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Achillion Pharmaceuticals — Pipeline advancing

Achillion Pharmaceuticals — Pipeline advancing

Achillion recently announced that its partner, Janssen, has fully enrolled its 365-patient Phase IIb trial testing the triple combination of ALS-022335, simeprevir and odalasvir (together known as JNJ-4178) to treat hepatitis C patients, with results expected in H217. Importantly, the trial will be testing six- and eight-week treatment durations (the current standard treatment duration is 8-12 weeks). Achillion also recently initiated patient dosing in a Phase II trial of ACH-4471 in treatment naïve PNH patients.

Analyst avatar placeholder

Written by

Achillion Pharmaceuticals

Pipeline advancing

Development update

Pharma & biotech

8 May 2017

Price

US$3.71

Market cap

US$507m

Net cash ($m) at 31 March 2017

387

Shares in issue

136.7m

Free float

69.1%

Code

ACHN

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(2.4)

(14.1)

(53.2)

Rel (local)

(4.3)

(17.8)

(60.0)

52-week high/low

US$9.9

US$3.2

Business description

Achillion Pharmaceuticals is engaged in the discovery and development of treatments for chronic hepatitis C virus (HCV) and progressing compounds from its research platform in its novel factor D program. The company is collaborating with Janssen Pharmaceuticals (J&J) to develop and commercialize its HCV franchise including a promising combination treatment, which holds the potential to be best in class.

Next events

ACH-4471 Phase II interim results

Q217

JNJ-4178 Phase IIb results

H217

Analysts

Maxim Jacobs

+1 646 653 7027

Nathaniel Calloway

+1 646 653 7036

Achillion Pharmaceuticals is a research client of Edison Investment Research Limited

Achillion recently announced that its partner, Janssen, has fully enrolled its 365-patient Phase IIb trial testing the triple combination of ALS-022335, simeprevir and odalasvir (together known as JNJ-4178) to treat hepatitis C patients, with results expected in H217. Importantly, the trial will be testing six- and eight-week treatment durations (the current standard treatment duration is 8-12 weeks). Achillion also recently initiated patient dosing in a Phase II trial of ACH-4471 in treatment naïve PNH patients.

Year end

Revenue ($m)

PTP*
($m)

EPS*
($)

DPS
($)

P/E
(x)

Yield
(%)

12/15

66.1

(3.9)

(0.03)

0.0

N/A

N/A

12/16

15.0

(50.7)

(0.37)

0.0

N/A

N/A

12/17e

0.0

(85.0)

(0.59)

0.0

N/A

N/A

12/18e

0.0

(89.2)

(0.59)

0.0

N/A

N/A

Note: *PTP and EPS are normalized, excluding amortization of acquired intangibles, exceptional items and share-based payments.

Janssen triple combo Phase IIb fully enrolled

Following positive data in which the combination of ALS-022335, simeprevir and odalasvir for the treatment of genotype 1 hepatitis C virus (HCV) achieved a 100% sustained virologic response at 12 weeks post treatment (SVR12) in all patients (n=60) for both six- and eight-week treatment durations, Janssen decided to move forward with a 365-patient Phase IIb, which is now fully enrolled. Data is expected in H217 and advancement to Phase III is currently expected in 2018 (previously estimated to be 2017).

Competitive program from Merck may be in trouble

Merck recently announced that it is taking a $2.9bn asset impairment charge on MK-3682, which is part of its triple combination regimen with grazoprevir and elbasvir to treat HCV, leaving $240m in intangible asset value. It had been the main reason for its $3.9bn acquisition of Idenix. While Merck is continuing to develop the triple combination, this may be a signal that the company’s expectations are low.

The factor D engine

Besides advancing ACH-4471 into Phase II for PNH, Achillion will be moving the drug into Phase II to treat C3 glomerulopathy (C3G) in H217. Additionally, a next-generation oral factor D inhibitor should enter Phase I and an ophthalmic factor D inhibitor should be selected for clinical development by the end of 2017.

Valuation: $2.41bn or $17.64 per share

We have lowered our valuation from $2.75bn or $20.15 per basic share to $2.41bn or $17.64 per share, mainly because our estimated launch date for JNJ-4178 is now 2020 (previously 2019) due to the new expectation for a 2018 Phase III start, as well as the removal of genotype 3 patients from our model as JNJ-4178 will not be developed for that subgroup of patients. Achillion ended Q117 with $386.6m in cash and investments, which we expect to be sufficient to reach profitability, currently expected to occur in 2020.

HCV program progressing

Janssen, partnered with Achillion for its triple combination drug for HCV dubbed JNJ-4178, has fully enrolled a 365-patient Phase IIb trial dubbed Omega-1. It has enrolled patients with genotype 1, 2, 4, 5 and 6 HCV infections who were either treatment naïve or failed interferon ± ribavirin therapy. They will be dosed once daily with 800mg of AL-335, 25mg of odalasvir (ODV) and 75mg of simeprevir (SMV). Results from the trial are expected in H217. Importantly, it will be testing six- and eight-week treatment durations.

Full data from the Phase IIa trial (see Exhibit 1) were presented at the European Association for the Study of the Liver (EASL) meeting in Amsterdam recently. All genotype 1 patients treated with the triple regimen at all dosing levels achieved a sustained virologic response (SVR, undetectable viral load) measured 24 weeks following the end of treatment (SVR24). This included patients who were only treated for six weeks. The high rate of SVR24 observed after only six weeks of treatment compares favorably to other studies of HCV treatments. The fastest current treatment recommended by the FDA is Harvoni, which can be considered for an eight-week course in genotype 1 patients without cirrhosis and a viral load below 6m IU/mL.

Exhibit 1: Triple regimen Phase IIa results

Cohort

AL-335
(mg QD)

ODV
(mg)

SMV
(mg QD)

Genotype

Dosing duration (weeks)

Number (%) with undetectable HCV RNA at SVR24

1

400

50 QD

100

1

8

20/20 (100%)

2

800

50 QOD

75

1

8

20/20 (100%)

3

800

50 QOD

75

1

6

20/20 (100%)

4

800

50 QOD

-

1

8

21/25 (84%)

5

800

50 QOD

-

1

12

7/8 (88%)

6

800

50 QOD

75

3

8

0/5 (0%) - SVR12

7

800

50 QOD

75

3

12

10/13 (77%) - SVR12

Source: Achillion, EASL 2017. Note: QOD: every other day; QD every day.

Unfortunately, genotype 3 patients did not achieve the same virologic response as seen in genotype 1 patients. The SVR12 (SVR measured 12 weeks after the end of treatment) was 0% in the 8-week cohort and 77% in the 12-week cohort. This is likely due to a lack of effectiveness of SMV, one of the triple regimen components, in targeting genotype 3 (it is potent in genotype 1, 2, 4, 5 and 6 patients). Due to these results, JNJ-4178 will no longer be developed in genotype 3 patients. While making up approximately 30% of all HCV patients globally, they make up around 10% of those in the US, less than 1% of those in Japan and 25% of those in western Europe (73% of the world’s genotype 3 patients are in South Asia).1

  Messina J et al., Hepatology 2015; 61:77-87

Competitive program update

While JNJ-4178 continues to progress, Merck appears to be lowering expectations for its own similarly structured triple combination product (also containing a nucleoside, a protease inhibitor and an NS5a inhibitor). MK-3682, which is part of that regimen, which as a whole is called MK-3682B, was acquired in the $3.9bn acquisition of Idenix. Merck recently announced that it is taking a $2.9bn asset impairment charge on the product, leaving only $240m in intangible asset value on the books. Merck stated that the evaluation of the asset value was triggered by “recent changes to the product profile, as well as changes to its expectations for pricing and the market opportunity”.

Phase II results of the MK-3682B regimen presented at the 2016 Liver Meeting in November suggest that it may have an inferior product profile to JNJ-4178 at eight weeks (especially in genotype 1 patients, who make up the bulk of the market) given that many of the MK-3682B patients were also on ribavirin concurrently (see Exhibit 2).

Exhibit 2: SVR-12 rates for Merck’s MK-3682B regimen ± ribavirin in HCV patients

Population

N

8 weeks

12 weeks

16 weeks

GT1a

90

93% (39/42)

98% (47/48)

-

GT1b

86

98% (45/46)

100% (40/40)

-

GT2

151

86% (54/63)

97% (60/62)

100% (26/26)

GT3

337

95% (98/103)

97% (155/159)

96% (72/75)

Source: Merck, The Liver Meeting 2016

ACH-4471 and more

Achillion also announced that its lead factor D inhibitor, ACH-4471, has progressed into Phase II in PNH patients and that two patients have completed 28 days of dosing, and that each continues to receive longer-term treatment. Interim results are expected in the second quarter.

The company had announced in November of 2016 that there were Grade 3 and 4 ALT elevations in two subjects in the multiple ascending dose (MAD) trial of ACH-4471 in healthy volunteers at the mid (500mg) and high (800mg) doses. However, the ALT elevation in both subjects was self-limiting, resolved without further treatment and showed no signs of affecting liver function.

Besides advancing ACH-4471 into Phase II for PNH, Achillion will be moving the drug into Phase II to treat C3G in H217. Additionally, a next generation oral factor D inhibitor should enter Phase I by the end of 2017. Also, Achillion is very actively advancing its ophthalmology portfolio with several internally discovered factor D inhibitors that are being developed with the goal of administering them ocularly at a minimum of three-month intervals with a focus on dry AMD/geographic atrophy. The company should select a lead compound for development by year-end.

Valuation

We have lowered our valuation from $2.75bn or $20.15 per basic share to $2.41bn or $17.64 per share, mainly because our estimated launch date for JNJ-4178 is now 2020 (previously 2019) due to the new expectation for a 2018 Phase III start, as well as the removal of genotype 3 patients from our model as JNJ-4178 will not be developed for that subgroup of patients. Our global peak sales estimates have been reduced from $4.2bn to $3.7bn.

Exhibit 3: Achillion valuation table

Product

Main Indication

Status

Prob. of success

Launch year

Peak sales ($m)

Patent protection

Royalty

rNPV

JNJ-4178

US, HCV

Phase II

60%

2020

$1,901

2029

12-24%

$583

JNJ-4178

EU Big-5, HCV

Phase II

60%

2020

$975

2029

12-24%

$297

JNJ-4178

Japan, HCV

Phase II

60%

2020

$813

2029

12-24%

$331

Milestones

$584

ACH-4471

PNH

Phase II

20%

2021

$694

2034

N/A

$229

Total

 

 

 

 

 

 

 

$2,024

Cash and cash equivalents (31 March 2017) ($m)

$387

Total firm value ($m)

$2,411

Total basic shares (m)

137

Value per basic share ($)

$17.64

Stock options(m)

10.7

Weighted average exercise price ($)

$7.25

Cash on exercise ($m)

$77.5

Total firm value ($m)

$2,488

Total number of shares

147.4

Diluted value per share ($)

 

 

 

 

 

 

$16.88

Source: Achillion Pharmaceuticals accounts, Edison Investment Research

Financials

Achillion ended Q117 with $386.6m in cash and investments, down only marginally from $391m at the end of Q416, mainly due to a $15m milestone payment received from the Janssen collaboration. We expect cash levels to be sufficient to fund the ongoing development programs through the commercialization of odalasvir, which will trigger additional significant milestone payments from partner Janssen. The company has provided 2017 financial guidance. R&D expenses during 2017 are expected to be $75-80m (vs our previous estimate of $67m) with net cash used in operating activities of $70-75m (vs our previous estimate of $76m). With that in mind, we have increased our expectations for operational spending (including R&D and SG&A) for 2017 from $89.8m to $98.2m. We have also introduced 2018 estimates with R&D expenses at $80m and SG&A at $22m with a total of $102m in operational spending.

Exhibit 4: Financial summary

($000s)

2012

2013

2014

2015

2016

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

2,607

0

0

66,122

15,000

0

0

Cost of Sales

0

0

0

0

0

0

0

Gross Profit

2,607

0

0

66,122

15,000

0

0

EBITDA

 

 

(42,953)

(53,157)

(61,664)

(4,341)

(52,904)

(85,894)

(89,220)

Operating Profit (before amort. and except.)

(43,361)

(53,556)

(62,153)

(5,035)

(53,859)

(86,899)

(90,275)

Intangible Amortisation

0

0

0

0

0

0

0

Exceptionals

0

0

0

0

0

0

0

Stock options

(3,932)

(5,920)

(7,273)

(10,072)

(11,006)

(11,336)

(11,676)

Operating Profit

(47,293)

(59,476)

(69,426)

(15,107)

(64,865)

(98,235)

(101,951)

Net Interest

166

529

418

1,133

3,159

1,886

1,112

Pre-Tax Profit (norm)

 

 

(43,195)

(53,027)

(61,735)

(3,902)

(50,700)

(85,012)

(89,163)

Pre-Tax Profit (FRS 3)

 

 

(47,127)

(58,947)

(69,008)

(13,974)

(61,706)

(96,348)

(100,839)

Tax

0

0

0

0

0

0

0

Profit After Tax (norm)

(43,195)

(53,027)

(61,735)

(3,902)

(50,700)

(85,012)

(89,163)

Profit After Tax (FRS 3)

(47,127)

(58,947)

(69,008)

(13,974)

(61,706)

(96,348)

(100,839)

Average Number of Shares Outstanding (m)

73.97

93.98

98.37

125.59

136.67

143.50

150.68

EPS - normalized ($)

 

 

(0.58)

(0.56)

(0.63)

(0.03)

(0.37)

(0.59)

(0.59)

EPS - normalized and fully diluted ($)

 

(0.58)

(0.51)

(0.56)

(0.03)

(0.35)

(0.56)

(0.56)

EPS - (IFRS) ($)

 

 

(0.64)

(0.63)

(0.70)

(0.11)

(0.45)

(0.67)

(0.67)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

100.0

N/A

N/A

N/A

N/A

N/A

N/A

EBITDA Margin (%)

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

1,503

1,344

1,780

1,785

3,531

5,202

6,912

Intangible Assets

0

0

0

0

0

0

0

Tangible Assets

1,247

1,265

1,726

1,735

3,479

5,107

6,817

Restricted cash

152

152

152

152

152

152

152

Investments

256

79

54

50

52

95

95

Current Assets

 

 

79,875

160,921

154,875

462,588

410,192

324,954

237,442

Inventory

0

0

0

0

0

0

0

Accounts recievable, net

277

480

95

506

15,256

306

356

Cash and cash equivalents

77,418

157,989

152,879

459,341

391,476

321,188

233,626

Other

2,180

2,452

1,901

2,741

3,460

3,460

3,460

Current Liabilities

 

 

(9,136)

(9,403)

(13,059)

(14,658)

(13,971)

(12,194)

(12,219)

Creditors

(8,786)

(9,112)

(12,864)

(14,435)

(13,620)

(11,868)

(11,918)

Short term borrowings

(350)

(291)

(195)

(223)

(351)

(326)

(301)

Long Term Liabilities

 

 

(347)

(56)

(279)

(231)

(450)

(285)

(285)

Long term borrowings

(347)

(56)

(279)

(231)

(450)

(285)

(285)

Other long term liabilities

0

0

0

0

0

0

0

Net Assets

 

 

71,895

152,806

143,317

449,484

399,302

317,677

231,850

CASH FLOW

Operating Cash Flow

 

 

(46,700)

(54,165)

(55,942)

4,444

(68,812)

(72,276)

(88,800)

Net Interest

166

529

418

1,133

3,159

1,886

1,112

Tax

0

0

0

0

0

0

0

Capex

(656)

(408)

(947)

(704)

(2,508)

(2,633)

(2,765)

Acquisitions/disposals

0

0

0

0

0

0

0

Financing

44,235

133,951

52,264

301,158

322

372

422

Net Cash Flow

(2,955)

79,907

(4,207)

306,031

(67,839)

(72,651)

(90,031)

Opening net debt/(cash)

 

 

(79,725)

(76,873)

(157,794)

(152,557)

(459,039)

(390,827)

(320,728)

HP finance leases initiated

0

0

0

0

0

0

0

Other

103

1,014

(1,030)

451

(373)

2,552

2,494

Closing net debt/(cash)

 

 

(76,873)

(157,794)

(152,557)

(459,039)

(390,827)

(320,728)

(233,191)

Source: Achillion Pharmaceuticals accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. 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 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Achillion Pharmaceuticals 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. 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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). 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US

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Frankfurt +49 (0)69 78 8076 960

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London +44 (0)20 3077 5700

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United Kingdom

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Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

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Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. 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

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Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Achillion Pharmaceuticals 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. 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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

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Research: Energy & Resources

Canacol Energy — Positioned to sustain growth in 2017

2016 was a strong year for Canacol (CNE), generating US$135.5m of EBITDAX (+101%) and a 43% increase in adjusted revenues to US$173m. Management guidance for 2017 implies another step-up in both production and cash generation. Primary targets include: 1) the delivery of an exit rate of 130mmscfd via the construction of a new, privately owned gas pipeline; 2) the drilling of three additional gas exploration wells in order to add behind-pipe resource; and 3) the drilling of two oil exploration wells. Consensus expects US$177m EBITDA in 2017; Canacol continues to trade at a meaningful discount to its disclosed post-tax NPV10 of US$945m 2P (C$5.82/share) based on contracted gas prices – this excludes the EMV of prospective gas resource recently estimated at US$789m by Gaffney Cline.

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