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Research: Healthcare
We are expecting a major shift in day-to-day operations for Bioasis going into the second half of FY21 (year ending February) as it transitions to developing a pathway to the clinic for xB3-001 and the advancement of its preclinical programs. Progress on the business front has been encouraging over the first half, with the signing of the licensing agreement with Chiesi Group in June. This will offset some of Bioasis’s costs, but we expect more partnering activity and other fund-raising to bridge that gap.
Written by
Bioasis Technologies |
Shifting gears to R&D |
Earnings update |
Pharma & biotech |
4 November 2020 |
Share price performance
Business description
Next events
Analyst
Bioasis Technologies is a research client of Edison Investment Research Limited |
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We are expecting a major shift in day-to-day operations for Bioasis going into the second half of FY21 (year ending February) as it transitions to developing a pathway to the clinic for xB3-001 and the advancement of its preclinical programs. Progress on the business front has been encouraging over the first half, with the signing of the licensing agreement with Chiesi Group in June. This will offset some of Bioasis’s costs, but we expect more partnering activity and other fund-raising to bridge that gap.
Year end |
Revenue (C$m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
02/19 |
1.4 |
(2.4) |
(0.04) |
0.00 |
N/A |
N/A |
02/20 |
0.6 |
(3.4) |
(0.06) |
0.00 |
N/A |
N/A |
02/21e |
8.7 |
(0.2) |
(0.00) |
0.00 |
N/A |
N/A |
02/22e |
3.7 |
(9.8) |
(0.13) |
0.00 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Reigniting the R&D engine
The next step for xB3-001 is the initiation of a GLP toxicology study and manufacture of sufficient doses for the toxicology study as well as the planned Phase Ib/II study over the coming year. This will prepare the company for an IND filing at the end of calendar 2021. At present R&D costs are minimal (C$0.1m in Q221), but we expect all of these activities to increase R&D costs significantly, and we forecast C$5.4m in R&D in FY21 (down from C$6.6m previously) and C$8.6m in FY22.
Expect to hear more on deeper pipeline
In its quarterly update, Bioasis also indicated that it is advancing three preclinical programs: xB3-004 to target neuroinflammation; xB3-007, an xB3 derivative of Cerezyme for Gaucher’s disease, and potentially Parkinson’s disease and Lewy body dementia; and an undisclosed drug for frontotemporal lobe dementia.
Partnering efforts continue to pay off
The biggest development from Q221 was signing the collaboration agreement with Chiesi Group in June 2020 for US$3m upfront, up to US$138m in future potential milestones, in addition to royalties for a series of assets targeting lysosomal storage disorders. Xoma had a pre-existing option agreement on these assets, which it announced on 3 November 2020 that it would be exercising. Xoma will acquire a royalty stream (low single digits) and an undisclosed share of the milestones in exchange for a US$1.2m payment.
Valuation: C$60m or C$0.88 per basic share
Our valuation is C$60.0m or C$0.88 per basic share, compared to C$60.1m or C$0.89 previously. We have rolled forward our NPVs and adjusted for the new cash balance (C$3.6m). We expect the company will need to raise additional capital to complete the preclinical activities necessary for xB3-001 to enter the clinic: we include C$20m in financing in FY21, as part of a C$110m total future funding need to bring xB3-001 to market (recorded as illustrative debt).
Where it stands and future directions
Bioasis reported its results for fiscal Q221 (ending in August 2020) on 29 October 2020. The company reported a profitable quarter (C$1.9m net income) following the receipt of the US$3m upfront payment from Chiesi Group (previously, we amortized this payment in our prior forecast, but it was wholly recognized in the quarter in the company’s report and we have adjusted our estimates accordingly). Operating expenses were only C$1.0m, which was lower than our expectations due to the timing of some of the company’s R&D activities. R&D spending was only C$0.1m for the quarter.
The company has not yet initiated some of the significant preclinical development projects necessary to prepare xB3-001 for an IND application and for the clinic. We do not consider this a major delay but rather an issue of timing between quarters. Over the coming months, we expect Bioasis to initiate manufacturing of product for the remaining preclinical studies and the upcoming Phase Ib/II study. Additionally, the company will need to perform an animal GLP toxicology study to support the IND.
Additionally, Bioasis has highlighted three preclinical development programs that we expect to be an increased focus going forward. The first is xB3-004, a brain-targeted antibody against Interleukin 1 receptor antagonist (IL1RA). This product was previously licensed by MedImmune, where it was being investigated for neuroinflammatory disorders and neurodegeneration. It also highlighted xB3007, which the company believes has potential in Gaucher's disease, Parkinson's disease or Lewy body dementia. xB3-007 is an xB3 derivative of the enzyme replacement drug β-glucocerebrosidase (aka Cerezyme) used in the treatment of Gaucher’s. And finally, the company mentioned an ‘as yet undisclosed’ target for the treatment of frontotemporal lobe dementia. We expect to have a better sense of the potential for these programs after the company performs some initial preclinical testing in the coming months.
We forecast R&D spending of C$4.9m for H221 to cover these costs. We have reduced our expected R&D spend for FY21 to $5.4m (from $6.6m previously) to reflect the current timing of events and spending to date (including on undisclosed programs). We may further delay these costs into FY22 if the company does not secure additional financing to support these development efforts soon.
We expect the company to need C$110m in additional capital to reach profitability under the current development plan. For our model, this includes C$20m in FY21 to support the company through IND filing and into the dosing portion of the planned Phase Ib/II study. Additionally, we include C$50m in FY23 and C$40m in FY26 (both unchanged) as illustrative debt. We expect the company to be pursuing this financing immediately through a number of avenues, including additional partnering deals. We are highly encouraged by the Chiesi Group deal and believe that there is a wide-open field of additional opportunities to license the platform. Additional milestones from this program or the collaboration with Prothena may also offset future financing needs. We include provisional milestone payments from Prothena of US$3m in each of FY21 and FY22 (before the 10% royalty payable to Xoma).
Xoma exercises option on drugs in Chiesi Group collaboration
On 3 November 2020, Xoma announced that it would be exercising an option it held to receive a royalty stream on the four products currently being developed in collaboration with Chiesi Group. As a reminder, the development collaboration between Bioasis and Chiesi Group was for four products to treat lysosomal storage disorders, with Bioasis to receive a US$3m upfront, up to $138m in milestones in addition to royalties. The option being exercised by Xoma would entitle it to a low single-digit royalty on net sales and an undisclosed portion of future milestones in exchange for US$1.2m. We are encouraged by the participation of Xoma and its willingness to invest in the program, although it will reduce the economic benefit to Bioasis from the Chiesi Group deal slightly. Additionally, it is worth noting that Xoma has similar rights on an additional future licensing agreement entered into by Bioasis, so we may see a similar option exercised by Xoma on Bioasis’s next deal.
Valuation
Our valuation is roughly flat following minor adjustments: C$60.0m or C$0.88 per basic share vs C$60.1m or C$0.89 per share, previously. Changes to our model include rolling forward our NPVs, which was offset by lower net cash (C$3.6m for Q221 + the Xoma payment, from a previously estimated C$4.0m). We have reduced the royalty payments to be received for the Chiesi Group collaboration by 1% and the milestones by 20% to account for the Xoma deal. Our model has also been adjusted for the above changes to spending, but the impact on the valuation is small.
Exhibit 1: Valuation of Bioasis
Development Program |
Indication |
Clinical stage |
Geography |
Prob. of success |
Launch year |
Launch pricing ($/month) |
Peak sales (US$m) |
Patent/ exclusivity protection |
Royalty/ margin |
rNPV (C$m) |
|
xB3-001 |
Treatment of mBC BMs |
IND |
US |
10% |
2027 |
11500 |
125 |
2039 |
52% |
$16.94 |
|
Europe |
10% |
2027 |
7500 |
115 |
2039 |
52% |
$15.72 |
||||
R&D |
10% |
($11.38) |
|||||||||
1st line, prevention of BCBMs |
Planned |
US |
5% |
2032 |
12700 |
397 |
2039 |
57% |
$13.63 |
||
Europe |
5% |
2032 |
8200 |
437 |
2039 |
57% |
$15.32 |
||||
R&D |
5% |
($3.63) |
|||||||||
Prothena milestones |
Undisclosed |
Discovery |
2.5% |
2028 |
$3.50 |
||||||
Chiesi Group |
4 lysosomal storage disorders |
Discovery |
2.5% |
2029 |
*400 |
2041 |
*7–11% |
$6.29 |
|||
Total |
|
|
|
|
|
|
|
|
|
$56.4 |
|
Net cash and equivalents (Q221 + Xoma upfront) (C$m) |
$3.6 |
||||||||||
Total firm value (C$m) |
$60.0 |
||||||||||
Total basic shares (m) |
68.0 |
||||||||||
Value per basic share (C$) |
$0.88 |
||||||||||
Dilutive warrants and options (m) |
27.0 |
||||||||||
Total diluted shares (m) |
95.0 |
||||||||||
Value per diluted share (C$) |
$0.74 |
||||||||||
Source: Bioasis reports, Edison Investment Research. Note: *Peak sales are a placeholder, royalty rates estimated. BCBMs = breast cancer brain metastases.
Exhibit 2: Financial summary
C$’000s |
2019 |
2020 |
2021e |
2022e |
||
Year end 28 February |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
1,422.0 |
606.4 |
8,694.0 |
3,726.0 |
Cost of Sales |
(10.4) |
0.0 |
0.0 |
0.0 |
||
Gross Profit |
1,411.6 |
606.4 |
8,694.0 |
3,726.0 |
||
R&D |
(1,954.3) |
(2,033.6) |
(5,435.1) |
(8,645.2) |
||
SG&A |
(4,314.5) |
(3,174.4) |
(4,076.3) |
(5,503.0) |
||
EBITDA |
|
|
(3,805.0) |
(3,965.4) |
(188.8) |
(9,794.5) |
Normalised operating profit |
|
|
(3,815.8) |
(3,977.4) |
(193.0) |
(9,797.8) |
Amortisation of acquired intangibles |
(61.1) |
(58.8) |
(58.8) |
(58.8) |
||
Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
||
Share-based payments |
(980.2) |
(565.6) |
(565.6) |
(565.6) |
||
Reported operating profit |
(4,857.2) |
(4,601.7) |
(817.4) |
(10,422.2) |
||
Net Interest |
1.8 |
(46.9) |
0.0 |
0.0 |
||
Other income |
986.9 |
592.2 |
0.0 |
0.0 |
||
Exceptionals |
395.1 |
0.0 |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
(2,432.1) |
(3,432.1) |
(193.0) |
(9,797.8) |
Profit Before Tax (reported) |
|
|
(3,473.4) |
(4,056.4) |
(817.4) |
(10,422.2) |
Reported tax |
0.0 |
0.0 |
0.0 |
0.0 |
||
Profit After Tax (norm) |
(2,432.1) |
(3,432.1) |
(193.0) |
(9,797.8) |
||
Profit After Tax (reported) |
(3,473.4) |
(4,056.4) |
(817.4) |
(10,422.2) |
||
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Discontinued operations |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
(2,432.1) |
(3,427.1) |
(187.0) |
(9,790.8) |
||
Net income (reported) |
(3,473.4) |
(4,056.4) |
(817.4) |
(10,422.2) |
||
Basic average number of shares outstanding (m) |
56,675 |
62,271 |
69,886 |
73,380 |
||
EPS - basic normalised (C$) |
|
|
(0.04) |
(0.06) |
(0.00) |
(0.13) |
EPS - diluted normalised (C$) |
|
|
(0.04) |
(0.06) |
(0.00) |
(0.13) |
EPS - basic reported (C$) |
|
|
(0.06) |
(0.07) |
(0.01) |
(0.14) |
Dividend (C$) |
0.00 |
0.00 |
0.00 |
0.00 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
360.9 |
290.2 |
227.1 |
165.0 |
Intangible Assets |
327.8 |
269.0 |
210.2 |
151.4 |
||
Tangible Assets |
33.1 |
21.1 |
16.9 |
13.5 |
||
Investments & other |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Assets |
|
|
1,382.3 |
651.6 |
22,190.1 |
14,145.7 |
Stocks |
0.0 |
0.0 |
0.0 |
0.0 |
||
Debtors |
9.7 |
13.4 |
0.0 |
0.0 |
||
Cash & cash equivalents |
1,360.0 |
576.4 |
22,128.2 |
14,083.8 |
||
Other |
12.6 |
61.9 |
61.9 |
61.9 |
||
Current Liabilities |
|
|
(1,262.9) |
(2,476.7) |
(3,352.0) |
(5,102.1) |
Creditors |
(998.5) |
(1,991.1) |
(3,352.0) |
(5,102.1) |
||
Tax and social security |
0.0 |
0.0 |
0.0 |
0.0 |
||
Short term borrowings |
0.0 |
(485.6) |
0.0 |
0.0 |
||
Other |
(264.4) |
0.0 |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(1,027.0) |
(951.3) |
(20,951.3) |
(20,951.3) |
Long term borrowings |
0.0 |
(517.9) |
(20,517.9) |
(20,517.9) |
||
Other long term liabilities |
(1,027.0) |
(433.4) |
(433.4) |
(433.4) |
||
Net Assets |
|
|
(546.7) |
(2,486.3) |
(1,886.1) |
(11,742.7) |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
(546.7) |
(2,486.3) |
(1,886.1) |
(11,742.7) |
CASH FLOW |
||||||
Op Cash Flow before WC and tax |
(3,805.0) |
(3,965.4) |
(188.8) |
(9,794.5) |
||
Working capital |
568.4 |
691.5 |
1,374.3 |
1,750.1 |
||
Exceptional & other |
6.9 |
(24.8) |
0.0 |
0.0 |
||
Tax |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net operating cash flow |
|
|
(3,229.7) |
(3,298.7) |
1,185.5 |
(8,044.4) |
Capex |
(2.1) |
0.0 |
0.0 |
0.0 |
||
Acquisitions/disposals |
395.1 |
0.0 |
0.0 |
0.0 |
||
Net interest |
0.0 |
0.0 |
0.0 |
0.0 |
||
Equity financing |
3,526.7 |
1,205.0 |
852.0 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
0.0 |
0.0 |
(485.6) |
0.0 |
||
Net Cash Flow |
690.0 |
(2,093.6) |
1,551.8 |
(8,044.4) |
||
Opening net debt/(cash) |
|
|
(678.0) |
(1,360.0) |
427.4 |
(1,610.4) |
FX |
(7.9) |
22.2 |
0.0 |
0.0 |
||
Other non-cash movements |
0.0 |
284.0 |
486.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
(1,360.0) |
427.4 |
(1,610.4) |
6,434.0 |
Source: Bioasis reports, Edison Investment Research.
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