Nicox — No surprises as NCX-470 Phase III trials advance

Nicox (Euronext Growth: ALCOX)

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Research: Healthcare

Nicox — No surprises as NCX-470 Phase III trials advance

Nicox’s lead candidate NCX-470 targets the topical treatment of glaucoma by utilising and expanding on an already-established dual intraocular pressure (IOP)-lowering mechanistic approach. Top-line data from Mont Blanc, the first of two Phase III studies, is expected in H122. The second Phase III trial, Denali, already ongoing in the US, recently received approval to begin enrolling patients in China. Denali study data is expected in Q422, which we believe should support a potential US launch in 2024. Nicox recently reported FY20 results, which were in line with our estimates in terms of product sales-related royalty revenue, and slightly ahead in terms of free cash flow.

Written by

Pooya Hemami

Analyst - Healthcare

Healthcare

Nicox

No surprises as NCX-470 Phase III trials advance

FY20 update

Pharma & biotech

9 March 2021

Price

€4.27

Market cap

€158m

$1.19/€

Net cash (€m) at 31 December 2020

29.3

Shares in issue

37.1m

Free float

98%

Code

COX

Primary exchange

Euronext

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.9)

(1.2)

17.1

Rel to TA-100

(7.9)

(6.6)

2.4

52-week high/low

€5.88

€2.80

Business description

Based in France, Nicox develops therapeutics for the treatment of ocular conditions. Lead development candidate NCX-470 is in Phase III studies for the treatment of glaucoma. Nicox also receives licence revenue from its partners for its FDA-approved drugs Vyzulta and Zerviate.

Next events

Phase IIb NCX-4251 top-line results

Q421

Mont Blanc Phase III NCX-470 top-line results

H122

Analysts

Pooya Hemami, CFA

+1 646 653 7026

Maxim Jacobs, CFA

+1 646 653 7027

Nicox’s lead candidate NCX-470 targets the topical treatment of glaucoma by utilising and expanding on an already-established dual intraocular pressure (IOP)-lowering mechanistic approach. Top-line data from Mont Blanc, the first of two Phase III studies, is expected in H122. The second Phase III trial, Denali, already ongoing in the US, recently received approval to begin enrolling patients in China. Denali study data is expected in Q422, which we believe should support a potential US launch in 2024. Nicox recently reported FY20 results, which were in line with our estimates in terms of product sales-related royalty revenue, and slightly ahead in terms of free cash flow.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/19

8.3

(16.0)

(0.40)

0.0

N/A

N/A

12/20

14.4

(10.2)

(0.30)

0.0

N/A

N/A

12/21e

10.2

(16.1)

(0.43)

0.0

N/A

N/A

12/22e

12.0

(16.0)

(0.43)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. Normalised 2020 figures differ from reported amounts due primarily to the €6.9m loss reported following the divestment of Nicox’s holdings in VISUfarma.

NCX-470 heads a diverse ophthalmic portfolio

We believe that NCX-470, if approved, could become the most potent single-agent glaucoma drug on the market in terms of IOP lowering efficacy. NCX-4251 started Phase IIb studies in Q420 for the treatment of acute exacerbations of blepharitis, an indication with no specific FDA-approved product to date. Nicox also obtains recurring revenue from two out-licensed commercial assets, Vyzulta (latanoprostene bunod) and Zerviate (topical cetirizine); its royalty rates are no lower than mid-single digits. Vyzulta, Nicox’s first nitric oxide-donating prostaglandin F2α drug, is approved for the treatment of glaucoma and Zerviate is a topical antihistamine drug based on a commonly prescribed oral drug.

FY20 results boosted by Ocumension milestone

Nicox reported FY20 revenue of €14.4m, ahead of our €10.4m estimate, with the beat coming as licence milestones and other revenue (€10.5m) exceeded our €6.5m forecast. This is due to the company recognising in H220 a larger proportion than we expected of its €15m March 2020 payment from Ocumension (its Chinese market partner for NCX-470). Product sales-related licensing/royalty revenue came in at €3.89m, in line with our €3.93m estimate. Cash management was better than expected as the free cash flow loss was €5.4m, ahead of our forecast €6.8m loss.

Valuation: rNPV of €322m

We have slightly reduced our G&A expense forecasts, resulting in lower cash burn rate assumptions in FY22 and beyond. We have also updated our US forex assumptions (to $1.19/€, from $1.23/€ previously). Following these changes, we now obtain an rNPV of €322.4m, up from €303.7m previously. After adding €29.3m in net cash, we obtain an equity value of €351.7m, or €9.48 per share. We continue to model that Nicox’s funds on hand should last into H222 and that it will raise €40m between 2022 and 2024 before launching NCX-470 in 2024.

FY20 financial update

Nicox recently reported FY20 results that were generally in line with our forecasts in terms of product sales-related royalty revenue and PBT, and slightly ahead in terms of free cash flow and normalised operating profit. The largest variance is with respect to licence milestones and other revenue, which came in at €10.5m vs our €6.5m forecast. This is due to the company recognising a larger proportion than we expected of its €15m March 2020 payment from Ocumension (its Chinese market partner for NCX-470) as revenue in H220. In March 2020, the two parties amended their agreement such that Ocumension immediately paid Nicox €15m (in place of up to €36.25m in milestones from the original agreement), gained additional rights to NCX-470 for Korea and South-East Asia and agreed to pay 50% of the costs of the Denali study. €14m of this payment had been categorised as deferred revenue in the H120 financials (with €1m booked as H120 revenue), and in H220 the company recognised €9.5m of this payment as revenue.

Product sales-related licensing revenue (primarily royalties from Bausch + Lomb from the sale of Vyzulta in the US and other approved markets, and to a lower extent Zerviate US royalties from Eyevance) came in at €3.89m (+10.8% y-o-y), generally in line with our €3.93m estimate. Cost of sales, which reflects royalties on Vyzulta sales that Nicox must itself pay to Pfizer, were also in line with our forecasts at €1.5m. We continue to expect Vyzulta royalties to increase in upcoming quarters as the product gains market share given its currently unique dual IOP-lowering mechanistic approach based on applying a nitric oxide (NO)-donating molecule to an established prostaglandin F2α analogue (PGA) drug. In February, Vyzulta was approved in South Korea, the ninth market to approve the drug, joining the United States, Argentina, Canada, Colombia, Hong Kong, Mexico, Taiwan and Ukraine. Vyzulta has been commercialised in the United States, Canada, Argentina and Hong Kong.

Exhibit 1: Nicox 2020 financial results compared to Edison estimates

€000s (except EPS)

2020

2020e

Difference (%)

2019

Difference y-o-y (%)

License milestones and other revenue

10,538

6,500

62.1

4,753

121.7

License royalty payments

3,885

3,931

(1.2)

3,507

10.8

Total Revenue

14,423

10,431

38.3

8,260

74.6

Cost of sales

(1,516)

(1,531)

(1.0)

(1,405)

7.9

Gross profit

12,907

8,900

45.0

6,855

88.3

General & Administrative

(6,677)

(6,946)

(3.9)

(7,666)

(12.9)

Net Research & Development

(11,991)

(11,461)

4.6

(16,883)

(29.0)

Amortization of intangible assets

(1,252)

(1,290)

(2.9)

(659)

90.0

Operating profit (before exceptionals and intangible amortisation)

(5,761)

(9,507)

(39.4)

(17,694)

(67.4)

Depreciation & other

(491)

(459)

7.0

(464)

5.8

EBITDA

(5,270)

(9,048)

(41.8)

(17,230)

(69.4)

Exceptional items including asset impairment

(6,621)

(7,312)

(9.5)

(6,115)

8.3

Operating profit (excluding intangible amortisation)

(12,382)

(16,819)

(26.4)

(23,809)

(48.0)

Net financial expenses

(4,436)

(559)

694.1

1,690

(362.5)

PBT (reported)

(18,070)

(18,668)

(3.2)

(22,778)

(20.7)

PBT (normalised)

(10,197)

(10,066)

1.3

(16,004)

(36.3)

Tax expense

(28)

(26)

N/A

3,856

(100.7)

Net income (reported)

(18,098)

(18,694)

(3.2)

(18,922)

(4.4)

Net income (normalised)

(10,225)

(10,092)

1.3

(12,148)

(15.8)

Reported EPS (€)

(0.54)

(0.53)

1.1

(0.62)

(14.1)

Normalised EPS (€)

(0.30)

(0.29)

6.0

(0.40)

(24.4)

Year-end cash position

47,195

47,761

(1.2)

28,102

67.9

Year-end net cash (excluding IFRS 16 leases)

29,287

29,431

(0.5)

28,003

4.6

Operating cash flow excluding net finance costs

(956)

(6,021)

(84.1)

(17,741)

(94.6)

Free cash flow

(5,412)

(6,819)

(20.6)

(16,146)

(66.5)

Source: Company reports, Edison Investment Research

Operating expenses (R&D expenses net of tax credits, plus G&A costs) were €18.7m, slightly above our €18.4m estimate, and the overall normalised EBIT loss was €5.8m, a lower loss than expected given the higher licence milestone revenue described above. Net financial expenses were €4.4m, well ahead of our forecast, but much of this was due to a €3.4m forex charge. The normalised PBT loss of €10.2m was in line with our forecast. In addition to €1.3m in intangible amortisation, normalised 2020 figures (PBT, EBIT) differ from reported amounts due to exceptional items, primarily the €6.9m loss following the divestment of Nicox’s holdings in VISUfarma. Cash management was better than expected as the free cash flow loss was €5.4m, ahead of our forecast of a €6.8m loss.

Updates on NCX-470 clinical trials

NCX-470 is based on the company’s proprietary NO donating platform, which combines an NO-donating molecule with an analogue of established PGA drug bimatoprost, thereby providing an additional mechanism for the drug to reduce IOP. Bimatoprost is recognised as a more recent and more potent PGA molecule in terms of IOP-lowering efficacy than latanoprost, the underlying PGA molecule within Vyzulta (latanoprostene bunod). Nicox announced that its Chinese partner, Ocumension, received approval from China’s National Medical Products Administration (NMPA) to conduct the Chinese part of the ongoing NCX-470 Denali Phase III study of NCX-470 for the reduction of IOP in patients with open angle glaucoma or ocular hypertension. The Denali study was started in the US in November 2020, and like the Mont Blanc study, it is a three-month Phase III study assessing the safety and efficacy of NCX 470 ophthalmic solution, 0.1% versus latanoprost ophthalmic solution, 0.005%, and it will also include a long-term safety extension. The trial is financed jointly and in equal parts by Nicox and Ocumension and includes clinical sites in both the United States and China, with the majority of the patients to be recruited in the United States. The Denali trial and the ongoing Mont Blanc trial are designed to meet and fulfil the regulatory requirements to support New Drug Application (NDA) submissions in the United S. and China. Top-line Denali results are currently expected in Q422, and the company expects Mont Blanc results in H122. We continue to believe the Mont Blanc study results could be a key value inflection point for the company, as NCX-470, if approved, would be the first monotherapy glaucoma drug to demonstrate statistical superiority in Phase III to an existing approved PGA drug, which we believe would drive significant uptake as a first-line glaucoma drug.

Expanded US commercial reach for Zerviate

Nicox’s US licensee for Zerviate (cetirizine 0.24% ophthalmic solution), Eyevance Pharmaceuticals (a subsidiary of Santen), in February entered into a partnership with Hikma Pharmaceuticals for the copromotion of the topical anti-allergy drug Zerviate, which was launched in the US in March 2020 (Zerviate sales data has not been disclosed). Hikma will be responsible for promoting Zerviate to US healthcare professionals working outside the eyecare (optometry and ophthalmology) sectors, with all sales continuing to be booked by Eyevance, on which Nicox will receive tiered royalties up to 15%. Hikma is a top-10 US generic pharmaceutical company with established US commercial operations and sales representatives, and is well-positioned to serve family physicians, allergists and paediatricians, who are estimated to account for c 40% of US prescriptions for branded ophthalmic allergy products. We view the Hikma arrangement as a positive development for the US Zerviate commercialisation and potential future licence revenue to Nicox and we maintain our current Zerviate estimates. While the ocular allergy market is very competitive, with many products (including some OTC) offering effective combination antihistamine (H1 blocker) and mast cell stabilization properties, we believe that Eyevance’s resources, as well as primary care physicians’ familiarity with cetirizine, should allow the product to generate US peak sales of $41m in 2030.

Under Nicox’s licensing agreement with Eyevance, Nicox is eligible for up to $37.5m in milestones payable on Eyevance achieving pre-defined sales targets, with $30m triggered by annual sales of at least $100m.

Financials and valuation

The company finished FY20 with €47.2m in cash and equivalents and €18.0m in short- and long-term debt, resulting in €29.3m net cash (excluding €1.1m in lease liabilities). Following FY20 results, we have not changed our overall R&D assumptions but have slightly reduced our G&A expense forecasts, resulting in lower cash burn rate assumptions in FY22 and beyond. We have also updated our US forex assumptions (to $1.19/€, from $1.23/€ previously). Following these changes, we now obtain a risked net present value (rNPV) of €322.4m, up from €303.7m previously. After adding €29.3m in net cash, we obtain an equity value of €351.7m, or €9.48 per share.

Exhibit 2: Nicox rNPV assumptions

Product contribution

Indication

Stage

NPV (€m)

Probability of success

rNPV (€m)

rNPV/ share (€)

Launch year

Peak sales (€m) in 2030

NCX-470 (net of R&D and SG&A costs) in US market

Glaucoma

Phase III ongoing

402.9

50%

194.7

5.25

2024

315

NCX-470 (net of R&D and SG&A costs) in Europe and unpartnered regions

Glaucoma

Phase III

184.0

35%

59.9

1.61

2026

159

NCX-470 license fees from Ocumension (China and other)

Glaucoma

Phase III ongoing

8.9

50%

4.3

0.12

2024

2.8*

NCX-4251 (net of R&D and SG&A costs) sales and license fees/royalties

Acute blepharitis

Phase IIb ongoing

54.8

40%

19.3

0.52

2025

51.6

Vyzulta royalties from Bausch & Lomb

Glaucoma

Commercial

87.4

100%

87.4

2.36

2017

18.1*

Zerviate royalties from Eyevance and others

Allergic conjunctivitis

Commercial

19.0

100%

19.0

0.51

2020

4.9*

Corporate costs

(62.1)

100%

(62.1)

(1.67)

Total

694.9

322.4

8.69

Net cash (YE2020) excluding lease liabilities

29.3

29.3

0.79

Total equity value

724.2

351.7

9.48

FD shares outstanding (000) (28 February 2021)

37,104

Source: Edison Investment Research. Note: *Reflects net licence income and royalties received by Nicox and not commercial sales by licensee.

In terms of cash runway, Nicox in January 2021 amended its bond financing agreement with Kreos Capital, introducing a one-year period of interest-only payments on the outstanding principal starting on February 2021, and an extension of the overall maturity by six months to July 2024. As of February 2021, €16.1m of Nicox’s outstanding debt is with Kreos Capital, and €2m is in the form of an unsecured credit agreement with Société Générale and LCL, guaranteed by the French State, which was granted in August 2020 as part of one of the French state’s COVID-19 measures to support domestic business operations.

The company indicates that this one-year interest-only period for the Kreos debt should provide c €5.5m of additional financial flexibility, if needed, for investment in development activities in 2021. The interest rate of the bonds remains unchanged as a result of this amendment. Nicox granted Kreos Capital 100,000 share warrants (equivalent to 0.27% of outstanding share capital).

We continue to model that Nicox royalty revenue, primarily from Vyzulta, will help offset the company’s G&A and R&D costs in the coming years. Altogether, we model operating cash burn rates (excluding net interest and financing costs) of €15.9m in 2021 and €16.6m in 2022, versus our prior estimates of €15.8m and €17.7m, respectively. We continue to estimate Nicox’s funds on hand should allow Nicox to maintain operations into H222, although depending on licence revenues (particularly from Vyzulta), the runway could potentially stretch even further. We continue to model a €10m fund-raise in 2022, followed by an additional €10m in 2023 and €20m in 2024 (all fund raisings modelled as illustrative debt). Following NCX-470 launch in 2024, we do not expect Nicox will require additional capital as its royalty streams plus NCX-470 sales should enable it to start achieving consistent positive operating income starting in FY25.

Exhibit 3: Financial summary

€(000)

2018

2019

2020

2021e

2022e

2023e

2024e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

4,717

8,260

14,423

10,182

11,965

18,699

34,228

Cost of Sales

(690)

(1,405)

(1,516)

(1,881)

(2,367)

(4,777)

(9,111)

Gross Profit

4,027

6,855

12,907

8,301

9,598

13,923

25,116

General & Administrative

(9,506)

(7,666)

(6,677)

(6,777)

(7,074)

(10,445)

(28,693)

Net Research & Development

(15,491)

(16,883)

(11,991)

(16,700)

(17,350)

(12,350)

(7,350)

Amortisation of intangible assets

0

(659)

(1,252)

(1,162)

(1,141)

(1,121)

(1,101)

Operating profit before exceptionals

(20,970)

(18,353)

(7,013)

(16,338)

(15,967)

(9,993)

(12,027)

EBITDA

 

 

(20,718)

(17,230)

(5,270)

(14,822)

(14,476)

(8,528)

(10,515)

Depreciation & other

(252)

(464)

(491)

(354)

(351)

(344)

(411)

Operating Profit (before amort. and except.)

(20,970)

(17,694)

(5,761)

(15,176)

(14,826)

(8,872)

(10,926)

Exceptionals including asset impairment

302

(6,115)

(6,621)

0

0

0

0

Other

0

0

0

0

0

0

0

Operating Profit

(20,668)

(23,809)

(12,382)

(15,176)

(14,826)

(8,872)

(10,926)

Net Interest

2,390

1,690

(4,436)

(877)

(1,152)

(2,103)

(2,999)

Profit Before Tax (norm)

 

 

(18,580)

(16,004)

(10,197)

(16,053)

(15,978)

(10,976)

(13,925)

Profit Before Tax (FRS 3)

 

 

(18,278)

(22,778)

(18,070)

(17,215)

(17,120)

(12,097)

(15,026)

Tax

(113)

3,856

(28)

0

0

0

0

Profit After Tax and minority interests (norm)

(18,693)

(12,148)

(10,225)

(16,053)

(15,978)

(10,976)

(13,925)

Profit After Tax and minority interests (FRS 3)

(18,391)

(18,922)

(18,098)

(17,215)

(17,120)

(12,097)

(15,026)

Average Number of Shares Outstanding (m)

29.6

30.3

33.7

37.2

37.5

37.8

38.1

EPS - normalised (€)

 

 

(0.63)

(0.40)

(0.30)

(0.43)

(0.43)

(0.29)

(0.37)

EPS - normalised and fully diluted (€)

 

(0.63)

(0.40)

(0.30)

(0.43)

(0.43)

(0.29)

(0.37)

EPS - (IFRS) (€)

 

 

(0.62)

(0.62)

(0.54)

(0.46)

(0.46)

(0.32)

(0.39)

Dividend per share (€)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

112,498

110,660

89,745

88,585

87,422

86,425

85,769

Intangible Assets

71,397

72,120

64,848

63,686

62,545

61,424

60,323

Tangible Assets

25,628

27,517

24,829

24,831

24,809

24,933

25,378

Investments in long-term financial assets

15,473

11,023

68

68

68

68

68

Current Assets

 

 

26,092

32,146

52,521

36,133

28,468

29,790

34,755

Short-term investments

0

0

0

0

0

0

0

Cash

22,059

28,102

47,195

30,056

21,929

20,207

23,478

Other

4,033

4,044

5,326

6,077

6,540

9,583

11,276

Current Liabilities

 

 

(8,069)

(9,828)

(15,405)

(17,232)

(17,657)

(20,183)

(18,095)

Creditors

(8,069)

(7,751)

(10,116)

(11,943)

(12,368)

(14,894)

(12,806)

Short term borrowings

0

(2,077)

(5,289)

(5,289)

(5,289)

(5,289)

(5,289)

Long Term Liabilities

 

 

(16,868)

(23,681)

(26,051)

(22,551)

(29,051)

(37,551)

(57,551)

Long term borrowings

0

(9,045)

(12,687)

(12,687)

(22,687)

(32,687)

(52,687)

Other long term liabilities

(16,868)

(14,636)

(13,364)

(9,864)

(6,364)

(4,864)

(4,864)

Net Assets

 

 

113,653

109,297

100,810

84,935

69,183

58,481

44,877

CASH FLOW

Operating Cash Flow

 

 

(21,533)

(17,741)

(956)

(15,906)

(16,647)

(9,151)

(12,874)

Net interest and financing income (expense)

2,390

1,690

(4,436)

(877)

(1,152)

(2,103)

(2,999)

Tax

0

0

0

0

0

0

0

Capex

(268)

(95)

(20)

(356)

(328)

(467)

(856)

Acquisitions/disposals

0

0

0

0

0

0

0

Financing

0

11,290

13,321

0

0

0

0

Dividends

0

0

0

0

0

0

0

Net Cash Flow

(19,411)

(4,856)

7,909

(17,139)

(18,127)

(11,722)

(16,728)

Opening net debt/(cash)

 

 

0

(37,532)

(28,003)

(29,287)

(12,148)

5,979

17,701

HP finance leases initiated

0

0

0

0

0

0

0

Other

56,943

(4,673)

(6,625)

0

0

0

(0)

Closing net debt/(cash)

 

 

(37,532)

(28,003)

(29,287)

(12,148)

5,979

17,701

34,430

Lease debt

N/A

1,527

1,099

1,099

1,099

1,099

1,099

Closing net debt/(cash) inclusive of IFRS 16 lease debt

(37,532)

(26,476)

(28,188)

(11,049)

7,078

18,800

35,529

Source: Company reports, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Nicox and prepared and issued by Edison, in consideration of a fee payable by Nicox. 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 2021 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

1185 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

1185 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

This report has been commissioned by Nicox and prepared and issued by Edison, in consideration of a fee payable by Nicox. 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 2021 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

1185 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

1185 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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Canacol Energy — Increasing reserves despite reduced 2020 drilling

In 2020, Canacol replaced 61.9bcf of production (equivalent to 170mmscfd) with 75bcf of reserves, delivering a reserves replacement ratio of 122%. This is a commendable result given the company executed a pared down drilling programme in 2020 with only six wells drilled, of which two were exploration wells. The company expects to drill 12 wells in 2021, which should continue to replace rising production, with February sales recently reported of 187mmcfd.

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