Basilea Pharmaceutica — Momentum continues

The first half of 2021 has been marked by progress across all business areas; this includes the commercial progress of lead asset Cresemba (isavuconazole), broadening of the early-stage oncology pipeline and the strategic divestment of the China R&D subsidiary. In terms of financial highlights, the phasing out of deferred revenues booked (related to upfront and development/regulatory milestones on out-licenced assets from prior periods) means the top line now mainly reflects current period revenues (royalties on sales, milestones and product sales to partners).

The next 12–18 months will continue to be dominated by evolving Cresemba sales and importantly a slew of datapoints that are expected across the oncology portfolio and for Zevtera (ceftobiprole) in bacterial infections. Exhibit 1 highlights the key catalysts ahead in 2021 and 2022. We note that Zevtera’s fortunes rest on the outcome of the ongoing US Phase III ERADICATE trial and, on the basis of positive results (expected in H122), its potential approval in the United States given this is the critical market for the asset. A potential US launch date of 2023 is feasible, with an initial focus on Staphylococcus aureus bacteraemia (SAB) and acute bacterial skin and skin structure infections (ABSSSI). We forecast $550m in peak sales, comprising US peak sales of $317m in 2027, predicated on securing a US commercialisation partner. A partnering deal in the United States is now likely in 2022 (vs 2021) as data from ERADICATE will be pivotal to negotiations.

Cresemba sales have continued to grow, benefiting from international launches by partners in new markets and growth in existing markets. Cresemba is a broad-spectrum antifungal for the treatment of severe, life-threatening fungal infections. It is available in the United States and major European countries through regional partners including Astellas in the United States and Pfizer in most of Europe. In-market sales of Cresemba increased to $266m in the 12 months ending 31 March 2021 (+18% y-o-y vs the prior comparable period) and Basilea reported Cresemba royalty income of CHF23.6m in H121 (+27% y-o-y). Cresemba is currently available in 54 countries, with the aim of increasing to 60 by end 2021 and 70 by end 2022. Exhibit 2 highlights the increasing contribution from the key EU5/other markets. Further launches will aid growth in 2021 and beyond. Partner Asahi Kasei Pharma recently reported positive results from a Phase III clinical trial in deep-seated mycoses in Japanese patients. Asahi plans to file the NDA in Japan shortly for the treatment of deep-seated mycoses, including invasive aspergillosis, chronic pulmonary aspergillosis, mucormycosis and cryptococcosis. We note that global sales of many best-in-class antifungals are split c 25% US and c 75% rest of world (RoW), highlighting the importance of the opportunity outside the US for Cresemba.

Multiple catalysts (Exhibit 1) including interim and top-line results from the entire FIDES clinical programme in intrahepatic cholangiocarcinoma (iCCA; bile duct cancer), urothelial cancer (UC) and gastric cancer (GC) are expected throughout 2021 and 2022. Collectively, these data will enable Basilea to define an optimal registration and commercialisation strategy. Our forecasts reflect first launch in iCCA, the most advanced indication, in 2023. However, given the constantly evolving and increasingly competitive landscape, Basilea may elect to build up a considerable data package ensuring derazantinib is truly differentiated to enable it to potentially take a larger market share. This could delay filing by one to two years but could ensure value optimisation from this unique fibroblast growth factor receptor (FGFR) inhibitor.

Derazantinib is an oral kinase inhibitor that targets FGFR1/2/3, VEGFR2 and CSF1R kinases. Deregulation of the fibroblast growth factor (FGF) signalling axis has been implicated in oncogenesis, tumour progression and resistance to anticancer therapy across many solid tumours. Among FGFR inhibitors, derazantinib’s profile is unique as in addition to its ability to inhibit FGF receptor tyrosine kinase, it has activity against other receptor tyrosine kinases (it inhibits the colony stimulating factor 1 receptor, CSF1R, and inhibits vascular endothelial growth factor receptor 2, VEGFR2, the primary VEGFR involved in vascular growth and function). Thus, its potential synergy with checkpoint inhibitors (CPIs) and antiangiogenic agents is being examined; in combination with Roche’s Tecentriq (atezolizumab) in UC and GC, and in combination with Eli Lilly’s VEGFR antibody Cymraza (ramucirumab) and paclitaxel (chemotherapy) in GC.

In September, Basilea presented updated data (early August cut-off) from the open-label Phase II FIDES-01 study highlighting further improvements in efficacy in iCCA patients with FGFR2 gene fusions (n=103, cohort 1) at ESMO 2021. The median progression-free survival (mPFS) of 8.0 months (vs 7.8 months previously) is in the upper range of peers in the FGFR inhibitor class and other efficacy outcomes are also encouraging (21.4% objective response rate, ORR, 75.7% disease control rate). Importantly, treatment-related adverse events were manageable and there was a particularly low incidence of events commonly observed for FGFR inhibitors as a class (nail toxicity, retinal events, hand-foot syndrome and stomatitis). These data establish a competitive clinical proof-of-concept as monotherapy with potential read across to other cancers where FGFR2 aberrations are implicated. Enrolment into cohort 2 (FGFR2 gene mutations or amplifications) is ongoing (top-line results expected in H122). This cohort remains important as it could provide differentiating data versus competitors.

With the competitive landscape evolving in UC and GC, Basilea is strategically exploring a higher dose of derazantinib (400mg per day) to maximise efficacy and differentiate it from existing therapies. Derazantinib’s favourable safety profile and good tolerability provide an improved value proposition versus competitors and could prove advantageous for use in rational combinations with other therapies. Interim results from FIDES-02 (UC) for the higher-dose monotherapy and combination with Tecentriq are expected in H122, while interim results from FIDES-03 (GC) for the higher-dose monotherapy and recommended Phase II dose of the combination with Cyramza and paclitaxel are expected in H122.

Our revised valuation is CHF1.26bn or CHF106/share, versus CHF1.17bn or CHF99/share previously. Our valuation is based on an net present value (NPV) analysis for marketed products and a risk-adjusted NPV for the pipeline. We have rolled forward our model and reflect net debt of CHF65.0m at 30 June 2021. The breakdown of our valuation is shown in Exhibit 4.

Basilea reported a decline of 22% in total revenues to CHF54.2m in H121 (H120: CHF69.3m), reflecting the phasing out of the deferred revenue component, which relates to prior upfront payments and milestones received across numerous assets. Importantly non-deferred revenues (which represent a mix of royalties on sales, product sales to partners and milestones mainly related to Cresemba) grew 26% to CHF46.1m (H120: CHF36.5m) reflecting a strong in-market sales performance. Exhibit 5 illustrates that management expects deferred revenues to be CHF2.5m in FY21 versus CHF33.8m in FY20. Management has upgraded its FY21 guidance for revenue to CHF134–144m (vs CHF128–138m) and an operating loss of CHF7–17m (vs the prior expected loss of CHF13–23m), mainly on the basis of increased confidence in Cresemba sales performance for the year.

During FY21 Basilea will benefit from milestone payments from partners based on Cresemba sales, associated with meeting predetermined and undisclosed sales levels. Importantly the Cresemba and Zevtera non-deferred revenue lines include milestones as well as royalties on sales. Milestone payments are by nature volatile, and we expect lower milestones in FY22, but we expect an increase in royalties received on Cresemba sales. We also expect a decline in API sales to Pfizer, as it is expected to assume responsibility for API manufacturing in FY22. We forecast total revenues of CHF141.4m in FY21 and CHF140.5m in FY22. We expect R&D and SG&A expenses to remain relatively flat at CHF100.0m and CHF29.4m respectively, and forecast an operating loss of CHF15.3m in FY21. We now forecast a sustained operating loss of CHF11.1m in FY22 due to higher R&D expenses of CHF99.0m (vs CHF78.7m) to support the expanding clinical pipeline, with potential for break-even in 2023. In terms of when sustainable profitability (at operating profit level) can be achieved; the major swing factors to this are the timing (and amount) of milestones received, actual R&D expenses for the year and any potential in-licensing deals.

Basilea expects reported gross cash (including financial investments) of CHF165–170m at end 2021, slightly higher than prior guidance of CHF155–160m given at the FY20 results. This guidance excludes any potential impact from the repurchase of the outstanding convertible bond (maturity in 2022). We calculate net debt at 30 June 2021 of CHF65.0m based on CHF162.8m in cash and investments and CHF227.9m in unsecured convertible bonds.