TxCell has agreed an important manufacturing supply contract with Lentigen, a German-US producer of the critical lentivirus reagent essential for modifying T-cells. This is a core element for the development of CAR-modified regulatory T-cells (CAR Treg). Production of any modified T-cell therapy is complex and companies need to be able to scale up production and keep costs and prices under control. In 2018, warrants could bring a further €10.8m in cash covering costs until the IND is filed for the first ever CAR Treg clinical trial. Our indicative valuation remains at €74m.
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TxCell |
Getting production in order |
Manufacturing agreement |
Pharma & biotech |
11 July 2017 |
Share price performance
Business description
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TxCell has agreed an important manufacturing supply contract with Lentigen, a German-US producer of the critical lentivirus reagent essential for modifying T-cells. This is a core element for the development of CAR-modified regulatory T-cells (CAR Treg). Production of any modified T-cell therapy is complex and companies need to be able to scale up production and keep costs and prices under control. In 2018, warrants could bring a further €10.8m in cash covering costs until the IND is filed for the first ever CAR Treg clinical trial. Our indicative valuation remains at €74m.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/15 |
0.92 |
(10.78) |
(88) |
0.0 |
N/A |
N/A |
12/16 |
0.00 |
(12.73) |
(98) |
0.0 |
N/A |
N/A |
12/17e |
0.00 |
(11.27) |
(56) |
0.0 |
N/A |
N/A |
12/18e |
0.00 |
(10.95) |
(31) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. Share issues in 2016, 2017 and 2018 reduce EPS. Revenues shown exclude tax credits.
Focus on CAR Treg with transplant in the lead
TxCell is now focused on the CAR Treg ENTrIA platform technology (see note of 28 February 2017) using chimeric antigen receptor (CAR) technology similar to that in the CAR T-cell cancer area; TxCell holds a core granted US patent. ENTrIA needs viral vectors to deliver genes to isolated T-cells. This process needs to be finalised before the first clinical CAR Treg trial – due in late 2018 for transplant. Other potential indications are lupus nephritis and bullous pemphigoid (skin); TxCell has a research collaboration on multiple sclerosis with INSERM and Nantes University.
Lentigen – stable viral supply to make CAR Tregs
Lentigen is a subsidiary of the German Miltenyi Biotec group, with 2015 sales of €141.5m. Miltenyi is a well-known and respected supplier of high-quality regents for cell research and therapeutic production. It works with major companies like GSK. Lentivirus production is done in a 5,000sq ft GMP facility in the US supplying US and European trials; a new German facility is being completed. This gives TxCell local sources of supply, which is crucial as viral vector supply is currently one of the key bottlenecks in CAR T-cell development. Lentivectors are derived from HIV-1 but with all infectious genes removed. They have the advantage of infecting cells whether they are dividing or not. Genes are delivered as RNA, converted to DNA and incorporated into the Treg cell genome to give stable, long-term expression. A secure supply of vector is essential.OK
Valuation: Unchanged at €2.83/share post 2018 warrants
TxCell is funded for its estimated 2017 €13m cash burn. By February 2018, conversion of the rights issue warrants into 4.16m shares at €2.60/share could yield up to €10.8m to cover 2018 costs until the CAR Treg IND filing; we forecast that up to €2m additional cash may be needed, perhaps covered by a Treg deal. Our indicative valuation is unchanged at €74m. Assuming full conversion of loans and warrants, the diluted value remains at €2.83/share.
Exhibit 1: Financial summary
€000 |
2015 |
2016 |
2017e |
2018e |
||
Year end December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
920 |
0 |
0 |
0 |
||
Tax refund |
3,718 |
2,948 |
3,000 |
3,000 |
||
Cost of sales |
0 |
0 |
0 |
0 |
||
Gross profit |
4,638 |
2,948 |
3,000 |
3,000 |
||
EBITDA |
|
|
(10,797) |
(11,946) |
(11,113) |
(10,956) |
Operating profit (before amort. and except.) |
|
(9,662) |
(12,046) |
(11,213) |
(11,056) |
|
Intangible amortisation |
0 |
0 |
0 |
0 |
||
Exceptionals |
(1,167) |
(87) |
0 |
0 |
||
Share-based payments |
(483) |
(649) |
(650) |
(650) |
||
Operating profit |
(11,312) |
(12,783) |
(11,863) |
(11,706) |
||
Net Interest |
42 |
(18) |
10 |
2 |
||
Profit before tax (norm) |
|
|
(10,782) |
(12,733) |
(11,268) |
(10,954) |
Profit before tax (FRS 3) |
|
|
(11,297) |
(13,570) |
(12,018) |
(11,704) |
Tax |
0 |
0 |
0 |
1 |
||
Profit after tax (norm) |
(10,782) |
(12,733) |
(11,268) |
(7,954) |
||
Profit after tax (FRS 3) |
(11,297) |
(13,570) |
(12,018) |
(8,704) |
||
Average number of shares outstanding (m) |
12.3 |
13.0 |
20.3 |
25.3 |
||
EPS - normalised (c) |
|
|
(87.7) |
(97.6) |
(55.5) |
(31.4) |
EPS - (IFRS) (c) |
|
|
(91.9) |
(104.0) |
(59.2) |
(34.4) |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross margin (%) |
NA |
NA |
NA |
NA |
||
EBITDA margin (%) |
NA |
NA |
NA |
NA |
||
Operating margin (before GW and except.) (%) |
NA |
NA |
NA |
NA |
||
BALANCE SHEET |
||||||
Fixed assets |
|
|
6,938 |
6,967 |
7,267 |
7,567 |
Intangible assets |
5,907 |
5,957 |
6,057 |
6,157 |
||
Tangible assets |
876 |
826 |
1,026 |
1,226 |
||
Other |
155 |
184 |
184 |
184 |
||
Current assets |
|
|
13,782 |
7,952 |
5,148 |
4,614 |
Stocks |
0 |
0 |
0 |
0 |
||
Debtors |
1,551 |
1,504 |
1,504 |
1,505 |
||
Cash |
9,208 |
3,500 |
644 |
109 |
||
Other |
3,023 |
2,948 |
3,000 |
3,000 |
||
Current liabilities |
|
|
(7,467) |
(9,000) |
(7,000) |
(5,000) |
Creditors |
(5,859) |
(6,889) |
(4,889) |
(2,889) |
||
Short-term borrowings |
(1,608) |
(2,111) |
(2,111) |
(2,111) |
||
Long-term liabilities |
|
|
(1,664) |
(4,967) |
(1,667) |
(3,668) |
Long-term borrowings |
(1,641) |
(4,948) |
(1,648) |
(3,648) |
||
Other long-term liabilities |
(23) |
(19) |
(19) |
(20) |
||
Net assets |
|
|
11,589 |
952 |
3,748 |
3,513 |
CASH FLOW |
||||||
Operating cash flow |
|
|
(10,108) |
(10,379) |
(13,010) |
(12,958) |
Net interest |
42 |
(18) |
10 |
2 |
||
Tax |
0 |
0 |
0 |
0 |
||
Capex |
(214) |
(100) |
(400) |
(400) |
||
Acquisitions/disposals |
(5,879) |
0 |
0 |
0 |
||
Equity financing |
7,631 |
1,700 |
13,845 |
10,821 |
||
Other |
3,813 |
3,089 |
(3,300) |
2,000 |
||
Net cash flow |
(4,715) |
(5,708) |
(2,855) |
(535) |
||
Opening net debt/(cash) |
|
|
(10,895) |
(5,959) |
3,559 |
3,115 |
HP finance leases initiated |
0 |
0 |
0 |
1 |
||
Other |
(221) |
(3,810) |
3,300 |
(2,000) |
||
Closing net debt/(cash) |
|
|
(5,959) |
3,559 |
3,115 |
5,649 |
Source: TxCell accounts, Edison Investment Research. Note: *Equity in 2017 is €3.3m loan conversion and the €11 rights issue. Equity in 2018 assumes full rights warrant conversion, although this could happen progressively over the period to February 2018. A €2m nominal long-term loan is indicated in 2018 covered possible additional funding needs. FY16 accounts have not been fully published. FY15 has been adjusted in line with the headline 2016 figures.
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GFT has lowered its FY17 guidance due to delayed decision making at its two largest investment banking customers – Deutsche Bank (DB) and Barclays. GFT said that management changes at the banks have resulted in deferred orders. However, investment banking revenue outside these two customers has been guided upwards, as has the group’s retail banking segment. But these factors were outweighed by the revenue declines at the two investment banks, and management has cut its FY17 revenue guidance by 6% to €425m, while EBITDA comes back by 13% to €42m.