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Research: Healthcare
CASI reported sales of $2.6m for Evomela in Q220, down slightly from Q1 ($3.4m). The lower revenue was due to logistics disruptions as the company shifted to a new supplier for the drug as well as impacts of COVID-19. Management indicates that the new suppler will substantially improve cost-of-goods. The company is guiding to sales of at least $10m for 2020, but believes that this is a conservative estimate.
Written by
CASI Pharmaceuticals |
Evomela supply secured, CNCT19 on track |
Earnings update |
Pharma & biotech |
14 August 2020 |
Share price performance
Business description
Next events
Analyst
CASI Pharmaceuticals is a research client of Edison Investment Research Limited |
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CASI reported sales of $2.6m for Evomela in Q220, down slightly from Q1 ($3.4m). The lower revenue was due to logistics disruptions as the company shifted to a new supplier for the drug as well as impacts of COVID-19. Management indicates that the new suppler will substantially improve cost-of-goods. The company is guiding to sales of at least $10m for 2020, but believes that this is a conservative estimate.
Year end |
Revenue ($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 |
11.5 |
(28.6) |
(0.26) |
0.00 |
N/A |
N/A |
12/21e |
20.2 |
(27.8) |
(0.21) |
0.00 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortization of acquired intangibles, exceptional items and share-based payments.
New Evomela supply secured
Evomela was approved in August 2019, and marketing began shortly thereafter. Since that time the drug has been provided to the company via a transitional supply agreement with an undisclosed partner, which has had exceptionally high cost of goods. Gross margins for Q220 were 4%. CASI was pleased to report it secured a long-term supplier with significantly lower costs and that new product from the agreement will be in the distribution channel before the end of August 2020.
First reports of efficacy for CNCT19
On the company’s earnings call, it provided the first window into the ongoing Phase I for CNCT19. It is currently in two dose ranging studies for relapsed and refractory non-Hodgkin lymphoma (NHL) and B-cell acute lymphoblastic leukemia (B-ALL). The company stated that even at the lower doses of dose escalation, it is seeing cases where patients achieve complete responses (CRs) and that this is consistent with the earlier published data from investigator led studies, which reported 90% CRs or CRs with incomplete platelet or neutrophil count recovery (CRi).
Lean pivotal program for CNCT19 planned
The company also revealed that based on discussions with the National Medical Products Administration (NMPA), it would be planning single-arm, open-label pivotal studies for CNCT19 with 35–40 patients each. This is significantly leaner than our previously speculated plans (120 patients in a randomized trial), and we believe reflective of the incentives to approve such a therapy at the NMPA.
Valuation: Increased to $399.4m
We have increased our valuation of CASI to $399.4m from $341.4m, although it is lower on a per share basis: $3.22 per basic share from $3.38. This increase is driven primarily by an increase in net cash (to $88.4m) from the July offering of 23m shares at $1.90 ($41.3m estimated net) and by softening our COVID-19 risk adjustment (90% from 80%), as well as other changes based on the company’s report.
High-cost supply issues resolved
The company reported sales of $2.6m for Evomela in Q220, which is down sequentially from $3.4m in Q120. The reason for the loss in revenue is that the company is transitioning to a permanent, lower cost supplier of the product and there were some disruptions in the supply during the period. The company also cited the impact of COVID-19 as a factor in lower sales, but stated that the supply issues had the bigger effect. The company also reported that the first shipments of new product from the new supplier have been received and the old inventory eliminated (as of August 2020). The company expects COGS to be significantly improved going forward, which we estimate at 25%. We expect sales to return to the original trajectory for the rest of this year with the improved margins, although some effects from the transition may appear on the Q320 report reflecting sales before the new inventory was received (ie in July). We have increased our full year estimate for the product to $11.4m (from $10.0m) to align with this, as we previously estimated a larger impact from COVID-19.
A peek at CNCT19
During the company’s Q220 conference call, management highlighted the previous clinical results for its CAR-T program CNCT19, in which researchers from the Institute of Hematology and Blood Diseases Hospital in Tianjin, China, reported CR and CRi rates in the range of 90% in patients with B-ALL. The company stated that it has seen CRs (although CR or CRi not specified) in the current ongoing Phase I clinical trials of CNCT19 in China, consistent with the earlier reported activity. These are dose-ranging studies, and CRs have been observed in the lower dose cohort. This is very encouraging as it suggests that the company is replicating the previous academic data and that the product has activity, but we will need to see the complete data from these studies to draw a full picture of its profile. The company stated that it should make these available following the completion of the studies (by Q121).
The company also provided an update to the plans for the future pivotal clinical studies it intends to initiate following the completion of Phase I trials. Based on discussions with the NMPA, the company is planning to perform single-arm, open-label pivotal studies (one pivotal study per indication), with approximately 35–40 patients each. Moreover, the company believes that it can complete the trial and have a marketing application submitted in 2022. This is both a substantially smaller clinical study than we forecasted (n=120) and a more aggressive schedule (marketing application submission in 2023 or 2024 previously anticipated). We have adjusted our timelines and estimates to reflect this.
The proposed clinical plan is very favorable to the company (since it will likely lead to quicker and less costly registration trials than we previously assumed), and we believe that this is indicative of the NMPA’s priorities of approving these types of products. There is already a special pathway in China that allows cell based regenerative therapies to be approved on the basis of two clinical studies (or, as the company has proposed, the ongoing Phase I studies and the planned pivotal study for each indication). The flexibility that the agency has supported in the design of the pivotal study program may reflect a significant incentive to approve these types of products. A Chinese domestic CAR-T therapy could potentially be provided at a significantly reduced cost compared to foreign products, and CASI is well suited for this role as one of the very few China-based companies focused on blood cancers, with a dedicated hematology salesforce.
CASI recapitalized, looking for acquisitions
The company completed an underwritten offering of 23m shares at $1.90 in July. This amounts to gross proceeds of $43.7m. We expect the proceeds from this offering to be used to expand the company’s pipeline and to build its manufacturing facility in Wuxi. The company continues to search for additional products to add to its portfolio, and with the new capital, we expect the company to be able to execute on this expansion when attractive deal opportunities arise. The company has stated that it will remain consistent with its current specialization and will focus on hematologic oncology products.
Valuation
We have increased our valuation of CASI to $399.4m from $341.4m, although it is lower on a per share basis: $3.22 per basic share from $3.38. This increase is driven by the offering mentioned above. Additionally, we have changed our COVID-19 risk adjustment to 90% from 80% because we believe that the impact of COVID-19 is becoming increasingly priced into the model in the form of the current modelled timelines for development-stage programs, and our Evomela commercial assumptions. We have also made adjustments to Evomela sales as described above and adjusted our CNCT19 clinical program to reflect the scope of the planned pivotal study. Finally, these changes are offset slightly by pushing back on the timing for building the company’s Wuxi production facility, which supports product sales from the ANDA portfolio. The company states that it still intends to break ground on the project in 2020.
Our net cash estimates include the cash and investments at the end of Q220 ($45.8m), estimated net cash from the offering ($41.3m) and $1.25m in cash the company received from the sale of four undisclosed ANDAs that occurred after the end of the period. These are ANDAs that the company did not indent to commercialize.
The new cash inflows (from the equity financing and ANDA sales) has reduced our expected financing requirement for the company to $70m (which we record in 2022 as illustrative debt) from $120m previously. This financing requirement does not account for any additional acquisitions, and we expect to update our forecasts if the company acquires additional products.
Exhibit 1: Valuation of CASI
Portfolio |
Asset |
Region |
Peak sales ($m) |
Margin |
Clinical risk adjustment |
COVID-19 risk |
Value |
||||
Hematology |
Evomela |
China |
35.4 |
49% |
100% |
90% |
66.77 |
||||
Marqibo |
China |
9.2 |
56% |
90% |
90% |
6.90 |
|||||
Zevalin |
China |
25.5 |
64% |
90% |
90% |
38.40 |
|||||
Thiotepa |
China |
8.8 |
39% |
90% |
90% |
4.07 |
|||||
CID-103 |
China & US & Europe |
766.6 |
59% |
5% |
90% |
12.66 |
|||||
CNCT19 |
China |
306.2 |
54% |
10% |
90% |
38.96 |
|||||
Other products |
ANDA portfolio |
China & US |
142.0 |
47% |
100% |
90% |
153.49 |
||||
Octreotide LAI |
China |
15.7 |
41% |
80% |
90% |
10.81 |
|||||
Total |
332.07 |
||||||||||
Net cash and equivalents (Q220 + offering + ANDA sale) ($m) |
88.39 |
||||||||||
Noncontrolling interest |
(21.07) |
||||||||||
Total firm value ($m) |
399.38 |
||||||||||
Total shares (m) |
123.94 |
||||||||||
Value per basic share ($) |
3.22 |
||||||||||
Dilutive warrants and options (m) |
15.91 |
||||||||||
Value per diluted share ($) |
3.17 |
||||||||||
Source: CASI reports, Edison Investment Research.
Exhibit 2: Financial summary
$'k |
2018 |
2019 |
2020e |
2021e |
||
Year end 31 December |
US GAAP |
US GAAP |
US GAAP |
US GAAP |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
0.0 |
4,131.0 |
11,487.0 |
20,153.5 |
Cost of Sales |
0.0 |
(3,935.0) |
(7,209.4) |
(5,021.4) |
||
Gross Profit |
0.0 |
196.0 |
4,277.6 |
15,132.1 |
||
EBITDA |
|
|
(19,402.4) |
(37,495.0) |
(28,125.3) |
(26,884.3) |
Normalised operating profit |
|
|
(19,767.9) |
(38,098.0) |
(28,661.3) |
(27,895.6) |
Amortisation of acquired intangibles |
(1,305.4) |
(1,550.0) |
(3,054.0) |
(1,508.0) |
||
Exceptionals |
0.0 |
0.0 |
(1,087.0) |
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) |
(40,112.3) |
(36,713.6) |
||
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) |
(28,612.8) |
(27,847.0) |
Profit Before Tax (reported) |
|
|
(27,471.6) |
(45,362.0) |
(40,063.8) |
(36,665.0) |
Reported tax |
0.0 |
0.0 |
0.0 |
7,333.0 |
||
Profit After Tax (norm) |
(20,048.1) |
(36,502.0) |
(28,612.8) |
(27,847.0) |
||
Profit After Tax (reported) |
(27,471.6) |
(45,362.0) |
(40,063.8) |
(29,332.0) |
||
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) |
(28,612.8) |
(27,847.0) |
||
Net income (reported) |
(27,471.6) |
(46,032.0) |
(40,063.8) |
(29,332.0) |
||
Basic average number of shares outstanding (m) |
85 |
96 |
112 |
130 |
||
EPS - basic normalised (c) |
|
|
(23.65) |
(38.74) |
(25.56) |
(21.39) |
EPS - diluted normalised (c) |
|
|
(23.65) |
(38.74) |
(25.56) |
(21.39) |
EPS - basic reported (c) |
|
|
(32.41) |
(47.98) |
(35.80) |
(22.53) |
Dividend (c) |
0.00 |
0.00 |
0.00 |
0.00 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
20,845.4 |
41,130.0 |
51,641.8 |
78,506.3 |
Intangible Assets |
18,784.7 |
16,895.0 |
13,222.0 |
11,714.0 |
||
Tangible Assets |
1,750.6 |
985.0 |
15,169.8 |
43,542.3 |
||
Investments & other |
310.0 |
23,250.0 |
23,250.0 |
23,250.0 |
||
Current Assets |
|
|
92,564.6 |
61,501.0 |
65,184.6 |
17,518.7 |
Stocks |
0.0 |
4,542.0 |
2,370.2 |
1,650.9 |
||
Debtors |
0.0 |
1,293.0 |
1,888.3 |
3,312.9 |
||
Cash & cash equivalents |
85,117.0 |
54,246.0 |
59,506.1 |
11,134.9 |
||
Other |
7,447.6 |
1,420.0 |
1,420.0 |
1,420.0 |
||
Current Liabilities |
|
|
(3,873.9) |
(7,947.0) |
(9,345.6) |
(10,566.2) |
Creditors |
(968.0) |
(5,113.0) |
(6,511.6) |
(7,732.2) |
||
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) |
(781.0) |
(781.0) |
Long term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other long term liabilities |
(73.6) |
(1,019.0) |
(781.0) |
(781.0) |
||
Net Assets |
|
|
109,462.5 |
93,665.0 |
106,699.8 |
84,677.8 |
Minority interests |
0.0 |
20,670.0 |
20,670.0 |
20,670.0 |
||
Shareholders' equity |
|
|
109,462.5 |
72,995.0 |
86,029.8 |
64,007.8 |
CASH FLOW |
||||||
Op Cash Flow before WC and tax |
(19,402.4) |
(37,495.0) |
(28,125.3) |
(26,884.3) |
||
Working capital |
(9,780.4) |
4,452.0 |
2,975.1 |
515.3 |
||
Exceptional & other |
598.9 |
9,800.0 |
(1,310.0) |
7,333.0 |
||
Tax |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net operating cash flow |
|
|
(28,583.9) |
(23,243.0) |
(26,460.2) |
(19,035.9) |
Capex |
(1,131.1) |
(7,053.0) |
(14,720.8) |
(29,383.8) |
||
Acquisitions/disposals |
(20,642.4) |
(21,005.0) |
619.0 |
0.0 |
||
Net interest |
0.0 |
0.0 |
(275.4) |
48.6 |
||
Equity financing |
92,269.8 |
3,545.0 |
46,277.7 |
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) |
5,440.3 |
(48,371.2) |
||
Opening net debt/(cash) |
|
|
(41,991.7) |
(83,617.5) |
(54,245.5) |
(59,196.8) |
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) |
(59,196.8) |
(10,825.6) |
Source: CASI reports, Edison Investment Research
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