SymBio Pharmaceuticals — Supply issues continue

SymBio Pharmaceuticals (TYO: 4582)

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Research: Healthcare

SymBio Pharmaceuticals — Supply issues continue

SymBio reported sales of ¥2.838bn for 2019 and an operating loss of ¥4.301bn. Sales were down from 2018 due to the previously announced quality control issue for the supply of Treakisym from Astellas. We forecast sales of ¥3.433bn in 2020 as the company winds down its sales to Eisai in anticipation of the launch of its own internal salesforce and marketing effort for the drug in 2021.

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Healthcare

SymBio Pharmaceuticals

Supply issues continue

FY19 earnings update

Pharma & biotech

13 May 2020

Price

¥586

Market cap

¥16,115m

¥110/US$

Net cash (¥m) at December 2019 + subsequent exercises

4,537

Shares in issue

27.5m

Free float

92.2

Code

4582

Primary exchange

TYO

Secondary exchange

OTC US

Share price performance

%

1m

3m

12m

Abs

(6.4)

(10.9)

(32.8)

Rel (local)

(2.5)

(10.1)

(35.3)

52-week high/low

¥1,088

¥542

Business description

SymBio Pharmaceuticals is a Japanese specialty pharma company with a focus on oncology and hematology. The Treakisym powder formulation was in-licensed from Astellas in 2005; liquid Treakisym was in-licensed from Eagle Pharmaceuticals in 2017. Rigosertib was in-licensed from Onconova. And brincidofovir was licensed from Chimerix in 2019.

Next events

DLBCL NDA filing

Q220

Rigosertib Phase III results

H120

Analyst

Nathaniel Calloway

+1 646 653 7036

SymBio Pharmaceuticals is a research client of Edison Investment Research Limited

SymBio reported sales of ¥2.838bn for 2019 and an operating loss of ¥4.301bn. Sales were down from 2018 due to the previously announced quality control issue for the supply of Treakisym from Astellas. We forecast sales of ¥3.433bn in 2020 as the company winds down its sales to Eisai in anticipation of the launch of its own internal salesforce and marketing effort for the drug in 2021.

Year end

Revenue (¥m)

PBT*
(¥m)

EPS*
(¥)

DPS
(¥)

P/E
(x)

Yield
(%)

12/18

3,836

(2,749)

(166)

0

N/A

N/A

12/19

2,838

(4,377)

(189)

0

N/A

N/A

12/20e

3,433

(5,078)

(170)

0

N/A

N/A

12/21e

9,159

962

50

0

11.7

N/A

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

Quality and supply issues continue

The quantity control issues that were announced in August 2019 were expected to have a negative impact on sales for the year. Further, the company announced in the annual report that although Astellas replaced the initial bad shipments, there were additional quality control issues and missed delivery dates. This further exacerbated the revenue loss to the company from its August 2019 guidance of ¥3.092bn to the final total of ¥2.838bn. Astellas is reportedly addressing the issue, but SymBio is unable to confirm at this time.

Preparing for internal marketing of Treakisym

Treakisym is currently marketed through the company’s partner Eisai, but the rights to the drug will revert to SymBio at the beginning of 2021. In anticipation, the company will be building out its own internal salesforce and marketing program for the drug over the coming year. SymBio is also advancing two expansions of the program: the ready to dilute formulation (NDA submitted in September 2019) and a label expansion to diffuse large B-cell lymphoma (DLBCL, NDA submission expected Q220).

Valuation: Increased to ¥37.2bn or ¥1,351 per share

We have increased our valuation to ¥37.2bn ($338m) from ¥32.7bn ($300m), although it is up less on a per share basis (¥1,351 from ¥1,342). This increase is driven by rolling forward our NPVs, offset at the share level by a higher share count. We expect to update our valuation with the announcement of results for the Phase III myelodysplastic syndrome (MDS) clinical study of rigosertib from the drug’s sponsor, Onconova, planned for H120.

Supply issues with Astellas persist and continue to negatively affect sales and earnings

SymBio previously reported in August 2019 that shipments of Treakisym (bendamustine) from its supplier Astellas had suffered from a series of quality control issues. At the time management revised its 2019 revenue guidance down to ¥3.092bn from ¥4.465bn. However, the company reported in its 2019 financial report that quality control and supply issues have persisted, causing delays that continue to have a negative impact on sales. SymBio had net sales of ¥2.838bn for the year, down approximately ¥1bn from 2018. Furthermore, operating losses also exceeded expectations at ¥4.301bn (compared to the revised guidance of ¥3.587bn in August 2019).

Astellas eventually replaced all of the defective batches of drug, but these shipments were affected by unreliable delivery dates and further quality control issues. SymBio stated in its report that Astellas has implemented a corrective and preventative action program to address these issues, but it is too early to evaluate the effectiveness of these measures. As Astellas is the sole licensor of bendamustine rights worldwide, SymBio has relatively little recourse over the supply issues it has faced.

Shift towards internal sales

The company has guided toward sales of ¥3.404bn in 2020, although this reduction is driven by a planned rundown of deliveries to the company’s marketing partner Eisai rather than inventory issues. SymBio will gain full rights to market Treakisym in Japan at the beginning of 2021 and it intends to relaunch the drug with its own internal sales force at that time. In anticipation of this, deliveries to Eisai will be reduced to allow for a reduction in its inventory. Because of the planned reduction in volume, we expect the effects of continued supply issues (if they occur) to be limited.

SymBio forecasts an operating loss of ¥5.090bn for 2020 as it gears up operations for its own internal salesforce. We currently forecast costs of approximately ¥1bn associated with building this organization and establishing its supply chain.

The company is targeting profitability in 2021 with the re-launch of Treakisym. In addition to bringing sales of the product in house, the company has also made multiple efforts to expand its market. The company submitted an NDA in September 2019 with the Japanese regulatory authorities for the ready-to-dilute (RTD) formulation of the drug. It is also planning an NDA submission for the label expansion to treat DLBCL in Q220; the drug previously showed positive results in Phase III for DLBCL in November 2019. The company expects approval for this NDA in Q221.

Valuation

We have increased our valuation to ¥37.2bn ($338m) from ¥32.7bn ($300m), although it is up less on a per share basis (¥1,351 from ¥1,342). The increase is largely due to rolling forward our NPVs to 2020, offset by the increase in shares following recent large exercises of share acquisition rights (1.1m shares issued in January 2020, for a total of ¥626m). The effect of the Astellas supply issues on the valuation is primarily due to unrealized sales in 2019 leading to lower than expected cash (or alternately more dilution to compensate), although we have adjusted our 2020 revenue estimates to align with company guidance. However, these negative effects have less of an impact than rolling forward our NPVs given the expected ramp in earnings in 2021 and beyond.

A major upcoming value inflection point for the company is the announcement of results for the ongoing Phase III MDS clinical study of rigosertib from the drug’s sponsor, Onconova, planned for H120.

Exhibit 1: Valuation of SymBio

Product

Indication

Launch

Peak sales (¥m)

NPV (¥m)

Probability

rNPV
(¥m)

rNPV/share (¥)

Treakisym

Low grade NHL/MCL (r/r and first line); CLL

2010

8,600

19,270

100–95%

18,451

670.0

Treakisym (DLCBL)

r/r DLBCL

2021

9,600

12,975

90%

11,610

421.6

Rigosertib (IV)

r/r HR-MDS

2023

3,800

2,820

50%

1,324

48.1

Rigosertib (oral)

LR-MDS (mono) or first-line HR-MDS (combo)

2025

7,500

4,171

15%

423

15.4

Brincidofovir

vHC

2025

4,200

3,280

30%

855

31.1

Net cash (December 2019 + subsequent exercises)

4,537

100%

4,537

164.7

Valuation

 

 

 

47,052

 

37,199

1,350.9

Source: SymBio Pharmaceuticals reports, Edison Investment Research

Financials

We have lowered our revenue forecasts for 2020 to ¥3.4bn (from ¥4.0bn) to reflect the company’s predicted rundown in sales to Eisai. However, our forecasts for operational losses are roughly similar to previous estimates (¥5.1bn from ¥5.2bn), as we now forecast marginally lower SG&A costs associated with the commercial build out (¥3.5bn from ¥3.8bn). The company ended 2019 with ¥3.91bn in cash, and subsequently raised ¥626m through its ongoing rights offering. We currently include ¥607m in financing in 2020 (recorded as illustrative debt) primarily to provide a cash buffer (of ¥800m) going into the 2021 commercial launch.

Exhibit 2: Financial summary

Accounts: JPN GAAP, Yr end: 31 December; ¥m

 

 

2016

2017

2018

2019

2020e

2021e

2022e

2023e

2024e

2025e

Total revenues

 

 

2,368

3,444

3,836

2,838

3,433

9,159

11,418

12,705

13,988

15,336

Cost of sales

 

 

(1,464)

(2,413)

(2,663)

(1,973)

(2,403)

(1,839)

(2,254)

(1,897)

(2,090)

(2,292)

Gross profit

 

 

904

1,031

1,173

865

1,030

7,321

9,164

10,808

11,898

13,044

SG&A (expenses)

 

 

(1,364)

(1,961)

(1,996)

(2,725)

(3,525)

(5,602)

(6,460)

(7,610)

(7,517)

(8,087)

R&D costs

 

 

(1,667)

(3,018)

(1,833)

(2,442)

(2,603)

(765)

(1,040)

(1,815)

(1,547)

(866)

Other income/(expense) included in adjusted

 

 

0

0

0

0

0

0

0

0

0

0

Other income/(expense) excluded from adjusted

 

 

0

0

0

0

0

0

0

0

0

0

Reported EBIT

 

 

(2,127)

(3,947)

(2,656)

(4,302)

(5,098)

954

1,665

1,383

2,834

4,092

Finance income/ (expense)

 

 

5

3

1

0

20

8

24

64

103

172

Other income/(expense) included in adjusted

 

 

7

3

(0)

4

0

0

0

0

0

0

Other income/(expense) excluded from adjusted

 

 

(195)

(33)

(93)

(75)

0

0

0

0

0

0

Reported PBT

 

 

(2,309)

(3,974)

(2,749)

(4,372)

(5,078)

962

1,689

1,447

2,937

4,264

Income tax expense

 

 

(4)

(4)

(4)

(4)

396

404

83

(554)

(1,120)

(1,624)

Reported net income

 

 

(2,313)

(3,978)

(2,753)

(4,376)

(4,682)

1,365

1,772

893

1,817

2,640

Average number of shares - basic (m)

 

 

9.8

12.5

16.6

23.2

27.5

27.5

27.5

27.5

27.5

27.5

Basic EPS

 

 

(235.27)

(319.14)

(165.54)

(189.03)

(170.02)

49.59

64.35

32.44

65.98

95.86

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

(2,101)

(3,917)

(2,621)

(4,264)

(5,000)

1,034

1,740

1,461

2,918

4,187

Adjusted EBIT

 

 

(2,127)

(3,947)

(2,656)

(4,302)

(5,098)

954

1,665

1,383

2,834

4,092

Adjusted PBT

 

 

(2,317)

(3,977)

(2,749)

(4,377)

(5,078)

962

1,689

1,447

2,937

4,264

Adjusted EPS

 

 

(236.02)

(319.35)

(165.54)

(189.22)

(170.02)

49.59

64.35

32.44

65.98

95.86

Adjusted diluted EPS

 

 

(236.02)

(319.35)

(165.54)

(189.22)

(170.02)

48.84

63.38

31.96

65.00

94.42

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance sheet

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

75

47

57

75

87

141

204

266

325

380

Goodwill

 

 

0

0

0

0

0

0

0

0

0

0

Intangible assets

 

 

42

69

71

241

169

121

89

68

53

43

Other non-current assets

 

 

77

100

73

70

70

70

70

70

70

70

Total non-current assets

 

 

193

216

201

386

327

333

364

404

449

494

Cash and equivalents

 

 

5,719

2,947

4,821

3,911

800

1,616

3,156

4,067

5,647

8,061

Inventories

 

 

273

363

534

0

270

207

253

213

235

257

Trade and other receivables

 

 

487

490

412

549

376

1,004

1,251

1,392

1,533

1,681

Other current assets

 

 

205

237

272

427

427

427

427

427

427

427

Total current assets

 

 

6,685

4,037

6,038

4,887

1,874

3,254

5,088

6,100

7,842

10,426

Non-current loans and borrowings

 

 

450

0

0

0

607

607

607

607

607

607

Trade and other payables

 

 

0

0

0

0

0

0

0

0

0

0

Other non-current liabilities

 

 

1

1

1

2

2

2

2

2

2

2

Total non-current liabilities

 

 

451

1

1

2

609

609

609

609

609

609

Trade and other payables

 

 

322

604

726

121

496

517

610

768

738

728

Current loans and borrowings

 

 

0

0

0

0

0

0

0

0

0

0

Other current liabilities

 

 

620

407

610

751

751

751

751

751

751

751

Total current liabilities

 

 

942

1,011

1,336

872

1,247

1,268

1,362

1,520

1,489

1,479

Equity attributable to company

 

 

5,485

3,239

4,902

4,400

344

1,710

3,482

4,375

6,192

8,832

Non-controlling interest

 

 

0

0

0

0

0

0

0

0

0

0

 

 

 

 

 

 

 

 

 

 

 

 

 

Cashflow statement

 

 

 

 

 

 

 

 

 

 

 

 

Profit before tax

 

 

(2,309)

(3,974)

(2,749)

(4,372)

(5,078)

962

1,689

1,447

2,937

4,264

Depreciation and Amortisation

 

 

26

30

35

38

97

80

75

77

84

95

Share based payments

 

 

137

121

148

0

0

0

0

0

0

0

Other adjustments

 

 

197

42

61

229

(20)

(8)

(24)

(64)

(103)

(172)

Movements in working capital

 

 

(13)

(35)

184

(242)

278

(543)

(201)

57

(192)

(181)

Interest paid / received

 

 

6

3

1

1

20

8

24

64

103

172

Income taxes paid

 

 

(4)

(4)

(4)

(4)

396

404

83

(554)

(1,120)

(1,624)

Cash from operations (CFO)

 

 

(1,960)

(3,817)

(2,325)

(4,351)

(4,307)

903

1,647

1,028

1,709

2,554

Capex

 

 

(28)

(57)

(40)

(217)

(37)

(87)

(106)

(118)

(129)

(140)

Acquisitions & disposals net

 

 

0

0

0

 

 

 

 

 

 

 

Other investing activities

 

 

(16)

(20)

14

0

0

0

0

0

0

0

Cash used in investing activities (CFIA)

 

 

(44)

(78)

(26)

(216)

(37)

(87)

(106)

(118)

(129)

(140)

Net proceeds from issue of shares

 

 

3,226

1,164

4,272

3,738

626

0

0

0

0

0

Movements in debt

 

 

450

0

0

0

607

0

0

0

0

0

Other financing activities

 

 

(18)

0

0

2

0

0

0

0

0

0

Cash from financing activities (CFF)

 

 

3,658

1,164

4,272

3,740

1,233

0

0

0

0

0

Currency translation differences and other

 

 

(196)

(42)

(47)

(83)

0

0

0

0

0

0

Increase/(decrease) in cash and equivalents

 

 

1,458

(2,772)

1,874

(911)

(3,111)

816

1,540

910

1,580

2,414

Opening Net (debt) cash

4,261

5,719

2,947

4,821

3,911

193

1,009

2,549

3,459

5,039

Cash and equivalents at end of period

 

 

5,719

2,947

4,821

3,911

800

1,616

3,156

4,067

5,647

8,061

Net (debt) cash

 

 

5,269

2,947

4,821

3,911

193

1,009

2,549

3,459

5,039

7,453

Movement in net (debt) cash over period

 

 

1,008

(2,322)

1,874

(911)

(3,718)

816

1,540

910

1,580

2,414

Source: SymBio Pharmaceuticals reports, Edison Investment Research

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This report has been commissioned by SymBio Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by SymBio Pharmaceuticals. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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Ebiquity’s pre-close update indicates that trading has been in line with management and market estimates and we are making no changes to our numbers at this point. Post year-end news flow has been constructive (the Digital Decisions acquisition and the buy-in of the Italian minority). A potentially bigger opportunity comes from the news that Accenture is planning to withdraw from media measurement. Ebiquity’s share price has been trading near 10-year lows, putting the valuation at a marked discount to the smaller marcomms companies on an EV/EBITDA and on a P/E basis.

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