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Research: Healthcare
Quantum Genomics recently announced its 2017 results and updated the status of its NEW-HOPE study in 250 hypertensive overweight patients across 25 major hospitals in the US. According to the company, the study’s recruitment has been very rapid and exceeded initial projections. Final data are expected in H119. In the near term, the company is expected to announce a three-year strategic plan on 19 April.
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Quantum Genomics |
NEW-HOPE trial recruiting rapidly |
Financial results |
Pharma & biotech |
6 April 2018 |
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Quantum Genomics recently announced its 2017 results and updated the status of its NEW-HOPE study in 250 hypertensive overweight patients across 25 major hospitals in the US. According to the company, the study’s recruitment has been very rapid and exceeded initial projections. Final data are expected in H119. In the near term, the company is expected to announce a three-year strategic plan on 19 April.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16 |
0.0 |
(6.2) |
(0.60) |
0.0 |
N/A |
N/A |
12/17 |
0.0 |
(10.3) |
(0.93) |
0.0 |
N/A |
N/A |
12/18e |
0.0 |
(11.4) |
(0.73) |
0.0 |
N/A |
N/A |
12/19e |
0.0 |
(16.2) |
(1.00) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
NEW-HOPE progress
In November, Quantum Genomics announced it had recruited the first patients into the NEW-HOPE trial in hypertensive overweight patients across 25 major US hospitals with a primary end point of change from baseline in office systolic blood pressure (SBP) at week eight. As of the end of March, recruitment is going very well, topping internal projections. Final data are expected in H119.
Trial enriched with patients most likely to respond
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. NEW-HOPE is enriched with those 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, although recruitment has been slow. The trial protocol was amended in January 2018 to expand the patient profile, including raising the age and body mass index (BMI) limits, to accelerate recruitment. We had previously expected data in H118 but now expect them in the second half of the year.
Valuation: €201m or €18.31 per share
We have adjusted our valuation of Quantum Genomics to €201m or €18.31 per share, from €195m or €17.79 per share. The valuation increase is due to advancing our NPVs, which was partially offset by a lower cash balance. In March, the company announced an equity line of credit with Kepler Cheuvreux, which could raise €24m over three years in four tranches. The initial tranche of €6m does not require shareholder approval, but the final three will be subject to a vote at the next meeting of shareholders later this year.
NEW-HOPE doing well
Quantum Genomics has announced that the NEW-HOPE trial is enrolling very rapidly and has exceeded its projections. As a reminder, the NEW-HOPE trial is on 250 hypertensive overweight (BMI 25-45kg/m2) patients, with a primary end point of change from baseline in office 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.
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.
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 $1,000 for the highly genericised hypertension market. Additionally, clinical trials for HF require significantly fewer patients.
The company initiated its heart failure programme in 2016 with a 75-person Phase II clinical trial in Europe. The trial is enrolling patients with diagnosed worsening heart failure and the primary end points for the study are a decrease in N-terminal pro b-type natriuretic peptide, a key marker of heart dysfunction, as well as lower blood pressure. Enrolment in the trial has been slow and the company made a number of inclusion/exclusion criteria changes in January (including raising the age and BMI requirements) to accelerate enrolment. We had previously expected data in H118 but now expect them in the second half of the year.
Valuation
We have adjusted our valuation of Quantum Genomics to €201m or €18.31 per share, from €195m or €17.79 per share. The valuation increase is due to advancing our NPVs, which was partially offset by a lower cash balance relative to our previous valuation. We expect to update our valuation with the release of data from the Phase IIa heart failure trial in H218.
Exhibit 1: Quantum Genomics valuation table
Product |
Main indication |
Local |
Status |
Probability of success |
Launch year |
Peak sales ($m) |
Patent protection |
rNPV |
QGC001 |
Hypertension |
US |
Phase Il |
15% |
2023 |
$1,110 |
2031 |
€118.27 |
QGC001 |
Hypertension |
Europe |
Phase Il |
15% |
2023 |
$959 |
2031 |
€100.33 |
QGC001 |
Development costs |
|
|
|
|
(€124.76) |
||
QGC101 |
Heart failure |
US |
Phase IIa |
15% |
2023 |
$574 |
2031 |
€75.27 |
QGC101 |
Heart failure |
Europe |
Phase IIa |
15% |
2023 |
$687 |
2031 |
€89.31 |
QGC101 |
Development costs |
(€68.31) |
||||||
Total |
|
|
|
|
|
|
|
€190.10 |
Cash and cash equivalents (31 December 2017) (€m) |
€11.09 |
|||||||
Total firm value (€m) |
€201.19 |
|||||||
Total shares (m) |
10.99 |
|||||||
Value per basic share (€) |
€18.31 |
|||||||
Source: Edison Investment Research
Financials
Quantum Genomics reported an operational loss of €10.3m in 2017 compared to €6.2m in 2016, with the increase primarily driven by the advancement of the clinical programmes in both hypertension and heart failure. We are maintaining our 2018 estimates for the most part and have introduced 2019 numbers. The company ended 2017 with €11.1m in cash and investments. In March, the company announced an equity line of credit with Kepler Cheuvreux, which could raise €24m over three years in four tranches. The initial tranche of €6m does not require shareholder approval but the final three will be subject to a vote at the next meeting of shareholders later this year (in 2017, the shareholder meeting occurred in June). The company has stated it believes that if the equity line is approved by shareholders that it would be funded through the end of 2020. This will be somewhat dependent on whether additional trials are conducted by the company or a partner. As late-stage cardiovascular trials are extremely expensive to conduct, we expect further development to be financed via a partnership.
Exhibit 2: Financial summary
€000s |
2015 |
2016 |
2017 |
2018e |
2019e |
||
Year end 31 December |
PCG |
PCG |
PCG |
PCG |
PCG |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
144 |
0 |
0 |
0 |
0 |
Cost of Sales |
(0) |
0 |
0 |
0 |
0 |
||
Gross Profit |
144 |
0 |
0 |
0 |
0 |
||
EBITDA |
|
|
(4,310) |
(6,216) |
(10,292) |
(10,948) |
(14,792) |
Operating Profit (before amort. and except.) |
(4,310) |
(6,216) |
(10,292) |
(10,948) |
(14,792) |
||
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
1 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
(4,310) |
(6,216) |
(10,292) |
(10,948) |
(14,792) |
||
Net Interest |
(222) |
0 |
0 |
(481) |
(1,440) |
||
Other |
54 |
18 |
(176) |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(4,503) |
(6,216) |
(10,292) |
(11,429) |
(16,232) |
Profit Before Tax (FRS 3) |
|
|
(4,479) |
(6,198) |
(10,468) |
(11,429) |
(16,232) |
Tax |
714 |
958 |
1,150 |
1,486 |
2,110 |
||
Deferred tax |
0 |
0 |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(3,789) |
(5,258) |
(9,142) |
(9,943) |
(14,122) |
||
Profit After Tax (FRS 3) |
(3,765) |
(5,240) |
(9,318) |
(9,943) |
(14,122) |
||
Average Number of Shares Outstanding (m) |
6.9 |
8.7 |
9.9 |
13.6 |
14.1 |
||
EPS - normalised (€) |
|
|
(0.55) |
(0.60) |
(0.93) |
(0.73) |
(1.00) |
EPS - FRS 3 (€) |
|
|
(0.54) |
(0.60) |
(0.95) |
(0.73) |
(1.00) |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
520 |
701 |
439 |
434 |
431 |
Intangible Assets |
108 |
142 |
91 |
91 |
91 |
||
Tangible Assets |
54 |
60 |
52 |
48 |
44 |
||
Other |
358 |
500 |
296 |
296 |
296 |
||
Current Assets |
|
|
10,020 |
13,809 |
13,478 |
15,540 |
13,422 |
Stocks |
14 |
1,011 |
189 |
189 |
189 |
||
Debtors |
1,354 |
1,599 |
2,197 |
2,197 |
2,197 |
||
Cash |
8,652 |
11,198 |
11,089 |
13,151 |
11,033 |
||
Other |
0 |
1 |
3 |
3 |
3 |
||
Current Liabilities |
|
|
(2,128) |
(3,481) |
(4,572) |
(4,572) |
(4,572) |
Creditors |
(2,128) |
(3,480) |
(4,571) |
(4,571) |
(4,571) |
||
Short term borrowings |
(1) |
(1) |
(1) |
(1) |
(1) |
||
Long Term Liabilities |
|
|
(390) |
(506) |
(474) |
(6,474) |
(18,474) |
Long term borrowings |
(78) |
(18) |
(19) |
(6,019)* |
(18,019)* |
||
Other long term liabilities |
(312) |
(488) |
(454) |
(454) |
(454) |
||
Net Assets |
|
|
8,022 |
10,524 |
8,871 |
4,929 |
(9,193) |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
(3,142) |
(5,531) |
(7,977) |
(9,931) |
(14,110) |
Net Interest |
0 |
0 |
0 |
0 |
0 |
||
Tax |
0 |
0 |
0 |
0 |
0 |
||
Capex |
(72) |
(66) |
32 |
(8) |
(8) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
0 |
||
Financing |
12,150 |
7,744 |
7,733 |
6,000 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
||
Other |
(296) |
399 |
104 |
0 |
0 |
||
Net Cash Flow |
8,640 |
2,546 |
(108) |
(3,939) |
(14,118) |
||
Opening net debt/(cash) |
|
|
(5) |
(8,573) |
(11,179) |
(11,069) |
(7,131) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
||
Exchange rate movements |
0 |
0 |
0 |
0 |
0 |
||
Other |
-72 |
60 |
-2 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(8,573) |
(11,179) |
(11,069) |
(7,130) |
6,988 |
Source: Quantum Genomics accounts, Edison Investment Research. Note: *We assume €24m additional financing, the amount of the equity credit line, €18m of which is shown as debt for the purpose of our model.
|
|
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