Novartis has taken a non-exclusive licence to Celyad’s granted allogeneic US patent for $96m (an upfront fee, we assume $12m, and milestones) plus single-digit royalties. Novartis, a leading player in the haematological CAR T-cell cancer area, presumably aims to expand out of the limited autologous ALL indication where it has a filed BLA. The $96m deal sends a clear signal to other CAR T-cell companies to license quickly or risk being locked out of any allogeneic mass market until 2031. Celyad already has an allogeneic deal with ONO in Japan and Asia. Our indicative value has moved to €52.25 per share, formerly €45.
Written by
Celyad |
Novartis says yes to allogeneic technology |
Novartis deal |
Pharma & biotech |
4 May 2017 |
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Novartis has taken a non-exclusive licence to Celyad’s granted allogeneic US patent for $96m (an upfront fee, we assume $12m, and milestones) plus single-digit royalties. Novartis, a leading player in the haematological CAR T-cell cancer area, presumably aims to expand out of the limited autologous ALL indication where it has a filed BLA. The $96m deal sends a clear signal to other CAR T-cell companies to license quickly or risk being locked out of any allogeneic mass market until 2031. Celyad already has an allogeneic deal with ONO in Japan and Asia. Our indicative value has moved to €52.25 per share, formerly €45.
Year |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/15 |
0.15 |
(27.80) |
(3.20) |
0.0 |
N/A |
N/A |
12/16 |
8.52 |
(22.83) |
(2.09) |
0.0 |
N/A |
N/A |
12/17e |
8.28 |
(27.23) |
(2.86) |
0.0 |
N/A |
N/A |
12/18e |
9.00 |
(25.21) |
(2.65) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Novartis and allogeneic therapies
On 29 March 2017 Novartis announced the FDA acceptance of a priority review on its biological licence application (BLA) for CTL019 (tisagenlecleucel-T), an autologous CAR T-cell therapy for B-cell acute lymphoblastic leukaemia (ALL). This indication has a limited US market, including adults, of 5,970 new cases and 1,440 deaths per year (SEER). Broadening the use of CAR T-cell therapy and cutting costs by producing an ‘off the shelf’ allogeneic format is presumably commercially crucial for Novartis. Celyad has a US patent (US 9181527) granted until 2030 on allogeneic therapy to prevent graft versus host disease from transplanted CAR T-cells. This patent has survived two recent challenges; further worldwide patents are filed. Novartis presumably either needs to use this technology or would infringe the broad claim 1 of this patent; consequently, a non-exclusive deal (with an exclusive option) has been done. This complements the ONO deal in Japan and Asia done by Celyad in 2016 (see note from 13 July 2016). Celyad plans NKR-2 allogeneic trials in 2017. The current THINK NKR-2 CAR T-cell trial in two haematological and five solid tumours is at its second dose level with a US arm underway.
Valuation: Increased to €52.25 per share
Our valuation focuses on NKR-2 indications. We assume that US$12m of the US$96m Novartis deal value is paid in 2017; the net amount (less assumed royalties to the patent holder) is about €8m – this is comparable to the 2016 ONO deal. Celyad has guided that it plans to spend between €35m and €40m in 2017 and 2018, which gives cash into 2019; we have increased our 2018 year-end cash from €20m to €29m but costs may rise. The ex-royalty NPV of the Novartis deal is estimated by us at c €25m. As we believe that this deal will force other CAR T-cell companies to also license this patent or be locked out of the allogeneic market until 2031, we have increased the nominal allogeneic value from €10m to €50m, possibly conservatively. The increased allogenic value and reduced net operating cash use to 2023 takes the indicative value to €52.25/share, formerly €45/share.
Exhibit 1: Financial summary
€000s |
2015 |
2016 |
2017e |
2018e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
0 |
8,523 |
8,280 |
9,000 |
Cost of Sales |
(1) |
(53) |
0 |
0 |
||
Gross Profit |
(1) |
8,470 |
8,280 |
9,000 |
||
EBITDA |
|
|
(28,089) |
(24,065) |
(26,720) |
(24,700) |
Operating Profit (before amort and except) |
|
|
(28,362) |
(24,825) |
(27,480) |
(25,460) |
Intangible Amortisation |
(760) |
(756) |
(756) |
(756) |
||
Other income and charges |
0 |
(521) |
0 |
0 |
||
Share-based payments |
(795) |
493 |
0 |
0 |
||
Operating Profit |
(29,917) |
(25,609) |
(28,236) |
(26,216) |
||
Net Interest |
558 |
1,997 |
250 |
250 |
||
Profit Before Tax (norm) |
|
|
(27,804) |
(22,828) |
(27,230) |
(25,210) |
Profit Before Tax (FRS 3) |
|
|
(29,359) |
(23,612) |
(27,986) |
(25,966) |
Tax |
0 |
6 |
0 |
0 |
||
Profit After Tax (norm) |
(27,804) |
(19,482) |
(27,230) |
(25,210) |
||
Profit After Tax (FRS 3) |
(29,359) |
(23,606) |
(27,986) |
(25,966) |
||
Average Number of Shares Outstanding (m) |
8.7 |
9.3 |
9.5 |
9.5 |
||
EPS - normalised (c) |
|
|
(320) |
(209) |
(286) |
(265) |
EPS - (IFRS) (€) |
|
|
(3.38) |
(2.54) |
(2.94) |
(2.73) |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
N/A |
N/A |
N/A |
N/A |
||
EBITDA Margin (%) |
N/A |
N/A |
N/A |
N/A |
||
Operating Margin (before GW and except) (%) |
N/A |
N/A |
N/A |
N/A |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
50,105 |
53,440 |
52,074 |
50,708 |
Intangible Assets |
48,789 |
49,566 |
48,810 |
48,054 |
||
Tangible Assets |
1,136 |
3,563 |
2,953 |
2,343 |
||
Investments |
180 |
311 |
311 |
311 |
||
Current Assets |
|
|
109,420 |
85,366 |
57,636 |
31,923 |
Stocks |
0 |
0 |
0 |
0 |
||
Debtors |
549 |
1,359 |
1,359 |
1,359 |
||
Cash (cash plus deposits) |
107,513 |
82,587 |
54,857 |
29,144 |
||
Other |
1,358 |
1,420 |
1,420 |
1,420 |
||
Current Liabilities |
|
|
(11,490) |
(11,275) |
(11,017) |
(10,487) |
Creditors |
(10,592) |
(9,960) |
(9,960) |
(9,960) |
||
Deferred revenue |
0 |
0 |
0 |
0 |
||
Walloon loans and bank loan |
(898) |
(1,315) |
(1,057) |
(527) |
||
Long Term Liabilities |
|
|
(36,561) |
(36,646) |
(35,796) |
(34,946) |
Loans (non-current) Bank and Walloon |
(10,484) |
(7,866) |
(7,016) |
(6,166) |
||
Other long term liabilities |
(26,077) |
(28,780) |
(28,780) |
(28,780) |
||
Net Assets |
|
|
111,474 |
90,885 |
62,897 |
37,198 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(27,862) |
(26,689) |
(27,192) |
(24,578) |
Net Interest |
558 |
1,997 |
861 |
264 |
||
Tax |
0 |
0 |
0 |
0 |
||
Capex |
(838) |
(1,782) |
(150) |
(150) |
||
Acquisitions/disposals |
(5,186) |
(1,561) |
0 |
0 |
||
Financing |
109,155 |
0 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Other |
(3,287) |
3,109 |
(1,249) |
(1,249) |
||
Net Cash Flow |
72,540 |
(24,926) |
(27,730) |
(25,713) |
||
Opening net debt/(cash) |
|
|
(16,078) |
(96,131) |
(73,406) |
(46,784) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Loan and finance movements |
7,513 |
2,201 |
1,108 |
1,380 |
||
Closing net debt/(cash) |
|
|
(96,131) |
(73,406) |
(46,784) |
(22,451) |
Source: Edison Investment Research estimates, Celyad reports and announcements.
|
|
Novartis has taken a non-exclusive license to Celyad’s granted allogeneic US patent for $96m (an upfront fee, we assume $12m, and milestones) plus single-digit royalties. Novartis, a leading player in the hematological CAR T-cell cancer area, presumably aims to expand out of the limited autologous ALL indication where it has a filed BLA. The $96m deal sends a clear signal to other CAR T-cell companies to license quickly or risk being locked out of any allogeneic mass market until 2031. Celyad already has an allogeneic deal with ONO in Japan and Asia. Our indicative value has moved to $58.0 per share, formerly $50.