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CHF49.75
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CHF653m
Research: Healthcare
On 28 June 2022, Basilea announced positive top-line results from the Phase III ERADICATE study, investigating the use of its drug-resistant antibacterial agent, Zevtera (ceftobiprole) in the treatment of Staphylococcus aureus bacteraemia (SAB). In combination with the 2019 Phase III TARGET study in acute bacterial skin and skin structure infections (ABSSSI), the results complete the data package for Basilea to seek FDA approval for Zevtera in both indications. Management expects to file a new drug application (NDA) with the FDA around year-end 2022. Due to higher pricing, wider reimbursement and a higher incidence of MRSA infections, we continue to view the US market as a considerable commercial opportunity for Zevtera. We value Basilea at CHF886.7m or CHF74.9/share (versus CHF847.7m or CHF71.6/share previously).
Basilea Pharmaceutica |
Zevtera path to US approval open |
Clinical trial update |
Pharma and biotech |
1 July 2022 |
Share price performance
Business description
Next events
Analysts
Basilea Pharmaceutica is a research client of Edison Investment Research Limited |
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On 28 June 2022, Basilea announced positive top-line results from the Phase III ERADICATE study, investigating the use of its drug-resistant antibacterial agent, Zevtera (ceftobiprole) in the treatment of Staphylococcus aureus bacteraemia (SAB). In combination with the 2019 Phase III TARGET study in acute bacterial skin and skin structure infections (ABSSSI), the results complete the data package for Basilea to seek FDA approval for Zevtera in both indications. Management expects to file a new drug application (NDA) with the FDA around year-end 2022. Due to higher pricing, wider reimbursement and a higher incidence of MRSA infections, we continue to view the US market as a considerable commercial opportunity for Zevtera. We value Basilea at CHF886.7m or CHF74.9/share (versus CHF847.7m or CHF71.6/share previously).
Year end |
Revenue (CHFm) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/20 |
127.6 |
(29.6) |
(288.5) |
0.0 |
N/A |
N/A |
12/21 |
148.1 |
(6.6) |
(56.9) |
0.0 |
N/A |
N/A |
12/22e |
108.9 |
(30.9) |
(260.9) |
0.0 |
N/A |
N/A |
12/23e |
133.8 |
19.4 |
200.5 |
0.0 |
19.0 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
NDA submission by year end
With positive data from the ERADICATE study, Basilea expects to submit an NDA application by the end of 2022. As the FDA had previously reached agreement with Basilea on trial designs for the Phase III ERADICATE and TARGET studies, we do not foresee any issues. In our view, the US opportunity for Zevtera remains strong and is supported by differentiation from competitors in terms of safety and the broad range of indications and bacteria which the drug can treat.
Oncology transactions on track
In a recent update, management stated that transactions for BAL0891 and other preclinical assets will be concluded in H222 and Basilea will return the rights to derazantinib to Merck & Co by year-end 2022. We believe these developments represent good progress for the company’s anti-infective-focused strategy and expect Basilea to pursue licensing and transaction deals to refill the development pipeline with new anti-infective assets soon.
Valuation: CHF886.7m or CHF74.9/share
We value Basilea Pharmaceutica at CHF886.7m or CHF74.9/share (previously CHF847.7m or CHF71.6/share). Our valuation is based on a risk-adjusted NPV analysis of Cresemba, Zevtera and the oncology assets using a blended 10–12.5% discount rate and including estimated net debt of CHF77.5m at end H122. Taking into account new clinical data from the ERADICATE study, we increase our probability of success for Zevtera in the US to 85% from 75%. We have rolled our model forward and updated out foreign exchange estimates.
Zevtera’s road to approval
As a reminder, Zevtera (ceftobiprole) is a broad-spectrum antibiotic for the treatment of drug-resistant, gram-positive infections, including methicillin-resistant Staphylococcus aureus (MRSA) and gram-negative bacterial infections, including Pseudomonas. Zevtera is already approved for the treatment of various bacterial pneumonias in major European countries and some international markets. The FDA requested two new Phase III clinical studies before the drug could be considered for approval in the US: TARGET in ABSSSI and ERADICATE in SAB. In August 2019, Basilea reported data from the TARGET study for ceftobiprole in the treatment of ABSSSI, in which the drug met primary and secondary efficacy endpoints including non-inferiority to standard-of-care (SoC) vancomycin plus aztreonam in the intent-to-treat population.
ERADICATE completes the data package
The company’s Phase III ERADICATE study was a double-blind, randomised trial investigating the treatment of adult SAB patients (including those with infective endocarditis, IE). The study protocol (Exhibit 1) enrolled 390 patients with SAB caused by methicillin-resistant or methicillin-susceptible Staphylococcus aureus (MRSA or MRSS, respectively), 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 1: ERADICATE study design |
|
|
Source: Basilea investor presentation, June 2022. Note: R = randomization. SAB = Staphylococcus aureus bacteraemia. |
Newly presented top-line data from ERADICATE demonstrate an overall success rate of 69.8% in the ceftobiprole arm versus 68.7% in the daptomycin (± aztreonam) arm, indicating that the primary non-inferiority endpoint had been reached. In addition, Basilea reported that initial subgroup analysis showed no significant differences between the two treatment groups. Safety data from the study showed that ceftobiprole’s safety profile was consistent with previous data and the overall rate of adverse events was similar between the two groups.
Next step: NDA submission
Management will now prepare the data required for the NDA submission to the FDA, which Basilea has stated that it will submit around year-end 2022. As the FDA had reached agreement with Basilea on the ERADICATE and TARGET trial designs under a special protocol assessment, we do not foresee any problems. We expect the final FDA label to be informed by the various subgroup analyses being conducted (MRSA versus MSSA, IE or non-IE, gram-negative versus gram-positive infection). The company intends to present these findings at upcoming scientific conferences. We maintain that a US launch date of H223 for ceftobiprole with a focus on SAB and ABSSSI is feasible, based on timely NDA submission at the end of 2022. As such, we expect the company will look to partner before approval. However, given the crucial nature of the prospective Zevtera launch in the United States, we believe Basilea will continue its pre-launch activities even if it does not conclude a partnership deal in the pre-launch period.
Therapeutic landscape represents unmet medical need
In addition to ABSSSI and SAB, we expect Basilea will also explore approval for the treatment of community-acquired bacterial pneumonia (CABP), based on data from a 2006–07 Phase III trial. Exhibit 2 highlights a segment of the treatment landscape for these indications.
Exhibit 2: SAB, ABSSSI and CAP therapeutic landscape
Drug |
Relevant |
2021 sales* |
2028 estimated sales* (US$m) |
Notes |
Vancomycin |
SAB, IE |
251 |
312 |
First-line therapy for MRSA-bacteraemia and IE. Dosing can be challenging, often carries risk of nephrotoxicity. Resistance is known. |
Daptomycin (Cubicin) |
SAB, IE |
254 |
173 |
First-line therapy for MRSA-bacteraemia and IE. Cannot be used secondary to pneumonia. Resistant MRSA strains are well described. |
Dalbavancin (Dalvance) |
ABSSSI |
18 |
69 |
Approved in 2014. long-acting, single-dose injectable, shown to be non-inferior to vancomycin in ABSSSI. Common side-effects included nausea, headache and diarrhoea. |
Delafloxacin (Baxdela) |
CAPB, ABSSSI |
48 |
375 |
Approved in 2017 (ABSSSI) and 2019 (CABP). Shown to be statistically non-inferior to vancomycin plus aztreonam. |
Omadacycline (Nuzyra) |
CAPB, ABSSSI |
53 |
450 |
Approved in 2018. Demonstrated as non-inferior to moxifloxacin in CAP and linezolid in ABSSI. |
Source: Edison Investment Research. Note: *Sales and estimates from EvaluatePharma.
Currently there are only two approved first-line treatments for MRSA bacteraemia or IE: vancomycin and daptomycin, both of which are generic medicines. Importantly, we see ceftobiprole as having clear differentiation from daptomycin in the SAB setting as it can be used for gram-negative bacteria and in patients with pneumonia. For these reasons, we believe the SAB indication represents a clear opportunity for Zevtera to gain market share. We also note that the FDA has awarded Zevtera a Qualified Infectious Disease Product (QIDP) designation. This designation extends market exclusivity to 10 years (from five) based on the approval date.
However, potential competitor drugs may disrupt the landscape in future. For example, Exebacase, an anti-bacterial lysin being developed by ContraFect, is currently in Phase III development (NCT04160468) for the treatment of MRSA bacteraemia including endocarditis. Importantly, this randomised, double-blind, placebo-controlled study will investigate superiority of Exebacase plus SoC antibiotics versus SoC alone. Positive results could have an impact on Basilea’s target SAB market in the US. However, in our view, the potential adoption of ceftobiprole as SoC creates an opportunity for its use in combination with Exebacase.
Anti-infective focused strategy remains on track
In a recent update on Basilea’s strategic refocusing, management reiterated guidance that oncology-related expenses will not be material beyond 2022 and that it would reach sustained profitability in 2023. The company intends to engage in separate transactions for the oncology asset BAL0891 (a dual TTK/PLK1 inhibitor) and other preclinical assets, which it expects to conclude in H222. In addition, it continues to explore partnering options for lisavanbulin and will return the rights to derazantinib to Merck & Co by year-end 2022, due to an increasingly competitive landscape for FGFR inhibitors. In view of recent milestone payments and approvals in China for Cresemba (isavuconazole), we see these developments as a good sign for the company’s anti-infective-focused strategic direction. To increase focus and momentum in the anti-infective pipeline, we expect Basilea to pursue licensing and/or transaction deals for further clinical-stage, anti-infective assets in the near-future.
Valuation and financials
We value Basilea at CHF886.7m or CHF74.9/share (previously CHF847.7m or CHF71.6/share). Our valuation is based on a risk-adjusted NPV analysis of Cresemba, Zevtera and the oncology assets using a blended discount rate of 10–12.5% and including estimated net debt of CHF77.5m at end H122 (Exhibit 3). Taking into account the positive data from the Phase III ERADICATE trials, we have increased our probability of success for Zevtera in the US to 85% from 75% previously. In addition, we have updated out FX assumptions and rolled our model forward. Despite the recently announced update on the oncology pipeline, we maintain our valuation of the company’s oncology assets until full details of the strategic transactions are made public. We expect these details to be fully divulged by end-2022.Our remaining underlying assumptions are unchanged, a full breakdown of which can be found in our recent outlook report.
Exhibit 3: Risk-adjusted NPV for Basilea Pharmaceutica
Product |
Indication |
Launch |
Peak sales ($m) |
NPV (CHFm) |
Probability |
rNPV (CHFm) |
rNPV/share (CHF) |
Cresemba (isavuconazole) |
Severe fungal infections |
2015 (US); 2016 (EU); 2018 (RoW); 2022 (Japan) |
614 |
659.4 |
75–100%* |
614.6 |
51.9 |
Zevtera/Mabelio (ceftobiprole) |
Severe bacterial infections |
2015 (EU); 2018 (RoW); 2023 (US) |
550 |
189.3 |
85–100%** |
164.4 |
13.9 |
|
|
|
|
|
|
|
|
Oncology assets (subject to strategic transactions) |
|
884 |
529.1 |
|
185.2 |
15.6 |
|
|
|
|
|
|
|
|
|
Est net debt at end H122 |
|
|
(77.5) |
100% |
(77.5) |
(6.5) |
|
Valuation |
|
|
|
1,300.4 |
|
886.7 |
74.9 |
Source: Edison Investment Research. Note: Treasury shares (1.15m shares) are not included in the per-share valuation. *100% probability for the US and EU, 75% for RoW and Japan. **100% probability for the EU, 75% probability for China, RoW and 85% for the US.
We have updated our foreign exchange assumptions and, as a result, have amended our forecasts for FY22 and FY23 (Exhibit 4). We now estimate FY22 revenues of CHF108.9m (previously CHF109.5m) and FY23 revenues of CHF133.8m (previously CHF128.1m). As Basilea receives cumulative milestone payments from the sale of isavuconazole, our amended FX assumptions have had an impact on these payments in FY22 and FY23. We now expect the company to receive slightly lower milestone revenue in FY21, but this will result in higher milestones in FY23, which explains the increase in our revenue estimate for this year. As a result, we have increased our FY22 estimate of net loss (normalised) by 1% to CHF30.9m (previously CHF30.1m), although our FY23 estimate has risen to CHF23.7m, from CHF19.1m previously. We continue to estimate that Basilea will reach sustainable profitability in FY23.
Exhibit 4: Financial summary
Accounts: US GAAP, year-end: 31 December, CHF’000s |
|
|
2019 |
2020 |
2021 |
2022e |
2023e |
PROFIT & LOSS |
|
|
|
|
|
|
|
Total revenues |
|
|
134,381 |
127,629 |
148,122 |
108,916 |
133,766 |
Product revenues (Cresemba and Zevtera) |
|
|
114,461 |
112,032 |
131,382 |
101,753 |
129,619 |
Cost of sales |
|
|
(18,868) |
(24,054) |
(24,072) |
(21,774) |
(26,196) |
Gross profit |
|
|
115,513 |
103,575 |
124,050 |
87,142 |
107,570 |
Research and development expenses (net) |
|
|
(102,662) |
(97,410) |
(93,157) |
(85,420) |
(63,751) |
SG&A costs |
|
|
(30,051) |
(29,422) |
(29,721) |
(24,784) |
(16,607) |
Other income/(expense) |
|
|
0 |
0 |
0 |
0 |
0 |
Exceptionals and adjustments |
|
|
0 |
15,035 |
15 |
0 |
0 |
EBITDA (reported) |
|
|
(15,561) |
(7,032) |
1,941 |
(22,349) |
27,962 |
Reported operating income |
|
|
(17,200) |
(8,222) |
1,187 |
(23,062) |
27,212 |
Operating margin % |
|
|
n/a |
n/a |
n/a |
n/a |
n/a |
Finance income/(expense) |
|
|
(5,182) |
(6,445) |
(7,982) |
(8,037) |
(8,014) |
Exceptionals and adjustments |
|
|
0 |
0 |
0 |
0 |
0 |
Profit before tax (reported) |
|
|
(22,382) |
(14,667) |
(6,795) |
(31,099) |
19,198 |
Profit before tax (normalised) |
|
|
(22,282) |
(29,602) |
(6,610) |
(30,899) |
19,405 |
Income tax expense (includes exceptionals) |
|
|
(40) |
(55) |
(37) |
0 |
4,333 |
Net income (reported) |
|
|
(22,422) |
(14,722) |
(6,832) |
(31,099) |
23,531 |
Net income (normalised) |
|
|
(22,322) |
(29,657) |
(6,647) |
(30,899) |
23,738 |
Basic average number of shares, m |
|
|
10.8 |
10.3 |
11.7 |
11.8 |
11.8 |
Basic EPS (CHF c) |
|
|
(208.5) |
(143.2) |
(58.5) |
(262.6) |
198.7 |
Adjusted EPS (CHF c) |
|
|
(207.5) |
(288.5) |
(56.9) |
(260.9) |
200.5 |
Dividend per share (CHF c) |
|
|
0 |
0 |
0 |
0 |
0 |
BALANCE SHEET |
|
|
|
|
|
|
|
Tangible assets |
|
|
5,162 |
2,627 |
2,018 |
2,505 |
2,962 |
Intangible assets |
|
|
372 |
672 |
632 |
632 |
625 |
Long-term investments |
|
|
30,000 |
0 |
2,390 |
2,390 |
2,390 |
Other non-current assets |
|
|
1,073 |
2,967 |
1,161 |
1,161 |
1,161 |
Total non-current assets |
|
|
36,607 |
6,266 |
6,201 |
6,688 |
7,138 |
Cash and equivalents |
|
|
109,024 |
60,749 |
53,700 |
38,564 |
54,056 |
Short-term investments |
|
|
20,000 |
101,023 |
95,000 |
95,000 |
95,000 |
Inventories |
|
|
18,569 |
21,192 |
22,783 |
20,608 |
24,794 |
Trade and other receivables |
|
|
6,242 |
8,710 |
24,947 |
18,344 |
22,529 |
Other current assets |
|
|
31,025 |
31,854 |
44,636 |
40,136 |
40,136 |
Total current assets |
|
|
184,860 |
223,528 |
241,066 |
212,651 |
236,515 |
Convertible senior unsecured bonds (long-term) |
|
|
197,740 |
239,668 |
94,544 |
219,145 |
219,145 |
Deferred revenue |
|
|
16,471 |
13,158 |
11,926 |
6,436 |
946 |
Non-current operating lease liabilities |
|
|
548 |
896 |
10 |
10 |
10 |
Other non-current liabilities |
|
|
24,174 |
27,957 |
24,986 |
24,986 |
24,986 |
Total non-current liabilities |
|
|
238,933 |
281,679 |
131,466 |
250,577 |
245,087 |
Convertible senior unsecured bonds (short-term) |
|
|
0 |
0 |
123,505 |
0 |
0 |
Accounts payable |
|
|
6,765 |
13,151 |
10,617 |
9,603 |
11,554 |
Deferred revenue |
|
|
32,873 |
2,556 |
1,233 |
5,490 |
5,490 |
Current operating lease liabilities |
|
|
352 |
1,752 |
896 |
896 |
896 |
Other current liabilities |
|
|
35,504 |
32,702 |
38,157 |
38,157 |
38,157 |
Total current liabilities |
|
|
75,494 |
50,161 |
174,408 |
54,146 |
56,097 |
Net assets |
|
|
(92,960) |
(102,046) |
(58,607) |
(85,384) |
(57,531) |
CASH FLOW STATEMENT |
|
|
|
|
|
|
|
Reported net income |
|
|
(22,422) |
(14,722) |
(6,831) |
(31,099) |
23,531 |
Depreciation and amortisation |
|
|
1,639 |
1,190 |
754 |
713 |
750 |
Share based payments |
|
|
3,048 |
3,525 |
4,322 |
4,322 |
4,322 |
Other adjustments |
|
|
758 |
(13,365) |
1,522 |
1,096 |
0 |
Movements in working capital |
|
|
(46,859) |
(30,762) |
(31,787) |
11,032 |
(11,910) |
Cash from operations (CFO) |
|
|
(63,836) |
(54,134) |
(32,020) |
(13,936) |
16,693 |
Capex |
|
|
(294) |
(1,823) |
(581) |
(1,000) |
(1,000) |
Short-term investments |
|
|
30,000 |
(51,023) |
6,023 |
0 |
0 |
Long-term investments |
|
|
(30,000) |
0 |
0 |
0 |
0 |
Other investing activities |
|
|
(110) |
17,883 |
(1,867) |
(200) |
(200) |
Cash used in investing activities (CFIA) |
|
|
(404) |
(34,963) |
3,575 |
(1,200) |
(1,200) |
Net proceeds from issue of shares |
|
|
0 |
0 |
42,240 |
0 |
0 |
Movements in debt |
|
|
0 |
43,451 |
(23,212) |
0 |
0 |
Other financing activities |
|
|
1,309 |
1,616 |
(2,388) |
0 |
0 |
Cash from financing activities (CFF) |
|
|
1,309 |
45,067 |
16,640 |
0 |
0 |
Cash and equivalents at beginning of period |
|
|
173,908 |
111,044 |
66,256 |
54,953 |
39,817 |
Increase/(decrease) in cash and equivalents |
|
|
(62,931) |
(44,030) |
(11,805) |
(15,136) |
15,493 |
Effect of FX on cash and equivalents |
|
|
67 |
(758) |
501 |
0 |
0 |
Cash and equivalents at end of period |
|
|
111,044 |
66,256 |
54,952 |
39,817 |
55,309 |
Net (debt)/cash |
|
|
(68,716) |
(77,896) |
(69,349) |
(85,581) |
(70,089) |
Source: Basilea Pharmaceutica company accounts, Edison Investment Research
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|
Research: Healthcare
Shield Therapeutics reported FY21 results in line with market expectations, recording revenue of £1.5m, including a maiden £0.1m contribution from the United States after the July 2021 US launch of Accrufer. Early indications from sales outreach efforts are encouraging, with Shield reporting improved payor coverage and 100% quarter-on-quarter growth in US prescription volumes in Q122. The out-licensing agreement signed with KYE Pharmaceuticals in Canada (in Q122) could expand this market opportunity further. The company also announced a $10m convertible shareholder loan intended to extend its cash runway to end FY22 but comes as Shield was unable to complete a planned $30m equity issue, which would have provided access to a larger, non-dilutive debt facility. Shield will continue to examine other financing opportunities, but may reassess how best to allocate its available resources to its ongoing US sales initiatives, creating a possible overhang for its near-term growth prospects. Our estimates and valuation are under review.
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