MagForce — Revenue growth is needed from EU roll-out

MagForce (DB: MF6)

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Research: Healthcare

MagForce — Revenue growth is needed from EU roll-out

MagForce is making progress with its strategy to drive the uptake of its thermal ablation treatment, NanoTherm. It is approved in Europe for brain tumours and is in a registrational US study for prostate cancer. MagForce has realigned its commercial strategy in Europe by installing its first device in Poland where, unlike Germany, payments are less dependent on reimbursement from insurers. New treatment centres (ex-Germany) could be the catalysts for meaningful growth in the top line. The pivotal US study has experienced unforeseen delays in standardising the procedure and completion and launch are now expected in H220. Long-term growth depends on the commercialisation of NanoTherm in the US. A recent capital raise (gross €5m) and loan facilities should provide funding until profitability.

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Written by

Healthcare

MagForce

Revenue growth is needed from EU roll-out

Healthcare equipment
& services

Scale research report - Update

3 July 2019

Price

€5.19

Market cap

€143m

Share price graph

Share details

Code

MF6

Listing

Deutsche Börse Scale

Shares in issue

27.6m

Net debt (€m) at 31 December 2018

14.4

Business description

MagForce is a German firm with the first European-approved, nanotechnology-based therapy to treat brain tumours. NanoTherm therapy consists of nanoparticle instillation into the tumour, activated by an alternating magnetic field, producing heat and thermally destroying or sensitising tumours. MagForce is pursuing development in the US, where a pivotal trial for the treatment of prostate cancer is ongoing.

Bull

US prostate cancer market presents a huge commercial opportunity.

Technology is clinically validated.

CEO has a proven track record.

Bear

Reimbursement has been difficult to obtain in Germany to date.

Approval in the US is needed before launch.

Uptake of NanoTherm has been slow to date.

Analysts

Dr Susie Jana

+44 (0) 20 3077 5700

Dr Daniel Wilkinson

+44 (0)20 3077 5734

Dr Sean Conroy

+44 (0)20 3681 2534

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

MagForce is making progress with its strategy to drive the uptake of its thermal ablation treatment, NanoTherm. It is approved in Europe for brain tumours and is in a registrational US study for prostate cancer. MagForce has realigned its commercial strategy in Europe by installing its first device in Poland where, unlike Germany, payments are less dependent on reimbursement from insurers. New treatment centres (ex-Germany) could be the catalysts for meaningful growth in the top line. The pivotal US study has experienced unforeseen delays in standardising the procedure and completion and launch are now expected in H220. Long-term growth depends on the commercialisation of NanoTherm in the US. A recent capital raise (gross €5m) and loan facilities should provide funding until profitability.

EU roll-out installs first NanoActivator in Poland

Revenues from NanoTherm have not grown materially since commercial treatments started in late 2015, primarily due to ongoing issues with reimbursement in Germany. MagForce guides that it now has sufficient patient data to negotiate with local health insurers but we do not anticipate this to be fully resolved until 2021. The first tranche from its EIB loan has been utilised (in part) to establish a new treatment centre in Poland, where management believes there is significant demand from private pay patients for NanoTherm which should enable near-term growth in sales. The opening of a new treatment centre in Zwickau, Germany can be expected in Q319 and negotiations are ongoing with hospitals in Italy and Spain, key markets where MagForce is looking to continue its EU roll-out.

US trial hits delays – launch now expected in H220

We believe the most potential for growth resides in the opportunity for NanoTherm in the US, as urologists and payers will value a treatment that could extend the time prostate cancer patients can remain within active surveillance programmes. A registrational study investigating NanoTherm for the focal ablation of prostate lesions is nearing completion of its first stage (safety and tolerability in 10 patients) and will then enrol up to 110 patients to establish efficacy. Management guides that regulatory approval in the US and commercial treatments could now start in H220.

Valuation: Broadening its geographic coverage is key

MagForce’s market cap is c €143m with an EV of €157m. Uptake in European sales, driven by the ongoing roll-out of devices (ex Germany) and the potential US regulatory approval of NanoTherm will be crucial to adding value in 2019/2020.

Consensus estimates

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/17

0.7

(7.5)

(0.28)

0.0

N/A

N/A

12/18

0.1

4.3

0.17

0.0

30.5

N/A

12/19e

2.8

(8.7)

(0.19)

0.0

N/A

N/A

12/20e

20.3

(0.9)

(0.02)

0.0

N/A

N/A

Source: Thomson Reuters, MagForce accounts

Financials: FY18 results

MagForce AG (‘MagForce’) is the parent company of the MagForce group, which consists of six companies: MagForce AG, MagForce USA, MagForce USA Holding GmbH, MagForce Ventures GmbH, MT MedTech Engineering GmbH and the recently formed, wholly owned Polish subsidiary MagForce sp. z o.o. The company is not required to report consolidated financial statements under HGB accounting standards.

MagForce revenues decreased in FY18 to €67k (FY17: €716k) as the growth in treatment sales in Europe continues to be affected by a lengthy reimbursement process in Germany (carried out on a per-patient basis). Difficulties securing cross-border reimbursement has prohibited foreign patients (ex-Germany) travelling for NanoTherm treatment. Other operating income, reported at €14.9m in FY18 (FY17: €3.6m), was largely attributed to the transfer of 975,000 shares in MagForce USA to MagForce USA Holding GmbH and the consequent booking of hidden reserves of €13.9m (FY17: €2.0m) at the parent company level, based on the fair market value from the capital raise in August 2018. We highlight that this is a non-cash item and although this has had a positive impact on reported operating income (FY18: profit of €6.8m vs FY17: loss of €7.4m), but we believe this is non-operating in nature and its removal represents a loss of €7.1m in FY18 (FY17: €9.4m) which is in-line with the company’s previous guidance. Management has guided that it expects to report significant losses in FY19.

Personnel expenses increased slightly y-o-y to €3.9m (FY17: €3.3m) due to an increase in salaries and the exercise of €308k employee stock options (non-cash). Cost of materials and services decreased slightly to €455k (FY17: €974k) due to expenses in 2017 from the development of the NanoActivator device for the treatment of prostate cancer. We anticipate that this is likely to increase in 2019/2020 in preparation for the launch in the US. Other operating expenses decreased to €3.2m (FY17: €7.1m) primarily as a result of a decrease in external financing measures.

MagForce reported cash and cash equivalents at 31 December 2018 of €1.5m. In January 2018, the first €10.0m tranche of the €35.0m loan facility with the European Investment Bank (EIB) was disbursed with a five-year maturity (with interest, €10.4m is owed) and in total MagForce reported liabilities to financial institutions of €10.9m (FY17: €12k), along with a €5m convertible bond issued in March 2017 which has a maturity of three years (interest rate of 5% pa, conversion price of €5/share). As of 31 December 2018, MagForce reported net debt of €14.4m (FY17: €4.3m). Following a private placement of 1.2m shares in MagForce on 25 June 2019, raising gross proceeds of €5m, additional financing will be required to fund operations until profitability, but we anticipate that this will be drawn from the remaining €25m of the EIB loan facility and other loans if necessary.


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Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. 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.

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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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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