MagForce — The land of opportunity awaits NanoTherm

MagForce (DB: MF6)

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Research: Healthcare

MagForce — The land of opportunity awaits NanoTherm

MagForce is making progress in its strategy to drive the uptake of its thermal ablation treatment, NanoTherm. It is approved in Europe for brain tumours and in a registrational US study for prostate cancer. Sales in Europe have been slow to date, but MagForce’s realigned commercial strategy in Europe could be the catalyst for meaningful growth in the top line and enable sustainable profitability from 2022. In the pivotal US study, enrolment of the first phase has completed, with approval and launch expected in Q420. Long-term growth depends on commercial treatments in the US. We value MagForce at €269.7m or €9.8/share.

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Written by

Healthcare

MagForce

The land of opportunity awaits NanoTherm

Interim results

Healthcare equipment & services

11 November 2019

Price

€4.52

Market cap

€125m

$1.11/€

Net debt (€m) at 30 June 2019

15.1

Shares in issue

27.6m

Free float

66%

Code

MF6

Primary exchange

Frankfurt (Xetra)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

8.0

(3.0)

(24.1)

Rel (local)

(2.3)

(13.1)

(33.9)

52-week high/low

€6.10

€4.01

Business description

MagForce is a German company with the first Europe-approved nanotechnology-based therapy to treat brain tumours. NanoTherm consists of a nanoparticle instillation into the tumour, activated by an alternating magnetic field, producing heat and thermally destroying or sensitising the tumour.

Next events

Additional NanoActivator installations in Europe (ex-Germany)

2020

Trial completion, FDA approval and launch of NanoTherm in the US

2020

Analysts

Dr Susie Jana

+44 (0)20 3077 5700

Dr Daniel Wilkinson

+44 (0)20 3077 5734

MagForce is a research client of Edison Investment Research Limited

MagForce is making progress in its strategy to drive the uptake of its thermal ablation treatment, NanoTherm. It is approved in Europe for brain tumours and in a registrational US study for prostate cancer. Sales in Europe have been slow to date, but MagForce’s realigned commercial strategy in Europe could be the catalyst for meaningful growth in the top line and enable sustainable profitability from 2022. In the pivotal US study, enrolment of the first phase has completed, with approval and launch expected in Q420. Long-term growth depends on commercial treatments in the US. We value MagForce at €269.7m or €9.8/share.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/17

0.7

(9.5)

(36.0)

0.0

N/A

N/A

12/18

0.1

(8.7)

(32.8)

0.0

N/A

N/A

12/19e

0.7

(10.5)

(38.7)

0.0

N/A

N/A

12/20e

2.9

(6.6)

(23.7)

0.0

N/A

N/A

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

European roll-out installs first device ex-Germany

Revenues from NanoTherm have not grown materially since commercial treatments (late 2015), primarily due to ongoing issues with reimbursement in Germany. 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 patients for NanoTherm. New treatment centres (ex-Germany) could be the catalysts for meaningful growth in the top line and enable sustainable profitability from 2022.

US prostate cancer study progressing

MagForce has completed treatment of the first 10-patient cohort in its pivotal prostate cancer study required by the US FDA for approval. Importantly, it has reported that the procedure for instilling its NanoTherm particles has now been standardised and the study can enrol up to 110 additional patients to establish efficacy in thermally ablating prostate cancer lesions. Positive results would provide a key value inflection (Q420) for the company.

Financials: EIB extends cash reach until profitability

End-June 2019 net debt was €15.1m, primarily from drawing down the first tranche (€10m) of the loan from its facility with the EIB in January 2018 (€25m remaining). Following a private placement of 1.2m shares (in June 2019) MagForce raised gross proceeds of €5m. We believe an additional €15m will be required to fund operations until profitability, which we forecast in 2022.

Valuation: €269.7m (€9.8/share)

Our revised valuation of MagForce is €269.7m (previously €261.5m), based on a risk-adjusted NPV analysis. We have updated for net debt, FX and rolled forward our model. We note that delays in the US trial would materially affect our valuation, and prudent execution is needed to launch the asset on time (the US is ~70% of our valuation).

Expanding NanoTherm access beyond Germany

During H119, MagForce announced the establishment of its first treatment centre outside Germany in Lubin, Poland. This marked an important moment for the company, as it is a clear signal that MagForce is progressing with its plans to broaden its geographical coverage, and enables it to provide patients, who were previously unable to travel across the border into Germany, to access NanoTherm. Management has highlighted that there has been significant demand (c 280 patient enquires) from Poland and this first treatment centre could prove to be the much-needed catalyst to drive near-term uptake in revenues; we expect that c 20 patients will be treated by year end. A small investigator-led trial will also be conducted before NanoTherm is included on local reimbursement lists, until which time patients will pay out of pocket for NanoTherm. However, unlike patients havingto travel cross-border, all other treatment costs are covered.

In June 2019, an agreement was made with the Paracelsus Clinic in Zwickau, Germany, to establish a new treatment centre, which will broaden MagForce’s geographical coverage further, although treatments are still likely to consist of private paying patients until reimbursement in Germany is attained. As MagForce has now established the ability to quickly install devices in a more cost-effective manner, and is making progress in its European roll-out, we expect it will continue to install two NanoActivator devices a year in new markets. We estimate that c 4,000 deaths a year were attributed to GBM in Spain and Italy during 2018 (source: Global Cancer Observatory), markets into which management has highlighted it is looking to expand next and is in negotiations with neurosurgical units to establish new treatment centres.

US prostate cancer launch expected end 2020

NanoTherm therapy is regulated as a device rather than a drug in the US, and therefore follows a medical device regulatory route to approval. In August 2019, MagForce announced that it had completed treatment of the first 10-patient cohort in the pivotal prostate cancer study required by the US FDA for approval. The single-arm trial aims to recruit up to 120 patients with prostate cancer (Gleason score of 7) under active surveillance and will assess NanoTherm as focal treatment for prostate lesions. MagForce has reported that the procedure for instilling its NanoTherm particles has now been standardised and the study can enrol up to 110 additional patients to establish efficacy in thermally ablating prostate cancer lesions. Management has reported initial findings from this first cohort, which indicates that treatment side effects have been minimal and in line with those of biopsies. Achieving a tolerable treatment will be key to attaining both approval and reimbursement.

We believe the largest potential for growth resides in the opportunity for MagForce’s NanoTherm therapy in the US, as both urologists and payers will value a treatment that could extend the time prostate cancer patients can remain within active surveillance programmes. In lieu of a control arm in the study, we assume it will be compared to historical standard-of-care treatment outcomes to determine its benefit (similar to the glioblastoma trial). Although this might be sufficient to achieve regulatory approval, payers might require a clearer measure of patient benefit before agreeing reimbursement. Management has guided that, in its initial engagement with the Centres for Medicare & Medicaid Services, it has indicated costs similar to brachytherapy and tolerability in line with a biopsy could warrant similar reimbursement (c $7k).

Submission for FDA review is expected in 2020. We still anticipate US approval and launch in Q420, but highlight that both prudent trial execution and timely commercial roll-out are essential in achieving this goal. We forecast peak sales of $264m in 2026.

Valuation

Our revised valuation of MagForce is €269.7m (€9.8m/share) vs €261.5m or €9.5 per share previously, based on a risk-adjusted NPV analysis. It is centred on MagForce’s NanoTherm therapy, risk-adjusted to reflect the current development status and respective core strategies for the EU and US. We value only GBM in the EU and prostate cancer in the US. Although we recognise MagForce’s future intention to eventually treat additional indications in each region, we do not ascribe value to this in our base case. In each indication and region, our valuation includes our revenue forecasts and estimates for costs, including R&D and S&M. A summary of the assumptions we have made in our peak sales forecasts is outlined in Exhibit 1.

Exhibit 1: Peak sales forecasts

Product

Country

Indication

Launch/peak sales

Assumptions

NanoTherm/
NanoActivators 

Germany

GBM

2015
€9m ($10m)

With the installation of a new device in Zwickau expected this year, management guides that three NanoActivator devices will be fully commercial in Germany during 2019; we do not expect any more devices will be installed thereafter as expansion will be outside Germany. We assume these devices will ramp up to peak usage in 2025, which we translate to c 150 patients/device/year or 450 patients treated at peak. In Germany we estimate the annual mortality rate from glioblastoma will be c 3,500 in 2025, which is representative of the eligible patients, indicating peak penetration of c 13%. Assuming treatment maintains its pricing at €23k/patient, we forecast peak sales of €9m.

Europe
(ex-Germany)

GBM

2019
€40m ($45m)

With the installation of the first device in Lublin, Poland, in 2019, one NanoActivator device will be fully commercial during 2019; we expect two more devices will be installed a year (ex-Germany) thereafter. We assume these devices will ramp up to peak usage in 2025 with 150 patients/device/year treated or 1,950 patients treated at peak. In Europe (ex-Germany), we estimate the annual mortality rate from glioblastoma will be c 25,000 in 2025, which is a fair representation of eligible patients. This indicates peak penetration of c 8%. Assuming treatment maintains its pricing at €23k/patient, we forecast peak sales of €40m.

NanoTherm/
pNanoActivators

US

Prostate cancer

2020
€233m ($264m)

Assuming a launch in Q420, we expect that MagForce will install 80 devices by 2022 in key urology practices across the US and 150 devices installed by 2026. We assume that these devices will ramp up to peak usage in 2026, which we believe translates to 250 patients/device/year or 37,500 patients treated at peak. We estimate that there will be around 170,000 patients eligible for treatment in the US in 2026, which indicates peak penetration of c 22%. Assuming treatment is priced at $7k/patient, in line with brachytherapy, we forecast peak sales of $264m.

Source: Edison Investment Research, Global Cancer Observatory. Note: FX rate $1.11/€.

We use a 10% discount rate in Europe and 12.5% for the US. We adjust the US opportunity to reflect the 67.9% stake in MagForce USA and attribute an 80% probability of success for approval of the device. Our valuation includes €15.1m net debt reported at 30 June 2019, plus net cash of €1.8m from the capital raised was received after the 30 June 2019 reporting date and an estimated €6m net cash held in MagForce USA, which is not disclosed in the financial statements but we have assumed from gross proceeds of the capital raise in August 2018. We use a $1.11/€ spot rate.

Exhibit 2: MagForce risk-adjusted NPV valuation

Product

Indication

Launch

Peak sales (€m)

Peak sales ($m)

NPV
(€m)

Probability

MagForce beneficial interest

rNPV
(€m)

rNPV/share (€)

NanoTherm EU

GBM (Germany)

2015

9

10

18.3

100%

100%

18.3

0.7

GBM (ex-Germany)

2019

40

44

67.5

100%

100%

67.5

2.4

NanoTherm US

Prostate cancer

2020

236

264

355.6

80%

68%

193.2

7.0

Net cash/(debt) (AG)

(13.3)

100%

100%

(13.3)

(0.5)

Net cash/(debt) (US)

6.0

100%

68%

4.1

0.1

Valuation

434.1

269.7

9.8

Source: Edison Investment Research. Note: FX rate $1.11/€.

Exhibit 3: Financial summary

€'000s

2016

2017

2018

2019e

2020e

December

HGB

HGB

HGB

HGB

HGB

PROFIT & LOSS

 

Revenue

 

 

474

716

67

667

2,898

Cost of Sales

(574)

(974)

(455)

(2,058)

(2,252)

Gross Profit

(101)

(258)

(388)

(1,391)

646

EBITDA

 

 

(6,555)

(8,763)

(7,068)

(9,583)

(5,348)

Operating Profit (before amort. and except.)

(7,457)

(9,434)

(7,068)

(9,583)

(5,348)

Intangible Amortisation

(4)

(1)

0

0

0

Exceptionals

0

2,024

13,896

0

0

Other

0

0

(877)

0

0

Operating Profit

(7,461)

(7,411)

5,951

(9,583)

(5,348)

Net Interest

231

(53)

(1,591)

(892)

(1,210)

Profit Before Tax (norm)

 

 

(7,226)

(9,487)

(8,659)

(10,475)

(6,558)

Profit Before Tax (reported)

 

 

(7,230)

(7,464)

4,360

(10,475)

(6,558)

Tax

(1)

(1)

(2)

0

0

Profit After Tax (norm)

(7,227)

(9,488)

(8,661)

(10,475)

(6,558)

Profit After Tax (reported)

(7,231)

(7,465)

4,358

(10,475)

(6,558)

Average Number of Shares Outstanding (m)

26.0

26.3

26.4

27.1

27.6

EPS - normalised (c)

 

 

(27.8)

(36.0)

(32.8)

(38.7)

(23.7)

EPS - (reported) (€)

 

 

(0.28)

(0.28)

0.17

(0.39)

(0.24)

Dividend per share (€)

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

N/A

N/A

N/A

N/A

22.3

EBITDA Margin (%)

N/A

N/A

N/A

N/A

N/A

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

18,742

20,672

34,470

34,402

34,744

Intangible Assets

3

2

91

186

280

Tangible Assets

3,706

3,589

3,401

3,239

3,486

Investments

15,033

17,082

30,978

30,978

30,978

Current Assets

 

 

1,536

1,360

2,664

3,999

2,711

Stocks

71

301

291

169

185

Debtors

71

85

95

365

1,588

Cash

614

665

1,493

2,679

153

Other

780

307

785

785

785

Current Liabilities

 

 

(4,431)

(3,747)

(3,049)

(2,891)

(3,502)

Creditors

(4,431)

(3,747)

(3,049)

(2,891)

(3,502)

Short term borrowings

0

0

0

0

0

Long Term Liabilities

 

 

(197)

(5,091)

(15,926)

(22,926)

(27,926)

Long term borrowings

0

(5,012)

(15,876)

(22,876)

(27,876)

Other long term liabilities

(197)

(79)

(50)

(50)

(50)

Net Assets

 

 

15,650

13,194

18,159

12,584

6,026

CASH FLOW

Operating Cash Flow

 

 

(1,079)

(5,286)

(4,636)

(9,307)

(5,335)

Net Interest

231

(53)

(2,468)

(892)

(1,210)

Tax

(1)

(1)

(2)

0

0

Capex

(115)

(553)

(499)

(515)

(982)

Acquisitions/disposals

0

0

0

0

0

Financing

0

5,000

0

4,900

0

Dividends

0

0

0

0

0

Net Cash Flow

(964)

(894)

(7,605)

(5,814)

(7,527)

Opening net debt/(cash)

 

 

(1,393)

(614)

4,347

14,383

20,197

HP finance leases initiated

0

0

0

0

0

Other

185

(4,067)

(2,431)

0

0

Closing net debt/(cash)

 

 

(614)

4,347

14,383

20,197

27,723

Source: Company accounts, Edison Investment Research. Note: Reported other operating income (non-cash) relating to the transfer of shares between subsidiaries has been booked as an exceptional item in our model.


General disclaimer and copyright

This report has been commissioned by MagForce and prepared and issued by Edison, in consideration of a fee payable by MagForce. 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.

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 research department of Edison 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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General disclaimer and copyright

This report has been commissioned by MagForce and prepared and issued by Edison, in consideration of a fee payable by MagForce. 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.

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 research department of Edison 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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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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Research: Metals & Mining

Endeavour Mining — Forecasts up; valuation up

Endeavour Mining’s Q3 results were considerably ahead of our forecasts, despite a challenging rainy season. Nevertheless, production rose at three of Endeavour’s four mines and overall group production increased by 5.5% relative to Q2 (NB historically, production has tended to fall in Q3 relative to Q2), while net adjusted EPS almost quadrupled to 30.2c. As a result, we have updated our underlying FY19 forecasts (see Exhibit 1 on page 3 for a detailed analysis of EDV’s Q3 results and Exhibit 6 on page 7 for changes to our Q419 and FY19 estimates). In addition, we have incorporated our longer-term gold price forecasts into our financial model as well as the 25% expansion of the Ity processing plant from FY20. Otherwise, operating cash flow (before working capital items) more than doubled to US$1.05/share in Q3, return on capital employed increased to 15% (on an annualised basis) and net debt (excluding IFRS 16 leases) reduced by US$52m. Capex continued to fall, putting Endeavour in a strong position to benefit from the gold price and to deleverage rapidly, while maintaining growth optionality via its exploration activities.

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