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Research: Healthcare
MagForce, a pioneer in nanotechnology-based cancer treatments, is making steady progress with its strategy to drive the uptake of its thermal ablation treatment, NanoTherm. In Europe NanoTherm is approved for glioblastoma (brain tumours) and while sales started slowly ($0.87m in FY19) MagForce saw considerable growth uplift during Q120 as it benefits from establishing new treatment centres in Germany and Poland (with expansion to Italy and Spain expected in 2021). For FY20 MagForce expects an increase in European glioblastoma patient numbers treated with NanoTherm. In the US NanoTherm is now in the final phase of the registrational study for prostate cancer; approval and launch are now expected in Q221. These indications could be the catalyst for meaningful growth in the top line and the path to sustainable profitability, which we forecast for 2022.
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MagForce |
Key inflection points on the horizon
Healthcare equipment & services |
Scale research report - Update
13 July 2020 |
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MagForce, a pioneer in nanotechnology-based cancer treatments, is making steady progress with its strategy to drive the uptake of its thermal ablation treatment, NanoTherm. In Europe NanoTherm is approved for glioblastoma (brain tumours) and while sales started slowly ($0.87m in FY19) MagForce saw considerable growth uplift during Q120 as it benefits from establishing new treatment centres in Germany and Poland (with expansion to Italy and Spain expected in 2021). For FY20 MagForce expects an increase in European glioblastoma patient numbers treated with NanoTherm. In the US NanoTherm is now in the final phase of the registrational study for prostate cancer; approval and launch are now expected in Q221. These indications could be the catalyst for meaningful growth in the top line and the path to sustainable profitability, which we forecast for 2022.
US Nanotherm approval expected Q221
MagForce received FDA approval to proceed with its streamlined trial protocol for the next stage of its pivotal US NanoTherm clinical study in prostate cancer. This means patients can receive treatment in an outpatient facility within one day (NanoTherm particle installation and activation) rather than weeks previously. MagForce will enrol up to 120 patients to establish efficacy in thermally ablating prostate cancer lesions and believes that it will have sufficient data to achieve 80% confidence that clinical objectives have been met by end Q420. This should enable commercial preparations for a Q221 launch to start while the trial concludes.
European roll outs imperative
MagForce’s expansion strategy is to install NanoActivators at new treatment centres in Europe; this is vital for accelerated growth in the top line. Q120 saw significant treatment numbers of glioblastoma patients and management expect an increase in the number of commercial treatments by 800% to 45 patients (FY20). A NanoActivator has now been installed in Poland where, unlike Germany, payments are less dependent on reimbursement from insurers. MagForce aims to establish an efficient reimbursement procedure in Germany this year.
Valuation: Continued expansion in EU & US is crucial
MagForce’s market cap is c €86m with an EV of €102m. Growth in European sales, driven by reimbursement and the ongoing roll-out of devices, as well as the potential launch in the US will be key to crystallising value in 2020/2021.
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Consensus estimates
Source: Thomson Reuters, MagForce accounts |
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
MagForce AG (MagForce) is the parent company of the MagForce group, which consists of seven companies: MagForce AG, MagForce USA, MagForce USA Holding GmbH, MagForce Ventures GmbH, MT MedTech Engineering GmbH and the wholly owned regional sales subsidiaries MagForce sp. z o.o. in Poland and MagForce Nanomedicine S.L. in Spain. The company is not required to report consolidated financial statements under HGB accounting standards; while MagForce USA is not currently consolidated as per company reporting, we do not consolidate its contributions into our financial forecasts; however, we do include it in our valuation. We expect that the company will start consolidating its statements as MagForce USA becomes a profitable operation.
MagForce revenues increased in FY19 to €840k (FY18: €67k) as significant growth in NanoTherm deliveries to subsidiaries (FY19: €793k vs FY18: €0k) offset a small decline in treatment sales in Europe, which continue to be affected by a lengthy reimbursement process in Germany (carried out on a per-patient basis). Difficulties securing cross-border reimbursement has prohibited foreign patients (ex-Germany) travelling for NanoTherm treatment. Expansion into Europe with the establishment of centres in Poland has led to an increase in the number of patients treated post period.
Other operating income declined significantly to €904k in FY19 (FY18: €14.9m), as the prior year benefited from the extraordinary transfer of 975,000 shares in MagForce USA to MagForce USA Holding GmbH and the consequent booking of hidden reserves of €13.9m at the parent company level, based on the fair market value from the capital raise in August 2018. Reported operating income in FY19 stated a loss of €6.2m (vs profit of €6.8m in FY18) as it did not benefit from this positive impact. We highlight that this is a non-cash item and believe it is non-operating in nature, thus our FY18 adjusted operating income represents a loss €7.1m. This highlights a reduced yearonyear loss in FY19 due to growing revenues and is in line with the company’s previous guidance and our expectations. We expect MagForce will report operating losses until sales pick up after reimbursement has been fully resolved in 2020 and ex-Germany centre patient growth continues. After this we forecast sustainable profitability from 2022 with operating margins of c 50%; if MagForce USA is consolidated we believe these margins would improve, to c 60%, as would the top line.
Personnel expenses remained stable at €4.0m (FY18: €3.9m) and reflect expenses for wages, salaries and retirement benefits. Cost of materials and services decreased to €164k (FY18: €455k). We believe it is likely this will increase in 2020/21 in preparation for the launch in the US. Other operating expenses increased to €3.4m (FY18: €3.2m) primarily due to higher impairment losses on interest receivables from its affiliated company MT MedTech Engineering GmbH (responsible for NanoActivator production and development) as well as higher patent costs.
MagForce reported cash and cash equivalents at 31 December 2019 of €167k. We also note the $4.5m capital increase (through the issuance of 292,200 shares) of its US subsidiary MagForce USA in December 2019 from Lipps & Associates (principle owner is CEO Ben Lipps), which will ensure funding for the Stage 2 US prostate cancer trial and preparations for commercialisation. This reduces MagForce AG’s holding in MagForce USA from 67.9% to 65.3%.
MagForce will require additional funding until profitability in 2022; which could be drawn from the remaining €25m of the EIB loan facility. Post period in June 2020, MagForce signed an agreement with Yorkville Advisors Global LP for a growth financing of up to €15m via zero interest bearing convertible notes. This can be drawn in up to five tranches, with the first tranche of €2.5m expected to be drawn shortly.
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Research: TMT
Media and Games Invest (MGI) is a games and media business, operating through two divisions, games (free-to-play MMO and casual games) and media (cost-effective user acquisition). The group supplements organic growth (Newzoo: 8.4% growth 2019–22) with a ‘buy, integrate, build and improve’ acquisition strategy. On a pro forma basis, MGI delivered an FY15–19 revenue CAGR of 40% and an adjusted EBITDA CAGR of 43%. MGI’s M&A strategy is focused on the acquisition of assets from distressed businesses at attractive valuations, with growing cash flows expected to rapidly reduce outstanding net debt (€72m at end Q120). MGI has significantly benefited from increased consumer demand as a result of the COVID-19 lockdown. Having recently bought out the gamigo minorities, management sees no slowdown in growth or attractive acquisition opportunities in FY20 or the foreseeable future.