FDA has issued a complete response letter (CRL) to Vernalis’ CCP-07 NDA following its 20 April PDUFA date, outlining questions that need to be addressed in an NDA resubmission for potential FDA approval. Given limited disclosure regarding possible timelines for dealing with these questions and the probable class of resubmission, we conservatively push back our CCP-07 approval assumption by one year, delaying launch into the 2018/19 cough cold season. However, we acknowledge that there are scenarios under which CCP-07 could still be launched into the 2017/18 season, albeit later than previously anticipated. Separately, Vernalis has received a $2m milestone relating to an existing research collaboration.
Written by
Vernalis |
FDA issues CCP-07 complete response letter |
FDA approval decision |
Pharma & biotech |
24 April 2017 |
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FDA has issued a complete response letter (CRL) to Vernalis’ CCP-07 NDA following its 20 April PDUFA date, outlining questions that need to be addressed in an NDA resubmission for potential FDA approval. Given limited disclosure regarding possible timelines for dealing with these questions and the probable class of resubmission, we conservatively push back our CCP-07 approval assumption by one year, delaying launch into the 2018/19 cough cold season. However, we acknowledge that there are scenarios under which CCP-07 could still be launched into the 2017/18 season, albeit later than previously anticipated. Separately, Vernalis has received a $2m milestone relating to an existing research collaboration.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
06/15** |
19.9 |
(6.9) |
(1.0) |
0.0 |
N/A |
N/A |
06/16 |
12.0 |
(16.2) |
(3.4) |
0.0 |
N/A |
N/A |
06/17e |
17.5 |
(24.9) |
(4.4) |
0.0 |
N/A |
N/A |
06/18e |
25.8 |
(32.4) |
(6.0) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments. **18-month reporting period, 12 months thereafter.
CRL: Outstanding items but no major concerns
Positively, the CRL raised no concerns related to the formulation or pharmacokinetic profile of CCP-07. However, there are outstanding questions that must be resolved prior to NDA resubmission and an FDA approval decision. We continue to expect CCP-07 to be ultimately approved, but as both the nature of the FDA questions and the length of time to address them is undisclosed, we conservatively assume a one-year delay to CCP-07 approval and launch. This timeline could be brought forward once there is clarity on: (i) timing, and (ii) classification of the NDA resubmission. A Class 1 classification indicates a two-month review cycle; Class 2 would be six months.
Limited impact on cough cold franchise
Updating our near-term assumptions to reflect the delayed CCP-07 launch lowers forecast cough cold revenues in FY18 (2017/18 season), and more modestly for FY19 as sales ramp up. Our assumptions for the other cough cold programmes are unchanged. At this stage, we anticipate limited read-through to CCP-08 (PDUFA date: 4 August) from the CCP-07 NDA CRL; however, a delay to CCP-08 approval could result if resolution of CRL issues/CCP-07 NDA resubmission is protracted.
Valuation: DCF valuation of £399m (76p per share)
Updating our model and financial forecasts for new CCP-07 expectations, the $2m milestone receipt and the prevailing FX rate (now $1.28/£ from $1.24/£) lowers our valuation to £399m or 76p/share (from £427m or 81p/share). In our view, this valuation reflects the downside scenario for CCP-07 approval timelines. Clarity on CCP-07 NDA resubmission, portfolio progress, launches and sales upgrades would unlock upside. Our valuation continues to consist of US cough cold and NCE pipeline rNPV, explicit cost modelling and inclusion of cash; we assume zero NPV for the research business.
Exhibit 1: Financial summary
£'000s |
2013 |
2015** |
2016 |
2017e |
2018e |
||
Year end 30 June (from 2015); previously December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
14,084 |
19,882 |
12,034 |
17,515 |
25,802 |
of which: Cough/cold portfolio & Moxatag |
0 |
0 |
1,100 |
1,953 |
16,113 |
||
Frova royalties |
6,684 |
6,648 |
2,894 |
3,500 |
1,389 |
||
Collaborative income (R&D funding and milestones) |
7,150 |
13,022 |
8,035 |
11,763 |
8,000 |
||
Other |
250 |
212 |
5 |
300 |
300 |
||
Cost of Sales |
(2,244) |
(1,373) |
(2,004) |
(2,528) |
(6,496) |
||
Gross Profit |
11,840 |
18,509 |
10,030 |
14,988 |
19,306 |
||
Sales, General & Admin |
(3,299) |
(8,635) |
(25,717) |
(35,141) |
(42,662) |
||
Research & Development |
(14,416) |
(22,563) |
(10,932) |
(10,995) |
(11,105) |
||
Other |
180 |
611 |
396 |
233 |
0 |
||
Operating Profit reported |
|
|
(5,695) |
(11,835) |
(23,572) |
(30,915) |
(34,461) |
Intangible Amortisation |
(1,349) |
(571) |
(713) |
(1,016) |
(1,523) |
||
Exceptionals |
1,608 |
243 |
2,651 |
0 |
0 |
||
Share-based payment |
(876) |
(1,855) |
(984) |
(247) |
(247) |
||
EBITDA |
|
|
(4,652) |
(8,855) |
(23,919) |
(29,352) |
(32,381) |
Operating Profit (norm) |
|
|
(5,078) |
(9,652) |
(24,526) |
(29,653) |
(32,691) |
Net Interest |
420 |
2,733 |
8,315 |
4,757 |
283 |
||
Other financial income |
(999) |
(157) |
(42) |
(57) |
0 |
||
Profit Before Tax (norm) |
|
|
(4,658) |
(6,919) |
(16,211) |
(24,896) |
(32,408) |
Profit Before Tax (as reported) |
|
|
(6,274) |
(9,259) |
(15,299) |
(26,215) |
(34,178) |
Tax |
2,273 |
2,858 |
804 |
2,013 |
844 |
||
Profit from discontinued operations |
0 |
0 |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(2,385) |
(4,061) |
(15,407) |
(22,883) |
(31,564) |
||
Profit After Tax (as reported) |
(4,001) |
(6,401) |
(14,495) |
(24,203) |
(33,335) |
||
Average Number of Shares Outstanding (m) |
442.1 |
442.3 |
449.9 |
526.4 |
526.4 |
||
EPS - normalised (p) |
|
|
(0.8) |
(1.0) |
(3.4) |
(4.4) |
(6.0) |
Dividend per share (p) |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Gross Margin (%) |
84.1% |
93.1% |
83.3% |
85.6% |
74.8% |
||
EBITDA Margin (%) |
-33.0% |
-44.5% |
-198.8% |
-167.6% |
-125.5% |
||
Operating Margin (before GW and except.) (%) |
-36.1% |
-48.5% |
-203.8% |
-169.3% |
-126.7% |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
7,730 |
15,066 |
19,949 |
23,155 |
40,177 |
Intangible Assets |
6,292 |
12,895 |
17,645 |
21,317 |
38,262 |
||
Tangible Assets |
1,438 |
1,637 |
1,673 |
1,722 |
1,799 |
||
Other |
0 |
534 |
631 |
116 |
116 |
||
Current Assets |
|
|
83,298 |
71,509 |
92,541 |
68,721 |
22,894 |
Stocks |
130 |
0 |
233 |
1,385 |
1,780 |
||
Debtors |
4,443 |
7,017 |
7,225 |
8,638 |
5,655 |
||
Cash |
76,918 |
61,258 |
84,018 |
56,633 |
13,394 |
||
Other (tax and derivatives) |
1,807 |
3,234 |
1,065 |
2,065 |
2,065 |
||
Current Liabilities |
|
|
(4,501) |
(5,215) |
(7,711) |
(11,577) |
(15,860) |
Creditors |
(3,384) |
(3,373) |
(5,175) |
(5,758) |
(4,241) |
||
Other creditors |
0 |
(5) |
(80) |
0 |
0 |
||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
||
Deferred income |
(962) |
(1,688) |
(922) |
(657) |
(657) |
||
Provisions and other current liabilities |
(155) |
(154) |
(1,614) |
(5,162) |
(10,962) |
||
Long Term Liabilities |
|
|
(4,283) |
(4,254) |
(2,048) |
(1,986) |
(1,986) |
Long term borrowings |
0 |
0 |
0 |
0 |
0 |
||
Deferred income |
(156) |
(744) |
(1,459) |
(1,408) |
(1,408) |
||
Provisions and other long-term liabilities |
(4,127) |
(3,510) |
(589) |
(578) |
(578) |
||
Net Assets |
|
|
82,244 |
77,106 |
102,731 |
78,312 |
45,225 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
(3,486) |
(12,135) |
(23,682) |
(28,119) |
(25,510) |
Net Interest |
446 |
353 |
230 |
4,757 |
283 |
||
Tax |
1,929 |
1,887 |
2,912 |
1,013 |
844 |
||
Capex |
(646) |
(1,005) |
(212) |
(350) |
(387) |
||
Purchase of intangibles |
(1,976) |
(7,474) |
(71) |
(4,688) |
(18,469) |
||
Acquisitions/disposals |
0 |
0 |
(3,677) |
0 |
0 |
||
Financing |
0 |
13 |
39,236 |
2 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
1,644 |
0 |
0 |
0 |
||
Net Cash Flow |
(3,733) |
(16,717) |
14,736 |
(27,385) |
(43,239) |
||
Opening net debt/(cash) |
|
|
(81,555) |
(76,918) |
(61,258) |
(84,018) |
(56,633) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
||
Exchange rate movements |
(904) |
1,057 |
8,024 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(76,918) |
(61,258) |
(84,018) |
(56,633) |
(13,394) |
Source: Edison Investment Research, Vernalis accounts. Note: **18-month reporting period, thereafter 12-month reporting.
|
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Research: Investment Companies
Deutsche Beteiligungs (DBAG) has continued into FY17 the strong pace of portfolio activity achieved in the previous two financial years, with c €63m of transactions in the year to date, representing the second highest annual level of new investment in more than 10 years. Following DBAG Fund VI’s investment period closing in January 2017, DBAG Fund VII has made a rapid start, with its first two transactions agreed in March and April 2017. The recent strength of transaction activity means that DBAG’s portfolio is relatively immature, but investments are well spread by vintage and the portfolio is not overly concentrated, with the top five holdings representing 41% of portfolio value at end-2016.