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Research: Healthcare
Paion
Written by
Paion |
Extra four years US patent life a welcome boost |
US patent extended |
Pharma & biotech |
17 February 2016 |
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Business description
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Paion is a research client of Edison Investment Research Limited |
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The patent term of Paion’s new US patent covering the crystalline form of remimazolam besylate has been extended by 4.3 years due to delays in the US patent office. This will extend US market exclusivity for the ultra short-acting anaesthetic to late 2031 vs our previous expectation of 2027, which leads us to increase our valuation to €203m from €182m. We look toward to the outcome of the pre-NDA meeting in Japan (Q116) and results from the US colonoscopy Phase III as potential near-term catalysts.
Year end |
Revenue (€m) |
PBT* (€m) |
EPS* (c) |
DPS (c) |
P/E (x) |
Yield (%) |
06/13 |
4.2 |
(2.6) |
(7.2) |
0.0 |
N/A |
N/A |
06/14 |
3.5 |
(11.6) |
(22.9) |
0.0 |
N/A |
N/A |
06/15e |
0.0 |
(33.8) |
(55.9) |
0.0 |
N/A |
N/A |
06/16e |
1.0 |
(30.8) |
(52.2) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
US patent extended to 2031, potentially more to come
The new US patent covers crystalline forms of the besylate salt of remimazolam, which Paion selected for use in the drug formulation due to its excellent stability profile. US market exclusivity may be further extended under the Hatch-Waxman Act following FDA approval, representing potential upside to our forecasts. The longer patent life dovetails neatly with the increased focus on the US Phase III trials of remimazolam following the recent discontinuation of the European Phase III.
US colonoscopy Phase III results mid-year
The US colonoscopy Phase III is on track to treat the last patient in Q116 and report results mid-year. Paion is redirecting resources from the discontinued EU general anaesthesia trial to complete recruitment in the US bronchoscopy Phase III in CY16; measures include adding new trial sites and providing additional support and training. If these measures succeed in improving recruitment, Paion expects to file for US approval in 2017.
General anaesthesia still a key target indication
At this week’s investor conference call, management highlighted that the discontinuation of the European Phase III in general anaesthesia was not due to any problems with the drug, but that the poor recruitment rates resulted from the fact that the study design, based on procedures that were used in the Phase II at Heart Center Leipzig, did not transfer easily to other institutions. A proposed new Phase III in general surgery patients is contingent on additional funding or partnering.
Valuation: Raised to €203m on longer patent life
We extend our revenue forecasts for Remimazolam in the US to 2031 (previously 2027) and raise our valuation to €203m or €4.01/share (vs €182m or €3.59/share). Cash at 30 September of €40.5m is sufficient to complete the ongoing Phase III studies. Paion is evaluating the prospect of self-commercialisation of remimazolam in the US, which could lead to 45% profit margins in some regions, subject to further fund-raising (our base case assumes a 23% blended royalty rate).
Exhibit 1: Financial summary
€'000s |
2013 |
2014 |
2015e |
2016e |
||
Year end 31 December |
||||||
PROFIT & LOSS |
||||||
Revenue |
|
|
4,228 |
3,456 |
0 |
1,000 |
Cost of sales |
0 |
(4) |
0 |
0 |
||
Gross profit |
4,228 |
3,452 |
0 |
1,000 |
||
R&D expenditure |
(4,583) |
(11,799) |
(28,000) |
(25,000) |
||
General, administrative & selling |
(3,314) |
(3,702) |
(6,000) |
(7,000) |
||
Other |
860 |
411 |
50 |
51 |
||
Operating profit |
(2,810) |
(11,639) |
(33,950) |
(30,949) |
||
Depreciation and amortisation |
(390) |
(93) |
(100) |
(100) |
||
Share-based payments |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
||
EBITDA |
|
|
(2,420) |
(11,546) |
(33,850) |
(30,849) |
Operating profit (before GW and except) |
|
(2,420) |
(11,546) |
(33,850) |
(30,849) |
|
Net interest |
(170) |
(66) |
50 |
50 |
||
Profit before tax (norm) |
|
|
(2,590) |
(11,612) |
(33,800) |
(30,799) |
Profit before tax (reported) |
|
|
(2,980) |
(11,704) |
(33,900) |
(30,899) |
Tax |
768 |
2,468 |
5,500 |
4,375 |
||
Profit after tax (norm) |
(1,822) |
(9,143) |
(28,300) |
(26,424) |
||
Profit after tax (reported) |
(2,212) |
(9,236) |
(28,400) |
(26,524) |
||
Average number of shares outstanding (m) |
25.4 |
39.9 |
50.7 |
50.7 |
||
EPS - normalised (c) |
|
|
(7.2) |
(22.9) |
(55.9) |
(52.2) |
EPS - reported (c) |
|
|
(8.7) |
(23.2) |
(56.1) |
(52.4) |
Dividend per share (c) |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
Gross margin (%) |
NA |
NA |
NA |
NA |
||
EBITDA margin (%) |
NA |
NA |
NA |
NA |
||
Operating margin (before GW and except.) (%) |
NA |
NA |
NA |
NA |
||
BALANCE SHEET |
||||||
Fixed assets |
|
|
3,583 |
3,516 |
3,416 |
3,316 |
Intangible assets |
3,494 |
3,440 |
3,365 |
3,290 |
||
Tangible assets |
89 |
76 |
51 |
26 |
||
Refund from assumption of dev costs |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Current assets |
|
|
14,433 |
63,032 |
38,140 |
11,717 |
Stocks |
0 |
0 |
0 |
0 |
||
Debtors |
0 |
467 |
25 |
25 |
||
Cash |
13,292 |
58,912 |
33,115 |
6,692 |
||
Other |
1,141 |
3,653 |
5,000 |
5,000 |
||
Current liabilities |
|
|
(4,659) |
(3,924) |
(6,157) |
(6,157) |
Trade payables |
(1,914) |
(3,338) |
(5,400) |
(5,400) |
||
Short-term borrowings |
0 |
0 |
0 |
0 |
||
Provisions |
(2,508) |
(306) |
(500) |
(500) |
||
Finance lease liabilities |
0 |
0 |
0 |
0 |
||
Other current liabilities |
(225) |
(254) |
(235) |
(235) |
||
Current deferred income |
(11) |
(26) |
(22) |
(22) |
||
Long-term liabilities |
|
|
(28) |
(17) |
(8) |
(8) |
Long-term borrowings |
0 |
0 |
0 |
0 |
||
Provisions |
0 |
0 |
0 |
0 |
||
Long-term deferred income |
(28) |
(17) |
(8) |
(8) |
||
Deferred taxes |
0 |
0 |
0 |
0 |
||
Other long-term liabilities |
0 |
0 |
0 |
0 |
||
Net assets |
|
|
13,329 |
62,607 |
35,391 |
8,868 |
CASH FLOW |
||||||
Operating cash flow |
|
|
(1,746) |
(12,044) |
(31,346) |
(30,849) |
Net interest |
(170) |
(66) |
50 |
50 |
||
Tax |
75 |
0 |
5,500 |
4,375 |
||
Capex |
0 |
0 |
0 |
0 |
||
Purchase of intangibles |
(5) |
(26) |
0 |
0 |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
||
Financing |
(7,164) |
57,618 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Net cash flow |
(9,010) |
45,482 |
(25,796) |
(26,424) |
||
Opening net debt/(cash) |
|
|
(22,336) |
(13,292) |
(58,912) |
(33,115) |
Effect of exchange rate changes |
(130) |
(72) |
0 |
0 |
||
Other |
96 |
210 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(13,292) |
(58,912) |
(33,115) |
(6,691) |
Source: Edison Investment Research, company accounts
|