)

(11,241.6)

Creditors

(968.0)

(5,113.0)

(6,496.4)

(8,407.6)

Tax and social security

0.0

0.0

0.0

0.0

Short term borrowings

(1,499.5)

0.0

0.0

0.0

Other

(1,406.4)

(2,834.0)

(2,834.0)

(2,834.0)

Long Term Liabilities

 

 

(73.6)

(1,019.0)

(51,019.0)

(51,019.0)

Long term borrowings

0.0

0.0

(50,000.0)

(50,000.0)

Other long term liabilities

(73.6)

(1,019.0)

(1,019.0)

(1,019.0)

Net Assets

 

 

109,462.5

93,665.0

66,877.2

39,398.0

Minority interests

0.0

20,670.0

20,670.0

20,670.0

Shareholders' equity

 

 

109,462.5

72,995.0

46,207.2

18,728.0

CASH FLOW

Op Cash Flow before WC and tax

(19,402.4)

(37,495.0)

(29,538.2)

(33,641.1)

Working capital

(9,780.4)

4,452.0

4,250.3

568.5

Exceptional & other

598.9

9,800.0

0.0

8,697.3

Tax

0.0

0.0

0.0

0.0

Net operating cash flow

 

 

(28,583.9)

(23,243.0)

(25,287.9)

(24,375.3)

Capex

(1,131.1)

(7,053.0)

(14,720.8)

(29,383.8)

Acquisitions/disposals

(20,642.4)

(21,005.0)

450.0

0.0

Net interest

0.0

0.0

48.6

48.6

Equity financing

92,269.8

3,545.0

4,938.0

0.0

Dividends

912.0

0.0

0.0

0.0

Other

0.0

20,000.0

0.0

0.0

Net Cash Flow

42,824.4

(27,756.0)

(34,572.1)

(53,710.5)

Opening net debt/(cash)

 

 

(41,991.7)

(83,617.5)

(54,245.5)

(19,184.4)

FX

(1,197.5)

(1,328.0)

(489.0)

0.0

Other non-cash movements

(1.0)

(288.0)

0.0

0.0

Closing net debt/(cash)

 

 

(83,617.5)

(54,245.5)

(19,184.4)

34,526.1

Source: CASI Pharmaceuticals reports, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by CASI Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by CASI Pharmaceuticals. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

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New Zealand

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United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by CASI Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by CASI Pharmaceuticals. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 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

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

1,185 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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Research: Real Estate

Noratis — Exits likely to be postponed

Noratis continued expanding its portfolio in 2019 and plans further asset acquisitions in 2020. However, it also expects delays in project exits and has thus issued subdued full-year guidance. Over the longer term, Noratis stresses that asset sales will remain the main revenue and earnings driver while portfolio growth will be supported by equity funding from its new major shareholder. Noratis is committed to distributing 50% of its earnings to shareholders, but due to COVID-19 part of this year’s amount will be allocated to a dividend distribution reserve and a social fund. The proposed dividend of €0.80 per share (or 33% of FY19 net income) represents a yield of 4.1%.

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