Elbit Medical recently completed the sale of most of its stake in InSightec for $102.2m, at a $702m valuation for the company. In March, InSightec announced a Series F funding round that is being led by current investor, Koch Disruptive Technologies, which will raise an additional $150m for InSightec. The post-money valuation for InSightec would be $1.3bn fully diluted. Following these transactions, Elbit Medical now has a stake of approximately 3.3% of InSightec (2.8% on a fully diluted basis) down from 22% (18% on a diluted basis) previously.
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ELBIT Medical Technologies |
Large portion of InSightec stake sold |
Financial update |
Pharma & biotech |
7 May 2020 |
Share price performance
Business description
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Elbit Medical recently completed the sale of most of its stake in InSightec for $102.2m, at a $702m valuation for the company. In March, InSightec announced a Series F funding round that is being led by current investor, Koch Disruptive Technologies, which will raise an additional $150m for InSightec. The post-money valuation for InSightec would be $1.3bn fully diluted. Following these transactions, Elbit Medical now has a stake of approximately 3.3% of InSightec (2.8% on a fully diluted basis) down from 22% (18% on a diluted basis) previously.
Year end |
Revenue ($m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/18 |
35.0 |
26.8 |
0.12 |
0.0 |
N/A |
N/A |
12/19 |
16.8 |
(21.2) |
(0.09) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Sale of InSightec stake bolsters cash
The successful sale of its InSightec stake provides Elbit with $102.2m in cash. The company has already used part of the proceeds in Q120 to repurchase 133.3m shares for $38m and will use most of the rest of the cash for either the payment or repurchase of debt.
InSightec raises additional cash from Koch
In March, InSightec announced a Series F funding round led by Koch Disruptive Technologies, the venture capital arm of Koch Industries. Up to $150m will be invested in InSightec, with $107m received as of March ($100m from Koch Disruptive Technologies). The fully diluted post-money valuation for InSightec will be $1.3bn. This is the second funding round led by Koch Disruptive Technologies, following a Series E round investment.
Omidubicel data due in Q220
Top-line data for the Phase III of omidubicel in haematological malignancies continues to be expected in Q220. As enrolment in the trial was completed last December, we do not believe timelines should be affected greatly by coronavirus. If the Phase III data are positive, Gamida Cell plans to submit a biologic licence application (BLA) filing for omidubicel in Q420.
Valuation: NIS229.7m or NIS2.34per share
We have adjusted our valuation to NIS229.7m or NIS2.34 per share from NIS346.1m or NIS1.50 per share. The total valuation fell mainly due to $38m in cash used to buy back shares, while the per-share value rose due to the 133.3m fewer shares. A key valuation inflection point for the stake in Gamida Cell will be the Phase III data for omidubicel, expected in Q220.
Gamida data coming soon
Gamida Cell’s 120-patient Phase III study of omidubicel in patients with haematological malignancies completed enrolment last December and data are expected in Q220 (with a filing in Q420 if the data are positive). Omidubicel, which is the company’s lead asset, expands umbilical cord blood (UCB) cell grafts ex vivo and enriches the specific subpopulation of stem and progenitor cells to treat haematological malignancies such as leukaemia and lymphoma. Essentially, CD133+ cells selected from a single unit of UCB are cultured for approximately three weeks in nicotinamide and 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.
The company is also investigating omidubicel for the treatment of severe aplastic anaemia 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 in 2019), enrolment into cohort two began last June. Cohort two will evaluate engraftment and transplantation outcomes with the omidubicel-expanded unit alone (in other words, without a haploidentical donor). The company has stated that additional data from this trial will be presented in the second half of 2020, although the exact timing is unknown as enrolment may have been affected by the coronavirus pandemic.
The company also expects to file an IND in Q420 for the GDA-201 programme with the FDA in order to enable the initiation of a multi-centre Phase I/II clinical study in patients with non-Hodgkin Lymphoma (NHL). The GDA-201 programme is based on donor-derived natural killer (NK) cells. 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. As a reminder, the company presented data at the American Society of Hematology (ASH) meeting in December 2019 from a Phase I trial. Among the nine evaluable NHL patients in the study, GDA-201 achieved a 56% complete response rate and a 67% objective response rate.
Gamida Cell ended 2019 with $55.4m in cash and marketable securities. Gamida Cell has guided for a $30–35m in cash outflow for operating activities over the first six months of 2020 and expects its current resources to fund its operations into Q420. As a reminder, Elbit owns a 7% stake in Gamida Cell.
The InSightec stake
In February, Elbit Medical completed the sale of most of its stake in InSightec for $102.2m at a $702m valuation for InSightec. In March, InSightec announced a Series F funding round that is being led by current investor, Koch Disruptive Technologies, which will raise an additional $150m for InSightec. The post-money valuation for InSightec would be $1.3bn fully diluted. So far $107m has been received, including $100m from Koch Disruptive Technologies. This is the second funding round led by Koch Disruptive Technologies. Following these transactions, Elbit Medical now has a stake of approximately 3.3% of InSightec (2.8% on a fully diluted basis) down from 22% (18% on a diluted basis) previously.
InSightec recently reported its 2019 results. Revenues, which are based on the sale of ExAblate systems and corresponding annual service contract costs and consumables, were $45.7m in 2019, up 20% from $38.0m in 2018. Cash flow for operating activities in 2019 was a negative $42.8m. Cash, cash equivalents and deposits totalled $62.6m as of 31 December 2019. It is unclear what impact coronavirus will have on sales but it could be significant as resources are diverted and hospitals are under significant financial pressure.
Valuation
We have adjusted our valuation of Elbit from NIS229.7m or NIS2.34 per share from NIS346.1m or NIS1.50 per share. The total valuation fell mainly due to $38m in cash used to buy back shares, although this was mitigated by rolling forward our NPVs and a small increase in value due to the sale of InSightec shares at a higher valuation than we had been modelling. The per-share value rose due to the 133.3m fewer shares outstanding following the buyback. A key valuation inflection point for the stake in Gamida Cell will be the Phase III data for omidubicel, expected in Q220.
Exhibit 1: Elbit Medical valuation table
Product |
Setting |
Status |
Launch |
Peak sales ($m) |
Probability of success |
Royalty rate |
rNPV ($m) |
% owned by Elbit Medical (fully diluted) |
Elbit Medical rNPV ($m) |
||||
Insightec |
MRgFUS (for gynaecology, oncology, neurology indications) |
Market |
Market |
583 |
100% |
100% |
723 |
2.8% |
20.2 |
||||
Gamida cell |
Leukaemia (AML, ALL, CML, CLL) |
Phase III |
2021 |
370 |
50% |
100% |
391 |
7% |
27.4 |
||||
Portfolio total ($m) |
47.6 |
||||||||||||
Pro forma net cash (as of 31 December 2019 plus InSightec sale and net of funds used for buyback) ($m) |
17.5 |
||||||||||||
Overall valuation |
65.1 |
||||||||||||
Shekel/dollar conversion rate |
3.5 |
||||||||||||
Overall valuation in shekels (NISm) |
229.7 |
||||||||||||
Shares outstanding (m) |
98.1 |
||||||||||||
Per share (NIS) |
2.34 |
||||||||||||
Source: Edison Investment Research, Elbit Medical Technologies
Financials
Elbit Medical recently announced its 2019 financial results. The post-tax loss was $21.2m, mainly due to changes in the fair value of assets and financing expenses for debentures as the operating cash flow loss was only $0.6m. General and admin costs for the period were $0.5m, which includes management fees, professional services and other related expenses. The company had cash, cash equivalents, short-term deposits and restricted cash of $2.2m at 31 December 2019 and $49.0m in debt (which includes $2.3m in fair value for the bond conversion component). In February, it received $102.2m in cash from its sale of the InSightec stake and used $38m for a share repurchase. Most of the rest of the cash will be used to pay or repurchase the debt outstanding. We outline historical financials in Exhibit 2. Please note we continue not to provide financial forecasts at this time.
Exhibit 2: Financial summary
US$'000s |
2018 |
2019 |
||
Year end 31 December |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||
Revenue |
|
|
34,951 |
16,803 |
Cost of Sales |
0 |
0 |
||
Gross Profit |
34,951 |
16,803 |
||
R&D expenses |
0 |
0 |
||
SG&A expenses |
(918) |
(470) |
||
Other expenses |
0 |
(15,937) |
||
EBITDA |
|
|
34,033 |
396 |
Operating Profit (before amort. and except.) |
|
|
34,033 |
396 |
Intangible Amortisation |
0 |
0 |
||
Exceptionals |
0 |
0 |
||
Operating Profit |
34,033 |
396 |
||
Other |
0 |
(14,847) |
||
Net Interest |
(7,212) |
(6,769) |
||
Profit Before Tax (norm) |
|
|
26,821 |
(21,220) |
Profit Before Tax (FRS 3) |
|
|
26,821 |
(21,220) |
Tax |
0 |
0 |
||
Profit After Tax (norm) |
26,821 |
(21,220) |
||
Profit After Tax (FRS 3) |
26,821 |
(21,220) |
||
Average Number of Shares Outstanding (m) |
231.5 |
231.5 |
||
EPS - normalised ($) |
|
|
0.12 |
(0.09) |
EPS - FRS 3 ($) |
|
|
0.12 |
(0.09) |
Dividend per share ($) |
0.0 |
0.0 |
||
BALANCE SHEET |
||||
Fixed Assets |
|
|
24,233 |
11,548 |
Intangible Assets |
23,016 |
11,548 |
||
Tangible Assets |
0 |
0 |
||
Other |
1,217 |
0 |
||
Current Assets |
|
|
3,797 |
2,248 |
Stocks |
0 |
0 |
||
Debtors |
11 |
35 |
||
Cash |
3,786 |
2,213 |
||
Other |
0 |
0 |
||
Current Liabilities |
|
|
(1,526) |
(1,522) |
Creditors |
(1,526) |
(1,522) |
||
Short term borrowings |
0 |
0 |
||
Short term leases |
0 |
0 |
||
Other |
0 |
0 |
||
Long Term Liabilities |
|
|
(41,998) |
(48,961) |
Long term borrowings |
(39,030) |
(46,661) |
||
Long term leases |
0 |
0 |
||
Other long term liabilities |
(2,968) |
(2,300) |
||
Net Assets |
|
|
(15,494) |
(36,687) |
CASH FLOW |
||||
Operating Cash Flow |
|
|
(499) |
(571) |
Tax |
0 |
0 |
||
Capex |
0 |
0 |
||
Acquisitions/disposals |
0 |
0 |
||
Financing |
0 |
0 |
||
Dividends |
0 |
0 |
||
Other |
(4,113) |
2,165 |
||
Net Cash Flow |
(4,612) |
1,594 |
||
Opening net debt/(cash) |
|
|
42,383 |
35,244 |
HP finance leases initiated |
(6,835) |
(2,542) |
||
Other |
18,586 |
(8,256) |
||
Closing net debt/(cash) |
|
|
35,244 |
44,448 |
Source: Company accounts. Note: 2018 cash flow amounts have been restated.
|
|
Research: Investment Companies
Canadian General Investments (CGI) is managed by Greg Eckel at Morgan Meighen & Associates. He stresses that despite the tough macro backdrop as a result of the coronavirus pandemic, he is sticking to the company’s philosophy and fundamental investment process, which has generated a very long-term record of outperformance versus the Canadian market. The manager says: ‘We will not veer off into unknown, dangerous territories and away from our core, proven strengths. It is easy to fall victim to near-term pressures, but doing so has proven to handicap and impair returns otherwise available. We rely on our experience and learnings of the past in an effort to avoid such pitfalls, and make every effort to provide our shareholders with the results to which they have become accustomed.’