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Research: Healthcare
Formycon has reported record H118 revenues, boosted by the one-off transfer of FYB202 into a joint venture with Aristo Pharma and payments stemming from the out-licensed assets FYB201 and FYB203. We believe that Formycon biosimilars FYB201 (Lucentis) and FYB203 (Eylea) are set to enter neovascular age-related macular degeneration (nAMD) market post-2020. Cash and equivalents at end-H118 were €11.8m and should give a cash runaway until 2020 based on H118 cash burn. Formycon guides for FY18 revenues of €35m.
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Formycon |
H118 results: FYB201 registration closer
Pharma & biotech |
Scale research report - Update
27 September 2018 |
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Formycon has reported record H118 revenues, boosted by the one-off transfer of FYB202 into a joint venture with Aristo Pharma and payments stemming from the out-licensed assets FYB201 and FYB203. We believe that Formycon biosimilars FYB201 (Lucentis) and FYB203 (Eylea) are set to enter neovascular age-related macular degeneration (nAMD) market post-2020. Cash and equivalents at end-H118 were €11.8m and should give a cash runaway until 2020 based on H118 cash burn. Formycon guides for FY18 revenues of €35m.
FYB201 on track to lead Lucentis biosimilars
In May 2018, Formycon announced that the primary endpoint in the COLUMBUS-AMD Phase III study of FYB201 had been met. The last patient completed treatment in June 2018; Formycon expects to release further information in H218. Partner Bioeq IP (which holds exclusive global rights to FYB201 in a €100m+ deal) will use these data for regulatory filings in the US and EU, and aims to launch the product in 2020 (US) and 2022 (EU) on patent expiration(s). Global Lucentis sales increased in H118 to $1.9bn (H117: $1.7bn), but have fallen since H114 ($2.1bn), reflected in part by the increased use of Eylea and continued off-label use of Avastin in nAMD. We believe this may introduce some uncertainly into the sales of Lucentis, but think the case for a low-cost alternative in the form of a biosimilar of the branded Lucentis remains strong.
Moving further along in nAMD and beyond
Formycon’s Eylea biosimilar FYB203 (out-licensed to Santo Holding) is in advanced preclinical studies with the aim of entering clinical trials for nAMD (timeline not provided). Total development, regulatory and commercial milestones could be over three-digit million euros. Global sales of Eylea were $3.3bn in H118 (H117: $2.8bn). Eylea patents expire in 2023 (US) and 2025 (EU). With other innovative treatments set to enter the nAMD market over the coming years, developing (and out-licensing) assets outside nAMD will be key to mitigating their risk and diversifying future revenue streams. The execution of the FYB202 (Stelara biosimilar) deal with Aristo Pharma is evidence of this; we think that near-term updates on FYB202 and, in the longer term, on FYB205 (undisclosed biosimilar), are important for growth.
Valuation: Share price flat year to date
Formycon’s market cap is c €301m and its EV is c €289.2m. Progression of assets in nAMD and additional indications will be key drivers for adding value.
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Consensus estimates
Source: Bloomberg consensus estimates, Formycon data |
Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.
Financials: H118 results review
Formycon reported revenues of €25.4m in H118 (vs €8.1m in H117). This was primarily driven by inward cash flow from the compensation for development work received for out-licensed projects. This was further boosted by rebooking and the transfer of IP associated with FYB202 into the joint venture with Aristo Pharma (€8.5m non-cash). The company guides for FY18 revenue of €35m.
Total operating expenses increased to €17.3m in H118 from €11.0m in H117, mostly due to increased third-party services, which relate to the clinical and preclinical development of its products. Net income was €7.6m vs a loss of €2.9m in H117. Formycon generated €12.9m cash from operations, vs c €0.8m in H117, resulting in cash and equivalents of €11.8m at end-H117. Formycon has no financial debt.
Exhibit 1: Financial summary
Year-end 31 December (€m) |
2014 |
2015 |
2016 |
2017 |
H118 |
Income statement |
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Revenue |
12.70 |
16.92 |
19.53 |
29.43 |
25.41 |
Profit before tax (as reported) |
0.87 |
0.60 |
(4.06) |
(1.58) |
8.21 |
Net income (as reported) |
0.87 |
0.60 |
(4.07) |
(1.58) |
7.59 |
EPS (as reported)* (€) |
0.10 |
0.06 |
(0.46) |
(0.17) |
0.83 |
Dividend per share (€) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
Balance sheet |
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Total non-current assets |
4.03 |
3.74 |
4.40 |
4.11 |
20.27 |
Total current assets |
12.88 |
23.41 |
20.80 |
26.72 |
21.83 |
Total assets |
16.91 |
27.15 |
25.19 |
30.83 |
42.20 |
Total current liabilities |
(3.26) |
(1.61) |
(3.58) |
(4.01) |
(6.56) |
Total non-current liabilities |
(0.53) |
(0.66) |
(0.72) |
(1.27) |
(2.51) |
Total liabilities |
(3.80) |
(2.28) |
(4.30) |
(5.28) |
(9.07) |
Net assets |
13.11 |
24.87 |
20.89 |
25.54 |
33.13 |
Shareholders’ equity |
13.11 |
24.87 |
20.89 |
25.54 |
33.13 |
Cash flow statement |
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Net cash from operating activities |
(0.03) |
0.52 |
(5.04) |
(4.20) |
12.92 |
Net cash from investing activities |
(0.57) |
(0.60) |
(1.35) |
(0.51) |
(16.56) |
Net cash from financing activities |
(0.01) |
11.15 |
0.06 |
6.20 |
(0.02) |
Net cash flow |
(0.61) |
11.07 |
(6.33) |
1.51 |
(3.66) |
Cash & cash equivalent end of year |
0.29 |
20.30 |
13.97 |
15.48 |
11.82 |
Source: Formycon accounts, *Bloomberg
Valuation
Formycon’s market cap is c €292.4m and EV is c €280.6m; the share price has remained flat year-to-date despite positive news on the development of FYB201. We believe that Formycon’s product candidates are well positioned to capture a significant portion of the biologics nAMD market, which is forecast to reach c $10bn in 2020, according to Evaluate Pharma. However, there is a degree of uncertainty surrounding how much of the market assets FYB201 (Lucentis biosimilar) and FYB203 (Eylea biosimilar) can capture (and, by extension, revenue from royalties).
For example, positive Phase III readouts for Novartis’s anti-VEGF single chain antibody fragment (RTH258) and a planned regulatory filling during H218 could see the top-line treatment for nAMD move beyond Eylea before commercialisation of FYB203 is realised (post patent expiries in 2023).In conjunction to this, a recent (September 2018) landmark ruling by UK courts (which deemed off-label use of Avastin lawful) could see sales of Lucentis continue to decline, introducing further uncertainty into the peak sales that FYB201 could capture. This being said, both Eylea and Lucentis are well established in the clinic and are still likely to maintain multi-billion dollar sales until their patents expire. Favourably priced biosimilars (ie FYB201 and FYB203), which can demonstrate safety and efficacy in-line with these treatments, are likely to capture a significant portion of their sales and may even provide economical alternatives to dissuade the off-label use of Avastin, which is not licensed for the treatment of nAMD.
Achieving first-to-market status for out-licensed assets FYB201 and FYB203 will be important for maximising revenues if they reach commercialisation (post clinical and regulatory hurdles). We see competition in the Lucentis biosimilar market primarily from Samsung Bioepis’s SB11 (currently in Phase III); Xbrane’s Xlucane and Coherus’s CHS-3351, which are in the early stages of development. We continue to believe that Formycon has a potential first-to-market advantage for a biosimilar of Lucentis in regulated markets. For FYB203 (Eylea), competition comes primarily from Mylan’s and Momenta Pharmaceuticals’ M710, which is ready to start pivotal clinical trials. Alteogen’s ALT-L9 and Coherus’s CHS-2020 are in early stages of development and it is not clear whether they intend to enter the same regulated markets as Formycon.
Outside nAMD, we believe that near-term updates on FYB202 and, in the longer term, on FYB205 will provide further upside.
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Research: TMT
Keywords has built an enviable position of strength, servicing a global games market expected to sustain 10% growth. Pockets of volatility, possibly related to the dramatic success of Fortnite create some near-term uncertainty, but we believe company’s strength of model and customer diversity will continue to enable the group to outgrow the games market in the medium to long term. At 36x FY19e earnings, strong growth is priced in, but continued execution should drive positive shareholder returns.