Elbit Medical Technologies’ two portfolio investments continue to make progress. InSightec recently received both FDA approval and a CE mark for ExAblate Neuro compatible with the SIGNA Premier MRI system from GE Healthcare as the two companies work on improving incisionless brain surgery. Gamida Cell recently completed a $40m follow-on offering and expects to complete enrolment of the Phase III for NiCord (now called omidubicel) by the end of the year, with data in H120.
Written by
Elbit Medical Technologies |
H119 results |
Financial update |
Pharma & biotech |
25 September 2019 |
Share price performance
Business description
Next events
Analysts
|
||||||||||||||||||||||||||||||||||||||||||||||||||
Elbit Medical Technologies’ two portfolio investments continue to make progress. InSightec recently received both FDA approval and a CE mark for ExAblate Neuro compatible with the SIGNA Premier MRI system from GE Healthcare as the two companies work on improving incisionless brain surgery. Gamida Cell recently completed a $40m follow-on offering and expects to complete enrolment of the Phase III for NiCord (now called omidubicel) by the end of the year, with data in H120.
Year end |
Revenue ($m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16 |
0.0 |
(3.7) |
(0.00) |
0.0 |
N/A |
N/A |
12/17 |
0.0 |
(5.2) |
(0.00) |
0.0 |
N/A |
N/A |
12/18 |
35.0 |
26.8 |
0.12 |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalized, excluding amortization of acquired intangibles, exceptional items and share-based payments.
Gamida Cell getting closer to data
Gamida Cell (~8% owned by Elbit Medical, ~7% fully diluted) is on track to complete enrolment for its Phase III trial of NiCord (now called omidubicel) in hematological malignancies by the end of 2019 (previously H219) with topline data expected in H120. If these Phase III data are positive, Gamida Cell plans to submit a biologic license application (BLA) filing for omidubicel in H220. The current cash runway is enough to fund operations into Q420.
Another set of approvals for InSightec
In July, InSightec announced it received both FDA approval and a CE mark for ExAblate Neuro compatible with the SIGNA Premier MRI system from GE Healthcare as the two companies work on improving incisionless brain surgery.
InSightec sales grew 19% in Q219
Revenues, which are based on the sale of ExAblate systems and corresponding annual service contract costs and consumables, were $9.0m in Q219, up 19% from the $7.5m in Q218. This is a deceleration from the 31% growth seen in Q1. For the first half as a whole, sales were $15.1m, up 24%.
Valuation: NIS353.1m or NIS1.53 per share
We have decreased our valuation from NIS507.4m or NIS2.19 per share, to NIS353.1m or NIS1.53 per share, mainly because InSightec sales have not been progressing as fast as expected (we have reduced peak sales from $647m to $583m, still assuming strong growth from current levels) and also due to the dilution of Elbit Medical’s stake in Gamida Cell following the secondary offering (from 8% to 7%). We have also delayed omidubicel’s launch from 2020 to 2021 to be a bit more conservative on timing. Additionally, net debt has increased since our previous note.
Gamida Cell Phase III to complete enrolment by YE19
Gamida Cell’s 120-patient Phase III study of omidubicel (formerly NiCord) in patients with hematological malignancies is ongoing. Omidubicel, which is the company’s lead asset, expands umbilical cord blood (UCB) cell graft ex vivo and enriches the specific subpopulation of stem and progenitor cells to treat hematological malignancies such as leukemia and lymphoma. Essentially, CD133+ cells selected from a single unit of UCB are cultured for approximately three weeks in nicotinamide, which are then cryopreserved until they are transplanted into the intended patients. This expansion is expected to provide a substantial advantage over a single UCB graft. The use of UCB for bone marrow transplantation (BMT) is limited by the minimal number of stem and progenitor cells. The omidubicel process seeks to provide a more viable alternative to BMT in cancer patients and only partial genetic matching is needed (ie a minimum requirement of four out of six human leukocyte antigen biomarkers). The registrational trial is investigating the ability of omidubicel to provide a graft with an ample number of cells that have fast and vigorous in vivo neutrophil- and platelet-producing potential to improve transplantation outcomes (as low cell dose is associated with delayed engraftment and poor outcomes). The primary endpoint for the trial is time to neutrophil engraftment following transplantation (on or before the 42nd day post-transplant) compared to an unmanipulated cord blood unit. Enrolment is on track for completion by year end with top-line data expected in H120. Provided that these Phase III data are positive, Gamida Cell plans to submit a BLA filing for omidubicel for the treatment of hematological malignancies in H220.
The company is also investigating omidubicel for the treatment of severe aplastic anemia (SAA) in an ongoing Phase I/II study. With patient inclusion in cohort one complete (and encouraging data presented on those first cohort patients at the annual Transplantation and Cellular Therapy meeting earlier this year), enrolment into cohort two began in June. Cohort two will evaluate engraftment and transplantation outcomes with the omidubicel-expanded unit alone (in other words, without a haploidentical donor).
Gamida Cell is also developing donor-derived natural killer (NK) cells for blood cancers in its GDA-201 program. NK cells are a type of lymphocyte, or white blood cell, that play a central role in lysing infected or transformed cells and therefore offer an innovative approach to cancer treatment. The company previously initiated a 24-patient Phase I trial with the University of Minnesota evaluating the safety and activity of nicotinamide-NK cells in patients with non-Hodgkin’s lymphoma and multiple myeloma with additional data expected by the end of the year. The company is working on a cryopreserved version of GDA-201 to enable a multi-centre, multi-dose study in non-Hodgkin’s lymphoma patients in 2020.
The company ended Q219 with $37.1m in cash and raised $40.3m in gross proceeds in July. Gamida Cell has guided for a $35–40m in cash outflow for operating activities over 2019 and expects its current resources to fund its operations into Q420.
Additional approvals for InSightec
The ExAblate system comprises magnetic resonance imaging and high-intensity focused ultrasound (MRgFUS) to perform non-invasive thermal tissue ablation for a wide range of neurology, oncology and gynecology clinical applications. By way of full clinical validation under the pre-market approval (PMA) route, the company has achieved FDA approval and CE markings for the ExAblate 2100 (Body) system for the treatment of symptomatic uterine fibroids and pain palliation caused by bone metastases, and for its ExAblate 4000 (Neuro) system for the treatment of medication-refractory ET (essential tremor) medication-refractory tremor-dominant Parkinson’s disease (PD). Moreover, the company has received CE markings for the treatment of prostate cancer, neuropathic pain and tremor-dominant PD.
So far this year has been a busy one for the company. In February 2019, InSightec announced that Noridian posted positive local coverage determination for MRgFUS effective 1 April 2019 and that Medicare beneficiaries in 38 US states will have coverage for the treatment of ET using MRgFUS. In June, the company announced that it received national reimbursement from the Japanese Ministry of Health, Labour and Welfare (MHLW) for treating essential tremor. And most recently, in July, it announced it received both FDA approval and a CE mark for ExAblate Neuro compatible with the SIGNA Premier MRI system from GE Healthcare.
InSightec recently reported its Q219 financials. Revenues, which are based on the sale of ExAblate systems and corresponding annual service contract costs and consumables, were $9.0m in Q219, up 19% from the $7.5m in Q218. This is a deceleration from the 31% growth seen in Q1. For the first half as a whole, sales were $15.1m, up 24% from H118. Cash flow for operating activities in the first half was a negative $26.0m and the company has $10.6m in cash, indicating a near-term fundraise may be needed, which will likely dilute Elbit’s share in the company. However, Elbit announced in September that InSightec is conducting early-stage negotiations with one or more investors which would include the acquisition by those investors of a significant portion of the stakes of existing investors, including Elbit Medical’s, and an additional investment into InSightec at a higher valuation than the previous round ($460m pre-money, $610m post-money fully diluted).
Valuation
We have decreased our valuation from NIS507.4m or NIS2.19 per share, to NIS353.1m or NIS1.53 per share, mainly because InSightec sales have not been progressing as fast as expected (we have reduced peak sales from $647m to $583m, still assuming strong growth from current levels) and also due to the dilution of Elbit Medical’s stake in Gamida Cell following the secondary offering (from 8% to 7%). We have also delayed omidubicel’s launch from 2020 to 2021 to be a bit more conservative on timing. Additionally, net debt increased to $40.8m since our previous note ($34.0m). Please note that we may need to amend our valuation in the coming months if a sale of a significant portion of Elbit Medical’s stake in InSightec is successfully negotiated.
Exhibit 1: Valuation of Elbit Medical Technologies
Product |
Setting |
Status |
Launch |
Peak sales ($m) |
Probability of success |
Royalty rate |
rNPV ($m) |
% owned by Elbit Medical (fully diluted) |
Elbit Medical rNPV ($m) |
||||||||
InSightec |
MRgFUS (for gynecology, oncology, neurology indications) |
Market |
Market |
583 |
100% |
100% |
648 |
18.0% |
116.6 |
||||||||
Gamida cell |
Leukemia (AML, ALL, CML, CLL) |
Phase III |
2021 |
370 |
50% |
100% |
346 |
7% |
24.2 |
||||||||
Portfolio total ($m) |
140.8 |
||||||||||||||||
Net cash/(debt) (as of 30 June 2019) ($m) |
(40.8) |
||||||||||||||||
Overall valuation |
100.0 |
||||||||||||||||
Shekel/dollar conversion rate |
3.5 |
||||||||||||||||
Overall valuation in shekels (NISm) |
353.1 |
||||||||||||||||
Shares outstanding (m) |
231.5 |
||||||||||||||||
Per share (NIS) |
1.53 |
||||||||||||||||
Source: Elbit Medical Technologies reports, Edison Investment Research
Financials
Elbit Medical recently announced its H119 financial results. The post-tax loss was $14.7m, mainly due to changes in the fair value of assets and financial instruments. General and admin costs for the period were $0.2m, which includes management fees, professional services and other related expenses. The company had cash, cash equivalents and restricted cash of $3.9m at 30 June 2019 and $44.7m in debt. We outline historical financials in Exhibit 2. Note that with the H119 results, the company has changed how it characterizes certain aspects of its income statement and has restated 2018 results, although everything below the PBT line is identical to what it was previously. Please also note that we continue not to provide forward-looking financial forecasts at this time.
Exhibit 2: Financial summary
US$000s |
2016 |
2017 |
2018 |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||
Revenue |
|
|
0 |
0 |
34,951 |
Cost of Sales |
0 |
0 |
0 |
||
Gross Profit |
0 |
0 |
34,951 |
||
R&D expenses |
0 |
0 |
0 |
||
SG&A expenses |
(553) |
(677) |
(918) |
||
EBITDA |
|
|
(553) |
(677) |
34,033 |
Operating Profit (before amort. and except.) |
|
(553) |
(677) |
34,033 |
|
Intangible Amortization |
0 |
0 |
0 |
||
Exceptionals |
(15,000) |
(5,518) |
0 |
||
Operating Profit |
(15,553) |
(6,195) |
34,033 |
||
Other |
(3,101) |
(4,557) |
0 |
||
Net Interest |
0 |
0 |
(7,212) |
||
Profit Before Tax (norm) |
|
|
(3,654) |
(5,234) |
26,821 |
Profit Before Tax (FRS 3) |
|
|
(18,654) |
(10,752) |
26,821 |
Tax |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(3,654) |
(5,234) |
26,821 |
||
Profit After Tax (FRS 3) |
(18,654) |
(10,752) |
26,821 |
||
Average Number of Shares Outstanding (m) |
1,851.9 |
1,851.9 |
231.5 |
||
EPS - normalized ($) |
|
|
(0.00) |
(0.00) |
0.12 |
EPS - FRS 3 ($) |
|
|
(0.01) |
(0.01) |
0.12 |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
||
BALANCE SHEET |
|||||
Fixed Assets |
|
|
5,518 |
50 |
24,233 |
Intangible Assets |
0 |
0 |
23,016 |
||
Tangible Assets |
0 |
0 |
0 |
||
Other |
5,518 |
50 |
1,217 |
||
Current Assets |
|
|
30 |
40 |
3,797 |
Stocks |
0 |
0 |
0 |
||
Debtors |
15 |
8 |
11 |
||
Cash |
15 |
32 |
3,786 |
||
Other |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(57) |
(60) |
(1,526) |
Creditors |
(57) |
(60) |
(1,526) |
||
Short term borrowings |
0 |
0 |
0 |
||
Short term leases |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(37,126) |
(42,415) |
(41,998) |
Long term borrowings |
(37,126) |
(42,415) |
(39,030) |
||
Long term leases |
0 |
0 |
0 |
||
Other long-term liabilities |
0 |
0 |
(2,968) |
||
Net Assets |
|
|
(31,635) |
(42,385) |
(15,494) |
CASH FLOW |
|||||
Operating Cash Flow |
|
|
(3,394) |
(4,858) |
4,533 |
Tax |
0 |
0 |
0 |
||
Capex |
0 |
0 |
0 |
||
Acquisitions/disposals |
0 |
0 |
0 |
||
Financing |
0 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
||
Net Cash Flow |
(3,394) |
(4,858) |
4,533 |
||
Opening net debt/(cash) |
|
|
33,776 |
37,111 |
42,383 |
HP finance leases initiated |
0 |
0 |
0 |
||
Other |
59 |
(414) |
2,606 |
||
Closing net debt/(cash) |
|
|
37,111 |
42,383 |
35,244 |
Source: Company reports, Edison Investment Research
|
|
Ellex’s products target diseases associated with growing ageing populations such as glaucoma and age-related macular degeneration (AMD). FY19 revenue was up 3% to A$81.6m, as robust growth in iTrack, SLT lasers and 2RT was offset by declines in laser devices for other indications and in diagnostic equipment. iTrack, SLT lasers and 2RT appear well-positioned to continue their growth trajectory in FY20 and there may be some recovery in Ellex’s remaining product lines.