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Research: Healthcare
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.
Written by
CASI Pharmaceuticals |
Evomela strong despite COVID-19 |
Earnings update |
Pharma & biotech |
12 May 2020 |
Share price performance
Business description
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Analyst
CASI Pharmaceuticals is a research client of Edison Investment Research Limited |
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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* |
EPS* |
DPS |
P/E |
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 |
||||
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
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