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Research: Healthcare
Quantum Genomics recently announced H117 financial results and gave a business update for the first three quarters of the year. It highlighted the results of its Phase IIa trial for QGC001 in hypertension and the launch of the NEW-HOPE study in 250 hypertensive overweight patients across 25 major hospitals in the United States. The company is expecting to complete its 75-patient Phase II study of QGC001 in heart failure by the end of the year, with data expected in H118.
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Quantum Genomics |
NEW-HOPE trial launched |
Financial update |
Pharma & biotech |
5 October 2017 |
Share price performance
Business description
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Quantum Genomics is a research client of Edison Investment Research Limited |
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Quantum Genomics recently announced H117 financial results and gave a business update for the first three quarters of the year. It highlighted the results of its Phase IIa trial for QGC001 in hypertension and the launch of the NEW-HOPE study in 250 hypertensive overweight patients across 25 major hospitals in the United States. The company is expecting to complete its 75-patient Phase II study of QGC001 in heart failure by the end of the year, with data expected in H118.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/15 |
0.1 |
(4.5) |
(0.55) |
0.0 |
N/A |
N/A |
12/16 |
0.0 |
(6.2) |
(0.60) |
0.0 |
N/A |
N/A |
12/17e |
0.0 |
(8.6) |
(0.76) |
0.0 |
N/A |
N/A |
12/18e |
0.0 |
(11.9) |
(0.91) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Hypertension trial progress
Quantum Genomics has recently launched the NEW-HOPE trial in hypertensive overweight patients across 25 major US hospitals with a primary endpoint of change from baseline in office systolic blood pressure (SBP) at week eight. The first patient is expected to be recruited by the end of the year, with final data expected in Q119.
Potential to focus on patients with the highest need
One of the core premises of QGC001 is that it targets the brain renin-angiotensin system, which is specifically implicated in certain forms of resistant primary hypertension. One such class is the so-called low renin subtype, which is present in 25% of American hypertensive patients and 52% of hypertensive African Americans. The Phase IIb trial will be enriched for these patients who are expected to respond and have the highest unmet medical need.
QGC001 has potential in heart failure
Hypertension is significantly comorbid with heart failure, and virtually every drug used to treat the former is also approved for the latter. Quantum Genomics has an ongoing study in 75-patients, which is expected to be completed by YE17 with data in H118. Despite a smaller market (six million US patients), it has a significantly higher price point and more research interest than hypertension, which may provide the leverage to secure a partnership.
Valuation: €195m or €17.79 per share
We have adjusted our valuation of Quantum Genomics from €180m or €20.61 per share to €195m or €17.79 per share. The valuation increase is due to advancing our NPVs and a higher cash balance, while the per share valuation decreased due to a higher share count following the €8.2m private placement in July. We expect to update our valuation with the release of data from the Phase IIa heart failure trial in H118.
QGC001 progress
Quantum Genomics has announced that it has launched the NEW-HOPE trial in 250 hypertensive overweight (BMI 25-45kg/m2) patients, with a primary endpoint of change from baseline in office systolic blood pressure (SBP) at week eight. SBP at screening will have to be 145-170mmHg if previously untreated or 130-150mmHg if treated. Following a two-week run in period in which there would be no treatment, SBP would need to be 145-170mmHg. Patients will start off on 250mg twice a day (BID) for two weeks and then either continue at that dose or increase to 500mg BID for another two weeks. Following that, patients would either be on 250mg BID, 500mg BID or 500mg BID with 25mg of hydrochlorothiazide (HCT), an often used diuretic, added in.
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Exhibit 1: NEW-HOPE study design |
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Source: Quantum Genomics |
The company expects that at least 50% of patients will be self-identified as African American or Hispanic. African Americans have a higher prevalence of hypertension compared to other groups, but also, along with Hispanics, are less likely to have their hypertension under control compared to their white counterparts (see Exhibit 2 and Exhibit 3).
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Exhibit 2: Prevalence of hypertension among adults, by sex and race |
Exhibit 3: Percentage of adults with hypertension who have it controlled, by race and sex |
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Source: Yoon S et al., NCHS Data Brief. 2015 Nov;(220):1-8 |
Source: Yoon S et al., NCHS Data Brief. 2015 Nov;(220):1-8 |
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Exhibit 2: Prevalence of hypertension among adults, by sex and race |
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Source: Yoon S et al., NCHS Data Brief. 2015 Nov;(220):1-8 |
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Exhibit 3: Percentage of adults with hypertension who have it controlled, by race and sex |
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Source: Yoon S et al., NCHS Data Brief. 2015 Nov;(220):1-8 |
These patients are also more likely to have low renin primary hypertension (52% in African Americans compared to 25% in the broader population), which is characterised by resistance to ACE inhibitors, ARBs and beta-blockers, commonly used classes of hypertension medications.1 The targeting of the renin-angiotensin by QGC001 could be especially helpful in these patients.
Bühler FR, et al. (1984) Renin profiling to select antihypertensive baseline drugs. Renin inhibitors for high-renin and calcium entry blockers for low-renin patients. Am. J. Med. 77, 36.
QGC001 in heart failure
Quantum Genomics is also investigating QGC001 for the treatment of heart failure. Hypertension has an exceptionally high comorbidity with heart failure and virtually every drug approved for the former is also approved for the latter. However, the heart failure (HF) development pathway has significant advantages over hypertension. First, HF drugs command significantly higher prices at approximately $4,000-5,000 per year compared to approximately $1,000 for the highly genericised hypertension market. Additionally, clinical trials for HF require significantly fewer patients.
The company initiated its heart failure programme in 2016 with a 75-person Phase II clinical trial in Europe. The trial is enrolling patients with diagnosed worsening heart failure and the primary endpoints for the study are a decrease in N-terminal pro b-type natriuretic peptide, a key marker of heart dysfunction, as well as lower blood pressure. Enrolment in the trial should be completed by the end of the year with data in H118.
Valuation
We have adjusted our valuation of Quantum Genomics from €180m or €20.61 per share to €195m or €17.79 per share. The valuation increase is due to advancing our NPVs and a higher cash balance, while the per share valuation decreased due to a higher share count following the financing. We expect to update our valuation with the release of data from the Phase IIa heart failure trial in H118.
Exhibit 4: Quantum Genomics valuation table
Product |
Main indication |
Local |
Status |
Prob. of success |
Launch year |
Peak sales ($m) |
Patent protection |
rNPV |
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QGC001 |
Hypertension |
US |
Phase Il |
15% |
2023 |
$1,110 |
2031 |
€111.51 |
|||
QGC001 |
Hypertension |
Europe |
Phase Il |
15% |
2023 |
$959 |
2031 |
€94.59 |
|||
QGC001 |
Development costs |
|
|
|
(€117.62) |
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QGC101 |
Heart failure |
US |
Phase IIa |
15% |
2023 |
$574 |
2031 |
€70.96 |
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QGC101 |
Heart failure |
Europe |
Phase IIa |
15% |
2023 |
$687 |
2031 |
€84.20 |
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QGC101 |
Development costs |
(€64.40) |
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Total |
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|
|
|
€179.23 |
|||||
Cash and cash equivalents (H117 + raise) (€m) |
€15.54 |
||||||||||
Total firm value (€m) |
€194.77 |
||||||||||
Total shares (m) |
10.95 |
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Value per basic share (€) |
€17.79 |
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Source: Edison Investment Research
Financials
Quantum Genomics reported an operational loss of €4.5m in H117 compared to €3.1m in H116, with the increase primarily driven by the advancement of the clinical programmes in both hypertension and heart failure. We have increased our operating loss estimate from €7.2m to €8.6m, but have left later years unchanged as we already model increasing burn rates. The company ended H117 with €7.3m in cash and investments though added an additional €8.2m through a private placement of 2.2m shares in July. The company has stated it believes it is now funded until mid-2019, though we model €12m in additional financing next year (down from €20m previously due to the private placement) which we model as illustrative debt. We expect further development to be financed via a partnership.
Exhibit 5: Financial summary
€000s |
2015 |
2016 |
2017e |
2018e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
144 |
0 |
0 |
0 |
Cost of Sales |
(0) |
0 |
0 |
0 |
||
Gross Profit |
144 |
0 |
0 |
0 |
||
EBITDA |
|
|
(4,310) |
(6,216) |
(8,592) |
(10,948) |
Operating Profit (before amort. and except.) |
(4,310) |
(6,216) |
(8,592) |
(10,948) |
||
Intangible Amortisation |
0 |
0 |
0 |
0 |
||
Other |
0 |
1 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
||
Operating Profit |
(4,310) |
(6,216) |
(8,592) |
(10,948) |
||
Net Interest |
(222) |
0 |
0 |
(961) |
||
Other |
54 |
18 |
20 |
0 |
||
Profit Before Tax (norm) |
|
|
(4,503) |
(6,216) |
(8,592) |
(11,909) |
Profit Before Tax (FRS 3) |
|
|
(4,479) |
(6,198) |
(8,572) |
(11,909) |
Tax |
714 |
958 |
1,110 |
1,548 |
||
Deferred tax |
0 |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(3,789) |
(5,258) |
(7,482) |
(10,361) |
||
Profit After Tax (FRS 3) |
(3,765) |
(5,240) |
(7,462) |
(10,361) |
||
Average Number of Shares Outstanding (m) |
6.9 |
8.7 |
9.9 |
11.4 |
||
EPS - normalised (c) |
|
|
(54.70) |
(59.79) |
(75.96) |
(91.00) |
EPS - FRS 3 (€) |
|
|
(0.54) |
(0.60) |
(0.76) |
(0.91) |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
520 |
701 |
705 |
775 |
Intangible Assets |
108 |
142 |
136 |
136 |
||
Tangible Assets |
54 |
60 |
159 |
229 |
||
Other |
358 |
500 |
410 |
410 |
||
Current Assets |
|
|
10,020 |
13,809 |
14,820 |
16,389 |
Stocks |
14 |
1,011 |
449 |
449 |
||
Debtors |
1,354 |
1,599 |
2,322 |
2,322 |
||
Cash |
8,652 |
11,198 |
12,048 |
13,617 |
||
Other |
0 |
1 |
1 |
1 |
||
Current Liabilities |
|
|
(2,128) |
(3,481) |
(3,469) |
(3,469) |
Creditors |
(2,128) |
(3,480) |
(3,468) |
(3,468) |
||
Short term borrowings |
(1) |
(1) |
(1) |
(1) |
||
Long Term Liabilities |
|
|
(390) |
(506) |
(543) |
(12,543) |
Long term borrowings |
(78) |
(18) |
(24) |
(12,024)* |
||
Other long term liabilities |
(312) |
(488) |
(518) |
(518) |
||
Net Assets |
|
|
8,022 |
10,524 |
11,514 |
1,152 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(3,142) |
(5,531) |
(7,398) |
(10,323) |
Net Interest |
0 |
0 |
0 |
0 |
||
Tax |
0 |
0 |
0 |
0 |
||
Capex |
(72) |
(66) |
(108) |
(108) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
||
Financing |
12,150 |
7,744 |
8,418 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Other |
(296) |
399 |
(62) |
0 |
||
Net Cash Flow |
8,640 |
2,546 |
850 |
(10,431) |
||
Opening net debt/(cash) |
|
|
(5) |
(8,573) |
(11,179) |
(12,022) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Exchange rate movements |
0 |
0 |
0 |
0 |
||
Other |
(72) |
60 |
(6) |
0 |
||
Closing net debt/(cash) |
|
|
(8,573) |
(11,179) |
(12,022) |
(1,591) |
Source: Quantum Genomics accounts, Edison Investment Research. Note: *We assume €12m additional financing, shown as debt for the purpose of our model.
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Research: Financials
Following a positive update in July, Numis’s year-end update confirmed that trading remained strong through to the financial year end (September). Both corporate and institutional sides of the business contributed to the outcome and prospectively the company indicates a strong deal pipeline. We have increased our estimate for FY17 to match company guidance but left FY18e revenue and pre-tax profit unchanged at this stage. Continuation of benign market conditions could mean the current year estimate proves conservative, while on a longer view the strength of the franchise Numis has established is a key attraction for investors.