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Research: Healthcare
Basilea has announced the FDA approval of its second lead asset, Zevtera (ceftobiprole), for the treatment of severe bacterial infections (three indications), marking a major commercial win. The US is the most commercially lucrative market for Zevtera, accounting for 85–90% of its total market potential. Zevtera is already approved in several countries (including in Europe) and the FDA nod is based on three Phase III studies (including the ERADICATE and TARGET studies with R&D partly funded by the BARDA). Note that the drug holds the Qualified Infectious Disease Product (QIDP) designation, which will provide up to 10-years of market exclusivity following approval. As we await more details on the US commercial partner (expected by mid-2024), we upgrade our US probability of success (PoS) to 100%, bumping our valuation to CHF1,008.6m or CHF84.0/share (from CHF80.7/share).
Written by
Basilea Pharmaceutica |
Zevtera crosses key US regulatory hurdle |
Regulatory update |
Pharma and biotech |
4 April 2024 |
Share price performance
Business description
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Analysts
Basilea Pharmaceutica is a research client of Edison Investment Research Limited |
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Basilea has announced the FDA approval of its second lead asset, Zevtera (ceftobiprole), for the treatment of severe bacterial infections (three indications), marking a major commercial win. The US is the most commercially lucrative market for Zevtera, accounting for 85–90% of its total market potential. Zevtera is already approved in several countries (including in Europe) and the FDA nod is based on three Phase III studies (including the ERADICATE and TARGET studies with R&D partly funded by the BARDA). Note that the drug holds the Qualified Infectious Disease Product (QIDP) designation, which will provide up to 10-years of market exclusivity following approval. As we await more details on the US commercial partner (expected by mid-2024), we upgrade our US probability of success (PoS) to 100%, bumping our valuation to CHF1,008.6m or CHF84.0/share (from CHF80.7/share).
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/22 |
147.8 |
12.3 |
104.1 |
0.0 |
35.8 |
N/A |
12/23 |
157.6 |
10.8 |
89.7 |
0.0 |
41.5 |
N/A |
12/24e |
187.2 |
28.0 |
233.6 |
0.0 |
15.9 |
N/A |
12/25e |
209.1 |
32.3 |
269.2 |
0.0 |
13.8 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
A broad-spectrum anti-MRSA agent
Zevtera is a fifth-generation cephalosporin anti-infective, with broad spectrum activity against both drug-resistant, gram-positive and gram-negative bacterial infections. The drug is currently approved and marketed in 21 countries (including major European and international markets, through distribution partners) for bacterial lung infections (pneumonia) and has been particularly effective against methicillin-resistant Staphylococcus aureus (MRSA), a leading cause of hospital acquired infections. The US is the biggest MRSA market and therefore the largest commercial opportunity for the company. The global MRSA treatment market was estimated to be worth $3.8bn in 2021, with the US accounting for c 85%.
Zevtera’s path to approval
The FDA has approved Zevtera for the treatment of Staphylococcus aureus bacteremia (SAB), acute bacterial skin and skin structure infections (ABSSSI) and community-acquired bacterial pneumonia (CABP). This was based on data from three Phase III trials, including TARGET (ABSSSI) and ERADICATE (SAB), designed under special protocol assessment (SPA). Both trials met their primary efficacy endpoints, leading to the NDA filing in August 2023. In line with Basilea’s business model, we expect commercialisation to be undertaken by a licensing partner, with Basilea receiving upfront, milestone and royalty payments.
Valuation: Increases to CHF1,008.6m CHF84/share
Given the positive topline data from the Phase III trials, we were already ascribing a high PoS (90%) to Zevtera in the US and now have increased it to 100% following the US approval. We continue to estimate peak sales of >$500m for the drug. Our other assumptions remain unchanged. Our valuation increases to CHF1,008.6m or CHF84.0/share (from CHF968.0m or CHF80.7/share previously).
Zevtera reaches its US destination
Zevtera is a new-generation cephalosporin, which is administered intravenously, and has shown activity against clinically important gram-positive bacteria, such as Staphylococcus aureus (including methicillin-resistant strains, MRSA), and gram-negative bacteria. The drug has already been approved in major countries across Europe, Latin America, the Middle East, North Africa and Canada (marketed as either Zevtera or Mabelio) and is currently marketed in a total of 21 countries for hospital and community acquired bacterial pneumonia (HABP, CABP).
The FDA approval has been granted for the treatment of adult patients with SAB (including those with right-sided infective endocarditis caused by MRSA and methicillin-susceptible Staphylococcus aureus; MSSA), adult patients with ABSSSI and for adult and paediatric patients (three months to less than 18 years old) with CABP. As previously communicated by management, we expect the initial focus for the company to be on the treatment of SAB, which afflicts c 120,000 people in the US per year and has a three-month mortality rate of 25%. The treatment landscape for SAB remains underserved with only two treatments currently approved to cover both MRSA and MSSA (vancomycin and daptomycin). Zevtera’s approval marks the first approval for the treatment in SAB in the last 15 years. While management had communicated its intentions to finalise a commercial partner in the US before the regulatory decision, this now has been pushed out to mid-2024. We understand this may be due to several competing interests and offers for Zevtera licensing and look forward to an update on this from the company.
We view the FDA approval as a key milestone for the company’s commercialisation efforts, given that the region represents the largest potential market for Zevtera (c 85%, according to IQVIA, December 2023). For reference, Exhibit 1 highlights the US market share of other anti-MRSA drugs, daptomycin (brand name Cubicin) and ceftaroline (brand name Teflaro). The MRSA treatment market was valued at $3.8bn in 2021 and is projected to reach $5.5bn by 2030.
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Exhibit 1: The US represents the most important region for the anti-MRSA treatment market |
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Source: Basilea corporate presentation, April 2024. Notes: LOE, loss of exclusivity; ROW, rest of world; MAT, moving annual total. Both daptomycin and ceftaroline are FDA approved anti-MRSA antibiotic therapies. |
Completing a long clinical pathway
Zevtera’s FDA approval is based on positive clinical efficacy and safety data from three separate Phase III studies:
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ERADICATE (for SAB) – a double-blind, randomised trial investigating the treatment of adult SAB patients (including those with infective endocarditis, IE). The study enrolled 390 patients with SAB caused by MRSA or methicillin-susceptible Staphylococcus aureus (MRSS), who were randomised into either the active arm (ceftobiprole iv infusion) or the comparator arm (daptomycin with or without aztreonam for gram-negative infections). The primary endpoint was the demonstration of non-inferiority (15% non-inferiority margin) versus the comparator arm in the modified intent-to-treat population (Exhibit 2).
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Exhibit 2: The ERADICATE study met both primary and secondary endpoints |
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Source: Basilea corporate presentation, April 2024. Note: PTE - Post-treatment evaluation visit at 70 days post-randomisation. |
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Exhibit 2: The ERADICATE study met both primary and secondary endpoints |
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Source: Basilea corporate presentation, April 2024. Note: PTE - Post-treatment evaluation visit at 70 days post-randomisation. |
Topline data (released in June 2022) demonstrated an overall success rate of 69.8% in the ceftobiprole arm versus 68.7% in the daptomycin (±aztreonam) arm, indicating non-inferiority. In addition, Basilea reported that initial subgroup analysis showed no significant differences between the two treatment groups.
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TARGET (for ABSSSI) – in August 2019, Basilea reported positive topline results for the Phase III TARGET study, a 679 patient, randomised, double-blind, active-controlled study evaluating ceftobiprole in the treatment of patients with ABSSSI. The drug met the primary efficacy objective of non-inferiority (within the pre-specified margin of 10%) to vancomycin plus aztreonam in the intent-to-treat (ITT) population. The primary endpoint (early clinical response) was based on a 20% or more reduction from baseline in lesion size at 48 to 72 hours after start of study drug administration (Exhibit 3).
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Exhibit 3: Early clinical response at48-72h after start of treatment (ITT population) |
Exhibit 4: Investigator-assessed clinical outcomes 15-22 days after randomisation |
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Source: Basilea corporate presentation, April 2024. |
Source: Basilea corporate presentation, April 2024. |
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Exhibit 3: Early clinical response at48-72h after start of treatment (ITT population) |
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Source: Basilea corporate presentation, April 2024. |
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Exhibit 4: Investigator-assessed clinical outcomes 15-22 days after randomisation |
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Source: Basilea corporate presentation, April 2024. |
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A Phase III trial (for CABP) – a Phase III randomised, double-blind study comparing ceftobiprole to ceftriaxone, with or without linezolid, in 638 patients with CABP. The trial met its primary endpoint (clinical cure rates at the test-of-cure visit 7-14 days after the end of treatment). Of the patients who received ceftobiprole, 76.4% achieved clinical cure compared with 79.3% of those who received the comparator, demonstrating noninferiority of ceftobiprole to ceftriaxone with or without linezolid.
The Phase III programme for Zevtera was majority funded by the Biomedical Advanced Research and Development Authority (BARDA), whereby it provided c $112m to fund the SAB and ABSSSI clinical studies (c 75% of the costs), alongside related regulatory activities and non-clinical work. Based on the positive results from the Phase III studies, Basilea submitted the new drug application (NDA) for Zevtera in August 2023, which was accepted by the FDA in October 2023.
As previously highlighted the FDA has granted the QIDP designation to ceftobiprole, which will provide 10 years of market exclusivity in the US. We expect the company to seek a partnership for commercialisation in the US and await an update from management on this.
Valuation
Following the FDA approval for Zevtera, we increase the PoS from 90% to 100% in the US, while keeping all other underlying assumptions unchanged. We continue to estimate peak sales of >$500m for Zevtera worldwide. Our overall valuation for Basilea adjusts to CHF1,008.6m or CHF84.0/share (CHF968.0m or CHF80.7/share previously). This also includes some benefit from updated forex rates.
Exhibit 5: Basilea Pharmaceutica valuation
Product |
Indication |
Launch |
Peak sales |
NPV |
Probability |
rNPV |
rNPV/share (CHF) |
Cresemba (isavuconazole) |
Severe fungal infections |
2015 (US); 2016 (EU); 2018 (RoW); 2022 (China): 2023 (Japan) |
686 |
608.9 |
100% |
608.9 |
50.7 |
Zevtera/Mabelio (ceftobiprole) |
Severe bacterial infections |
2015 (EU); 2018 (RoW); 2024 (US) |
581 |
328.5 |
100% |
328.5 |
27.4 |
Fosmanogepix |
Severe fungal infections |
2029 (US, EU and Japan), 2030 (RoW) |
802 |
241.9 |
60% |
117.9 |
9.8 |
Net cash/(debt) at end December 2023 |
|
|
(46.6) |
100% |
(46.6) |
(3.9) |
|
Valuation |
|
|
|
1,132.7 |
|
1,008.6 |
84.0 |
Source: Edison Investment Research
Exhibit 6: Financial summary
Accounts: US GAAP, year end 31 December, CHF:000s |
|
|
2021 |
2022 |
2023 |
2024e |
2025e |
PROFIT & LOSS |
|
|
|
|
|
|
|
Total revenues |
|
|
148,122 |
147,765 |
157,634 |
187,212 |
209,058 |
Product revenues (Cresemba and Zevtera) |
|
|
131,382 |
122,315 |
150,275 |
183,912 |
205,758 |
Cost of sales |
|
|
(24,072) |
(24,603) |
(26,794) |
(33,875) |
(41,251) |
Gross profit |
|
|
124,050 |
123,162 |
130,840 |
153,337 |
167,807 |
Research and development expenses (net) |
|
|
(93,157) |
(73,804) |
(77,852) |
(84,924) |
(92,343) |
SG&A costs |
|
|
(29,721) |
(30,815) |
(33,783) |
(35,665) |
(38,859) |
Exceptionals and adjustments |
|
|
15 |
0 |
0 |
0 |
0 |
EBITDA (reported) |
|
|
1,941 |
19,640 |
20,782 |
33,954 |
37,889 |
Reported operating income |
|
|
1,187 |
18,543 |
19,205 |
32,747 |
36,605 |
Operating margin % |
|
|
N/A |
N/A |
N/A |
N/A |
N/A |
Finance income/(expense) |
|
|
(7,982) |
(6,441) |
(8,744) |
(5,021) |
(4,622) |
Profit before tax (reported) |
|
|
(6,795) |
12,102 |
10,461 |
27,727 |
31,983 |
Profit before tax (normalised) |
|
|
(6,610) |
12,302 |
10,761 |
28,018 |
32,286 |
Income tax expense (includes exceptionals) |
|
|
(37) |
45 |
(10) |
0 |
0 |
Net income (reported) |
|
|
(6,832) |
12,147 |
10,451 |
27,727 |
31,983 |
Net income (normalised) |
|
|
(6,647) |
12,347 |
10,751 |
28,018 |
32,286 |
Basic average number of shares, m |
|
|
11.68 |
11.86 |
11.99 |
11.99 |
11.99 |
Basic EPS (CHF c) |
|
|
(58.5) |
102.4 |
87.2 |
231.2 |
266.7 |
Adjusted EPS (CHF c) |
|
|
(56.9) |
104.1 |
89.7 |
233.6 |
269.2 |
Dividend per share (CHF c) |
|
|
0 |
0 |
0 |
0 |
0 |
BALANCE SHEET |
|
|
|
|
|
|
|
Restricted cash |
|
|
0 |
22,000 |
0 |
0 |
0 |
Tangible assets |
|
|
2,018 |
4,277 |
3,757 |
3,942 |
4,061 |
Intangible assets |
|
|
632 |
578 |
548 |
457 |
354 |
Long-term investments |
|
|
2,390 |
1,266 |
0 |
0 |
0 |
Other non-current assets |
|
|
1,161 |
17,363 |
16,839 |
16,839 |
16,839 |
Total non-current assets |
|
|
6,201 |
45,484 |
21,144 |
21,238 |
21,254 |
Cash and equivalents |
|
|
53,700 |
84,659 |
59,933 |
66,207 |
93,411 |
Restricted cash |
|
|
1,253 |
1,908 |
4,389 |
4,389 |
4,389 |
Short-term investments |
|
|
95,000 |
0 |
0 |
0 |
0 |
Inventories |
|
|
22,783 |
24,244 |
26,410 |
33,389 |
40,659 |
Trade and other receivables |
|
|
24,947 |
33,152 |
27,891 |
33,124 |
36,990 |
Other current assets |
|
|
43,383 |
31,401 |
33,522 |
33,522 |
33,522 |
Total current assets |
|
|
241,066 |
175,364 |
152,145 |
170,632 |
208,971 |
Convertible senior unsecured bonds (long-term) |
|
|
94,544 |
95,000 |
95,455 |
95,455 |
95,455 |
Senior secured loan |
|
|
0 |
36,360 |
0 |
0 |
0 |
Deferred revenue |
|
|
11,926 |
10,693 |
9,460 |
9,460 |
9,460 |
Non-current operating lease liabilities |
|
|
10 |
16,323 |
15,636 |
15,636 |
15,636 |
Other non-current liabilities |
|
|
24,986 |
8,337 |
15,149 |
15,149 |
15,149 |
Total non-current liabilities |
|
|
131,466 |
166,713 |
135,700 |
135,700 |
135,700 |
Convertible senior unsecured bonds (short-term) |
|
|
123,505 |
0 |
0 |
0 |
0 |
Senior secured loan |
|
|
0 |
37,467 |
15,453 |
0 |
0 |
Accounts payable |
|
|
10,617 |
191 |
5,847 |
7,392 |
9,002 |
Deferred revenue |
|
|
1,233 |
1,233 |
1,233 |
1,233 |
1,233 |
Current operating lease liabilities |
|
|
896 |
1,988 |
2,062 |
2,062 |
2,062 |
Other current liabilities |
|
|
38,157 |
33,971 |
22,997 |
22,997 |
22,997 |
Total current liabilities |
|
|
174,408 |
74,850 |
47,592 |
33,684 |
35,294 |
Net assets |
|
|
(58,607) |
(20,715) |
(10,003) |
22,486 |
59,231 |
CASH FLOW STATEMENT |
|
|
|
|
|
|
|
Reported net income |
|
|
(6,831) |
12,147 |
10,451 |
27,727 |
31,983 |
Depreciation and amortisation |
|
|
754 |
1,097 |
1,577 |
1,206 |
1,284 |
Share based payments |
|
|
4,322 |
3,598 |
4,762 |
4,762 |
4,762 |
Other adjustments |
|
|
1,522 |
497 |
1,443 |
0 |
0 |
Movements in working capital |
|
|
(31,787) |
(10,282) |
(3,988) |
(10,667) |
(9,526) |
Cash from operations (CFO) |
|
|
(32,020) |
7,057 |
14,245 |
23,027 |
28,503 |
Capex |
|
|
(581) |
(3,138) |
(813) |
(1,100) |
(1,100) |
Short-term investments |
|
|
6,023 |
94,951 |
0 |
0 |
0 |
Long-term investments |
|
|
0 |
0 |
0 |
0 |
0 |
Other investing activities |
|
|
(1,867) |
(165) |
(221) |
(200) |
(200) |
Cash used in investing activities (CFIA) |
|
|
3,575 |
91,648 |
(1,034) |
(1,300) |
(1,300) |
Net proceeds from issue of shares |
|
|
42,240 |
250 |
(381) |
0 |
0 |
Movements in debt |
|
|
(23,212) |
(49,672) |
(59,314) |
(15,453) |
0 |
Other financing activities |
|
|
(2,388) |
4,176 |
2,390 |
0 |
0 |
Cash from financing activities (CFF) |
|
|
16,640 |
(45,246) |
(57,305) |
(15,453) |
0 |
Cash and equivalents at beginning of period |
|
|
66,256 |
54,952 |
108,566 |
64,321 |
70,596 |
Increase/(decrease) in cash and equivalents |
|
|
(11,805) |
53,459 |
(44,094) |
6,274 |
27,203 |
Effect of FX on cash and equivalents |
|
|
501 |
155 |
(151) |
0 |
0 |
Cash and equivalents at end of period |
|
|
54,952 |
108,566 |
64,321 |
70,596 |
97,800 |
Net (debt)/cash |
|
|
(68,096) |
(60,260) |
(46,586) |
(24,859) |
2,345 |
Source: company reports, Edison Investment Research
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Research: TMT
Altron is a South African-based provider of platforms and IT services, helping businesses transform and operate their IT. As part of the plan to refocus on strategic growth opportunities and to improve profitability, management has set ambitious medium-term profit targets. The group has made good progress to date, and we forecast a headline EPS CAGR of 21% from FY23 to FY26e. In our view, this performance is not yet reflected in the current share price. Full FY24 results in May should provide better clarity around individual business performance and we expect the discount to peers to reduce as positive margin progress becomes evident.