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Research: Healthcare
Nicox announced on 9 December that it has raised €15m in gross proceeds (€13.7m net) through a private placement and restructured its bond financing agreement with Kreos Capital. Management expects these initiatives to extend Nicox’s cash runway to Q423, and thus comfortably past the top-line Mont Blanc Phase III study data readout for NCX-470 in glaucoma, expected in Q123. We expect the Mont Blanc data release to be a potential key catalyst for the company. The improved funding visibility through this milestone helps reduce a financial overhang and may draw investors’ attention more strongly towards NCX-470’s opportunity as a potential best-in-class single-agent glaucoma therapy.
Nicox |
Funded through key milestones |
Financing update |
Pharma & biotech |
16 December 2021 |
Share price performance
Business description
Next events
Analysts
NicoxNicox is a research client of Edison Investment Research Limited |
Nicox announced on 9 December that it has raised €15m in gross proceeds (€13.7m net) through a private placement and restructured its bond financing agreement with Kreos Capital. Management expects these initiatives to extend Nicox’s cash runway to Q423, and thus comfortably past the top-line Mont Blanc Phase III study data readout for NCX-470 in glaucoma, expected in Q123. We expect the Mont Blanc data release to be a potential key catalyst for the company. The improved funding visibility through this milestone helps reduce a financial overhang and may draw investors’ attention more strongly towards NCX-470’s opportunity as a potential best-in-class single-agent glaucoma therapy.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/19 |
8.3 |
(16.0) |
(0.40) |
0.0 |
N/A |
N/A |
12/20 |
14.4 |
(10.2) |
(0.30) |
0.0 |
N/A |
N/A |
12/21e |
5.8 |
(20.6) |
(0.51) |
0.0 |
N/A |
N/A |
12/22e |
9.0 |
(16.2) |
(0.37) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. Normalised 2020 figures differ from reported amounts primarily due to the €6.9m loss reported following the divestment of Nicox’s holdings in VISUfarma.
Review of key financing terms
The equity financing consisted of a private placement of 6m shares at €2.50 per share, with attached warrants for up to €5.1m additional shares at €3.21 per share. The Kreos amendment allows Nicox to reduce its cash-out over the next two years by €10.4m compared to its previous agreement largely by extending the interest-only portion of 70% of the loan to July 2023 (from January 2022). The overall loan maturity was also extended by c 18 months to early 2026.
Strengthened funding runway
Nicox reported cash and equivalents of €31.6m and debt excluding lease liabilities of c €18.1m at 31 October. Given the €13.7m net equity raise and €0.34m in debt restructuring commissions, we calculate a pro forma net cash position of €26.9m (gross cash of €45.0m). We believe Nicox has sufficient funds to operate into 2024 and it will need to raise an additional €45m (down from €55m previously), modelled as illustrative debt, before potentially launching NCX-470 in H225.
Valuation: Higher rNPV but reduced value per share
After rolling forward our estimates and adjusting forex assumptions, we now obtain a €294.0m rNPV valuation (vs €282.8m previously). After adding pro-forma net cash of €26.9m described above, we obtain an equity value of €320.9m, or €7.44 per basic share. This is lower than our prior per-share valuation of €8.00 due to the increased shares outstanding following the equity offering. After considering the potential dilutive effect of options, warrants and convertible debt and their effects on net cash, our fully diluted valuation becomes €6.68 per fully diluted share.
Capital raise and debt restructuring extend runway
On 9 December Nicox announced it has raised €15m in gross proceeds (€13.7m net) through a private placement of shares (and attached warrants) and it restructured its bond financing agreement with Kreos Capital. Excluding any potential proceeds from the exercise of the warrants, management expects these initiatives to extend Nicox’s cash runway to Q423, and thus comfortably past the top-line Mont Blanc Phase III study data readout for NCX-470 in glaucoma, expected in Q123.
As a reminder, lead candidate NCX-470 is based on the company’s proprietary nitric oxide (NO)-donating platform, which combines an NO-donating molecule with an analogue of established prostaglandin F2α (PGA) drug bimatoprost, thereby providing an additional mechanism for the drug to reduce intraocular pressure (IOP). We continue to forecast potential NCX-470 commercialisation in H225.
Review of terms of equity issue and Kreos debt restructuring
The equity financing consisted of a private placement of 6m shares at €2.50 per share, with attached share purchase warrants included that permit the purchase of €5.1m additional shares for up to five years at an exercise price of €3.21 per share purchase warrant. The full exercise of these attached share purchase warrants would provide €16.4m in additional proceeds.
The company indicates the full proceeds of the private placement will be allocated to NCX 470 development. Approximately 40% will be applied to complete the Mont Blanc trial, c 33% to continue to progress the Denali NCX-470 confirmatory Phase III trial (study completion still guided before YE23), and c 27% to fund certain pharmaceutical activities (stability and manufacturing validation) required in preparation for the New Drug Application (NDA) filing with the US FDA if Phase III study data are positive. If the warrants are exercised, which we believe would be likely in the event of positive Phase III data, the company believes the received proceeds should be sufficient to complete the US NDA and finance pre-commercial activities ahead of potential launch.
As it relates to the company’s debt financing agreement with Kreos Capital, the company had €16.1m in outstanding debt with Kreos as of end-October and was scheduled to only pay interest- on the loan until January 2022, and then start paying principal and interest thereafter in order to fully repay the loan by July 2024. As part of the restructuring, 70% of the company’s Kreos debt1 will be restructured to remain interest-only until July 2023 (vs January 2022 previously) and this portion’s maturity will be extended to January 2026; the interest rate remains unchanged at 9.25%. For the remaining 30% of the Kreos loan (€5.1m), €3.3m will be structured as convertible bonds (at 9.25% interest rate) maturing in January 2026 and convertible to Nicox shares at €3.67/share, and €1.8m will be structured similarly (ie same rate and maturity) but will not be convertible to Nicox shares. Nicox will also pay a restructuring commission of €0.34m to Kreos.
Financials
Nicox reported cash and equivalents of €31.6m (excluding the proceeds of the equity financing) as of 31 October and outstanding debt of €19.4m (consisting of the €16.1m Kreos loan, a €2m French-state guaranteed credit agreement with Société Générale and Le Crédit Lyonnais and €1.3m in lease liabilities). Given the €13.7m net proceeds from the equity offering and after considering the €0.34m restructuring commission, we calculate a pro forma net cash position of €26.9m as of 31 October (gross cash of €45.0m).
Following the equity issue and Kreos bond restructuring, we now estimate the company’s cash on hand should be sufficient to maintain operations into 2024. Our financial model no longer assumes a €10m fundraise in 2022, but we believe it will need to raise an additional €45m (down from €55m previously), before potentially launching NCX-470 for the treatment of elevated IOP in patients with glaucoma. We assume the company will raise €10m in 2023, €20m in 2024 and €15m in 2025 (all these fundraisings are modelled as illustrative debt). Our projections do not include any potential proceeds from the exercise of options or warrants, which if exercised, would lower our funding forecasts accordingly.
Following the anticipated NCX-470 launch in H225, we do not expect Nicox to require additional capital as we expect its royalty streams plus NCX-470 sales should enable it to start achieving consistent positive operating income starting in H226.
Valuation
We have made minor adjustments to our rNPV valuation for Nicox by rolling forward our estimates and adjusting forex assumptions (we now assume $1.13/€ vs $1.16/€ previously). Our local-currency sales and profitability forecasts are unchanged, although we did increase our FY21 net financial expense by €0.34m to consider the restructuring commission paid to Kreos.
Exhibit 1: Nicox SA rNPV assumptions
Product contribution |
Indication |
Stage |
NPV |
Probability of success |
rNPV |
rNPV/basic share (€) |
Launch year |
Peak sales (€m) in 2031 |
NCX-470 (net of R&D and SG&A costs) in US Market |
Glaucoma |
Phase III ongoing |
332.1 |
50% |
158.8 |
3.68 |
H225 |
336 |
NCX-470 (net of R&D and SG&A costs) in Europe and unpartnered regions |
Glaucoma |
Phase III |
162.2 |
35% |
54.0 |
1.25 |
2027 |
171 |
NCX-470 license fees from Ocumension (China and other) |
Glaucoma |
Phase III ongoing |
9.3 |
50% |
4.5 |
0.10 |
2024 |
3.1* |
NCX-4251 (net of R&D and SG&A costs) sales and license fees/royalties |
Acute blepharitis |
Phase IIb ongoing |
47.4 |
30% |
9.3 |
0.22 |
2026 |
55.4 |
Vyzulta royalties from Bausch & Lomb |
Glaucoma |
Commercial |
99.2 |
100% |
99.2 |
2.30 |
2017 |
21.2* |
Zerviate royalties from Eyevance and others |
Allergic conjunctivitis |
Commercial |
21.8 |
100% |
21.8 |
0.51 |
2020 |
5.5* |
Corporate costs |
(53.6) |
100% |
(53.6) |
(1.24) |
||||
Total |
618.5 |
294.0 |
6.82 |
|||||
Net cash (Oct 2021 pro forma) excluding lease liabilities |
26.9 |
26.9 |
0.62 |
|||||
Total equity value |
645.3 |
320.9 |
7.44 |
|||||
Basic shares outstanding (000) |
43,138 |
|||||||
Outstanding options and warrants and convertible debt adjustments (000) |
8,058 |
|||||||
FD shares outstanding (000) |
51,197 |
Source: Edison Investment Research. Note: *Reflects net license and royalties received by Nicox and not commercial sales by licensee.
We now obtain a €294.0m rNPV valuation for Nicox (vs €282.8m previously). After updating for pro-forma October 2021 net cash of €26.9m described above, we obtain an equity value of €320.9m, or €7.44 per basic share. This is lower than our prior per-share valuation of €8.00 due to the added shares outstanding following the equity financing. After considering the potential dilutive effect of options, warrants and convertible debt and their effects on net cash, our fully diluted valuation would be €6.68 per fully diluted share.
Exhibit 2: Financial summary
€’000s |
2018 |
2019 |
2020 |
2021e |
2022e |
2023e |
2024e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||||
Revenue |
|
|
4,717 |
8,260 |
14,423 |
5,761 |
9,010 |
11,709 |
21,648 |
Cost of Sales |
(690) |
(1,405) |
(1,516) |
(1,681) |
(2,349) |
(3,029) |
(5,606) |
||
Gross Profit |
4,027 |
6,855 |
12,907 |
4,080 |
6,661 |
8,680 |
16,042 |
||
General & Administrative |
(9,506) |
(7,666) |
(6,677) |
(6,520) |
(6,751) |
(10,044) |
(18,213) |
||
Net Research & Development |
(15,491) |
(16,883) |
(11,991) |
(17,731) |
(15,150) |
(15,550) |
(11,350) |
||
Amortisation of intangible assets |
0 |
(659) |
(1,252) |
(1,184) |
(1,178) |
(1,157) |
(1,136) |
||
Operating profit before exceptionals |
(20,970) |
(18,353) |
(7,013) |
(21,355) |
(16,418) |
(18,072) |
(14,657) |
||
EBITDA |
|
|
(20,718) |
(17,230) |
(5,270) |
(19,795) |
(14,946) |
(16,633) |
(13,206) |
Depreciation & other |
(252) |
(464) |
(491) |
(376) |
(293) |
(282) |
(315) |
||
Operating Profit (before amort. and except.) |
|
(20,970) |
(17,694) |
(5,761) |
(20,171) |
(15,240) |
(16,914) |
(13,521) |
|
Exceptionals including asset impairment |
302 |
(6,115) |
(6,621) |
(18) |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
(20,668) |
(23,809) |
(12,382) |
(20,189) |
(15,240) |
(16,914) |
(13,521) |
||
Net Interest |
2,390 |
1,690 |
(4,436) |
(415) |
(937) |
(1,169) |
(2,150) |
||
Profit Before Tax (norm) |
|
|
(18,580) |
(16,004) |
(10,197) |
(20,586) |
(16,177) |
(18,084) |
(15,671) |
Profit Before Tax (FRS 3) |
|
|
(18,278) |
(22,778) |
(18,070) |
(21,788) |
(17,355) |
(19,241) |
(16,808) |
Tax |
(113) |
3,856 |
(28) |
24 |
0 |
0 |
0 |
||
Profit After Tax and minority interests (norm) |
(18,693) |
(12,148) |
(10,225) |
(20,562) |
(16,177) |
(18,084) |
(15,671) |
||
Profit After Tax and minority interests (FRS 3) |
(18,391) |
(18,922) |
(18,098) |
(21,764) |
(17,355) |
(19,241) |
(16,808) |
||
Average Basic Number of Shares Outstanding (m) |
29.6 |
30.3 |
33.7 |
40.1 |
43.4 |
43.7 |
44.1 |
||
EPS - normalised (€) |
|
|
(0.63) |
(0.40) |
(0.30) |
(0.51) |
(0.37) |
(0.41) |
(0.36) |
EPS - normalised and fully diluted (€) |
|
|
(0.63) |
(0.40) |
(0.30) |
(0.51) |
(0.37) |
(0.41) |
(0.36) |
EPS - (IFRS) (€) |
|
|
(0.62) |
(0.62) |
(0.54) |
(0.54) |
(0.40) |
(0.44) |
(0.38) |
Dividend per share (€) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
112,498 |
110,660 |
89,745 |
91,247 |
90,022 |
88,876 |
87,966 |
Intangible Assets |
71,397 |
72,120 |
64,848 |
65,759 |
64,580 |
63,423 |
62,287 |
||
Tangible Assets |
25,628 |
27,517 |
24,829 |
25,419 |
25,373 |
25,384 |
25,610 |
||
Investments in long-term financial assets |
15,473 |
11,023 |
68 |
69 |
69 |
69 |
69 |
||
Current Assets |
|
|
26,092 |
32,146 |
52,521 |
48,589 |
33,775 |
25,399 |
29,104 |
Short-term investments |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Cash |
22,059 |
28,102 |
47,195 |
43,075 |
27,796 |
18,685 |
22,205 |
||
Other |
4,033 |
4,044 |
5,326 |
5,514 |
5,979 |
6,714 |
6,899 |
||
Current Liabilities |
|
|
(8,069) |
(9,828) |
(15,405) |
(15,106) |
(14,939) |
(13,144) |
(11,202) |
Creditors |
(8,069) |
(7,751) |
(10,116) |
(12,497) |
(12,330) |
(10,535) |
(8,593) |
||
Short term borrowings |
0 |
(2,077) |
(5,289) |
(2,609) |
(2,609) |
(2,609) |
(2,609) |
||
Long Term Liabilities |
|
|
(16,868) |
(23,681) |
(26,051) |
(29,105) |
(29,105) |
(39,105) |
(59,105) |
Long term borrowings |
0 |
(9,045) |
(12,687) |
(15,368) |
(15,368) |
(25,368) |
(45,368) |
||
Other long-term liabilities |
(16,868) |
(14,636) |
(13,364) |
(13,737) |
(13,737) |
(13,737) |
(13,737) |
||
Net Assets |
|
|
113,653 |
109,297 |
100,810 |
95,625 |
79,754 |
62,027 |
46,763 |
CASH FLOW |
|||||||||
Operating Cash Flow |
|
|
(21,533) |
(17,741) |
(956) |
(16,932) |
(14,095) |
(17,649) |
(13,788) |
Net interest and financing income (expense) |
2,390 |
1,690 |
(4,436) |
(415) |
(937) |
(1,169) |
(2,150) |
||
Tax |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Capex |
(268) |
(95) |
(20) |
(118) |
(247) |
(293) |
(541) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Financing |
0 |
11,290 |
13,321 |
13,536 |
0 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
(19,411) |
(4,856) |
7,909 |
(3,929) |
(15,279) |
(19,111) |
(16,480) |
||
Opening net debt/(cash) |
|
|
0 |
(37,532) |
(28,003) |
(29,287) |
(25,167) |
(9,888) |
9,223 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
56,943 |
(4,673) |
(6,625) |
(191) |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(37,532) |
(28,003) |
(29,287) |
(25,167) |
(9,888) |
9,223 |
25,703 |
Lease debt |
N/A |
1,527 |
1,099 |
971 |
971 |
971 |
971 |
||
Closing net debt/(cash) inclusive of IFRS 16 lease debt |
(37,532) |
(26,476) |
(28,188) |
(24,196) |
(8,917) |
10,194 |
26,674 |
Source: Company reports, Edison Investment Research
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