Oryzon Genomics — Update 3 November 2016

Healthcare

Oryzon Genomics

Fresh preclinical ORY-2001 data, ORY-1001 next

Q316 results update

Pharma & biotech

3 November 2016

Price	€2.90
Market cap	€83m

Net cash (€m) at end of Q316		3.6

Shares in issue	28.5m
Free float	30%
Code	ORY

Primary exchange	Madrid Stock Exchange
Secondary exchange	N/A

Share price performance

%	1m	3m	12m
Abs	3.6	0.0	N/A
Rel (local)	2.1	(6.7)	N/A

52-week high/low

€4.60

€2.60

Business description

Oryzon Genomics is a Spanish biotechnology company focused on developing novel epigenetic compounds. Lead compound ORY-1001 is partnered with Roche and is undergoing a Phase I/IIa study for acute leukaemia. ORY-2001 has potential for Alzheimer’s disease and has entered Phase I. ORY-3001 is a new preclinical asset.

Next events

ORY-1001 Phase I/IIa results	Dec 2016 (ASH)
ORY-2001 Phase I results	H117

Analysts

Jonas Peciulis	+44 (0)20 3077 5728
Juan Pedro Serrate	+44 (0)20 3681 2534

healthcare@edisongroup.com

Edison profile page

Oryzon Genomics is a research client of Edison Investment Research Limited

Oryzon’s Q316 update revealed good progress on R&D and it reiterated that the preliminary Phase I/IIa data for ORY-1001 is expected to be presented at the American Society of Hematology (ASH) annual meeting on 3 to 6 December 2016. The focus will be on Part 2 of the study, which should include preliminary efficacy information. Oryzon has also made progress with earlier R&D projects, with fresh preclinical ORY-2001 data in September demonstrating potential in a new multiple sclerosis indication, and revealed, in July, a third product, ORY-3001, targeting undisclosed non-oncological indications. Our Oryzon valuation is virtually unchanged at €156m or €5.5/share.

Year end	Revenue (€m)	PBT* (€m)	EPS* (€)	DPS (€)	P/E (x)	Yield (%)
12/14	15.5	11.3	0.48	0.0	N/A	N/A
12/15	7.2	(0.1)	(0.01)	0.0	N/A	N/A
12/16e	4.8	(4.9)	(0.16)	0.0	N/A	N/A
12/17e	2.8	(6.2)	(0.22)	0.0	N/A	N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Q316 results and additional debt financing

Oryzon reported its Q316 results on 24 October. Converted into its functional currency, R&D expenses were €1.3m, up from €0.9m a year ago due to increased overall activity. G&A costs of €1.2m in Q316 were higher year-on-year, in line with our expectations and reflected increased headcount and compliance costs. Solid cash and term deposits of €28.6m (net cash of €3.6m) at the end of Q316 were significantly boosted with additional debt of €5.3m from a second tranche in September following the first tranche of €10.5m in May 2016. The loans are long-term, non-senior, non-convertible carrying current commercial interest rates.

Focus Phase I/IIa readout and next steps

Oryzon reiterated that it expects to announce the preliminary data from the Phase I/IIa trial with ORY-1001 at ASH in December, which is a key milestone in the near term. The study includes different subsets of acute leukaemia patients treated with ORY-1001, lysine specific demethylase 1 (LSD1) inhibitor. The trial consisted of two arms, with Part 1 demonstrating preliminary safety and tolerability. Part 2 will provide preliminary efficacy data in December. ORY-1001 has been partnered with Roche since April 2014. After completion of the ongoing Phase I/IIa, Roche will be solely responsible for further clinical development and commercialisation of ORY-1001, which could expand beyond acute leukaemia.

Valuation: €156m or €5.5/share

We value Oryzon at a virtually unchanged €156m (previously €158m) or €5.5/share. Our valuation has been updated for slightly lower net cash, offset by rolling our model forward. The upcoming Phase I/IIa data could provide a catalyst for value inflection.

Preclinical POC of ORY-2001 in multiple sclerosis

ORY-2001 (dual LSD1 and monoamine oxidase B inhibitor), which is being developed for Alzheimer’s disease (AD), entered a Phase I trial in Q116 with healthy volunteers to establish safety/tolerability. As guided previously, Phase II with AD patients could start in H117.

In September 2016 Oryzon presented fresh preclinical ORY-2001 data in poster format (full data unpublished) at the 32nd congress of the European Committee for Treatment and Research in Multiple Sclerosis (ECTRIMS). ORY-2001 was tested in a preclinical proof-of-concept (POC) trial using a multiple sclerosis (MS) mouse model. MS emerged as a second potential indication for ORY-2001, which is still wholly owned by the company.

So far, ORY-2001 has demonstrated efficacy in preclinical dementia models but, following the insights from biomarker analysis showing ORY-2001’s downregulating effect on neuroinflammatory genes, including S100A9, Oryzon conducted the present study with ORY-2001 in an experimental autoimmune encephalomyelitis (EAE) mice model, a widely used proxy for MS, which has been shown to have upregulated S100A9.

The study included three controlled arms: EAE mice treated with ORY-2001 (dual LSD1/MAO-B inhibitor), ORY-LSD1 (proprietary selective LSD1 inhibitor) or rasagiline (widely used selective MAO-B inhibitor; MAO-B is a well-established target in certain CNS conditions). The data showed that treatment with ORY-2001 effectively reduced the severity of the disease (Exhibit 1, A) and cumulative disease index (Exhibit 1, B). Dual inhibition of LSD1/MAO-B with ORY-2001 was more effective than standalone inhibition of LSD1 with ORY-LSD1 or MAO-B with rasagiline. Oryzon is yet to provide further development plans for this indication, but should the company move ORY-2001 into the clinic this will be a new, first-in-class approach for MS.

Exhibit 1: Effects of the treatment with ORY-2001, ORY-LSD1 and rasagiline in EAE mice model

Source: T. Maes et al. LSD1 inhibition, a potential epigenetic therapeutic approach for the treatment of Multiple Sclerosis. Poster presentation, 32nd congress of the European Committee for Treatment and Research in Multiple Sclerosis, September 2016. Note: Cumulative disease index = the sum of clinical scores reached for each animal every day until day 51 post-immunization.

MS market potential

Around 400k people are diagnosed with MS in the US each year and around 85% of those have a relapsing-remitting course of the disease, which is in contrast to the progressive type, when symptoms gradually get worse over time rather than appearing as relapses. The mainstay of the treatment is disease-modifying therapies with the goal of reducing the frequency of relapses and slowing progression (source: Multiple Sclerosis, Medscape) with Evaluate Pharma estimating that the market will be worth $25bn in 2020. MS remains a highly debilitating disease, eventually incapacitating the patients, and is still an unmet medical need.

Valuation

Our valuation of Oryzon is virtually unchanged at €156m or €5.5/share, based on a risk-adjusted NPV analysis, which includes €1.2m net cash at end 2016. We do not include the MS indication for ORY-2001 in our valuation yet, although we clearly see the differentiation of this asset in terms of mechanism of action. We will revisit ORY-2001 for MS when more details have emerged or upon Oryzon’s decision to proceed with this indication into the clinic. Fine-tuning our near-term forecasts did not significantly affect our long-term product forecasts or valuation. Rolling out model forward by one quarter mostly offset the decrease in the net cash position (with the new debt). We use a 12.5% discount rate, with probabilities for reaching the market of 15% and 12% for ORY-1001 and ORY-2001, respectively.

Exhibit 2: Oryzon rNPV valuation

Product	Indication	Launch	Peak sales (US$m)	Value (€m)	Probability (%)	rNPV (€m)	NPV/share (€/share)
ORY-1001	AML	2022	900	246.8	15%	44.0	1.5
ORY-1001	SCLC	2025	630*	116.9	8%	16.5	0.6
ORY-2001	AD	2026	4,510*	778.1	12%	94.3	3.3
Net cash (end-2016)				1.2	100%	1.2	0.0
Valuation				1,143.0		156.1	5.5

Source: Edison Investment Research. Note: *Peak sales are rounded to the nearest US$10m, shown in US$. SCLC = small cell lung cancer; AML = acute myeloid leukaemia; AD = Alzheimer’s disease.

Currently, our valuation is based on clinical-stage compounds and one preclinical indication (Exhibit 2). ORY-1001 has been partnered with Roche since April 2014 (for deal details see our previous report). After completion of the ongoing Phase I/IIa, Roche will be solely responsible for further clinical development and commercialisation of ORY-1001, and could expand it beyond acute leukaemia. Specifically, we include ORY-1001 to be developed for small cell lung cancer (SCLC) because, in our view, this indication appears to be the most likely one for Roche to expand. ORY-2001 is still unpartnered, but Oryzon’s strategy is to develop the asset until clinical POC stage and then seek to out-license it. We have assumed a licensing deal for this asset in our model (see our initiation report for more details).

Financials

In Q316 Oryzon’s revenues of €0.2m consisted of a reimbursement payment from Roche according to the R&D collaboration agreement, which is separate to the ORY-1001 licensing deal. Earlier in 2016, the company fully recognized deferred income after a milestone payment of $4m from Roche in July 2015, which therefore resulted in lower collaboration revenues y-o-y (€0.7m in Q315). The R&D collaboration agreement with Roche was extended in April 2016 to March 2017. In addition, in Q316 the company recorded income of €1.2m to account for the capitalisation of the development costs (€2.9m in 2016 so far). Oryzon follows Spanish GAAP and research costs are expensed, while development costs can be capitalised by recognising income in the P&L statement.

We have revised our near-term financial forecasts, while our projections for Oryzon’s products remain unchanged; therefore our revised estimates did not have a significant effect on our valuation. The increase in 2016 and 2017 revenue estimates comes from a slightly higher Roche reimbursement level than we previously expected and higher Oryzon’s R&D cost projections, which allow for more spending to be capitalised, as explained above. The increase in our R&D cost estimates mostly reflects higher overall activity, especially with ORY-2001, but also the preclinical development with a new candidate, ORY-3001, undergoing for toxicological studies. G&A costs of €1.2m in Q316 were higher year-on-year, in line with our expectations and reflected increased headcount and compliance costs. The net effect on our loss per share estimates was slightly negative, from €0.18 to €0.19 in FY16 and from €0.23 to €0.25 in FY17.

Following the addition of the new debt, we forecast a comfortable 2016 year-end cash position of €29.5m (cash and term deposits classed as other current assets). In total, during the past 12-18 months Oryzon has managed to attract more than €32m in new funding from various sources. In addition, it has a history of efficient use of available public grants, which could provide further non-dilutive financing.

Exhibit 3: Key changes to our financial forecasts

€m	2015	2016e			2017e
€m	Actual	Old	New	Change (%)	Old	New	Change (%)
Revenue	7.185	3.886	4.835	+24%	2.467	2.797	+13%
Gross profit	7.185	3.886	4.835	+24%	2.467	2.797	+13%
Operating profit (reported)	(0.233)	(4.612)	(4.715)	+2%	(5.590)	(6.281)	+12%
Profit before tax (reported)	(0.955)	(5.474)	(5.708)	+4%	(6.433)	(7.124)	+11%
Profit after tax (reported)	(0.992)	(5.107)	(5.312)	+4%	(6.433)	(7.124)	+11%
EPS reported (€)	(0.04)	(0.18)	(0.19)	+4%	(0.23)	(0.25)	+11%

Source: Oryzon accounts, Edison Investment Research

Exhibit 4: Financial summary

	€'000s	2012	2013	2014	2015	2016e	2017e
December		Local GAAP	Local GAAP	Local GAAP	Local GAAP	Local GAAP	Local GAAP
PROFIT & LOSS
Revenue		4,353	2,360	15,536	7,185	4,835	2,797
Cost of Sales		0	0	0	0	0	0
Gross Profit		4,353	2,360	15,536	7,185	4,835	2,797
Research and development		(876)	(873)	(1,108)	(3,191)	(4,783)	(3,774)
EBITDA		856	(94)	11,659	688	(3,780)	(5,260)
Operating Profit (before amort. and except.)		559	(370)	11,398	448	(3,898)	(5,378)
Intangible Amortisation		(455)	(657)	(657)	(657)	(817)	(902)
Exceptionals		0	(186)	(4,617)	(24)	0	0
Other		0	0	0	0	0	0
Operating Profit		104	(1,213)	6,124	(233)	(4,715)	(6,281)
Exceptionals		(220)	0	667	(169)	0	0
Net Interest		(582)	(672)	(52)	(553)	(993)	(843)
Profit Before Tax (norm)		(23)	(1,042)	11,346	(105)	(4,891)	(6,221)
Profit Before Tax (reported)		(698)	(1,885)	6,739	(955)	(5,708)	(7,124)
Tax		90	89	(88)	(37)	396	0
Profit After Tax (norm)		67	(953)	11,258	(142)	(4,496)	(6,221)
Profit After Tax (reported)		(608)	(1,796)	6,651	(992)	(5,312)	(7,124)

Average Number of Shares Outstanding (m)		23.0	23.0	23.3	24.5	28.5	28.5
EPS - normalised (€)		0.00	(0.04)	0.48	(0.01)	(0.16)	(0.22)
EPS - (reported) (€)		(0.03)	(0.08)	0.29	(0.04)	(0.19)	(0.25)
Dividend per share (€)		0.0	0.0	0.0	0.0	0.0	0.0

Gross Margin (%)		100.0	100.0	100.0	100.0	100.0	100.0
EBITDA Margin (%)		19.7	N/A	75.0	9.6	N/A	N/A
Operating Margin (before GW and except.) (%)		12.8	N/A	73.4	6.2	N/A	N/A

BALANCE SHEET
Fixed Assets		18,765	20,128	16,059	18,050	21,170	22,946
Intangible Assets		15,062	15,825	12,928	15,188	18,396	20,291
Tangible Assets		1,485	1,159	981	854	736	618
Investments		2,217	3,145	2,150	2,008	2,037	2,037
Current Assets		3,808	2,851	9,999	22,681	30,848	19,810
Stocks		19	2	9	4	11	8
Debtors		977	663	704	940	1,341	1,140
Cash		2,302	2,033	3,633	19,467	23,875	13,040
Other		510	153	5,654	2,270	5,621**	5,621**
Current Liabilities		(2,283)	(2,724)	(3,969)	(5,296)	(4,552)	(4,102)
Creditors		(765)	(1,005)	(1,299)	(2,401)	(1,432)	(1,737)
Short term borrowings		(1,519)	(1,719)	(2,670)	(2,895)	(3,120)	(2,365)
Long Term Liabilities		(9,949)	(11,251)	(8,196)	(7,841)	(26,952)	(25,882)
Long term borrowings		(7,963)	(9,117)	(6,420)	(6,177)	(24,377)	(23,307)
Other long term liabilities		(1,986)	(2,134)	(1,776)	(1,664)	(2,575)	(2,575)
Net Assets		10,341	9,004	13,893	27,594	20,513	12,772

CASH FLOW
Operating Cash Flow		1,420	(113)	12,178	1,076	(9,275)	(5,595)
Net Interest		(582)	(672)	(52)	(553)	(993)	(843)
Tax		0	0	0	0	396	0
Capex		0	0	0	0	0	0
Acquisitions/disposals		107	(677)	798	0	0	0
Financing		0	0	0	14,725	0	0
Other		(8,125)	(161)	(9,579)	605	(3,920)*	(2,797)*
Dividends		0	0	0	0	0	0
Net Cash Flow		(7,180)	(1,623)	3,345	15,853	(13,792)	(9,234)
Opening net debt/(cash)		0	7,180	8,803	5,458	(10,395)	3,622
HP finance leases initiated		0	0	0	0	0	0
Other		0	0	0	0	0	0
Closing net debt/(cash)		7,180	8,803	5,458	(10,395)	3,397	12,857

Source: Edison Investment Research, Oryzon Genomics accounts. Note: Oryzon reports in Spanish GAAP. *Represents cash outflows related to development costs that were capitalised. **Term deposits classed as other current assets.

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Oryzon Genomics and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

245 Park Avenue, 39th Floor

10167, New York

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Equities

Equities by Sector

Sectors

Investment Strategy

Latest

Equity strategy and market outlook – April 2024

Equity strategy and market outlook – March 2024

Equity strategy and market outlook – February 2024

Thematics

Latest

Listed private equity – Performing a balancing act

ConsumerWatch – At least someone loves me

MediaWatch – Rinse and repeat

Audiovisual

Latest

Checkit – executive interview

International Public Partnerships – executive interview

Unlocking US capital: Strategies for non-US-listed businesses

About Edison

About Edison

Careers

Oryzon Genomics (BME: ORY)

Oryzon Genomics — Update 3 November 2016

Healthcare

Healthcare

Latest

AGBA Group Holding — A transformational deal

Biodexa Pharmaceuticals — In a period of transition

Norcros — Sale of Johnson Tiles UK agreed

Henderson Far East Income — Repositioning to raise total returns

Freelancer — AI to drive return to growth

More on Oryzon Genomics

Oryzon Genomics — FDA green light for SCLC combination trial

Oryzon Genomics — Third time is a charm; INNOVATIVE SME Seal

Oryzon Genomics — Approaching a period of inflection

Oryzon Genomics — KOL event: Offering a real-world solution in BPD

Latest from the Healthcare sector

Biodexa Pharmaceuticals — In a period of transition

Creo Medical — NHS data validates Speedboat’s economic merit

Basilea Pharmaceutica — Need for innovation against severe infections

Ultimovacs — Steadfast commitment to UV1 progression

Gaming Realms — Update 3 November 2016

Subscribe to Edison