Sequana Medical — POSEIDON results de-risk alfapump programme

Sequana Medical (BRU: SEQUA)

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Research: Healthcare

Sequana Medical — POSEIDON results de-risk alfapump programme

Positive results from POSEIDON, Sequana Medical’s North American pivotal study of its implantable alfapump device in patients with recurrent and refractory ascites (RRA), should pave the way for the company to file a US premarket approval application (PMA) with the FDA in H223. The study convincingly met the primary efficacy endpoints and, given that no unanticipated adverse device effects (UADE) were observed, we believe that these results should de-risk the likelihood of US market approval and commercialisation. We are raising our US commercial probability of success (PoS) estimate to 80% (55% previously), resulting in an increase to our rNPV valuation to €345.0m (previously €273.8m).

Written by

Pooya Hemami

Analyst - Healthcare

Healthcare

Sequana Medical

POSEIDON results de-risk alfapump programme

POSEIDON update

Pharma and biotech

3 November 2022

Price

€6.3

Market cap

€150m

$1.00/€

Net cash (€m) at 30 June 2022

16.2

Shares in issue

23.75m

Free float

45%

Code

SEQUA

Primary exchange

Euronext

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(6.3)

1.9

(12.5)

Rel (local)

(11.0)

6.8

6.7

52-week high/low

€8.38

€4.86

Business description

Based in Belgium, Sequana Medical develops products to treat diuretic-resistant fluid overload, a frequent complication of liver disease and heart failure. Its proprietary alfapump and DSR approaches aim to provide significant clinical and quality-of-life benefits in these fluid overload conditions.

Next events

Top-line data from SAHARA Phase IIa DSR study

Q422

Start MOJAVE US Phase Ib/IIa study for DSR 2.0

H123

Analyst

Pooya Hemami OD MBA CFA

+1 646 653 7026

Sequana Medical is a research client of Edison Investment Research Limited

Positive results from POSEIDON, Sequana Medical’s North American pivotal study of its implantable alfapump device in patients with recurrent and refractory ascites (RRA), should pave the way for the company to file a US premarket approval application (PMA) with the FDA in H223. The study convincingly met the primary efficacy endpoints and, given that no unanticipated adverse device effects (UADE) were observed, we believe that these results should de-risk the likelihood of US market approval and commercialisation. We are raising our US commercial probability of success (PoS) estimate to 80% (55% previously), resulting in an increase to our rNPV valuation to €345.0m (previously €273.8m).

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/20

1.0

(19.0)

(1.25)

0.0

N/A

N/A

12/21

0.4

(24.4)

(1.36)

0.0

N/A

N/A

12/22e

0.8

(26.3)

(1.12)

0.0

N/A

N/A

12/23e

0.8

(25.4)

(1.07)

0.0

N/A

N/A

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

Alfapump fills unmet need in RRA patients

The alfapump device significantly reduced the need for RRA patients to undergo burdensome therapeutic paracentesis (TP) procedures, which should lead to improved patient independence and quality of life, given the limitations of current treatments, as discussed in our Outlook report. We expect the rising prevalence of non-alcoholic steatohepatitis (NASH) will result in the target market for RRA patients in North America increasing at an upper single-digit CAGR over the next decade, providing a robust commercialisation opportunity for alfapump in RRA.

Strong efficacy signals shown in POSEIDON

Within the 40-patient pivotal cohort, there was a 100% median per-patient reduction in TP in the post-implant observation period (reflecting months four to six) versus the three-month pre-implant observation period implantation (p<0.001). This compares to the study’s aim of showing at least a 50% reduction. Further, 77% of these 40 patients experienced at least a 50% reduction in the frequency of TP in the post-implant observation period versus the pre-implant observation period (p<0.001); the study’s aim was to show at least 50% of patients having a 50% reduction. Altogether, we believe the results exceeded the efficacy thresholds required for approval by a reasonable margin.

Valuation: Raising rNPV and PoS

We have raised our PoS for alfapump in RRA in North America to 80% (55% previously) following the positive POSEIDON data. We now obtain a pipeline risked net present value (rNPV) of €345.0m (€273.8m previously). After adding H122 net cash of €16.2m (€23.8m gross cash offset by €7.6m in debt excluding lease liabilities), we derive an equity valuation of €361.2m or €15.21/share (€13.65 fully diluted) versus €12.21 per share previously (€10.96 per share fully diluted).

US approval appears achievable following POSEIDON

Sequana Medical reported positive results from the POSEIDON North American pivotal study of its implantable alfapump device in patients with RRA due to liver cirrhosis. The study met the primary efficacy endpoint and safety results were in line with expectations. The alfapump device was shown to lead to significant reductions in the need for RRA patients to undergo burdensome TP procedures, which should lead to improved patient independence and quality of life given the limitations of current treatments, as discussed in our Outlook report.

These positive results should pave the way for the company to file a US PMA with the FDA in H223, in line with prior guidance, which we estimate could lead to US market launch in mid-2024. Given that the efficacy results strongly exceeded the study’s objectives, as explained below, and that no UADE were observed during the study, we believe that positive POSEIDON data should de-risk the likelihood for US market approval and commercialisation, and we are raising our US commercial PoS estimate to 80% (from 55% previously). The company still needs to complete further product validation and verification work prior to submitting the PMA for the alfapump in RRA.

Review of POSEIDON trial structure and results

The POSEIDON registration trial, which started in 2019, is designed to support alfapump approval and reimbursement in the United States and Canada. The study is a single-arm and open-label, within-subject crossover study, whereby patients serve as their own controls. Following enrolment, patients entered a three-month pre-implant observation period in which they received standard of care therapy, consisting of TP, before the alfapump was implanted. Eligible patients were implanted with the alfapump and during a three-month stabilisation period their alfapump settings were adjusted as needed and patients were fully trained. After the stabilisation period, a three-month post-implant observation period began. The primary effectiveness endpoint hypotheses included:

The median per-patient ratio of TP procedures in the post-implant three-month observation period (months four to six) to the pre-implant three-month observation period (months one to three) is less than 0.5 (or a median reduction of at least 50%); and

whether at least 50% of patients achieve a 50% reduction in the requirement for TP in the post-implant observation period, compared to the pre-implant observation period.

Exhibit 1: POSEIDON study design

Source: Sequana Medical

Data from the 40 enrolled patients in the pivotal cohort of the POSEIDON study met the key primary efficacy outcomes. The first effectiveness endpoint is the median reduction in TP, where among the 40 patients, POSEIDON achieved 100% median reduction (p<0.001) in the post-implant implantation period (reflecting months four to six) compared to the pre-implant observation period, while the study’s aim was to show at least a 50% reduction.

For the second effectiveness endpoint, 77% of the 40 patients experienced at least a 50% reduction in the frequency of TP in the post-implant observation period versus the three-month pre-implant observation period (p<0.001). The study’s aim was to show that at least 50% of patients achieve a 50% reduction in TP.

Exhibit 2: Efficacy endpoints in per-protocol pivotal cohort (n=40)

Source: Sequana Medical

Effectively, the 100% median reduction in TP post- versus pre-implantation result (the first effectiveness endpoint) indicates that the majority of POSEIDON patients required zero TP interventions during the post-implant observation period, as shown below.

Exhibit 3: Distribution of reduction in TP post-implant versus pre-implant (n=26)

Source: Sequana Medical. Note: Distribution is among the 26 patients who completed the 180-day post-implant observation period.

We believe the results exceeded the pre-defined efficacy success thresholds required for approval by a reasonable margin. The company noted that of the 40 implantations, 14 patients exited the study prior to completing the 180-day post-implantation period, with eight discontinuations due to reasons such as death or withdrawal due to an unrelated adverse event or for liver transplant. These discontinuations are not surprising given the high burden of disease in the RRA population; the 12-month survival rate is only c 50%.

There were six patient discontinuations due to primary safety events, which were in line with company expectations. Three of these events were due to wound or skin erosion, which is not surprising given the health status of the patients, as many may have impaired wound healing or higher susceptibilities to infection. The company is assessing approaches that may help reduce the incidence of wound or skin erosion, but we do not expect this to affect the approvability of the device. The three remaining safety event-related explants were due to patient-reported discomfort (which were all determined by the Clinical Events Committee as moderate severity). Importantly, no UADE occurred during the POSEIDON study, and no clinically significant cases of obstruction or infection have been reported to date. The company expects to report additional secondary efficacy and safety endpoints at a medical liver meeting in 2023.

We also note that among the 26 patients who completed the 180-day post-implant period, the efficacy results were even stronger than the per-protocol measurements of success described above. For instance, the proportion of patients with at least a 50% reduction in the number of TP post- versus pre-implantation was 92%.

Exhibit 4: Efficacy measures among patients completing 180-day post-implant observation period (n=26)

Source: Sequana Medical. Note: *These observed patient data are not part of the main primary effectiveness endpoint analysis.

Following the POSEIDON results, we expect Sequana to ramp up its regulatory and pre-commercialisation activities over the coming months as it aims to position the alfapump in the highly unmet North American market of RRA relating to liver ascites. The company plans to engage a head of North America in 2023 as it prepares for US launch and it should also hire market access (reimbursement) leads to work on product reimbursement, with more significant sales teams and market specialists to be hired as it approaches the expected launch in 2024. The company plans to target up to 140 dedicated liver transplant centres in the US as part of its commercialisation plan.

Exhibit 5: US commercialisation-targeting strategy

Source: Sequana Medical

Financials and valuation

We continue to expect the rising prevalence of NASH to result in the target market for RRA patients in North America increasing at an upper single-digit CAGR over the next decade, providing a robust commercialisation opportunity for alfapump in RRA. Sequana reported that over one-third of the patients implanted with the alfapump had NASH or combined NASH disease aetiology.

We have increased our valuation to reflect a higher PoS for alfapump in RRA in North America given the positive POSEIDON results. We now assume an 80% PoS versus 55% previously. We may further revise our PoS estimate upon the successful filing of the PMA application, anticipated in H223.

Exhibit 6: Sequana Medical rNPV assumptions

Product contribution

Indication

Stage

NPV
(€m)

PoS
(%)

rNPV
(€m)

rNPV/basic share (€)

Launch year

Sales (€m) in 2032

alfapump in North America (net of R&D and SG&A costs)

Refractory and recurrent ascites and malignant ascites

Pivotal studying ongoing

278.2

80

221.0

9.30

Mid-2024

209.0

alfapump in Europe and ex-North America regions (net of SG&A costs)

Refractory and recurrent ascites and malignant ascites

Commercial/marketed

(2.2)

100

(2.2)

(0.09)

2013

1.7

DSR 2.0 (short-term DSR)

Fluid overload in heart failure

Human feasibility studies

814.9

25

193.8

8.16

2028

381.9*

Corporate costs

(67.5)

100

(67.5)

(2.84)

Total

1,023.3

345.0

14.53

Net cash (H122e) excluding lease liabilities

16.2

16.2

0.68

Total equity value

1,039.6

361.2

15.21

Basic shares outstanding (000)

23,747

Outstanding warrants and share options

2,722

Fully diluted shares outstanding (000)

26,468

Source: Edison Investment Research. Note: *Reflects estimate of projected royalty revenue to Sequana Medical rather than end-market commercial sales.

Following this change, we now obtain a pipeline rNPV valuation of €345.0m (€273.8m previously). After adding H122 net cash of €16.2m (€23.8m gross cash offset by €7.6m in debt excluding lease liabilities), we obtain an equity valuation of €361.2m or €15.21 per share (€13.65 fully diluted) versus €12.21 per share previously (€10.96 fully diluted).

Our financial forecasts are unchanged, other than updating our model to reflect the expected drawdown of the €10m debt financing facility with Kreos Capital in H222. Following the drawdown of the Kreos facility, we continue to anticipate the company will need to raise an additional €100m over the next few years until it starts to generate sustained positive operating cash flows (which we expect in H128). As per the usual Edison policy, we model future fund-raising requirements as illustrative debt. The company expects that its cash-on-hand at the end of H122 (plus the full proceeds from the Kreos facility) should be sufficient for it to maintain operations into Q323.

Exhibit 7: Financial summary

€’000s

2018

2019

2020

2021

2022e

2023e

2024e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

1,029

971

963

371

764

795

3,178

Cost of Sales

(158)

(198)

(202)

(77)

(163)

(159)

(636)

Gross Profit

871

773

761

294

601

636

2,542

General & Administrative

(8,206)

(7,102)

(6,738)

(7,177)

(8,205)

(9,364)

(15,583)

Net Research & Development

(5,816)

(7,652)

(11,835)

(16,935)

(17,211)

(14,900)

(9,300)

Operating profit before exceptionals

(13,150)

(13,981)

(17,813)

(23,818)

(24,815)

(23,628)

(22,340)

EBITDA

 

 

(13,070)

(13,737)

(17,506)

(23,409)

(24,347)

(23,008)

(21,823)

Depreciation & other

(81)

(244)

(307)

(409)

(467)

(620)

(517)

Operating Profit (before amort. and except.)

(13,150)

(13,981)

(17,813)

(23,818)

(24,815)

(23,628)

(22,340)

Exceptionals including asset impairment

74

18

41

1,205

0

0

0

Operating Profit

(13,077)

(13,964)

(17,771)

(22,613)

(24,815)

(23,628)

(22,340)

Net Interest

(883)

(878)

(1,178)

(608)

(1,456)

(1,783)

(3,547)

Profit Before Tax (norm)

 

 

(14,033)

(14,859)

(18,991)

(24,426)

(26,270)

(25,411)

(25,888)

Profit Before Tax (FRS 3)

 

 

(13,960)

(14,841)

(18,949)

(23,221)

(26,270)

(25,411)

(25,888)

Tax

(24)

(136)

(157)

(393)

(257)

0

0

Profit After Tax and minority interests (norm)

(14,057)

(14,995)

(19,148)

(24,819)

(26,527)

(25,411)

(25,888)

Profit After Tax and minority interests (FRS 3)

(13,983)

(14,977)

(19,106)

(23,614)

(26,527)

(25,411)

(25,888)

Average Number of Shares Outstanding (m)

10.0

12.3

15.3

18.2

23.8

23.9

23.9

EPS - normalised (€)

 

 

(1.41)

(1.22)

(1.25)

(1.36)

(1.12)

(1.07)

(1.08)

EPS - normalised and fully diluted (€)

 

(1.41)

(1.22)

(1.25)

(1.36)

(1.12)

(1.07)

(1.08)

EPS - (IFRS) (€)

 

 

(1.40)

(1.22)

(1.25)

(1.30)

(1.12)

(1.07)

(1.08)

Dividend per share (€)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

242

829

772

1,814

2,465

2,163

2,361

Tangible Assets

184

765

705

1,732

2,377

2,075

2,273

Investments in long-term financial assets

58

63

67

82

88

88

88

Current Assets

 

 

3,099

8,522

13,441

12,890

22,909

12,872

12,836

Short-term investments

0

0

0

0

0

0

0

Cash

1,318

5,586

11,016

9,600

22,247

12,566

11,127

Other

1,782

2,935

2,425

3,290

661

307

1,709

Current Liabilities

 

 

(18,727)

(5,315)

(5,966)

(7,180)

(4,867)

(4,360)

(4,819)

Creditors

(6,654)

(4,855)

(5,966)

(7,180)

(4,867)

(4,360)

(4,819)

Short term borrowings

(12,073)

(459)

0

0

0

0

0

Long Term Liabilities

 

 

(3,374)

(3,110)

(8,135)

(8,312)

(19,003)

(34,003)

(59,003)

Long term borrowings

(2,582)

(2,261)

(7,473)

(7,325)

(17,582)

(32,582)

(57,582)

Other long term liabilities

(792)

(849)

(662)

(987)

(1,421)

(1,421)

(1,421)

Net Assets

 

 

(18,760)

926

113

(788)

1,504

(23,328)

(48,624)

CASH FLOW

Operating Cash Flow

 

 

(8,987)

(17,596)

(15,791)

(22,786)

(23,638)

(22,580)

(22,177)

Net interest and financing income (expense)

(883)

(878)

(1,178)

(608)

(1,456)

(1,783)

(3,547)

Tax

(5)

(9)

(36)

(222)

0

0

0

Net Operating Cash Flow

 

 

(9,875)

(18,482)

(17,005)

(23,616)

(25,094)

(24,364)

(25,724)

Capex

(39)

(106)

(138)

(326)

(575)

(318)

(715)

Acquisitions/disposals

0

0

0

0

0

0

0

Financing (net of costs)

2

26,165

19,000

22,771

28,427

0

0

Dividends

0

0

0

0

0

0

0

Other

0

0

0

0

0

0

0

Net Cash Flow

(9,912)

7,576

1,857

(1,171)

2,758

(24,682)

(26,439)

Opening net debt/(cash)

 

 

0

13,337

(2,866)

(3,543)

(2,275)

(4,665)

20,016

HP finance leases initiated

0

0

0

0

0

0

0

Other

(3,425)

8,627

(1,179)

(97)

(368)

0

0

Closing net debt/(cash)

 

 

13,337

(2,866)

(3,543)

(2,275)

(4,665)

20,016

46,455

Lease debt

N/A

504

387

760

1,074

1,074

1,074

Closing net debt/(cash) inclusive of IFRS 16 lease debt

13,337

(2,362)

(3,157)

(1,515)

(3,591)

21,090

47,529

Source: Edison Investment Research, company reports


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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

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United States of America

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Level 4, Office 1205

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NSW 2000, Australia

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Datatec — The positives outweigh the negatives

Datatec’s H123 results suggest continuing revenue momentum in H123 driven by enterprise demand for cybersecurity, networking and cloud infrastructure, although with a mixed picture across the group. Excluding Analysys Mason, group revenues rose 9% y-o-y to US$2.41bn, while gross profits fell 5% to US$338m and adjusted EBITDA rose by 16% to US$88m. Underlying EPS fell by 67% to 2.2 US cents (3.6 US cents including Analysys Mason), particularly impacted by share-based payment charges. Net debt (for continuing operations) dropped 17% from FY22 to US$111m, reflecting effective working capital management and strong cash flow generation. Although the backlog continued to grow across each division, there are signs that this may be close to peaking as the rate of growth slows, supporting our view that the backlog will start to unwind in H223, through FY24. The global macroeconomic outlook remains uncertain, especially in Europe, but group profit margins would benefit if supply chain issues were to start to ease and the backlog reduced. There are also signs of an improving environment for Logicalis LatAm in H223. The £135.1m special dividend from the sale of Analysys Mason is due to be paid on 5 December 2022.

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