MagForce — Key inflection points on the horizon

MagForce (DB: MF6)

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Research: Healthcare

MagForce — Key inflection points on the horizon

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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Healthcare

MagForce

Key inflection points on the horizon

Healthcare equipment & services

Scale research report - Update

13 July 2020

Price

€3.09

Market cap

€86m

Share price graph

Share details

Code

MF6

Listing

Deutsche Börse Scale

Shares in issue

27.7m

Net debt (€m) at 31 December 2019

16.5

Business description

MagForce is a German firm with the first European-approved, nanotechnology-based therapy to treat brain tumours. NanoTherm therapy consists of nanoparticle instillation into the tumour, activated by an alternating magnetic field, producing heat and thermally destroying or sensitising tumours.

Bull

US prostate cancer market presents a huge commercial opportunity.

Technology is clinically validated.

CEO has a proven track record.

Bear

Reimbursement has been difficult to obtain in Germany to date.

Approval in the US is needed before launch.

Uptake of NanoTherm has been slow to date.

Analysts

Dr Susie Jana

+44 (0)20 3077 5700

Dr John Priestner

+44 (0)20 3077 5700

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.

Consensus estimates

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/18

0.1

4.4

0.17

0.0

N/A

N/A

12/19

0.8

(8.7)

(0.32)

0.0

N/A

N/A

12/20e

3.8

(8.6)

(0.21)

0.0

N/A

N/A

12/21e

17.2

(0.2)

0.0

0.0

N/A

N/A

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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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

Any Information, data, analysis and opinions contained in this report do not constitute investment advice by Deutsche Börse AG or the Frankfurter Wertpapierbörse. Any investment decision should be solely based on a securities offering document or another document containing all information required to make such an investment decision, including risk factors. This report has been commissioned by Deutsche Börse AG and prepared and issued by Edison for publication globally.

Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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