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Research: Healthcare
MagForce continues to execute the strategy originally proposed in late 2013. Domestic reimbursement discussions are ongoing within Germany but expansion in the rest of Europe remains the focus as MagForce looks to increase patient numbers. In the US, a second clinical treatment site has been established in Texas and the IDE approval process with the FDA continues. Post period the company has raised €13.4m gross through equity and debt to aid in the roll-out of devices across the broader EU.
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Magforce |
FY16: Slow NanoTherm uptake affects top line |
FY16 results |
Healthcare equipment & services |
13 July 2017 |
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MagForce continues to execute the strategy originally proposed in late 2013. Domestic reimbursement discussions are ongoing within Germany but expansion in the rest of Europe remains the focus as MagForce looks to increase patient numbers. In the US, a second clinical treatment site has been established in Texas and the IDE approval process with the FDA continues. Post period the company has raised €13.4m gross through equity and debt to aid in the roll-out of devices across the broader EU.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/15 |
2.6 |
(4.5) |
(0.18) |
0.0 |
N/A |
N/A |
12/16 |
0.5 |
(7.2) |
(0.28) |
0.0 |
N/A |
N/A |
12/17e |
3.5 |
(4.1) |
(0.16) |
0.0 |
N/A |
N/A |
12/18e |
6.5 |
(4.6) |
(0.18) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
EU: Driving uptake through a multi-pronged strategy
Treatment of patients with NanoTherm therapy resulted in a small increase in associated FY16 revenues to €176k (2015: €155k), out of total FY16 revenues of €474k (FY15:€2.6m). MagForce plans to drive treatment through roll-out across Europe, improved cross-border reimbursement, better clinical awareness and seeking German reimbursement. Attracting cross-border patients has proven problematic; broader EU roll-out remains vital to driving EU NanoTherm revenues.
US: Awaiting an FDA decision
In FY16, MagForce USA updated its pre-clinical NanoTherm trials to meet FDA requirements and will look to continue its discussions in H217 as it aims for Investigational Device Exemption (IDE) approval. MagForce seeks to commercially launch its NanoTherm therapy for prostate cancer into the US in 2018 and in 2016 established a second clinical site in Texas (CHRISTUS Santa Rosa Hospital).
Financials: Post-period activity strengthens cash
MagForce’s cash position was strengthened post FY16 via various measures by a gross €13.4m. This was done to improve general liquidity and to enable the roll-out of devices throughout the EU. FY16 net loss increased to €7.2m for MagForce AG (FY15: €1.5m), mainly as a result of large one-off revenues in FY15 and increased other operating expenses in FY16 (mainly driven by non-cash impairment of an intercompany loan). Apart from adjusting for the fund raisings, our financial forecasts are largely unchanged.
Valuation: €226m (€8.6/share)
We value MagForce at €226m or €8.6 per MagForce AG share (previously €225m (8.8/share), based on a risk-adjusted NPV analysis. We have rolled forward our model and updated it to reflect FY16 results and post market equity & debt fundraises. Net cash now takes into account the post period gross €8.4m raised in debt and gross €5m in equity.
FY16 results and funding update
The net loss for FY16 was €7.2m for MagForce AG (FY15: €1.5m) mainly as a result of a one-off revenue gain in FY15. FY16 revenue of €474k (FY15: €2.6m) was driven by sales of the ambulatory NanoActivator device (€217k) and NanoTherm to MagForce USA (€81k). Treatment of patients with NanoTherm therapy in the EU resulted in a small increase in associated FY16 revenues to €176k (2015: €155k). Higher FY15 revenues were a result of the sale of four NanoActivators to MagForce USA for €2.4m.
MagForce AG reported other operating income of €1.1m in FY16, which was largely related to €939k in recharges to subsidies. FY15 was substantially higher as other operating income was reported at €5.1m. This was chiefly attributable to the extension of distribution rights to MagForce US (€3.03m) and appreciation in the value of loans against MT MedTech Engineering (€803k). Cost of materials decreased to €39k (FY15: €2.3m) and was mainly attributed to the sale of four NanoActivators (€2.3m) in FY15 to MagForce USA. Purchased services decreased slightly to €536k (FY15: €620k), largely due to both a decrease in the post-marketing clinical trial costs to €57k (FY15: €466k) and an increase in purchased services of €161k (FY15: €0) for development of the ambulatory NanoActivator device (for prostate cancer treatment).
Net cash as of 31 December 2016 was €614k. Post period MagForce AG raised €13.4m gross via debt and equity. In February, Lipps & Associates LLC granted a loan of €400k to MagForce. The loan is due on 30 June 2019 and has a 5% interest rate. In June, a further US$3.0m was loaned to MagForce at 4% interest, also due on 30 June 2019. In March, a €5m convertible bond was issued with a maturity of three years, an interest rate of 5% a year and a conversion price of €5/share. In June, MagForce AG raised €5m via a capital raise with M&G International Investments, placing 0.7m shares at €6.94.
Apart from adjusting for the fund raisings, our financial forecasts are largely unchanged. For details of our assumptions, see Outlook note of May 2017.
Valuation
Our updated valuation is €226m or €8.6 per MagForce AG share (previously €225m (8.8/share), based on a risk-adjusted NPV analysis. We have rolled forward our model and updated it to reflect FY16 results and post market equity & debt fundraises. Net cash now takes into account the post period gross €8.4m raised in debt and gross €5m in equity. The increase in shares as a result of the M&G capital raise has slightly diluted the per share value. The breakdown of our rNPV valuation, which uses a 12.5% discount rate, is shown in Exhibit 1. For a full breakdown of our valuation please see our outlook note published in May.
Exhibit 1: MagForce AG risk-adjusted NPV valuation
Product |
Indication |
Launch |
Peak sales (€m) |
Peak sales ($m) |
NPV |
Probability |
MagForce AG beneficial interest |
rNPV |
rNPV/share (€) |
NanoTherm EU |
GBM - Germany |
2015 |
10 |
11 |
31.2 |
100% |
100% |
31.2 |
1.2 |
GBM - broader use |
2017 |
65 |
72 |
91.7 |
65% |
100% |
59.6 |
2.3 |
|
NanoTherm US |
Prostate cancer |
2018 |
191 |
210 |
241.5 |
70% |
77% |
130.0 |
4.9 |
Net cash (AG) |
13.6 |
100% |
100% |
(2.8) |
(0.1) |
||||
Net cash (US) |
10.0 |
100% |
77% |
7.7 |
0.3 |
||||
Valuation |
375.0 |
225.7 |
8.6 |
Source: Edison Investment Research. Note: Peak sales are rounded to the nearest €5m/$5m for original currency.
Exhibit 2: Financial summary
€'000s |
2015 |
2016 |
2017e |
2018e |
||
December |
HGB |
HGB |
HGB |
HGB |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
2,576 |
474 |
3,450 |
6,486 |
Cost of Sales |
(2,959) |
(574) |
(2,756) |
(4,247) |
||
Gross Profit |
(383) |
(101) |
694 |
2,239 |
||
EBITDA |
|
|
(4,421) |
(6,554) |
(3,849) |
(4,337) |
Operating Profit (before amort. and except.) |
(4,871) |
(7,456) |
(4,194) |
(4,753) |
||
Intangible Amortisation |
(5) |
(5) |
(2) |
(0) |
||
Exceptionals |
3,000 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Operating Profit |
(1,876) |
(7,461) |
(4,197) |
(4,753) |
||
Net Interest |
329 |
231 |
76 |
121 |
||
Profit Before Tax (norm) |
|
|
(4,542) |
(7,225) |
(4,119) |
(4,632) |
Profit Before Tax (reported) |
|
|
(1,547) |
(7,230) |
(4,121) |
(4,632) |
Tax |
(0) |
(1) |
0 |
0 |
||
Profit After Tax (norm) |
(4,542) |
(7,226) |
(4,119) |
(4,632) |
||
Profit After Tax (reported) |
(1,547) |
(7,231) |
(4,121) |
(4,632) |
||
Average Number of Shares Outstanding (m) |
25.6 |
26.0 |
26.3 |
26.3 |
||
EPS - normalised (c) |
|
|
(0.18) |
(0.28) |
(0.16) |
(0.18) |
EPS - normalised and fully diluted (€) |
|
(0.18) |
(0.28) |
(0.16) |
(0.18) |
|
EPS - (reported) (€) |
|
|
(0.06) |
(0.28) |
(0.16) |
(0.18) |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
N/A |
N/A |
20.1 |
34.5 |
||
EBITDA Margin (%) |
N/A |
N/A |
N/A |
N/A |
||
Operating Margin (before GW and except.) (%) |
N/A |
N/A |
N/A |
N/A |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
19,533 |
18,742 |
20,097 |
21,076 |
Intangible Assets |
7 |
3 |
0 |
0 |
||
Tangible Assets |
4,494 |
3,706 |
5,064 |
6,043 |
||
Investments |
15,033 |
15,033 |
15,033 |
15,033 |
||
Current Assets |
|
|
5,325 |
1,536 |
9,430 |
6,683 |
Stocks |
81 |
71 |
226 |
349 |
||
Debtors |
91 |
71 |
1,890 |
3,554 |
||
Cash |
1,393 |
614 |
6,534 |
2,000 |
||
Other |
3,760 |
780 |
780 |
780 |
||
Current Liabilities |
|
|
(1,779) |
(4,431) |
(5,116) |
(5,948) |
Creditors |
(1,779) |
(4,431) |
(5,116) |
(5,948) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(197) |
(197) |
(8,146) |
(10,177) |
Long term borrowings |
0 |
0 |
(7,948) |
(9,980) |
||
Other long term liabilities |
(197) |
(197) |
(197) |
(197) |
||
Net Assets |
|
|
22,881 |
15,650 |
16,266 |
11,634 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(8,808) |
(1,078) |
(5,138) |
(5,292) |
Net Interest |
329 |
231 |
76 |
121 |
||
Tax |
(0) |
(1) |
0 |
0 |
||
Capex |
(1,357) |
(115) |
(1,704) |
(1,395) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
||
Financing |
0 |
0 |
5,000* |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
(9,837) |
(963) |
(1,765) |
(6,565) |
||
Opening net debt/(cash) |
|
|
(11,153) |
(1,393) |
(614) |
1,414 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Other |
77 |
184 |
(263) |
(0) |
||
Closing net debt/(cash) |
|
|
(1,393) |
(614) |
1,414 |
7,980 |
Source: MagForce, Edison Investment Research. Note: Historical and forecast cash flow numbers are Edison estimates as Magforce does not publish a statement of cash flows. All financial data is on an unconsolidated basis and does not include MagForce USA. *Gross equity proceeds
|
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