Destiny Pharma’s H118 financial results were less about the numbers and more about the preparation for XF-73’s US Phase IIb study in the prevention of post-surgical infections. Destiny’s operating loss was £2.7m, largely due to the build-up to the US Phase IIb study, which is expected to continue into FY19. The net loss was £2.3m. Cash at the end of H118 was £15.1m, which we estimate provides a runway through to 2020.
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Destiny Pharma |
Porphyrins ring time on antibiotic resistance |
Interim results |
Pharma & biotech |
1 October 2018 |
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Destiny Pharma’s H118 financial results were less about the numbers and more about the preparation for XF-73’s US Phase IIb study in the prevention of post-surgical infections. Destiny’s operating loss was £2.7m, largely due to the build-up to the US Phase IIb study, which is expected to continue into FY19. The net loss was £2.3m. Cash at the end of H118 was £15.1m, which we estimate provides a runway through to 2020.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16 |
0.0 |
(1.45) |
(3.94) |
0.0 |
N/A |
N/A |
12/17 |
0.0 |
(3.21) |
(8.45) |
0.0 |
N/A |
N/A |
12/18e |
0.0 |
(7.32) |
(14.28) |
0.0 |
N/A |
N/A |
12/19e |
0.5 |
(8.26) |
(15.29) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are on an as-reported basis.
On track, funded through 2020
Destiny’s interim results, less than a year after its IPO, confirmed that it is on track with preparations for XF-73’s US Phase IIb clinical study and, in addition, a new dermatology programme was announced. The H118 operating loss was £2.7m (vs £1.0m in H117), reflecting increasing expenses for the Phase IIb study. End-June cash was £15.1m (£0.9m at the end of H117), which we forecast gives Destiny a reach past 2020, well before when we expect a licensing transaction on XF-73.
Global need for antimicrobial resistance drugs
The US Centers for Disease Control estimates that at least two million Americans develop serious infections a year caused by bacteria resistant to antibacterial drugs, resulting in c 23,000 deaths annually. Thus, the tempo of public comment and government and industry incentives to combat antimicrobial resistance (AMR) by developing new agents is accelerating. This puts XF-73 and Destiny Pharma front and centre of these efforts. The FDA is currently discussing a range of reimbursement reforms that would incentivise the development of drugs with activity against multi-drug-resistant (MDR) organisms linked to proven clinical outcomes that could almost have been written for Destiny’s lead drug – XF-73, for the prevention of Staphylococcal post-surgical infections (by either MDR or sensitive bacteria). In addition, the UK government is reviewing push and pull rewards to incentivise AMR drug development, and Novo has set up the REPAIR Impact Fund to help replenish the anti-infective pipeline.
Virtually no change in valuation
We have made no changes to the expected FY18 cash balance and spend in our model. The new XF-73 dermatology programme will not enter Phase I until 2019 and we estimate that it will not have a material impact until 2020. We have made minor changes to working capital and exchange rates carried forward, which had a small negative effect on our valuation. This was balanced by a small revision to our forecasts of the opportunity of XF-73 in China, where peak annual sales move from $3m in our initiation to $24m. The net change to our valuation is minor, moving from £89.1m or £2.04 per share to £86.7m or £1.99 per share.
Exhibit 1: Financial summary
Accounts: IFRS, year-end December (£000s) |
|
2014 |
2015 |
2016 |
2017 |
2018e |
2019e |
2020e |
|
Income statement |
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
- |
- |
- |
- |
- |
500 |
- |
Cost of sales |
|
|
- |
- |
- |
- |
- |
- |
- |
Gross profit |
|
|
- |
- |
- |
- |
- |
500 |
- |
SG&A (expenses) |
|
|
(441) |
(482) |
(505) |
(1,011) |
(2,100) |
(1,900) |
(1,700) |
R&D costs |
|
|
(1,090) |
(274) |
(496) |
(387) |
(4,700) |
(6,900) |
(1,900) |
Other income/(expense) |
|
|
(176) |
(163) |
(246) |
(613) |
- |
- |
- |
Exceptionals and adjustments |
|
(367) |
(284) |
(201) |
(710) |
(700) |
(85) |
(25) |
|
Depreciation and amortisation |
|
|
(0.8) |
(0.8) |
(1.3) |
(2.1) |
(3.9) |
(2.3) |
(2.3) |
Reported EBIT |
|
|
(2,076) |
(1,205) |
(1,450) |
(3,222) |
(7,504) |
(8,387) |
(3,627) |
Finance income/(expense) |
|
|
10.5 |
7.7 |
0.4 |
10.5 |
184.0 |
126.0 |
49.9 |
Reported PBT |
|
|
(2,065) |
(1,197) |
(1,449) |
(3,211) |
(7,320) |
(8,261) |
(3,577) |
Income tax expense (includes exceptionals) |
|
|
303 |
182 |
192 |
234 |
1,100 |
1,600 |
500 |
Reported net income |
|
|
(1,762) |
(1,015) |
(1,258) |
(2,977) |
(6,220) |
(6,661) |
(3,077) |
Basic average number of shares, m |
|
|
62 |
62 |
62 |
35,254 |
43,563 |
43,563 |
43,563 |
Basic EPS |
|
|
(5.52) |
(3.18) |
(3.94) |
(8.45) |
(14.28) |
(15.29) |
(7.06) |
Balance sheet |
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
0.6 |
2.5 |
1.2 |
22.3 |
29.5 |
27.7 |
25.9 |
Goodwill |
|
|
- |
- |
- |
- |
- |
- |
- |
Intangible assets |
|
|
- |
- |
- |
- |
- |
- |
- |
Other non-current assets |
|
|
- |
- |
- |
- |
- |
- |
- |
Total non-current assets |
|
|
0.6 |
2.5 |
1.2 |
22.3 |
29.5 |
27.7 |
25.9 |
Cash and equivalents |
|
|
2,004 |
1,119 |
1,481 |
11,724 |
7,457 |
537 |
5,148 |
Other financial assets (term deposits) |
|
|
0 |
- |
- |
5,000 |
4,000 |
4,000 |
4,000 |
Inventories |
|
|
- |
- |
- |
- |
- |
- |
- |
Trade and other receivables |
|
|
397 |
201 |
217 |
277 |
634 |
466 |
277 |
Other current assets |
|
|
28 |
23 |
0 |
60 |
38 |
38 |
38 |
Total current assets |
|
|
2,429 |
1,343 |
1,698 |
17,061 |
12,129 |
5,041 |
9,463 |
Non-current loans and borrowings |
|
|
- |
- |
- |
- |
- |
- |
7,576 |
Other non-current liabilities |
|
|
- |
- |
- |
- |
- |
- |
- |
Total non-current liabilities |
|
|
- |
- |
- |
- |
- |
- |
7,576 |
Trade and other payables |
|
|
302 |
39 |
58 |
152 |
769 |
255 |
152 |
Current loans and borrowings |
|
|
- |
- |
- |
- |
- |
- |
- |
Other current liabilities |
|
|
156 |
55 |
97 |
246 |
246 |
246 |
246 |
Total current liabilities |
|
|
458 |
94 |
155 |
397 |
1,015 |
501 |
397 |
Equity attributable to company |
|
|
1,972 |
1,251 |
1,544 |
16,686 |
11,166 |
4,590 |
1,537 |
Non-controlling interest |
|
|
- |
- |
- |
- |
- |
- |
- |
Cashflow statement |
|
|
|
|
|
|
|
|
|
Profit for the year |
|
|
(2,065) |
(1,197) |
(1,449) |
(3,211) |
(7,320) |
(8,261) |
(3,577) |
Taxation expenses |
|
|
- |
- |
- |
- |
- |
- |
- |
Profit before tax |
|
|
(2,065) |
(1,197) |
(1,449) |
(3,211) |
(7,320) |
(8,261) |
(3,577) |
Net finance expenses |
|
|
(11) |
(8) |
(0) |
(10) |
(184) |
(126) |
(50) |
EBIT |
|
|
(2,076) |
(1,205) |
(1,450) |
(3,222) |
(7,504) |
(8,387) |
(3,627) |
Depreciation and amortisation |
|
|
0.8 |
0.8 |
1.3 |
2.1 |
3.9 |
2.3 |
2.3 |
Share based payments |
|
|
367 |
284 |
201 |
710 |
700 |
85 |
25 |
Other adjustments |
|
|
- |
- |
- |
- |
- |
- |
- |
Movements in working capital |
|
|
(150) |
(163) |
78 |
165 |
260 |
(346) |
85 |
Interest paid / received |
|
|
- |
- |
- |
- |
- |
- |
- |
Income taxes paid |
|
|
303 |
182 |
182 |
192 |
1,100 |
1,600 |
500 |
Cash from operations (CFO) |
|
|
(1,554) |
(901) |
(988) |
(2,153) |
(5,440) |
(7,046) |
(3,015) |
Capex |
|
|
(0.8) |
(2.7) |
0.0 |
(23.2) |
(11.1) |
(0.5) |
(0.5) |
Acquisitions & disposals net |
|
|
- |
- |
- |
- |
- |
- |
- |
Other investing activities |
|
|
11 |
8 |
0 |
(4,990) |
1,184 |
126 |
50 |
Cash used in investing activities (CFIA) |
|
|
9.7 |
5.1 |
0.4 |
(5,013) |
1,172.9 |
125.6 |
49.4 |
Net proceeds from issue of shares |
|
|
3,011 |
10 |
1,351 |
17,409 |
- |
- |
- |
Movements in debt |
|
|
- |
- |
- |
- |
- |
- |
7,576 |
Dividends paid |
|
|
- |
- |
- |
- |
- |
- |
- |
Other financing activities |
|
|
- |
- |
- |
- |
- |
- |
- |
Cash from financing activities (CFF) |
|
|
3,011 |
10 |
1,351 |
17,409 |
- |
0 |
7,576 |
Currency translation differences and other |
|
|
- |
- |
- |
- |
- |
- |
- |
Increase/(decrease) in cash and equivalents |
|
|
1,467 |
(885) |
363 |
10,243 |
(4,267) |
(6,920) |
4,611 |
Currency translation differences and other |
|
|
- |
- |
- |
- |
- |
- |
- |
Cash and equivalents at end of period |
|
|
2,004 |
1,119 |
1,481 |
11,724 |
7,457 |
537 |
5,148 |
Net (debt) cash (includes Term Deposits) |
|
|
2,004 |
1,119 |
1,481 |
16,724 |
11,457 |
4,537 |
1,572 |
Movement in net (debt) cash over period |
|
|
2,004 |
(885) |
363 |
15,243 |
(5,267) |
(6,920) |
(2,965) |
Source: Destiny Pharma, Edison Investment Research
|
|
Research: Industrials
On 21 September, Carr’s Group announced that it had completed the acquisition of Animax, a producer of animal health products, for a total cash consideration of up to £8.5m. The transaction will broaden the group’s existing range of animal health products and supplements. We raise our estimates and reiterate our indicative valuation of 178p/share.