Basilea Pharmaceutica — Poised for an eventful H224

Basilea remains committed to advancing its innovative pipeline of anti-infective products and product candidates (Exhibit 1). Lead antifungal asset, Cresemba, is an intravenous and oral antifungal treatment for life-threatening, invasive mould infections: aspergillosis and mucormycosis in adults (and children in the US), and for cryptococcosis in Japan. Overall, it has received regulatory approval in 76 countries and is marketed in 73 countries, including the US, most EU member states, China, Japan and countries in Latin America. The company’s lead antibiotic product is Zevtera, which notably received FDA approval in April 2024 for three indications: Staphylococcus aureus bacteremia (SAB), acute bacterial skin and skin structure infections (ABSSSI) and community-acquired bacterial pneumonia (CABP). In our view, the next major catalyst for Basilea will be the announcement of a US commercialisation partnership deal. While management had previously communicated that this should have been secured around mid-2024, the latest update states that partnership negotiations are ongoing. Beyond the US, Zevtera has been approved in major countries across Europe, Latin America, the Middle East, North Africa and Canada, and marketed in 21 countries. The performances of these two marketed products are discussed in further detail below.

From late 2023, Basilea has made several additions to its product pipeline, including multiple antifungal and antibiotic programmes, aiming to equip the company for long-term growth:

We also note that during H124, Basilea divested the last of its legacy oncology assets, lisavanbulin. In June 2024, the company announced an asset purchase agreement with the Glioblastoma Foundation. While the initial purchase price has not been disclosed, management has communicated that Basilea will be eligible for a fixed double-digit share of any subsequent commercial partnerships.

In line with prior financial updates, Cresemba continues to be the main revenue driver for Basilea. In H124, the company netted CHF42.8m in royalties for Cresemba, representing a 16.6% increase from the H123 figure of CHF36.7m. In terms of Cresemba-related milestone payments, Basilea received US$2.5m from Pfizer (two payments of US$1.25m announced in March and May 2024) for its strong sales performance in the Asia-Pacific region and China in H124. The US remains the key market for the drug (c 55% of sales in FY23), although we have seen increasing contributions from other regions, particularly China and Japan, which together represent 25% of the market opportunity for Cresemba. The drug is launched in 73 countries and has a market-leading position in the US (a more than 37% market share in best-in-class antifungals) and a healthy 17% market share globally. The latest data showed that total global in-market sales reached US$489m between April 2023 and March 2024, a 24.4% jump y-o-y (Exhibit 2). Looking ahead, we see Cresemba maintaining its sales momentum to maturity, supported by sustained demand and likely paediatric label expansion in the EU. Management has indicated that in its June meeting, the Committee for Medicinal Products for Human Uses of the European Medicines Agency recommended awarding paediatric label extension to Cresemba and a formal decision is expected in Q324. Approval will extend the drug’s market exclusivity in the EU by two years to October 2027, which we currently factor in our estimates.

As highlighted above, a key milestone for Basilea in H124 was FDA approval for Zevtera, under a broad label. The FDA greenlight was backed by positive results from three Phase III clinical trials: the ERADICATE study for SAB, the TARGET study for ABSSSI, and a Phase III study in CABP. While Zevtera has already been approved in selected countries across Europe, Latin America, the Middle East, North Africa and Canada, the US represents a key target market for Zevtera as an effective anti-MRSA therapy (accounting for 85–90% of its total market potential). Basilea’s latest investor presentation highlights this potential, exemplified with regional sales data for anti-MRSA agents daptomycin and ceftaroline (Exhibit 3). We believe that the announcement of a US commercialisation partnership deal for Zevtera will be the next significant milestone for Basilea.

H124 included another solid period for Basilea, with results coming in slightly ahead of our estimates. Total revenues were CHF76.3m, driven by strong sales uptick from Cresemba, which translated to a 16.6% jump in royalty income to CHF42.8m (CHF36.7m in H123). The period was also marked by strong growth in product revenue (sale of products, active pharmaceutical ingredients or semi-finished goods to partners), which grew 109% y-o-y to CHF27.6m. On the other hand, unlike H123, milestones payments in H124 were limited to CHF2.9m, including two milestone payments for Pfizer totalling US$2.5m (CHF30.6m in H123), although this was more as a result of timing differences, with management expecting the bulk of milestone-related inflows to come in the second half. Group sales also included CHF2m in Biomedical Advanced Research and Development Authority (BARDA) reimbursements, although with the conclusion of the Zevtera Phase III trials, this figure will likely fall in the coming periods (the company recognised US$101.6m of the US$111.9m total payment from BARDA as income as of June 2024).

A key observation was the significant increase in cost of sales to CHF18.1m, an 81% jump over the H123 figure of CHF10.0m, but this can be directly attributed to the rise in product revenues during the period. The H124 gross margin was 76.3%, lower than the 88.2% recorded in H123. Operating expenses were in line with expectations, growing to CHF48.9m from CHF38.0m in the comparable period. Opex as a percentage of sales was 64.1% versus 44.8% in H123, with the increase driven by lower milestone payments recognised in H124, and the fact that all portfolio transactions took place in late-2023/early-2024. R&D expenses rose materially during the period to CHF33.6m (from CHF21.5m in H123), which we believe can largely be attributed to preparatory activities for the expected Phase III trials for fosmanogepix, as well as research activities for other acquired assets (BAL2062, Tonabacase and the LptA programme). Note that the R&D expenses also include CHF1.3m in upfront and milestone payments made to Spexis for the antibiotic LptA inhibitor programme acquired in January 2024. We expect R&D expenses to rise in H224 with commencement of the two Phase III trials for fosmanogepix. While management is open to seeking non-dilutive external funding for its preclinical and clinical programmes (and is in talks with multiple stakeholders), pending further clarity we continue to assume that all development work will be funded through internal capital. SG&A expenses were broadly stable at CHF15.3m (H123: CHF16.5m). Overall, operating profit for the period was CHF9.3m versus CHF36.9m in H123. Note that the company recognised deferred tax assets of CHF13.4m in H124, resulting in net profit jumping to CHF20.7m (H123: CHF31.8m).

Cash flow from operations for the period was CHF17.9m, higher than the FY23 figure of CHF14.2m, indicative of the strong cash flow-generative business activities. This allowed Basilea to fully repay the pending CHF15.6m under the CHF75m senior secured loan from Athyrium Capital in March 2024 (earlier than the originally set repayment timelines). Since 2022, the company has repaid CHF124m of debt on its books, with the CHF97m convertible notes due in 2027 the only remining debt liability. Basilea intends to pay down or convert this debt, should the cash position be favourable. Following the aforementioned debt repayment, Basilea’s net debt position has improved to CHF26.2m from CHF46.6m at the end of FY23. Gross cash on books (including restricted cash) was CHF69.5m.

Following the strong H124 results, management has upgraded its FY24 guidance (presented in Exhibit 4.

We update our FY24 estimates to reflect the revised management guidance. We now project revenues related to the two assets of CHF190.2m. This includes a Cresemba-related royalty payment of CHF92.6m and milestones of CHF40.3m (management has guided to a c 25% increase in milestone payments y-o-y). We also estimate a total of CHF3m in BARDA reimbursement for the full year. Overall, we now project revenues of CHF196.0m versus CHF187.2m previously. We also increase our estimate for cost of sales to CHF40.0m from CHF33.9m previously, to reflect the higher top-line contribution from product sales. Our estimate for other operating expenses, including R&D and SG&A, is unchanged at CHF120.1m. Overall, we now estimate operating and net profit for FY24 of CHF35.9m and CHF42.1m, respectively (CHF32.7m and CHF27.7m previously). We also make minor adjustments to our FY25 forecasts and now estimates total revenues of CHF201.6m, lower than our previous estimate of CHF209.1m, to account for completion of the supply service agreement with Pfizer at the end of December 2024, which would result in lower product revenues in FY25. We also adjust our cost assumptions slightly and expect operating profit in FY25 to be CHF37.7m versus CHF36.6m previously.

Following the aforementioned adjustments to our estimates for the H124 performance and full year guidance, the latest net debt position and updated FX, we revise our valuation to CHF1,087.2m or CHF89.7 per share (from CHF1,008.6m or CHF84.0 per share previously).

Reflecting Cresemba’s strong outperformance versus previous company guidance, as well as our estimates and continued growth prospects, we have adjusted our long-term sales estimates for the drug and now expect peak sales to be US$747m, from US$686m previously. Accordingly, our risk-adjusted NPV (rNPV) valuation goes up to CHF682.6m from CHF608.9m in our last update. For Zevtera, we have adjusted our estimates for the potential slight delay in launch timelines given the longer-than-anticipated time taken for finalisation of a commercial partner in the US. Accordingly, we have pushed out some of the sales inflows from H224 to H125. We adjust our rNPV for Zevtera to CHF312.5m from CHF328.5m previously. For fosmanogepix, we keep our projections largely unchanged for now, estimating an rNPV of CHF118.3m (CHF117.9m previously). Exhibit 5 presents a breakdown of our rNPV valuation of Basilea by asset.